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What Would Happen if People Used the Same Earnings Reporting Methods as Corporations?


If non-GAAP principles are good enough for the world's largest corporations, they should be good enough for my household.

As I do every year at this time, I will be sitting down with my wife to talk about how we did versus our budget last year.

After reading through all of the fourth-quarter earnings releases, however, I have decided that this year I am going to present our results to her not using cash-flow measures or GAAP, but rather using the same non-GAAP principles that were liberally applied by the world's largest corporations this year. If they can do it, and the world's most sophisticated investors seem to think it is okay, I should be able to do it, too.

Here are some of the general principles I used to come up with our family's "core" operating earnings for 2013.

First, as far as revenues go, nothing good that happened was excluded from core operating earnings, even if it is was extremely unlikely or potentially one-time in nature -- such as lottery or gambling winnings, inheritance, or the sale of an old family relic on eBay (NASDAQ:EBAY). In looking at what companies do, I observed that prescience determined with hindsight counts on the revenue side. Since I regularly play the lottery and play poker with my buddies, of course I would win eventually, so this year's winnings count as core. And come on, Grandma really did look quite ill at the beginning of last year. Besides, I still have plenty of other elderly living relatives left. So what I received from her was definitely not one-time in nature. There has to be at least a little more inheritance out there somewhere. The same is true for all of the stuff in our attic. Given what we still have up there, what may be another man's one-time trash is clearly our recurring treasure.

On the expense side, based on what I saw in this quarter's core earnings releases, the defining principles clearly work the other way around. Anything bad that happened last year not only could not have been foreseen, but will never happen again. Therefore these expenses don't belong in core operating earnings.

Applying this approach to my family last year, I have a pretty long list of exclusions. I am going to remove the $500 I spent to repair the hood of our car. My 16-year-old son will never misjudge the location of our mailbox again. I will also take out the $3,000 health-care insurance deductible costs for his appendix surgery. He only had one appendix and now that's gone. The cost of our new wall oven comes out, too. The old oven lasted 10 years and we probably won't be in the house a decade from now, so that was clearly a one-time expense -- as I suppose, too, were the costs of the new hot-water heater and furnace fan.

My daughter's freshman college tuition? Even though it was our largest single expense, it was one-time as well. She won't be repeating her freshman year -- at least not on our tab. And just like corporations do, I will be providing forward guidance to my wife that she should also ignore the non-recurring one-time charges through 2017 for our daughter's sophomore, junior, and senior years. College isn't really a recurring experience as much as it is four discrete annual events.

What I lost in my weekly poker games will also come out this year. I always thought my friend Jack was a cheat; since he moved away in November of last year, I am going to treat my poker losses as one-time fraud expense. That Eagles game where I lost my bet and it snowed like a blizzard? I am going to blame that on the weather. That excuse seemed to work well for the retailers this year.

In addition, my health-care coverage got cancelled as part of the Affordable Care Act. But even though the replacement coverage was actually cheaper, I am going tell my wife that there was some kind of one-time charge involved. If the banks can blame the Volcker Rule for their TRUP securities losses, even though the specific provision that caused them to recognize the losses was eventually repealed, I should be able to blame the Affordable Care Act for something this year.

And speaking of securities losses, I had my fair share in 2013. But since the money for those stocks went out the door years ago and I'll never invest in those deadbeat companies again, for 2013 I am going to consider the losses as non-recurring non-cash charges. Companies do that for failed acquisitions all the time when they write off goodwill, so my investment losses will definitely come out of our core earnings.

Finally, since several companies pushed some of their early 2014 expenses back into 2013 because their year-end financial statements haven't yet been finalized, I am going to do the same thing with my January heating bill. Thanks to the extreme cold, it was a real bear.

Then again, I may wait and do what a lot of companies do. Without that January 2014 heating bill, our 2013 core earnings really look amazing. Rather than spoil them, I think I'll issue our core operating earnings release to my wife next week and then dog pile last year full of expenses before I sit down with my accountant.

If big companies can do that, why can't I?
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