In an SEC filing, it anticipated would be significant changes in the results of operations for the quarter ended July 1, 2006 compared to the quarter ended June 25, 2005, including significant increases in the company’s revenue and expenses.
Apple said it could not provide a reasonable estimate of the results because of a likely need to restate its historical financial statements to record non-cash charges for compensation expense relating to past stock option grants.
As the investigation was still ongoing, it said it could not reasonably estimate the amount of any such charges, the resulting tax and accounting impact, or which periods may require restatement.
The admission cast a pall of gloom over the whole IT sector because Apple is the most high profile of a growing number of companies to be drawn into the stock options scandal.
When the company first indicated it had a problem in July, CEO Steve Jobs declared: Apple is a quality company, and we are proactively and transparently disclosing what we have discovered to the SEC. We are focused on resolving these issues as quickly as possible.
By the beginning of August, the quality company was forced to admit that it had found evidence of irregularities and said its financial statements going back to 2002 should not be relied on and will have to be restated.
The one mystery in the company’s statement is the reference to significant increases in the company’s revenue and expenses, for while expenses have been increased at those companies that have completed stock options restatements, revenue has not been affected.
A request for clarification from Apple on this point produced no response by the company.
Apple’s stock has increased nearly tenfold since its low in January 2003 and its resilience was shown by it reacted to news of the late filing on by easing back 0.47% to $63.60. As a member of the Nasdaq 100 index, stock market regulators would be reluctant to delist the stock and inconvenience so many investors.
More worrying for the company is the possibility that the FBI might investigate the issue, for it has no respect for reputations. When former Comverse directors were recently charged over stock option manipulation at the company, the US Deputy Attorney General Paul McNulty laid out government policy clearly.
The Justice Department is determined to see that our markets operate fairly and honestly. Investors take risks and do their best to see into the future when picking companies in which to invest. We cannot allow corporate leaders to operate under different rules, using 20-20 hindsight to line their own pockets. We will continue to pursue misconduct in any boardroom where we find it.
