Today we continue our series on SPACs (special purpose acquisition companies) by examining what these firms actually report on the balance sheet and the income statement.

Our first post in this series examined SPACs at the global level: how many such firms actually exist (at least 350 in first-quarter 2021) and the total assets all these firms have (roughly $109 billion, a ten-fold increase from early 2020). We found eight firms reporting more than $1 billion in assets, and only one of them had more than $2 billion: Pershing Square Tontine Holdings ($PSTH), managed by billionaire investor Bill Ackman.

So let’s start there. What does a SPAC like Pershing report?

On the income statement Pershing doesn’t report too much, because so far the SPAC isn’t doing much. The company had $4.78 million in legal fees and another half-million or so in expenses in Q1, and a piddling $638 in interest income. That means an operating loss of $5.3 million for the quarter. See Figure 1, below.

But wait, you say! What are those two line-items for change of fair value in liabilities? Together they add up to $341.6 million in other income, which drove an impressive $337 million in net income for the quarter.

The warrants and forward purchasing agreements are other financial instruments that Pershing (or any other SPAC) offers to investors alongside its IPO shares. They are recorded as liabilities on the balance sheet. The SPAC must then assess the fair value of those liabilities every quarter.

In Pershing’s case, the fair value of those warrant and FPA liabilities declined, which is then recorded as Other Income on the income statement. See Figure 2, below.

You might also be wondering, “Is this warrants and liabilities stuff the same issue the SEC flagged about SPACs in April, and caused a wave of restatements?”

Yes, it is. The SEC warned SPACs that they had been recording warrants and FPAs as equity, when the proper accounting treatment was to record them as liabilities. After that warning many SPACs, Pershing included, had to restate their prior financials. We’ll take a deep dive into that issue in a subsequent post. Figure 2, above, shows how warrants and FPAs are supposed to be reported. (Pershing had fixed the matter for its Q1 report.)

As a practical matter, however, Pershing’s Q1 net income is almost entirely notional. The SPAC did not actually rake in hundreds of millions in revenue. The operating part of its income statement is pretty much a snoozefest.

And the Balance Sheet

The balance sheet isn’t much more exciting. It reveals that Pershing has several classes of assets such as cash, prepaid expenses, and dividends — but the amounts haven’t fluctuated all that much over the last few filing periods.

The big item on the balance sheet is the “cash and securities held in trust account.” That’s where a SPAC parks the capital it raises from investors, before spending that cash on an acquisition target. As you can see in Figure 3, below, Pershing has $4 billion at its disposal.

In fact, the only significant change on the balance sheet has been those FPAs and warrants, and the change in fair value Pershing recorded in Q4 2020 and Q1 2021. Most other items hold fairly steady.

As always, you can dive into this data deeply with Calcbench. For example…


U.S.-listed firms are required to follow U.S. Generally Accepted Accounting Principles (GAAP) when reporting their financial statements. Firms are also allowed to present additional figures that don’t follow GAAP — metrics commonly known as “non-GAAP.” 

When doing so, the firm must also explain how it arrived at the non-GAAP figure, and show a reconciliation (including the adjustments made) back to the closest comparable GAAP metric. 

In a recent Calcbench research report, we examined the size and nature of adjustments S&P 500 companies made to their GAAP figures, to arrive at the most commonly used non-GAAP figures. Today we want to examine the trends of those differences. 

First, we identified all companies that report non-GAAP earnings per share (EPS), roughly 1,700 firms. Then we examined the median difference between the non-GAAP EPS and the corresponding GAAP EPS. 

One interesting note is that the percentage of companies reporting non-GAAP EPS has increased significantly, from about 20 percent of all firms in 2013 to 30 percent in 2020. This would suggest that investors find the non-GAAP information important, and push companies to disclose it. 

Meanwhile, the median difference between non-GAAP and GAAP EPS has doubled, from roughly $0.30 per share in 2013 to $0.60 in 2020. The non-GAAP EPS is higher (little surprise there), and the gap between the non-GAAP EPS and GAAP is increasing

.

Does this mean GAAP numbers are less important, or that non-GAAP amounts are more informative? We don’t know, but the increasing gap is interesting.

We further examined the distribution of differences between GAAP and non-GAAP EPS for 2020. As you can see from the table below, 80 percent of companies report a non-GAAP EPS that is higher than the GAAP EPS, whereas only 20 percent report a non-GAAP EPS lower than the GAAP EPS.

We wanted to further examine the relationship between the GAAP EPS and non-GAAP EPS, so we plotted the EPS numbers for 2020 in a scatter plot, shown below.

As you can see from the chart, GAAP and non-GAAP EPS largely move in similar directions. Still, you also see some cases where the two seem to differ substantially. There seem to be cases in the above chart where the dot falls below the 45-degree line. Those would be cases where non-GAAP EPS is lower than GAAP EPS.

Then we zoomed in to focus on EPS values of $10 or less. In the chart below you see a similar story to the one we saw for the entire population, with the exception that there seem to be many more cases above the 45-degree line — that is, where non-GAAP EPS is higher than GAAP EPS.

Want more? Calcbench has all the data. Go to our Multi-Company database page to see the data. (Caveat: non-GAAP data is available for Professional-level Calcbench subscriptions only).  


Saturday, June 12, 2021

Like so many others who study financial data and follow financial news, Calcbench has been fascinated lately by special purpose acquisition companies — more commonly known as SPACs.

What are these financial reporting contraptions? How many are there? What financial disclosures do they make, and how can one study those disclosures for useful financial analysis? How much do the people behind SPACs get paid?

Calcbench decided, therefore, to launch a short series on this blog looking at financial reporting issues related to SPACs. Because these firms do indeed submit financial data, which means we do indeed have that data available for our subscribers to find and put to use.

This first post seeks to answer some basic questions about SPACs. In subsequent posts we’ll examine specific SPAC issues in more detail.

What are SPACs, exactly?

SPACs are publicly traded holding companies, and more commonly known as “blank check companies.” They have no substantive operations; they exist to hold money in trust from investors, and then go hunting for a private operating company to acquire.

Once that acquisition is done — presto! The newly merged entity is a publicly traded operating company.

In theory, SPACs are a faster, simpler way for private companies to go public than a traditional IPO. Of course, SPACs also make gobs of money for the executives who put the SPAC and ensuing acquisition together (known as “sponsors” of the SPAC) and often for the entertainers, athletes, and other famous people who serve as “advisers” to the SPACs.

How many SPACs exist?

That’s a good question, because a legion of firms have announced themselves as SPACs over the last 18 months or so.

One good place to begin is with SIC codes. SPACs are category 6770. When we set up a peer group for all firms in that SIC category as of Dec. 31, 2020, we found 189 “live” firms that had submitted current financial statements — everyone from 5:01 Acquisition Corp. ($FVAM) to Zeta Acquisition Corp. I ($ZETAI).

Jump forward to Q1 2021, however, and the picture looks markedly different. We found 358 firms with current financial statements, including new entrants such as 26 Capital Acquisition Corp. ($ADER) and Pershing Square Totine Holdings ($PSTH), billionaire investor Bill Ackman’s SPAC.

That said, it’s worth remembering that plenty of firms announce that they’re forming a SPAC, and even file an S-1 registration statement with the Securities & Exchange Commission. Then… nothing. They ghost the capital markets, never to file a statement again. So when we say “189 blank check companies in Q4 2020” or “358 firms in Q1 2021,” we’re talking about firms that have filed quarterly statements for that period and are keeping up with their disclosure duties.

How much money do these SPACs have?

Lots, and most of it raised only within the last year or so. We used our Bulk Data Query tool to track total assets and average assets for all firms under SIC code 6770, from the start of 2019 through first-quarter 2021. Figure 1, below, tells the tale.

Huge amounts of money poured into SPACs in the first quarter of 2021, when the SPAC frenzy seemed to be at its height. Total assets soared from $12.56 billion in Q4 2020 to more than $109 billion in Q1 2021, while average assets per firm jumped from $172 million to $311 million in the same period.

We also saw the number of large SPAC firms (defined as having $1 billion or more in assets) rise from three at the end of 2020 to eight at the end of Q1 2021. Here are the largest 10 firms at end of the quarter:

And what do SPACS do?

As we said earlier, they raise funds from investors first, and then go acquire an operating company later. Many SPACs have a specific theme — say, only biotech companies, or only European businesses, or only businesses owned by women or developing ESG products or whatever.

The crucial element is that SPACs have two years to find their acquisition target; if they haven’t closed a deal by then, the SPAC managers must — horror of horrors — give the money back to the investors.

Which creates all sorts of pressures to close deals quickly. Which we will explore in our subsequent SPAC-tacular series of posts.


At Calcbench we love seeing how people use our data. Particularly rewarding, given our many years spent in the classroom, are the citations by professors conducting academic research. 

A couple of years ago, we shared several articles written by our academic friends. Given the success of this post, we thought we’d update our blog readers with some of the latest research. Note: to see other topics that utilize Calcbench data, head to https://scholar.google.com/ and type “Calcbench” in the search bar. You’ll find nearly 100 results. 

Below are some recent examples of papers that include Calcbench mentions: 

For some additional mentions visit our academics page. Dozens of universities are using Calcbench today to access reliable financial data and information deep within financial statements for their research needs. 


(Editor’s note: Today we’re delighted to introduce a new monthly column on the Calcbench blog that will explore financial analysis issues, written by Jason Apollo Voss — investment manager, financial analyst, and these days CEO of Deception and Truth Analysis, a financial analytics firm. Enjoy, and be sure to see our companion spreadsheet to help you explore the concepts Voss talks about.)

By Jason Apollo Voss, CFA

In today’s world where the biggest assets on the balance sheets of the most successful firms are all about intangible assets, you may wonder why people should still care about understanding property, plant, & equipment (PP&E) better and more deeply. The answer is twofold:

  • Many firms play games with depreciation & amortization to improve their short-term results, and such games depend on PP&E.
  • Even the biggest tech firms have big investments in hard assets.

In fact, from the details of PP&E disclosures you can draw numerous conclusions about growth capex and maintenance capex, two concepts crucial to financial analysts. 

So let’s consider the two above points in turn, using Google (GOOG) and Apple (AAPL) as a compare-and-contrast case study.

Big Tech Firms’ Big Investment in Fixed Assets

Google reported 2020 total assets of $319.62 billion. That’s certainly impressive, and most of those assets must be intangibles such as goodwill, right?

Nope. Google’s total intangible assets, including goodwill, are just $22.62 billion — 7.1 percent of total assets. See Figure 1, below. Hmmm. 

In contrast, gross property, plant, & equipment for Google is a whopping $126.46 billion, or 39.6 percent of total assets. In other words, Google’s fixed assets dwarf its intangible assets by a factor of 5.6. (Net PP&E, shown above, is “only” $84.749 billion.)

What about Apple? It outsources so much of its manufacturing, and the company is all about intellectual property. So surely its IP must dwarf its fixed assets, right?

Apple’s total assets for 2020 were $323.89 billion. Its IP assets were… um, hold on. Apple doesn’t actually report its intellectual property in detail, either on the balance sheet or in the footnotes. What’s that about?

First, a small digression. Apple’s intellectual property has to be its most important asset, and yet there’s almost no detail about it in the 10-K. As an investor, this kind of fog worries me. Essentially the company is saying, “Trust us, we are Apple.”

Back to the numbers. Apple does report an aggregate category named “Other Non-Current Assets.” In 2020 those assets totaled $42.52 billion, or 13.1 percent of total assets.

What bothers me is that things like deferred tax assets are also embedded in that number. So investors in Apple, likely enamored by its intellectual property, can’t actually get a direct read on the value of that IP.

Apple does disclose in its footnotes the size of its net deferred tax assets, which totaled $18.30 billion in 2020.

With this number, buried in the footnotes, we can then estimate that IP number indirectly. It’s likely to be Other Non-Current Assets ($42.52 billion) minus net deferred tax assets ($18.3 billion), which leaves us $24.22 billion for estimated intellectual property intangible assets, which is about 7.5 percent of total assets.

And what about Apple’s fixed assets? Those mundane Dickensian assets, the ones that surely don’t matter to investors?

In 2020 those assets totaled $103.53 billion — roughly 32 percent of total assets, and 4.3 times larger than estimated intellectual property intangible assets.

I think you see my point: the stories of Google and Apple ought to be enough to convince you as an investor that you should pay attention to the goings on within fixed assets, even in tech companies. That is, big tech needs BIGGER MECH.

PP&E Analysis Nuances

Because most firms provide only a single line item on their balance sheets about property, plant, & equipment, it’s difficult to determine whether the firm is keeping up with maintenance capital expenditures.

This is because depreciation is ultimately a cash expense, even though it’s typically treated as a non-cash expenditure. After all, you can only drive your car for so long without investing in repairs and maintenance before it no longer works. True, day in and day out the depreciation appears to be a non-cash expense — until the day that it isn’t. Ouch.

If an analyst is building a cash flow valuation model, he or she typically has a conversation with someone from the company in which they invest and asks for an estimate of maintenance capex. But we usually can estimate maintenance capex directly from the information reported in the annual report. We can also see how companies are aging their assets. Here’s how.

There are several PP&E metrics that you should know and incorporate into your fundamental analyses. Why? They lead to a more nuanced (read: higher probability of generating alpha) understanding of business performance. These metrics are:

  1. Average expected life of fixed assets
  2. Fraction of expected life exhausted
  3. Average remaining years =

(1-fraction of expected life exhausted × average expected life of fixed assets)

With these numbers you can do a magical thing: gain insight into how companies under-invest in fixed assets in the short run, to create the appearance of increased earnings and increased operating cash flow; and insight into underreported cash flows from/used in investing.

