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In Non-iPad Apple News, A Look at Earnings Under New Accounting Rules

Editor’s note: This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for corporate finance executives.

Yes, yes. There’s plenty of iPad talk going on out there but we’ll resist the urge and focus on the numbers here.

Ron Fink wrote back in September about concerns over new accounting rules for revenue recognition doing little more than providing more areas of confusion for investors.

Under the new rules, companies can book revenue based on estimated sales prices for all the components of “bundled deliverables” all at once instead of on their current fair value. The expectation is that the rule will boost upfront earnings for tech companies whose products combine hardware and software.

Well, on Monday night, Apple made its first quarterly earnings report under the new rules and they certainly gave the tech darling a boost, but it’s unclear whether it will ultimately confuse investors. Indeed, they were likely distracted by Apple raking in $3.4 billion in net income for the quarter ended Dec. 26, up 50 percent from a year earlier.

Apple went to great lengths to explain the effect of the rules on its financial statements. The company revised its financial statements for each quarter from fiscal 2007 through fiscal 2009, the period it’s been selling both the iPhone and Apple TV, which it had previously used subscription accounting for because it periodically provides free software upgrades and features for them.


Under subscription accounting, revenue and associated product cost of sales for iPhone and Apple TV were deferred at the time of sale and recognized on a straight-line basis over each product’s estimated economic life of 24 months. This resulted in the deferral of significant amounts of revenue and cost of sales related to iPhone and Apple TV. The changes had the effect of slimming the company’s balance sheet considerably. Assets at the end of its fiscal year 2009 were reduced by $6.4 billion and liabilities were cut by $10.2 billion, giving a $3.8 billion boost to shareholders’ equity.

And in reconciling its first quarter 2009 to the new accounting standard, Apple showed net sales got a nearly 17 percent boost, while its cost of sales went up just 11 percent. That had the effect of stretching gross margins from 34.7 percent to 37.9 percent.

Apple, which wasn’t required to adopt the new rule until the first quarter of its fiscal 2011, certainly is not objecting to the change. In its earnings conference call Monday, CFO Peter Oppenheimer said, “We are very pleased by the FASB ratification of the new accounting principles as we believe they will better enable us to reflect the underlying economics and performance of our business and therefore we will no longer be providing non-GAAP financial measures.”

GM CFO: Today Is No Big Deal

Chris Liddell is thinking about the future!

“I’m not worried about today, I’m worried about the three months and the six months and the nine months” from now, GM Chief Financial Officer Chris Liddell said in an interview this morning on CNBC.

Liddell also had some frank talk about how GM can never go back to the bad, old days, when he said GM was a financing company with a car company “attached,” and the auto maker used its pension plan as a “piggy bank.” GM needs to have a “fortress” balance sheet to support its business plan, Liddell said.

So the intention is there but old habits die hard, amiright? Francine McKenna thinks so and makes a prediction:

My prediction: GM needs another accounting restatement before the 2012 election. This time it shouldn’t be retail investors who end up with the short end of this stick.

Any takers? November 6, 2012 is the over/under. We’ll take the overs (post-election day) and if we lose, we’ll take FM to dinner at the restaurant of her choosing.

Boeing CFO Reiterates Delivery Target of 787; No One Believes It

Confidential to BA: Everyone is sick of the defense contractor who cried “the jumbo jet is ready!”

Boeing Co is confident it can deliver the first 787 Dreamliner in the middle of the first quarter of 2011, the chief financial officer of the world’s largest aerospace and defense company said on Tuesday.

Speaking at a conference hosted by Morgan Stanley, James Bell reiterated the updated delivery target for the long-delayed carbon-composite commercial aircraft.

Last week, the company announced another Dreamliner delay — this one related to a a delay in the availability of a Rolls-Royce Plc(RR.L) engine needed for the final phases of flight testing. The plane is already more than two years behind schedule.

Boeing CFO repeats 787 deliver target [Reuters]