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Apple Computer had a big week. Steve Jobs, the
chief executive officer, announced the company
would now just be called Apple. And, at its
MacWorld conference, he also presented the
iPhone. It combines a wireless phone, music and
video player, and Internet communications device
in one handheld product.
The next day, Cisco Systems brought a civil
case. That company owns trademark rights to the
name iPhone. Apple was negotiating for
permission to use it. Apple called the legal
action "silly." It said there were already
several companies using that name.
Recently, Apple has had to deal with another
issue: backdated stock options. A stock option
is an agreement to trade a stock by a set date.
Companies use options as a form of pay, often
for their top people.
Imagine you work for the XYZ Company. You are
given an option to buy one hundred shares of its
stock at the current price, ten dollars a share;
the option is good for one year.
A year later, XYZ stock has risen to twenty
dollars. You use the option to buy the shares at
ten dollars. Now you can sell them for twenty --
for a profit of one thousand dollars.
But what if the company backdated the option?
Remember, XYZ stock was ten dollars when the
option was created. But a month earlier, it was
six dollars. Using that point as the starting
date means more profit. Instead of buying at ten
dollars, you can buy at six and sell at twenty.
In August of two thousand one, the Apple board
of directors approved more than seven million
shares in stock options for Steve Jobs. The
options were created that December, but with an
October date. That added twenty million dollars
to their value, because the stock price was
three dollars less.
Steve Jobs never exercised the options; he
received five million shares instead. But Apple
had to restate its earnings to correct its
options accounting. Last month the company
restated its financial results for four years.
Apple reduced its results by eighty-four million
dollars.
In general, backdating options is not illegal
but companies can get in trouble if they violate
financial reporting rules. Options are taxed
differently from normal pay. They can reduce
taxes for companies and individuals.
Since two thousand two, backdating has been more
difficult under the Sarbanes-Oxley law. Last
fall, a Securities and Exchange Commission
official said more than one hundred companies
were under investigation.
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