Average Expected Life of Fixed Assets Calculation

Here’s our first calculation, to determine average expected life of fixed assets. 

If you think about this formula it makes logical sense. Namely, if we want an estimate of how many years the fixed assets have left, we should take the total depreciable fixed assets and divide it by the amount taken most recently for depreciation and amortization. This gives us an idea of the average number of years of expected life.

Google, like most firms, has a single line item on its balance sheet labeled “Property & equipment, net.” But the net figure is distorted by accumulated depreciation, so we need the gross figure.

The numbers for gross PP&E and for accumulated depreciation are sometimes located on the balance sheet itself, or almost always in a footnote. In Google’s case for 2020, those amounts are found in “Footnote 7. Supplemental Financial Statement Information: Property and Equipment.”

In any case, the amount for Google in 2020 is $126.462 billion. But land is not a depreciable asset, so we need to subtract its value out of the gross property, plant, & equipment figure or else it will make the Average Expected Life of Fixed Assets figure too high. Again, the total value of land for Google in 2020 was reported as $49.732 billion.

Next, we need the depreciation & amortization expense figure for a single year. It’s located typically in one of the following places: the income statement (rarely), in a footnote somewhere (rarely), or on the cash flow statement in the operating cash flow category (almost always). For Google in 2020, that number is $12.905 billion.

With our figures in hand we can now calculate the average expected life of fixed assets for Google as:

Before considering our next nuanced PP&E measure, we need to do a qualitative check. Does 5.95 years for Google’s depreciable fixed assets make sense? What are those assets exactly? Most likely, they’re office buildings owned by Google, as well as a massive investment in things like server farms.

One way to answer this question is to look at the composition of depreciable fixed assets in Google’s Footnote 7, and compare it to the company’s accounting policies regarding depreciation. We could even calculate a weighted average expected depreciation for Google. That’s outside the scope of this article, but it’s possible.

Fraction of Expected Life Exhausted

Here is how to calculate our next nuanced metric. Fraction of expected life exhausted equals:

Again, this formula makes logical sense because it looks at the total accumulated depreciation over the years that the firm has owned its depreciable fixed assets; and then compares that number to the original purchase/book value of those assets. This is a reasonable estimate for how much of the depreciable fixed assets’ life has been exhausted.

For Google, this is calculated for 2020 as follows:

$41.713 billion ÷ $76.730 billion = 54.4 percent

In other words, while Google has booked assets that have an average expected life of 5.95 years, 54.4 percent of the value of those assets had been depleted by the end of 2020.

Average Remaining Years

Our next metric to calculate is average remaining years. It can be calculated as:

(1- fraction of expected life exhausted) x average life of fixed assets

In the case of Google, we can estimate that number as follows:

(1 - 54.4%) x 5.95 years = 2.71 years

The small number of years tells you something important. Namely, Google cannot afford to skimp on maintenance capex for too long before problems would likely start to emerge with key assets like servers.

Now, if we only had a way of estimating maintenance capex from our data…

Maintenance Capex

While the above figures were not created by me, to my knowledge the following maintenance capex estimate is my own creation. (Surely others have seen in the data a chance to estimate this key figure in valuation models.) Here’s the calculation:

Maintenance capex =

The innovation here is really not so tricky. If we’re trying to estimate this year’s maintenance capex spend, we cannot take this year’s depreciation & amortization expense because we need the total depreciable fixed assets from the beginning of the year. Consequently, in the denominator of the above equation, we add it back to the total accumulated depreciation for the firm.

For Google, it looks like this:

Voilà! But how does this compare to the actual capital expenditures (that is, purchases of property and equipment) taken by Google in 2020?

Well, Google reported $22.281 billion on its cash flow statement in its Investing Activities sub-section. If you are doing a valuation model for Google, and if you had calculated the above metrics in a time series, then you could independently (from management’s input) estimate the proportion of all capex that ought to be spent each year by averaging them together.

For the single year 2020 for Google, that figure is 81.4 percent. Wow! In other words, Google rapidly depletes its assets. This makes sense given that it is a tech company.

With the above figures you can also look at an interesting time series of over- or under-investment. If a company under-invests in maintenance capex, based on your estimate, it begs several questions:

  • How sustainable is the underinvestment? Will the company’s competitiveness be hampered if it chronically underinvests?
  • Why is it underinvesting in capex? Is management trying to deceive me into believing that the firm is performing better than it actually is?

But we can now infer another interesting conclusion from the above estimate for maintenance capex. Do you see it hidden in there?

We also now have an estimate for Google’s growth capex.

Growth capex can become the denominator in an interesting ratio (again, I think of my own invention):

Basically, this ratio looks at the marginal revenues generated by the growth capex spent a number of years ago. How many years? A good estimate for the number of years is the average of the time series of the average expected life of depreciable assets figures.

Next, as investors we should expect the maintenance capex figure to be lower than the total capex figure. But that isn’t always true. Let’s bring Apple back into the picture and compare it side by side with Google. Buckle up!

(Yes, the below image is a bit hard to read; Calcbench also has an Excel spreadsheet with the same formulas built into the model available for download, if you’d like to see other examples.)

At a glance we can see several interesting things going on. In particular, note that Apple’s time series for these figures is more volatile than that of Google’s.

For example, Apple’s coefficient of variation (that is, standard deviation  average) for its Average Expected Life figure is 24 percent, versus just 6 percent for Google. As investors, this is an indirect way to see that Apple’s business is likely more complex and slightly more volatile than that of Google’s.

Also noteworthy, and confusing, is that our estimate of maintenance capex for AAPL exceeds its actual capex. And we’ve been generous in these figures, because we are adding to total capex the value of Apple’s acquisitions. But Apple reports this figure “net,” meaning that its sale of businesses may be financing its capex — although we can’t say that for sure. Still, this is another example of not being able to decipher the full picture of what Apple is doing. Hmmm.

In my book, co-authored with C. Thomas Howard, Return of the Active Manager, I wrote about the behavioral insights that are embedded in financial statements. A hypothesis, I think, can be safely inferred from our deeper dive into Property, Plant, & Equipment Nuances. Namely, Apple needs higher scrutiny than Google, and Apple seems to behave in an obfuscating way.


Thursday, May 27, 2021

The NYT published an opinion piece this morning, The Apple Tax is Rotten by Farhad Manjoo.  The piece focuses on the recent court case (judgment pending) regarding the App Store.  We wanted to learn more.  Please keep in mind that our goal is not to critique the piece or the author.  We thought we ought to see how quickly we could inform ourselves, and our users about what could be learned about financial disclosures and particularly segments from Apple Inc’s latest filings, especially because that is what we do here at Calcbench.  

