Wednesday, April 22, 2009

Join me in some machete work?

Those of you who have a life may not be aware that pubic companies have to tag just about everything they say or do with legal mumbo-jumbo that typically begins, “This presentation may contain forward-looking statements.” The drama quickly falls off from there.

The boilerplate legalese is mashed into financial press releases and even executives’ oral presentations by lawyers who hope to shield their clients from lawsuits. Actually, I suspect they really just want to justify an income that keeps them in Armani and Porsches. It’s hard to imagine a tense courtroom scene where the defense attorney reveals the plaintiff was clearly warned in the qualification statement that investors’ uncertainties include, but are not limited to, failure by management to generate sufficient sales. As the crowd gasps, the judge bangs a gavel and dismisses the case. The lawyer grabs a Starbucks for the Porsche ride home, worried his client might discover that the next line in the qualifier reads, “The walrus was Paul.”

I bring up all of this excitement because we’re in the heat of Earnings Season, the equivalent of Ben & Jerry’s Free Cone Day for those of us who pour over restaurant companies’ quarterly earnings releases. The first two days have been a veritable all-rides pass to Six Flags, with company after company reporting improved results. It’s been an extremely newsworthy cycle.

But someone has to point out that the CYA language is getting out of hand. Is it really necessary to include eye-openers like this tip from Yum! Brands’ press release on how to spot a forward-looking statement? To wit: “These statements often include words such as ‘may,’ ‘will,’ ‘estimate,’ ‘intend,’ ‘seek,’ ‘expect,’ ‘project,’ ‘anticipate,’ ‘believe,’ ‘plan,’ ‘should,’ or other similar terminology.” A guy standing in the rainforest with a bone in his nose would shake his head over the need for that heads-up.

So the heck with company earnings. I’m focusing this Earnings Season on lawyer-ly bleatings. Here’s a ranking of the companies that released their financial results yesterday and today, arrayed by the length of their qualifying statements.

And the winner?

Yum! Brands, with a 395-word statement!! But the race was close. P.F. Chang’s legal explanation ran a mere 189 words. But it tacked on another 203 words about GAAP reporting standards. And that stuff makes forward-looking boilerplate read like porn.

Chipotle wasn’t far behind with 377 words.

There was no correlation between company size and statement length. Brinker, for instance, needed only 195 words, and that included a calendar of upcoming forward-looking statements, the financial equivalent of a hidden bonus track on a CD. And McDonald’s, the giant in the field, was able to air the necessary warnings (“Forward-looking statements involve a number of risks and uncertainties.”) in just 73 words.

Forward-looking statements

Statements in this blog entry may not be purely historical. Nor, unfortunately, hysterical. The accuracy of these statements are hit or miss at best. Risk factors include injuries from the writer’s past head trauma, a possible brush with rabies, and repeated admonitions from college girlfriends’ parents. Results may differ materially from what has been shoveled onto the screen.

No comments: