Apple Meets Expectations On Operations, Posts Loss

  • Posted: 15 January 2003 01:32 PM

    Earlier today Apple Computer released its earnings report for the fourth calendar quarter which indicated a profit from operations of $.03 per share but a net loss for the quarter of $8 million due to one-time charges.

         
  • Posted: 15 January 2003 03:46 PM #1

    6,000 Xserves shipped.  up from 5,700

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    Posted: 15 January 2003 04:26 PM #2

    Yeah, thats’s pretty termendous IMNHO (Xserve figures).  Working on a story about that for the morning.

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  • Posted: 16 January 2003 06:29 AM #3

    “which indicated a profit from operations of $.03 per share”

    Financial statements per Apple.com show an operating loss of 37 million. How did you get an operating profit?

    see: http://a736.g.akamai.net/7/736/51/d7738f9e84b72b/www.apple.com/pr/pdf/q103fin_statements.pdf

         
  • Posted: 16 January 2003 07:27 AM #4

    The $37 million is before the benefit of $29 million in interest income. The sharp drop in interest rates has had more of an impact on Apple’s operating earnings over the past 18 months than any other factor.

    Apple now has more than $4.4 billion in cash and investments and more than $4 billion in net tangible assets.

    As interest rates eventually move higher, Apple’s earnings will also rise due to the increase in interest and investment income. Interest income is considered a component of overall operating results.

         
  • Posted: 16 January 2003 07:52 AM #5

    “The $37 million is before the benefit of $29 million in interest income”

    True. and interest income is irrelevant to the operating profit/loss figure.
    Operating profit/loss is Sales minus Cost of Sales minus Operating Expenses.

    Operating profit/loss plus Interest Income gives you Net Income before taxes.

    Therefore, Apple had a loss from operations of 37 million, and a “before taxes” income of a loss of 8 million.

    Am I missing something?

         
  • Posted: 16 January 2003 08:52 AM #6

    You’re missing the one-time restructuring/accounting change charges totalling $19 million.  The 3-cent profit figure is the number before the one-time charges, hence the quoted $11 million/3-cent net profit “excluding non-recurring charges” figure.

         
  • Posted: 16 January 2003 09:48 AM #7

    “You’re missing the one-time restructuring/accounting change charges totalling $19 million. The 3-cent profit figure is the number before the one-time charges, hence the quoted $11 million/3-cent net profit “excluding non-recurring charges” figure.”

    Restructuring charges are considered to be an operating expense, as they are on Apple’s financial statement.

    We could say Apple had a $37 million operating loss, and excluding non-recurring charges, Apple had a net profit of $.03 per share.  But to say the $.03 per share figure reflects operating profit is not correct, it simply does not.

         
  • Posted: 16 January 2003 01:04 PM #8

    Interest and investment income is not irrelevant to operational performance.  The interest income allows Apple pricing flexibility. For example, in the December quarter Apple reduced gross margins on products sold from over 30% to under 27%. Without the benefit of interest income decisions concerning operations and product gross margins might be different.

         
  • Posted: 16 January 2003 01:24 PM #9

    [quote author=“Anonymous”]

    We could say Apple had a $37 million operating loss, and excluding non-recurring charges, Apple had a net profit of $.03 per share.  But to say the $.03 per share figure reflects operating profit is not correct, it simply does not.

    Regular interest and investment income are considered a part of operating activities. Hence regular interest and dividend income are included in figuring operating profits.

    To remove interest income from operating results would require the removal of interest payments on debt instruments from the operating results of companies that have borrowed money in order to fund operations.

    Both interest income and interest expense are a normal part of business operations and the income and expense are included in operating results.

         
  • Posted: 16 January 2003 02:33 PM #10

    [quote author=“Anonymous”]Restructuring charges are considered to be an operating expense, as they are on Apple’s financial statement.

    We could say Apple had a $37 million operating loss, and excluding non-recurring charges, Apple had a net profit of $.03 per share.  But to say the $.03 per share figure reflects operating profit is not correct, it simply does not.

