BusinessWeek Examines Apple's Stock Options

Alex Salkeveris newest Byte of the Apple column for BusinessWeek takes a look at the impact that an impending change in accounting rules could have on Apple. Those new rules, if enacted, would require companies to expense stock options, something that many tech companies currently do not do. If that should change, however, it could drastically reduce reported profits, and Mr. Salkever shines the spotlight on how that might effect Apple. From the article:

Though the bulls are clearly running, at least one influential stock watcher thinks trouble looms for Apple shares over the next year or so. Albert Meyer, principal of Second Opinion Research, sees problems for Jobs & Co. when Fair Accounting Standards Board (FASB) Rule 123, which would force companies to expense stock options, kicks in.

When that happens (the precise date for implementation is still uncertain), Appleis earnings per share could fall, says Meyer, who doesnit own Apple stock. He bases his argument on an analysis of Appleis earnings numbers for the most recent four quarters, a period that ended on Mar. 27, 2004.

Most analysts on the Street say theyive 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, Appleis earnings over the past four quarters would have fallen 69%, from 46 cents per share to 14 cents per share, according to his calculations.


Meyer may have a point, in my view.

There is much more in the full article, and we recommend it as a very interesting read, especially for AAPL investors.