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How to Issue Honest Earnings Reports

NIRI spells out tough new guidelines for reporting earnings, giving pro forma the old short shrift.
Stephen Taub, | US
October 10, 2002

The National Investor Relations Institute (NIRI) adopted a tough set of guidelines for companies when they report earnings, including more forthcoming reporting of pro forma results.

The guidelines arose from a 10-point program NIRI announced back in April as a way of helping to restore investor trust and confidence.

"The quality and content of quarterly earnings releases varies widely," said Louis M. Thompson, president and chief executive officer of NIRI. "Implementation of these guidelines will result in consistency and a higher standard of information in the releases - an important means of regaining credibility among the investing public."

NIRI is urging companies to do some or all of the following when they release quarterly earnings results:

The critical information might include:

-- A brief description of the company's business that clarifies how it makes money.

-- The primary factors or trends, both short-and long-term, causing revenues to increase, decrease, or remain flat.

-- A brief discussion of what drives other key data, such as gross profit, sales, general, and administrative (SG&A) expenses, other income (or expense), interest expense, income taxes, and the effect of currency translation or transaction on net income.

-- An explanation of any charges, including both pre- and after-tax numbers and whether there will or could be similar additional charges in future quarters.

-- A brief discussion of liquidity and capital resources, including debt levels and key ratios, the adequacy of cash resources, cash provided from operations, capital expenditures, any anticipated changes in financing and any share repurchases.

-- Key industry-specific measures that a company uses to evaluate performance, like same-store sales growth for retailers, or net-interest margin for financial institutions.

-- Any material changes in accounting practices adopted during the quarter, either made because of changes in Financial Accounting Standards Board requirements or by company choice.

-- The company's current expectations for sales and earnings (if the company provides such guidance at all).