Apple Computer Inc warned that it may have to revise its profits dating back to 2002 in a worsening stock option scandal that has cast a harsh light on Silicon Valley's compensation practices.
Without providing specifics, the Cupertino, California-based maker of Macintosh computer and iPod music players said on Thursday it had uncovered enough evidence of mishandled stock options to raise doubts about the accuracy of financial statements dating back to Sept. 29, 2002.
During this stretch, Apple has enjoyed one of the most prosperous periods in its 30-year history. Fueled largely by steadily rising sales of its ubiquitous iPod, Apple has reported US$3.1 billion in profit during the past four years.
Apple first raised a red flag about the way it accounted for stock options in late June when it announced an internal investigation into a series of "irregularities."
Some of the nettlesome stock options were given to Steve Jobs, Apple's renowned chief executive, but he voluntarily canceled those in 2003 before cashing them in.
After digging deeper, Apple uncovered enough new problems to prompt the company to hire an outside lawyer to take over the investigation and notify the US Securities and Exchange Commission (SEC) about its findings.
Apple hopes to complete its accounting review as quickly as possible, said company spokesman Steve Dowling. In the meantime, Apple may miss a deadline for filing its latest quarterly report with the SEC.
The developments, announced several hours after the stock market closed, threaten to rattle investors, based on how Wall Street has punished other companies that have recently disclosed potential accounting problems caused by stock option improprieties.
Apple shares gained US$1.43 on Thursday to close at US$69.59 on the NADAQ Stock Market. The company's market value increased by about $55 billion since September 2002, as its stock price rose by nearly 10-fold.
More than 60 other companies across the US are grappling with similar stock option headaches, but Apple is by far the most prominent of the lot to acknowledge trouble so far.
While Apple has not explained exactly how it mishandled stock options, most of the problems at other companies so far have revolved around "backdating."
Under this practice, insiders try to make the rewards more lucrative by retroactively pinning the option's exercise price to a low point in the stock's value. Usually, a stock option's exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.
If companies backdate options without accounting for the move, it can cause profits to be overstated and taxes to be underpaid.
The financial manipulation also exposes companies to possible fraud charges that could trigger civil fines and even criminal cases.
The US Justice Department has already brought criminal charges against Brocade Communications Systems Inc's former CEO, Gregory Reyes, and is actively investigating other cases. Reyes, who hasn't yet entered a plea in the case, is free on a US$2 million bond.
More than 20 of the companies entangled in the stock option imbroglio are in Silicon Valley, where the incentives first became a staple of compensation packages for rank-and-file employees as well as top executives.
As high-tech stocks soared during the dot-com boom of the 1990s, workers began to clamor for even better stock option packages in pursuit of a big jackpot. That hunger for ever-more lucrative stock options is believed to have driven many Silicon Valley companies to resort to backdating as they tried to recruit and retain workers.
To properly account for backdated stock options, companies generally have to recognize more expenses than they originally recorded on their books. Making that adjustment can erase a substantial amount of profit.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique