S&P to lay down stricter guidelines for corp. results
Last Updated: May 13, 2002 11:18 AM ET
NEW YORK, May 13 (Reuters) - Rating agency Standard & Poor's is poised to
clamp down on companies that exclude a slew of one-time charges from their earnings
reports, in a bid to have corporate results better reflect true business conditions and
make them easier to understand.
The move is aimed at countering widespread investor distrust about the way
"Corporate America" reports earnings. U.S. companies in recent years have excluded
a raft of what they say are one-time expenses, like severance packages, from
operating earnings. Critics have said those practices have made earnings appear rosier
than they actually are.
According to an article by David Blitzer, S&P's chief investment strategist, in
Monday's Financial Times, S&P on Tuesday will likely make the following changes:
-- Companies can no longer exclude the costs of stock options from operating
earnings, something billionaire investor Warren Buffett has proposed for years.
-- Severance payments, asset write-downs, and the costs of closing operations, also
can no longer be excluded from operating earnings because they reflect the true cost
of doing business.
-- Gains and losses from pension plan investments are no longer included in operating
earnings, because they have little to do with how the underlying business is performing.
The move by S&P will not force any changes in the way firms report, but it will alter
some benchmark investor calculations, most importantly the value of shares in the
S&P 500 .SPX relative to their reported earnings.
Standard & Poor's, a unit of McGraw-Hill Cos. MHP.N , is slated to lay down its new
rules on what gains and charges will be included, and what excluded, when calculating
companies' operating earnings, at a media conference on Tuesday.
It will also establish its own definitions of "as reported," "operating," and "pro forma"
earnings, referring to types of earnings used by companies and analysts, which
sometimes are more a hindrance than a help in describing a firm's financial condition....
reuters.com |
