Wednesday, February 24, 2021

Some firms disclose only a little about their goodwill testing and impairments; other firms disclose a lot.

And then, once in a blue moon, you get a disclosure like what Kraft Heinz Co. ($KHC) included in its annual filing on Feb. 17 — an opus nearly 4,000 words long, and a fascinating glimpse into how shifting corporate strategies translate into shifting numbers on the balance sheet.

First, let’s look at the headline numbers Kraft reported. As you can see in Figure 1, below, Kraft started 2020 with $35.55 billion in goodwill and ended it with $33.09 billion. That’s a drop of $2.46 billion, or 6.9 percent.

Those numbers, however, barely begin to tell what Kraft was doing last year. As always, you need to read the details in the footnotes!

First, Kraft reorganized both its internal operations and its reportable operations in early 2020. For example, it moved its Puerto Rico operations from its Latin America division to its U.S. division, and consolidated all its European operations into one, new International division. Ultimately Kraft landed on three reportable segments divided by geography: the United States, Canada, and International.

That’s important because a change so significant prompted Kraft to do two impairment tests of its goodwill assets — one immediately before the reorganization, the other immediately after. (Like, the two tests were performed on the same day, since the “reorg” was really just management moving items around from one P&L statement to another.)

The impairment test done after the reorganization resulted in two impairment charges totaling $226 million: one charge of $83 million for the Australia, New Zealand, and Japan unit; and another for $143 million in the Latin America unit. (Both units now included in one new International segment for reporting purposes.)

Impairment Tests, Part II

After those reorganization-related impairment tests at the beginning of 2020 came Kraft’s standard goodwill impairment test, which the company always conducts on the first day of its second quarter — March 29, 2020.

That test resulted in another impairment of $1.8 billion across four internal operating divisions:

  • $815 million charge in Kraft’s Canada Retail unit
  • $205 million charge in its Canada Foodservice unit
  • $655 million charge in its U.S. Foodservice unit
  • $142 million charge in its EMEA East reporting unit

Add those numbers together, plus the $226 million impairment charge from the reorganization test, and you get $2.043 billion — the amount reflected in Figure 1, above.

What drove those impairments, you ask? The company had this to say:

These impairments were primarily due to the completion of our enterprise strategy and five-year operating plan in the second quarter of 2020. Management, in completing the five-year operating plan, developed updated expectations regarding revenue growth and profitability opportunities associated with our reporting units and, as a result, has recalibrated our future investments to align with the opportunities for which we see greater potential for a return on those investments.

Translation: Kraft is tempering its expectations for future growth, as consumer tastes drift away from mass-produced food in a box toward fresh produce and more organic food. This isn’t news per se; recall that several years ago Kraft took an impairment charge of $15.4 billion in 2019. That impairment was an earlier, much larger example of shifting consumer trends hammering Kraft’s goodwill valuation.

But Wait, There’s More

Kraft then reorganized the operations within its U.S. reporting structure — “to align to the management of our new platforms, which were established to support the execution of our new enterprise strategy and five-year operating plan” — which meant the company had to perform a third impairment test, this time in June 2020.

That test didn’t result in any new impairment charges. But also that quarter, Kraft announced “the Cheese Transaction,” where the company agreed to sell its global cheese business to Groupe Lactalis for $3.3 billion. The Cheese Transaction was still pending at the time Kraft filed its 10-K (the deal should close sometime this spring), so to account for everything properly, Kraft had to shift $580 million from goodwill to assets held for sale. That number is also reflected in Figure 1, above.

We’re going to stop here because we have lives to lead, but analysts could delve into Kraft’s goodwill and impairment details all day long. Heck, right after the goodwill impairment analysis, Kraft launches into an equally long discussion of impairments to its intangible assets.

And don’t forget, you can also skim our Calcbench Research Guide for Goodwill & Intangible Assets. As Kraft demonstrates, there’s a lot of stuff to consider here.


Tuesday, February 16, 2021

“Human Capital” is a new disclosure item required by the Securities and Exchange Commission as of Nov. 9, 2020. All filers are supposed to include details about their workforce such as:

  • Total number of employees, and employees per business segment when those segments are material to the business;
  • Any “human capital metrics or objectives,” such as employee turnover, tenure on the job, or percentage of employees in unions; and
  • Any information the business deems material about diversity and inclusion, either among employees as a whole or management specifically.

In our recent blog, Human Capital Disclosures, we share some recent examples of what’s included in Human Capital disclosures, including Sirius XM $SIRI and homebuilder MDC Holdings $MDC. 

Given that these Human Capital disclosures have a lot of room to share information about their people, we thought we would do a more comprehensive look and put Human Capital disclosures from the S&P 500 into a visual for you. 

Enjoy!


We want to follow up today on our previous post about critical audit matters (CAMs), to take a closer look at one particular set of CAMs: uncertain tax items. 

You might have noticed that tax-related items accounted for a significant portion of the CAMs we’ve seen so far in 2020 annual reports. We found 13 CAMs related to uncertain tax positions, plus another three related to unrecognized tax benefits. Taken together, that’s nearly 20 percent of the 85 CAMs we identified in total.

Well, exactly what are those tax positions? What’s the nature of the uncertainty, and what makes these disclosures qualify as critical audit matters?

Let’s first remember what a critical audit matter is. As dictated by accounting regulators, all CAMs have two parts:

  • They relate to items or disclosures that are material to the financial statements; and
  • They involve “especially challenging, subjective, or complex auditor judgment.”

In that case, you can see how various corporate tax issues might qualify as critical audit matters. Plenty of tax disclosures can be quite large and therefore material to the financial statements. And given the complexity of modern tax law in the United States and around the world, uncertain tax disclosures will almost always meet the second criteria, too: especially challenging, subjective judgment on the part of the auditor.

One example of this is Pepsico ($PEP), which reported $1.6 billion in reserves the company is salting away for unrecognized future tax benefits. That is, Pepsico might get that $1.6 billion sometime in the future, if certain disputes with tax regulators go the company’s way — but if not, Pepsico will have the cash to cover taxes due.

Pepsico’s auditor, KPMG, still flagged the issue as a CAM. In its auditor’s report (where audit firms disclose CAMs), KPMG had this to say:

The Company establishes reserves if it believes that certain positions taken in its tax returns are subject to challenge and the Company likely will not succeed, even though the Company believes the tax return position is supportable under the tax law. The Company adjusts these reserves, as well as the related interest, in light of new information, such as the progress of a tax examination, new tax law, relevant court rulings or tax authority settlements.

We identified the evaluation of the Company’s unrecognized tax benefits as a critical audit matter because the application of tax law and interpretation of a tax authority’s settlement history is complex and involves subjective judgment. Such judgments impact both the timing and amount of the reserves that are recognized, including judgments about re-measuring liabilities for positions taken in prior years’ tax returns in light of new information.