So, we dug right in.  

We went to the Disclosures section of Calcbench and looked up Apple’s segment disclosure to learn more.  It looks like this:

Note that there is nothing about the App Store here.  The only thing listed are geographies.  So, we continued and found that to obtain product level revenues, we need to go to the Revenue Recognition disclosure, where Apple breaks out the product revenue. 

Once you get there ( below picture), you can either download the data directly, or use the Calcbench Excel Add in to build some formulas and create a time-series.  

Here’s the breakdown of product revenues in dollars as well as percent of total.  Please note that the Apple Inc fiscal year ends around September 30 so the last bar in our time series graph represents the 6-month period ending on March 31, 2021. 

Quick conclusion, the iPhone is still king, but the services revenue is significant and growing in dollar terms as well as a piece of the overall pie (in $ B) .  


Wednesday, May 26, 2021

Calcbench just published our latest quarterly analysis, for firms’ collective financial performance in Q1 2021 — and folks, we need to talk about net income. It went nuts.

We examined the Q1 financial disclosures of more than 3,400 non-financial firms, comparing this year’s numbers to first-quarter 2020. Net income rose by more than 1,900 percent, from a piddling $16.2 billion one year ago to more than $330 billion today.

In the abstract sense, that rebound isn’t a surprise. Q1 2020 was hammered by the COVID-19 pandemic, so naturally Q1 2021 would be much better as vaccinations spread across the United States and the economy kept reopening.

In the practical sense, however, with actual numbers staring you in the face — wow. We don’t even know what the correct verb should be here. Net income soared? Skyrocketed? Spiked? You tell us.

The rest of our Q1 2021 wrap-up (you can download the full analysis from our Research Page) tells a similar, if less dramatic, story. Revenue, cash, and cashflow from operations all rose at respectable rates; debt only crept up 1.3 percent; and operating expenses declined by 12.2 percent. Presumably that’s because firms were spending less on emergency supplies such as PPE or cleaning equipment.

Figure 1, below, shows the year-over-year change for all 3,400 firms we studied, across 11 types of financial disclosure. (Net income not included, because its 1,944 percent spike would ruin the visual representation of everything else.)

Beyond this aggregate analysis, we also studied a smaller group of roughly 1,500 firms in across 20 industry categories classified by SIC code: pharmaceuticals, surgical & biological goods, oil & gas, retail, motor vehicle parts, and others. Then we compared each industry’s quarterly numbers across seven major financial disclosures.

Figure 2, below, shows an example for cashflow from operations.

So enjoy our latest quarterly wrap-up, and check back in three months or so for Q2!


Tuesday, May 25, 2021

Lots of people assume that accounting changes are boring and unworthy of one’s attention. Not true, we say! On many occasions, those changes can have a significant impact on the financial statements.

Take Pfizer (PFE) as one example (mainly because the company is so high-profile thanks to its coronavirus vaccine).

Pfizer filed its latest 10-Q report on May 13. Tucked away in the footnotes, the company disclosed that it has adopted a new accounting principle for the valuation of its pension plans. As described in Note 1(c) of the filing:

In the first quarter of 2021, we adopted a change in accounting principle to a more preferable policy under U.S. GAAP to immediately recognize actuarial gains and losses arising from the remeasurement of our pension and postretirement plans (“MTM Accounting”).

As a result of that change, the amount reported on Pfizer’s balance sheet in the 2020 10-K was revised in Q1 2021.

The important part: you can see such changes in Calcbench, since we highlight these revisions. See below:

From an accounting perspective, what happened was this: instead of deferring accumulated losses in Accumulated Other Comprehensive Income (AOCI), Pfizer recognized those losses now and decreased Retained Earnings for the corresponding amount. Therefore the amount for Accumulated Other Comprehensive Income (AOCI) was revised from an $11.7 billion loss to a $5.1 billion loss.

Let’s say that again more simply: the accounting change led to a $6 billion increase in AOCI and a corresponding decrease in retained earnings. All because Pifzer adopted a change in accounting rules.

Now that the pension and post-retirement plans are “marked to market,” their carrying amount would be subject to market fluctuations. That can introduce some volatility in the future.

Interesting side note: Pfizer released its earnings report and filed an 8-K on May 4 — but those filings included no mention of the change in accounting principle and revised numbers. Analysts had to wait for the subsequent 10-Q filing and, as always, look for the footnotes!


Thursday, May 20, 2021

Another quarter, another expansion of Calcbench’s awesome financial data superpowers. This time around, we’re here to tout updates to our earnings press release tools.

The news is this: that Calcbench Professional users can now access all numbers in the text and tables of firms’ earnings releases, within minutes of said press releases hitting the wires. In a recent study we conducted of more than 13,000 press releases, our users had access to data within press releases in an average of five minutes.

Those enhancements enable financial analysts and money managers to make more informed decisions, using Calcbench’s model-ready data. As with all Calcbench data, earnings press release data is available to export from our website, or can be directly accessed through Excel, Google or the Calcbench API. (You can also see earnings releases on our Recent Filings page. It will look like Figure 1, below.)

One recent example is Iron Mountain ($IRM), an enterprise information management company. On May 6, prior to 7:00 a.m. ET, Iron Mountain released its earnings press release. By the time the market opened, Iron Mountain’s stock price gained $0.78. By the closing bell, Iron Mountain’s price increased another $2.14. Analysts who had systemic access to the press release data would have had their models primed to take advantage of those price moves.

“Information moves markets. Calcbench understands that the more efficiently analysts can populate their models, the faster they can act on the new information.” said co-founder and CEO of Calcbench. Pranav Ghai. “That’s why immediate access to data embedded in earnings press releases, such as GAAP, non-GAAP, key performance indicators and segments, is critical.”

We agree, and not just because Ghai is our boss. The point is valid no matter who says it — and because it’s valid, that’s why we’ve developed that access to the data for our users.

By the way, Calcbench continuously upgrades its functionality based on user feedback. We previously announced the ability to compare side-by-side comparisons of preliminary income statements against previously reported numbers, without the hassle of manually inputting the data.

What will we do next? Stick around and find out.


Every now and then Calcbench reviews the time that elapses between a firm publishing its earnings release and the subsequent filing of its 10-K or 10-Q. We started this analysis back in 2016, then followed up with another look 2018, and yet another in 2020.

Now we have some fresh numbers for 2021. We looked at the most recent 10-Q filing period for 386 firms in the S&P 500; a table of our findings is below. As you can see, 63 percent of the firms in our sample filed both documents within a day of each other, and more than 40 percent filed both documents on the same day.

Still, 10.1 percent of our sample took 10 days or more after filing the earnings release to follow up with the 10-Q. This time lag makes earnings release data more important, since you can act on it quickly rather than wait for the 10-Q to be filed.

