August 9, 2016
Non-GAAP CDIs: The First Comment Letters
We’ve been covering Corp Fin’s new non-GAAP CDIs extensively – including two blockbuster webcasts. Here’s an update from Scott Kimpel of Hunton & Williams:
Sufficient time has passed since the Corp Fin Staff issued the new CDIs on non-GAAP financial measures such that comment letters based on them are becoming publicly available. Below are a sampling of letters that have become publicly available in the last several weeks – which raise issues with presentation of non-GAAP metrics.
A common comment relates to ordering & prominence under Item 10(e), but they seem to run the gamut and hit on each of the new CDIs. So far, it appears the Staff has largely been accepting a company’s promise to make changes in the next quarterly reporting cycle. It will be interesting to see if Corp Fin becomes more assertive after a few more quarters of reporting. The samples are:
1. Alexandria Real Estate Equities (Item 10(e) prominence)
2. Ameren Corp (Item 10(e) prominence; tax effecting)
3. Crown Holdings (performance vs. liquidity measures; reconciliation; non-GAAP measure without corresponding GAAP measure; tax effecting)
4. Katy Industries (reconciliation; Item 10(e) prominence)
5. Moelis (full non-GAAP financial statement)
6. National Retail Properties (non-cash adjustments, Funds From Operations)
7. Occidental Petroleum (non-GAAP measure without corresponding GAAP measure)
8. Sterling Bancorp (Item 10(e) prominence; non-GAAP measure without corresponding GAAP measure)
9. Timken (Item 10(e) prominence)
10. US Steel (Item 10(e) prominence)
11. Waters Corp. (Item 10(e) prominence; smoothing)
Also see the recent May-June issue of “The Corporate Counsel” print newsletter, which provides great guidance in this critical area…
Heavy Non-GAAP Users More Prone to Restatements & Internal Control Weaknesses?
Here’s an excerpt from this Cooley blog by Cydney Posner:
This article in the WSJ suggests that there may be even more to it than just potentially misleading numbers: according to a study by consultant Audit Analytics, conducted for the WSJ, companies that lean heavily on non-GAAP measures to significantly pump up their earnings “are more likely to encounter some kinds of accounting problems than those that stick to standard measures….”
Podcast: Cybersecurity Risks & Responses
Davis Polk has released its second podcast – this one with Neil MacBride, former U.S. Attorney for the Eastern District of Virginia – who is now at Davis Polk – to discuss the topic of cybersecurity and the related risks and responses…
– Broc Romanek
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