Late Improvements in the Utilization of Non-GAAP Budgetary Measures and in MD&A Revelation.


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Abu Dhabi • Beijing • Brussels • Düsseldorf • Frankfurt • Hong Kong • London • Mannheim • Menlo Park Munich • New York • Paris • Rome • San Francisco • Singapore • Tokyo • Toronto • Washington, D.C.
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Abu Dhabi • Beijing • Brussels • Dã¼sseldorf • Frankfurt • Hong Kong • London • Mannheim • Menlo Park Munich • New York • Paris • Rome • San Francisco • Singapore • Tokyo • Toronto • Washington, D.C. Late Developments in the Use of Non-GAAP Financial Measures and in MD&A Disclosure February 13, 2003 Lisa L. Jacobs Anthony R.G. Nolan Christopher C. Paci James S. Scott, Sr. Scott A. Graziano

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Use of Non-GAAP Financial Measures NYDOCS01/909168

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The Way We Were “ Global Crossing’s Recurring Adjusted EBITDA up 91%, Cash Revenue up 46%, from Third Quarter of 1999, Pro Forma for M&A Activity Global Crossing Ltd. (NYSE: GX), which is building and offering administrations over the world’s most broad worldwide IP-based fiber optic system, today reported second from last quarter 2000 money related results that surpassed the agreement evaluations of investigators who take after the organization. The Company reported, for its proceeding with operations, Cash Revenue of $1,367 million, Recurring Adjusted EBITDA of $355 million, and a Recurring Net Loss of $572 million, or $0.65 per share….” Global Crossing press discharge - November 13, 2000

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The Empire Strikes Back Trump Hotels & Casino Resorts Inc., January 2002 Enforcement Action What they said: Net pay expanded to $14.0 million, or $0.63 per offer, before an one-time Trump World’s Fair charge, contrasted with $5.3 million or $0.24 per offer in 1998. THCR’s profit per offer of $0.63 surpassed First Call appraisals of $0.54. What they didn’t say: Stated net pay and EPS incorporated an one-time increase of $17.2 million. What the SEC said: Cease-and-stop

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Overview The SEC has embraced new standards as guided by the Sarbanes-Oxley Act to address the utilization of non-GAAP money related data by open reporting organizations. The guidelines are diverse for data that is contained in a press discharge or comparative open divulgence and for data that is contained in a SEC documenting. Another revelation regulation, Regulation G, obliges open reporting organizations that unveil non-GAAP money related measures to incorporate a presentation of the most tantamount GAAP budgetary measure and a two\'s compromise measures. On the off chance that the non-GAAP monetary measure is incorporated in a SEC recording, the necessities are more broad and oblige exposure regarding why the non-GAAP measure is imperative to financial specialists and, if material, the extra purposes for which administration utilizes the non-GAAP measure.

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Overview The guidelines likewise oblige reporting organizations to “furnish” to the SEC on Form 8-K income discharges uncovering material non-open monetary data about finished yearly or quarterly financial periods. The guidelines for the most part apply to remote private backers. Regulation G becomes effective March 28, 2003. For SEC filings, the last standards apply to any yearly or quarterly report recorded concerning a financial period finishing after March 28, 2003.

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“Non-GAAP Financial Measure” Defined The SEC characterizes “non-GAAP money related measure” as a numerical measure of a company’s authentic or future budgetary execution, monetary position or money streams that: Excludes sums, or is liable to alterations that have the impact of barring sums, that are incorporated in the most specifically similar measure computed and displayed as per GAAP in the announcement of wage, accounting report or explanation of money streams of the organization; or Includes sums, or is liable to conformities that have the impact of including sums, that are rejected from the most straightforwardly tantamount measure so figured and exhibited.

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“Non-GAAP Financial Measure” Defined The SEC elucidated that it means that the meaning of “non-GAAP monetary measure” catch all presentations of: A measure of execution that is not the same as that exhibited in the money related proclamations, for example, pay or misfortune before duties, or net salary or misfortune as ascertained as per GAAP; or A measure of liquidity that is unique in relation to income or income from operations registered as per GAAP.

