Vox Rationalis

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

Alan Brochstein wrote:

> Deferred revenue means that the company collects cash but hasn't
> booked the sale... The presence of a large amount of
> deferred revenue vs cash tells me that the cash won't go up in the
> future, al lthings equal (unless they grow deferred revenue).

True. But your point in the article was not just that these things indicate cash will not go up, but that cash could go down: "...non-debt liabilities that can act as claims on cash, like...deferred revenue..." does not hold in Apple's case. Where in almost all cases deferred revenue is associated with a future cost (labor or product to be delivered), most of Apple's deferred revenue is not. There is no product to be delivered, no work to be done, no order that can be canceled. There are no circumstances under which this deferred revenue will not become shareholder equity as quarters go by.

Apple is a very rare case, however.

Cash Analysis: Wal-Mart, Lilly, Verizon Not Quite So Rich

The author wrote:

"...examples of non-debt liabilities that can act as claims on cash, like deferred taxes or deferred revenue..."

Not necessarily. A large majority of Apple's deferred revenue is due to subscription accounting of iPhone and AppleTV sales. Almost always, deferred revenue is due to prepayments collected for work or product not yet delivered, but in Apple's case most of it is simply accounting mumbo-jumbo.

"...and there are asset impairments (such as AR or Inventory ) that can create a short-term claim on cash as liabilities must be met."

Well...these assets can't claim cash directly, but if they aren't converted to cash as expected, existing cash won't go as far. Also, as has been recently reinforced, asset write-offs directly affect owner's equity (capitalization), which can have other impacts on cash usage depending on the company's situation.

By the way, it's funny to see a list of "cash-rich" companies without Berkshire Hathaway, which isn't in the S&P 500.

Canaccord: Three New iPhones Expected in 2009

On Feb 06 03:05 PM Arnold Reinhold wrote:
> Don't forget all those iPhone gift boxes Apple sold in December.
> It's hard to give an iPhone to someone because they have to sign
> up for the data plan in person, so Apple made up gift boxes that
> had cards inside that the recipient can exchange for the phone itself.
> Apple sold a lot of these but only those converted to phones in the
> week after Christmas would show up in the last quarter's sales numbers.

I don't think so. These are iPhone sales where delivery hasn't yet been taken. Take a look at the financials - there's nowhere for these sales to hide.

Canaccord: Three New iPhones Expected in 2009

On Feb 06 02:14 PM AGuysOpinion wrote:

> You can't form a view on yr/yr growth rate based on a sequential
> sales comparison when the decline is impacted by seasonality

Who said anything about year-over-year growth, and how could anybody think year-over-year sales of a tech gadget is more meaningful than sequential growth?

Canaccord: Three New iPhones Expected in 2009

The muffin man wrote: "Apple had about 2 milion iPhones in the pipeline ( from the September quarter) which they cleared in the December quarter, and they didn't show up in the sales statistic..."

Yep, I must have no clue, because it seems to me that you're saying Apple's not comparing apples to apples (so to speak) in their last two financial filings. Is that what you're saying?

Is Apple Poised to Move into the Living Room?

uh-huh wrote: "Apple TV was not HD (DVD resolution is not HD)."

Key word here: "was." The original Apple TV software didn't do HD. The current version does 720p. Which, last time I checked, was HD.

Tool.

Canaccord: Three New iPhones Expected in 2009

Anybody who assumes iPhone sales are NOT decelerating doesn't have a clue about product cycles. Why would anybody even question this premise? It's not even a ding against Apple - it's just the way things work.

Last year Q3 - 6.9M.
Last year Q4 - 4.3M.

The Dow's Lost Decade

The cited article said: "At the end of 1999 the Dow was around 11,400. Today the Dow is at 8,400, which means the index has fallen some 26%, a decline of almost 3% per year. With just one year left in this decade - even if 2009 is a humdinger - it is increasingly likely that first 10 years of this century will be one big washout for investors. A lost decade."

How can a critique of this statement not include a discussion of dividends, which are not included in the price gain (or loss) of the DJIA?

Apple SEC Investigation: Rotten to Core

"My impression is that he simply didn't know that much about what was going on with his weight loss-- which is consistent with how oncologists manage their patients-- particularly when the prognosis is grim."

