S&P Capital IQ Financials

Methodology Guide
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September 26, 2012

v 1.4
Table of Contents
S&P Capital IQ Financials Methodology ................................................................................... 1
Introduction to S&P Capital IQ Data .......................................................................................... 1
S&P Capital IQ Premium Financials ................................................................................... 1
S&P Capital IQ Latest Financials ........................................................................................ 1
History ................................................................................................................................. 2
Company Populations / Universes ...................................................................................... 2
Delivery ...................................................................................................................................... 2
Data Sources ...................................................................................................................... 2
Languages .......................................................................................................................... 3
Data Collection Process ............................................................................................................ 3
Sourcing .............................................................................................................................. 3
Document Processing ......................................................................................................... 3
Quality Assurance ............................................................................................................... 4
Financial Periods ....................................................................................................................... 6
Fiscal Years ........................................................................................................................ 7
Fiscal Year Changes ........................................................................................................... 7
Fiscal Quarters .................................................................................................................... 7
Quarterly Cash Flow Statements ........................................................................................ 7
Fourth Quarter Non-Press Release Periods ....................................................................... 7
Restated Quarters and YTD results .................................................................................... 7
Synthetic Quarters .............................................................................................................. 8
Calendar Years ................................................................................................................... 8
Calendar Quarters ............................................................................................................... 8
Last Twelve Months (LTM).................................................................................................. 8
Calculation Types ................................................................................................................ 8
Changes in Financial Position ................................................................................................... 9
Corporate Actions ............................................................................................................... 9
Mergers and Acquisitions .................................................................................................... 9
Simple Purchase Acquisition ...................................................................................... 10
Reverse Purchase Acquisition.................................................................................... 10
Discontinued Operations ................................................................................................... 10
How does S&P Capital IQ present financial data? ........................................................... 13
Does S&P Capital IQ make adjustments for non-recurring items based on charges on financial
statements and in the footnotes? ...................................................................................... 13
How Does S&P Capital IQ Handle Regional Reporting Variations? ................................. 14
Presentation................................................................................................................ 14
Classification............................................................................................................... 14
How does S&P Capital IQ calculate and present Diluted EPS? ....................................... 15
How does S&P Capital IQ define EBIT? ........................................................................... 15
What is the difference between the various EBIT values that S&P Capital IQ provides? 15
How does S&P Capital IQ define EBITDA? ...................................................................... 16
How does S&P Capital IQ calculate Total Enterprise Value? ........................................... 16
How does S&P Capital IQ define Levered and Unlevered Free Cash Flow? ................... 17
What share count(s) does S&P Capital IQ provide? ......................................................... 17
Does S&P Capital IQ provide Diluted Shares Outstanding? ............................................ 18
How does S&P Capital IQ calculate Float %? .................................................................. 18
How does S&P Capital IQ calculate the Dividend Adjusted Stock Price? ........................ 18
How does S&P Capital IQ calculate Betas? ..................................................................... 18
What is the Altman Z Score? ............................................................................................ 18
Revision History ....................................................................................................................... 21
 S&P Capital IQ Financials Methodology

Introduction to S&P Capital IQ Data

S&P Capital IQ provides extensive financial and non-financial data sets to help clients
enhance their proprietary analytics, backtest their investment thesis, populate financial
models, analyze portfolios, and support financial portals, CRM systems, and other
integral business applications. Our clients value S&P Capital IQ’s data for its breadth,
depth, accuracy, timeliness, and ease of integration.
S&P Capital IQ data includes the industry’s most detailed financial fundamentals for
public companies, private company data, estimates, M&A and financing transactions,
news-based key developments, public and private company backgrounds, officers and
directors, and corporate relationships.

S&P Capital IQ Premium Financials

S&P Capital IQ Premium Financials provides a comprehensive backtesting database with
reporting history for approximately 95,000 global companies. Premium Financials allows
you to extend the scope of your historical analysis and backtesting models with annual,
quarterly, and year-to-date data captured from preliminary and final source updates.
Premium Financials captures all instances of a company’s press releases, original filings
and all subsequent filings. Since this history is saved for daily for all companies, true “as
of” information can be captured to see what numbers were available at any point in time.

