STEVE JOBS' BONUS

BY JAMES J. MITCHELL Mercury News Staff Writer

Accountants and financial analysts disagree about whether the gift of a Gulfstream V jet to Steve Jobs should be considered a ``recurring'' or ``non-recurring event.'' While this is esoteric, it is also very important.

``People pay more attention to a company's earnings from normal (or recurring) operations than they do to the total net income,'' says Howard Schilit, president of the Center for Financial Research & Analysis Inc. That's because financial reports on recurring operations normally provide a better perspective on how the company is doing.

Apple Computer Inc. and its accountants, KPMG LLP, classified the gift of the jet as a non-recurring expense, which allowed Apple to report operating income of $178 million, or $1 a share, substantially above what Wall Street had expected: 89 cents a share. They say this is a one-time event.

Critics vote for recurring

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.

If Apple had counted the cost of the jet in that manner, as a cash bonus would normally be counted, its operating income would have been cut in half -- $88 million, or 49 cents a share, well below Wall Street estimates. Or Apple might have pro-rated the $90 million over the current fiscal year, which would have meant a $22.5 million expense hit each quarter.

``Accounting rules are pretty strict about what you can call an extraordinary item, but the term `non-recurring' is not defined,'' says Joe Maglione, audit partner of the technology group of Deloitte & Touche. ``So companies have taken to labeling as many operating items non-recurring as they can.''

Speaking of the jet, Maglione says, ``Companies pay large bonuses all the time.''

Schilit agrees the expense should be considered recurring. ``It's either a payment for services that had been rendered or an incentive related to future performance, (perhaps) to motivate someone to remain at that organization . . . It just happens to be in a non-cash form.''

On the other hand, Dennis Young, managing director of American Express Tax and Business Services in Los Altos, thinks Apple is correct. ``Rather than putting it in compensation and burying it . . . they're saying, `This is an unusual item of material, substantive nature.' They're calling it out as a separate line item. It means more disclosure, not less.''

No more bonuses?

``The basic goal of accounting,'' says one executive, ``is to present a fair and consistent picture of the underlying results of the operations of the corporation. . . . The ultimate question is, what gives you a more balanced perspective on how the company is doing.'' As long as Apple doesn't give additional large bonuses to Jobs in the next few years, he agrees with Apple's accounting.

So, obviously, does Wall Street. ``They won't be doing this again,'' says Lou Mazzucchelli, senior vice president and securities analyst for Gerard Klauer Mattison & Co. in New York. ``How would you top it? Give him an island? A small country?''