11(b). Periods Covered by Financial Statements
[Context] Meeting of the Investor Discussion Group on January 13, 1993. Part of the meeting was devoted to the topic of display. During the discussion on cash flow statement display, comments were made on the periods covered by interim financial statements.
Participant I-5
I would like to get quarterly cash flow statements in 10-Qs, just for the three month period. [Also included in 5(c)] [TI 1/13, p. 41]
Participant I-7
Every company should be required to issue 4 quarters of information, the final quarter specifically. [Also included in 5(c)] [TI 1/13, p. 41]
Participant I-11
And the quarter should include the quarterly cash flow. [Also included in 5(c)] [TI 1/13, p. 41]
Participant I-12
And we need to have a reconciliation between the annual report and the four quarters. [Also included in 5(c)] [TI 1/13, p. 41]
Participant I-5
I feel passionately about providing quarterly information including the fourth quarter and each quarter's cash flow statement. [Also included in 5(c)] [TI 1/13, p. 42]
[Context] Meeting of the Investor Discussion Group on March 17, 1993. Part of the meeting was devoted to the topic of interim reporting.
Committee/Staff/Observer
Do you find useful the cumulative income and cash flow statement for the year to date and comparative statements for the preceding year that are required by the SEC? [TI 3/17, p. 37]
Participant I-12
I never use them because they don't add anything in terms of trend lines. Instead, I'll create a rolling twelve months, rolling four quarters for key numbers. But 6 months to 6 months, 9 months to 9 months, that doesn't add value for me in terms of turning points. A rolling 4 quarters or rolling 8 quarters gives me more information. [TI 3/17, p. 37]
Participant I-11
By the same token, getting just the cumulative cash flow statement in the interims is not useful. I've got to find the previous 10Qs and substract to see what the quarter was. I'd like to see quarterly cash flow statements. [TI 3/17, p. 37]
Committee/Staff/Observer
What about the rolling 12 months earnings statement? [Participant I-12] liked that. [TI 3/17, p. 37]
Participant I-11
That's more useful in some respect than the interim cumulative because it makes it easier to compare between companies. I follow an industry where there is a number of companies on March and June fiscal years; if I'm trying to compare them with the December fiscal year companies, I have to do a rolling 12 months and I do. [TI 3/17, p. 37-38]
Participant I-7
From a valuation point of view, many of us use a rolling 12 months. [TI 3/17, p. 38]
Participant I-16
I don't use rolling 12 months for two reasons: first, I follow high-growth stocks where 8 quarters ago is prehistoric; secondly, I much rather look at 9 months versus 9 months than adding the year-end quarter with all the year-end adjustments made in that quarter. [TI 3/17, p. 38]
Participant I-12
Seasonality can have a big impact, for retailers for example. The quarter that includes Christmas makes or breaks the company's year. I don't know how a retailing analyst would look at these numbers. [TI 3/17, p. 38]
Committee/Staff/Observer
In that example, the 12 months rolling might be more meaningful than the 9 months cumulative that [participant I-16] likes. [TI 3/17, p. 38]
Participant I-16
I would argue just the reverse. In that industry, it would be even less meaningful because the most earnings would be in the quarter that is furthest in the past. In the industries that I look at, the highest earnings are generally in the most recent quarter. If I'm looking at the December numbers, do I really care to keep harping on what the comparison was in the December quarter 9 months versus the December quarter 21 months ago? Because that's going to dominate the comparison if you're looking at trailing 12 months. [TI 3/17, p. 38]
Committee/Staff/Observer
We hear that analysts want 11 years of information. You're suggesting one quarter? [Also included in 1(b) and 2(c)] [TI 3/17, p. 38]
Participant I-16
When I'm looking at how this year is going versus last year, for a retailer, and I'm taking the 12 months through September 30, it's so heavily weighted by the 3 months ended the prior January 1 that I'm really not picking up on what's happened in the last 9 months. My numbers are still being overwhelmed by what happened 9 months ago versus what happened 21 months ago. I want to drop that out, look at the last 9 months versus the 9 months a year before that. [TI 3/17, p. 39]
Participant I-12
On the other hand, if you're looking at retailing and you're using a true rolling 12 months, you're always going to have a December quarter in those 12 months. If you're graphing it, I'm a person who likes to use graphs, you can get a lot of information out of the graph of that trend line. [TI 3/17, p. 39]
Participant I-7
[I]t's not 11 years, it's 10 years. And we only want 10 if there is consistency. For example, I have companies that are selling businesses every 3 years. Under APB 30, they will go back and only give you 2 or 3 years of historical performance. We have a problem with companies that every several years do something so significant that the historical pattern of earnings or operating returns has been lost. [Also included in 1(b) and 2(c)] [TI 3/17, p. 39]
Committee/Staff/Observer
Our next question relates to quarterly information for the fourth quarter. Consistent with what we've heard in prior meetings of this group, may we safely conclude that companies should provide financial statements for the fourth quarter of the year? [TI 3/17, p. 39]
Participant I-12
Yes. [TI 3/17, p. 39]
Participant I-11
Absolutely. [TI 3/17, p. 39]
[Context] Meeting of the Creditor Discussion Group on March 11, 1993. Part of the meeting was devoted to the topic of interim reporting.
