Apple Computer's shares fell on Friday on the news that company had uncovered further troubles with its handling of stock options that will probably require Apple to revise its financial statements for years.
The company issued a statement late on Thursday that an internal investigation of stock option grants -- an inquiry that the company first disclosed in June -- had "discovered additional evidence of irregularities."
In a regulatory filing on Friday, Apple said the new evidence found by an independent counsel meant that the company's financial statements in the last few years and through its fiscal quarter ended April 1 should "no longer be relied upon."
In June, Apple disclosed that the independent counsel, appointed by the company's outside directors, was focusing on stock option grants made from 1997 to 2001. Stock option grants routinely can be cashed in, or exercised, over periods of five years and even 10 years, so problems from that earlier period could require recent financial reports to be revised.
Any financial restatements that result from the stock options inquiry, analysts said, would not be cash charges. Thus, they note, the financial fundamentals of the company will not be affected.
But the key issue, analysts said, is whether the investigation taints Apple's visionary leader and chief executive, Steven Jobs.
"The No.1 question we get from investors is, `Is Steve Jobs in trouble?"' said Shaw Wu, an analyst for American Technology Research. "Our best assessment is no."
Since he returned to Apple in 1997, Jobs has never been a member of the board's compensation committee, Wu noted. And Jobs does not seem to have benefited from stock options irregularities, Wu concluded. Based on his review of eight years of Apple's filings with the Securities and Exchange Commission, Wu said, "We feel pretty strongly that Steve Jobs is not liable."
Investors' initial concerns about the Apple disclosure seemed to abate in the course of the day. After falling as much as 9 percent before noon, Apple shares rebounded in the afternoon, closing off less than 2 percent, down US$1.29 a share, to US$68.30.
In its SEC filing on Friday, Apple gave no hint about the "additional evidence of irregularities." In June, the company did say that one of the stock option grants being scrutinized was to Jobs. The company did not specify the grant, but the big one to Jobs during the period under inquiry was for 10 million shares, effective Jan. 12, 2000.
The company announced the option grant to Jobs on Jan. 19. But options were priced at US$87.19 a share, the lowest closing price in the two months up to Jan. 12. By Jan. 19, Apple's stock price had risen to US$106.56.
In those days, it was not uncommon for companies to report stock option grants several days or weeks after a grant was made. Since 2002, companies have been required by law to report stock option grants within two days.
Compensation experts say the lag in reporting Jobs' grant raised questions about Apple's disclosure practices, and left open the door for backdating the price to a lower level, which makes the option much more valuable if a company's share price rises.
For years, Apple has had an inconsistent approach to compensation, at least at the top, analysts say. When Jobs first came back to Apple in 1997, he was interim chief executive and received a salary of US$1 a year.
In 2000, Jobs took on the title of chief executive, and the board awarded him the stock option grant and a Gulfstream V jet. In 2003, the option grant was swept aside, but Jobs was awarded 5 million restricted shares of Apple stock, vesting in three years.