S&P Capital IQ Latest Financials

S&P Capital IQ’s Latest Financials delivers the latest instance for each period historically,
whether from press releases, originally reported sources, or the latest restatement.
Annual, quarterly, semi-annual, last twelve month (LTM), and year-to-date data is
delivered for each available period.
Latest Financials provides a high-quality standardized financials database that eliminates
the need to sort through multiple restatements for a financial period, allowing financial
data to be viewed on a consistent basis.

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S&P Capital IQ Financials Methodology

History
History dates back to the early 1990s for US companies and varies by region for
companies outside the United States:
Europe: 1996
Asia-Pacific: 1998
Middle East and Africa: 1999
Latin America and Caribbean: 1996
Canada: 1996

Company Populations / Universes

S&P Capital IQ Financials data is available for various company populations:
All Companies data
All global public companies and private companies with public debt or companies
that have filed at some point with the SEC
All US Public Companies and Major Exchange ADRs data
Exchanges include AMEX, NYSE and NASDAQ National
All North American Public Companies, ADRs and other filers
Other filers include private companies with public debt or companies that have
filed at some point with the SEC
All Non-North American Public Companies
Includes only international public companies

Delivery
S&P Capital IQ Financials data is delivered by Xpressfeed for easy data loading and
maintenance and for quick, seamless integration with all S&P Capital IQ and Compustat
data packages as well as third party data from vendors such as Russell, MSCI and
Thomson.
The Xpressfeed Loader generates the database schema and structure, and loads S&P
Capital IQ Financials data as a set of tables with primary key relationships. The
underlying “one-delimited file per table” structure enables fast bulk-loading of the data.
Xpressfeed also automates the daily updates of Financials data to keep the database up
to date.
S&P Capital IQ data is delivered in two types of files: Full History files and Update files.
Full History files contain a complete data set that is updated weekly.
Update files contain the database updates that have occurred since the Full
History files were produced.

Data Sources
S&P Capital IQ collects data from:
Publicly Available Sources: S&P Capital IQ collects data from all publicly
available sources including regulatory agencies, company websites, exchange
websites and news agencies.

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 Methodology

Company Contacts: S&P Capital IQ maintains an active file of contacts with

various corporations, including numerous private investment firms. These
contacts allow us to obtain and clarify information not available in shareholders’
reports.
FT Interactive Data: Information includes global prices, dividends, shares-
traded, currencies, adjustment factor data and tickers, as well as corporate action
content including CUSIPs, ISINs and SEDOLs.

Languages
S&P Capital IQ currently translates documents from over 30 languages including: Arabic,
Bahasa, Chinese, Czech, Danish, Dutch, Finish, French, German, Greek, Hebrew,
Hungarian, Italian, Japanese, Korean, Latvian, Norwegian, Polish, Portuguese,
Romanian, Russian, Slovak, Slovenian, Spanish, Swedish, and Thai. We are actively
expanding our translation capabilities; please contact your account team for the current
list.

Data Collection Process

Collection can be separated into three phases: sourcing, processing and quality
assurance.

Sourcing
In the sourcing stage, S&P Capital IQ acquires documents from multiple sources
including feeds from the SEC, SEDAR, ASX and RNS, exchange websites, news
agencies (e.g., Lexis-Nexis and Dow-Jones) and company websites. Our web crawlers
search for the latest documents on all major global exchange websites, ensuring both
timely and complete sourcing. In addition to sourcing English language documents, a
team of linguists—assisted by custom translation software— translate the main tables,
MD&A, segment and capital structure data to English from over 30 languages (Note:
industry specific data is currently only collected for English filers.) While documents may
be translated, all data is collected and presented in the document’s native currency.

Document Processing
The processing phase of collection is a two-step process. First, the financial statement
tables in a document are processed using proprietary software that ensures a timely
collection by analyzing documents algorithmically. In the second step, analysts verify the
initial collection, classify any unrecognized line items, search for additional disclosure in
the notes, and identify unusual items. Analysts focus on the Income Statement, Balance
Sheet, Cash Flow Statement, share and per share data and supplemental data (e.g.,
capital structure, pension and industry specific metrics).
Analysts utilize two approaches to break out one time charges such as litigation charges,
merger and restructuring expenses, gains and losses on sales of assets and
investments, as well as other unusual items in the MD&A and the notes. By running these
two processes in parallel, S&P Capital IQ ensures that our dataset provides all the
necessary information to analyze your subject company on a normalized basis. All
unusual items are broken out of the main statement line items and tagged individually.
New filings are processed by our financial analysts in approximately two to seven
business days.
S&P Capital IQ’s supplemental dataset is unrivaled by our competitors in both breadth
and scale of operations, ensuring a more complete and timelier collection. Analysts
concentrate either on an industry (e.g., Airlines, Oil & Gas, Cable, Wireless and Telecom,

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S&P Capital IQ Financials Methodology

Real Estate and twelve other industries) or data set (e.g., business and geographic
segments, pension and OPEB data, options and warrants, etc.).

Quality Assurance
The data collection process includes four separate levels of pre-standardization quality
assurance checks that occur once analysts have completed their work. The first level of
checks occurs at the document/statement level. Software tally checks prevent analysts
from committing non-balancing statement data to the database in addition to ensuring the
line item tags applied are consistent with the statements in which they are typically found.
The second phase of the QA process covers a wide range of potential inconsistencies in
the data within the processed document as well as across historical documents for the
same company. In this stage, among other potential collection errors, the checks identify
spikes and dips in line item values, wrongly-tagged data, incorrect units, reversed signs
and compare disclosure and collection patterns across periods. Within the first two QA
stages, over 9,300 automated checks are run against the full list of data item tags.
In the third phase of the QA process, collection team leaders randomly sample
production documents and perform a thorough review of the data collected from a
document. Team leaders currently sample approximately 10% of all production
documents. In addition to the checks described above, the QA process also focuses on
the work of individual analysts through an external QA team. This team operates
separately from the collection teams and randomly samples the work of individual
analysts. All errors generated are validated and corrected by a team of analysts separate
from the team that originally collected the data. Once all checks are cleared, the raw data
is committed to the database and ready for standardization.
Once a document is processed and all errors are cleared, S&P Capital IQ runs a series of
SQL-based procedures on the as-reported database and applies analytical rules and
logic to convert a data set that reflects various levels of detail and disclosure into a
uniform standardized data set. Standardized S&P Capital IQ data can then be used in a
meaningful cross-period or cross-company analysis, trading comparable analysis, or
screening.

Industry-Specific Templates
The standardized financial statement data is presented in seven industry-specific
templates with a layout corresponding to reporting practices and patterns accepted by
financial analysts in North America and most of the investment community:
Standard/(Industrial), Banks, Brokerage, Financial Services, Insurance, Real Estate and
Utility. While some line items may overlap across templates, in most cases they have a
unique composition and mapping structure made possible by the depth of the as-reported
data in Premium Financials.

Ensuring Comparability and Consistency

Standardization ensures consistency in presentation across regions, such as the
conversion of direct method cash flow statements into indirect method cash flow
statements and the rearrangement of balance sheet presentations. Rather than using
inconsistently reported values, S&P Capital IQ calculates and normalizes interpretable
items (such as Total Enterprise Value, EBIT, EBITDA and others), utilizing the same
formula for all companies, thus ensuring the comparability and consistent availability of
these items. Subtotals and financial ratios are also normalized for consistent treatment:
standardization currently generates over 400 uniform, template-specific financial ratios
such as margins, short-term liquidity, long-term solvency and growth ratios.

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 Methodology

Calculated Financial Periods

During the standardization process, S&P Capital IQ also creates financial periods and
restatements that are usually not explicitly reported by companies. Examples of created
periods are non-press release Q4s, quarterly cash flow statements, last twelve month
(LTM) financials, calendar years (inconsistent with fiscal year patterns) and annualized
stub periods, often reported after a fiscal year change.
Non-Press Release Q4s: While S&P Capital IQ collects Q4 financials included in a
press release, we also calculate additional instances based on the difference of the
annual financials from a 10-K or an annual report and the preceding nine month YTD
financials.
Quarterly Cash Flow Periods: S&P Capital IQ calculates quarterly cash flow
statements for Q2, Q3 & Q4 as the difference between the current period YTD value
and that of the prior YTD.
LTM Periods: S&P Capital IQ calculates LTMs by adding the difference between the
financials from an YTD period and the corresponding YTD period from the prior year,
to the financials from the most recently completed fiscal year.

Calendar Years: In most cases a company’s Calendar and Fiscal Years will overlap.
In those cases where they do not, S&P Capital IQ considers the LTM period with a
period end date falling in November, December or January to represent a Calendar
Year.

Annualized Stub Periods: When due to fiscal year changes, a company reports an
annual period of less than twelve months, S&P Capital IQ will generate an annual
period by annualizing the stub value.

Implicit Restatements and Reclassifications

In addition to restated or reclassified financials directly collected from filings, S&P Capital
IQ also calculates implicit restatements and reclassifications. For example, if key
subtotals from a reported Q2 YTD period do not foot to the corresponding items
calculated by subtracting a Q3 from a Q3 YTD period in a Q3 document, standardization
will generate a restated Q2 YTD equal to the delta of the Q3 YTD and Q3. Then, through
iteration, a new Q2 is created, using the delta of the restated Q2 YTD and the previously
reported Q1. Similar iteration is applied to Q2 documents and so forth. Such calculations
are quite frequent in the data set as companies often implicitly restate their unaudited
quarterly financials throughout the course of a fiscal year.
When the audited annual financials are released we make sure that we “lock” the Q4 into
the annual through the Q4 calculation. At that point it is likely that through the above
calculations Q1-Q3 are also “locked”, and as long as financials are filed within the same
fiscal year, the sum of four quarters should generally foot to the annual. Restatements
and reclassifications of the respective quarters from subsequent filings, however, make it
very difficult to ensure that the latest instances of four quarters will be “locked” in, or sum
up, to the latest version of the corresponding annual.

Component Periods
In the S&P Capital IQ Premium Financials data set, it is important to understand the
relationship between a period and instances of that period. In most data sets, a financial
period will only have one instance of financials, often representing the latest available
data. In contrast, S&P Capital IQ collects each instance (or filing) of financials for a
financial period separately, giving you the opportunity to avoid forward bias by analyzing
only the data available as of a specific filing date.

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S&P Capital IQ Financials Methodology

The Premium Financials data set is maintained by applying the filing date of the initiator
document (the document with the highest filing date) to all of the calculated periods, and
ensuring the calculation only takes into account component periods filed prior to the
initiator document filing date. Additionally, to decrease the probability of corporate
structure or accounting changes affecting cross period calculations, S&P Capital IQ only
considers component periods filed within 15 months of each other. This rule is best
illustrated with the Q4 calculation: while most companies generally file quarterly or interim
financials for the same period twice, annual financials for the same period are often filed
in more than two distinct documents. Therefore, we often run into situations where we
could calculate an orphaned Q4 based on an annual and 9 month YTD filed more than a
year apart. In the majority of such cases, corporate structure and accounting changes as
well as further restatements and reclassifications only accounted for in the annual but not
in the 9 month YTD result in misleading quarterly data.
For example, Wal-Mart Stores Inc. has four instances of its FY2005 ending January 31,
2005 and five instances of the 9M YTD period ending October 31, 2004. The original
instance of the FY2005 annual was filed March 31, 2005 while the latest, reclassified
instance was filed March 27, 2007. As noted above, in order to calculate a Q4 we require
a corresponding 9M YTD value filed prior to the filing date of the initiator document. The
latest 9M instance to meet this requirement for the March 27, 2007 annual was filed on
December 2, 2005. Had we used this instance to generate a Q4 as of January 31, 2005
we would have generated an instance with a meaningless revenue figure as a result of
the disposition in 2006 of their South Korea operations, which was only mentioned in the
March 27, 2007 document.

Restatement Types
In addition to calculating synthetic periods, we use analytical rules to apply restatement
types to the calculated instances. These are the restatement types we use to identify the
nature of a given instance as well as convey information regarding any potential
restatements or reclassifications in the data.
“P” “Preliminary”: Preliminary earnings release
“O” “Original”: Original company filing for a period
“NC” “No Change”: Appearing again in a later filing but unchanged from the
original, or not comparable due to different reporting currencies
“RD” “Reclassified for Disposal”: Reclassified for disposal of business or assets
“RS” “Restated”: Results are fundamentally different from the original, i.e., Net
Income, Retained Earnings or Cash from Operations differ
“RC” “Reclassified”: Figures are somewhat different from original, but the bottom
line results are the same
“DO” “Discontinued Operations”: Statement not calculated due to Discontinued
Operations disclosed in the higher component period.

Financial Periods
In order to present a complete and up-to-date picture of a company’s financial
statements, S&P Capital IQ generates additional periods not explicitly reported by the
companies. Examples of generated periods are: annualized stub periods, quarterly cash
flow statements, non-press release Q4s, implicitly restated periods, synthetic quarters for
interim filers, last twelve month (“LTM”) financials, calendar years (inconsistent with fiscal
year patterns) and calendar quarters.

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 Methodology

Fiscal Years
S&P Capital IQ standardizes fiscal years for comparability across companies; a
company’s fiscal year corresponds to the calendar year end of its fourth quarter. In the
Premium Financials data set, any company with a fiscal year end date following Jan 15th
will be labeled as having completed its fiscal year in that calendar year. However, if the
period end date of the fiscal year is prior to January 15th, the company will be labeled as
having completed the fiscal year in the prior calendar year. For example, Wal-Mart’s
fiscal year end (FYE) was on January 30, 2009, and as such they completed their 2009
Fiscal Year.

Fiscal Year Changes

At times, when a company changes its fiscal year, stub financials are reported, where the
number of months does not equal 12. In such cases, S&P Capital IQ will annualize the
stub period and present a calculated fiscal year.

Fiscal Quarters
A fiscal quarter end date is determined by the day the particular period ends on. If the
period end date is greater than or equal to the 15th of the current month, the period end
date is set to the last day of the current month, while if the period end date is prior to the
15th, the period end date is set to the last day of the prior month.
In some situations, S&P Capital IQ will calculate a quarterly period based on the
difference between two consecutive year-to-date periods. All quarterly cash flow, fourth
quarter non-press release income statement periods and generated restated or
reclassified financial periods are calculated according to that logic. In addition, S&P
Capital IQ will generate fiscal quarters for semi-annual filers.

Quarterly Cash Flow Statements

With the exception of the first quarter of each fiscal year, companies generally report
Cash Flow Statements on a year-to-date (YTD) rather than a quarterly basis. In order to
present reliable quarterly cash flow statements, S&P Capital IQ calculates the difference
between two consecutive YTD periods. For example, the quarterly cash flow statement
for Q3 will be the difference between the YTD cash flow in Q3 less the YTD cash flow in
Q2.

Fourth Quarter Non-Press Release Periods

In most instances, a company will report quarterly or interim financials, with the notable
exception of the fourth quarter. In most cases, income statements for this period will only
be presented in the preliminary results or in a summarized data table not detailed enough
for a comprehensive statement. In these cases, S&P Capital IQ will calculate a Q4
income statement by using the same logic as the quarterly cash flow statements
calculation: S&P Capital IQ will subtract the Q3 YTD financials from the full year
financials to generate an Income Statement for Q4.

Restated Quarters and YTD results

S&P Capital IQ presents restated and reclassified quarterly and YTD financial results.
These instances are not only sourced directly from the back columns of the financial
statements, but also obtained by calculating quarter and YTD instances. For example, if a
1
company reports quarterly and YTD results in their Q2 filing that are not comparable with

1
Capital IQ compares certain metrics on the income statement such as Revenues, Operating Profit and Net Income to establish if a restatement or
a reclassification is needed.

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S&P Capital IQ Financials Methodology

the results the company reported for Q1 in their Q1 filings, S&P Capital IQ will recalculate
Q1 based on the difference between the 6 months YTD number and the 3 month Q2
number. When we look at an equivalent situation in a Q3 filing, new Q2 YTD instances
can be calculated, which in turn can lead to the calculation of additional Q1s and so on.