What does Pepsico itself have to say about unrecognized tax benefits? You can find that using the Interactive Disclosures tool and pulling up the firm’s tax disclosures. For example, in the 10-K Pepsico filed on Feb. 11, the company mentioned a $364 million gain in 2018 from a tax dispute with Russia that was resolved in Pepsico’s favor. The company also disclosed this table, below, showing how its tax reserves changed over the course of the year.

If you’re feeling ambitious, you can also use our Multi-Company Page and search for “unrecognized tax benefits” in the Standardized Metrics search field on the left side of the page. Then you could, say, identify all firms in the S&P 500 where unrecognized tax benefits were a material amount of money; and next search the auditor reports for those firms to see if any have unrecognized tax benefits as a CAM.

Uncertain Tax Positions

A close cousin of unrecognized tax benefits are uncertain tax positions. They’re conceptually similar — firms reporting a tax item as a potential payment or benefit — but uncertain tax positions encompass a wider range of tax items, including potential losses that might not materialize.

Amazon.com ($AMZN) is a good example of what we mean here. The company reported this table of tax contingencies in its annual report from Feb. 3:

Even for Amazon, $2.8 billion in uncertain tax positions is a material amount of money. And sure enough, we see that the company’s auditor, Ernst & Young, flagged this as a CAM. 

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions and, as discussed in Note 9 of the consolidated financial statements, during the ordinary course of business, there are many tax positions for which the ultimate tax determination is uncertain. As a result, significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company uses significant judgment in (1) determining whether a tax position’s technical merits are more likely than not to be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. As of December 31, 2020, the Company accrued liabilities of $2.8 billion for various tax contingencies.

Auditing the measurement of the Company’s tax contingencies was challenging because the evaluation of whether a tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can be complex, involves significant judgment, and is based on interpretations of tax laws and legal rulings.

Companies can be a bit more liberal in how they tag uncertain tax positions, so you might need to search the XBRL tag field on the Multi-Company page for this disclosure. Try “LiabilityForUncertainTaxPositionsCurrent” or “LiabilityForUncertainTaxPositionsNonCurrent,” and that should get you the results you’re looking for.


Tuesday, February 9, 2021

In 2019 we first wrote about how to access Critical Audit Matters (CAMs) from corporate financial statements using Calcbench.

Today, we will re-examine the information from the latest set of filings that have come in. Please note that we are still early in filing season, so don't draw too many conclusions from this just yet!

Some summary-level data first:

  1. We examined 86 S&P 500 firms 10-Ks.
  2. Identified a total of 124 CAMS in our sample (for example, Amazon reports one CAM while Becton Dickinson reports three, so that's a total of four CAMs).
  3. Eight-five firms reported at least one CAM.
  4. Seven firms reported three CAMs.

We compiled a summary of the most commonly reported CAMs in the table below.

Please note that this is our initial attempt to organize CAMs by topic. There is much more detail behind this summary. In addition, here is a link to the file that contains each firm we reviewed, its primary auditor, and the list of CAMs reported in its 10-K.

Lastly, in the list, we found 2 cases that had personal interest. These were from Disney (ticker:DIS CashTag:$DIS) and Netflix (ticker:NFLX CashTag:$NFLX). Both had to do with the Amortization of Content related costs. In Disney's case, this was a new CAM, whereas Netflix had also presented this CAM in last years 10-K.


Wednesday, February 3, 2021

Now that the 10-Ks for 2020 are rolling in, you may be noticing a new disclosure item in those reports: “human capital” factors.

What are those, exactly? They are new disclosures required by the Securities and Exchange Commission as of Nov. 9, 2020. All filers are supposed to include details about their workforce such as:

  • Total number of employees, and employees per business segment when those segments are material to the business;
  • Any “human capital metrics or objectives,” such as employee turnover, tenure on the job, or percentage of employees in unions; and
  • Any information the business deems material about diversity and inclusion, either among employees as a whole or management specifically.

Human capital disclosures will typically be reported in the Business Description part of the 10-K. For now those disclosures will also vary quite a bit, because the SEC didn’t include a definition of “human capital” or any specific metrics that must be reported. Each firm can decide for itself what counts as a material item related to human capital that should be disclosed. (Compared to financial disclosures, for example, where firms have extensive and precise guidance on what goes into the filing.)

Anyway — yes, Calcbench can help you find these human capital disclosures! Just use our Interactive Disclosure tool, selecting “Business Description” from the pull-down menu on the left side. Skim down through the text, and you should see the material under a heading like “Human Capital.”

Firms only started making human capital disclosures in 10-Ks filed after Nov. 9, 2020; which means we don’t have many examples to study yet. But now that year-end filers are starting to submit their reports, Calcbench traipsed through a few examples. Here’s what we found.

MDC Holdings

Home-builder MDC Holdings ($MDC) is interesting because it provided a breakdown of employees by business unit in table format, in the 10-K it filed on Feb. 2. See Figure 1, below.

The rest of the disclosures are all narrative, which is fine although nothing terribly interesting. MDC only jumped out at us because on that same day, its rival Pultegroup ($PHM) also filed its 10-K, and didn’t use table format. Instead, Pulte described the same human capital information in written format:

On December 31, 2020, we employed 5,249 people, of which 945 were employed in our Financial Services operations. Of our homebuilding employees, 282 are involved in land acquisition and development functions, 1,752 are involved in construction and and post-closing customer care functions; 1,189 are involved in the sales function; and 1,081 are involved in procurement, corporate, and other functions. Our employees are not represented by any union. Contracted work, however, may be performed by union contractors. We consider our employee relations to be good.

So similar firms can take different approaches to the same disclosures. You’ll have to look carefully.

A More Extensive Example

If you want to see what maximal disclosure might look like, bounce over to the 10-K that Sirius XM ($SIRI) also filed on Feb. 2. That disclosure — nearly 1,100 words! — ranged from number of employees, to philosophy on corporate culture, to diversity and inclusion programs, to support for local COVID-19 relief measures.

Sirius didn’t include too many numbers, but did give glimpses into its human capital programs. For example, the firm included this about its corporate culture:

We are focused on creating a corporate culture of integrity and respect, with the goal of working together to drive our business to be creative, innovative and competitive. To achieve these objectives, we have adopted and regularly communicate to our employees the following core values, which we call “AMPLIFY”:

  • Applaud and encourage new thinking
  • Move forward and be purposeful in our desire to win
  • Prioritize honesty, integrity and respectful communication
  • Lean on each other and learn from one another
  • Invest in our actions and commit to the follow through
  • Find ways to give back by focusing on community and feeding your individuality
  • You Matter. We embrace our differences, empower each other and include everyone

We operate a performance-based environment where results matter and financial discipline is enforced. We have tried to create a highly collaborative culture in which employees feel a sense of pride that their input is sought after and valued. At the same time, we believe in holding individuals accountable and have tried to create a culture in which employees “do what they say they are going to do.” Still, we believe that our culture is a long-term competitive advantage for us, fuels our ability to execute and is a critical underpinning of our employee talent strategy.

