See today's Barrons:
online.wsj.com
Summary Execution
Barron's
Editorial
Monday, July 15, 2002
By ALAN ABELSON
The table on this page is lifted from the worthies at ISI Group, and we commend it to Mr. Bush's attention as one of the prime explanations for the anomie that's epidemic among investors. What it shows is a comparison between two sets of earnings for 2001 of 20 companies in the S&P 500. The first is what S&P reckons those 20 companies earned according to its new, more severe standards; the other is what the companies actually reported.
Vive le Differance!
………………......... Core ….........Reported .................
.………………....... Earnings..... Earnings .....Difference
………………......... (millions)....(millions)....(millions)
.........................................................
.........................................................
DuPont………… .....-$48.9 .......$4318.0 ...... -$4366.9
IBM ………….........4854.2 ....... 7713.0 ....... -2858.8
Microsoft …….....5459.0 ....... 7721.0 ........ -2262.0
GE …………….........11,895.7 ....14,128.0......... -2232.4
Verizon………..... -1284.8 .........590.0 .......-1874.8
Motorola …….....-5492.6 ....... -3937.0 ....... -1555.6
Cisco Systems ...-2517.2 ...... -1014.0 ....... -1503.2
AOL Time W…......-6197.3 ...... -4921.0 ....... -1276.3
SBC Comm…........6051.0 .........7260.0........ -1209.0
AT&T ……….........-6055.5....... -4863.0........ -1192.5
Boeing ……….......1711.9 ........ 2826.0 ....... -1114.2
Comcast ………......-749.4 ........225.6 ......... -975.0
Lucent ………......-15,172.0 ....-14,198.0 ....... -974.0
Intel ………….......334.6 ........1291.0......... -956.4
Yahoo ………........-980.1.......... -92.8 ....... -887.3
Merrill Lynch…...-343.1 ........535.0 ......... -878.1
Ford …………........6298.3 ....... -5468.0........ -830.3
Bellsouth …….....1764.1........ 2570.0......... -805.9
Siebel Systems ...-467.2....... 254.6.......... -721.8
Citigroup ……...13,454.1 ...... 14,174.0 .........-719.9
As you may or may not remember, some months back, dismayed by how distended, obfuscating and downright confusing reported earnings had become, Standard & Poor's went public with a revision of earnings of all 500 companies in its index and of the aggregate earnings of the index itself. As we noted at the time, S&P's so-called core earnings excludes everything that isn't intrinsic to the business -- pension gains, insurance or litigation windfalls, unrealized gains and losses from hedging activities, that sort of thing.
Core earnings include, among other things, restructuring charges from ongoing operations, certain R&D charges that have been cheerfully omitted and, notably, the cost of stock-option grants.
We hope you're not shocked that typically core earnings are less, not infrequently palpably less, than reported earnings.
What the ISI crew has done in the table is list the 20 S&P 500 companies that have the largest negative difference between last year's core earnings and reported earnings.
The gap is not exactly modest, no matter how far down the list you go. The reasons for the discrepancies vary from company to company.
But the cost of stock options are quite prominent, especially among the techs on the roster; Microsoft and Cisco are striking cases in point.
We perhaps should mention here that, to their credit, the accountants did attempt, in '94, if memory serves, to call a spade a spade and deem stock options an expense rather than the unaccountable bauble they've traditionally been treated as -- and still are.
But industry, with techs very much in the lead, muscled a pliant Congress into making ugly noises (one of the few things Congress is really adept at) and the accountants caved.
We can only hope that someone -- the SEC (not likely under Mr. Pitt) or whatever new oversight body emerges -- will show a little more spine. |
