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Apple Announces More Options Troubles 159

Posted by CowboyNeal
from the setting-the-record-straight dept.
fremen writes "Apple today announced that they will be withdrawing their financial reports back to September 29, 2002 and delaying the filing of future reports after finding more backdated options problems. Companies backdate their stock options by looking back over a period of time and choosing a historical low as the option strike price. While not illegal, this must be fully disclosed to investors and properly accounted. Expect more uncertainty in the coming weeks as regulators must now uncover how much of Apple's record profits were incorrect as well as whether or not Steve Jobs will be able to continue leading the company."
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Apple Announces More Options Troubles

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  • What could stop him in the long run?

    I mean, if he has leave, he's just going to come up with something bright and new (not "NeXT" this time, I vote for "TheOneAfter"), which is then going to be bought by Apple after a few years... :-)

    • What could stop him in the long run?

      His milking of the Mac for all its worth. Then he'll have to move on to the next big thing.
      • Wow, no funny mods for alphasubzero949? Did nobody get that the milk comment is an allusion to something Steve Jobs said about 8 or 9 years ago? I think what Steve said was something like 'If I were in charge of Apple, at this point all I could do would be to milk the Macintosh for all it's worth, and sell the company off."

        -Tony
    • Being legally prevented from being a director of any company would do the trick and is a distinct possibility.
      • Does the CEO of a company (or any officer for that matter) have to be a director? I was under the impression that the directors of a company could appoint nearly anyone they want as CEO.
      • Being legally prevented from being a director of any company would do the trick and is a distinct possibility.
        The Securities and Exchange Commission has jurisdiction only over publicly traded companies. They could not prevent Steve Jobs (or anyone) from founding a company and sitting on it's Board or executive management team, so long as that company remained privately held and did not make a public stock offering.
    • by Total_Wimp (564548) on Friday August 04, 2006 @07:55AM (#15845597)
      Steve Jobs leading Apple

      What could stop him in the long run?

      The article insinuates that regulators can stop him. I doubt that's true. Unless the numbers are Enron-like, the board is very unlikely to dump him. My take on the article is that the overstatement of profits is significant, but not as significant as Steve Jobs leadership.

      TW
      • by toleraen (831634) on Friday August 04, 2006 @08:58AM (#15845786)
        The article insinuates that regulators can stop him. I doubt that's true.

        The regulators could stop him. But that's why Apple did the right thing and came forward about it, launched a third party investigation, and is trying to clear things up. The industry I work in sees something similar with export control violations. The governing agency is usually much lighter on penalties and such if you come forward about it. I imagine that the SEC operates in a similar manner. Getting audited and finding out Apple knew about it all along, but didn't do anything about it, would be far, far worse.
    • he even turned back a slew of questionable options a while back. he doesn't appear to be another bernie ebbers.
  • Wouldn't this be an accounting issue, for the Chief Financial Officer, not the Chief Executive Officer (Jobs)?

    Michael
    • by jkrise (535370) on Friday August 04, 2006 @06:16AM (#15845394) Journal
      It appears CEO Jobs was a possible beneficiary of a cancelled transaction, that's being admitted by Apple:

      Apple said in June that one of the stock option grants was to chief executive Steve Jobs, but it was subsequently canceled and resulted in no financial gain to Jobs.

      So this is an issue for the CFO AND the CEO as well.
      • by bobdotorg (598873) on Friday August 04, 2006 @08:07AM (#15845622)
        They're options, so cancelling them cannot result in a benefit to the issued party.
        • They're options, so cancelling them cannot result in a benefit to the issued party.

          it does result in a benefit... the "absence of a loss" happening that's what... they're a bet that you can't lose.

          With my company's employee share purchase scheme, I actually had to stump up money and buy them... I'm now sweating on our shares going back up above the offer price that I bought them at (that price was slightly lower than the current market price then but I have to hold them for a year first). These execs hav

          • If you "have to buy them", then they're not options

            However, an option is in itself a type of security, so if you've been granted stock options, you could be liable for taxes on them, even if they're "underwater".