Those are only a few of the disclosures that are pouring into the database these days. If researching that data is your bag — yep, Calcbench has it.


Tuesday, January 26, 2021

Today Calcbench has a guest post from Olga Usvyatsky, doctoral student in accounting at Boston College and a long-time whiz at financial disclosures.

Last summer we had a post exploring how companies adjust their EBITDA metrics to account for COVID-19 costs. We identified a sample of more than 40 companies that chose to present pandemic-related costs as a separate line in the reconciling non-GAAP tables, and noted that in many cases, the adjustments were related to direct pandemic-related expenses such as protective equipment.

That was then. What’s been happening lately? Lots.

In December 2020, the SEC’s Division of Corporate Finance clarified that it wouldn’t object to the presentation of COVID-19 adjustments, so long as those costs were directly attributable to the pandemic and certain other conditions were met. Notably, SEC staff warned that adjusting for lost revenue would not be appropriate.

Meanwhile, companies continued to present non-GAAP COVID-19 expenses in third-quarter 2020, but the magnitude of those adjustments appeared to decline. For example, T-Mobile US ($TMUS), a wireless network operator that we looked at in our June blog, disclosed $117 million in Covid-19 costs in first-quarter 2020, and another $341 million for the second quarter. By Q3, however, T-Mobile said that “employee payroll, third-party commissions, and cleaning-related COVID-19 costs were not significant for Q3 2020.”

Non-GAAP metrics need to be presented consistently across periods (see Question 100.02 in the SEC’s Compliance & Disclosure Interpretations). Yet, changes in economic conditions or certain company-specific developments may prompt companies to modify the presentation and introduce new metrics or adjustments. So, what were the non-GAAP modifications introduced in 2020?

The first adjustment we looked at was related to the U.S. Treasury Department’s extended Payroll Support Program (PSP) established in early 2020 to provide payroll support to airline carriers. The relief provided by the program was material to many (if not all) of the airlines, whose business was severely disrupted by the pandemic. Notably, although most non-GAAP adjustments improve net income, PSP adjustments cause non-GAAP income to be lower than the number reported under GAAP. (Most times, non-GAAP income is higher than GAAP income, a trend Calcbench noted in a post last week.)

To illustrate, let's look at the non-GAAP section of Alaska Air Group ($ALK). In third-quarter 2020, Alaska Air recorded a "Payroll Support Program wage offset" adjustment that decreased non-GAAP income by $398 million (and by an aggregate $760 million through the first nine months of 2020). Based on Alaska’s latest quarterly report, the company “expects to record an additional $10 million in wage offset in the fourth quarter.”

To better understand how other airlines reported PSP adjustments in the non-GAAP section, we looked at American Airlines Group’s ($AAL) disclosure. The company didn’t provide the PSP relief as a separate reconciling line. Still, American did clarify in a footnote that in Q3 of 2020, $1.9 billion and $228 million of PSP assistance were included in mainline and regional operating special items non-GAAP adjustments.

We can’t provide an opinion about whether any of the metrics are compliant with Regulation G (the SEC rule governing non-GAAP reporting), and we are not implying that any of these disclosures are incorrect or non-compliant. Yet, as we approach the filing season, it’s worth remembering that Question 100.03 of the SEC’s CD&I states that if a company excludes charges in the calculation of a non-GAAP measurement, it should also exclude gains.

Non-GAAP and Taxes

The second type of adjustment we looked at was related to changes in tax legislation in 2020. One such change in legislation, the U.K. Finance Act of 2020, was signed into law effective April 2020. The law abandons plans to reduce the corporate tax rate from 19 percent to 17 percent — which results in an increased tax liability estimate for some companies (because their expected tax cut didn’t arrive).

For example, in third-quarter 2020, Hasbro ($HAS) modified its GAAP income by a discrete "tax reform" adjustment of more than $13 million and stated that the adjustment was caused by “revaluation of Hasbro's U.K. tax attributes in accordance with the Finance Act of 2020 enacted by the United Kingdom on July 22, 2020.”

In another example, L Brands (LB) adjusted its Q3 net income by $23 million and disclosed that the adjustment was related to “foreign investments and recent changes in tax legislation.” Notably, in Q2 of 2020, the company also recorded a discrete tax benefit of $21 million related to “changes in tax legislation included in the CARES Act.”

Some of the adjustments introduced in 2020 appear to be company-specific. A recent blog by Calcbench discussed an unusual "civil disruption cost" adjustment recorded by a grocery chain Albertson ($ACI). Calcbench was unable to identify any other retailer that adjusted GAAP results for a similar item.

Finally, the pandemic put economic pressure on whole sectors such as retailers, forcing companies to restructure operations and re-evaluate their expansion plans. Unsurprisingly, these restructuring costs may show up as a “new” adjustment in the non-GAAP section.


Friday, January 22, 2021

Earnings releases for full-year 2020 results are starting to arrive, which means lots of firms reporting adjusted earnings numbers again. So before everyone gets swept up in non-GAAP financial disclosures this year, we decided to rehearse our data analytics dance moves with a quick study of non-GAAP numbers from last year.

Our analysis was straightforward: compare the GAAP-approved net income of the S&P 500 for 2019 against the adjusted, non-GAAP net income those firms also reported last year. We wanted to know…

  • How many firms reported non-GAAP numbers smaller than net income?
  • What was the total difference between the two? Specifically, how much larger was adjusted, non-GAAP net income than plain ol’ net income?
  • How many firms reported non-GAAP numbers larger than net income?

Using our Multi-Company research page, pulling the data was easy enough. The standardized metrics we track include both net income and non-GAAP income, so you can find both numbers for the S&P 500 immediately. See Figure 1, below (where net income is already displayed, and we’re about to pull non-GAAP net income).

Analyzing those numbers is a bit more tricky than pulling them. We can’t simply total up GAAP and non-GAAP income because while all firms do report GAAP income, many firms (240 of the S&P 500) don’t report non-GAAP income. To measure the difference between the two accurately, you should only count firms that report both types of numbers.

When we perform that more focused analysis, the answers we get are these:

  • For the 260 firms in the S&P 500 that reported both types of numbers, total non-GAAP net income was $80.6 billion higher than GAAP income.
  • 196 firms reported non-GAAP net income higher than GAAP income, on average about $675.3 million higher.
  • 64 firms actually reported non-GAAP income lower than GAAP income, on average about $834.9 million lower.

