By Theo Francis And Kate Linebaughg

Dec. 14, 2015 8:28 p.m. ET

A financial obfuscation of the dot-com era is making a comeback: Hundreds of U.S. companies are trumpeting adjusted net income, adjusted sales and “adjusted Ebitda.”

These adjusted measures paint a rosier picture of corporate earnings. Without them, third-quarter earnings per share fell 13% for the biggest U.S. companies, according to Deutsche Bank research, instead of falling 0.1% with them.

About one in 10 major securities filings this year used the term adjusted Ebidta—or adjusted earnings before interest, taxes, depreciation and amortization—up from one in 40 a decade ago. About a quarter of earnings-related filings this year included figures that don’t comply with generally accepted accounting principles, or GAAP, as well as more standard measures, according to a Wall Street Journal analysis of 10-K, 10-Q and 8-K filings.

The terms now crop up in quarterly earnings releases and securities filings for companies as varied as Grape-Nuts-maker Post Holdings Inc., chemical company Dow Chemical Co., wireless operator AT&T Inc. and hamburger chain Wendy’s Co.

United Technologies Corp. last week was the latest big company to embrace adjusted earnings measures. By adhering to accounting rules, “we’re actually confusing people more than we were helping people understand what’s going on in the business,” said CEO Greg Hayes. “This is a simplification and really allows the investors to more easily understand what the businesses are doing.”

The result, however, is a new yardstick with no standard accounting definition and, often, little comparability to other companies or even other time periods.

“Non-GAAP measures are used extensively and in some instances may be a source of confusion,” Mary Jo White, chair of the Securities and Exchange Commission said at a conference last week. “This area deserves close attention.”

Publicly traded companies are broadly expected under securities and disclosure rules, as well as by investors, to use such standard accounting measures as net income and revenue when disclosing their financial results.

Securities regulators occasionally take companies to task for glossing over standard accounting figures. The SEC has queried companies at least 100 times since 2006 about non-GAAP measures, according to MyLogIQ, an SEC-filings data and analysis firm.


Earlier this year, the SEC told T-Mobile US Inc. to include figures that comply with accounting rules in its quarterly earnings release. The company had only used adjusted Ebitda, and omitted net income. That approach “appears to attach undue prominence to the non-GAAP measure,” the SEC said.

T-Mobile started including GAAP figures in news releases in the second quarter. The company declined to comment, but said in securities filings that it uses the adjusted metric internally to evaluate management and compare its performance to rivals.

Adjustments allow companies to strip out such expenses as asset write-downs or the effects of foreign-currency moves that executives and many investors consider to be outside a company’s most fundamental operations. Companies also often omit results from newly opened and recently closed stores to better reflect ongoing operations

Scana Corp., a utility holding company, strips weather from its results to smooth out the effects of unusual warm and cold spells, for example. Underwear maker Hanesbrands Inc. adjusts its earnings for “actions” and the “tax effect on actions” that are described in footnotes and a series of tables at the end of its earnings release. Square Inc., the electronic-payments company that recently went public, reported adjusted revenue that omitted 14.5% of the company’s sales because they came from Starbucks Corp., which has announced plans to stop using Square’s services.

Restaurant chains like Potbelly Corp., burger joint Shake Shack Inc. and chicken-and-biscuits seller Bojangles Inc. exclude much of the costs of opening new stores. Telecom companies like AT&T and Sprint Corp. omit the multibillion-dollar depreciation bills that reflect the cost of upgrading their networks.

“There are those that use it as a way to take out nonrecurring type of items to help people understand how the business works,” said T.C. Robillard, vice president of investor relations at Hanesbrands. “Then there are companies out there like anything else in life that go out and misuse it.”

Executives at Wendy’s mentioned adjusted financial metrics about a dozen times on their most recent earnings call with investors but didn’t explicitly cite standard accounting figures.

Wendy’s said it believed investors find non-GAAP information useful. “Based on the feedback we get from investors, investors use this information to view different companies’ performance on an apples-to-apples basis,” a Wendy’s spokesman said.

Other companies mentioned in this article echoed Wendy’s position, declined to comment or didn’t respond to inquiries. Most said they also provide standard accounting results prominently and explain the difference between the two, as required by securities rules.

The difference between standard and adjusted earnings is growing. Deutsche Bank equity strategist David Bianco said he expected the gap to widen to 40% in the fourth quarter, from 20% or 30% in recent periods. He blamed lackluster operating results, with sales likely to fall 4% this year for companies in the S&P 500 index.

“There is a lot of concern about companies doing everything they can to keep earnings from going negative,” Mr. Bianco said.

Custom-tailored financial measures aren’t new. During the late-1990s tech-stock boom, companies cited “pro forma” results that excluded costs deemed unusual—and often did so every quarter. After the market’s crash, Congress told securities regulators to clean up disclosure as part of the Sarbanes-Oxley Act. The result was Regulation G, which requires companies to explain any nonstandard financial measures they use.

“If I didn’t have to pay for day care and I didn’t have to pay for insurance, then I would be making a heck of a lot more money, too,” said Michelle Leder, founder of financial-research service footnoted, who discussed the topic in a November blog post. “If the numbers are being massaged to this level, how do you figure out what’s real and what’s not?”

Sanford Bernstein telecom analyst Paul da Sa poked fun at adjusted accounting in an email, saying the research house’s predictions for 2015 had an “adjusted accuracy rate of 99.9%,” excluding “all the stuff we got wrong.”

—Ted Mann
and Richard Teitelbaum contributed to this article.

Write to Theo Francis at and Kate Linebaugh at