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MacRumors
Feb 5, 2007, 02:28 PM
http://www.macrumors.com/images/macrumorsthreadlogo.gif (http://www.macrumors.com)

In Apple's quarterly 10Q filing, filed last Friday, Apple acknowledged the ongoing SEC investigations into the company's past stock options backdating practices as a considerable risk, and adds that the potential exists for further delay of SEC filings and possible delistment from a prestigious NASDAQ market.

The internal review, the independent investigation, and related activities have required the Company to incur substantial expenses for legal, accounting, tax and other professional services, have diverted management’s attention from the Company’s business, and could in the future harm its business, financial condition, results of operations and cash flows.

While the Company believes it has made appropriate judgments in determining the correct measurement dates for its stock option grants, the SEC may disagree with the manner in which the Company has accounted for and reported, or not reported, the financial impact. Accordingly, there is a risk the Company may have to further restate its prior financial statements, amend prior filings with the SEC, or take other actions not currently contemplated. Additionally, if the SEC disagrees with the manner in which the Company has accounted for and reported, or not reported, the financial impact of past stock option grants, there could be delays in filing subsequent SEC reports that could subject the Company’s common stock to potential delisting from the NASDAQ Global Select Market.

The report also addresses many other risks facing the company that often go un-noticed (i.e. economic conditions, war, terrorism, etc.), however the acknowledgment nevertheless comes as a reminder that the SEC's investigation of Apple's accounting practices remains ongoing.

Note that delistment from the NASDAQ Global Select Market (http://www.nasdaq.com/GlobalSelect/) does not necessarily mean delistment from the general NASDAQ market. The NASDAQ Global Select Market, created in July 2006, is for companies that satisfy the "highest initial financial and liquidity qualifications."

Raw Data: Apple's Quarterly 10Q (http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=4634964&format=PDF) (pdf)


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P-Worm
Feb 5, 2007, 02:36 PM
Has anyone heard why the SEC is taking so long? What are the suspicious of in particular?

P-Worm

Peace
Feb 5, 2007, 02:38 PM
Has anyone heard why the SEC is taking so long? What are the suspicious of in particular?

P-Worm


Certain grants given to Steve Jobs.


This is not good.

longofest
Feb 5, 2007, 02:38 PM
Has anyone heard why the SEC is taking so long? What are the suspicious of in particular?

P-Worm

The grant to Steve in December 2001 is what they are most concerned about. They are taking a while because there was falsified documents involved, and whenever you have those involved, its hard to get at the truth.

roy_dan
Feb 5, 2007, 02:45 PM
Hey, they're just trying to be honest. It's not the end of the world and I believe they will come out stronger in the end.

whooleytoo
Feb 5, 2007, 02:51 PM
The Street (http://www.thestreet.com/_yahoo/markets/activetraderupdate/10336957.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA) suggests Google CEO Eric Schmidt is preparing to take the reigns temporarily should Jobs be overly distracted by possible legal action.

longofest
Feb 5, 2007, 02:54 PM
The Street (http://www.thestreet.com/_yahoo/markets/activetraderupdate/10336957.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA) suggests Google CEO Eric Schmidt is preparing to take the reigns temporarily should Jobs be overly distracted by possible legal action.

They know nothing. Same guy said that Steve would take a leave of absence (http://www.macrumors.com/2007/01/05/steve-jobs-to-take-leave-of-absence/) from Apple. Its an interesting idea, but I doubt it has any kind of inside knowledge behind it.

Analog Kid
Feb 5, 2007, 02:54 PM
Every 10-K/Q includes a "doom and gloom" section that list of potential risks to the company, ranging from the very real to the fanciful. This statement, in itself, doesn't mean anything more than that. No news here, really-- we knew the investigation was happening, and the consequences are usually worst-case scenarios lest the be sued later for painting too rosy a picture.

Evangelion
Feb 5, 2007, 02:59 PM
hopefully this debacle makes companies realize that stock-options are retarded. instead of giving employees possibility of buying shares at a discount at some future date, why not simply give them bunch of shares at market-price, with the condition that they can't sell them for certain time-period and/or until shareprice reaches certain level? because with options they can make money even when shareprice goes down? well, why should they be rewarded then? why should some execs be rewarded when they do a crappy job?

options are just a "get rich quick"-scheme. bunch of execs giving each other even more money...

Stridder44
Feb 5, 2007, 03:02 PM
In English?


Personally, I'm looking forward to the Apple Fan Boi's opinion of this - no doubt it'll be "Some ongoing conspiracy against Apple. How dare Apple be investigated this long - since Apple are God-like and can do no wrong"!!!


Personally, I'm looking forward to someone to saying something stupid regarding "Apple fanbois" and make themselves look like an ass.

gnasher729
Feb 5, 2007, 03:05 PM
Every 10-K/Q includes a "doom and gloom" section that list of potential risks to the company, ranging from the very real to the fanciful. This statement, in itself, doesn't mean anything more than that. No news here, really-- we knew the investigation was happening, and the consequences are usually worst-case scenarios lest the be sued later for painting too rosy a picture.

To explain a bit further: If anything bad happens to a company, and the share price drops because of that, there will be some ambulance-chasing lawyers who try to make money by suing the company on behalf of the shareholders (who are usually not asked whether they actually want to sue or not). However, if whatever bad thing happens has been mentioned as a possibility in the 10-K/Q statement, then the company can relax and say "Look here, we told you this might happen, and you still bought or kept our shares, so it's your own fault". If anything bad happens that was _not_ mentioned as a possibility in the 10-K/Q, that's a problem. So anything that is remotely possible goes in there.

EagerDragon
Feb 5, 2007, 03:09 PM
Just get in there and complete the investigation. Delaying helps noone and hurts every one.
Get it over with.:apple:

twoodcc
Feb 5, 2007, 03:12 PM
well this can't be good....i just hope they hurry up and get to the chase with this.....

dernhelm
Feb 5, 2007, 03:16 PM
Has anyone heard why the SEC is taking so long? What are the suspicious of in particular?

P-Worm

Wait. Let me get this straight. You want to know why a government agency is taking a long time to do its job.

:rolleyes:

~Shard~
Feb 5, 2007, 03:20 PM
well this can't be good....i just hope they hurry up and get to the chase with this.....

Hahaha, it's the SEC, good luck with that one... :p ;)

evilgEEk
Feb 5, 2007, 03:22 PM
We all knew this investigation was happening, so things aren't any worse off than they were last week.

This is basically just a required disclaimer, nothing more.

On the flipside, if investors get cold feet and Apple stock drops back to around $50, I'll be buying. ;)

KingYaba
Feb 5, 2007, 03:25 PM
AAPL is taking a hit, that is for sure.

Peel
Feb 5, 2007, 03:30 PM
To explain a bit further: If anything bad happens to a company, and the share price drops because of that, there will be some ambulance-chasing lawyers who try to make money by suing the company on behalf of the shareholders (who are usually not asked whether they actually want to sue or not). However, if whatever bad thing happens has been mentioned as a possibility in the 10-K/Q statement, then the company can relax and say "Look here, we told you this might happen, and you still bought or kept our shares, so it's your own fault". If anything bad happens that was _not_ mentioned as a possibility in the 10-K/Q, that's a problem. So anything that is remotely possible goes in there.

My thoughts exactly. However, I still expect this acknowledgement of the facts (that everyone already knows) to have a temporary negative affect on the share price.

~Shard~
Feb 5, 2007, 03:31 PM
On the flipside, if investors get cold feet and Apple stock drops back to around $50, I'll be buying. ;)

If that happens, I'll be shorting and then buying... :p ;) :cool:

Whistleway
Feb 5, 2007, 03:35 PM
Just when things seemed rosy on Apple land. I think Apple's way of dealing with SEC is just not conducive to a rapid closure. Come on Apple, get your act together.

tribalogical
Feb 5, 2007, 03:36 PM
yep, it's called a "disclaimer"....... of course ongoing investigations could cause additional expense, headaches, de-listings, god knows what else.....

