Criterion Research Identifies Accruals That Distort Earnings.

NEW YORK -- Criterion Research Group, LLC, an independent research firm covering both equities and debt, announced today that its earnings quality model now identifies the non-cash items, including those that often distort earnings, that more than 5,000 companies have booked into their current financial results. It also quantifies the extent to which each of these items increases or decreases current earnings. This allows for greater attention to be focused on the specific non-cash items, also called accruals, which are most likely to mislead investors.

Criterion's proprietary model ranks more than 5,000 public companies into 10 risk categories based on the total accrual component of their earnings. Accruals are management's estimates of future cash flows and expenses that impact current earnings and are often wrong due to error or management's prerogative to boost earnings. Companies in the highest risk categories have the largest accrual and lowest cash components to their earnings.

Extensive back testing has demonstrated that these companies are much more likely to experience poor forward stock returns, widening bond spreads, shareholder class actions, earnings restatements and SEC enforcement proceedings, and therefore pose the greatest risk for investors, directors and officers' liability insurers and corporate board members.

By knowing where management has booked the most accruals into earnings, it is easier to determine the sustainability of earnings and detect accounting abuses. For example, if the model indicates that, for a company in the highest accrual category, most of the accruals are coming from an increase in receivables, further investigation can determine whether that increase is being caused by rising revenues, slower collections, an increase in sales to poor credit customers, or aggressive revenue recognition, which is a frequent accounting abuse that has resulted in earnings restatements, SEC enforcement proceedings and class actions. If receivables have grown faster than sales, this could signal that the company is improperly booking sales, i.e., aggressively recognizing revenues.

"Identifying the most troublesome accruals can help investors, D&O insurers, and corporate board members identify where financial statements may be misleading and result in poor stock performance and class actions," said Neil Baron, Criterion's Chairman. Baron observed that the Report of the Special WorldCom Investigative Committee noted that directors had not created a system that would alert them to accounting irregularities. "The ability to identify unusual accruals of companies in high accrual categories could alert directors to accounting abuses and, therefore, help them avoid the personal liability suffered by the WorldCom directors."

According to Criterion's model, companies with positive accruals are most commonly booking the most non-cash items in accounts receivable. In fact, accounts receivable contains the bulk of non-cash items in 25 percent of the 5,300 companies in Criterion's model for the four calendar quarters ending September 30, 2004. Accruals also appear during that period as overstated intangible items and other long-term assets in just fewer than 25 percent of the companies examined.

About Criterion Research Group:

New York-based Criterion is an independent firm providing fundamental research on the stocks and bonds of companies in various industries, including Healthcare, Telecom, Cable, Banking, Insurance, Power and Utilities, Homeland Security and Diversified Industrials. Criterion also provides an earnings quality model developed in conjunction with three Wharton accounting professors that ranks 5000 companies based on the accrual (or non-cash) component of their earnings. Criterion's earnings quality model is predictive of equity returns, bond spreads, earnings restatements, class actions and SEC enforcement proceedings. The firm was founded in November 2002 by Neil Baron and James Nadler, who oversaw the development of Fitch Investor's Service into a major bond-rating agency. Criterion's research is entirely subscription based. Institutional investors interested in subscribing can visit www.criterionllc.com or contact Jeff Kagan at [phone] or [e-mail].