Unlike when we started tracking this data in 2016, today Calcbench collects all data in 8-K filings and provides that data to our clients so they can populate their models. So if you want to learn more, drop us an email or use the chat function on Calcbench.


Friday, May 14, 2021

Calcbench loves to see how financial analysts put data to work, so we were delighted earlier this week when Morgan Stanley published a research note gaming out various ways that tax proposals floated by the Biden Administration might affect Corporate America.

If you haven’t heard yet, one idea is to enact a 15 percent minimum tax on the profits that certain large firms report in their financial statements — a so-called “book tax,” since the profits that a firm reports in the financial statements are not, for various accounting reasons, the same profit number that the firm reports on its tax return.

Specifically, the Biden Administration proposal is to impose this book tax on firms that report more than $2 billion in profit. A firm fitting that profile would need to make an additional tax payment, beyond its normal tax liability for that year, so that the total amount equals 15 percent of global profits reported on the financial statements.

So the research gurus at Morgan Stanley’s Global Valuation, Accounting & Tax team dove into our data to determine: How many businesses might actually get hit by a tax like this? And how much could those higher tax payments cut into net income and free cash flow?

The full report is titled, “Next Chapter of Biden's Book Tax: Who's Potentially Exposed.” We won’t steal all the glory from the MS research note, but here are some key findings:

  • Roughly 200 companies report $2 billion+ in net income, and would be in the book tax zone
  • But only about 45 companies would be candidates to pay the tax, facing an average payment of about $350 million
  • Companies exposed to the tax could see hits of 10 percent to net income, and 13 percent to free cash flow
  • The tax would generate about $10 billion to $20 billion annually

Now, to be clear, this book tax is not going into force any time soon. The Treasury Department has proposed the idea, but it takes an act of Congress to change corporate tax rates. These days Congress can barely agree that the sun rises in the east, so lord knows when a tax change will see the light of day.

Still, there’s plenty of data available — right here in our archives, naturally! — to model the possible consequences of such a book tax. For example, Morgan Stanley also calculated which industries would bear the biggest burden. See Figure 1, below.

If you’d like to build your own model with Calcbench data, we designed a simple template to calculate how the minimum book tax might affect individual firms. Calcbench subscribers can download our template and model to your heart’s content!


Ride-sharing giant Uber ($UBER) wheeled its first-quarter earnings report up to the curb this week, and of course the company reported a net loss for the period. Some things never change, after all.

More interesting to us was Uber’s adjusted EBITDA for Q1 — which was a loss even larger than the company’s official net loss as reported under U.S. Generally Accepted Accounting Principles. You don’t see that too often.

Figure 1, below, tells the tale. The net loss for Uber in Q1 2021 was $108 million. Then Uber declared 12 adjustments to that number, both upward and downward, to arrive at an adjusted EBITDA loss of $359 million for the quarter.

Don’t die of surprise at this news, but most non-GAAP metrics tend to make a company’s financial performance look better: “Under formal accounting rules we lost money, but if you exclude all these items for various reasons, we actually made a killing!”

That’s not always the case, however. Thanks to quirks of financial operations at a firm and how non-GAAP numbers are allowed to be reported, sometimes you wind up with a non-GAAP metric that looks worse than its closest GAAP-approved correspondent.

First let’s consider the rules for non-GAAP metrics, as prescribed by the Securities and Exchange Commission. Firms are allowed to report a wide range of non-GAAP numbers, but they need to calculate those numbers consistently from one quarter to the next.

So while Uber’s adjusted EBITDA improved the picture for Q1 2020 (whittling down a $2.9 billion loss to a $612 million loss), Uber would have to perform the same calculations one year later — that is, for Q1 2021.

Enter the Numbers

That brings us to the actual adjustments that Uber made. It seems that the crucial line item in Figure 1 is “Other (income) expense,” which swung from a $1.795 billion expense one year ago to $1.71 billion in income this year. It was, by far, the biggest change from Q1 2020 to Q1 2021. What’s that about?

Uber explains that in another table earlier in the earnings release. See Figure 2, below.

As we can see, a big part of that Other Income (Expense) total in 2020 came from $1.86 billion in impairment charges. In footnote disclosures accompanying this table, Uber says most of that amount was a $1.9 billion impairment charge related to the company’s investments in Didi, a ride-hailing firm in China; and a $173 million allowance for credit loss recorded on our investment in Grab, another ride-hailing firm in Southeast Asia.

Those impairments drove Uber’s $1.79 billion Other expense in 2020, which Uber then used as an adjustment for EBITDA, which led to its non-GAAP adjusted EBITDA loss one year ago of $612 million.

This year, however, the picture for the Other Income (Expense) line item looked quite different. Uber had no impairments, but did have a $1.68 billion gain on the sale of its self-driving car unit to Aurora, a tech startup that hopes to deliver self-driving cars some day in the future.

That sale to Aurora drove Uber’s $1.71 billion gain in Other Income for the quarter. Which had to be reported as a negative number on the adjusted EBITDA reconciliation in Figure 1. Which led to Uber reporting a non-GAAP loss even larger than its formal net income loss at the top of the reconciliation. Which, as we mentioned earlier, you don’t see too often.

That’s why we love parsing non-GAAP numbers so much around here: because you see something new every day.


The Calcbench research team is still digging out from a flood of corporate filings last week, but right away we wanted to note this one: Clorox Corp. ($CLX) filed an earnings release on April 30 that included adjusted EPS.

Specifically, the firm reported adjusted EPS of $1.62 for Q1 2021, compared to actual, GAAP-approved EPS that was in fact a $0.49 loss per share.

Why is that interesting? Because while firms might like to report non-GAAP financial metrics such as adjusted operating income or adjusted cash flow, you see adjusted EPS much less often. So let’s take a look at exactly what Clorox did here and what investors are supposed to make of this rather peculiar disclosure.

First, a refresher on how firms are allowed to report non-GAAP metrics. U.S. securities law does permit the use of non-GAAP metrics, so long as those disclosures…

  • Are calculated consistently from one quarter to the next;
  • Are reconciled to the closest equivalent GAAP metric;
  • Are not overplayed in an earnings release, to mislead investors into believing that an awesome non-GAAP metric is the primary number while awful GAAP metrics are tucked away in six-point type.

So how does the Clorox adjusted EPS metric compare against those three points?

On the first point, this quarter seems to be the first time Clorox has reported an adjusted EPS. Its earnings release from February 2021 makes no mention of such a metric; nor does the earnings release from November 2020.

That’s not disqualifying unto itself. All non-GAAP disclosures do need to be born sometime, after all. For whatever reason, Clorox decided that its report for Q1 2021 would be the period that this particular non-GAAP metric would make its grand appearance.