Synthetic Quarters
In the case of semiannual filers, S&P Capital IQ generates synthetic quarterly data by
splitting in two the interim 6 month period and the difference between the annual 12
month and the interim 6 month periods. For example, once filed, the semiannual period
generates Q1 and Q2 and the annual period generates Q3 and Q4. Consequently, Q1
and Q3 generate YTD periods by mapping Q1 to YTD Q1 and adding Q3 to the
semiannual period to generate YTD Q3.

Calendar Years
In most cases a company’s calendar year will align with their fiscal year (the fiscal year
ends prior to January 15th). However, in some instances S&P Capital IQ will define a
company’s calendar year financials as the calculated LTM value with a period end date in
November, December or January.
Please see the section on “Last Twelve Months (LTM)” for more information on the LTM
calculation.

Calendar Quarters
In most cases a company’s calendar quarters will align with its fiscal quarters. However,
when this is not the case, calendar quarters are defined by the month in which the period
ends, as follows:
• CQ1: is defined as the fiscal quarter ending in February, March or April
• CQ2: is defined as the fiscal quarter ending in May, June or July
• CQ3: is defined as the fiscal quarter ending in August, September or October
• CQ4: is defined as the fiscal quarter ending in November, December or January.

Last Twelve Months (LTM)

S&P Capital IQ aims to incorporate the most recently available information in the LTM
metric. As quarterly and interim results are usually unaudited, companies often restate
reported data from filing to filing throughout the year; therefore, we do not calculate an
LTM value by summing four consecutive quarters of data. Instead, we calculate LTM
financials for a particular period end date by adding the difference of the financials from
the year-to-date period on that date and the corresponding year-to-date period from the
prior year to the financials from the most recently completed fiscal year as of that date.
As a result, often the calculated LTM metric will not add up to the sum of four consecutive
quarters, even when S&P Capital IQ compares fiscal year results with the results from
four reported quarters. While LTMs are used to represent Calendar Years, they are
calculated and available for every fiscal quarter.

Calculation Types
S&P Capital IQ provides 13 instance-level calculation types that provide further
transparency regarding the S&P Capital IQ standardization process.
REP – As reported data.
LTM – Latest twelve months [YTD + Annual – Prior Year YTD]

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 Methodology

Q4 – Fourth quarter [Annual – 9 Month YTD]

INTQ – Quarterly period calculated based on Interim [Interim / 2]
AINTQ – Quarterly period calculated based on Annual and Interim [(Annual –
Interim) / 2]
RSQ – Restated quarter calculated using a year-to-date and a quarter from the same
filing [YTD (T + 1) – Q(T + 1)]
YTDQ – Year-to-date based on sum of quarters [SUM (Qs)]
RSYTD – Restated year-to-date calculated using a year-to-date and a quarter from
the same filing [YTD – Q]
INTYTD – Year-to-date based on interim and quarter [Interim + Q]
ANNU – Annualized period based on stub period [Annual * Percent of Annual
Period]
ANNUQ – Annualized period from quarters + stub period [Qs + Factored Stub
Period]
RUPQ – Rolled up quarter [Previous quarterly instance]
YTDQS – Quarterly period based on two consecutive year-to-date periods [YTD(T) –
YTD(T - 1)]

Changes in Financial Position

Corporate Actions
The companyId is a unique identifier assigned to each issuer/company in the S&P Capital
IQ database. The companyId is a string of integers that is consistent throughout time and
is never reused once it has been assigned. In the case of corporate actions affecting the
issuer, one of the following two scenarios applies:
1. If a transaction occurs creating a new issuer from two existing, a new unique
companyId will be assigned to the new entity and the two original companyIds
will become inactive and will be added to our dead company database.
2. If the transaction involves a surviving issuer, the issuer will retain the existing
companyId and the other party’s companyId will be added to the dead company
database.

