Apple Admits Stock Options Backdating

By Colleen Taylor -- Electronic News, 10/5/2006

Steve Jobs and Apple Computer Inc. have admitted to using fuzzy math in stock options dating. The company announced Wednesday that the special committee of its board of directors has reported its findings after a three month investigation into Apple's stock option practices, and has indeed found irregularities in the company's past.

Although the investigation found no misconduct by any member of Apple's current management team, the company said the committee did find that stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants. In other words, the company has engaged in the now-infamous act of backdating stock options, which has set off an industry-wide witch hunt of sorts in Silicon Valley.

The company also said in the statement that the investigation "raised serious concerns regarding the actions of two former officers" in connection with the accounting, recording and reporting of stock option grants. Apple said it will provide all details regarding their actions to the SEC.

In a few instances, Apple's CEO Steve Jobs was aware that favorable grant dates had been selected, but, the committee said, he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.

"I apologize to Apple's shareholders and employees for these problems, which happened on my watch. They are completely out of character for Apple," Steve Jobs, Apple's CEO, said in a statement. "We will now work to resolve the remaining issues as quickly as possible and to put the proper remedial measures in place to ensure that this never happens again."
 
In a seemingly related announcement, the company also revealed Wednesday that Fred Anderson, Apple's former CFO, has resigned from its board of directors. Anderson, who served as CFO from 1996 until 2004, informed the company that he believes it is in Apple's best interests that he resign from the board at this time.

The special committee of outside directors, together with independent counsel and accountants, examined more than 650,000 emails and documents, and conducted interviews with more than 40 current and former employees, directors and advisors. Apple initiated this voluntary independent investigation after a management review discovered irregularities in past stock option grants.

As the company revealed in August, Apple will likely need to restate its historical financial statements to record non-cash charges for compensation expense relating to past stock option grants. The company and its independent auditors are reviewing recent accounting guidance published by the SEC, and have not yet determined the amount of such charges, the resulting tax and accounting impact, or which periods may require restatement.