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S&P 500 Earnings for 2010 a Little Padded?



June 25, 2011 – Comments (5) | RELATED TICKERS: XOM , CVX , KO

After some preliminary calculations, I'm getting that the average S&P 500 company added about $400M in deferred income taxes to it's balance sheet in 2010.  That basically means that each S&P 500 company overstated net earnings by roughly $400M in 2010.  So for the S&P 500, that means that earnings were overstated by about $200B dollars last year.  Unless companies continue to put off their income taxes back to back years, 2011 earnings could disappoint drastically.

Here are some of the "heavy hitters:"

Change in Deferred Income Taxes (positive) Q1 2010 through Q1 2011:

XOM:  $12.5B

CVX:  $3.7B

KO: 2.94B

AAPL: $2.91B

PFE: $1.75B

WMT: $1.75B

DVN: $1.2B

CMCSA: $1.16B

INTC: $1.07B

BHI: $1.07B

PEP:  $829M

5 Comments – Post Your Own

#1) On June 25, 2011 at 2:54 PM, MegaEurope (< 20) wrote:

I believe that's mainly from foreign income that stays in foreign subsidiaries (either to be reinvested there, or waiting for more favorable US tax treatment when it's repatriated).

Foreign income is structural, not one-time padding.

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#2) On June 25, 2011 at 4:44 PM, ElCid16 (93.15) wrote:

I believe that's mainly from foreign income that stays in foreign subsidiaries

Initially, I thought so too.  However, if a company plans on keeping that money overseas indefinitely, they don't have to report it as deferred income.  From a PwC report I found: 

"US GAAP permits a company to overcome the presumption of repatriation and forgo recording a deferred tax liability, as long as it can support the assertion that management has the intent and ability to indefinitely reinvest the profits or otherwise indefinitely postpone taxation in teh home country market.  This is known as the indefinite reinvestment assertion."


"Asserting indefinite reinvestment traditionally has been a widespread practice among multinational businesses.  A majority of companies make the assertion with respect to much, if not all, of their foreign earnings."


"In a recent study of the 2009 list of Fortune 500 companies, it was reported that more than 300 US multinationals asserted indefinite reinvestments and disclosed the amount of undistributed earnings in the notes to their respective 2008 financials."

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#3) On June 25, 2011 at 4:46 PM, ElCid16 (93.15) wrote:

Umm, yeah.  I guess this would help, too.

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#4) On June 25, 2011 at 4:57 PM, ElCid16 (93.15) wrote:

So I tallied the deferred income tax balances for the S&P 100 companies for the past 4 years.  Here they are:

2007:  $304.56B

2008:  $244.01B (-60.55B)

2009:  $292.15B (+48.14B)

2010:  $334.68B (+42.53B)

2011 (so far):  $348.90B (+13.21B)

So you're right.  Its not one-time padding.  Its more of an annual thing, until companies desperately need cash all at once (2008).  During difficult times, this magnifies bad earnings... 

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#5) On June 26, 2011 at 2:17 AM, ElCid16 (93.15) wrote:

Hmm...Accrued expenses seems to be following a similar story thus far.  I'll wrap up the numbers tomorrow, likely.

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