Another box of annual reports arrived from the Globe and Mail's free service. Half a dozen went to dinner with me at the terrible bargain sushi place on the corner. There's something appealing about investigating businesses more or less at random, trying to quickly grasp the economic characteristics and core competencies of each new business and group of managers. In this, I think I was far better served by my English lit and art history classes than my contemporaries were by UBC's commerce department. Annual reports are, after all, popular narratives, and can be evaluated, often usefully, on rhetorical or stylistic grounds. (This isn't to say that I don't pay close attention to financials, but it does mean that if I judge a company suspect based on how its managers represent their performance in the MD&A, 9 times out of 10, I won't bother with the financials. There are too many alternatives out there. To paraphrase Warren Buffett, a basketball coach doesn't waste time with five foot prospects; he looks for seven footers).

Ladies and gentlemen, Royal Host Hotels and Resorts!

(note to MD&A): "Royal Host's financial statements for the years ended December 31, 1998 through 2002 overstated other hospitality revenue and net earnings, resulting from the misinterpretation of documentation pertaining to the complex calculation of a priority return Royal Host receives in relation to its 50% interest in a co-tenancy hotel operation. The miscalculation has been corrected by recording a prior period adjustment with retroactive restatement."

Subtitle #1: We lost money, and vaporized owners' equity

Subtitle #2: Strangely, the adjustment and restatement did not include management salaries or bonuses

- posted by cjb @ 9:32 PM