Anybody seen this ridiculous article from Thestreet.com ? Street.com seems to be obsessed with taking any opportunities to talk down Palm. This time they quoted some unsupported sources and say that Palm booked revenue from the discount in its last qtr and then dump the discount expenses on this qtr. To my knowledge, this is utterly false. As I can recall from the last cc, Palm subtracted the discount from the Palm IIIx revenue and booked the lower number as the revenue. That's why the revenue came out a bit low last qtr. I think thestreet.com should just go out of business and I wouldn't even care. Please read this article and comment:
"At Palm, a Hard Look at the Rebate Numbers"
By Carolyn Koo Staff Reporter
2/14/01 3:23 PM ET
Some investors are wondering if Palm (PALM:Nasdaq - news) resorted to an
accounting tactic to meet second-quarter earnings and sales targets.
Palm, under tremendous pressure to produce
big sales gains and sustain its heady
valuation, issued a second-quarter earnings
report in December that beat Wall Street's
expectations. But at least one analyst says
the company succeeded in doing so only
because of the method it used to account for
a rebate on its IIIxe model. By booking the
reduction in revenue from the rebate in the
current quarter rather than when the product
was shipped, Palm effectively delayed the
rebate's revenue hit to a seasonally slower, less closely watched quarter, he
says.
Palm says its accounting is perfectly acceptable, conforming to generally
accepted accounting principles, and adds that it is accounting for the rebate
the only way it can.
"A rebate is a normal part of doing business," says Chief Financial Officer
Judy Bruner. "It's surprising that it's the topic of a story."
But if the company adopted the accounting method to keep Wall Street
happy, it raises the possibility that Palm is having trouble keeping up with
investors' expectations.
Bookings
The $50 rebate was good for purchases made between Dec. 3, 2000, and Jan.
19, 2001, and is to be redeemed by Feb. 19. Palm, like many companies,
books revenue on a unit once it's shipped to distributors, not when it's
purchased by the end user. Therefore, revenue for all units shipped during the
second quarter, which lasted from Sept. 1 to Dec. 1, were booked in the
second quarter, including units that were actually purchased by consumers in
the fiscal third quarter during the holiday shopping season.
Danny Lam, an analyst with Communications & Computing Report, a
publication of independent research firm FHI Research.com, says the
accounting approach ensured that Palm "met [second-quarter] expectations
but in a disingenuous way. It's a signal that the company did worse than it
did." (He doesn't rate stocks, and his firm doesn't participate in underwriting.)
The reaction to the company's second-quarter earnings report attests to the
pressure on Palm. When the company reported a seemingly stellar
second-quarter revenue increase of 102%, investors pushed the stock down
15% because the numbers failed to surpass the high end of Palm's guidance.
Palm was recently up 62 cents at $23.62, giving the company a market
capitalization north of $13 billion.
Timing
Palm didn't announce the rebate until the fiscal third quarter, and that's why it
says the rebate must be accounted for in that period. GAAP guidelines say
the reduction must occur in the quarter in which the rebate is offered to end
users, or consumers, says Bruner.
However, Jim Kroeker, a fellow at the Financial Accounting Standards
Board, says this is a gray area of accounting. Some people believe that "if an
agreement was made with distributors in the second quarter to plan a rebate
in the third quarter, then [the cost of the rebate program] should be
recognized in the second quarter." FASB is the private sector organization
that establishes standards of financial accounting and reporting.
To recognize the cost of the program in the third quarter essentially means
that Palm was recognizing revenue in the second quarter that it didn't fully
expect to collect, says an accountant who spoke on the condition of
anonymity.
The accountant who spoke on the condition of anonymity adds that it's not
even a question of when the agreement was made with distributors, but rather
when Palm decided to go ahead with the rebate. Palm should have
recognized the cost of the program in the quarter it decided to proceed with
the rebate, this accountant says.
Bruner acknowledges that Palm began to plan for the rebate and have
discussions about it in the second quarter. She maintains that Palm's
accounting is "consistent" with other guidance from the Securities and
Exchange Commission, FASB and the Emerging Issues Task Force, which
works with FASB.
Pricing
Palm handhelds were big sellers during the holiday season, with the IIIxe
enjoying considerable favor, retailing at $249 before the rebate. Palm wouldn't
disclose the number of IIIxes shipped in the fiscal second quarter or the
number eligible for the rebate, but the IIIxe has consistently been a top-selling
electronics product at the Amazon.com (AMZN:Nasdaq - news) Web site.
Given that popularity, if Palm had accounted for the rebates in the second
quarter, its revenue could very well have been reduced to the point that it
would have missed second-quarter expectations.
(Though the rebate period is now over, the IIIxe continues to be marked down
to $199, the same price as with the rebate. Bruner notes that this is typical
for consumer electronics products, saying, "A rebate is a transition to a more
permanent price decrease.")
Now the rebates will come out of fiscal third-quarter revenue, which is
traditionally a slower period. So it's possible that the pressure on Palm isn't
as intense now.
On the conference call, Palm said that the revenue expectation for the third
quarter is $465 million to $490 million, down from the second quarter's total of
$522.2 million, "consistent with our previous guidance and traditional Palm
seasonality."
thestreet.com
Mang |
