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Apple will restate earnings

Rachel Dornhelm Aug 4, 2006

KAI RYSSDAL: Not a great day in the equity markets. There was a big name dragging things down. Apple Computer fell 2 percent. The company announced late yesterday it might have to delay its next quarterly filing. Perhaps even redo a couple of years worth of financial statements. Never a good thing. Rachel Dornhelm reports Apple might be trying to stay ahead of the SEC.

RACHEL DORNHELM: So far, federal investigators haven’t targeted Apple. But Apple says it expects to be restating its profits from September 2002 on.

The company says it’s found some irregularities in its stock options accounting. Executives can make lots of money if companies back-date options to a time when the stock was cheap.

JOSH JAFFEE: This could be considered an illicit way of compensating some of the employees and not really accounting for that compensation appropriately.

That’s The Deal’s Josh Jaffe. He says this happens at shareholders’ expense. Some analysts estimate this could be a $25 million hit for Apple. Not much in the scheme of multibillion-dollar profits.

But the fallout for firms that wind up under federal scrutiny can range from owing back taxes to criminal charges. Executive compensation expert Tom LaWer says it’s hard to gauge what happened at Apple:

TOM LaWER: It could be due to malfeasance, people actually intentionally going to back-date options, or it could simply be due to sloppiness in the record keeping.

The San Jose Mercury News reported today that Apple voluntarily shared information with the SEC Thursday. Apple had no comment.

But many people are watching. University of Iowa finance professor Erik Lie:

ERIK LIE: There are a lot of law firms across the country that are also doing their own investigation, realizing that there is some money to be made in suing these companies.

Some 80 companies are currently under federal investigation. About a quarter are in Silicon Valley.

In San Francisco, I’m Rachel Dornhelm for Marketplace.

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