GAAP vs. non-GAAP Examples

Who had the biggest differences? Figure 2, below, shows the 10 firms with the largest non-GAAP numbers above GAAP net income.

Among those firms, the largest drivers of adjustment were goodwill impairment, amortization of intangibles, and litigation costs. (Although the exact reasons for each difference varied from firm to firm, so as always, read the tables and the footnotes.)

We were also curious about those 64 firms who reported non-GAAP net income lower than regular GAAP income. Why?

The 10 firms with the biggest spreads with non-GAAP income below GAAP are in Figure 3, below.

Again, exactly why a firm would report non-GAAP income that’s lower than GAAP income varied widely. Eli Lilly & Co. ($LLY), for example, had a one-time gain of $3.68 billion in 2019, stemming from discontinued operations: it had cashed out of an animal health business it had spun off. That led to non-GAAP net income of $5.56 billion and GAAP income of $8.32 billion. We had a whole post on Lilly and others with earnings boosts due to discontinued operations earlier this month.

So there are all sorts of ways that firms can report some very large differences between GAAP and non-GAAP income, both positive and negative. Food for thought as those 2020 earnings releases start rolling in.


Tuesday, January 19, 2021

We had another example of how to put Calcbench to use land in our email box the other day, when a subscriber asked us for help in finding firms that recently emerged from bankruptcy.

It didn’t take long for us to point that subscriber in the right direction. Let’s walk through those steps again here, so everyone else can see how you might use Calcbench search techniques for similar needs you might have.

Start on our Interactive Disclosures page, and as always, select the group of companies you want to research. In this instance, we decided to search all firms (the “whole universe” option you see at the top of the page) for 2019.

Then in the full-text search field on the right side of the page, we entered "bankruptcy emerge”~10. (Quotes around “bankruptcy emerge,” tilde mark and 10 on the outside of it.) That tells our databases to search for any instances of the words “bankruptcy” and “emerge” appearing within 10 words of each other. See Figure 1, below.

This method isn’t perfect. You may find several false positives, where the words “bankruptcy” and “emerge” do appear in close proximity, but the disclosure isn’t about a firm emerging from bankruptcy.

That said, this method does provide the raw material that you can keep narrowing until you find examples of what you are looking for. For example, one of the first results in Figure 1 is Pacific Drilling ($PACD), where the relevant disclosures very much were about the firm coming out of bankruptcy the prior year.

That ends today’s lesson in how to Calcbench. No matter what you’re looking for, we’ve got the data in there somewhere!


Thursday, January 14, 2021

Earlier this week we had a post about Albertsons Cos. ($ACI) reporting an adjustment to earnings last year for “civil unrest” — and we mentioned that by using our non-XBRL Data Query Tool, we found virtually no other large firms made a similar disclosure last year.

A Calcbench subscriber then emailed us with an excellent question: “Hey, can you show us how that non-XBRL Query thing works?”

Indeed we can. Here’s a tutorial on how the query page works.

The non-XBRL Query Page lets you search for terms in earnings releases or quarterly reports even when those items are not tagged in XBRL. That’s the data classification technology used for GAAP-approved financial data, and we have a query page dedicated to those terms, too.

But data in an earnings release, and especially non-GAAP financial disclosures, are not required to be tagged in XBRL. So if you want to conduct in-depth analysis of that information, an XBRL search tool won’t help. Hence the Calcbench non-XBRL Query Page.

How It Works

Figure 1, below, shows what the non-XBRL query page looks like. As you can see, the left side is where you enter the “fact” you want to research, the right side where you enter the relevant periods of time.

First, as always, select the company or group of companies you want to research using the Choose Companies buttons at the very top of the page.

Second, enter the fact you want to research using the “label or metric” field at the top of the left column. For example, in our Albertsons case, the label could be “unrest” or “civil” since those words were the label that Albertsons used for that non-GAAP item. Also, select the right operating symbol from that pull-down menu in the middle that starts with an equals sign. You’ll see a range of choices, such as

  • =
  • Contains text
  • Starts with
  • Ends with
  • and a few other choices.

We were searching for labels that included the text phrase “civil unrest,” so we set that operating symbol to “contains text.” Then we entered “unrest” in the third field.

The other fields further down that side of the page simply help to narrow your search field. You can choose whether to search earnings guidance or not; to search specific filing types such as proxy statements, guidance updates, 10-Ks and Qs, and so forth. You can even enter whether a term is non-GAAP or not.

The fields on the right side of the page help you narrow the period of time you want to search, and they’re pretty self-explanatory. You can search by fiscal quarters or calendar quarters; one specific filing period or numerous periods of time; or even by specific filing date if you know that detail.

Then you press Search or Direct to Excel at the bottom, and see what results come up.

Figure 2, below, shows the search we ran for our Albertsons post. It was a simple exercise of searching the S&P 500 for any firms that used the text “unrest” in their filings sometime in 2020. (Be warned, when searching large groups of companies or large swaths of filings, the data crunching can take a while.)

How to Read the Results

Figure 3, below, shows some of the results we received at the bottom of the search page. As we noted in our Albertsons post, most of the results that mention unrest aren’t about civil unrest from last year’s social justice protests. To discover that, however, we had to expand the two columns named “column label” and “label.”

This image shows some of the results for AIG ($AIG) — an insurance firm, where it’s no surprise that the company has costs related to damages from civil unrest. Then the results shift to Avalon Bay ($AVB), and we can see from the Label column that those mentions of “unrest” aren’t related to last year’s protests.

Anyway, that’s a quick tutorial on the non-XBRL Query Tool. It’s available to Calcbench Professional subscribers only; if you need more detailed help or support with a search project you have, always feel free to drop us a line at info@calcbench.com.


Tuesday, January 12, 2021

Earnings Before Civil Unrest

Here at Calcbench we’re constantly on patrol for unusual disclosure items, but occasionally one slips by unnoticed for a quarter or two. So you can imagine our surprise when we were reading Albertson Cos. ($ACI) latest quarterly report, filed today, and noticed that last year the company included a non-GAAP adjustment to earnings for “civil disruption costs.”

What?

The disclosure came in a reconciliation table Albertsons included in its press release, showing how the grocery business was adjusting its GAAP-approved net income of $1.06 billion over the last four quarters to a non-GAAP adjusted EBITDA of $4.36 billion. Near the bottom was a $13 million adjustment for “civil disruption related costs.” See Figure 1, below; relevant line item shaded blue.

One would assume those costs came from the social justice protests that wracked the United States last summer. Sure enough, the explanation in Footnote No. 5 for that line item goes on to say: “Primarily includes costs related to store damage, inventory losses and community support as a result of civil disruption during late May and early June in certain markets.”

Intrigued, we then looked at Albertsons’ quarterly report for the relevant period, which ended June 20. In that filing, however, Albertsons reported its civil unrest costs as $14.9 million. See Figure 2, below.

Why the $1.9 million discrepancy? We’re not quite sure, except that Albertsons adjusted $1.9 million back to earnings in the subsequent quarter. That only explains the numerical difference, however, not what prompted the change.

Nor does Albertson ever elaborate on the specific damages related to its civil unrest adjustment, beyond that one-sentence description we noted above. Then again, even the whole $14.9 million is barely material (equal to 2.5 percent of $586.2 million in net income for the period), and the item seems to be reported only in that specific quarter.

We did wonder whether any other firms reported similar adjustments last summer. Using our non-XBRL Data Query Tool, we tried to find other firms that disclosed a spending item related to “disruptions” or “unrest.” Several insurance firms such as AIG ($AIG), Travelers ($TRV), and Hartford Financial Services ($HIG) all reported costs related to “civil unrest” in 2020, although that’s to be expected from property & casualty insurers.

We found no businesses like Albertsons, reporting costs related to physical damages they incurred. So Albertsons may stand alone with this oddball entry in the Earnings Adjustment Hall of Fame.


Thursday, January 7, 2021

Businesses had to engage in some deft footwork last year to retool their operations amid the disruptions of coronavirus. One firm taking the right steps seems to be Nike ($NIKE).

The sneaker giant filed its most recent quarterly report on Jan. 5, and all the important numbers on the income statement looked good. Revenue up 8.8 percent from the year-ago period to $11.24 billion; pre-tax income up 16.5 percent to $1.45 billion. Even total overhead and sales expenses declined by 1.7 percent — an impressive feat of cost management, considering all the new expenses firms have had to pay as part of operating during a pandemic.

OK, but exactly what is Nike doing to get these numbers? We’d written before about retailers making a pivot into e-commerce sales since physical stores are no longer reliable sales channels. Was that part of Nike’s strategy?

First we looked at Nike’s segment disclosures. Figure 1, below, shows lots of geographic segments.

That’s informative unto itself—revenue up in all four regions—but it doesn’t tell us anything about e-commerce versus other sales channels. We did, however, notice this item in the narrative discussion that preceded the table disclosures: “The Company's NIKE Direct operations are managed within each NIKE Brand geographic operating segment.”

That bit about NIKE Direct sounded like a clue to us. So we hopped over to the Management Discussion & Analysis section, and found considerably more detail about that part of the business.

As one might guess from the name, NIKE Direct is the firm’s business that sells directly to consumers, both through e-commerce sales and company-owned stores. (Nike also has a wholesale operation where it sells its gear to other retailers like Footlocker ($FL), for example.)

Nike does disclose revenue from NIKE Direct in the MD&A, and that line of business was up in the last quarter, too. See Figure 2, below.

Except, the $4.31 billion in that line item still combines both e-commerce and company-owned stores. So we kept reading, and finally found this paragraph tucked away on Page 28:

On a reported basis, NIKE Direct revenues represented approximately 40 percent of our total NIKE Brand revenues for the second quarter of fiscal 2021 compared to 33 percent for the second quarter of fiscal 2020. Digital sales were $2.4 billion for the second quarter of fiscal 2021 compared to $1.3 billion for the second quarter of fiscal 2020. On a currency-neutral basis, NIKE Direct revenues increased 30 percent, driven by digital sales growth of 80 percent, which more than offset comparable store sales declines of 4 percent primarily due to reduced physical retail traffic, in part resulting from safety-related measures in response to COVID-19.

There you have it. Digital sales grew by $1.1 billion in the most recent quarter (from $1.3 billion one year ago to $2.4 billion today), and if it weren’t for that e-commerce growth, total revenue for Nike would have declined from the year-ago period. As management itself says, digital sales growth more than offset any physical store sales declines.

So that’s another retailer making the pivot to e-commerce. Deft footwork, indeed.


Tuesday, January 5, 2021

We were sifting through 2019 annual reports the other day, reacquainting ourselves with all the ways firms adjust net income, when we came upon an interesting item from Eli Lilly & Co. ($LLY).

Lilly reported non-GAAP net income lower than actual net income, which is an unusual thing; most firms report non-GAAP income that’s higher than actual net income. And why did Lilly do that? Because the company had a one-time gain of $3.68 billion in 2019, stemming from discontinued operations: it had cashed out of an animal health business it had spun off.

Hmmm, we wondered. How many other firms report large gains from discontinued operations? Do any firms report gains that are so large, or report those one-time gains so often, that income from discontinued operations actually exceeds operating income?

So we dug into the data to find out. The answers are yes and yes.

We examined operating income among the S&P 500 for 2016 to 2019, and compared that to net income from discontinued operations for the same period. Collectively, the S&P 500 reported $5.66 trillion in operating income during those four years. They also reported $32.92 billion in income from discontinued operations — only 0.58 percent of operating income.

That’s only the large picture, however. When you zero into specific firms, some of them tell quite a different picture.

Table 1, below, shows the 10 firms with the largest percentage of income from discontinued operations relative to operating income. As you can see, six of the 10 firms actually had more income from discontinued operations 2016-2019 than they did from regular operations.

We know what you’re thinking: “Oh sure, the overall percentage might be high — but that could be from one huge divestment or spin-off. You’re still looking at such a large picture that the numbers aren’t that meaningful.”

Ha! We considered that too. When you look at each of the 10 firms above one year at a time, you still find several that had significant income, year after year, from discontinued operations. One good example of what we mean is Dow ($DOW), below.

Granted, Dow went through quite a bit of tumult over the late 2010s as management first merged the company and DuPont de Nemours ($DD) in 2017, and then split the merged business again into Dow, DuPont, and a third business called Corteva ($CTVA) in 2019. Not every firm will see that many operations discontinued in such a short period.

Another example is Fortive ($FTV), the industrial conglomerate spun out of Danaher ($DHR) in 2016. Fortive’s gains from discontinued operations weren’t quite as eye-popping as those from Dow, but they were still significant. See below.

What were all these discontinuations about? We didn’t delve into that question, although you can always use our trace feature and the Interactive Disclosures database to see exactly what a firm had to say about those one-time gains.

Regardless, the numbers are the numbers — and they show that for at least some firms, getting out of operations can be just as lucrative as staying in them.


Tuesday, December 29, 2020

As we wind down 2020, we thought it might be interesting to poke around with our latest obsession: Special Purpose Acquisition Companies (SPACs). We’ve written about these vehicles before. At the end of November, we discovered how many there were and did an introductory piece on the topic.

Today, we will show our users how to do some sleuthing of their own, and try to learn something together.