And they have to mention pretty much any and all possible disasters and whatever else that could affect the bottom line... war, SEC investigations, market forces, you name it, it all goes in there. It's partly about "managing investor expectation", aka providing an ongoing 'reality check', as it is about covering their corporate behinds....

[...reaction to troll...]

So we all wish them well, hope the distractions end soon, and that whoever is responsible goes to prison!!!! (I jest)

uh, as long as it isn't our favorite demi-god/Reality-Distortion-Field-Wizard-of-Woz, Stevie-J!! :cool:

Apple, and we the Apple-appreciating community, need Steve Jobs at the helm.... I say that as a (very happy) shareholder, by the way!!

peace,
tribalogical

Rocketman
Feb 5, 2007, 03:48 PM
Just when things seemed rosy on Apple land. I think Apple's way of dealing with SEC is just not conducive to a rapid closure. Come on Apple, get your act together.

They did an internal investigation, restated some items, turned it ALL over to the SEC on hopes full cooperation and internal correction would do the trick. Remember well, the issue they are rooting out is one which was common practice before, was endorsed by the accounting firms, and was thus and therefore felt safe by management. Recent rule changes "clarified" the practice as being non-compliant and was written in such a way firms had to go "back in time" to comply. That is usually not allowed in law. It was here.

The SEC should make interim findings of folks they have "cleared" or something to indicate any company they are investigating has a "narrow scope" of inquiry.

It's not just Apple.

Rocketman

dscottbuch
Feb 5, 2007, 03:51 PM
yep, it's called a "disclaimer"....... of course ongoing investigations could cause additional expense, headaches, de-listings, god knows what else.....

And they have to mention pretty much any and all possible disasters and whatever else that could affect the bottom line... war, SEC investigations, market forces, you name it, it all goes in there. It's partly about "managing investor expectation", aka providing an ongoing 'reality check', as it is about covering their corporate behinds....

[...reaction to troll...]
So we all wish them well, hope the distractions end soon, and that whoever is responsible goes to prison!!!! (I jest)

uh, as long as it isn't our favorite demi-god/Reality-Distortion-Field-Wizard-of-Woz, Stevie-J!! :cool:

Apple, and we the Apple-appreciating community, need Steve Jobs at the helm.... I say that as a (very happy) shareholder, by the way!!

peace,
tribalogical

While much of this is true, these are disclaimers, what I find most disturbing is that this is listed FIRST in the list of Risk Factors. It is required that these Risk Factors be listed in decending order of likelyhood and/or severity. If Apple could have buried this risk factor down the list they would have. Its placement indicated that Apple management has assesed that this is the number one risk factor the company faces.

Ahheck01
Feb 5, 2007, 04:09 PM
Personally, I'm looking forward to someone to saying something stupid regarding "Apple fanbois" and make themselves look like an ass.
I can't tell you how hard this made me laugh. Heck of a retort, sir. I give you props.

-Evan

Peel
Feb 5, 2007, 04:14 PM
It's not just Apple.

No, it's not. And a negative finding by the SEC could send a shockwave through the entire high tech sector, as well as the entire stock market in general. Any company that followed the previously believed to be OK practice of granting options in this manner, will be sent scrambling to prevent a share devaluation across the board.

MacsAttack
Feb 5, 2007, 04:29 PM
No, it's not. And a negative finding by the SEC could send a shockwave through the entire high tech sector, as well as the entire stock market in general. Any company that followed the previously believed to be OK practice of granting options in this manner, will be sent scrambling to prevent a share devaluation across the board.

As a recall, this all started when Apple performed its own volantary audit. They are trying to get the situation resolved as quickly as possible.

Just wait till the SEC get to work on MicroSoft and its Magic Accounting (TM) practices. Now there is some job security from a whole bunch of SEC employees :D The Feds got Capone on tax evasion in the end. Will the SEC take down Billy-G?

shamino
Feb 5, 2007, 04:36 PM
options are just a "get rich quick"-scheme. bunch of execs giving each other even more money...
I don't know if you've ever worked for a tech company, but options are given to most employees, not just executives.

Options are often given to engineers, even newly-hired ones, in tech companies. The options become vested (and therefore exercisable) over time (typically a 4-year period). If they quit before the options vest, then they are lost. If they stay with the company, and the company does well, the options become worth a lot of money.

This is a very good way to convince a good engineer to put out his best work and to not seek work with other companies.

flir67
Feb 5, 2007, 04:50 PM
if apple stock goes back down to 50.00 a share, I'm in with a buying some apple cheap. go ahead and run people of those who are afraid of apple screwing up. there are equal amounts of us who are waiting to "scoop up" apple stocks dirt cheap and in 10 years make money.

I see possible a second round of those money makers that being us soon if it drops. :)

either way it will balance out for the better just so sj doesn't leave.

he's done so much for apple with bringing it back this time.

Bye Bye Baby
Feb 5, 2007, 04:52 PM
hopefully this debacle makes companies realize that stock-options are retarded. instead of giving employees possibility of buying shares at a discount at some future date, why not simply give them bunch of shares at market-price, with the condition that they can't sell them for certain time-period and/or until shareprice reaches certain level? because with options they can make money even when shareprice goes down? well, why should they be rewarded then? why should some execs be rewarded when they do a crappy job?

options are just a "get rich quick"-scheme. bunch of execs giving each other even more money...

A little thing called tax. It's not quite that easy and so that's why they do it. It is about the 'money' as they say, precisely by not letting Uncle Sam dip too much into your pockets.

dscottbuch
Feb 5, 2007, 04:52 PM
hopefully this debacle makes companies realize that stock-options are retarded. instead of giving employees possibility of buying shares at a discount at some future date, why not simply give them bunch of shares at market-price, with the condition that they can't sell them for certain time-period and/or until shareprice reaches certain level? because with options they can make money even when shareprice goes down? well, why should they be rewarded then? why should some execs be rewarded when they do a crappy job?

options are just a "get rich quick"-scheme. bunch of execs giving each other even more money...

This would be horrible for employees because of the tax laws. This is one of the reasons the incentive stock option (ISO) structure was created. Under your scheme and the current tax laws the employee would be liable to pay taxes (cash out of his/her pocket) on the value of the shares received. They then could not sell them to cover the cash flow and if the stock tanks there are out the cash.

ISO's avoid this while preserving the value for the employee.

IJ Reilly
Feb 5, 2007, 05:17 PM
This would be horrible for employees because of the tax laws. This is one of the reasons the incentive stock option (ISO) structure was created. Under your scheme and the current tax laws the employee would be liable to pay taxes (cash out of his/her pocket) on the value of the shares received. They then could not sell them to cover the cash flow and if the stock tanks there are out the cash.

ISO's avoid this while preserving the value for the employee.

In fact, Apple cancelled the Steve Jobs options in question and replaced them with an outright grant of shares, so it can't be all bad. Worst case scenario, the receiver has to sell some of their shares to pay the taxes. Boo-hoo to that, I say.

Companies can still grant options, even at backdated prices. They must account for them properly is all.

dscottbuch
Feb 5, 2007, 05:26 PM
In fact, Apple cancelled the Steve Jobs options in question and replaced them with an outright grant of shares, so it can't be all bad. Worst case scenario, the receiver has to sell some of their shares to pay the taxes. Boo-hoo to that, I say.

Companies can still grant options, even at backdated prices. They must account for them properly is all.

You are correct, if the user can sell the shares, I agree - but read the original post - the employees were to be restriced from selling for a period of time. There are many many options (pun intended) when compenstating employees. ISO is actually a very good one when used properly and in context. Don't through baby out with the bath water.

timmillwood
Feb 5, 2007, 05:27 PM
:confused: :confused: :confused:

I dont really know what is going on?

Is Apple ok?

or are they in trouble?

skunk
Feb 5, 2007, 05:31 PM
I wish I knew.

Analog Kid
Feb 5, 2007, 05:48 PM
hopefully this debacle makes companies realize that stock-options are retarded. instead of giving employees possibility of buying shares at a discount at some future date, why not simply give them bunch of shares at market-price, with the condition that they can't sell them for certain time-period and/or until shareprice reaches certain level? because with options they can make money even when shareprice goes down? well, why should they be rewarded then? why should some execs be rewarded when they do a crappy job?

options are just a "get rich quick"-scheme. bunch of execs giving each other even more money...
Executive compensation in general is a mess. Options aren't the problem. Stock options are probably the most sensical means of compensation, particularly for executives-- your compensation is tied to the companies performance rather than making millions just for sitting in the chair.

There are different types of options, and that's part of the confusion. Most run-of-the-mill employees get ISO options, so the purchase price is the market price on the grant date. If the stock dips, there's no money to be made. For us, it takes a year before we can exercise 20% of them and then they continue to vest over the course of the next 4 years.

A lot of executive options are "Non-qualifying options" and I don't know all the details but they do tend to have a lower exercise price and faster vesting.

The reason companies don't just hand shares to employees is that they would need to buy the shares and pay the market rate and they would dilute the price of existing shares. As it stands, the share price will grow more slowly because of the outstanding options, but since no-one exercises options that are "under water" the company doesn't have to deal with he double horror of diluting a declining share price.

Options are just fine. The problem is that there is no shareholder oversight on executive compensation. Hindering ISO options hurts the majority of employees at a high tech company while doing nothing to contain executive excess.

jumpinjohn
Feb 5, 2007, 05:49 PM
Personally, I'm looking forward to someone to saying something stupid regarding "Apple fanbois" and make themselves look like an ass.

Oh thank you. <catch my breath> After a long day, this made me laugh out loud all alone in my office. So much that I have come out of lurk mode!

IJ Reilly
Feb 5, 2007, 05:49 PM
You are correct, if the user can sell the shares, I agree - but read the original post - the employees were to be restriced from selling for a period of time. There are many many options (pun intended) when compenstating employees. ISO is actually a very good one when used properly and in context. Don't through baby out with the bath water.

So what if they're restricted? I'm not going to shed any crocodile tears over some poor CEO who has to sell some stock to net many millions.

Also, as I said, nothing prevents a company from granting options, even at predated strike prices. They just have to do it properly, is all. Apple, and a lot of other companies, did not.

I wish I knew.

As do we all. FWIW, I take the warnings in the current 10K as being strictly pro-forma. Everybody who cares to know about the risks, already does.

g.hobi
Feb 5, 2007, 06:05 PM
Just wait till the SEC get to work on MicroSoft and its Magic Accounting (TM) practices. Now there is some job security from a whole bunch of SEC employees :D The Feds got Capone on tax evasion in the end. Will the SEC take down Billy-G?

Don't worry - whenever they get investigated they say that their Acounting is done on Excel. This is good reason for any "mistake"

Peel
Feb 5, 2007, 06:17 PM
Just wait till the SEC get to work on MicroSoft and its Magic Accounting (TM) practices. Now there is some job security from a whole bunch of SEC employees :D The Feds got Capone on tax evasion in the end. Will the SEC take down Billy-G?

Yes, and when they give the SEC a MS Money file that's got all their accounting info in it, it will bog down the SEC's computers and they'll NEVER get their investigation done. (I used Money for one year, and even my modest accounting file would slog the whole Windows computer to a crawl - so what else is new?);)

Multimedia
Feb 5, 2007, 06:25 PM
All they're doing is acting humble in the face of an investigation. No problem. :)

dscottbuch
Feb 5, 2007, 06:54 PM
So what if they're restricted? I'm not going to shed any crocodile tears over some poor CEO who has to sell some stock to net many millions.



Again, please read the post(s). I wasn't talking about CEO's but general employees who would generally be hurt by issuing restricted stock (not options) because of the tax implications.

akadmon
Feb 5, 2007, 07:01 PM
:confused: :confused: :confused:

I dont really know what is going on?

Is Apple ok?

or are they in trouble?

One word: SELL!

Between this and Vista, I see AAPL dropping to <$40 by July.

mrkramer
Feb 5, 2007, 07:12 PM
One word: SELL!

Between this and Vista, I see AAPL dropping to <$40 by July.

But Leopard and the iPhone will be out by then, and that combined with this probably being finished will make AAPL start to go back up by July.

longofest
Feb 5, 2007, 07:17 PM
:confused: :confused: :confused:

I dont really know what is going on?

Is Apple ok?

or are they in trouble?

Apple is being investigated by the U.S. Security and Exchange commission for illegal stock options backdating and accounting practices that occurred a few years ago. While other companies are also being similarly investigated, Apple seems to be under a microscope mainly because of some falsified documents that were uncovered surrounding a VERY LARGE grant that was given to Steve Jobs in 2001.

The SEC investigation is of a criminal nature, so it is very serious. I'm not a fortune teller, so I can't tell how this will turn out, but Apple is indeed in hot water right now, with Steve Jobs himself appearing to be at least questioned (although we don't know if he himself is a suspect of criminal activity).

Canerican
Feb 5, 2007, 07:27 PM
We are halfway to Enron. And with Democrats in power I could a few large corporations being taken down a notch... Remember Janet Reno bullying Microsoft a few years back... I'm not particularily against the Democrat party but I don't think that it helps Apple's cause...

Either way crime is crime... I wonder how Steve Jobs looks in black and white? It doesn't look good for him... But I could envision someone taking the fall for him...

I think that Mac's stocks will take a massive hit, but in the long run it will be fine...

Mac: Hi I'm a Mac, I can do things like backdate stock options.
PC: ...

rohitp
Feb 5, 2007, 07:41 PM
Let's all remember that backdating options is completely LEGAL. It just has to be disclosed and accounted for properly and that is where the questions lie.

gwangung
Feb 5, 2007, 07:41 PM
So what if they're restricted? I'm not going to shed any crocodile tears over some poor CEO who has to sell some stock to net many millions.

I'm not sure folks are understanding the issue.

Granting options to rank-and-file employees and managers is a Good Thing (and they WOULD have to sell stock anyway to cash in)(or borrow it..)

What was being discussed in Evangelion's post was a stock grant (not options) that the employee (be it CEO or rank-and-file) would have to pay taxes on THAT YEAR, even if the stock price was underwater and they would lose money on even if they sold all that stock that was granted. (E.g., if the stock was granted with the price at $55/share, the person would have to pay taxes on the grant with all shares valued at $55, even if the stock tanked to $20).

I don't think we want that for anyone.

compuwar
Feb 5, 2007, 08:32 PM
I don't think we want that for anyone.
.. who's last names don't look like Gates or Balmer.. :D

Grakkle
Feb 5, 2007, 08:37 PM
Wait. Let me get this straight. You want to know why a government agency is taking a long time to do its job.

:rolleyes:

It's the government. That's explanation enough.

Argh. This thing with Apple is annoying, but I'm hardly surprised. Unfortunately, stock fraud is too common to be shocking.

EagerDragon
Feb 5, 2007, 09:06 PM
yep, it's called a "disclaimer"....... of course ongoing investigations could cause additional expense, headaches, de-listings, god knows what else.....

And they have to mention pretty much any and all possible disasters and whatever else that could affect the bottom line... war, SEC investigations, market forces, you name it, it all goes in there. It's partly about "managing investor expectation", aka providing an ongoing 'reality check', as it is about covering their corporate behinds....

[...reaction to troll...]

So we all wish them well, hope the distractions end soon, and that whoever is responsible goes to prison!!!! (I jest)

uh, as long as it isn't our favorite demi-god/Reality-Distortion-Field-Wizard-of-Woz, Stevie-J!! :cool:

Apple, and we the Apple-appreciating community, need Steve Jobs at the helm.... I say that as a (very happy) shareholder, by the way!!

peace,
tribalogical

Well if the investigation is related to stock holders getting hurt by Apple actions ..... Are stock holders going to sue the goverment for the stock holders getting hurt by the investigation?
How hurt will they get if Steve has to go?
Whatever the outcome .... Get it over soon and don't expect that syock holders will come out rosy out of this mess.
Sometimes the medicine is worst that the cold.

joeboy_45101
Feb 5, 2007, 09:11 PM
What the hell is the SEC waiting for? There is nothing else to investigate, this isn't even a big deal as far as corporate scandals go!

IMHO, this is clear evidence that government reformation is desperately needed. Current U.S. government == kludge.

Canerican
Feb 5, 2007, 09:24 PM
Let's all remember that backdating options is completely LEGAL. It just has to be disclosed and accounted for properly and that is where the questions lie.

Exactly, but I think a good parallel would this: You can have a firearm, but it must be reported to the government, if you don't BIG TROUBLE... if you do, not problem...

I have a sad feeling that this may be indicative of bigger problems that will come to light soon... You know what they say, where there is smoke, there is fire.

MrBigMac
Feb 5, 2007, 09:32 PM
:confused:

EagerDragon
Feb 5, 2007, 09:32 PM
Exactly, but I think a good parallel would this: You can have a firearm, but it must be reported to the government, if you don't BIG TROUBLE... if you do, not problem...

I have a sad feeling that this may be indicative of bigger problems that will come to light soon... You know what they say, where there is smoke, there is fire.

Maybe, or maybe they are out for blood no matter how small of an issue it maybe. Make an example out of Apple.

Do they realize that what they are doing may hurt the stockholders more than what actually may had happed?

I'm afraid they realize it but don't care, since they are looking for the "truth". Just like a Pit Bull.

fustercluck
Feb 5, 2007, 10:00 PM
All I know is that I sure am glad they're charging that $1.99 for the 802.11n driver/enabler. That will certainly show the SEC they're serious about governance.

BenRoethig
Feb 5, 2007, 10:06 PM
They did an internal investigation, restated some items, turned it ALL over to the SEC on hopes full cooperation and internal correction would do the trick. Remember well, the issue they are rooting out is one which was common practice before, was endorsed by the accounting firms, and was thus and therefore felt safe by management. Recent rule changes "clarified" the practice as being non-compliant and was written in such a way firms had to go "back in time" to comply. That is usually not allowed in law. It was here.

The SEC should make interim findings of folks they have "cleared" or something to indicate any company they are investigating has a "narrow scope" of inquiry.

It's not just Apple.

Rocketman

In a criminal probe it's best to always best to assume the corporate investigation is biased in favor of helping their employers.

What the hell is the SEC waiting for? There is nothing else to investigate, this isn't even a big deal as far as corporate scandals go!

IMHO, this is clear evidence that government reformation is desperately needed. Current U.S. government == kludge.

This isn't CSI where everything is done in a couple of hours. Real investigations take time.

akadmon
Feb 5, 2007, 10:12 PM
But Leopard and the iPhone will be out by then, and that combined with this probably being finished will make AAPL start to go back up by July.

Leopard is not going to have a huge impact on Apple's share of computer sales. Yeah, a lot of us will upgrade (I know I will), but unless some serious flaws in Vista come to light (something that would warrant a lead story on the evening news, nothing less than that), fewer PC users will be switching to Leopard than were switching to the current Mac OS before Vista, and those purchasing for the first time will, in overwhelming numbers, buy what they see on the shelves of their local Best Buy. As for the iPhone, Apple should have stuck to the iPod -- the iPhone will be the new Newton! With all its limitations (no 3rd party software, limited capacity, no support for memory cards, Cingular singularity, high price), it will be but a blip on the radar screen (I predict less than 1 million units sold this year world wide). Most people already have a phone that does a decent job of keeping them connected, and all they really want is a touch screen (3") iPod (PDA capabilities would be a bonus, but not an absolute must have). Why Apple announced the iPhone months before it will actually be available in stores makes absolutely no marketing sense. The early announcement is bound to hurt sales of the current generation of iPods, as people anticipate the release of the touch screen iPods later this year (e.g., I decided to get a Shuffle to get me by after my 3Gen iPod tanked last month). Once the new iPods hit the street, nobody will want the iPhone, unless the price drops below $300. By then, AAPLE will be back to $80 :)

Canerican
Feb 5, 2007, 10:23 PM
Do they realize that what they are doing may hurt the stockholders more than what actually may had happed?


Yes, but crime is crime. Enron caused thousands to lose their life savings, still, they deserved all they got. Tyco caused a huge lose, Citigroup, Nortell etc. Corporate hurts many, but that doesn't mean that we should let it happen... Give Apple their day in court, if they aren't guilty, then I believe that everything will return to previous levels, if they are guilty, it will spell disaster.

There is nothing else to investigate, this isn't even a big deal as far as corporate scandals go!

I haven't read of any worse than this in a while... maybe some of the stuff Wal-Mart has done comes close... If someone can point out a bigger scandal that is not being investigated, I would love to read about it.

I'm not in any way hoping tht Steve Jobs gets in trouble if he is innocent, I believe that he is the second best CEO out there beside Meg Whitman. But corporate criminals deserve to feel the full force of the law. Just look at the discussion here, people are saying (essentially), "if he is guilty that bad, but there are worse things/bigger fish to fry/its not worth it."

The argument that there is worse stuff going on is not valid... if there is a murder and a burglary, do you just investigate the murder? I hope not.

EDIT: I was looking for this link... notice the dates...
http://www.forbes.com/2006/04/20/CEO-pay-hiding_cx_hc_06ceo_0420hidepay.html

SiliconAddict
Feb 5, 2007, 10:30 PM
:confused: :confused: :confused:

I dont really know what is going on?

Is Apple ok?

or are they in trouble?

A little from column A, a little from column B. Prob more in column B though.

Peace
Feb 5, 2007, 10:37 PM
If the SEC finds out that Apple hid more than they have disclosed Apple will lose Steve.

joeboy_45101
Feb 6, 2007, 12:20 AM
This isn't CSI where everything is done in a couple of hours. Real investigations take time.

All I'm saying is, if my girlfriend was this late I'd have been a daddy by now.

What else is there to investigate? Corporate misconduct is bad, but when the government acts like this in an investigation then it makes you wonder what it's motives are. I mean for Christ's-sake look at how Wal-Mart runs its business. I bet you could go to any Wal-Mart store and find at least 3 major labor and safety violations. And, let's not even get into how they treat vendors and suppliers.

By the way, I object to the way the Enron situation was handled. Ken Lay and his cronies may have spent time in prison but look at how the employees had to suffer. They lost their livelihoods do to that mess, and in the end never got any sort of compensation. I think these things can be handled much better.

IJ Reilly
Feb 6, 2007, 12:30 AM
It's the government. That's explanation enough.

Argh. This thing with Apple is annoying, but I'm hardly surprised. Unfortunately, stock fraud is too common to be shocking.

Number 1, the SEC did not start their investigation until Apple's internal investigation was completed, which was only about a month ago. Nobody expected anything to happen on the SEC front for months after that.

Number 2, stock fraud is not being investigated. There was no stock fraud.

Finally, anyone who's reacting to this investigation or Apple 10Q "revelations" simply has not been paying attention up until now. Nothing new or the least bit unexpected has happened on this story for weeks.

Evangelion
Feb 6, 2007, 01:26 AM
This is a very good way to convince a good engineer to put out his best work and to not seek work with other companies.

