Sid Cato -- February 2003 Quiz Answers

(Answers for February 2003)

1. In the last two decades of monitoring the world's annual reports, full time, you've seen substantial improvement, great progress. True or false?
Answer: False. For instance, with advent of 1986 reports—16 editions ago—I created the Cato Positive Index. Three dozen indicators of a report's positive or negative nature. That year, annuals averaged but a 4.1% CPI, 100% indicating a report contained all 36 elements of a successful one. That figure stood at 5.6% among 1995 annuals. So far among 2002s? 5.3%, essentially flat with seven years ago.

2. Repeating last month's question: How's about some good news—having learned their lessons, corporations here and abroad are hewing to the line in their 2002 reports. That is, telling "the truth, the whole truth so help me God." True or false?
Answer: As I said last month: True, basically. Among the first three dozen annuals for 2002, 86.1% were seen as sufficiently forthright. That's flat with two years earlier—among 2000 reports—if an improvement over last year's four in five. But why shouldn't every CEO tell the truth? That figure should be 100%.

3. When reporters call to see how the new crop of reports is shaping up, what with the past year's scandals and investigations and lawsuits, you're pleased to report that honesty, forthrightness is very much "in" among 2002s. True or false?
Answer: False. Despite the hullabaloo that made headlines every day, it seemed, nothing has changed—not for the better, certainly. Take Deere & Co., an upstanding corporation with executives of integrity on staff. Yet, its chief financial officer inconceivably declined to affix his signature to management's assumption of responsibility for the financials. Also, no typeset name of the CFO, let alone the CEO, or his signature. What's a stockholder to think?

4. But aren't there some glimmers of hope, at least?
Answer: True. If you're seeking solace of any sort, you'll find it in the area of annual report themes. That's one of our advocacies—that an annual present a theme on the very cover, and then support it strongly throughout the book. (Reason: to enable producers to keep on target throughout the six-month [average] process, as well as provide a handle for the reader.) Existence of themes was monitored beginning with the 1987 edition of annual reports, when more than one in four went that progressive route. Fifteen years later, the showing is essentially three times that, encouraging indeed. But...only three of four times currently are adequately supported inside the book.

5. We asked last month: Isn't it true that your vocal opposition to EBITDA has taken its toll—meaning, such reference has all but disappeared from the new crop of reports? True or false? (Anything changed in the interim?)
Answer: False. More than one in five 2002 reports continues to reference the to-me-specious "earnings before interest, taxes, depreciation and amortization." I see it simply as an accounting ploy, as I've said before. Going down that path so far this year, and costing it five points for financial disclosure: Robbins & Myers, Apogee, ElkCorp, Hormel Foods, Canada's Intrawest, Las Vegas' Mandalay Resort Group, Modine Manufacturing, Woodward Governor.

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Test your knowledge by taking previous monthly quizzes


	1.	In the last two decades of monitoring the world's annual reports, full time, you've seen substantial improvement, great progress. True or false? *Answer:* False. For instance, with advent of 1986 reports—16 editions ago—I created the Cato Positive Index. Three dozen indicators of a report's positive or negative nature. That year, annuals averaged but a 4.1% CPI, 100% indicating a report contained all 36 elements of a successful one. That figure stood at 5.6% among 1995 annuals. So far among 2002s? 5.3%, essentially flat with seven years ago.

	2.	Repeating last month's question: How's about some good news—having learned their lessons, corporations here and abroad are hewing to the line in their 2002 reports. That is, telling "the truth, the whole truth so help me God." True or false? *Answer:* As I said last month: True, basically. Among the first three dozen annuals for 2002, 86.1% were seen as sufficiently forthright. That's flat with two years earlier—among 2000 reports—if an improvement over last year's four in five. But why shouldn't every CEO tell the truth? That figure should be 100%.

	3.	When reporters call to see how the new crop of reports is shaping up, what with the past year's scandals and investigations and lawsuits, you're pleased to report that honesty, forthrightness is very much "in" among 2002s. True or false? *Answer:* False. Despite the hullabaloo that made headlines every day, it seemed, nothing has changed—not for the better, certainly. Take Deere & Co., an upstanding corporation with executives of integrity on staff. Yet, its chief financial officer inconceivably declined to affix his signature to management's assumption of responsibility for the financials. Also, no typeset name of the CFO, let alone the CEO, or his signature. What's a stockholder to think?

	4.	But aren't there some glimmers of hope, at least? *Answer:* True. If you're seeking solace of any sort, you'll find it in the area of annual report themes. That's one of our advocacies—that an annual present a theme on the very cover, and then support it strongly throughout the book. (Reason: to enable producers to keep on target throughout the six-month [average] process, as well as provide a handle for the reader.) Existence of themes was monitored beginning with the 1987 edition of annual reports, when more than one in four went that progressive route. Fifteen years later, the showing is essentially three times that, encouraging indeed. But...only three of four times currently are adequately supported inside the book.

	5.	We asked last month: Isn't it true that your vocal opposition to EBITDA has taken its toll—meaning, such reference has all but disappeared from the new crop of reports? True or false? (Anything changed in the interim?) *Answer:* False. More than one in five 2002 reports continues to reference the to-me-specious "earnings before interest, taxes, depreciation and amortization." I see it simply as an accounting ploy, as I've said before. Going down that path so far this year, and costing it five points for financial disclosure: Robbins & Myers, Apogee, ElkCorp, Hormel Foods, Canada's Intrawest, Las Vegas' Mandalay Resort Group, Modine Manufacturing, Woodward Governor.