First, we come up with our list of SPACs. To do that, visit the Multi-company page on Calcbench and click on the choose companies button. You will get a form that opens up and you can select the entire SIC group by entering “6770” like the picture below.

Next, pick your metrics. We chose assets and cash. Our naïve assumption was that all (or most) of the assets of the SPACs were “dry powder” and would be ready to deploy at a moments notice. We discovered that our assumption was inaccurate. As you can see in the figure below, most SPACs’ assets are something other than cash.

Since we now show about 2-3 percent of assets of the SPACS in cash, we wondered (out loud) about what was going on.  

Hint: Read the footnotes!

We created a smaller peer group and went to the Interactive Disclosures page on Calcbench, where we found two interesting cases. First, Pershing Square has a SPAC. For those who know, Pershing Square is the hedge fund run by famed financier Bill Ackman. This SPAC was the biggest one that we found (measured by assets), so we thought it worth examining. It turns out that most of the assets are in a trust that, while technically not cash, are liquid. 

 See the Accounting policy below:

Next, we looked at another SPAC further down the list, AgroFresh Solutions. Maybe it has a trust too? 

No, but look at what we did find. AgroFresh has 75 percent of its assets in intangibles

Looking a bit deeper, the footnote for Intangibles and Goodwill tells you that it sits mostly in Developed Technology.

OK, but exactly what developed technology is in that line item? You have to go back to the 2015 10-K to find out.

Hopefully you found this tutorial helpful. Calcbench looks forward to seeing more of our readers in 2021, so to all of you, Happy New Year!


Monday, December 21, 2020

Tech firm SolarWinds Corp. ($SWI) is in the headlines lately because it seems to be the vehicle for that massive cybersecurity attack Russian interests launched against the U.S. government and lord only knows how many private businesses.

So we at Calcbench, of course, fired up the Interactive Disclosure Tool to see what we could learn about SolarWinds from its filings. Presumably we didn’t learn as much about the company as the Russians did, but there’s still plenty of interesting stuff in there.

First, if you want to read the 8-K announcing the breach itself, that was filed on Dec. 14 under the deceptively plain heading “Other Events.” There, we see that attackers inserted their malware into SolarWinds’ Orion product sometime in the spring. The company believes that roughly 18,000 customers were affected, around 6 percent of its 300,000 customers overall.

Another interesting morsel from the 8-K shows that the breach is very much material to SolarWinds’ revenue picture:

For the nine months ended September 30, 2020, total revenue from the Orion products across all customers, including those who may have had an installation of the Orion products that contained this vulnerability, was approximately $343 million, or approximately 45 percent of total revenue.

From the firm’s recent income statements, we can see that SolarWinds had been moving briskly in the right direction over the last several years. Revenue went from $422 million in 2016 to $932.5 million last year, and the company had been on pace through the first three quarters of 2020 to end this year north of $1 billion — until this breach happened, that is.

Several other points to note within the company’s most recent 10-K, which was filed last February.

First, SolarWinds disclosed that one distributor posed a customer concentration risk, which is a fairly rare disclosure to see. The exact statement, included in the Summary of Significant Accounting Policies, was this:

We provide credit to distributors, resellers and direct customers in the normal course of business. We generally extend credit to new customers based upon industry reputation and existing customers based upon prior payment history. For the year ended Dec. 31, 2019 a certain distributor represented 12.5 percent of our revenue.

We don’t know who that distributor is. We do know, however, that privately held Carahsoft Corp. is SolarWinds’ exclusive distributor to government customers, and Uncle Sam tends to be a mighty big customer for any business. We also know that SolarWinds did not have any customer concentration issues worth reporting in prior years.

Whatever the details may be, it’s reasonable to assume that in quarters to come SolarWinds will see some revenue disruption, plus higher costs to repair the damage of the attack — and a significant chunk of revenue could disappear with the loss of this one mystery customer. SolarWinds is in a precarious position.

Second, upon hearing “reputation disaster!” we immediately thought “goodwill impairment!” and went to see how much goodwill SolarWinds carries on the books.

The firm reported $4.12 billion in goodwill assets in Q3, roughly 75 percent of the $5.45 billion in total assets SolarWinds reported. Goodwill grew by about 10 percent in 2019, but only by about 1 percent in the first nine months of this year. We’ll be curious to see what the company has to say about potential impairment in its next annual report.

We also noted an item in SolarWinds’ disclosure of intangible assets. See Figure 1, below. Notice the second line, “customer relationships.”

Hmmm. One-third of SolarWinds’ intangible assets are tied up in customer relationships. That typically means something like a customer contract that could be sold to another company, or lists of customer names that might be sold to marketing firms, or just good relations with a customer due to sustained business and other contacts.

We don’t know exactly what’s included in the $567 million customer relationships line item here. Our question, however: could this line item also suffer some sort of impairment due to the cyber attack? For example, if customers stop taking SolarWinds’ calls, or have early-exit clauses due to a breach, could this line item decline in value?

That’s not as common as goodwill impairment, but it happens.


Tuesday, December 15, 2020

Firms and Income From Investments Last week we had a post exploring the income numbers at Salesforce ($CRM) and the surprising factoid that for most of 2020, Salesforce’s income from strategic investments in other businesses actually exceeded income from Salesforce’s own operations.

Our curiosity was piqued: How many other non-financial firms have seen investment income account for a significant portion of net income? How often does something like this happen?

We used our Multi-Company database to search disclosures among the S&P 500, comparing net investment income to all net income for 2016-2019. Pulling the data only took a few minutes, and several conclusions stood out.

First, few large companies disclose net investment income at all. In all four years we examined, no more than 70 firms out of the whole S&P 500 reported net investment income. Most that did were financial firms of some kind — and while there’s nothing wrong with being a financial firm, their operations are quite different than other sectors so we’re disregarding those folks.

Second, some firms do indeed report some eye-popping investment income numbers, but that’s rare.

As a benchmark, Salesforce’s net investment income accounted for 94 percent of all net income in 2019. Few other firms came close to that. No other non-financial firm came close to that level in 2019, although Entergy Corp. ($ETR) reported $547 million in investment income, equal to 44 percent of net income. CVS Health ($CVS) reported $1.01 billion in investment income that year, 15 percent of all net income. Most other firms were in the single-digit percentages, if they reported any investment income at all.

Third, trends are rare. Yes, Salesforce reported gobs of net investment income in 2019 — but it didn’t report numbers anywhere near those levels in prior years. Its net investment income accounted for only 5 percent of net income in 2018, and 10 percent in 2017.

The only non-financial firm that had appreciable amounts of investment income across several years was Constellation Brands ($STZ): 21 percent of all net income in 2017 and 61 percent in 2018. Then again, Constellation also reported a $2.67 billion net investment loss in 2019, which almost obliterated total income last year (a measly $21.4 million).

