Apple Receives Stock Delisting Threat
Apple's troubles regarding the issuance of stock option grants and the surrounding fallout came to a head Friday. In a statement issued by the company after the close of the market, Apple disclosed it had requested a hearing with a NASDAQ committee following the receipt of a letter threatening the company with delisting its shares.
NASDAQ's threat came after Apple failed to file on time a Form 10-Q, which is a more detailed version of the company's quarterly earnings, with the Securities and Exchange Commission. The company warned that it would miss the deadline during the day Friday, and amended the filing to include notice of the NASDAQ’s actions later in the afternoon.
"The Company anticipates that there will 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 in the filing.
The problems surrounding the reporting of stock option grants has spread through the technology industry like wildfire over the past several months. Companies including CNET Networks, Intuit, VeriSign and others are all the target of a federal investigation that alleges the companies allowed the dates of stock grants to be altered in order to make more money for their employees.
Stock options enable individuals to purchase shares in the company at a "strike price," which is equal to the stock's value on a certain date. By moving the date back, employees are able purchase the options at a lower cost.
While not necessarily illegal, hiding the practice from shareholders and the SEC is. Additionally, in some cases, extra taxes may not be paid, which would constitute tax evasion. In total, some 80 companies are under investigation, many for the "backdating" practice.
While the process of delisting notification by the NASDAQ is not all that rare, it is rather uncommon for large corporations like Apple to be the target of such letters. The process allows for the company to request a hearing on the matter, and in the meantime Apple's stock would remain on the market.
At least one tech company, Mercury Interactive, was delisted over a similar spat with the NASDAQ.
It is unclear at this time what the likely restatements to Apple's earnings would do to its profits. Last quarter, it said it had made a profit of $472 million, continuing the growth of a company that many thought would collapse in the late 1990s.
In any case, Apple says it remains committed to remedying the issues. "The Company is focused on resolving these issues as quickly as possible and plans to file its Form 10-Q following completion of the independent investigation by the special committee of Apple's outside directors," it said in a statement.