"As many of you know, I have been losing weight throughout 2008. The reason has been a mystery to me and my doctors. A few weeks ago, I decided that getting to the root cause of this and reversing it needed to become my #1 priority. Fortunately, after further testing, my doctors think they have found the cause -- a hormone imbalance that has been "robbing" me of the proteins my body needs to be healthy. Sophisticated blood tests have confirmed this diagnosis. The remedy for this nutritional problem is relatively simple and straightforward, and I've already begun treatment."

Everybody can decide for themselves.

Apple SEC Investigation: Rotten to Core

Crocodilian wrote: "This assumes that Jobs knows information about his health, and was withholding it..."

No, there is no such assumption stated or implied. I repeat: "As for Jobs' right to privacy - he has it just as far as it doesn't compromise his fiduciary responsibility to shareholders." This doesn't just mean Jobs, and it doesn't just mean health-related information.

"So shareholders knew and know all they needed to know, probably at the same time Jobs did. He was losing weight and looked ill."

I'm guessing that the SEC's problem lies in Jobs' email, nine days before he took his leave, which appears to be of questionable veracity. The rest of it, meaning the boards long-term resistance to revealing anything, is likely nothing beyond annoying to the investment world.

Apple SEC Investigation: Rotten to Core

cube wrote: "BS: cite precedent where a board member was forced to reveal personal health information as part of "fiduciary responsibilities". Yet Steve Jobs, in signing on to the board, should have known that he has responsibilities beyond the normal."

Okay. McDonald's had a CEO die of a heart attack a few years ago. The man who replaced him found out almost immediately that he had colon cancer, for which he had surgery. The company stated that it would have no further comment out of respect for his privacy. A few weeks later, however, he revealed that the cancer had spread and that he was going to start chemotherapy. He remained CEO for a time, but within months resigned as the cancer made him unable to fulfill his duties.

Can you tell me his name? No big deal, not many people could - Charlie Bell. Here was a man who was clearly less important to his company than Jobs is to Apple, but he revealed that his cancer was not contained before it became debilitating.

Now, do go ahead and tell me that this example doesn't mean anything.

"And privacy is not protected? I know there are issues and boundaries, but there is general agreement of 'rights to privacy.' This is part of that hard-to-understand 'life, liberty and the pursuit of happiness' stuff (which isn't in the constitution)."

You should look up "strict constructionist." This was an argument that I wrote I would not make. Nobody is infringing on Jobs' right to privacy - he has made a choice to forego some of the rights we all enjoy in exchange for taking a high-profile job in a publicly traded company.

But look, clearly I'm not going to convince you of this. I think we've laid out our arguments and readers can decide for themselves.

Apple SEC Investigation: Rotten to Core

Cube wrote:

"By the same token, you could argue that shareholders have a right to listen to every phone call Steve Jobs makes, because it could have 'material information.' BS."

No, you couldn't. This is quite specifically not about shareholder's rights, but about board members' fiduciary responsibilities. If members of the board have material information, they have a duty to release it as soon as is practicable.

"But, more significantly, Steve Jobs' health is not 'material information' about the company. He is not the company."

I haven't explained material information well enough, apparently. Here's another definition, this time from investorwords.com: "Information which would be likely to affect a stock's price once it becomes known to the public." You may not like it, I may not like it, it may be unfair, it may be perverse, it may be gross. None of this matters. If the information is likely to move the market, it is material, and the board has very specific responsibilities regarding it. Period.

"His health is protected by privacy, and the constitutional protections (yes) trump phony shareholder rights. Its not infrequent that laws come in conflict. When they do, certain rights prevail."

First off, you don't understand the Constitution. A strict constructionist would ask you to point out exactly where in the Constitution an individual right to privacy is affirmed. But let me explain this in a different way.

I have a right to free speech delineated in the Constitution. If I speak out against policies or actions that my company takes, my company can fire me - this has nothing to do with the Constitution. If I take Constitutionally-prote... actions in violation of a contract that harms the other party to the contract, I can be forced to pay damages - this has nothing to do with the Constitution. And though the Constitution affirms my right to free speech, that does not mean that my speaking does not violate other laws - shouting "fire" in a crowded theater is the most famous example, but there are countless others.

Nobody is saying Jobs does not have a right to privacy. What they're saying is that Jobs, by taking a position on the Board of Directors of a publicly-held company, accepts certain responsibilities to the shareholders of that company. If his desire for privacy makes it impossible to meet the obligations of being a member of the board of directors, he should resign. Sorry.

Apple SEC Investigation: Rotten to Core

cube wrote: "Who decided that Steve Jobs has no right to privacy? Where did his constitutional protections go?"

