In dealing with ALCOA’s special charges, the first thing to
establish is how they arose. The footnotes are specific enough. The
deductions came from four sources, viz.:
- Management’s estimate of the anticipated costs of closing
down the manufactured products division. - Ditto for closing down ALCOA Castings Co.’s plants.
- Ditto for losses in phasing out ALCOA Credit Co.
- Also, estimated costs of $5.3 million associated with comple-
tion of the contract for a “curtain wall.”
All of these items are related to future costs and losses. It is easy
to say that they are not part of the “regular operating results” of
1970—but if so, where do they belong? Are they so “extraordinary
and nonrecurring” as to belong nowhere? A widespread enterprise
such as ALCOA, doing a $1.5 billion business annually, must have
a lot of divisions, departments, affiliates, and the like. Would it not
be normal rather than extraordinary for one or more to prove
unprofitable, and to require closing down? Similarly for such
things as a contract to build a wall. Suppose that any time a com-
pany had a loss on any part of its business it had the bright idea of
charging it off as a “special item,” and thus reporting its “primary
earnings” per share so as to include only its profitable contracts
and operations? Like King Edward VII’s sundial, that marked only
the “sunny hours.”*
Things to Consider About Per-Share Earnings 313* The king probably took his inspiration from a once-famous essay by the
English writer William Hazlitt, who mused about a sundial near Venice that
bore the words Horas non numero nisi serenas,or “I count only the hours
that are serene.” Companies that chronically exclude bad news from their
financial results on the pretext that negative events are “extraordinary” or
“nonrecurring” are taking a page from Hazlitt, who urged his readers “to
take no note of time but by its benefits, to watch only for the smiles and ne-
glect the frowns of fate, to compose our lives of bright and gentle moments,
turning away to the sunny side of things, and letting the rest slip from our
imaginations, unheeded or forgotten!” (William Hazlitt, “On a Sun-Dial,” ca.
1827.) Unfortunately, investors must always count the sunny and dark hours
alike.