Apple has a four year problem:
Apple Widens Its Options Probe
The Mac maker says that the last four years’ financial statements can’t be relied on.
August 3, 2006
In the latest reflection of the growing concern over corporate options, Apple Computer warned investors Thursday that its internal probe of option grants may force it to restate its earnings reports for the past four years.
The parent of the iPod and the Mac warned its financial reports since September 29, 2002, can no longer be relied upon.
The Mac maker had previously said that it would be investigating options grants issued between 1997 and 2001 (see Apple Has an Option Problem).
“In light of this, management has concluded, and the audit committee of the board of directors agrees, that the company will likely need to restate its historical financial statements to record non-cash charges for compensation expense relating to past stock option grants,” the company said.
Apple has not determined the amount of the charge, the tax or accounting implications, or which periods in particular would require restatements.
The computer maker joined a long list of technology companies in late June when it came forward to disclose it was examining its options-granting practices, saying at that time that it had discovered irregularities in grants to CEO Steve Jobs, among others. However, Apple said that Mr. Jobs’ grants had been canceled and that he did not gain financially.
Last month, the company was hit with two lawsuits against current and former directors over its stock options grants (see Apple Sued Over Options).
Industrywide Issue
Options are a common perk given in the technology industry, particularly in startups, to attract and retain employees with the promise of compensation. The options in question concern a practice of backdating the price at which employees are granted the option to buy stock to an earlier date, at a better price. Many people who worked in the tech industry after the dot-com bust were left holding underwater options, which were essentially worthless.
Backdating of stock options is not illegal. But there are strict guidelines concerning the practice that companies must follow. The Justice Department has perked up of late to investigate the practices.
On July 14, the U.S. Attorney’s Office and the FBI opened a criminal probe into the backdating of stock options (see US Task Force Probes Options). The U.S. Attorney for Northern California said at that time that the office would investigate Silicon Valley companies that had retroactively changed the dates of stock option grants with the intent to defraud.
At that time, companies weren’t named, but a number of them came forward to disclose they had received subpoenas. Among them were Openwave Systems, Intuit, Foundry Networks, VeriSign, CNET Networks, Marvell Technology Group, Maxim Integrated Products, and Zoran (see Options Fallout Widens in Tech, Marvell Probed on Options, and Openwave Tumbles).
Chip maker Broadcom also announced that day that it plans to record a charge of more than $750 million for expenses related to past stock option grants.
Contact the writer: SMartin@RedHerring.com
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