So, I’ve been trying to figure out why Apple filed a Form 8-K that literally is just bragging about good sales numbers. Jim Dalrymple had a particularly snarky take on it that I think is misunderstood:
Sales are so over-the-top great, the company has to tell the SEC.
That would be pretty over-the-top great but it sort of fails the smell test, especially given how Apple of a year ago was repeatedly beating the pants off of their guidance numbers every quarter without filing similar 8-Ks. (I’ll define similar in a moment. They definitely filed lots of 8-Ks if you look.)
Why did Apple really file an 8-K?
In recent years, Apple’s earnings typically went like this:
- Apple issues guidance predicting modestly improved earnings of X.
- The Analysts would all predict Apple would actually come in at about X plus 15-20%.
- 3 months later: Apple would report earnings per share of X plus 27-58%!
And that’s how it was. Gargantuan beats of their own guidance every quarter, for 10 consecutive quarters!
Meanwhile this lead to a fair number of complaints, some from pro-Apple pundits like Dalrymple and John Gruber who complained that The Analysts didn’t know how to do their own job and that Apple stock was punished for their ignorance, but also from the finance pundits saying that Apple was not really issuing serious guidance at all, but rather just sandbagging to drum up more hype about the company’s incredible success. (Interesting fact: you’ll never find a nasty word from John Gruber written about Peter Oppenheimer issuing wildly inaccurate guidance for 10 straight quarters!)
While the pro-Apple pundits will probably never admit Apple was pitching themselves softball estimates for 2 and a half years, somebody convinced Peter Oppenheimer to knock it off. In 2012 Apple’s run of incredible guidance self-beats suddenly tapered and The Analysts were now holding up bars higher than Apple could leap. Yet again, pro-Apple pundits slammed The Analysts for not being able to do their jobs as the stock tanked by 25% in a few months.
In January 2013, Apple changed the way they issued guidance completely. Apple has been much less conservative and has offered a range of guidance it expects to fall within, instead of a single, sandbagged “lower limit”. Their guidance has also been much less impressive in terms of percentage growth than it was in the past, which has held the stock back from a major rebound. Apple has been a growth stock, and it’s just not growing like it used to.
Answering The Question
To try and see what Apple’s legal responsibility for filing a Form 8-K was, I looked at Apple’s 8-K and the SEC’s FAQ to explain why a company must file an 8-K.
First, Apple’s 8-K is incredibly short. There is exactly one subheading: Section 8 Other Events which describes that Apple sold 9 million phones in a weekend and will come in “near” the high end of their guidance range. I interpret that to mean Apple has exceeded the high end of their guidance but Apple does not say that’s what it means.
There are no other sections.
In the SEC’s explanations for when companies are required to submit a Form 8-K, most are materially related to the actual running of the company. Changes such as leadership, impaired elements of the business, acquisitions and divestments are all material. Events that would impact finances are very material.
Beating your own future estimates? Not so much, actually!
Section 8, according to the SEC:
Other Events (The registrant can use this Item to report events that are not specifically called for by Form 8-K, that the registrant considers to be of importance to security holders.)
Apple files lots of 8-Ks and they include lots of Section 8’s, but I don’t know if I’ve ever seen one that consists of only a Section 8. According to the SEC there would be no specific requirement to do so; you could just issue a press release (and they do).
As a shareholder, I appreciate knowing that Apple did something cool and that they want to tell me about it. That is why I read all their press releases. But I don’t understand why Apple felt the need to file this report.
A wild-eyed theorist could look back and presume that somebody gave Apple hell for issuing crappy guidance. Maybe they were going to fire Peter Oppenheimer!? That would be a pretty cool made-for-TV movie, except that all of Apple’s–and indeed the entire world’s–earnings guidance is surrounded by the caveats that all forward-looking statements are estimates, are therefore probably wrong, and Apple feels no need to update them. And also nobody cares about accurate earnings guidance except maybe me and the stock analysts.
So the answer is simple: they didn’t need to tell the SEC but they issued a report anyway. Apple is bragging. They had some genuinely good news, they were genuinely surprised by it and they genuinely wanted to make sure that some analysts went back and upgraded the stock after the pounding it took two weeks ago.
Basically, that Form 8-K is Peter Oppenheimer shouting, “Law of Large Numbers my ass!”