Why do you need stock-options for that? Seriously? Why couldn't the same thing be achieved by giving the employee a bunch of shares in the company, instead of using some options-shenanigans? Stock-options just make the whole thing a lot more complex than it needs to be, as this whole backdating-issue so clearly demonstrates. Want to tie your employees to the company, and give them incentives to do their best? Make them shareholders, by giving them shares in the company. You don't need options for that.

Evangelion
Feb 6, 2007, 01:29 AM
A little thing called tax. It's not quite that easy and so that's why they do it. It is about the 'money' as they say, precisely by not letting Uncle Sam dip too much into your pockets.

Yes, it really is that easy. You give the employee a bunch of shares. Uncle Sam becomes interested, and wants a cut. Well, the employee just received a bunch of shares worth X dollars, and now they couldn't afford to pay taxes worth x-80%?

Like I said, optiuons make the whole thing more complicated than it needs to be. Want proof? Apple and their SEC-investigation. Nothing like that would have happened if they had just given the employees a bunch of shares. But no.

Evangelion
Feb 6, 2007, 01:32 AM
You are correct, if the user can sell the shares, I agree - but read the original post - the employees were to be restriced from selling for a period of time. There are many many options (pun intended) when compenstating employees. ISO is actually a very good one when used properly and in context. Don't through baby out with the bath water.

Those things could be worked around. The employee might be allowed to sell enough shares to pay the relevant taxes. Or what if the employer handled the taxes for him? Or what if the shares would be placed in a trust, where they would be kept for the employee, but the employer wouldn't own the shares himself for severla years?

I'm no accountant, but taxes could be handled just fine.

How Goes It
Feb 6, 2007, 01:42 AM
Exactly, but I think a good parallel would this: You can have a firearm, but it must be reported to the government, if you don't BIG TROUBLE... if you do, not problem...

Not actually. In L.A. the D.A. just let go of a gang member whose bullet killed a girl in her house. This girl had nothing to do with the shoot out the gangs were involved in. 10 to 1 says that gun was not licensed.

If you were a legal gun owner in the suburbs, and you shot someone invading your home --- good chance the D.A. would bring charges against you.

You don't actually think the law is supposed to make sense do you?!!!!

You know, if Jobs were one of the true rip off artists who gets a golden parachute and leaves the company in shambles, that would be one thing. But realize when he took over, the stock was around $10 a share. Call me crazy, but doesn't it seem like time would be better spent going after the guys that are really ripping off the companies while the stock is going down the drain. Oh well, if justice is served, and Apples stock goes down the toilet, and though the shareholders will likely end up far poorer, at least the law will be held up -- you know, just like it was when Sandy Berger walked into the high security archives and trashed docs. Do that as a mere mortal, and you would be in for years. As a government insider you have a far greater chance of skating. Now that's what justice is all about !!!! No bleeding heart liberal here. I just think that justice across the board can at times be more than laughable. Enough with the seriousness of fabricating the board meeting and therefore lying to the gov.. Go after someone that is really doing some damage.

Supa_Fly
Feb 6, 2007, 01:44 AM
I'm wondering if this timing of this report is at all related to MS Vista so that they can have ALL the glory? Is there EVER in the history of the two companies ever release any anticipated & amazingly great products/services within the same week that would have a profound/major impact on either camps users? EVER!?

1> Apple needs to seriously get over this and BAKE in OIL the dinks that screwed this all up.

2> They should STOP wasting cash privately by an independent board of auditors (remember 10yrs at a respectable firm makes partner and they make over $740'000/year)! Apple now needs to get the SEC actively involved in a FULLY co-operational standing = nothing to restate adjust etc when the smoke clears ... believe me there WILL be smoke!

3> Engineering team & designers NEED to stay focused on giving us the absolute BEST product updates this year.

4> For Apple to have a SUCCESSFUL Spring - this SHOULD be resolved before Leopard releases ... if not we as current, longstanding, and ppl like myself salivating potential converts MUST upgrade to give Apple what it needs $$ to breeze by this without a hair touched - I may be looking too badly at this news.

5> Yeah they can do it :)

Evangelion
Feb 6, 2007, 01:50 AM
Executive compensation in general is a mess. Options aren't the problem. Stock options are probably the most sensical means of compensation, particularly for executives-- your compensation is tied to the companies performance rather than making millions just for sitting in the chair.

And you could do that by giving them shares in the company, instead of giving them options. When they get hired, they could receive X amount of shares, and the normal monthly salary. They could also receive additional shares as bonuses or something for example. Is there anything wrong with something like that? Why do we need stock-options? Want to tie their compensation to the performance of the company? Turn them in to shareholders. Why make that more complex by giving them stock-options instead of outright shares?

The reason companies don't just hand shares to employees is that they would need to buy the shares and pay the market rate and they would dilute the price of existing shares.

If Apple (for example) gave out 200 million dollars worth of shares to the employees, it would have neglible effect on the shareprice. And 200 million would mean about $10.000 dollars for every single Apple-employee. If they limited that share-compensation to top 10% of employees, it would mean $100.000 worth of shares. Top 1% (200 employees) would mean $1.000.000 worth of shares.

So, 200 million dollars worth of shares to employees. For reference, Apple's market-cap is 72.21 billion dollars as we speak. Apple has 860 million shares out there. Giving employees those shares would increase that amount by a whopping 238.095. A neglible amount. And you would now have lots of employees with direct vested interest in seeing that shareprice go up.

photomaniac
Feb 6, 2007, 03:00 AM
Exactly, but I think a good parallel would this: You can have a firearm, but it must be reported to the government, if you don't BIG TROUBLE... if you do, not problem...

I have a sad feeling that this may be indicative of bigger problems that will come to light soon... You know what they say, where there is smoke, there is fire.

Okay, you just totally ruined my night :(
I pray that is not the case with Apple

WilliamLondon
Feb 6, 2007, 03:54 AM
And you could do that by giving them shares in the company, instead of giving them options. When they get hired, they could receive X amount of shares, and the normal monthly salary.

And get a big tax bill day 1 for those shares? The reason options are given is that on day 1 they have NO value - they are worth nothing. Shares on the other hand have value and you'd end up with a tax bill for receiving something of value from a company the day you started.

Thanks, but as an ordinary employee, I'd prefer stock options.

Evangelion
Feb 6, 2007, 03:59 AM
And get a big tax bill day 1 for those shares?

*sigh*.... Like I already said, those taxes could be handled. Everybody makes it sound like those taxes make something like that utterly impossible, and we therefore absolutely NEED options. I mean, if you exercise those options, you get hit by taxes, right? So where is the difference here? You get worthless options, no taxes. You exercise those options, and you get hit by taxes. You get shares in the company, you get taxed. Regardless of what you do (unless you let those options go void), you get taxed. Is this a case of "I'd rather get taxed sometime in the future, instead of getting taxed right now"?

Thanks, but as an ordinary employee, I'd prefer stock options.

And because of those options, we are having all kinds of problems. Thanks a lot!

Soulstorm
Feb 6, 2007, 04:22 AM
I heard (http://www.thestreet.com/_yahoo/markets/activetraderupdate/10336957.html?cm_ven=YAHOO&amp;cm_cat=FREE&amp;cm_ite=NA) that Steve Jobs has personally hired a well respected law firm to his defense, and that should he faces legal issues, he will be temporarily be replaced by Google CEO.

I only hope that we soon have an estimate as to when an official report from CES will come out and have some results. I hate being forced to wait for an answer. Do we have an estimate?

jhedges3
Feb 6, 2007, 04:27 AM
I'm wondering if this timing of this report is at all related to MS Vista so that they can have ALL the glory?

You’re considering whether the timing of Apple’s 10-Q filing is related to the Vista release? And the timing is intended to give them, whom I take it means Microsoft, all the glory?

