Original URL: http://www.theregister.co.uk/2006/06/30/ca_apple_option_trouble/

Apple, CA investigate share option grants

Back pedalling over backdating

By Christopher Williams

Posted in Financial News, 30th June 2006 10:58 GMT

Apple and CA are both investigating mishandling of the choice stock options dished out to top executives.

Both companies said yesterday that potential irregularities which could have tainted the firms' accounts had been discovered by auditors.

A statement from Apple said: "One of the grants in question was to CEO Steve Jobs, but it was subsequently cancelled and resulted in no financial gain to the CEO." Jobs relinquished his fat option package in 2003 after Apple shares had tumbled on Wall Street. The firm did not reveal which other top brass got the suspicious options.

Jobs said: "Apple is a quality company, and we are proactively and transparently disclosing what we have discovered to the SEC."

It's thought the difficulties could relate to the practice of "backdating", whereby share options' initial value is chosen from a time when company stock was waning. Since options only become valuable as stock rises above the award price, backdating means the exec will make a bigger profit when he comes to sell. It's not illegal in itself, but authorities become interested if it causes employees compensation to be under reported, exaggerating profits and potentially lowering the tax bill.

CA meanwhile, facing yet another accounting mess to sort, has had to delay filing its 10-K form to the SEC, missing the June 29 deadline it had already extended from June 14.

A statement from the firm said: "The company believes that in fiscal years prior to 2002, the company did not communicate stock option grants to individual employees in a timely manner."

CA's statement points to backdating as the source of the trouble. It continues: "These delays could result in the need to recognize additional non-cash stock compensation expense over the vesting periods related to such grants."

CA CEO John Swainson said: "We are disappointed that we cannot file our 10-K to meet the extended deadline and that we continue to find problems associated with CA's past. However, delaying the filing is our only option until we understand the full impact of the legacy stock option issue and any potential financial adjustments."

CA shares have nosedived 28 per cent since January 24 when it reported $16m in Q3 losses. The preliminary 8-K form the firm filed yesterday revealed a Q4 loss of $36m.

Two lesser Silicon Valley players, Quicken developer Intuit and data centre provider Equinix, also said this week that they'd been subpoenaed by the SEC over their option dealings. Read their statements here and here.

The regulator is carrying out a big investigation into stock options, and has so far issued subpoenas to 57 companies according to AP. Nearly half are reportedly located in the Silicon Valley area.®