Mergers and Acquisitions

The two basic methods of accounting for mergers and acquisitions are the purchase
method and the pooling of interest method. (Per SFAS 141, U.S. companies can no
longer use the Pooling of Interest method for acquisitions initiated after 6/30/01.) A
purchase acquisition accounts for the acquired company on the financial statements only
from the date of the acquisition. A pooling of interest acquisition combines the financial
statements of both the acquiring company and the acquired company for all periods
presented in the report.
S&P Capital IQ’s treatment of mergers and acquisitions seeks to preserve historical
company data for the acquiring company whenever possible. If the acquiring company is
not in the S&P Capital IQ population, a new company will be added to the database with
history from the point of acquisition. The acquired company becomes inactive in the S&P
Capital IQ database the month following the merger or acquisition. During the last month
the acquired company is considered “active,” the last financial statement(s) filed is added

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S&P Capital IQ Financials Methodology

to the database. Once all the fundamental data has been updated, the company is
considered inactive and additional financial data is no longer collected.
S&P Capital IQ uses the following guidelines to determine survivorship for acquisitions
and mergers:

Simple Purchase Acquisition

In a simple purchase acquisition, the acquiring company is the survivor. The financial
history of the resulting company reflects the acquiring company’s history. Generally, there
are no identifier changes.

Reverse Purchase Acquisition

In a reverse purchase acquisition, the acquired company is the survivor and the resulting
company will continue with the acquired company’s name and financial history. In most
cases, the management of the companies involved will designate the accounting
survivor.

Discontinued Operations
There are instances in S&P Capital IQ’s financial data where a period on the Income
Statement or the Cash Flow Statement is tagged with statementRestatementTypeId 12
(DO), noting that the period was not calculated due to Discontinued Operations (DO).
As noted in previous sections, S&P Capital IQ generates a significant amount of
additional data by combining financials from more than one statement into a single period
or instance of a period. This process is done in accordance with a number of rules and

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 Methodology

logic that ensure comparability across the universe. The DO rule ensures S&P Capital IQ
does not calculate an instance of a financial period when the later YTD instance used in
the calculation contains discontinued operations items while the earlier YTD period does
not. There are no exceptions to this rule.
The DO rule exists as it is difficult to present an accurate calculated quarter or YTD
period when the later instance discloses a DO and the earlier instance does not. There is
usually no way to break up the single DO line item present on the income statement or
the cash flow statement from the later instance into the standard line items contained in
that statement. Although DO usually represents a small percentage of a company’s
continuing operations it may also represent a significant share of a company’s business.
In this case, a calculation of a period without the DO Rule may result in non-meaningful
data such as negative revenues or positive expenses. Even in cases of relatively
insignificant DO, we still prefer to allow users to make their own assumptions about this
item and the impact it has on the company’s financials in the given period.

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S&P Capital IQ Financials Methodology

Notes:

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 Frequently Asked Questions

How does S&P Capital IQ present financial data?

S&P Capital IQ organizes data for the main financial statements (Income
Statement/Balance Sheet/Cash Flow) along seven industry formats:
Standard/(Industrial), Bank, Brokerage, Financial Services, Insurance, Utility, and Real
Estate. Each of these formats follows the predominant reporting patterns for companies
in these industries.
In addition to main statement data, S&P Capital IQ provides a set of memo items
collected in the footnotes that complement the financial statements but may not
necessarily in the balancing model.
Also available across all formats are the following general supplemental data sets:
• Reported Business and Geography Segment Data
• Options and Warrants
• Pension and OPEB
• Loss Carry Forward Data
• Debt and Equity Capital Structure Data

Does S&P Capital IQ make adjustments for non-recurring items based on

charges on financial statements and in the footnotes?
Yes, we adjust certain calculated items to normalize for non-recurring expenses and
income. EBT, EBIT and EBITDA and related valuation and leverage multiples are
examples of items that are adjusted based on statement and footnote level disclosure.
Items that are based on footnote level disclosure not seen on statements are called
“breakups.”

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S&P Capital IQ Financials Methodology

How Does S&P Capital IQ Handle Regional Reporting Variations?