            If your company has a mandatory stock purchase plan, I don't know, but it sounds illegal to force your employees to purchase the company stock.
          • An employee stock purchase plan (where you buy stocks at a discount if you agree to put money into the plan) is something completely different than options. ESPPs generally offer the stocks at a discount to the current price, or a discount off the average price over some historical period, and once you have signed up for a period, you are obligated to purchase the stocks. Options are, well... optional. They are an offer to sell you a certain amount of stock at a particular (fixed) price. You can choose to e
    • by Ohreally_factor (593551) on Friday August 04, 2006 @06:22AM (#15845405) Journal
      It's just another retarded slashdot tagline, except it doesn't have the question mark. Imagine the summary ending with "Are Steve Jobs' days at Apple numbered?" or "Will regulators force Jobs to resign from Apple?" to get the usual slashdot flavor.

      As far as your question goes, it depends on the extent of the scandal at Apple. All indications are that this is not that big a deal. It's not Enron, it's not Worldcom, it's not Tycho, it's not Adelphia. It's going to hurt Apple a little bit now, but they seem to be taking their medicine rather than covering up. Apple is the one coming forward with the information, not a whistle blower.

      Also, this isn't an isolated case, but part of a much wider phenomenon. A lot of companies in many industries have been engaging in this sleazy practice. A lot of them are coming clean. However, by the time the SEC actually does anything, this whole thing will be in the past for most companies (which is why the smart thing to do is to do your own internal investigation and come clean on your own).

      The only way that upper management will really get bitten in the ass is by shareholder lawsuits that hold them personally liable. I'm not too worried on Jobs' behalf on that score.

      At any rate, let's wait and see what the restatements are. Then we can see how much of a mountain or a molehill this will be.
      • It's just another retarded slashdot tagline,

        No, its not. There's plenty of speculation outside of /. Look at this seekingalpha article [seekingalpha.com]:

        The risk for investors isn't only the reputational damage and potential fines; it's that CEO Steve Jobs may be forced to resign if it is proved that he knowingly took an option grant at below market prices. The stock impact would be dramatic because Mr Jobs has been responsible for turning around Apple over the last few years.

        Hard thing to prove I guess, but this is certainl

        • by Ohreally_factor (593551) on Friday August 04, 2006 @09:07AM (#15845825) Journal
          But the possibility of Jobs being forced out is miniscule at this point. A whole lot of things would have to happen, and a single disclosure of this lesser magnitude does not constitute that chain of events. So the speculation is just dumb. The seekingalpha article is dumb. And factually wrong.

          You will grant me, my dear Whiney, that I never said that everyone does it. I said it was a widespread problem. The two are not mutually exclusive. I hope you're not trying any of your jedi agitprop tricks with me! They won't work! (Don't try to put words in my mouth and I promise I won't try to put my dick into your mouth.) =)

          I never said this wasn't a serious matter. All I've said was that it was ridiculous to compare this to Enron or Worldcom.

          Is this some fucked up shit? Yeah.

          Is it some majorly fucked up shit? No.

          Anyway, it's a sad day for Apple, but I've seen much sadder. Unless the news gets a whole lot worse, I don't even think this counts as much of a stumble. Please don't misunderstand me, though. I don't want to lessen your joy on this occasion one iota, so long as it's based on reality. So laugh at the stupid clowns at Apple that fucked up. Cross your fingers in hopes that it will get worse. Just don't jump the gun!

          And as always, good to see you, hope your day is terrific, blah blah blah. =)
        • by timster (32400) on Friday August 04, 2006 @09:15AM (#15845871)
          Regardless of that article, such speculation is ridiculously absurd at this point, though by now we should be used to ridiculous speculation regarding all things Apple. Also, this sentence:

          CEO Steve Jobs may be forced to resign if it is proved that he knowingly took an option grant at below market prices.

          is completely false. There is nothing wrong with taking an option grant at below market prices, and that isn't the issue here at all; the issue is whether such things were reported properly. Jobs would only be at risk if it were shown that he intentionally deceived investors about the level of compensation he was getting.

          My speculation? Most likely Jobs didn't determine the details of his compensation personally, and the person who did made a mistake. Options dating wasn't at the top of anyone's mind two years ago, and the impact on Apple's reported earnings is probably not much more than noise. Investors who sell now are being hasty as the situation is unlikely to change in any material way.