Sigh. This has nothing to do with the Constitution. It has to do with corporate governance. As for Jobs' right to privacy - he has it just as far as it doesn't compromise his fiduciary responsibility to shareholders. As a member of the board of directors, he must provide material information (see above) to the public. If his desire for privacy is in conflict with his fiduciary responsibilities, then he has a choice to make.

"If they have evidence of insider trading based on this, fine. Otherwise, its a fishing expedition. As in 'well, there could have been insider trading, so ...'"

Except that insider trading is not the only issue here. The Apple board has a history of withholding material information. The SEC could clearly be investigating this also.

"Stockholders are only harmed if others made use of the information they did not have access to."

Not so. Shareholders and potential shareholders are harmed if material information is withheld, period.

"But stockholders have no basic right to Jobs private health concerns. In fact, their assertions of this right are both unconstitutional and offensive."

Again, there's nothing related to the Constitution here. But more importantly, this issue is not about the stockholders' rights, but about Jobs' and the board's responsibilities and whether or not they met them.

Apple SEC Investigation: Rotten to Core

lilgto wrote:"who is to decide what is material and what is not?"

The SEC ("Information is material if 'there is a substantial likelihood that a reasonable shareholder would consider it important' in making an investment decision"), and every ethics-driven investment organization, such as the CFA Institute ("the information would be considered relevant to an investor who is considering investing in this stock, or to a current shareholder wishing to
sell"). Seems to me, even though the reaction to the recent announcement was less than most expected, that Jobs' taking a leave of absence moved the market. Clearly, the information was material.

"Could it be that Steve Jobs, while inspirational, is no longer involved in any day to day operations that are of material significance to the future of the company?"

No, it could not. If this were the case and the board didn't disclose it, they would be in much more trouble.

"Just too many gray areas here."

Not too many at all. Is just any CEO's health a matter of concern to investors? Probably. Is Jobs' to Apple investors and potential investors? Yes. No, not all companies are the same, and yes, the Apple Inc. investment community is more concerned with Jobs' health than most other companies' investors are concerned with other CEOs. Is this fair? It actually doesn't matter - if the price of the stock is likely to move based on the release of information about Jobs' health, the board has a duty to shareholders to provide all information it can as soon as it has the information.

Apple SEC Investigation: Rotten to Core

How many things did you get wrong in this article? Let me count the ones that scream out "WRONG!"

1. Because the SEC screwed up other things, it should not investigate Apple for potential misconduct. Laughable. What then should the SEC do now? Nothing at all?

2. "If Apple was not doing well, all of this wouldn't be an issue." Nonsense. Boards of directors have a fiduciary responsibility to the SHAREHOLDERS whom they represent. If they have material information that they do not disclose, they are not meeting their responsibilities, regardless of the success of the company.

3. You are in the executive office of Apple... How do you determine the right time to mention it? Will he live or die?" Luckily, it wouldn't be my job - it would be the members of the board of directors. The problem really is Jobs' letter, ten days before he took his leave of absense, saying that testing (and re-testing) had confirmed that his weight loss was due to a "hormone imbalance."

4. "...he also found time to start Pixar while he was at Apple. A person who micromanages cannot do both things, further evidence that the company runs on its own." No. Jobs started Pixar after buying part of Industrial Light and Magic after he left Apple in 1985. I guess that demolishes the second part of this argument.

5. "What if a CEO slipped and went off the wagon and messed up a deal. If he tells his AA group, does he have to tell the SEC?" The CEO, unless he's also on the board of directors is an employee - he answers to the board. If the chairman of the board knew this, thought it might be material, and withheld the information from the rest of the board and from shareholders, he or she would certainly be violating his or her fiduciary responsibility.

6. "Should a CEO be able to ride a Harley? Should Richard Branson be a daredevil? All of these things risk hurting a company, but one has to make allowances for people to live their lives." Is there any secret about Branson being a daredevil? No - THAT'S THE POINT. Anybody who has a financial interest in Branson's endeavors knows this about him. Taking the other side of this argument - suppose Branson's planning to jump a rocket car over the Grand Canyon. If he has a fiduciary responsibility to investors, does he violate that responsibility by hiding his plans until the day of the jump? Of course he does.

7. Martha Stewart was made an example of - true. She was also completely, utterly, unarguably guilty.

I think this goes nowhere, but the SEC does shareholders a service just by putting Apple on notice that they are paying attention.