Committee/Staff/Observer
Looking further then to items C and D, my question is whether the cumulative information currently being received and the cumulative twelve months which some people voluntarily do is desirable? [TC 3/11, p. 47]
Participant C-5
I would go with the sliced up pieces. So much depends now on the cyclicality of activity over the last few years. 1992 was a classic example. You couldn't have had a worse first quarter and year-to-date numbers are continually distorted throughout the period. Cycles are moving so much differently now that period slices are more important to me than year-to-date cumulative numbers. [TC 3/11, p. 47]
Participant C-15
Are the two mutually exclusive though? [TC 3/11, p. 47]
Participant C-5
It's reinforcing the concept that year-to-date is valuable and, in fact, it's not as valuable as quarterly. [TC 3/11, p. 47]
Committee/Staff/Observer
How about twelve month ended? [TC 3/11, p. 47]
Participant C-5
Twelve month ended is a good point because then it sort of sticks in history. [TC 3/11, p. 48]
Participant C-1
Because of seasonality, I use comprehensive quarterly and twelve months and forget about year-to-date. I don't think year-to-date is personally very useful. [TC 3/11, p. 48]
Participant C-5
I mentally in my analysis subtract it out. [TC 3/11, p. 48]
Participant C-1
We add in other quarters against twelve months. [TC 3/11, p. 48]
Committee/Staff/Observer
[Participant C-15] do you feel the same way? [TC 3/11, p. 48]
Participant C-15
Yes. [TC 3/11, p. 48]
Participant C-10
I agree that twelve months is much more valuable than the year-to-date. [TC 3/11, p. 48]
Committee/Staff/Observer
Is that applicable to all companies? All industries? [TC 3/11, p. 48]
Participant C-10
I couldn't think of one that it wouldn't. [TC 3/11, p. 48]
Participant C-11
I think the most valuable starting point is quarterly. And then you can think about twelve months or something. But, quarterly is where you get your exceptions, your change in trend, your seasonality and so on. [Also included in 11(a)] [TC 3/11, p. 48]
__________
Participant C-4
We would choose the integral. We don't really look at rolling twelve month numbers. We set up our credit lines on a twelve month basis based on year end results and then we consistently measure to the year end results. So the integral view is obviously a lot more important to us in that type of analysis. [Also included in 11(d)] [TC 3/11, p. 50]
__________
Committee/Staff/Observer
So it's safe for me to say that those of you who use rolling twelve months are not disturbed by current interim use of integral? With the exception that there's no fourth quarter and that's something you do want? [Also included in 11(d)] [TC 3/11, p. 52]
Participant C-1
Yes, definitely. [Also included in 11(d)] [TC 3/11, p. 52]
Participant C-13
Definitely. [Also included in 11(d)] [TC 3/11, p. 53]
Participant C-5
If you're saying that you'd prefer it as an independent as opposed to the closing and the adjusting at year end then I would agree with that. [TC 3/11, p. 53]
[Context] Responses to the postmeeting questionnaire to the March 17, 1993 Investor Discussion Group meeting.
QUESTION 14
b. Is the optimum interim period for financial reporting (Please choose ONE.):
Monthly? Quarterly? 5 Semiannually? Other? Please describe
If other than quarterly, please explain why:
Participant I-11: Personally, I would prefer monthly - but I think the added costs and the risks of misinterpretation exceed the incremental value of monthly reporting.
[PMQI 3/17, p. 26]
[The CIC has commented that] while the annual report remains the primary corporate communication and the quarterly report ranks very high, there is increasing emphasis on "extra efforts" put forth by management. The "factbook" with up to ten-year financial records continues as the most respected extra. Timely and meaningful press releases covering important developments are often cited. Quarterly conference calls and analyst meetings are also becoming more important and may well reflect growing investor concern for short-term "market performance." Many investors cite the absence of a separate fourth quarter report as a continuing sore point. Fax machines are a wonderful tool for the rapid dissemination of hard copy data but this newer means of distribution is often overworked. We stress again that corporate communications should not be confined to the professional investment community but also directed to the general investing public. [Also included in 15 and 16(b)] [AIMR/CIC92, p. 2]
__________
From what has briefly been described of the [foreign] financial analysts' work, there results a series of requirements with regard to accounting data, which are but insufficiently met at present. We have broken them down into . . . major categories. [Also included in 1(b), 2(c), 2(d), 3(c) 4, 5(a), 5(c), 6, 8(a), 9, 11(c), and 15] [BETRIOU, p. 1]
Semi-annual and quarterly accounts (same observation as for statements of changes). The systematic publication of semi-annual accounts (even if non audited, should that be the requisite condition for rapidity), would be considerable progress. They should include the main items of the balance sheet, of the profit and loss account, of the statement of changes, as well as data per activity. [Also included in 1(b), 11(c), and 15] [BETRIOU, p. 2]
Furthermore, it is important that intermediate accounts be set up according to the same nomenclature as the closing accounts, to which financial analysts compare them. [Also included in 1(b), 11(c), and 15] [BETRIOU, p. 2]