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AAPL Stock: 112.36 ( -0.3 )

Printed from http://www.macnn.com

BW: Accounting changes could affect Apple\'s stock

updated 02:15 am EDT, Fri June 25, 2004

AAPL stock overpriced?

One analyst says that Apple could face problems, , and a falling stock price when the Fair Accounting Standards Board (FASB) Rule 123, which would force companies to expense stock options, kicks in, according to BusinessWeek: "Most analysts on the Street say they've already priced the cost of options into the Apple equation. And Apple does calculate those costs in a footnote of its earning reports. But its options exposure is high compared to other tech companies, Meyer claims. If stock options had been treated as a cost on the balance sheet, Apple's earnings would have fallen 69%, from 46 cents per share to 14 cents per share."

BusinessWeek also notes that Merrill Lynch's numbers (from April 2004) confirm the same analysis with Apple ranking "74th out of 86 tech companies in terms of how much estimated 2005 earnings could decline if stock options were to be treated as a line-item cost on the balance sheet.... By comparison, HP ranked 23rd, and Dell ranked 35th. With options expenses included in balance-sheet calculations, Apple's price-earnings ratio for fiscal 2005 would soar to 187, according to the Merrill numbers. Under those same calculations, Dell and HP would post p-e ratios of only 28.4 and 16.4, respectively."




by MacNN Staff

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Comments

  1. bobolicious

    Joined: Dec 1969

    0

    blame...

    ,,,the ego-man...

  1. macjockey

    Joined: Dec 1969

    0

    goes to sho

    goes to show Apple pays Steve WAAAAAAAAYYYYYYY to much money. No one should make that much money.

  1. MacScientist

    Joined: Dec 1969

    0

    The obvious

    OK, what's going to happen to Microsoft's earnings report? Having not read the article, I notice that mention of M$ is conspiciously absent in this little snippet.

  1. jimothy

    Joined: Dec 1969

    0

    It's not Steve

    As far as I know, Steve receives exactly 0 stock options. He once had options, that were swapped for a stock grant. Stock grants are, and always have been, expensed.

    Other executives, management, and even rank-and-file are granted stock options. The expensing of stock options is a bad idea that will achieve exactly the opposite of what this knee-jerk legistlation is intended to accomplish. Instead of eliminating the book cooking and questionable accounting that caught media and Congressional attention, it will encourage it...no, mandate it. Calculating how to expense options requires accurately predicting a stock's future market price, something anyone can tell you is impossible (anybody who tells you otherwise better be the richest person on earth, or he is lying). The FASB is requiring CFOs to invent numbers for their quarterly reports.

    Expensing stock options means that reported "earnings" will diverge still further from a companies actual cash flow, making it more difficult for both individual and institutional investors to guage how well a company is actually performing.

    As is typical for knee-jerk legistlation, this law will backfire and turn what was, on the whole, a minor, isolated problem and blow it up into a huge, pervasive problem. The cure is orders of magnitude worse than the disease.

  1. testudo

    Joined: Dec 1969

    0

    Run!!!

    This is it! The end is near! Apple is going under! Analysts can't be wrong!!!

    A couple of notes. First, the value of the company the day after they expense options as it is the day before, its just the numbers are moved around. To say that somehow expensing options is now going to drive down the price of the stock would just show that borkers and analysts weren't doing their job in the first place by taking that stuff into account.

    Second, and more important. All you dumbasses are wrong! Steve-o has NO stock options. He traded that stuff in last year for restricted stock! (You remember, this is why you all complained he was overpaid in 2000, when he got the stock options, then overpaid in 2003 when he traded them in, without then going back and saying "Oh, but now he was really underpaid in 2000). Being restricted stock, its already showing up on the balance sheet (unless, due to the restrictions, they aren't going to expense it until it becomes unrestricted). Ergo, if you're just looking at steve, the new balance sheet will be exactly the same as the old.

    Its all the other employees who are getting the options (although if they have to expense them, they might be getting less of them now).

    On the article front, its all based on projections, analysis, and calculations. And when it comes to business, the one thing you can count on is that analysts, reporters, and brokers can't do simple math in their head (hey, if they could, someone very early on should've noticed the goings-ons at Worldcom, Enron, Adelphia, etc, etc, etc).

  1. SpiffyGuyC

    Joined: Dec 1969

    0

    Imagine That.

    Alex Salkever has written a negative doom-and-gloom story about Apple. What a freakin' surprise..... Every story I've ever read by this guy is roughly along the lines of "I love the Mac, but I'll be surprised if this company survives another week." Yea, I really can't stand Salkever.

  1. jimothy

    Joined: Dec 1969

    0

    re: run!!!!

    Hey, testudo, not all we dumbasses are wrong. This dumbass made the same point you did...Stevie doesn't hold any options.

    A dumbass has to defend his reputation!

  1. cyngus84

    Joined: Dec 1969

    0

    Quick Henny Penny...

    ...the sky is falling, or is it? Companies have used options for years, we all know this. Just because you're now expensing them doesn't mean they didn't exist before. Operationally zero changes while expensing options. You can bet your first born that in 10 years the only number people will give any weight is "earnings before stock related expenses". Yes options do have an effect in that they dilute current equity. However, they are a NON-CASH item. Unlike an non-cash item like depreciation they have ZERO impact on the business of a company. Whereas something like depreciation indicates a deferred cash expense, stock options indicate a zero expense to the company, they are only an expense to the shareholders and as such are of little consequence to the company's value.

  1. testudo

    Joined: Dec 1969

    0

    re: dumbasses

    Hey, jimothy, I wasn't referring to you, as I didn't read your comment until after my post. I was just referring to the other dumbasses on the board who assume everything's steve's fault because of his rich income or something.

  1. jimothy

    Joined: Dec 1969

    0

    dumbasses & henny penny

    testudo, I know. I was just having fun with you.

    cyngus84, the reasons you state are exactly why stock options should not be expensed.

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