And where do all these net investment income numbers come from, exactly? If you want to know, you can always use the Calcbench Trace feature: click on that number when you see it in the income statement, and we’ll promptly whisk you away to the firm’s footnote disclosure to see the details.

Here, for example, is what you see when you trace that $2.67 billion loss Constellation Brands reported.

Bottoms up!


Wednesday, December 9, 2020

You might remember that several weeks ago we had a post reviewing the Q3 financial disclosures of nearly 2,500 firms, and one finding was that firms have stockpiled huge amounts of cash to help them weather difficult economic circumstances.

We’ve now taken a deeper look at which firms have been stockpiling the most cash, and how that picture has evolved from one quarter to the next.

Figure 1, below, tells the tale. We examined the cash holdings of roughly 400 non-financial firms in the S&P 500, and tracked total cash reported for that group from the start of 2018 through third-quarter 2020.

The blue bar is total cash for all firms. As you can see, cash was $949.73 billion at the start of 2018, trended downward through much of that year, and then trended back up to $955.7 billion by the end of 2019.

Then comes the pandemic in Q1 2020, and cash holdings soared. They hit a high-water mark of $1.323 trillion over the summer — an increase 38.5 percent in just six months. Total cash edged downward in the third quarter of this year, but not by much. Firms are still sitting on a mountain of money in case economic conditions take a turn for the worse.

OK, that all makes sense so far. Now let’s turn to the orange bar in Figure 1.

The orange bar represents cash among the 10 firms with the most cash in that specific quarter. That bar has fluctuated much less than for all 400-ish firms in total.

You might need to squint to see it, but cash among the Top 10 firms went from a low of $193.3 billion in early 2019, to a pandemic-fueled high of $271.4 billion at the start of this year — and then back to $240 billion in the third quarter. Which is actually lower than Top 10 cash at the start of 2018, when cash for this group was $270.3 billion.

We also wanted to know: How much cash did the Top 10 firms have as a percentage of all cash for the whole 400-firm sample. The results are in Figure 2, below.

As you can see, since the pandemic started, the share of cash going to the Top 10 firms every quarter is declining relative to the whole group. Given what we saw in Figure 1— that the whole group has amassed a huge pile of cash — then Figure 2 has to mean that a small group of large firms (the Top 10) are keeping cash levels roughly constant; but the other 390-ish firms are stockpiling much more.

Why? Presumably because those large firms are confident enough in their operations that they’re not too worried about cash supply — but the vast majority of other firms aren’t as confident, so they’ve salted away a mountain of greenbacks.

We should note that the Top 10 cash-rich firms does vary from one quarter to the next, so it’s not correct to say that only 10 firms qualify as success stories during this pandemic. On the other hand, a select few do keep turning up quarter after quarter: Apple, Amazon, and Google, for example; and a few others. (Mostly tech firms, of course.)

Upon Further Review...

Another way to study this trend would be to look at operating income. We already know from our first study a few weeks ago that operating income in Q3 2020 was lower than the year-ago period. So one possible analysis would be to examine total operating income for the whole group over the last three years (that is, repeat Figure 1, but with operating income rather than cash) and then compare the operating income share for the Top 10 relative to the whole (that is, repeat Figure 2).

If we see a pattern where the largest firms are increasing their share of operating income relative to the whole, then that could explain the cash patterns we see here: other firms are generating less operating income, so they’re amassing cash to preserve their liquidity.

Hmmm. That sounds like a really interesting analysis, now that we think about it. Why don’t you all circle back to us in another few days and see what we found?

P.S. For those interested in getting an Excel file, here it is. Note: You will need the Calcbench Excel Add-In installed in order to populate the data - enjoy!


Today we have another in our occasional series of Q&A interviews with consumers of financial data, to hear about what research they do and how they use Calcbench to meet their analysis needs. Our guest is Vern Richardson of the University of Arkansas.

About Professor Vern Richardson

Dr. Vern Richardson is a distinguished professor of accounting at the University of Arkansas. He teaches Financial Statement Analysis, Introduction to Financial Accounting, and Accounting Analytics.

Dr. Richardson is also the author of Data Analytics for Accounting and Introduction to Data Analytics for Accounting, the only data analytics textbooks for accountants; and Accounting Information Systems, all published by McGraw Hill. He has published numerous research papers on data analytics and accounting.

What got you interested in data analytics for accounting?

I became very interested in how accounting is evolving with the proliferation of computers and the availability of data. I realized early on that the role of accountants would pivot from measurement of transactions to analyzing data. Now that machines are doing much of the record-keeping and there is so much data available to analyze, accountants need to focus their time on interpreting data to address accounting questions.

How did you learn about Calcbench?

I was searching for data providers that would give me access to the raw data from financial statements for my students. I was frustrated with the time it took to pull information from sources like Yahoo Finance.

It was through my interest in XBRL [eXtensible Business Reporting Language] that I learned about Calcbench.

What Calcbench tools do you use?

For me the most important thing is to download information embedded in financial statements into a usable format. I like to download a bunch of companies at the same time.

Beyond the basics, I like to show the “originally reported” feature to my students. Students are often surprised that what’s printed is not set in stone. And the “peer comparisons” tool is powerful. Calcbench makes it effortless to compare a company to itself over time, or to competitors, or against industries, and even to the economy. For visual comparisons, I also like the “common-sizing” tool.

How would you like to use Calcbench in the future?

I’d like to use Calcbench to forecast future cash flows for companies. I’m always interested in the future value of long-term debt and lease payments. In addition, it would be great if Calcbench could give me the Z-score, for example, to help predict bankruptcies. I would also like to use Calcbench to compute sentiment scores through textual analysis for the MD&A of the 10-K disclosures.

Lastly, it would be great to use Calcbench for easy access to disaggregate and decompose financials. It would be great if Calcbench can automate DuPont and Penman ratios for companies.


Wednesday, December 2, 2020

When you think of Salesforce, you probably think of customer relationship management (CRM) software. That’s how most people use Salesforce. It’s the dominant player in that niche. Heck, the company’s ticker symbol is even $CRM.

Well, think again. Salesforce is more like a venture fund.

Salesforce has funded more than 400 entrepreneurs since 2009. It holds a stake in numerous businesses, and lists those investments on a portfolio page on the company website. Many of those investments have been handsomely profitable: Dropbox, Zoom, CloudLock, Box, just to name a few.

As a result, an increasing portion of Salesforce’s income actually comes from these investments. Figure 1, below, shows that a majority of the company’s pre-tax income stems from gains on those strategic investments (the orange line, which started exceeding operations income at the start of 2020 and then soaring in the last two quarters).

These investments also deliver a significant boost to Salesforce’s balance sheet. Figure 2, below, shows that strategic investments (the orange line) now account for almost 10 percent of total assets; marketable securities are another 10 percent. Add in goodwill, and you’re above 50 percent of total assets from those three line items alone.