          This WILL be a big deal at smaller companies where the options dating issue results in significant changes to the bottom line, but it's hard to imagine this being the case at Apple.
  • Who? (Score:5, Insightful)

    by myspys (204685) * on Friday August 04, 2006 @06:03AM (#15845364) Homepage
    Who in their right mind would remove a CEO (a loved one at that) of a successful company? A company whos share price is soaring nevertheless
    • Re:Who? (Score:1, Informative)

      by simong_oz (321118)
      The CEO (and the entire board) is still accountable and if financial wrongs are found, the directors could be barred from being directors of any company. However successful Jobs might be, if he is legally barred, he can't be on the board (of any company). All speculation of course.
    • Well, the point is, it is soaring because the numbers are wrong... Whose fault it is is another matter.
    • Re:Who? (Score:3, Insightful)

      by asuffield (111848)
      The SEC and the courts. It's what they're for. They don't need to remove the CEOs of unsuccessful companies - those are self-resolving problems. It's the criminal management of successful companies that needs forcibly eliminating.

      Remember, Enron was a sucessful company with a share price that was rising.

      (This comment has nothing in particular to do with Apple, it's just an answer to the question asked)
    • Someone who has more of an interest in what is Right rather than that company's success. Someone (or some organization) which has no vested interest in that company.

      An organization such as... hmm... The SEC?
  • by oDDmON oUT (231200) on Friday August 04, 2006 @06:03AM (#15845367)
    The only mention in the article of Jobs is:

    "Apple said in June that one of the stock option grants was to chief executive Steve Jobs, but it was subsequently canceled and resulted in no financial gain to Jobs."

    So why is there some statement quoted questioning the continued status of Jobs as CEO?

    Seems like someone is playing fast and loose with the article.
  • by jkrise (535370) on Friday August 04, 2006 @06:07AM (#15845374) Journal
    Last I heard, there's gonna be Six Different Options to license a single release of their OS - namely, Windows Vista. And everyone from Dvorak to Thurrott has predicted lots of Options Troubles with Vista :-)

    Oh, wait!.. you meant Stock options? ... [hides under table]
  • bah (Score:4, Insightful)

    by spykemail (983593) on Friday August 04, 2006 @06:10AM (#15845381) Homepage
    Bad news for shareholders and possibly some Apple employess, but unless this is an extremely massive problem it shouldn't really have much effect after a couple of initial punishments.
    • Quite agree... their current stock price is already inflated enough to weather this, so long as they come clean with the restatements, quickly.

      In fact, if you'd bought AAPL two weeks ago at $53, and sold yesterday at $68, you would have pocketed a nice piece of change.
  • by $RANDOMLUSER (804576) on Friday August 04, 2006 @06:33AM (#15845427)
    LOS ANGELES, Aug 3 (Reuters) - Apple Computer Inc. (AAPL.O: Quote, Profile, Research) said on Thursday it would likely need to restate earnings and will delay filing its quarterly report because of additional irregularities it found in its accounting of stock options and its shares fell 6.6 percent.

    PARSER STACK EXPLOSION.
  • First Comverse (http://www.comverse.com/), then Sandisk (www.sandisk.com) and now Apple? Whats with these people and their stock options?
    • Yeah, it's a sleazy practice that many companies have engaged in. It first came under discussion/scrutiny in the wake of the big accounting scandals, and it's finally come home to roost.

      Funny thing is I actually see a positive in Apple getting out in front on this and coming clean. It's the only way to weather this and come out healthy. Contrast this with Ken Lay of Enron, who denied to his dying day that Enron had ever did anything wrong.
    • Seriously, its one way companies can reward employees and employees can make it big. Because accounting rules are tricky companies can give employees stock for cheap without it effecting the balance sheet. If you look at what CEO's are pulling down, stock options appease employee grumbling.
  • by KDR_11k (778916) on Friday August 04, 2006 @07:03AM (#15845473)
    While I have no actual idea what that means I have a feeling the interpretation in the summary is a bit sensationalistic. If it really was that bad, would Apple really do it? Or are we really facing an Appleron?
    • I'm not saying Apple did anything. A poster above is correct in that this is happening to lots of companies, so it wouldn't surprise me in the least to find out that they did. But really,

      If it really was that bad, would Apple really do it?

