Thursday, October 05, 2006

Color on options investigation: Apple Computer (NASDAQ:AAPL)

Several firms are commenting on Apple Computer (NASDAQ:AAPL) after the co said on Wednesday an internal investigation found irregularities with its past stock option grants, prompting the immediate resignation of a former chief financial officer from the board of directors. The company also said Chief Executive Steve Jobs was aware of some of the stock option grants, but he did not benefit from those grants and was unaware of the accounting implications:

- Goldman Sachs thinks the results of Apple's independent investigation of its stock options grants removes the largest overhang by clearing current management of any misconduct. Theannouncement does not change firm's positive view on Apple's fundamentals but it does give them greater confidence that non-operational issues will not negatively impact the stock. They also believe this removes the potential that Apple would need to delay its earnings report, scheduled for October 18, due to the inquiry. Firm's estimates and price target are unchanged.

- UBS notes that while the SEC has not opened its own formal investigation, they believe the financial impact on Apple will be minimal. Apple continues to believe it is likely that it will need to restate historical financials for non-cash charges, but the review indicates no evidence of irregularities after a January 2002 grant in question.

While CEO Steve Jobs was aware of some favorable grant dates, he did not receive or benefit from these grants. It seems that he was likely unaware of the accounting implications (deduced from Apple's disclosures). While we may hear a bit more about this issue in the news, the firm continues to operate under the view that Jobs is on solid ground based on the current facts. Maintains Buy and $92 tgt.

Notablecalls: Looks like a non-event to me.

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