Huh. I’m not actually sure what you’re talking about. What is your reason for thinking there is any relationship between the filing and Vista? And why is it you feel that someone would use the timing to give someone else all of what glory?

It seems pretty clear that if Apple has to make a quarterly filing to the SEC then they have to do it. I don’t see why there is anything more to it than that.

surferfromuk
Feb 6, 2007, 04:49 AM
Speaking from a UK perspective I think this investigation is nuts.

Just like the way the government went out to destroy Microsoft or AT&T all those years back was nuts. I couldn't understand looking from the outside and into your US fishbowl why your government conciously wanted to kill a company that ruled in the WORLD of computers.

...and it's doing exactly the same thing again..

It's the kind of behavior I'd expect from a commie government - out to destroy the jewels in the crown of a free market economy, not from a freedom loving country like America. It's not like Apple are some mafia family swindling and killing to make a buck. They have literally given the world incredible products.

And even if it turns out a few accounting errors were made let's not forget one thing ;

If steve hadn't come back there would be no Apple today - no profits, no ipods, no Leopards, no iphones.

Your government is doing it's level best to screw up up the single most innovative corporation that's perhaps ever existed on planet earth. Kill Jobs and you've killed Apple - Kill Apple and the world loses something it may seriously never get back for another 100 years...This is like the Spanish inquisition. Stupid government trying to plunge your country into a dark age - what do they care ? - they rule poverty as they rule prosperity. It sucks folks!. This is not big crime - Apple held up hand and said 'whoops' we made a booby - sorry - how can we put this right?'...

It's not like they are some nasty oil company funding tribes of mercenaries in Africa is it ?

Come on - forget it - impose the fine - slap a few wrists and move on to some real crime. Let BUSINESS prosper.

Nuts...nuts!!Seriously, ring your congressman or something - your going to lose something precious....freedom!

jhedges3
Feb 6, 2007, 04:49 AM
2> They should STOP wasting cash privately by an independent board of auditors (remember 10yrs at a respectable firm makes partner and they make over $740'000/year)! Apple now needs to get the SEC actively involved in a FULLY co-operational standing = nothing to restate adjust etc when the smoke clears ... believe me there WILL be smoke!

You believe that Apple is wasting money by having independent auditors during their SEC investigation because you think that partners at auditing firms make 740 per year?

I fail to see your reasoning. Do you feel that Apple, for example, has seriously miscalculated the benefit that such auditors bring to this process and to their oversight in general? Like do you believe they should, say, forget about having independent auditors during this critical time, they’re too expensive, we’ll just either not have auditors at all or we’ll do it ourselves? I wonder if there are others on their board, for example, who feel as you do and have been begging them to drop the auditors. Do you feel that the lack of such auditors would be without any negative consequences on their price and on, among other things, their membership in NASDAQ Global Select?

I also don’t see how not having independent auditing would move them in the direction you suggest they go, ‘FULLY cooperational standing’. My impression was that such auditing, and the transparency shown in their 10-Q, is in keeping with Apple’s desire to hold to the highest standards, to be fully compliant.

jhedges3
Feb 6, 2007, 05:03 AM
3> Engineering team & designers NEED to stay focused on giving us the absolute BEST product updates this year.

Is there any reason to believe that the 10-Q, or anything else including the SEC investigation itself, will, or has already, made Apple engineers and designers less focused on giving you ‘the absolute BEST product updates this year?’

I don’t see why there would be any connection. Do you believe that both of these groups within Apple would be so distracted by the investigation that they would start slacking and release sub par product updates? If there were any such possibility it would seem like a very serious threat to Apple’s ability to develop and as such they would have already taken steps to address it, from which there would likely be some evidence.

My impression, though, was that regardless of whether such a possibility exists Apple’s primary objective is not to offer you, or us, the absolute best product updates. But instead to release products, accompanied by marketing, and at such times, etc., so as to increase their chances of making money. That being their primary focus, the products they release may or may not be the absolute best with respect to how you see them.

jhedges3
Feb 6, 2007, 05:36 AM
4> For Apple to have a SUCCESSFUL Spring - this SHOULD be resolved before Leopard releases ... if not we as current, longstanding, and ppl like myself salivating potential converts MUST upgrade to give Apple what it needs $$ to breeze by this without a hair touched - I may be looking too badly at this news.

Of all your points and non-points I find these ones to be the most incredible.

Why is it that the SEC investigation must be completed before Leopard release? Is there any evidence, any chain of reasoning, and any explanation for why a Leopard consumer should, or will, in any way be affected by the status of the investigation? Do you feel, for example, that in some worst case scenario existing OS X users and potential converts will be in such a state of anxiety for what may lie ahead for Apple that they’ll in significant numbers forgo any purchase of the update? I’m not convinced they have anything to do with each other, but assuming they did why couldn’t a completed investigation that leaves Apple’s image or financial status so tarnished, or leaves them so Jobs-less, that nobody would touch Leopard?

And I’m left pleasantly dumbfounded at your idea that should Apple’s Leopard release suffer from an ongoing SEC investigation longstanding salivating potential converts like yourself ‘MUST’ upgrade to give Apple the capital that it needs to get by without its hair being touched. As an aside, how is it that people like you who’ve yet to convert can upgrade to Leopard or do you mean upgrade simply in terms of switching to a better OS?

Well, I would cry tears of joy and call my mom to explain if it came out as you envisioned it. The increasingly less imperious, but increasingly more nefarious, Apple’s Leopard sales slump under consumer’s uncertainty about a looming SEC investigation. In the final our, our dearest Apple is saved by the generous and altruistic influx of capital from a small band of upgrading converts who show their resolve and unwavering support of the company by buying the OS nonetheless. I just wish that band of salivating converts could also happen to have a penchant for wearing armor say or going on walks in New Zealand or searching for lost droids, for example. It would help for them to be as mythical as possible.

Must finish my Health Valley Amaranth Flakes with unsweetened Silk and finish reading about this ‘far-out Aura concept phone’ on Engadget Mobile.

jhedges3
Feb 6, 2007, 06:10 AM
The grant to Steve in December 2001 is what they are most concerned about. They are taking a while because there was falsified documents involved, and whenever you have those involved, its hard to get at the truth.

My impression from articles like this one at IformationWeek.com (http://www.informationweek.com/management/showArticle.jhtml?articleID=196800436) is that although investigators are particularly interested in the 2001 options, as you say, Jobs was cleared of any wrongdoing. And that their focus was instead on Fred Anderson, former CFO, and Nancy Heinen, former general counsel and board secretary, as that article points out.

The 2 January article quotes from a 10-Q filing:
The Special Committee concluded that the procedures for granting, accounting for, and reporting stock option grants did not include sufficient safeguards to prevent manipulation. Although the investigation found that CEO Steve Jobs was aware or recommended the selection of some favorable grant dates, he did not receive or financially benefit from these grants or appreciate the accounting implications.

jhedges3
Feb 6, 2007, 06:36 AM
So we all wish them well, hope the distractions end soon, and that whoever is responsible goes to prison!!!! (I jest)

uh, as long as it isn't our favorite demi-god/Reality-Distortion-Field-Wizard-of-Woz, Stevie-J!! :cool:

Apple, and we the Apple-appreciating community, need Steve Jobs at the helm.... I say that as a (very happy) shareholder, by the way!!

peace,
tribalogical

I know you were being jestful, but why do we, they, need Jobs?

If he's found guilty of a crime he should punished accordingly.

Unless the dreams of someone like Aubrey De Grey come true relatively soon, and humans defeat aging, Jobs obviously cannot be at the helm forever.

That being said, is it really so bleak that all of you believe that world is without anyone who could ever follow him. And if that’s true what are we to do? What will the post-Jobs world be like? Will there be an Apple at that point?

