April 27, 2007 10:00 AM PDT

Week in review: Sweet and sour Apple

Apple impressed Wall Street with its quarterly earnings, but those results came under the cloud of another accounting issue.

Apple surprised analysts by reporting that revenue for the second quarter was up 21 percent and profit was up almost 88 percent, or 87 cents per share, compared with the same quarter last year. Analysts had been expecting earnings per share of 64 cents. Investors welcomed the news by sending Apple's share price up several dollars.

But before revealing its financial performance, Apple's board of directors issued a statement confirming its support for Jobs in the wake of allegations made by Fred Anderson, the former chief financial officer at Apple.

Anderson issued a statement the day before claiming that he advised Apple CEO Steve Jobs of the accounting implications of backdating in January 2001, contrary to Apple's previous statements that Jobs had no idea of the ramifications.

Anderson's statement came just after the Securities and Exchange Commission filed a lawsuit against Nancy Heinen, the former general counsel at Apple, saying her actions led to "fraudulent" stock options backdating at the company. A similar lawsuit against Anderson was filed but simultaneously settled. The SEC said it doesn't plan to file any actions against Apple as a company.

While many CNET News.com readers discussed Jobs' culpability and possible punishments, some readers came to his defense, noting some of the contributions he and Apple have made to the tech community.

"Steve Jobs is one of the driving forces of innovation these days, whether anyone wants to believe it or not," wrote one reader to News.com's TalkBack forum. "Computers wouldn't be what they are now without his influence and vision."

Apple is also paving the way for free enhancements to the iPhone and Apple TV by making its accounting methods clear from the start. The company will gradually recognize a portion of the revenue from each sale of those products as new features are delivered.

This accounting method prevents Apple from having to endure a backlash similar to the one it faced over its $1.99 fee for activating the 802.11n Wi-Fi chip in MacBook Pros earlier this year. Because the famously secretive Apple kept the existence of this 802.11n chip under wraps, and because it recognized all of the revenue from the sale of those notebooks at the time they were sold, accounting experts said Apple had to charge a fee to satisfy accounting regulations that require companies to establish a value for product upgrades.

On the Hill
A White House task force wants Congress to enact a variety of new laws designed to punish identity fraud, even though it is already illegal.

The new national strategy calls for rewriting existing criminal laws to penalize use of malicious spyware and keyloggers, expand mandatory minimum prison sentences for certain levels of electronic data theft and allow identity theft victims to receive monetary compensation not only for their direct financial losses, but also for the time they spent piecing their lives back together.

See more CNET content tagged:
accounting, Apple Computer, stock option, Steve Jobs, Week in review

16 comments

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shame...
You can be the darling of the market but still get ignored when you lie and cheat.
Posted by jessiethe3rd (1140 comments )
Reply Link Flag
Indeet Shame.
I am a Big Apple fan, I love my G5 PowerMac with the 16gig of
ram and all that. I see rich a famous people get away with
murder, if an average job did this, he would be boiled in oil right
about now and damn straight prison time.

If Steve Jobs did this, than he must pay the price, no one is
above the law.

He'll be using M&M for Lipstick, but I bet if it did go that far,
probably sent him to Disney Land type of prison.
Posted by RompStar_420 (772 comments )
Reply Link Flag
What did He Do Pray Tell?
Both of the previous posters imply some nefarious conspiracy.

Just what the hell do you think he did, or did wrong ... SPELL IT
OUT

To my knowledge, Jobs is not an accounting officer, or a lawyer.
In addition, nothing went on that cost anyone anything. Anyone
involved with Apple whatsoever has done extremely well since
Jobs came back.

You are not an apple fan, your statement flies in the face of
logic.
Posted by Thomas, David (1947 comments )
Link Flag
How in the Heck is Steve Jobs the Bad Guy?!
Both of the previous posters imply some nefarious conspiracy.

Just what the hell do you think he did, or did wrong ... SPELL IT
OUT

To my knowledge, Jobs is not an accounting officer, or a lawyer.
In addition, nothing went on that cost anyone anything. Anyone
involved with Apple whatsoever has done extremely well since
Jobs came back.

You are not an apple fan, your statement flies in the face of
logic.
Posted by Thomas, David (1947 comments )
Reply Link Flag
Why defend Jobs so diligently?
Is he not a businessman in all the same ways Gates is? I don't get it.

It seems to ME as if Applites will defend Steve Jobs up and down without thinking about the fact that he's a businessman, he wants money (as does Gates, as does Sergey and so forth), and he'll do whatever he can to obtain money and marketshare just as any other businessman does.

Like the 'EMI DRM-free music' thing. This was not an Apple-exclusive deal, but Steve was all like, "Yeah, you know, we're ready when the labels are, blahblahblah." when everybody KNOWS that the only reason DRM is as proliferated as it is today is because of Apple and the iTunes/iPod lock-in. (You know its made them money.) So in my mind, I wouldn't put anything past Steve. He's the head of a company that's been in the dumps for a long time and is heading out... but it's pretty obvious to me that it's because they'll pull out any stop to gain/keep marketshare. That means, persuading consumers (oh trust me, I'm well aware the MS does it too) with PR bull and adding gimmicky features to their products.

Now, that all said, I am not saying Jobs has anything to do with this whole scandal. But I wouldn't put it past him. He may not be the storybook "Bad Guy" but he IS a businessman, and that is probably almost the same thing.
Posted by DraconumPB (229 comments )
Link Flag
Please Read Up On SOX
"What the Act is about
The Sarbanes-Oxley Act created new standards for corporate accountability as well as new penalties for acts of wrongdoing. It changes how corporate boards and executives must interact with each other and with corporate auditors. It removes the defense of "I wasn't aware of financial issues" from CEOs and CFOs, holding them accountable for the accuracy of financial statements. The Act specifies new financial reporting responsibilities, including adherance to new internal controls and procedures designed to ensure the validity of their financial records."

"If a company isn?t in compliance...
What happens depends on which section of the act they?re out of compliance with. Non compliance penalties range from the loss of exchange listing, loss of D&O insurance to multimillion dollar fines and imprisonment. It can result in a lack of investor confidence. A CEO or CFO who submits a wrong certification is subject to a fine up to $1 million and imprisonment for up to ten years. If the wrong certification was submitted "willfully", the fine can be increased up to $5 million and the prison term can be increased up to twenty years."

If you read up on SOX you will notice that the CEO and CFO are responsible for everything even if someone lower made the mistake. The top people have to sign off on it.
Posted by badmojo42 (156 comments )
Reply Link Flag
Addendum ... and absolutely last response ... ever
The intent of the law, and the letter of the law has been a
dividing factor for civilization.

Companies like Enron are the reason SOX, and other federal acts
have been created, and/or proposed. With Apple stock splitting
at least 4 times (and more because I wasn't counting), and being
a 9$ a share before he came back on board, I can only stand in
complete shock at those trying to use a law to ensnare people in
actual criminal behaviour, and attempt to apply to Apple, it'
board, CEO, and shareholders. NOT ONE SHAREHOLDER IS
UNHAPPY WITH THE EITHER THE PERFORMANCE OF THE
COMPANY, THE CEO, OR THEIR RETURNS. SO WHERE IS THE
%^&* SCANDAL, AND WHERE IS THE WRONGDOING! If the SEC
feels they need to fine them, then so be it. But truly, I don't
want to see another Martha Stewart situation while people skate
by in situations like Adelphia, Enron, Halliburton, etc.
Posted by Thomas, David (1947 comments )
Reply Link Flag
to anyone who cares to know what I think...
"...NOT ONE SHAREHOLDER IS
UNHAPPY WITH THE EITHER THE PERFORMANCE OF THE
COMPANY, THE CEO, OR THEIR RETURNS. SO WHERE IS THE
%^&* SCANDAL, AND WHERE IS THE WRONGDOING!..."

I'm ******* happy my AAPL stock went from 10 to 100 since
Jobs return... as a stockholder, I say we vote to make whatever
wrondoing others claim Jobs did legal. To punish the CEO
responsible for Apple's success because of the supposed harm
of the backdating is what only a complete moron would do.
Posted by BobBobBobBobBobBobBob (49 comments )
Link Flag
Hi!
Generally speaking the rule of law, which is generally considered the foundation of western society, means that laws are enforced equally and without prejudice. Now, often times this fails and I'll ber the first to admit this. However, this does mean that just because the outcome of an illegal act is viewed favorably doesn't make the act any less illegal or prosectuable.

If Jobs fell afoul of the law then he should be held accountable. Not because the outcome of his action was positive or negative but because he violated the law.
Posted by rapier1 (2722 comments )
Link Flag
The one thing that everyone forgot.
The problem was found by apple, Not law enforcement. When Steve Jobs found out that the law had been violated, he did not order a cover up, he ordered Apple to report the violation to the SEC.

Steve Jobs should be rewarded for doing the right thing.
Posted by ralfthedog (1589 comments )
Reply Link Flag
The one thing you forgot.
Whether the problem was found by a super Mac G5 or by god Steve Jobs, the problem still existed.

Is it al right I kill someone as long as I report it to police after doing it?

Fanboyism makes you short-minded.
Posted by Fil0403 (1303 comments )
Link Flag
Week in review: Mac is hacked and gets 25 security updates
"A security hole in QuickTime media player was apparently used to breach security in Apple's MacBook in a hack-a-Mac competition."

The supposedly unbreakable Mac gets 25 security updates and gets hackes and doesn't get more than a last sentence mention in the 2-page week-in-review review.

Oh right, this is CNET.
Posted by Fil0403 (1303 comments )
Reply Link Flag
 

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