December 13, 2002
Mr. Jonathan G. Katz, Secretary
Re: File #S7-43-02
Dear Mr. Katz:
Hibernia Corporation appreciates the opportunity to comment on the proposed rules regarding the conditions for use of non-GAAP financial measures. The Sarbanes-Oxley Act sought to eliminate the manipulative or misleading use of non-GAAP financial measures and, at the same time, enhance the comparability associated with the use of that information. We fully support the concept of enhanced transparency and comparability.
As both users and preparers of financial statements, we appreciate the SEC's efforts to find effective ways to enhance investors' understanding of financial information. We support the requirements to include a reconciliation of non-GAAP financial information to the comparable GAAP measure. We believe that if a company presents a non-GAAP measurement for a previous fiscal period, it should be required to present that same non-GAAP measurement in future periods where the previous period is compared to a recent fiscal period. This will ensure that only items that are truly unusual in nature and non-recurring are reflected in the non-GAAP measure, and that users of the financial statements will have the information necessary to compare the presented fiscal periods.
We do not agree with the prohibition from disclosing the per-share effects of these non-GAAP measures. Earnings per share information is vital to the understanding of results, and if "pro-forma" adjustments are disclosed, providing the EPS effect of those adjustments will add to, rather than detract from, investors' understanding of the financial performance of the company. We do believe that these EPS adjustments should be subject to the same comparability and disclosure requirements as the full dollar amounts to ensure complete understanding.
We are also concerned about the effect the proposal could have on certain industry-specific non-GAAP measures that are commonly presented in financial statements. For example, as a financial holding company, Hibernia is subject to various regulatory capital requirements. The capital ratio calculations are not defined in GAAP, so could be construed as non-GAAP financial measurements. As there is no comparable GAAP ratio, it will not be possible to reconcile the ratio. However, this is an important ratio for investors to track, and the regulatory methods for calculating the ratios are well-defined which insures comparability between companies. By not allowing these disclosures, investors will have less information available. Another example is the calculation of the net interest margin. Standard industry practice is to calculate this margin on a tax-equivalent basis, which is a much more meaningful ratio than if the impact of tax-free securities and loans is not considered. We believe that providing a reconciliation of this ratio to the GAAP ratio (which does not consider tax-equivalencies) will make the financial statements more cluttered, while not providing information that will be useful to the users of the financial statements.
We believe that the proposed new Item 1.04 of Form 8-K is not necessary. Regulation FD already requires the filing of information on a timely basis, and this proposal simply adds another layer of complexity without increasing investor protections. Proposed Regulation G will already require simultaneous posting of information on a company's website, which will insure that information is available to all investors timely. Adding that requirement to Form 8-K would be redundant.
I would be happy to discuss any questions you might have about our views. Thank you for considering our concerns about this proposal.