John,
re: < I'm not sure which accounting firm audits Intel's books, but if you are right on that, they have a problem. >
Petz was referring to Intel's reporting of its operating segments' revenues. It doesn't have to go through same auditing as the quarterly earnings reports.
Intel can control/report the operating segments information in any way it deems appropriate.
In Q4 annual report, Intel applied new accounting rules related to certain item to inflate IAG growth. IMHO, this was done to hide AMD competition factor. I posted on this board some numbers compiled from Intel's Q3 & Q2 earnings reports. Here is the same info, which I have modified to make it more easier to understand -
_______________________________________________________________
Did Intel create a perception of higher IAG revenues, and profits using new accounting rules? - Q3'00 - Q2'00
In Q3, Intel changed Operating Segment revenues & profits
accounting rules.
- They applied changes in profits, and revenues from the
"Distributor charges" to the "IAG" operating segment.
- Prior to Q3, they added these changes to the "All other"
operating segment.
Net effect of the Operating Segments new accounting rules:
- Considerable amount of IAG revenues shifted from Q2'00 to Q3'00.
- Allowed Intel to use the same revenues twice, to bolster Q2 & Q3 IAG
numbers in its Q2 & Q3 individual earnings reports.
How much of IAG revenues & profits shifted from Q2 to Q3?
- $183 Millions in Revenues.
- $373 Millions in operating profits.
- Q2 IAG sequential profit growth turns negative if one adjusts Q2 IAG
numbers to reflect this shift of revenues from Q2 to Q3 !!!!
What if Intel had restated its Q2 IAG numbers with new accounting rules?
o investor community would have seen that
- 5.63% IAG sequential growth shown in Q2 earnings report gone
down to about a measly 1.64%.
- 6.21% IAG sequential profits growth shown in Q2 earnings report
gone down to -2.5% (negative 2.5% !!!.)
Did Intel disclose the effect of this shift of Q2 revenues & profits
to Q3 on Q2 IAG sequential growth & profit numbers?
- In Q3 earnings report - no, if I'm not mistaken, the company didn't
make any direct attempt to inform the investment community that a
considerable portion (about 50%) of the good IAG numbers shown in Q3
earnings report were due to the cannibalization of IAG numbers it showed
in Q2 earnings report.
- In Q2 earnings report, they did provide information about the
impending change in the operating segment reporting change in text.
To see the effect of Intel's new accounting on IAG numbers, we have to look at
IAG growth during the previous two quarters - Q2 & Q3 (or Q3 <-- Q1).
This eliminate double use of same revenues as Intel did in its Q2 & Q3
individual earnings reports.
What I observed was that the actual IAG revenues & profits growth during the
previous two quarters (Q3 <-- Q1) by doing apples to apples comparison were
only 40% - 50% of the cumulative growth that can be perceived from the
Intel's Q2 & Q3 individual earnings reports. Some thing doesn't seem right
here. Hope I didn't make any mistakes compiling all this stuff from different
earnings reports.
Check out the table provided below to understand what I'm trying to explain
here:
- Numbers shown in columns 1 & 2 are operating segments' numbers directly
taken from the Intel's Q2, and Q3 individual earnings reports.
- Column 3 contains Q2 & Q1 numbers taken from column 2, but were adjusted
to reflect Intel's new accounting rules for operating segments' revenues
& profits.
If you check the "perception", and the "Actual (all adjstd to new
actng)" rows, you will notice the net impact of the new accounting was to
create a better perception of IAG revenues, and profit growth than actually
were.
Please note Q1 adjusted numbers shown are very close approximations based on
the information provided by Intel in its Q2 & Q3 earnings reports.
Intel Operating Segment Information
===================================
(Numbers shown in Millions of Dollars)
See Note1 | See Note2 | See Note3
| |
| |o Q1 numbers -Derived from
| | the info contained in the
Numbers from | Numbers from | Q2'00 Earnings Report
Q3'00 Earnings | Q2'00 Earnings |
Report (New actng) | Report (old actng)|o Q2 numbers from the Q3'00
| | Erngs Report (new actng)
------------------------------|-------------------|------------------------
Q3'00 Q2'00 | Q2'00 Q1'00 | Q2'00 Q1'00
IAG: | |
=== | |
Revenues $7,038 $6,759 | $6,952 $6,581 | $6,759 $6,650
| |
Growth % Q3<--- 4.13% <--Q2 | Q2<-- 5.63% <--Q1 | Q2<--- 1.64% <---Q1
| |
Perception (see Note4) Q3<---- 9.99% <-------Q1 |
|
Actual (mixed actng) Q3<---- 6.94% <-------Q1 |
|
Actual (all adjstd to) Q3<---- 5.83% <-----------------------------Q1
(new accounting)
| |
| |
Op Profit $3,457 $3,084 | $3,257 $3,010 | $3,084 $3,131
| |
Growth % Q3<-- 12.09% <--Q2 | Q2<-- 6.21% <--Q1 | Q2<--- (2.5%)<---Q1
| |
Perception (see Note4) Q3<--- 19.05% <-------Q1 |
|
Actual (mixed actng) Q3<--- 14.85% <-------Q1 |
|
Actual (all adjstd to) Q3<--- 10.41% <-----------------------------Q1
(new acntg )
| |
------------------------------|-------------------|--------------------
All Other: | |
========= | |
Revenues $1,693 $1,541 | $1,348 $1,412 | $1,541 $1,340
Op Profit ($600) ($676) | ($849) ($456) | ($676) ($384)
Note: ER -> Earnings Report
Note1: As of Q3'00, Intel changed its accounting rules in reporting the
profits, and revenues related to changes in the "Distributor
reserves:. This was what stated in the Intel's Q3'00 earnings
report -
o__ As of the third quarter of 2000, the revenue and
operating profit related to changes in the distributor
reserves have been allocated to the operating segments
.... Information for prior periods has been restated to
conform to the new presentation. __o
Numbers shown in this column are directly taken from the Intel's
Q3'00 ER.
Note2: Numbers taken from the Intel's Q2'00 ER. These were based on Intel's
old accounting rules, where the profits, and revenues related to
changes in the "Distributor reserves" were applied to the "All Others".
Note3: Q2'00 numbers were the Intel restated Q2 numbers from the Q3'00 ER.
Q1'00 numbers were adjusted to new accounting rules by applying
the textual information provided in the Q2 ER.
Note4: Cumulative growth was calculated based on Q3, and Q2 individual growths
shown by Intel in the Q3, and Q2 ERs ( cumulative growth =
((1+Q2 seq Growth) * Q3 seq growth ) + Q2 seq growth.)
This number represents the growth that one would perceive that had
occurred just by looking at the Q3, and Q2 individual ERs, without
going through the mumbo jumbo of changes in Intel's reporting.
_____________________________________________________________________
goutama |