It’s like saying there will never be another Dan Marino or another Johnny Unitas or another Brett Favre or another Peyton Manning. But the very fact that we can list so many of them means that, just as with computer execs, the future tends to have its own set of greats.

For that not to be true with whoever is at the helm of Apple, would be to say that some general notion of probability doesn’t apply to Apple. Great CEOs, like great anything, are rare events perhaps, but they’re not necessarily one-offs.

shamino
Feb 6, 2007, 08:09 AM
The reason companies don't just hand shares to employees is that they would need to buy the shares and pay the market rate and they would dilute the price of existing shares.
That would be "or". If you buy the shares on the market, then you pay a higher price for them, but you don't dilute anything. In fact, buying-back shares (whether to hold them or give them to employees) will boost the price. Or you can issue new shares (typically from a pool allocated in advance with shareholder approval), which costs little-to-nothing, but does dilute existing shares.

shamino
Feb 6, 2007, 08:24 AM
Between this and Vista, I see AAPL dropping to <$40 by July.
Can I buy your shares for <$40 in July?

Nobody cares about Vista. The only reason anybody will have it will be because Dell and HP are going to stop selling PCs with anything else.
Leopard is not going to have a huge impact on Apple's share of computer sales. Yeah, a lot of us will upgrade (I know I will), but unless some serious flaws in Vista come to light ...
Of course some serious flaws will come to light. Every Microsoft OS has been chock full of serious flaws. That's why no corporate IT department trusts any Microsoft OS until after two or three service packs have shipped.
Why do you need stock-options for that? Seriously? Why couldn't the same thing be achieved by giving the employee a bunch of shares in the company, instead of using some options-shenanigans?
If I'm an employee, and I just get a block of stock, I turn around and sell the shares immediately. It's no different from a cash-bonus. Except that I have to fill out several extra forms at tax time (normal income for the value of the shares granted, capital gain/loss for the difference between the issue price and the sale price, plus the possibility of the Alternative Minimum tax kicking in.)

With an incentive-option plan, the shares vest over time. If I want the benefit, I have to remain an employee, and the company has to do well during that time.

And yes, they could issue shares with some strings that prevent me from selling them. But that would be even worse. Then I'd owe all the taxes and I'd have no ability to actually pay that tax.
Those things could be worked around. The employee might be allowed to sell enough shares to pay the relevant taxes. Or what if the employer handled the taxes for him? Or what if the shares would be placed in a trust, where they would be kept for the employee, but the employer wouldn't own the shares himself for severla years?
If think you know of a company that would actually do this, I have a bridge to sell you.

Evangelion
Feb 6, 2007, 08:47 AM
And yes, they could issue shares with some strings that prevent me from selling them. But that would be even worse. Then I'd owe all the taxes and I'd have no ability to actually pay that tax.

I did say that that could be worked around.

If think you know of a company that would actually do this, I have a bridge to sell you.

You are missing the point. You are basically saying "no-one does that". But that is not the same as "That couldn't be done". It could be done. Besides, there are lots of companies around the world which are owned by their employees. Somehow they manage to do it.

gwangung
Feb 6, 2007, 09:33 AM
*sigh*.... Like I already said, those taxes could be handled. Everybody makes it sound like those taxes make something like that utterly impossible, and we therefore absolutely NEED options. I mean, if you exercise those options, you get hit by taxes, right? So where is the difference here? You get worthless options, no taxes. You exercise those options, and you get hit by taxes. You get shares in the company, you get taxed. Regardless of what you do (unless you let those options go void), you get taxed. Is this a case of "I'd rather get taxed sometime in the future, instead of getting taxed right now"?



And because of those options, we are having all kinds of problems. Thanks a lot!


No, you DON'T understand. That's pretty clear. You keep on saying that "these things can be worked around." Um, hello? That's how options got granted in the FIRST place!!

I think you should leave the accounting issues to folks who understand a little more about it than you do.

IJ Reilly
Feb 6, 2007, 10:04 AM
Speaking from a UK perspective I think this investigation is nuts.

Just like the way the government went out to destroy Microsoft or AT&T all those years back was nuts. I couldn't understand looking from the outside and into your US fishbowl why your government conciously wanted to kill a company that ruled in the WORLD of computers.

Assuming you understand UK corporate law (which I won't assume), you certainly don't have a nodding acquaintance with US law. These laws are all about proper disclosure of financial activities to stock holders. It's about companies correctly reporting expenses. I suspect the UK has similar accounting disclosure laws.

As for Microsoft, that of course is an entirely different matter. Even so, you might pause to consider that the US antitrust action against Microsoft came essentially to naught. It was the EU that really swung the hammer.

Evangelion
Feb 6, 2007, 02:06 PM
No, you DON'T understand. That's pretty clear. You keep on saying that "these things can be worked around." Um, hello? That's how options got granted in the FIRST place!!

I think you should leave the accounting issues to folks who understand a little more about it than you do.

Why yes, I do get it just fine. And fact remains that these problems are due to optiuons, period. Nothing would have happened if they had not used options. Options bring with them problems like we are facing right now (backdating etc.)

"leave this to folks who understand little more about it than you do".... And end up with a problem that might lead to SJ leaving Apple? Yeah, why don't we do just that? After all, it was those people "who know little bit more" who caused this whole issue in the first place! Yes, they clearly know what they are doing. The fact that they are ruining everything is just a coincidence!

Like I said: the sooner we get rid of options, the better off we will all be. Options just make thing more confusing, that is a fact. And what exactly is there so confusing about giving employee X amount of shares, and then the employee selling some of those shares to pay for the relevant taxes? Are you REALLY saying that options are simpler than that?

IJ Reilly
Feb 6, 2007, 02:13 PM
Options are not the problem. Properly accounting for them is the problem.

Evangelion
Feb 6, 2007, 02:28 PM
Options are not the problem. Properly accounting for them is the problem.

And you wouldn't have those problems if you just gave the employees some shares, instead of doing some backdating-shenaningans with options. Why are we looking for complicated solutions here? And why do we need options? So we could tie the employees compensation to the performance of the company? Well, you could do that with just shares, no options needed. Or how about setting aside portion of the company's profits to be distributed to employees as bonuses? Isn't that the simplest solution possible? Why are we looking at complicated "solutions" to this particular "problem"? Solutions that could bring huge damage to Apple?

Don't want to play around with shares? Well, take 10% of company's annual profits, and distribute that among the employees as bonuses. That way the employees compensation is directly related to the performance of the company.

gwangung
Feb 6, 2007, 02:53 PM
Like I said: the sooner we get rid of options, the better off we will all be. Options just make thing more confusing, that is a fact. And what exactly is there so confusing about giving employee X amount of shares, and then the employee selling some of those shares to pay for the relevant taxes? Are you REALLY saying that options are simpler than that?

Yes.

And, no, you DON'T understand the problem (because it's been described at least three times). What part of grant-at-$55-get-taxed-at-$55-but-only-worth-$22 don't you get????? You can't hold any of the stock (pretty much have to cash out that year), it's no different than outright cash bonuses, you get worse tax implications and you don't encourage people to stay with a company.

IJ Reilly
Feb 6, 2007, 03:08 PM
And you wouldn't have those problems if you just gave the employees some shares, instead of doing some backdating-shenaningans with options. Why are we looking for complicated solutions here? And why do we need options? So we could tie the employees compensation to the performance of the company? Well, you could do that with just shares, no options needed. Or how about setting aside portion of the company's profits to be distributed to employees as bonuses? Isn't that the simplest solution possible? Why are we looking at complicated "solutions" to this particular "problem"? Solutions that could bring huge damage to Apple?

Don't want to play around with shares? Well, take 10% of company's annual profits, and distribute that among the employees as bonuses. That way the employees compensation is directly related to the performance of the company.

Yes.

