Say it isn't so, Apple

Honesty is the best policy, as they say. Apple is not alone in having this accounting issue, but it is practically alone in being forthright about it. So they will restate earnings back to 2002. So what? Do you know how little money we are talking about? It will be practically meaningless in the grand scheme of things. What I love about this company is their willingness to confront problems head-on. This is memely a bookkeeping annoyance, and will have no effect on the sizzling bottom line, which comes from Apple's gangbuster earnings, excellent development pipeline, and outstanding products. Options irregularities to gross earnings is to Apple's bottom line what your Christmas tip is to your doorman's salary.

Could Apple Be Delisted? AAPL
Several Nasdaq companies are facing delisting because they have had to delay their financial filings with the SEC due to options backdating issues. Altera is on that list. Applied Micro mentioned it in their latest earnings press release. KLA-Tencor may face the music at the Nasdaq.

Public companies have 45 days after the end of a quarter to file 10-Qs. If they don't, they break the Nasdaq "timely filing" rule and get a delisting notice from the Nas. The companies can appeal the filing, and almost all do. But some, like Mercury Interactive, don't make the cut and have to trade OTC or on the pink sheets.

Apples has a ways to go before it even faces receiving the notice. Its last quarter ended July 1.

To sound an alarm about this now would be premature. But, one would have to assume that none of the companies that have been delisted would have predicted it when they first knew their SEC filing would be delayed. If the IRS, Justice Department, or SEC get into the Apple mess, the process could become fairly long and drawn out.

An Apple delisting, not probable but possible.

Douglas A. McIntyre can be reached at douglasamcintyre@gmail.com. He does not own securities in companies that he writes about.

I am a long term believer and many thousand shares stockholder...I have two comments, 1) Although the IRS & SEC has been concentrating on businesses with stock option plans..(which is probably the impetus to do internal investigation) what does it matter in Apple's today market share and business forward? I agree the difference will be minimal and useless in evaluating owning a piece of a leading edge technology company.
#2 Apple is still the horse out in frront in inovation and it's honest disclosure only enhances that.

Ok, first of all, the exchanges do NOT want to delist Apple. It would cost the NASDAQ many millions to do without the transactions on Apple's shares and options for any amount of time.

Secondly, Apple bottomed today at noon, and came back to close above 68. That's not much of a sell-off.

Thirdly, about the amounts in question: you can look up how many shares the insiders have sold, and we're talking millions during a period when the company's cash holdings and profits climbed by billions every year. So, overall, we're talking about rather less than one percent at the most.

I took advantage of this dip to grab some more September calls. If you all have a chance to buy in on Monday before the WWDC keynote, you'll be glad you did.

-jcr

It seems that some of the commentors are willing to excuse fraud & thievery as long as they feel that they can still profit from owning Apple stock. In my opinion this is not merely a bookkeeping annoyance or an accounting issue, it's theft.

As far as the street is concerned the news is not that earth shaking. I for one took a huge position as soon as the stock went from-2.75 all the way back up to-1.00. I jumped the gun,however thats ok. It finished the day off only 1 and change from - over 4. Not a bad come back. I expect it to fly up by the close on Mon. If it goes down again I will buy a big chunk again. The apple is RIPE for PICKING and putting it into the Gain PIE. APPLE PIE ANYONE?

It is more likely that the commentors you refer to believe the errors were unintentional as opposed to theft, which requires intent to defraud.

Fact is, Apple hires a third party compensation commitee to deal with the handing out of options. Moreover, Directors and Officers generally do not understand complex SEC rules. Accordingly, they rely on so called experts to walk them through those waters. That is legal and typical business practice, as Directors and Officers are not expected to know these rules.

I for one just do not think Jobs intentionally authorized something he believed was illegal. First, the guy has shown money is not his primary motivation. Sure he has lots of it, but if he really wanted to, he could have lots more. For instance, he turned down a salary and was not compensated at all for his first couple of years back at the helm.

Second, since his return to Apple, Apple has been pretty upfront about its financial picture. Management has always been conservative about the companies finicial outlook highlighting various risks.

On another note:

To all the so called investors saying they are going to sue the crap out of Apple. Good luck. Courts view Apple as the damaged party. That is its Directors and Officers took action that damaged the company. Shareholders were only indirectly injured and there is no way to show damages. Plus shareholders can always sell, which courts think shareholders of public companies whould do when they are unhappy. Fact is Apple stock has not taken much of a hit over this matter.

Accordingly, the only kind of recovery courts will allow is where the Directors and Officers have to repay Apple for the damage they caused. That is an almost impossible lawsuit to win because the Plainitffs have to show the Directors and Officers intentionally manipulated the stock. If they relied on reasonable third party advice, the courts will deem the Directors and Officers acted reasonably and they will not be liable.

Even if they are liable, Apple will be the one who 1) has to foot their legal bills, and 2) indemnify the directors for any loses they face (unless their was intentional foul pay at work).

Finally, you have to remain a shareholder for the whole time. Do you want to hold Apple stock the day Jobs steps down because running the company is no longer fun for him?

I guess we have to wait and see what the evidence is , but I would have to say that any BACKDATING of options can not be viewed as being "unintentional".In my opinion BACKDATING PROVES the intent was there!!! Issuing a stock option with no date assigned to it so it could be filled in later might be unintentional if it happened once or twice, and if it did I would think the option would have been voided, if that was the case. So, we'll wait and see how many "mistakes" (lol) were made. I'll stand firm on my statement that some of these other commentors are blinded by their own greed.

Pricing options (and also expensing them) isn't for the fainthearted. Black Scholes, the most common method of valuing options, involves Ito's lemma,volatility measures, and heavy statistics and calculus.
the binomial models to price options are even worse from a user-friendliness standpoint.
I'm unclear as to how much of a real expense options are to companies. they can frequently pull authorized shares off of their own shelf (rather than from the open market, or "shares outstanding")
and will generally buy issues back up again at a later date to prevent dilution of ownership. If used responsibly (and they generally are, even by most tech firms) they're a fine way to align the interests of the firms senior managers and the firm's investors.