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February 22nd, 2000

[8:00 AM] Steve's Jet, Is It A Recurring Or Non-Recurring Item?
by Wes George

The San Jose Mercury News noted in a recent article that Apple's first fiscal quarter earnings per share of $1.00 would have been slashed to $0.49 per share, well below analyst's estimates, if Apple had counted the Gulfstream V jet Steve Jobs received as a "recurring" instead of a "non-recurring" expense.

KPMG LLP (Apple's accounting firm) allowed Apple to classify the one time gift jet as a "non-recurring" event, thus Apple reported operating income of $178 million and subtracted the cost of the jet ($90 million) off the top of the total net income reported for the quarter.

Recurring costs or normal operations costs comes out of the operating income, while extraordinary items or non-recurring costs are written off the total net income number. While the cost of the jet is accounted for either way, you can image the horrible reaction from investors if Apple had missed earnings expectations by 50%.

According to the SJM News: "Critics say the jet should be considered a bonus, albeit an unusual one, and should be treated as part of compensation, which is a recurring expense."

Others defend Apple's decision as the only proper and sane way to account for the jet's cost. Lou Mazzucchelli, securities analyst for Gerard Klauer Mattison & Co. told the San Jose News, "They won't be doing this again. How would you top it? Give him an island? A small country?"

The Mac Observer Spin: While seemingly an argument for bean counters and those with too much time on their hands, this sort of thing is actually important to Wall Street types. Both arguments carry at least some weight, but it is certain that the jet was a one time event.

On the more opinionated side: If the respected San Jose Mercury News is so vigilantly investigating such petty accounting distinctions, one has to wonder why they haven't delved seriously into the massive stock option irregularities that lie just below the surface at many of Silicon Valley's best and brightest corporations, including, possibly, Apple?

There are lots of issues under the surface that lie somewhat outside the scope of The Mac Observer's coverage and are better suited to mainstream financial publications. However, we believe that some serious issues are being buried by the mainstream press and if allowed to continue unexposed these accounting irregularities could ultimately derail the US stock markets.

For a taste of the magnitude of the problem, visit Bill Parish's website dedicated to his one man battle against Microsoft's special brand of creative accounting. While we can't vouch for the veracity of a single word of Bill Parish's scathing indictment, if one tenth of his analysis is true, all is not well in silicon land.

For other stories regarding Apple's stock activity, visit our Apple Stock Watch Special Report.


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