Corporate scandals and a struggling market leave no one immune, including the world's richest people. Forbes magazine's annual list of billionaires shows America's wealthiest collectively lost $98 billion in 2002... which makes us feel downright proud about our own dearly departed Fool real-money portfolios.
CNN founder and AOL Time Warner's
The FOOL 50, closing flat today, didn't make the ranks.
In today's Motley Fool Take:
- SEC Flunks Fortune 500
- Shameless Plug: Select Stock Analysis
- Microsoft Strips for China
- Quote of Note
- Gap's Feeling Empty
- Discussion Board of the Day: Netflix
- Quick Takes: IBM , Adaptec , oil prices , more
- And Finally...
Apparently, most management teams still don't get it. More than a year after the Enron debacle prompted calls for a change, an SEC analysis of Fortune 500 companies shows many of them still aren't imparting clear information to their investors in annual 10-K filings.
The agency provided guidance to companies in December of 2001, instructing them to include more relevant information in their reports and make them easier to understand. Instead, the SEC found many "simply recited financial statement information without analysis, or presented boilerplate analyses that did not provide any insight into the companies' past performance or business prospect as understood by management."
The criticism applies especially to the section called "Management's Discussion and Analysis," or MD&A, where a company is supposed to adequately explain all its financials and reveal information about important business developments, future prospects, competition, and so forth. It's a must-read for investors, and often their best source for vital details.
The SEC also continued its assault on "pro forma" accounting, still a favorite form of subterfuge for many. It sent out letters asking companies "either to remove non-GAAP financial measures, because we believed they were misleading or susceptible to misinterpretation, or to present them less prominently with better explanation."
The analysis covered 350 of the Fortune 500, though no companies were singled out. The SEC is making the information public now in hopes of guiding executives as they prepare their 2003 filings.
It's unfortunate the offenders still feel it's in their best interest to confuse investors or hide information from them. In the wake of scandals at Enron, WorldCom, Adelphia, Xerox
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As part of the software giant's Government Security Program (GSP) announced last month, China has signed on to access Windows' underlying code. The populous country (and potential lucrative software market) joins Russia, the U.K., and NATO in the new initiative.
Microsoft said it's in talks with over 30 other countries to expand the program, which gives governments free access to the code behind Windows 2000, Windows XP, Windows Server 2003, and Windows CE.NET for review.
Gates joked that the deal has "zero dollars" of revenue associated with it, since it's (duh) free. But obviously, it's another important move in China for Microsoft.
The company pledged last year to invest $750 million in China over three years to help develop one of the world's fastest-growing computer and technology markets. And in addition to the GSP announcement, Microsoft signed deals in the last few days with China Unicom, the Industrial and Commercial Bank of China, and PetroChina Co. Ltd. It didn't reveal how much those deals are worth, only saying it's in the millions.
Both China and Microsoft likely share trust concerns here. It's no secret that China's a hotbed of software piracy. In fact, Microsoft executives have said that for every legit copy of Windows sold in China, nine pirated copies are produced. On the other hand, China is understandably skeptical of Windows' security, and will need some convincing before it decides the software is secure enough to protect sensitive information.
"Fashion is a form of ugliness so intolerable that we have to alter it every six months." -- Oscar Wilde
Oh, how quickly things turn. Earlier this month, Gap
And then when it actually reports those Q4 earnings and meets targets, its shares fall off more than 10% today on concerns over February comps and margins. Fickle, fickle.
Let's talk about Gap's results first before getting into today's sell-off. It wasn't a horrible quarter or fiscal year for the ubiquitous retailer. But then again, it has an ugly couple of years to rebound from, giving it low hurdles.
Fourth-quarter sales improved 14% to $4.7 billion, and annual sales inched up 4% to $14.5 billion. Same-store sales in Q4 increased 8%, bouncing easily off last year's Q4 drop of 16%. For the entire year, comps were off 3% versus a 13% decline for 2001.
Gap earned $249 million, or $0.27 a diluted share, in Q4. That reverses the prior-period loss of $34 million ($0.04 a share) and matches analysts' expectations. Higher margins, greater cost cutting, and a more favorable effective tax rate boosted its bottom line.
One troubling aspect about its results is the relative weakness of its flagship Gap U.S. stores. Old Navy is again the company's workhorse, with total sales up 27% for the quarter to $1.9 billion and up almost 14% for the year to $5.8 billion.
Stateside Gap stores, however, only saw Q4 sales growth of 6% to $1.6 billion. Total sales for the Gap brand were actually down slightly for the year to $5.1 billion from $5.2 billion. In order to truly fashion a turn-around, the company needs to grow sales again at its flagship stores.
The market's discounting shares today, though, thanks to what Gap said about its February comps and margin trends. Be it because of nasty weather or nervous consumers, comps are, so far, below what Gap had expected for the month. The retailer also said that customers have been reluctant to buy clothes at full price and, as a result, markdowns will pressure margins.
Like shifting fashions, the market's quick to love and then condemn Gap. Patient investors should take a longer-term view.
After logging over a million members, has Netflix proven it's not just a passing craze? Can it compete with Blockbuster, Wal-Mart, and the next generation of pay-per-view? Is its distribution center expansion really that important? All this and more -- in the Netflix discussion board. Only on Fool.com.
Two separate reports show how difficult it is to gauge the direction of the U.S. economy. Gross domestic product grew at a 1.4% annual rate in the fourth quarter of last year, or about twice as fast as expected. Yet, consumer confidence -- as defined by a University of Michigan survey -- fell to its lowest level since 1993.
Oil prices almost hit $40 a barrel today, before falling back to near $37. The record high of $41.15 was set in 1990 after the Iraqi invasion of Kuwait.
Two companies announced layoffs: IBM
In local news, Jim's Sunrise Coffee Shop -- located at Main and 3rd St. -- reported same-store sales were up a surprising 24% in February. Owner Jim-Bob Owens attributed the increase to the day a van carrying the State University sumo wrestling team broke down outside his shop on its way to the big duel meet in Macalester Falls.
Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Did you buy a home or refinance a mortgage? There may be a deduction in your future. Read more in our Tax Center.
- Bill Mann says Congress should keep its grubby paws off the FASB and let it do its work.
- Online DVD rental site Netflix lands a million subscribers earlier than expected.
- Gourmet hamburger chain Red Robin offers investors novelty, but little else.
- In Fool's School, tips for job hunters.
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim