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Delisting Warning for Apple

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Times Staff Writer

Apple Computer Inc. said Friday that it would appeal to Nasdaq officials to keep the company’s stock listed on the exchange while an investigation into the timing of stock option grants delays the filing of quarterly financial reports.

The Cupertino, Calif., company formally notified the Securities and Exchange Commission on Friday that it would not meet the deadline for reporting its fiscal third-quarter results.

That triggered a letter from Nasdaq saying Apple no longer met the exchange’s listing requirements. Companies that trade on the tech-heavy Nasdaq have 40 days after the close of a quarter to file their reports with the SEC.

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Apple warned investors last week that it would delay filing for the quarter that ended July 1 while it investigated irregularities in option grants.

The maker of iPods and Macintosh computers is the most prominent of the dozens of companies under scrutiny for their handling of options. Some allegedly distributed or dated options when their stocks were down so recipients could reap higher potential payouts.

Few who track Apple expect Nasdaq to delist the company’s shares, which will continue to trade while the exchange’s officials decide how to proceed. Apple spokeswoman Katie Cotton said the letter from Nasdaq was a procedural notification sent whenever any company misses a quarterly or annual SEC filing.

“We fully anticipated receipt of this letter,” Cotton said. “We’ll file our [quarterly report] following completion of our independent investigation. We’re focused on resolving these issues as quickly as possible.”

Analysts said Apple’s SEC filing represented no “new news” -- just generic language that there would be significant increases in revenue and expenses for the quarter ended July 1 as compared with a year earlier.

“The reference to significantly higher revenues and expenses was merely a qualitative statement of fact, not a signal that results will differ from the recent earnings release,” wrote Bill Shope of JPMorgan Securities Inc.

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Nonetheless, some analysts said investors could be spooked.

“I think it certainly has a psychological impact, in the sense that where there was certainty with respect to past numbers, there’s now uncertainty,” said Charles Wolf of Needham & Co. “Given that investors are risk-averse, it’s clear that Apple’s decline in share price from a week ago is at least in part a result of this options examination.”

Apple shares fell 42 cents to $63.65 on Friday. They had ended last week at $68.30, already well below their 52-week high of $86.40 reached in January.

The company announced in June that an internal investigation had found irregularities in stock option grants made from 1997 through 2001 and that its outside directors had hired an independent counsel to conduct an investigation. It announced its third-quarter results on July 19, reporting the second-highest quarterly sales and earnings in the company’s history.

On Aug. 3, Apple said it would delay the formal filing of those results because the internal probe had uncovered additional irregularities and the company and its directors concluded they would need to restate past financial statements to record non-cash charges for compensation related to option grants.

According to Apple’s filing with the SEC, it has not determined the amounts of these charges, the resulting tax and accounting effects or the periods involved.

In addition to potentially being delisted from Nasdaq, Apple faces other potential sanctions. SEC spokesman John Heine said the commission could bring civil actions against companies that fail to make timely filings.

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Calls to Nasdaq on Friday were not returned.

Wolf said he expected Apple to resolve the option questions quickly so it would not detract from new products expected in the fall.

“Apple relies on very positive press,” said Wolf. “If you guys write up the new iPods and add a paragraph saying Apple’s still embroiled in this stock option thing, it takes away from whatever positive force the new products might have.”

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