How deal for Apple chief turned sour
[ 2007-01-18 09:06 ]
This is the VOA Special English Economics Report.
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 100
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 20 dollars. You use the option to
buy the shares at ten dollars. Now you can sell them for 20 -- 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 2001, 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 20 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 84 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 2002, backdating has been more difficult under the Sarbanes-Oxley law.
Last fall, a Securities and Exchange Commission official said more than 100
companies were under investigation.
And that's the VOA Special English Economics Report. I'm Mario Ritter.
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