Actg 493, Fall 2023d

Individual Assignment #3

Non-Gaap Measures

Due: Thursday, September 21 by 10:30am on blackboard

Planet Fitness, Inc. (PLNT)

About the company - Planet Fitness, Inc., headquartered in Hampton, New Hampshire,is a franchisor and operator of fitness centers.They have more than 16.5 million members and 2,324 owned and franchised locations (referred to as stores) in 50 states, the District of Columbia, Puerto Rico, Canada, Panama, Mexico and Australia as of June 30, 2022.

Background - Companies often disclose supplemental measures of performance to those that appear in their quarterly or annual financial statements. Since these measures are not based on the generally accepted financial statement (GAAP) requirements, they are referred to as non-GAAP measures.Their disclosure is regulated by the Securities and Exchange Commission (SEC). See the readings below and Cournsenotes #5 on Non-GAAP earnings (under Week 5) as preparation for completing the assignment.

The case setting -The SEC regularly reviews the financial reports that companies file on its EDGAR website. If the SEC has questions or concerns about the reports, they issue a comment letter to the company requesting a response within 10 days.Companies can provide additional information or support for their positions or modify their disclosures in response to the SEC's request.

Planet Fitness includes several non-GAAP measures in its quarterly and annual financial reports. On September 20, 2022,the SEC sent a comment letter to Planet Fitness that challenged and inquired about two non-GAAP measures disclosed in the company's 10-Q for the second quarter of 2022.

Planet Fitness responded to the SEC's inquiry in correspondences dated October 3, 2022 which in turn triggered a follow-up comment letter from the SEC on October 7, 2022. Planet Fitness again responded to the SEC in correspondence dated October 31, 2022. These communications are included in the list of assignment materials below and are included on Blackboard. Like all formal correspondence between the SEC and registrant companies, the full exchange of comment letters and responses between the SEC and Planet Fitness files can be located on EDGAR using filing type 'UPLOAD' (SEC letters) and 'CORRESP' (Company responses).

Required:

Obtain and read/review the following materials:

• Readings on Non-GAAP earnings (under both Course Readings and Week 5 Content on Blackboard)
• 'Companies' Non-GAAP Adjustments to NetIncome have Soared',WSJ
• SEC Leads Crackdown on Non-GAAP Measures, CFO.com
• 'Companiesare Winningthe Battle over AdjustedEarnings, WSJ

Required:

Obtain and read/review the following materials - continued:

• Under Assessments on Blackboard:
• SEC comment letter to Planet Fitness, Inc on September 20, 2022
• Planet Fitness, Inc response letter to the SEC on October 3, 2022
• SEC Comment letter to Planet Fitness, Inc. on October 7, 2022
• Planet Fitness, Inc response letter to the SEC on October 31, 2022
• Planet Fitness Form 10-Q for the second quarter (Q2) of 2022
• SEC Non-GAAP Interpretations document

Prepare a memo to address the questions below - be sure to address all parts of each question. Your memo should be no more than 6 pages (including any tables you might include) and should use 12-point Times New Roman font, one-inch margin on all sides and double spacing. You are encouraged to use the format in the 'Guidelines on Writing a Successful Business Memo' in the Course Policies and Resources link on Blackboard.

Your memo should include the following Honor Code Statement:

"I pledge my honor that I have not violated the Honor Code during this assignment. I recognize that this is an individual assignment and that I have turned in my own effort even if I have discussed the assignment or worked in a group setting in preparing this assignment."

Questions to address in Memo:

1. Non-GAAP performance measures

NOTE: In order to best answer these questions below, please review the business press articles listed on the prior page.

a)Based on reading the articles included in the case, present and discuss at least one argument for why a company might be motivated to include a supplemental non-GAAP measure in its quarterly or annual disclosures. Similarly, present and discuss at least one argument for why the SEC feels that the disclosures of non-GAAP measures can be harmful to financial statement users.

b) Imagine that you are asked by a client to give an opinion on whether they should disclose non-GAAP performance measures along with their GAAP financial statements. What advice would you give your client? Be sure to support your advice with thoughtful reasoning that relates to your client's perspective (i.e., their benefits and risks).

2. Planet Fitness, SEC comment letters and non-GAAP measures

Review Planet Fitness' discussion of non-GAAP financial measures in the 10-Q for Q2 of 2022 (pages 31 - 36) and the 4 files addressing correspondence back and forth between Planet Fitness and the SEC concerning the disclosure of non-GAAP measures that are provided with the assignment materials.