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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.”

Disney CFO: ESPN Will Be Fine If There’s a NFL Lockout

As the National Football League and the players union continue contract talks, Walt Disney Co. Chief Financial Officer Jay Rasulo was pressed Tuesday to answer questions about how a potential strike or lockout would impact sports juggernaut ESPN. Rasulo expressed confidence that Disney’s lucrative sports network, which has the rights to “Monday Night Football,” could weather the loss of games, telling the audience at Credit Suisse’s Global Media and Communications Convergence Conference that “we’re not that concerned.” [LAT]

Transitioning from Typical Accountant to CFO Superstar

Let’s face it, accountants aren’t often featured as heroes in action flicks nor romantic leads in love stories, and are pretty much ignored by the media unless it involves blame and/or complicated financial rules that are just barely an accounting matter (accountants did not securitize every loan nor did some nefarious squad of beancounters dream up Repo 105) so it’s pretty exciting to see the Washington Post heralding accountant turned CFO Carl Adams.


No, he doesn’t have 12 mistresses and he hasn’t gotten any DUIs (that we know of) but the smart professional is cool again. As if he (or she) ever wasn’t.

Carl received his accounting degree from Penn State and, presumably, was really impressed by what he saw when he entered public accounting via Ernst & Young, so much so that he hung around to make senior manager before leaving to do a stint with the SEC.

Transitioning back to the private sector meant applying what he’d picked up from E&Y and the SEC in the capacity of an accounting professional, except plain old “accountant” just didn’t fit him anymore. Perhaps accountants are far more “superhero”-like than we give them credit for? Adaptable, talented, and equipped to deftly switch careers like some folks switch lanes on the freeway; what’s not to admire?

Since most CFOs are professionally qualified to be accountants anyway, a guy like Carl may not seem so spectacular on the surface but when you consider the ever-sophisticated landmine-laced territory of financial statements, there is no such thing as an over-qualified CFO. The definitive line between CPAs and finance professionals slowly becoming blurred and may become non-existent.

Since we know accountants – generally speaking – are change-adverse, why not introduce a more comprehensive curriculum in accounting programs that prepares future CPAs for this diverse, brave new world of accounting and finance to offer them maximum flexibility to transform with the industry?

Sorry for you old schoolers, the green eyeshade has been retired for quite some time: now is the era of the ever-evolving, constantly-changing, ready to head off the next Repo 105 before Wall Street implodes itself again accountant. Movie coming to theaters near you in 2011… in 3D!

Carl Adams: An accountant who yearned to do more finds his calling as a CFO – New at the Top [WaPo]