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“Non-GAAP Financial Measure” Defined Non-GAAP money related measures would exclude: Operating and other factual measures, for example, unit deals quantities of workers quantities of supporters quantities of sponsors Ratios or factual measures that are computed utilizing just: monetary measures ascertained as per GAAP working measures or other factual measures

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Public Disclosure/Release of Non-GAAP Financial Measures Under new Regulation G, organizations that uncover or discharge non-GAAP budgetary measures would be obliged to give: A presentation of the most straightforwardly practically identical GAAP budgetary measure figured and exhibited as per GAAP; and A compromise (by timetable or other unmistakably reasonable strategy) of the contrasts between the non-GAAP budgetary measure and the most specifically tantamount GAAP budgetary measure or measures. On the off chance that a non-GAAP money related measure is discharged orally, telephonically, in a webcast, telecast or by comparable means, an organization would be allowed to give the obliged join data by (1) posting it on the company’s site and (2) uncovering the area of the obliged going with data amid its presentation.

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Public Disclosure/Release of Non-GAAP Financial Measures as to quantitative compromise of non-GAAP monetary measures that are forward-looking, Regulation G obliges a presentation enumerating the contrasts between the forward-looking non-GAAP money related measure and the fitting forward-looking GAAP budgetary measure. In the event that the GAAP measure is not accessible on a forward-looking premise, the organization must unveil that certainty and give any accommodating data that is accessible without “unreasonable effort.” Furthermore, the organization must distinguish any data that is occupied and reveal its plausible hugeness.

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Required Disclosure in SEC Filings The SEC principles require extra divulgence for organizations that incorporate non-GAAP monetary measures in SEC filings. Organizations would be obliged to incorporate in SEC filings: A presentation, with at any rate level with conspicuousness , of the most specifically equivalent GAAP measure; A compromise (by calendar or other plainly justifiable strategy) of the two measures; An announcement portraying the reasons why the company’s administration accepts such non-GAAP money related measures give helpful data to speculators; and If material, an announcement unveiling any extra purposes for which the company’s administration utilizes the non-GAAP monetary measure displayed.

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Prohibitions The guidelines deny the accompanying in SEC filings: Excluding from liquidity measures charges or liabilities that obliged, or will oblige, money settlement , or would have obliged money settlement truant a capacity to settle in another way, from non-GAAP liquidity measures, other than EBIT and EBITDA; Adjusting a non-GAAP execution measure to dispose of or smooth things distinguished as non-repeating, rare or unordinary, when (1) the charge\'s nature or increase is such that it is sensibly prone to repeat inside of two years, or (2) there was a comparable charge or addition inside of the former two years; Presenting non-GAAP budgetary measures on the substance of the company’s monetary articulations arranged as per GAAP or in the going with notes;

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Prohibitions The principles forbid the accompanying in SEC filings (proceeded with) : Presenting non-GAAP budgetary measures on the substance of any professional forma budgetary data needed to be uncovered by Article 11 of Regulation S-X; and Using titles or portrayals of non-GAAP monetary measures that are the same as, or confusingly like, titles or depictions utilized for GAAP budgetary measures. On the off chance that an organization incorporates EBIT or EBITDA, it must accommodate the measure to its most straightforwardly practically identical GAAP money related measure; the organization should likewise talk about why speculators would discover EBIT or EBITDA significant in the connection displayed.

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Practical Implications New principles are not new in substance Adjusted EBITDA and other non-GAAP money related measures that reject money charges or liabilities would never again be permitted Increased trouble in imparting the “story” to speculators Is it simply an issue of presentation (i.e., giving GAAP details reference revelation of non-GAAP budgetary data, instead of introducing non-GAAP monetary data details with commentaries accommodating to GAAP)?

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Business Combination Transactions The new guidelines give an exemption to non-GAAP budgetary measures included in exposure identifying with (1) a proposed business blend exchange, (2) the element coming about because of the business mix exchange, or (3) a substance that is a gathering to the business mix exchange. For the special case to apply, the revelation must be contained in a correspondence that is liable to the SEC’s interchanges rules relevant to business mix exchanges.

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Requirement to “Furnish” Earnings Releases on Form 8-K The SEC principles oblige organizations to outfit to the SEC a Form 8-K inside of five business days of any open declaration or discharge uncovering material non-open data in regards to a company’s aftereffects of operations or budgetary condition for a yearly or quarterly monetary period that has finished. Regulation

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