Concert ticket guru Live Nation found itself the subject of a shareholder lawsuit seeking an injunction to stop the company’s annual meeting on the basis of disclosure deficiencies surrounding the company’s use of a Non-GAAP measure in its annual incentive plan.
Live Nation shareholder Shiva Stein – who appears to have filed disclosure lawsuits against at least one other company – accused the company of making false and misleading statements in the company’s CD&A on the use of the Non-GAAP metric “Adjusted Operating Income” (“AOI”) and its application in the company’s annual incentive plan.
- In the proxy statement, Live Nation disclosed an AOI goal for the annual incentive plan of $700 million for 2017 with payouts only occurring if the company achieved at least 90% of target.
- According to the proxy, the company achieved an AOI measure “on a pro-forma, constant-currency basis, adjusted for legal settlements” for 2017 of $728 million – 104% of target – and based incentive awards accordingly.
- For assistance in defining and reconciling AOI, Live Nation referred readers to pages 30-31 of the company’s 10-K for the most recently completed fiscal year.
- In the 10-K, the company disclosed that 2017 AOI was $625 million, which is less than 90% of the company’s $700 million target.
- Neither the proxy statement nor the 10-K provided any clarifying language reconciling the gap between the $728 million figure disclosed in the proxy and the $625 million figure disclosed in the 10-K.
The dual-definitions of AOI led to the complaint accusing the company of making false and misleading statements in the proxy. Interestingly, the lawsuit was dropped by Stein only days after it was filed. Live Nation’s disclosure inconsistencies should be a lesson for companies which utilize Non-GAAP measures – make sure there is consistency in how the measure are defined across filings and where divergences occur, explain them. There is a potential that Non-GAAP measures provide a potential focus area for plaintiff’s attorneys in the future. A recent announcement of a class-action suit against internet security software provider Symantec included a focus on the company’s use of Non-GAAP measures which, as the company disclosed, “would lead to heightened regulatory scrutiny by the SEC”.