Knowing the concept of core earnings adjustments is only the first
part of the analytical task. You also need to be able to maneuver
through the annual statement, pick the tidbits of useful information
from among the pages, and apply that information in making and in-
terpreting core earnings adjustments.
In this chapter, we use the workbook format to guide you through
the annual statement with certainty and clarity. In the following
pages, you will find step-by-step information based on Web sites for
several corporations. This chapter is designed to enable you to fol-
low along as each step is executed. In these examples, step-by-step
instructions are based on layout and format at the time this book
169
7
The Core Earnings
Workbook
Finding the Numbers
was written. Companies may change their formats, but the same in-
formation should still be available on revised layout pages.
The companies are
Altria Group: http://www.altria.com
Bristol-Myers Squibb: http://www.bristolmyers.com
Cisco: http://www.cisco.com
IBM: http://www.ibm.com
Microsoft: http://www.microsoft.com
Motorola: http://www.motorola.com
Proctor & Gamble: http://www.pg.com
Sears: http://www.sears.com
Wal-Mart: http://www.walmart.com
In the next chapter, we provide an interpretation of the num-
bers revealed here based on post-core-earnings adjustments and using
the limited number of fundamental indicators provided throughout
earlier chapters: revenue and earnings, PE ratio, and capitalization
(supported with additional fundamental and technical indicators).
When you apply the principles to investigating on your own,
you may wish to search beyond these basic fundamental indicators.
In this book, we have emphasized these as the starting points only,
the essential fundamental indicators to begin a more comprehensive
search. Beyond these indicators, you will find valuable information
with more detailed analyses of sales and earnings, dividend history,
EPS history, and other fundamentals. You may also gain insights by
using technical indicators for confirmation and for price volatility
tests. A comparison between fundamental and technical volatility
can also be quite revealing.
170
STOCK PROFITS:GETTING TO THE CORE
Altria Group
STEP 1: On the home page, refer to “Quick Links” at the far left.
Go to the link for “Annual Reports.”
STEP 2: Select the desired year from the list. (We selected the 2002
fiscal year in HTML format.)
STEP 3: Select “Financial Review” from the list.
STEP 4: Select “Consolidated Statement of Earnings,” which reveals
the following (in $ mil):
STEP 6: Select “Consolidated Statement of Cash Flows” and look
for an item concerning the sale of fixed assets. None was found, so
there are no core earnings adjustments for capital gains.
STEP 7: Go back to the previous screen.
STEP 8: Select “Notes to Consolidated Financial Statement.”
STEP 9: Move through the notes by using the arrow pointing to the
right. This Web site is difficult to navigate, as there is no index of
notes, so you need to go through pages individually.
STEP 10: Stop at Note 11, “Stock Plans.” There are no core earn-
ings adjustments, explained by the notation “companies apply the
intrinsic value-based methodology…no compensation expense has
been recognized.”
2002 2001 2000
Net earnings 11,102 8,560 8,510
171
CHAPTER 7•THE CORE EARNINGS WORKBOOK
STEP 11: Stop at Note 14, “Segment Reporting.” This summarizes
income from each segment, including Miller Beer. We want to ex-
clude this from each year because it is a discontinued operation. The
information reveals the following (in $ mil):
STEP 12: Stop at Note 15, “Benefit Plans.” This note reveals the
following (in $ mil):
STEP 13: Compute core earnings (in $ mil):
Bristol-Myers Squibb
(Note: Bristol-Myers Squibb provided current and past year in-
formation only. To find the same information for the previous year,
it is necessary to refer to an older annual report.)
2002
2001 2000
Net earnings (step 4)
11,102
8,560 8,510
Income from discontinued operations (step 11)
–2,641
–4,791 –4,907
Benefit plans (step 12)
–379
–397 –362
Core earnings
8,082
3,372 3,241
2002 2001 2000
US
Non-
US US
Non-
US US
Non-
US
Expected return 943 209 961 205 799 175
Interest expense 590 183 595 174 455 157
Net 353 26 366 31 344 18
Combined 379 397 362
2002 2001 2000
Beer operations 2,641 4,791 4,907
172
STOCK PROFITS:GETTING TO THE CORE

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