Sprint, AT&T and T-Mobile US each popped up in the Wall Street Journal Tuesday, though not for reasons any might like.
“‘Adjusted’ Earnings Cloud Results” was the headline on a report about publicly traded companies’ increasing fondness for what the newspaper called a “financial obfuscation of the dot.com era” that has gained traction again.
During the dot.com days, companies with websites but no revenues, or revenues but no profit, touted various unconventional measures of financial performance, with some even counting eyeballs gazing at their home pages. Today, making adjustments to reported earnings is the coming thing.
For example, about 10 percent of “major securities filings” in the last year used the term “adjusted EBITDA” in explaining the filing company’s financial performance, the Journal said. The phrase showed up in fewer than 3 percent of such filings a year ago, the report said.
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EBITDA already is a departure from a company’s bottom line, or net income. EBITDA literally looks at a company’s “earnings before interest, taxes, depreciation and amortization,” which means it excludes some significant recorded expenses that can make reported net income smaller or possibly a net loss.
The complaint among some is that additional adjustments are more than a departure from generally accepted accounting principals, or GAAP, which is the benchmark for reporting financial results to public investors. They’re also all over the map.
Sprint, in the Journal article, was lumped with AT&T as examples of telecom companies that strip out depreciation – the d in EBITDA – in their adjustments. The adjusted results omits “the multibillion-dollar depreciation bills that reflect the cost of upgrading their networks,” it said.
Among restaurant chains, adjusting away the costs of opening new restaurants pops up, the article said. It noted other kinds of non-GAAP adjustments by underwear maker Hanesbrands, payments processor Square and others.
Sprint and T-Mobile declined to comment for this article.
In an emailed statement, AT&T said it reports all of its results according to GAAP but that it goes further. The additional information helps investors better understand the company’s operations and trends in its business, it said.
“Investors find this helpful, particularly in quarters after mergers or divestitures or with significant one-time or non-cash gains or losses,” AT&T said.
Companies are expected to reconcile their adjusted and highlighted numbers with those produced under GAAP. Even those reconciliations draw flack.
Ina Fried, senior editor at Re/code, made fun of the extent of such diversions from GAAP by comparing them to a map of Tokyo’s subway system.
To earn its spot in the Journal piece, T-Mobile omitted net income – both the phrase and the amount – from its quarterly earnings releases as recently as this spring. Its quarterly profits, and losses, were reported in tables that T-Mobile also made available, but they failed to mention them in the earnings releases.
T-Mobile said it had a net income of $361 million in the second quarter, right after noting its adjusted EBITDA had totaled $1.8 billion.