One interesting detail: in its footnote disclosures, Salesforce assumes no change in the value of its strategic investments. Look at this excerpt from a Salesforce earning announcement filed on Dec. 1, 2020 (see it in its entirety on Calcbench):

“Gains on Strategic Investments, net: Upon the adoption of Accounting Standards Update 2016-01 on February 1, 2018, the company is required to record all fair value adjustments to its equity securities held within the strategic investment portfolio through the statement of operations. As it is not possible to forecast future gains and losses, the company assumes no change to the value of its strategic investment portfolio in its GAAP and non-GAAP estimates for future periods.”

So there you have it. Despite the CRM ticker, Salesforce is a lot more than CRM.


Tuesday, December 1, 2020

Two years ago Calcbench published one of our most popular posts ever: a study of how much time firms took to proceed from their fiscal year-end, to filing an earnings press release, to filing their full Form 10-K report.

A lot can change in two years, so we decided to repeat that analysis with firms’ 2019 form 10-K filings. After crunching the numbers for thousands of filers large and small, one conclusion stands out: Firms are taking more time to file their disclosures.

Table 1, below, presents the change in filing times for 2017 and 2019 reports, across the major categories of filer status.

As you can see, time to file increased in just about every way possible — more time from fiscal year-end to earnings release; more time from earnings release to 10-K; more time from fiscal period to 10-K. The only exception was time elapsed from earnings release to 10-K for non-accelerated filers, which declined.

To calculate “average percent of time to 8-K” we divided the average time from fiscal year-end to the earnings release (yellow column) into average time from fiscal year-end to the 10-K (green column). The result is in the rose column along the right side of Figure 1. As you can see, that number increased over the last two years, too.

(We should note one significant change. Two years ago there was a fourth category of filer, the smaller reporting company. The Securities and Exchange Commission subsequently consolidated “SRCs” and non-accelerated filers into a single category. We noted this because the SRCs might explain why non-accelerated filers had such a large increase in filing times.)

Why are firms taking more time to file their disclosures? We can’t help but wonder whether coronavirus was one reason, given the disruption it caused to countless firms earlier this year. It’s also true that several significant accounting rules have undergone major revisions in the last several years, such as revenue recognition and leasing costs. Those revised standards have added complexity to what firms need to disclose, and figuring that out can take more time.

A Closer Look at Large Filers

We also charted the number of days from fiscal year-end (FYE) to 8-K earnings release and to 10-K filing for large filers. The result is this scatter-plot chart below, Figure 1.

All large accelerated filers must file their 10-Ks within 60 days of year-end. That timeline is measured along both axes — so any blue dot along the very top or the far right of Figure 2 is a late filing. (We estimate about three dozen in Figure 1.)

What’s interesting is that if you look back to this same chart for 2017 filings, decidedly fewer firms were beyond the 60-day deadline. See Figure 2, below, shamelessly stolen from our first post in May 2018.

In both charts, we see most firms crammed near the corner along the x-axis. That means most firms filed their earnings releases well after their FYE, and then filed their 10-K quickly after that.

But clearly only a handful of firms filed their 2017 annual reports after the 60-day mark in Figure 3, compared to the several dozen in Figure 2. Hmmmm.

Nobody can draw broad conclusions about that discrepancy just from this data. You’d need to research each firm individually using our Interactive Disclosures database, which might offer hints about disagreements with auditors or unreliable data or lord knows what else.

Still, the discrepancy is there. It also supports our first conclusion, that firms are taking longer to file earnings releases and 10-Ks. Presumably that would lead at least some firms to stumble into the late filing zone.

Food for thought as we all keep waiting for those latest filings to arrive.


Friday, November 27, 2020

So there we were, sitting around the Calcbench virtual breakroom, wondering how we should finish up the rest of the year. Then the intern piped up: “Why don’t we form a SPAC? Everyone else is doing it!”

Ummm, no, we politely told the intern. But he had raised an interesting point: how many groups are launching SPACs these days?

For those not in the know, Special Purpose Acquisition Companies (SPACs) are investment vehicles that investors with lots of money can use to take firms public quickly. The SPAC is essentially a publicly traded holding company, which then uses its funds to acquire operating firms. The acquisition closes, and presto — that target’s operations are now part of the publicly traded SPAC.

SPACs use a dedicated SIC code when filing financial statements. This means Calcbench can identify all the SPACs that have been cropping up lately, and see what revenues, operating income, assets, and liabilities these folks have been reporting.

What We Found

First, a lot of SPACs have come onto the scene lately. Take a look at the numbers in Figure 1, below.

The number of SPACs filing statements with the U.S. Securities & Exchange Commission more than doubled in one year, from 80 firms in Q3 2019 to 170 in Q3 2020. Moreover, most of that surge happened in the last six months!

Then we peeked at the assets these firms have, since the value of assets is what drives a SPAC’s ability to make acquisitions. Here are some factoids to digest along with your turkey leftovers:

  • Total assets for all 170 SPACs: $41.77 billion
  • Average assets: $259.5 million
  • Number of SPACs with more than $100 million in assets: 101
  • Number of SPACs with more than $100 million in assets and that formed within the last year: 76

Of the 170 SPACs we found in Q3 2020, only 11 reported any revenue at all — and almost all of that revenue came from two firms! Infrastructure & Energy Alternatives ($IEA) reported $552.2 million, and AgroFresh Solutions ($AGFS) reported $52.8 million. No other SPAC even cracked $1 million in revenue.

Meanwhile, 157 of 170 firms reported an operating loss in the third quarter (and seven firms reported exactly zero dollars of operating income) and 165 of 170 reported negative operating cash flow.

The Bottom Line

The bottom line is that scores of SPACs have cropped up in the last six months. A fair number of them have a respectable amount of assets to pursue their acquisition dreams, but almost all of them are operating at a loss right now.

Who are these SPACs, and what do they want to do? You can use our Interactive Disclosures database to research specific firms and their filings, and some do tell a rather, um, interesting tale.

One of our favorites was Yacht Finders ($YTFD), which apparently launched in the early 2000s to act as an online database of yachts, matching buyers and sellers. By 2007 that business idea was taking on water, so the firm sailed into the SPAC business instead.

“The company’s business plan now consists of exploring potential targets for a business combination through the purchase of assets, share purchase or exchange, merger or similar type of transaction,” the firm said in its most recent quarterly report.

Well, that’s one way to keep your options open. Although as of third-quarter this year, Yacht Finders had no assets and no income.

Anyway, there are plenty of other SPACs in the sea. You can find them using the SIC code 6770, and then use our Interactive Disclosure page or our Multi-Company page to research any or all of them to your heart’s content.


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