Apple Computer Inc. Options Investigation: Fresh News?

Apple Computer, Inc. announced the need to re-state past earnings and delay the current 10Q filing.  Shares declined seven percent in after-hours trading yesterday and nearly five percent at times during market hours today.

Since the general outline of the option story has been known for weeks, one must ask whether the information released enables us to reach new conclusions about the value of Apple stock.  Those who prefer not to own shares in a company that has engaged in option back-dating have, presumably, already sold.  This is a perfectly honorable position that could be based upon either moral grounds, similar to not owning tobacco stocks, or suspicions about future malfeasance.

For those of us who just analyze the numbers, there are several pertinent questions.  Does the new information suggest any of the following:

1. Steve Jobs to lose his position in the company?  Nearly everyone thinks this would harm Apple’s future.
2. Option problems in recent years, those beyond the original 1997-2001 period?
3. Accounting changes affecting future earnings?

To answer these questions I draw upon both my knowledge of how corporate boards handle and announce such issues and also today’s reports by analysts covering the company.

There is nothing to suggest that Jobs’s management role will change.  This conclusion was nearly unanimous.

The changes in later year earnings may well be a consequence of the option decisions in 1997-2001. Changes in one year may ripple through the balance sheet to future years.  It does not necessarily mean that there were continuing improprieties.

Most importantly, those looking at fundamentals will focus on future earnings, where there is little or no effect.

The Apple story made up a good part of CNBC programming today, with various interviewers playing out the possibilities.  Someone listening to all of these interviews would probably have eventually gotten the right idea, but those selling last night or early in the day were reacting to headlines, not information.  It was another story of temporary market inefficiency that provided a great opportunity — and perhaps still a good one.