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Non-Tech : Auric Goldfinger's Short List -- Ignore unavailable to you. Want to Upgrade?

To: Israel who wrote (11141)	2/21/2003 3:46:59 PM
From: Sir Auric Goldfinger	Read Replies (4) \| Respond to of 19428

Right not those pigs, something less er say questionable? Like FLEX or VRTS?

To: Israel who wrote (11141)	2/21/2003 6:15:47 PM
From: StockDung	Respond to of 19428

Accounting can hide gap in earnings Don Bauder February 21, 2003 San Diego's Qualcomm and Gateway have very large GAAP gaps, according to a Wall Street study. Let me explain. GAAP stands for generally accepted accounting principles, or conventional accounting as spelled out by the Financial Accounting Standards Board. However, many companies – particularly techs – put the emphasis on pro forma accounting, which focuses on so-called continuing operations and excludes special charges that are not expected to crop up again. The Securities and Exchange Commission has generally been skeptical of much pro forma accounting. The agency's chief accountant once called pro forma accounting "earnings before the bad stuff." Companies preferring pro forma accounting also report their GAAP earnings, but often tout the pro forma earnings in news releases. Last year's Sarbanes-Oxley bill to reform corporate governance requires companies to reconcile their non-GAAP accounting (usually pro forma) to GAAP earnings in all communications, including news releases. As Wall Street's UBS Warburg says in its new report, "GAAP earnings must now be given at least equal prominence (to) pro forma." UBS researchers went back to 1991 to trace the difference between GAAP and pro forma earnings for Standard & Poor's 500 companies. The average yearly difference through 2001 was 16 percent. But in the recession of 2001, it was a staggering 45 percent – GAAP earnings were only 55 percent of pro forma earnings. The wide gap between GAAP and pro forma continued in 2002, says the report. "Even in the most recent quarter, fourth calendar quarter of 2002, GAAP was merely 55 percent of pro forma earnings," says the report. Because of corporate accounting scandals, companies have become more conservative, and may take fewer liberties in their pro forma accounting this year, says Zhen Deng, one of the authors of the UBS report, in an interview. "We expect companies to use special charges far less frequently, and when they do, to exclude fewer costs as being non-recurring," says the report. Pro forma earnings may be 10 percent lower this year than they would have been in the past, says UBS. The report lists the 50 S&P 500 companies whose GAAP earnings and pro forma earnings had the greatest discrepancies between 1999 and 2001. Qualcomm is 17th on that list: According to UBS, it reported $1.97 billion in cumulative pro forma earnings during the three years. But GAAP earnings were $329.7 million – a difference of $1.64 billion. Therefore, that differential, relative to GAAP earnings, was a negative 498 percent – essentially, meaning that by using pro forma accounting, Qualcomm pro forma earnings were five times GAAP earnings during the period, says Deng. Gateway was 28th on the list of 50 with gaping gaps. Its cumulative pro forma earnings over the three-year period were $803.8 million. But GAAP earnings were a minus $364.4 million, for a difference of $1.17 billion, or a GAAP gap of 321 percent. William Keitel, chief financial officer of Qualcomm, says the SEC considers pro forma accounting "good supplemental information for shareholders as long as companies use it properly." And Qualcomm uses it properly, he says. For example, the company invests in developing companies that report a loss. Investors would prefer to see those results separated from operating earnings from the company's core businesses, he says. "I don't see how anybody with a rational mind can conclude that pro forma is bad," says Keitel. Brad Shaw, Gateway spokesman, says UBS's numbers are "directionally accurate" for the three years ended in 2001. But, he points out, Gateway doesn't use the term "pro forma." It does explain what earnings of ongoing operations would be excluding certain items, but only after first reporting GAAP earnings. "Our policy is to first describe GAAP performance in the news release, and then explain extraordinary gains and losses," says Shaw. -------------------------------------------------------------------------------- Don Bauder: (619) 293-1523; don.bauder@uniontrib.com