    For the record, I didn’t say it does.  The rest of the missing math that created the “profit before x” scenario was the one-time charges, and it has been reported as stated, that the net profit before those charges was $11 million or 3 cents per share.  I didn’t suggest those weren’t considered operating expenses because I didn’t know if they were considered part of the operating expense or not.  Sounds to me like there’s no way to slice it that creates a technical operating profit.

    This sort of splitting hairs is of minimal use even to investors, though, as far as I’m concerned.  The facts are Apple’s quarterly reporting is here’s a quarterly loss, here are a couple one-time charges, here’s what we’re doing and why we think things still look good.  It’s the same as any company does.

         
  • Posted: 16 January 2003 03:34 PM #11

    DT:
    “Interest and investment income is not irrelevant to operational performance.”

    Operational performance was not the issue, your changing the definition of a standard of measurement was.

    The standard of measurement involved is GAAP (accounting), and Apple has prepared its financial statements according to GAAP. wherein interest and investment income are properly classified as Interest and Other Income/Expense, and are not
    classified as Operating Expenses.


    “Regular interest and investment income are considered a part of operating activities. Hence regular interest and dividend income are included in figuring operating profits.”

    Then, why does Apple’s December 2000 Income Statement show the following:

    Operating profit (loss): (420)
    Gain from sales of investments: 71
    Unrealizd loss on investment in…: (13)
    Interest and other income, net: 67
    Pre-tax income(loss): (295)

    Why doesn’t Apple include the 71 and 67 in the Operating profit(loss) figure?  Because it violates GAAP.

    Possibly, you are using phrases w/o consideration of their accounting meaning, whereas I am?

         
  • Posted: 16 January 2003 03:51 PM #12

    Operating profits and net profits before extraordinary items are two different measures. My point is that the Street was expecting a net profit per share of $.03, including interest income. That’s the measure by which the results are being gauged. I don’t know of a Wall Street analyst that factors out interest income or interest expense when making earnings per share forecasts.

    Interest income is a factor in Apple’s earnings per share and in the the company’s decisions concerning operations. The earnings on Apple’s cash and investments are factored into earning expectations.

    Including interest income, Apple met the Street’s expectations for the quarter. The drop in interest income anticipated by Apple as better yeilding investments mature will negatively impact Apple’s earnings for the balance of fiscal year 2003.

         
  • Posted: 16 January 2003 07:40 PM #13

    DT:

    What threw me was your reference to operating profit in “...a profit from operations of $.03 per share” in your initial post.

    IMO, operating profit/loss is an acctg phrase.

    The following quote covers both acctg and investments terms:
    “The Cupertino company’s net loss for the first quarter of its 2003 fiscal year totaled $8 million (2 cents per share).
    The results included a $2 million adjustment for accounting changes and a $17 million charge for restructuring.  Excluding those items, Apple said it would have reported a profit of $11 million (3 cents), matching the consensus among analysts surveyed by Thomson First Call.”

    Apple’s financial statements cover this nicely:
    The Income Statement excludes interest and investment income from operating expenses.
    And, the “Reconciliation of net loss to net income before non-recurring items” statement after its Income Statement adds back the restructuring charge and accounting change for a $11 million net income before non-recurring items per common share, or $.03 per share.

    No where is there a claim of “...a profit from operations of $.03 per share”

    And, we agree that the $.03 “net income before non-recurring items” per share figure properly includes interest income.

         
  • Posted: 16 January 2003 09:41 PM #14

    Right. Looking over the past several quarters, the bulk of Apple’s net profits per share were provided by the earnings on the company’s cash and investments.

    Several analysts have commented on this fact and for some it creates concern. Considering the recent large investment in retail operations and Apple’s practice of writing down development and acquisition costs as they arise, Apple appears to using its sales revenue to fund growth.

    Apple chose to move gross margins lower in the quarter and the new laptops are very attractively priced IMHO. This may have contributed to the loss on operations. As Apple moves prices closer to the cost of manufacturing, profits from operations will be pressured. The drop in interest income will reduce Apple’s earnings for the fiscal year.

    I understand your point. Interest and earnings on more than $4 billion in cash and investments can mask operational problems if not looked at carefully.