On the third point, about visual presentation to investors — no issues there, either. Clorox doesn’t even mention adjusted EPS in the headline or first few sentences of its release, and when adjusted EPS finally does get a mention further down, that sentence is in the same size and style as everything else. See Figure 1, below.

That still leaves us with the second point: how Clorox reconciles its adjusted EPS back to “regular” EPS.

Reconciliation of Non-GAAP

Any earnings release that includes a non-GAAP metric must also include the reconciliation. It’s in there somewhere, always. To find it, Calcbench users can call up the earnings release in our Interactive Disclosure tool and then just keep on scrolling until you see it.

Alternatively, our Multi-Company page also lets you view adjusted net income (just search for “EarningsPerShare_NonGAAP”) for whole groups of firms. So if you’re looking at non-GAAP metrics there, you can always use our Trace feature, which will jump directly to the reconciliation for whatever firm you’re eyeballing at the moment.

Back to Clorox: sure enough, we find the reconciliation on Page 8 of its earnings release. The story is this: Clorox declared a $329 million impairment in Q1, related to goodwill and trademarks in the firm’s Vitamins, Minerals and Supplements (VMS) division. See Figure 2, below.

(You can see from Figure 2 that Clorox also reports an adjusted effective tax rate, which we’re not even going to get into today.)

That impairment intrigued us, so we bounced over to the goodwill footnote disclosures in Clorox’s 10-Q, which the company also filed last Friday. There, we found that the VMS impairment was due to…

“a higher level of competitive activity than originally assumed, accelerated declines in the channel where the business is over-developed, and higher than anticipated investments to grow the business, which have adversely affected the assumptions used to determine the fair value of the respective assets held by the VMS reporting unit.”  

Clorox also included a table explaining how the $329 million impairment breaks down across several line items. See Figure 3, below.

But Wait, There’s More

Aside from Clorox introducing adjusted EPS to explain away its meh Q1 numbers, the company also offered an adjusted EPS estimate for future earnings in the rest of fiscal 2021 (which, for Clorox, ends on June 30). The company says it expects adjusted EPS to be $7.45 to $7.65 for the year, excluding that $2.11 EPS impairment charge and a $0.60 EPS gain on a one-time revaluation of a joint venture in Saudi Arabia.

Is all that OK with investors and the SEC? Not everybody is sure. The Wall Street Journal had an article today examining potential drawbacks for introducing such a metric, including several analysts who razzed the idea. (The article also cites Calcbench data, so you know it’s excellent.) The SEC itself might send Clorox a comment letter asking for further clarity on its maneuver, or in the worst case could tell Clorox to knock it off with this metric entirely.

We shall see.


Tuesday, April 27, 2021

Pharmacy giant Rite Aid Corp. ($RAD) filed its 10-K for its fiscal 2021 year this week, including an item you don’t see too often: a “bargain purchase” M&A deal, which results in a firm recording negative goodwill on the income statement.

What is such a thing, you ask? It happens when Firm A acquires Firm B for less than Firm B’s fair market value. (Hence the term: the purchase was a bargain.) Under U.S. Generally Accepted Accounting Rules, Firm A must then record the difference between market value of Firm B and the actual price paid as negative goodwill — essentially, the inverse of when you pay more than fair-market value, which is goodwill.

Negative goodwill appears as negative amount in the purchase price allocation since it is a negative allocation and as a gain in the income statement.

In Rite Aid’s case, the target in question was the Bartell Drug Co., which operates 67 retail pharmacy outlets around Seattle. Rite Aid picked up the financially distressed company in October for $89.7 million in cash.

Net assets acquired by Rite Aid, however, were $137.43 million — which is $47.7 million more than the $89.7 million that Rite Aid paid. That $47.7 million is the bargain purchase gain that Rite Aid had to include on the income statement as a loss, because it’s negative goodwill.

Figure 1, below, is the purchase price allocation for the deal.

What was really going on with Bartell? In the footnote disclosures, Rite Aid said Bartell’s owners were assuming more and more debt to meet operating expenses, and didn’t see that changing any time soon; so they sold to a larger strategic partner (Rite Aid) rather than add yet more red ink to their lives. Here’s the narrative:

The Company believes that the bargain purchase gain was primarily the result of the decision by the Bartell stockholders to sell their interests as Bartell had been experiencing increasing borrowings under its credit agreements to meet its operating needs and increasing net losses. The agreed upon purchase price reflected the fact the seller would have needed to incur further significant debt to cover the operating costs of Bartell, which would have required amendments to its credit arrangements.

Overall, Rite Aid reported a net loss of $90.9 million for fiscal 2021, on revenues of $24.04 billion — even though revenue rose 9.6 percent from $21.9 billion the year prior, as you can see from Figure 2. 

Incidentally, if you want to see an aggregate analysis of which firms are booking bargain purchase gains, you can visit our Multi-Company page to perform that research. You can use the “Add XBRL Tag” search field, and enter “BusinessCombinationBargainPurchaseGainRecognizedAmount.” We took the liberty of running such a search ourselves, if you’d like to see the results.


Tuesday, April 20, 2021

The Calcbench research department is back to non-GAAP financial metrics again, this time with a report analyzing how firms in the S&P 500 reported their adjusted earnings — and which adjustments accounted for the largest gaps between GAAP and non-GAAP.

You can download the complete report from the Calcbench Research Page. Meanwhile, here are some of the highlights.

What We Did

First, we examined the 2020 earnings releases of all S&P 500 firms that reported both GAAP and non-GAAP net income numbers. We measured the difference (in dollar terms) for the 60 firms with the largest differences between GAAP and non-GAAP net income.

We then counted the number of adjustments those 60 firms made, and grouped all those adjustments into 11 broad categories. Then we studied the size of each non-GAAP adjustment (in dollar terms) for those 11 categories.

The three big conclusions we found:

  • Non-GAAP net income reported by our sample group exceeded GAAP net income by $132.3 billion. This is more than doubling total reported GAAP net income of $130.7 billion.
  • The sample group made more than 240 adjustments to GAAP net income.
  • Amortization of Intangibles was the single biggest category of specified adjustments, accounting for 30 percent of all adjustments.

The breakdown of adjustments across all 11 categories is in Figure 1, below.

A good example of the adjustments comes from Bristol Myers Squibb ($BMY). The company reported a $9 billion loss for 2020, and then added back another $23.78 billion in various adjustments — for a non-GAAP adjusted net income of $14.77 billion. See Figure 2, below. The column with the adjustments is boxed in red.

And an Other Thing...

We’d be remiss if we didn’t note that 22 percent of the non-GAAP adjustments we tracked fell into the ever-popular “Other” category, accounting for $29.47 billion. What are those Other adjustments? Who is making them?

