Do You Know How They're Making Their Numbers?

Accounting rules give financial officers lots of leeway when tallying profits. These companies may have been pushing the envelope. One signal: Their cash flow is not nearly as impressive as their reported profits. Before buying these issues, be sure to read the footnotes in the annual reports.

Company/business   Recent price LATEST 12-MONTH 2000 ESTIMATE   Why earnings are suspect Sales ($mil) Profits ($mil) EPS EPS P/E Allegheny Technologies/specialty metals $17.69 $1,672 $300 $2.36 $1.70 10 contribution from pension plan Amazon.com/Internet book retailer 66.88 1,640 -720 -1.19 -1.19 NM fees from unprofitable equity interests Bally Total Fitness/fitness centers 24.50 861 42 1.56 2.35 10 consumes more cash than generates Compuware/software 23.88 2,149 429 1.10 1.53 16 escalating deferred revenues Duane Reade/drugstore chain 22.00 377 41 2.26 1.28 17 recording of inventory as goodwill Eastman Kodak/precision instruments 54.00 14,089 1,392 4.33 5.62 10 constant restructuring charges Intel/integrated circuits 120.19 29,389 7,314 2.11 2.92 41 gains from investment portfolio Lucent Technologies/telecom systems 67.98 38,467 3,477 1.08 1.37 50 contribution from pension plan PolyMedica/medical products 47.00 608 140 1.13 1.62 29 amortization of advertising costs Priceline.com/Internet buy/sells services 94.50 482 -1,055 -7.90 -0.21 NM recording revenue not earned NM: Not meaningful.

Sources: Company reports; Market Guide via FactSet Research Systems; IBES Express.