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To: Warpfactor who wrote (14865)	7/4/2002 3:13:38 AM
From: Warpfactor	Respond to of 23153

My background is not finance, but I believe that pvz's use of "As reported earnings" was correct. spglobal.com Standard & Poor's Earnings measures currently in use Standard & Poor’s review identified three general measures of earnings: as reported earnings, operating earnings, and pro forma earnings. All three measures have uses in the appropriate settings. These measures, their use, and meaning are summarized here: • As reported earnings: This is the broadest measure of corporate performance of the three considered here. As reported earnings are earnings including all charges except those related to discontinued operations, the impact of cumulative accounting changes, and extraordinary items, as defined by Generally Accepted Accounting Principles (GAAP). This is the traditional earnings measure and has a long history, having been used for the S&P 500 and company analyses for decades. • Operating earnings: This measure focuses on the earnings from a company’s principal operations, with the goal of making the numbers comparable across different time periods. Operating earnings are usually considered to be as reported earnings with some charges reversed to exclude corporate or one-time expenses. Despite the lack of any generally accepted definition, operating earnings are increasingly popular in corporate reports. The use of this measure seems to come from internal management controls used when a business unit manager is not responsible for managing corporatelevel costs. • Pro forma earnings: Originally, the use of the term pro forma meant a special analysis of a major change, such as a merger, where adjustments were made for an “as if” review. In such cases, pro forma measures are very useful. However, the specific items being considered in an “as if” review must be clear. In some recent cases, “as if” has come to mean “as if the company didn’t have to cover proper expenses.” In the most extreme cases, pro forma is nicknamed EBBS, or “earnings before bad stuff.” Such abuses notwithstanding, pro forma earnings do have a place and should be used for special analyses of potential changes in a corporation. In such cases, pro forma earnings are defined for the particular analysis. Given the lack of any definition of operating earnings and the widespread and sometimes inconsistent use of the term, Standard & Poor’s felt that to use it might only add to the confusion. Therefore, the earnings measure proposed here is called Core Earnings. Core Earnings refer to the after-tax earnings generated from a corporation’s principal business or businesses. Since there is a general understanding of what is included in as reported earnings, the definition of Core Earnings begins with as reported earnings and then makes a series of adjustments. As Reported is earnings as defined by GAAP, with three exclusions — extraordinary items, cumulative effect of accounting changes, and discontinued operations, all as defined by GAAP1.

To: Warpfactor who wrote (14865)	7/4/2002 10:24:57 AM
From: pvz	Respond to of 23153

Warp, the only way in which the S&P500 could be overvalued is if the forward estimates are completely off. That is not impossible, but in my opinion inaccuracies are unlikely to account for the entire 20%. I think it was you who questioned when the split between GAAP and pro-forma really occurred. Below are the earnings, by quarter going back to 1988. I put stars next to discrepancies greater than 15%. The years 2000 and 2001 really stand out. You will also see that the discrepancies have been known to go the other way as well, particularly in periods following those with stars. So it is conceivable (although I wouldn't bank on it) that a lot of the goodwill and inventory which companies have washed out will now result in better than expected earnings in the near future, even if a V recovery does not occur. AS REP OPER EPS EPS Q2 9.58 12.34 2.76 22% * Q1 8.87 10.75 1.88 18% * 2001 Q4 5.45 9.94 4.49 45% * Q3 5.23 9.16 3.93 43% * Q2 4.83 9.02 4.19 46% * Q1 9.18 10.73 1.55 14% 2000 Q4 9.07 13.11 4.04 31% * Q3 13.71 14.17 0.46 3% Q2 13.48 14.88 1.40 9% Q1 13.74 13.97 0.23 2% 1999 Q4 12.77 13.77 1.00 7% Q3 11.93 12.97 1.04 8% Q2 12.51 13.21 0.70 5% Q1 10.96 11.73 0.77 7% 1998 Q4 8.56 11.47 2.91 25% * Q3 8.99 10.45 1.46 14% Q2 9.87 11.43 1.56 14% Q1 10.29 10.92 0.63 6% 1997 Q4 8.94 11.29 2.35 21% * Q3 9.87 11.03 1.16 11% Q2 10.44 11.13 0.69 6% Q1 10.47 10.56 0.09 1% 1996 Q4 9.86 11.01 1.15 10% Q3 9.78 9.92 0.14 1% Q2 10.13 10.31 0.18 2% Q1 8.96 9.39 0.43 5% 1995 Q4 7.13 9.78 2.65 27% * Q3 8.69 9.78 1.09 11% Q2 9.26 9.50 0.24 3% Q1 8.88 8.64 -0.24 -3% 1994 Q4 8.35 8.80 0.45 5% Q3 7.94 8.03 0.09 1% Q2 7.38 7.75 0.37 5% Q1 6.93 7.17 0.24 3% 1993 Q4 5.08 7.16 2.08 29% * Q3 5.81 6.92 1.11 16% * Q2 4.89 6.57 1.68 26% * Q1 6.11 6.25 0.14 2% 1992 Q4 3.60 5.61 2.01 36% * Q3 4.73 5.12 0.39 8% Q2 5.40 5.21 -0.19 -4% Q1 5.36 4.93 -0.43 -9% 1991 Q4 2.55 4.63 2.08 45% * Q3 3.74 5.11 1.37 27% * Q2 4.54 4.79 0.25 5% Q1 5.14 4.77 -0.37 -8% 1990 Q4 4.40 5.01 0.61 12% Q3 5.33 5.97 0.64 11% Q2 6.07 6.06 -0.01 0% Q1 5.54 5.61 0.07 1% 1989 Q4 4.80 5.84 1.04 18% * Q3 4.85 5.54 0.69 12% Q2 6.48 6.53 0.05 1% Q1 6.74 6.41 -0.33 -5% 1988 Q4 5.62 6.37 0.75 12% Q3 6.38 6.22 -0.16 -3% Q2 6.22 6.05 -0.17 -3% Q1 5.53 5.48 -0.05 -1%