SEC Is Probing `Pro-Forma' Releases at Four Companies
Washington, June 18 (Bloomberg) -- The Securities and
Exchange Commission is investigating whether four companies misled
investors in announcements about so-called cash earnings,
alternative presentations that typically makes profit figures look
better by excluding some costs.
``It looks like, in some cases, people use these pro forma
press releases as a vehicle to spin the investors,'' SEC Chief
Accountant Lynn Turner said after a speech to an accountants group
in Washington. ``I will tell you that we have, in the Division of
Enforcement, four cases involving pro-forma earnings releases that
we are investigating today.''
The SEC's examination likely is the first time regulators
have considered charges against companies that release cash
earnings figures, said David Tice, a manager of the Prudent Bear
Fund.
``Pro forma'' earnings, or figures prepared differently than required by formal U.S. accounting rules, have been popular among
computer- and Internet-related companies that may leave out merger-
related write-offs and other expenses when calculating their
profit. Overall, about 200 to 300 companies use pro forma
earnings, said Ken Perkins, a research analyst at Thomson
Financial First Call. The Boston-based researcher covers about
6,000 companies. ``It's a tiny percentage of the universe,'' said
Perkins.
Obscuring Real Figures
All public U.S. companies must file disclosures with the SEC
showing their finances under proper U.S. accounting rules. Still,
critics say pro forma numbers -- often included in press releases
days or weeks before an SEC filing -- can obscure the real nature
of a company's finances.
Turner wouldn't say which companies are being examined and
didn't offer information about the progress of the probes. Turner
discussed the issue after a speech to the National SEC Reporting
Conference, a meeting of securities industry accountants. game that we've got going on out there where people are saying one
thing in their press release, but important facts are stated
through the 10-Q'' quarterly SEC filing, Turner said.
SEC officials are discussing whether companies should be
required to file quarterly and annual financial statements
prepared under generally accepted accounting principles within
some time frame, such as three-to-seven days after release of cash
or pro forma earnings.
`Past Overdue'
``It's a great idea. It's past overdue,'' Tice, president of
David W. Tice & Associates, said of the SEC probes. ``For these
companies to use pro forma earnings and exclude depreciation,
interest, charges,'' is unacceptable, he said. Tice helped set off
a 1999 drop in Tyco International Ltd.'s shares after questioning
the company's accounting.
Jack Ciesielski, publisher of the Analyst's Accounting some financial statements as `` Everything but Bad Stuff,'' or
``EBS'' releases.
``EBS press releases do not present a complete or transparent
picture,'' Turner said in an April speech. ``Often they appear to
be trying to lead investors away from the `real' numbers, from
real net income, and from real cash inflows and outflows.''
For example, some releases don't consider interest or the
cost of starting new businesses or product lines as real costs
paid with ``real'' cash, Turner said in the April speech to the
Financial Executives Institute, which recently issued guidelines
for what to include in earnings press releases.
--Vicky Stamas in Washington at (202) 624-1958 or
vstamas@bloomberg.net/bd with reporting by Dan Goldstein at
dgoldstein@bloomberg.net. |