      Are you really that naive?
  • heavy FUD (Score:3, Insightful)

    by TRRosen (720617) on Friday August 04, 2006 @07:49AM (#15845587)
    Talk about overblown. This is basicly a minor accounting issue. No laws were broken it just wasn't written up right. At worst the restatements would change things by a couple of million total. were talking about the difference between a stock grant at $35 a share instead of $30. and Apples not a big option company like microsoft. Infact this will acually make Apple money. The restated earnings will reduce there taxes making 30% of the restatement show up as extra cash.

    This is basiclly a case of "oops we paid our executives 12 million dollars not 10...our bad"

    • You may be right, it may turn out to be trivial. But all you can say at the moment is that financial statements going back 4 years cannot be relied on. To what extent or in what direction they are misleading is unknown. There are no grounds for optimism or despair so far.

      But there is grounds for a rise in the risk premium.
  • Stupid submitter (Score:5, Insightful)

    by gnasher719 (869701) on Friday August 04, 2006 @07:57AM (#15845601)
    Sometimes I think people who submit articles to Slashdot are pure idiots.

    The original article makes no mention of "backdating options" whatsoever. "Backdating options" is an illegal and criminal method of giving employees more money by chosing the date of an option grant long after the option is granted, usually to a time when the stock was low. Even just with the usual random fluctuation of the share price, this can make options much cheaper and therefore more valuable for the employee. However, nothing like that was mentioned in the article at all. What was mentioned was "possible irregularities in the accounting" of the value of stock options, which was found by Apple itself in an internal inquiry that it started itself, and it was Apple who called the SEC about it, not the other way round. And since the rules for the accounting of stock options have changed a lot in the recent years and are quite complicated, it is quite possible for a company to account them incorrectly by mistake. The bit that the submitter added about Steve Jobs has been pulled out of thin air altogether, just to make it sound more interesting.

    This is like Mr. Smith calling the Inland Revenue, telling them that he might have made a mistake in his tax returns, and a submitter on Slashdot calling him a thief and criminal.
    • This may be a poor article submission, but if you read other articles regarding this issue, you will see that this IS the result of backdating options, which is NOT illegal if accounted for properly. Someone made a booboo and didn't adjust the books for the backdating. Therein lies the problem.

      There are other oddities when looking over the 8K filings as well. Some of the accounts payable and receivable don't jive. It appears that Apple may been padding their profits for the past several quarters. This is pr
    • It's really too bad you didn't post farther up in the discussion where more people would see it. This is Friday sensationalist crap on Slashdot
  • "We became aware of this impropriety about two years ago, and pushed out the former CFO [apple.com] who was solely responsible...."

    Or some such variant thereof.
  • Step by step (Score:5, Insightful)

    by gnasher719 (869701) on Friday August 04, 2006 @08:07AM (#15845623)
    "Apple today announced that they will be withdrawing their financial reports back to September 29, 2002 and delaying the filing of future reports "
    Correct.

    "after finding more backdated options problems. "
    Incorrect.

    "Companies backdate their stock options by looking back over a period of time and choosing a historical low as the option strike price. While not illegal, this must be fully disclosed to investors and properly accounted."
    Incorrect. Backdating options is illegal, that's what people will go to jail for. That is also what Apple hasn't done .

    Expect more uncertainty in the coming weeks as regulators must now uncover how much of Apple's record profits were incorrect "
    Regulators are not involved in this at all. This is an Apple internal inquiry.

    "as well as whether or not Steve Jobs will be able to continue leading the company."
    Taken out of thin air.

    In other words, the submitter took one line from the quoted article, then added 90 percent bullshit to it.
    • In other words, the submitter took one line from the quoted article, then added 90 percent bullshit to it.
      Welcome to slashdot... where not even the submitter RTFA!
    • Bullshit on Slashdot? Never...

      But we visit it daily all the same.
    • While the linked article makes no mention of backdating options, Apple is investigating whether it has occurred. See Bloomberg article [bloomberg.com]. It remains unknown whether or not backdating actually occurred.

      You are also correct that it is an internal inquiry right now, but Bloomberg seems to cast doubt on it remaining entirely internal.