We looked deeper. Turns out, 75 percent of that amount can be explained by just four firms:

  • AmerisourceBergen ($ABC) and AbbVie ($ABBV) both had “contingent considerations” of more than $5 billion each.
  • UPS ($UPS) had an almost $5 billion mark-to-market loss on its defined benefit plan.
  • Hess ($HES) has $2.1 billion in exploration costs.

Our report has numerous other examples of firms and their non-GAAP adjustments, including examples of revised non-GAAP numbers that change when a firm’s reconciling items change. So download the full report, and let us know what you think!


Thursday, April 15, 2021

The other day we had a blog post about CEO pay ratios, which are one example of the compensation data that Calcbench tracks. Today we’re going to stick with that theme, but explore something a bit larger — how to pull executive compensation data for a large number of executives quickly and simply (professional subscribers only).

Begin on our XBRL Raw Data Query page, and look near the top. You’ll see a link to another page called Non-XBRL Earnings Release data. See Figure 1, below.

That page lets you find various pieces of non-GAAP data that firms include in their financial report, such as adjusted earnings, free cash flow, and similar items. But Calcbench also lets users pull certain predetermined non-GAAP reports — and executive compensation is one of them.

Say you want a quick download of 2020 executive compensation data for all firms in the Dow Jones Industrial Average. You would start on this page, and set your “Choose Companies” selection to the DJIA. In the “Fiscal Year” field, top right, you’d enter 2020.

Then at the bottom of the page, you’ll see the option for an “Executive Compensation” report. See Figure 2, below; and note the red arrow pointing to the report you want.

Click that choice, and you’ll get a spreadsheet with all firms in the DJIA that have already filed their 2020 proxy statements. Each executive gets his or her own line, with a neat breakdown of compensation data by type: base salary, bonus, share grants, option grants, pension payments, and the ever-popular “other.” The far right column will report total compensation.

See Figure 3, below, for an example. It’s not the best shot because, well, there’s just too much data for us to show in one image. (#HumbleBrag.) But you get the idea.

You can also use this page to conduct more expansive searches of data. For example, you could search a single company for several years’ of data at once; or even multiple companies for multiple years of data, although you’ll probably get to a large pile of data quite quickly. And as you can see from Figure 3, above, every line of data we return also includes a link back to the original source document filed with the SEC.

Happy searching!


Calcbench recently had the pleasure of (virtually) chatting with Rani Hoitash, the John E. Rhodes Professor of Accounting at Bentley University. Hoitash is one of the early adopters of XBRL, having developed an interest in the data-tagging technology even before the SEC began requiring companies to submit their filings tagged in XBRL. 

Q. What drove your interest in XBRL?

A: In the early 2000s I became interested in XBRL, but at that point companies were not required or allowed to use this technology to file their financial reports. As a researcher, one of my primary interests is in metadata. I focus on the tags that enable me to extract every aspect of accounting data. Prior to XBRL, no one could collect this level of richness.  

Q: You were one of the first academics to use our platform. How did you come across Calcbench? 

A: I heard from a friend that Calcbench had been extracting and collecting XBRL data and I jumped on the opportunity to work with them. My initial exposure to Calcbench was in the form of a flat data file. It was a huge file, with every piece of data they had. I used that data in my Accounting Review paper on Measuring Accounting Reporting Complexity with XBRL. What excited me about the data from Calcbench was that it wasn't normalized, the way it is with Capital IQ and others.  

Following the Accounting Review piece, I recently published another paper in Auditing: A Journal of Practice and Theory on eXtensible Business Reporting Language (XBRL): A Review and Implications for Future Research. This paper summarizes past research and presents many opportunities for researchers. The paper also discusses practical implications and challenges in using XBRL, for example, XBRL data is currently not audited. We write in the paper that Calcbench is one of the major sources for those interested in working with XBRL data.

Q: How does Bentley University use Calcbench? 

A: I can’t speak to all the use cases, but some of my doctoral students are using Calcbench to extract text data from the filings. With Calcbench it’s easy to search for keywords. The platform is made for researchers who go beyond the numbers. There’s a lot of opportunity to analyze text data from the filings. With Calcbench, researchers can analyze text more efficiently and accurately. 

Q: When do you think XBRL will become mainstream?

A: Not everyone is aware that you can extract financial data without technical knowledge. Undoubtedly the awareness will come. We are living in an era of big data; investors, researchers and other stakeholders want more data, not less. The more people write about the power of XBRL, the more researchers and practitioners will take advantage of this great data source. 

Q: What do you want others to know about Calcbench? 

A: You can be a data expert without knowing the structure behind it. XBRL code can be very confusing. Calcbench is able to do the complex stuff for you. In addition, the level of richness is unparalleled. When I refer to the richness of XBRL, it is analogous to a kid going into a candy shop. For anyone who loves data, Calcbench gives you shelves full of data candy.

-30-


Tuesday, April 13, 2021

Corporate America won’t start filing Q1 2021 earnings reports for a few more weeks yet, so the crack Calcbench research team decided to spend some time lately looking over corporate proxy statements for 2020 — which are arriving at a brisk pace these days.

That brings us to one of our favorite pieces of esoteric financial data: the CEO pay ratio!

For those unaware, the CEO pay ratio is a required disclosure for most U.S. public companies. It’s the ratio of total compensation for the CEO compared to the median total compensation of all other employees. The Securities and Exchange Commission began requiring CEO pay ratio disclosure for 2017 fiscal years, so this is now the fourth year of CEO pay ratio data we have.

Figure 1, below, is an example from Flowers Foods Inc. ($FLO), which filed its proxy statement on April 13.  

The calculations are fairly straightforward. Total compensation for CEO Ryals McMullian was $5.11 million, and median employee total compensation was $80,400. So the CEO pay ratio was 63.6 to 1.

The more interesting details, as always, are the footnote disclosures underneath those numbers. As part of the disclosure, a firm must describe how it defined and calculated that median employee compensation number. For example, did the firm include contracted labor? (Not in Flowers’ case, apparently.) Did it include overseas employees, whose compensation might be much lower than that for U.S. employees, and therefore could skew the ratio to some unnatural extent? (Flowers has no overseas employees, so that’s not an issue here.)

The exact presentation of the CEO pay ratio can also vary. Look at the disclosure for Southern Co. ($SO), which filed its proxy statement on April 12, in Figure 2. All the necessary numbers are included, but you have to read the words to understand what’s what; no easy-to-read table presentation like Flowers gave in Figure 1.

If you can’t sufficiently squint, CEO Thomas Fanning had total compensation of $22.38 million in 2020, and median employee total compensation was $122,760 — for a CEO pay ratio of 134 to 1.

How Do You Find This Data?

Calcbench can help you find CEO pay ratio data in several ways. If you’re looking for data from a specific firm, start at our Interactive Disclosure page. Select “proxy” from our Choose Disclosure Type pull-down menu on the left side of the screen. Then do a text search for “ratio” and you should find the disclosure pretty quickly.