And, no, you DON'T understand the problem (because it's been described at least three times). What part of grant-at-$55-get-taxed-at-$55-but-only-worth-$22 don't you get????? You can't hold any of the stock, it's no different than outright cash bonuses, and you don't encourage people to stay with a company.

Well, I think you're both on the wrong track. Properly accounting for options isn't difficult or complicated -- it just needs to be done. Granting options, even back-dated options, doesn't by definition involve any sort of shenanigans. More importantly, I don't know how you "do away" with options grants, even if you wanted to.

Outright stock grants are also not a bad alternative. Note that Steve Jobs exchanged his options for stock.

Gasu E.
Feb 6, 2007, 04:11 PM
This would be horrible for employees because of the tax laws. This is one of the reasons the incentive stock option (ISO) structure was created. Under your scheme and the current tax laws the employee would be liable to pay taxes (cash out of his/her pocket) on the value of the shares received. They then could not sell them to cover the cash flow and if the stock tanks there are out the cash.

ISO's avoid this while preserving the value for the employee.

You are correct, but let's turn this on its head. The current tax laws regarding ISOs vs. share grants induce behavior that is counter to the interests of stockholders.

Gasu E.
Feb 6, 2007, 04:13 PM
<dupe deleted>

Gasu E.
Feb 6, 2007, 04:20 PM
Yes.

And, no, you DON'T understand the problem (because it's been described at least three times). What part of grant-at-$55-get-taxed-at-$55-but-only-worth-$22 don't you get????? You can't hold any of the stock (pretty much have to cash out that year), it's no different than outright cash bonuses, you get worse tax implications and you don't encourage people to stay with a company.

Options encourage excessive risktaking by management, counter to the interests of stockholders. Any textbook on corporate finace will confirm this.

One way to illustrate this is through the Black-Scholes option pricing formula, generally accepted as the best way to value options outside of direct market pricing. According to the formula, the value of an option increases according to the volatility of the underlying security. There is no other "predictive" element in the formula.

An intuitive way to see this is to imagine that there is a stock with current value $10, strike price of $10, and the manager has the choice of two behaviors. With the first behavior, the stock will hold steady at $10. with the second, the stock will oscillate between $1 and $19. In each case the stock has the same expected value, but the option is worth much more in the oscillating case.

WildPalms
Feb 6, 2007, 07:45 PM
In English?





Personally, I'm looking forward to someone to saying something stupid regarding "Apple fanbois" and make themselves look like an ass.

Mission accomplished :D

gwangung
Feb 6, 2007, 08:49 PM
Outright stock grants are also not a bad alternative. Note that Steve Jobs exchanged his options for stock.

Think that's more advantageous for higher ups. For folks further down the totem pole, I think options are more attractive.

Now, if you want to argue that you want to restrict options to non managerial people because they're are more valuable and useful for lower level employees, I;m not sure I'd disagree...

Evangelion
Feb 7, 2007, 02:17 AM
Yes.

And, no, you DON'T understand the problem (because it's been described at least three times). What part of grant-at-$55-get-taxed-at-$55-but-only-worth-$22 don't you get?????

Dude, take a frigging chill-pill. I have (repeatedly, I might add) said that yes, you might be hit by taxes if you are granted shares. So I do "get it"! Sheesh! What part of "Take X worth of shares, sell some of those shares to pay for the related taxes" do YOU not understand???????? Or, if you really believe in the company, keep all of the shares, and pay the taxes from your own pocket. If the employee is given shares that are worth 10.000 dollars, then he gets taxed at 10.000 dollar, right? It's not like he gets shares worth 10.000 dollars, yet Uncle Sam taxes him as if they were really worth 30.000 dollars.

Do I need to draw you a frigging picture or something? Do I need to take out my frigging cluebat?

Yes, I did say in my oroginal message that "the employee might be required to not sell the shares for several years", but that was merely one idea floated around, and now you are hanging on to that comment like a frigging leech.

you get worse tax implications and you don't encourage people to stay with a company.

How, exactly? Because they get hit by taxes? Well, they get hit by taxes in case of options as well, the only difference is WHEN they get hit by taxes: right away, or some point in the future. Options are not tax-free, now are they? They might be when they are granted, but at that point they are not worth anything to the employee. They are just paper-money, so to speak. When the employee cashes in those options, he gets hit by taxes. So where is the difference?

gwangung
Feb 7, 2007, 10:12 AM
How, exactly? Because they get hit by taxes?

Types of taxes, whether they pay long term capital or income. If granted stock, they get taxed at the higher rate immediately. Granting options means that while you get taxed upon exercise of options, the profit may be taxed at the capital gains rate (which is lower) if you hold it long enough. Also, you can spread the tax burden over a longer period of time. Might not be as beneficial for execs, but is probably easier for folks lower on the totem pole.

EagerDragon
Feb 8, 2007, 07:44 AM
It does seem that they still trying to come up with a formula, see article below::apple:
----------------
SEC finalizing penalties for options backdating
By Brooke Masters in New York and Jeremy Grant in Washington

Financial Times - February 6, 2007
(c) 2007 The Financial Times Limited. All rights reserved


The Securities and Exchange Commission is nearing completion of a formula for punishing companies that improperly backdated stock options, clearing a logjam that has held up dozens of cases and frustrated its enforcement staff.

The SEC's staff negotiated a tentative settlement in the first stock options case, against Brocade, the world's largest maker of data storage switches, nearly a year ago, but the deal ran into trouble because commissioners couldn't agree on how large a penalty to impose.

Other cases have backed up because the enforcement staff did not want to suggest penalties until they had a better sense of what the commission would decide in the Brocade matter, sources familiar with the cases said.

The five commissioners are philosophically divided on the issue, but they agreed last year that penalties should be closely related to the financial benefit the company reaped from its misbehaviour.

Now, SEC economists are putting finishing touches on a complex model that measures the size of the benefit companies reaped from improper backdating of options. The Brocade case could come up for a vote in six weeks or two months and other cases could follow in quick succession.

The SEC is investigating more than 130 companies for backdating. The penalties fight has not affected efforts to punish corporate executives involved in the backdating because their personal economic benefit is easy to measure and fining them does not cause collateral damage to investors, SEC officials said.

The commission often wrestles with the first case in a new area because it is trying to lay down a model for other settlements. In 2003, the SEC drew criticism for settling its first market-timing cases with Putnam Investments without announcing a firm penalty because it was waiting for an economic study of the harm to investors.

The stock options divisions also reflect a larger split at the commission level. Two Republican commissioners oppose large fines because they could hurt shareholders who were already victims. Two Democrats argue that penalties deter misbehaviour and note that the money goes into a "fair fund" that is distributed to investors.

Christopher Cox, SEC chairman, has sought consensus based on whether a corporation reaped economic benefits, underscoring the need for a model in the stock options cases

Asked whether the commissioners were divided on stock-options penalties, Mr Cox said last week, "That's a case by case determination and in that respect not different from other cases generally."

The commission remains divided on penalties in cases involving issues other than options backdating. One source familiar with the matter estimated that up to 25 settlements - most not involving stock options - have been negotiated by the staff but are awaiting commission approval.

The SEC's stock options work also has been slowed down because it has to coordinate with the Justice Department, which is putting together criminal cases. One high-ranking source said, "We are not doing this in a vacuum. We are sometimes part of a larger government response in which case that's another overlay of complication."

IJ Reilly
Feb 8, 2007, 10:25 AM
Thanks for the info. The implications for Apple aren't entirely clear, but this suggests that at least some of the commissioners won't vote for penalties which harm investors. Forcing Steve out would certainly fall under that category. Determining how a company benefited from improper disclosures seems like an impossible task, though.

hagjohn
Feb 11, 2007, 07:55 AM
Seems it may be getting worse for Jobs...

Steve Jobs implicated in Pixar stock option dust-up (http://www.appleinsider.com/article.php?id=2484)