      And yes, that line about Steve Jobs is complete FUD crap. The submitter sucks.
    • Incorrect. Backdating options is illegal, that's what people will go to jail for. That is also what Apple hasn't done.

      No, you are wrong. Backdating options is not illegal [uiowa.edu] provided you account for it properly. The scandals currently unfolding are largely related to improperly backdated options (in other words, the reporting requirements were not met), but also to other irregularities in the reporting of option grants. Whether Apple are guilty of improper manipulations (and what those manipulations might have
    • Seriously need a way to moderate the top level submission... this one is so clearly mischaracterizing the reality of things.
    • Re:Step by step (Score:4, Informative)

      by shawnce (146129) on Friday August 04, 2006 @10:38AM (#15846347) Homepage
      Actually backdating is legal as long as it is approved by the companies board, revealed to stock holders and correctly accounted for.

      What is backdating?
      Many companies, it now appears, allowed executives, board members, and other employees to look back over the history of their company's stock price movements and pick a date in the past on which they wanted their options to be granted. Thus, the executives could, and did, guarantee themselves a profit by selecting a date on which the stock price was very low. The options allowed the executives to buy stock in the future at the old, low stock price.

      What are the rules governing backdating of options?
      Companies are free to give employees the right to purchase stock at whatever price the company wants, but they are supposed to reveal those actions to investors and deduct the costs of the options from profits. Until the Sarbanes-Oxley Act of 2002, companies were free to give employees options, and not deduct the cost from profits, as long as the price at which the employee could buy future stock was the price set by the market on the day the option was granted. Now, companies must deduct even the costs of those options from their profits.

      If companies are free to backdate options, why are companies coming under SEC scrutiny?
      Many companies, it turns out, hid the backdating from investors and failed to subtract the costs from their profits. Lying to investors can be grounds for criminal prosecution by the Justice Department and civil penalties by the SEC. These actions may also mean the companies filed inaccurate tax forms, which could cause the Internal Revenue Service to demand fines and penalties.


      http://www.usnews.com/usnews/biztech/articles/0607 21/21options.htm [usnews.com]
  • A simple plan. (Score:5, Insightful)

    by BDaniels (13031) on Friday August 04, 2006 @08:50AM (#15845765) Homepage
    1. Post bogus story to /., with incorrect statements and FUD about Jobs being forced to leave Apple.
    2. Wait for damage to Apple stock prices.
    3. Buy cheaper shares of Apple stock.
    4. Profit.


  • This may be the most blatantly misleading submission to /. that's made it past the editors. Yeah, we all complain about dupes, but that's just an annoyance. Is anyone really doing any "editing" here?

  • Nancy Heinen (Score:3, Interesting)

    by thefinite (563510) on Friday August 04, 2006 @11:09AM (#15846582)
    Do you think this is why Nancy Heinen left [appleinsider.com]? They never did give a good reason for her leaving. Maybe she wanted to make the misinformation public and they disagreed. Or maybe she was the reason for the mistake...
  • are a scam on investors.
  • Jobs options (Score:4, Informative)

    by cvdwl (642180) <cvdwl someplace around yahoo> on Friday August 04, 2006 @02:38PM (#15848006)

    If this really bothers you, I'll take your apple stock.

    For those determined to pillory Jobs for this, I might suggest reading this sfgate [sfgate.com] article which says, in part:

    Some of the nettlesome stock options were given to Apple CEO Steve Jobs, but he voluntarily canceled those in 2003 before cashing them in.

    After digging deeper, Apple uncovered enough new problems to prompt the company to hire an outside lawyer to take over the investigation and notify the Securities and Exchange Commission about its findings.

    Valuation of stock options is and has been under a lot of debate recently. Apple looked over its books, discovered they had done something wrong according to current (and possibly past) accounting practices, and went to work to correct the problem.

    Steve Jobs, who is richer than Croesus and really only bothers to count the number of digits on his bank statement, decided to dodge potential trouble more than TWO YEARS ago, which helps their position now.

    Which part of this fits the "Steve Jobs is a greedy corporate raider" theory?

    They screwed up. They admitted it. They'll take a hit. These aren't the droids you're looking for.

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