December 17, 2002
Mr. Jonathan G. Katz
Re: Conditions for Use of Non-GAAP Financial Measures (File No. S7-43-02)
Dear Mr. Katz:
The Rouse Company (the "Company") is pleased to have this opportunity to comment on the proposals included in the Securities and Exchange Commission (the "Commission") Release Nos. 33-8145 and 34-46788 (the "Releases"). The Company is a real estate investment trust (REIT) that has been publicly traded for more than 40 years and has been an active proponent of efforts to improve the quality of public financial reporting.
We applaud the Commission's efforts to improve the transparency and credibility of financial reporting. We support the requirements that public companies clearly distinguish financial measures calculated in accordance with generally accepted accounting principles ("GAAP") from non-GAAP performance measures. We also believe that it is imperative that the comparable GAAP measure be presented with equal or greater prominence than the non-GAAP measure. Additionally, we strongly support the requirement for a reconciliation of a non-GAAP performance measure to the comparable GAAP measure. We believe that this "best practice," endorsed by such groups as the National Association of Real Estate Investment Trusts, the Financial Executives Institute and others, assists users of financial information in assessing the quality of reported earnings or financial condition of the reporting entity.
We do, however, disagree with the proposed prohibition of the disclosure of non-GAAP per share performance measures. We believe that many non-GAAP performance measures have been developed in an attempt to further explain performance, particularly for large, complex entities. We also believe that analysts and investors alike have developed varying levels of comfort with these non-GAAP measures and rely on these measures on a per share basis, as indicated by the number of published "street" estimates that actually represent these non-GAAP per share metrics. We believe that a prohibition on the disclosure of widely accepted metrics will force members of the analyst community to calculate these per share amounts on their own and lead to a proliferation of inconsistently prepared metrics for a single reporting entity. We further believe that analyst prepared calculations will generally not reflect the appropriate dilution because information with respect to potentially dilutive securities may not be available to analysts and because analysts may not be able to correctly apply provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS 128").
We recommend that the final Rule allow per share reporting of non-GAAP performance measures in earnings releases and supplemental materials filed as exhibits to Form 8-K. We also recommend that the final Rule require a reconciliation of the non-GAAP performance measure to the comparable GAAP performance measure and a reconciliation of the denominator used in the non-GAAP per share performance measure to the denominator used in the GAAP earnings per share calculation. We further recommend that the final Rule should explicitly require that any non-GAAP per share amount presented reflect maximum potential dilution as required by FAS 128. We believe that such a required disclosure will assist users of financial information in understanding the capital structure of the reporting entity and will alert users to potential dilution not otherwise routinely disclosed in the financial statements.
We also urge the Commission to make the effective date of any final rules no earlier than the first quarter of 2003.
The Rouse Company appreciates the opportunity to comment on the Releases. Please contact me at (410) 992-6364 should you like to discuss my comments.