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