Sec Frowns On Non-GAAP Disclosures

Written By Victoria Sivrais, Partner

May 20, 2016

The SEC is removing the gap between non-GAAP and GAAP. This week they issued new guidance that non-GAAP measures can only be used if compared with GAAP measures – and on equal footing.  Guidance includes not putting the non-GAAP measure before the GAAP measure, not making it more prominent or bold, and not using a descriptor like “record” or “exceptional” with one and not using it with the other. And, don’t get them started on not including a reconciliation table.

The Activists feel Washington should improve transparency, just not theirs… The most prominent (and sometimes opposing) activists have banded together to fight for their right to…..secrecy. You might remember Marty Lipton led an effort to shorten the 10-day period during which activists can keep secret a more than 5% stake before they must disclose it. (Bernie Sanders thinks it should only be two days, no wonder Icahn thinks Trump would be such a good president). While Circa’s stated goal is public policy and education, it’s hard to miss that the longer the period in which the activist can build a position in private, the better the chance of buying the shares before the inevitable stock price pop occurs on news of a potential activist campaign. Pot kettle black?

And, finally, don’t miss Tyler Durden’s blog on how “The Wussification of America” has finally breached the Wall Street ego. Just like every kid now gets a soccer trophy even if his team went 0-24 for the season, every company these days seems to win the estimate game. Of the 91 percent of companies reporting earnings through the week, 78 percent met or beat EPS estimates. But, here is the catch. If the comparison was made with the first set of estimates provided by the company, less than 10 percent would have met or beaten EPS estimates. Ultimately maybe this is exactly what the long-termers like Larry Fink of Blackrock want, earnings estimates are quickly becoming irrelevant – there is no gap to trade on the “whisper estimate” versus the actual estimate providing less fodder to make short term profits during the earnings cycle.


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