You can also search for CEO pay ratio disclosures in bulk on our Multi-Company page. Set the group of companies you want to search, and then enter “CEO Pay Ratio” in the standardized metrics field (because,yes, Calcbench tracks the pay ratio piece of data).

Figure 3, below, shows the CEO pay ratio for S&P 500 firms that have filed their 2020 proxy statements so far. As you can see, Starbucks ($SBUX) tops the list with a ratio of 1,657 to 1; followed by Coca-Cola ($KO) at 1,621 to 1.

Yes, you can also track the CEO pay ratio numbers for a firm over time — but beware the details! For example, changes in interest rate assumptions might push the costs of a CEO pension plan upward; or a decision to redefine a median employee (say, to include newly acquired employees in a low-cost overseas region) might push the median employee number downward.

The devil really is in the details for this particular number. Thankfully, Calcbench has all the details you want.


Thursday, April 8, 2021

You may have seen news last week of yet another research report declaring that a significant swath of Corporate America paid no federal income taxes last year. 

This time around the report came from the Institute on Taxation and Economic Policy, which found that 55 large businesses paid zero to Uncle Sam in 2020 even while they reported a total of $40.5 billion in pretax income. ITEP’s report hit the interwebs on April 2, and was promptly picked up by the New York Times and other big media outlets.

Our only question: Everyone knows this data is readily available, right? Calcbench has been providing data on corporate federal tax payments — or the lack thereof.

That is, publicly traded firms need to disclose their federal tax expense or benefit in their quarterly reports. Those numbers are tagged as XBRL data, which means Calcbench can find them with just a few keystrokes.

For example, we pulled up our Multi-Company database page, and entered “CurrentFederalTaxExpenseBenefit” in the search field that page has for XBRL tags. Within moments, we found what all firms the S&P 500 paid in federal taxes for 2020. Those numbers are the same data ITEP used to compile its report. See Figure 1, below.

The third column denotes federal taxes paid. Notice that those numbers are all in red. ITEP is correct that scads of large firms paid no federal taxes in 2020 even though they generated gobs of pretax income.

For example, DTE Energy ($DTE) reported a negative federal tax expense of $247 million — meaning, the company actually received that amount back from the U.S. Treasury, rather than paid anything into it. That’s the number ITEP included for DTE in its report, and it’s also what we found with a moment’s search on Calcbench.

ITEP’s report flags 55 firms that received $3.5 billion back from the U.S. government in 2020 while also reporting $40.5 billion in pretax income. Not all of those firms are in the S&P 500, but they are all publicly traded, so they’re in the Calcbench data archives somewhere.

On our first (and rather naive) try, we found a total of 126 firms that had assets of more than $100 million, and that had reported domestic profits, and that had negative federal tax expenses in their fiscal 2020 year end filings.  

Meanwhile, we can say that among the 451 S&P 500 firms that have filed their 2020 reports so far, those firms paid a total of $95.6 billion in federal taxes, against $1.076 trillion in operating income.

Of course, much more goes into corporate tax analysis than a firm’s federal tax payment. Many firms that didn’t pay federal taxes did pay state, local, or international taxes. And tax management, where a firm claims various deductions, credits, and other maneuvers to lower its cash payment, is a time-honored tradition among corporate giants.

You can find details about a firm’s tax payments via our Interactive Disclosure page. Call up the firm in question, select its tax disclosure from the drop-down menu on the left, and start digging.


Two big retailers filed their 10-K reports for 2020 this week: Macy’s ($M) and Abercrombie & Fitch ($ANF).  

As one might expect from retailers, their 2020 numbers weren’t terribly good because of the pandemic. So both firms also reported adjusted net income figures, to account for various one-time expenses related to COVID-19 disruptions.

We decided to analyze and compare those non-GAAP disclosures, to see how one item labeled “adjusted net income” can include very different things, even between two firms that work in the same industry.

Example 1: Macy’s

Macy’s reported $17.34 billion in revenue for 2020, down 29.4 percent from $24.56 billion in 2019. The company also swung from $564 million net income in 2019 to a net loss of $3.94 billion in 2020. Most of that 2020 loss came from a $3.58 billion charge for restructuring, store closing, and other costs.

In the earnings release Macy’s filed on Feb. 23, we can see that the firm reported an adjusted net loss of only $688 million. The reconciliation is in Figure 1, below.

OK — so what does that $3.58 billion restructuring and impairment charge actually entail?

To decipher that number, we had to jump to the Interactive Disclosure tool and read the restructuring note Macy’s included in its 10-K, filed on March 29. There, we can see that most of the charge stemmed from a $3.28 billion impairment to goodwill; plus another $154 million in a restructuring charge that was mostly severance pay; plus assorted other charges. See Figure 2, below.

The other significant portion of Macy’s non-GAAP net income was that $412 million adjustment for taxes. Again, using the Interactive Disclosure viewer to find the details, we can see that Macy’s arrived at the $412 million number through nine separate credits and charges, including a $205 million carryback benefit allowed under the CARES Act.

Example 2: Abercrombie & Fitch

Abercrombie & Fitch, meanwhile, reported $3.12 billion in revenue for 2020, down 13.7 percent from $3.62 billion in 2019. The company swung from $39.36 million net income in 2019 to a net loss of $114 million in 2020.

The adjusted net income numbers are a bit more tricky here. In its earnings release filed on March 3, A&F includes an adjusted operating income in dollars, but the adjusted net income is only reported in earnings per share. See Figure 3, below.

The most important number on this entire table, however, is that Footnote 4 next to the phrase “excluded items.”

What does that mean? In the notes of the earnings release, A&F says: “Excluded items this year consist of pre-tax asset impairment charges which are principally the result of the impact of COVID-19 on store cash flows. Excluded items last year consist of pre-tax asset impairment charges related to certain of the company's flagship stores.”

So Abercrombie had an operating loss of $20.47 million in 2020, and then made an upward adjustment of $72.94 million for “excluded items” that resulted in a non-GAAP, adjusted operating profit of $52.47 million.

To decipher that $72.94 million, we first had to look at Abercrombie’s income statement on the Company-in-Detail page. The $72.94 million was there plain as day, listed as an asset impairment charge. Then we had to open up the Interactive Disclosure database again, and found the Asset Impairment footnote explaining exactly what assets were impaired.

The answer is Figure 4, below. It’s all impairments to operating leases and property, plant and equipment.

Abercrombie also has another footnote explaining the impact of COVID-19, and in that disclosure the company coughs up a $14.8 million write-down of inventory that apparently went out of style during the store closures of early 2020. But that inventory charge is separate from the charges above, and not reflected in the non-GAAP adjusted numbers in Figure 3, either.

So there you have it: two retailers, reporting two non-GAAP numbers to reflect the costs of COVID-19. The details are always in there somewhere, if you know where to look.


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