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Thursday, October 05, 2006

What Did Steve Jobs Really Know About Options and Accounting?

Stock Tickers: AAPL, DIS

Apple (AAPL) yesterday came clean on what its special committee of its board of directors has reported. Apple conducted what it called a three month investigation into stock option practices.
Here is a copy of what they disclosed:

* The investigation found no misconduct by any member of Apple's current management team.
* The most recent evidence of irregularities relates to a January 2002 grant.
* Stock option grants made on 15 dates between 1997 and 2002 appear to have grant dates that precede the approval of those grants.
* In a few instances, Apple CEO Steve Jobs was aware that favorable grant dates had been selected, but he did not receive or otherwise benefit from these grants and was unaware of the accounting implications.
* The investigation raised serious concerns regarding the actions of two former officers in connection with the accounting, recording and reporting of stock option grants. The company will provide all details regarding their actions to the SEC.

"I apologize to Apple's shareholders and employees for these problems, which happened on my watch. They are completely out of character for Apple," said Steve Jobs, Apple's CEO. "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."

The company also announced that Fred Anderson, Apple's former CFO, has resigned from its board of directors as it was in the best interest of the company.

Shares of Apple (AAPL) rose today by 1.75%, or $1.30, to $75.38, but now shares are trading at $74.90 in after-hours. This is not seeming like a huge number og back-dating or springloading of options, but the fact that the company said Steve Jobs was not aware of the acccounting issues seems suspicious. We are talking about Steve Jobs here, the genius, the loved. Maybe this will blow over without an incident. Maybe it won't. It is just suspicious the way that the company described this, and it makes you wonder what the real situation was.

Regardless of the outcome, Steve Jobs should not have any trouble surviving this as far as Apple is concerned. He can always pull out the check book and write a check to the company and then turn around and give himself a raise and some more options (as long as he discloses it). He has rewarded shareholders handily and he'll be able to win out over regulators. The iPod and imac have been major success stories and he is leading the company into a new forray.

This does make one wonder just what he knew though. It also makes one wonder what the options situation was over at his Pixar unit that is now part of Disney (DIS). There were prior reports stating that past filings had indicated Pixarexecutives had been given options at low prices. Since Pixar was acquired and since everyone made money on that company, it may get swept under the rug. But then again, you never know.

Jon C. Ogg

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