Posted on 08/12/2006 7:36:40 PM PDT by glorgau
Letter follows Apple telling regulators it will delay its 10-Q
SAN FRANCISCO (MarketWatch) - Apple Computer Inc. said late Friday that the Nasdaq Stock Market has warned the company its decision to delay filing its most-recent quarterly financial report puts Apple in violation of Nasdaq's stock-listing requirements.
The letter came on the same day Apple officially notified federal securities regulators that it would delay filing its quarterly report, or 10-Q, for the quarter ended July 1, until an outside legal counsel completes an investigation into how the company accounted for employee stock options.
The company reiterated to the Securities and Exchange Commission in Friday's filing what it had already revealed on Aug. 3, when it also said it would restate some past financial results based on an internal inquiry into options granted to executives and other employees between 1997 and 2001. See previous story.
The technology giant said it hasn't determined how big a charge it will take related to the options issue, nor for which periods it will restate results.
"The company is focused on resolving these issues as quickly as possible," Apple said in Friday's SEC filing, which was made before the open of U.S. markets.
In a separate statement released after U.S. markets closed, Apple said it has requested a hearing with a Nasdaq panel on the matter of delisting. Public companies that don't file timely financial reports with the SEC risk having their shares delisted by the Nasdaq.
The maker of Macintosh computers and iPod music players is arguably the most high-profile technology company ensnared in the scandal over the backdating of employee options. The SEC and federal prosecutors in New York and Northern California are investigating dozens of companies over discrepancies between when their options were actually granted and when they were priced.
In some cases, executives reaped immediate financial windfalls from grants that were priced just before huge run-ups in their company's shares. More than 70 companies have said they are conducting internal reviews of their past options practices, and some, like Apple, have said they plan to restate results based on those inquiries.
Apple said on June 29 one of the grants it investigated went to Chief Executive Steve Jobs. That option grant was later canceled and resulted in no financial gain for him. See previous story.
Companies that find evidence that past stock option grants made to executives and other employees were backdated will be required to restate results to reflect higher compensation expenses for the periods in which the options were granted, according to Albert Meyer, an analyst with Bastiat Capital in Plano, Texas.
"If you back-date, you essentially issue in-the-money options and have to account for it as a compensation expense," Meyer said. One-time charges to cover those expenses will then need to be accounted for on the income statements of restated financial reports, thereby reducing profit for the period covered by the restatement.
Confusion about restating the July quarter
Apple's Friday filing with the SEC contained language that was confusing enough to prompt some Wall Street analysts to attempt to clarify the issue in notes written for their clients.
The technology giant said in the filing "there will be significant changes in the results of operations for the quarter ended July 1, 2006 compared to the quarter ended June 25, 2005, including significant increases in the Company's revenue and expenses."
While some interpreted that to mean Apple will restate results for the June quarter in a significant way, analysts said they don't believe there will be any changes to Apple's fiscal third-quarter results.
Instead, because the SEC won't recognize the earnings report Apple filed last month as official until it files its 10-Q, Apple was using that language merely to describe its results for the quarter, one analyst wrote.
"The reference to significantly higher revenues and expenses was merely a qualitative statement of fact, not a signal that results will differ from the recent earnings release," wrote J.P. Morgan analyst Bill Shope, who reiterated his overweight rating on Apple shares.
Apple spokeswoman Katie Cotton told MarketWatch in an interview that the phrase "has nothing to do with our internal (options) investigation or the restatements."
Still, when asked whether the company had ruled out restating results for its most recent quarter, Cotton referred to Friday's regulatory filing, which states that Apple "has not determined...which periods may require restatement."
In two cases, federal prosecutors have brought criminal fraud charges against company executives over backdating options.
On Thursday, both the former chief executive officer and the human resources officer at Brocade Communications Inc. (BRCD : 5.20, +0.06, +1.2% ) were indicted for a scheme to backdate stock options. Federal prosecutors said the executives gave employees favorably priced options without recording necessary compensation expenses.
This week, former executives at Comverse Technology Inc. (CMVT :19.80, +0.32, +1.6% ) were also charged with options-related securities fraud.
This is the executives saying "good for me, but not for thee".
I rock back and forth in my chair in gleeful contempt of all these so-called "counter culture" companies that have taken a fast track to making their top managers billionaires while stiffing the workers and stock holders!
"I rock back and forth in my chair in gleeful contempt of all these so-called "counter culture" companies that have taken a fast track to making their top managers billionaires while stiffing the workers and stock holders!"
I dunno I got the disbursement of my Worldcom 401K that resulted from one of the court settlements. Not sure what I will do with the 1 cent check I received. Probably try not to spend it all in one place.
What's Apple?
This has gone on so much, especially in tech companies for many years now.
Why so many refuse to do stock buybacks or pay a dividend to stockholders. They need a big percentage of their profits to cover all the stock options they dish out to the upper management and executives.
Cisco is a perfect example of this. Their stock has been dead money going nowhere for years now, but they still refuse to pay a dividend or perform stock buybacks. They continue to have one of the most bloated stock option programs for management in the US corporate industry.
a company that sells mp3 players
Is the Clinton tax on executive pay over $1 million still in effect? That's the one big reason companies started using options more for compensation.
I-pod players...owes its limited sucess to marketing ...Flawed product.
Apple? What else?
Sounds like AOL. Buy it. If you have a problem...shoot yourself.
I worked for DEC from 1980 (great company) until 1994 (raped and strangled with its own fiber optic cables by Bob Palmer and his buddies). Managers were totally out of control by 1986, keeping bonuses earned by their workers and shoving any complainers out the door. Right before DEC collapsed, Palmer created an additional 75 new VPs (friends) who had no actual jobs but got platinum parachutes. My group was thrown under a bus. We were grabbed from our offices, forced to sign non-disclosure agreements, stripped of our badges, and shoved out the emergency exits to stand blinking stupidly in the parking lot. Palmer got $52 million. I wonder what Palmer's up to these days...
It's SOP for Nasdaq. Many other companies received the same warning for various reasons.
It will be appealed, their reasons considered (in this case it was a simple delay in reporting due to the investigation), and the warning will amount to nothing. Apple will certainly not be de-listed.
Same with me (DEC). Robert Palmer was no friend to us and certainly couldn't compare to Ken Olson. IIRC, our software services group of 14 was slashed to 4. The worst performers were let go first and received the best severance packages. By the time they got to me, I was happy to go - just to get away from the bad morale. But, plenty of managers had different experiences ($$$). I'll still consider the 12 years at Digital to be the good-old-days. VMS Internals - true bliss.
You seem to mis-understand the nature of stock options. It costs the company NOTHING to issue them.
What happens is the Board (or a committee of outside directors) award a manager or office the option to buy already authorized but unissued stock from the company at a specific price. That specific price is usually the option issue date's closing market price for that stock, but it actually can be any amount the board or committee chooses.
Sometimes the committee chose to set the option price at a previous day's low... thus increasing its current value on the day it really IS issued.
At some future date, the awardee can exercise the option, buying the stock (a piece of paper certifying ownership of a portion of the company) from the Company. They actually PAY the company for the stock... but they pay the option price, a price below the current market value of stock that is already issued.
For example, XYZ Company gives its CEO an option to buy 100,000 shares at the current market price of $10 per share. The company's stock on the market rises to $50 per share. The CEO is entitled to exercise his option and buy the 100,000 shares, worth $5,000,000.00 for only $1,000,000.00. He does not buy these shares on the Stock market. He buys them from the company. He hands over $1,000,000 to the company treasurer who deposits it in the company's bank account, and gives the CEO a piece of paper, which costs them pennies, signifying he owns 100,000 shares of XYZ Company.
The CEO can then turn around a sell the stock on the market at its current price... making $4,000,000, a large gain, which is taxable... but he has to have permission to do so from the government or at least announce his sale.
The company actually GAINS capital, more money invested in the corporation... just not as much as they would have gained had they sold those share into the stock market at market price on the day the options were exercised.
The real impact is that the already issued stock is "diluted" by the new shares.
"Dilution" means that when and if dividends are paid, the available profits to be distributed will be divided among more shares. For example if 100 shares of stock are in private hands and 50 unissued shares are in company hands, A dividend will be divided by the 100 issued shares and each share will receive 1/100th of the profits being shared. IF, however, the company issues 10 more of the 50 shares it has already authorized but not issued, and sells them into the market, any profits to be sold will have to be divided by 110 instead of 100.
The idea of giving options instead of stock is that by giving stock options, usually at the current value, the option will not become valuable unless the stock already on the market increases in value... thereby giving the managers who received the options an incentive to manage the company in such a way that the value of the stock goes up, benefitting them and current stockholders. They then get their reward by exercising the option to buy at the lower price. If the value of the stock goes down, the manager's options are valueless since you can buy the stock at less than the option's strike price.
Up until a few years ago, this was totally legal and required no bookkeeping entries until the option was exercised. Changes in Securities laws were made a couple of years ago requiring stricter reporting... but accounting regulations of HOW to report such options were not available until a few months ago.
The new theory is that the gain made in value between the option issue date, and the option exercise date can be treated as both an expense (officer compensation) and a gain (an investment that has earned value) that may trigger a taxable event. Now it has to be accounted for. The catch is that the law was made retroactive... meaning that perfectly legal transactions with no accounting impact made years ago, now have to be restated under the new law and regulation and now have an accounting impact.
A company that sells vastly overpriced merchandise that appeals to a too-trendy-for-you hipster crowd that simulatenously wants to look cool while being too dim to figure out how to use a normal PC.
How can this happen? Windows has security problems.
What's Apple?
A company that sells a superior product, to an appreciative crowd, that not only knows how to use a normal PC but realizes what a waste of time it is to deal with dullards who can not get over their weird fascination with a product that is inferior and just plane crappy. You are now named "Yugo Boy".
I loved your response.
I'll have to use that in the future.
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