Over the past few years, accounting standards around the world have been converging to
a degree where discrepancies across different countries are much less prominent than
before. In an attempt to address and attract a broader investor audience, many countries
and companies either adopt International Financial Reporting Standards (IFRS) or
introduce new accounting guidelines and regulations that bring local GAAPs closer to full
convergence with US GAAP or IFRS, which have emerged as the predominant
standards. FASB and IASB are the leading authorities on new accounting and reporting
requirements. Other accounting agencies usually follow closely the guidelines published
by these two boards.
Where discrepancies exist, S&P Capital IQ usually classifies them in two broad
categories:

Presentation
The organization of financial statements may vary across different accounting standards:
for example, U.S. companies present the current components of a classified balance
sheet above non-current components, while other countries present non-current
components above current components. Other differences include the presentation of
current assets net of current liabilities, showing a direct method cash flow statement
versus indirect, etc. Such presentation differences have no direct impact on the bottom
line and although S&P Capital IQ’s seven industry templates follow presentation practices
adopted in the U.S., International users can easily rearrange statement components to
present financial statements in the format they prefer. In that sense, while S&P Capital IQ
“adjusts” various presentations to fit the U.S. presentation pattern, such adjustments can
be easily undone and templates can be rearranged. Please note that this is not a
reclassification from one accounting standard to another per se but simply rearranging
rolled up reported line items into preset S&P Capital IQ templates.

Classification
Despite the ongoing convergence of accounting standards, certain general ledger entries
can still be classified and incorporated into financial reports differently across different
GAAPs. Such classifications are done by internal accounting professionals and
independent auditors and there is usually little visibility into these practices. As a result,
there is very little S&P Capital IQ or any analyst can do to remove discrepancies of this
nature. If different accounting standards treat different items as components of revenues,
for example, without further breakdown of revenues, analysts will have to take such
discrepancies into account in their analysis.
There are several cases in which the type of discrepancy, availability of detailed data and
consistency of disclosure enable S&P Capital IQ to make adjustments to reported data.
Such cases are the exception rather than the rule and below are some examples to
illustrate this.
• Preferred Shares in Brazil and Germany: Although formally classified as
preferred equity shares, Brazilian and German preference shares display the
features of common equity, i.e., they participate in earning distribution, have
voting rights, etc. As a result S&P Capital IQ prefers to treat those shares as
common equity. This treatment is taken into consideration in the presentation of
Income and Balance Sheet Statements as well as EV and Market Cap
calculations.
• Pension related expenses: Neither FASB nor IASB has issued a specific
guideline on the disclosure of pension expenses on the Income Statement. U.K.
companies tend to combine pension expenses along with other financial costs,

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 FAQs

while S&P Capital IQ prefers to treat those separately as compensation expense.

The consistency of disclosure and level of detail allows S&P Capital IQ to
reclassify such expenses on a consistent basis for U.K. companies.
When it comes to information that is presented to the public, S&P Capital IQ follows the
same rules for identical line items irrespective of the GAAP adopted. In that sense, S&P
Capital IQ’s treatment of different accounting standards makes it possible for analysts to
compare financials across the board. If S&P Capital IQ had different rules for each
GAAP, then financials would be less comparable in the database.

How does S&P Capital IQ calculate and present Diluted EPS?

S&P Capital IQ calculates Diluted EPS by dividing Diluted Net Income(Net Income
Available to Common Shareholders adjusted for the effect of the dilution of potentially
dilutive securities such as convertible debt or convertible preferred stock securities for a
particular period) by Diluted Weighted Average Shares Outstanding over that period. The
values for both Basic EPS and Diluted EPS are eventually presented according to GAAP
and as reported by the company. In periods where a company reports negative Net
Income the presentation of Diluted EPS is immaterial and therefore Diluted EPS assumes
the value of Basic EPS.

How does S&P Capital IQ define EBIT?

EBIT (Earnings Before Interest & Taxes) is calculated using Operating Income
normalized for unusual items such as merger/restructuring charges, gain/losses related
to legal settlements and non-recurring gain/losses on the sale or write-down of assets. It
also excludes items classified by S&P Capital IQ as non-operating income or charges.
Users should keep in mind that EBIT is a measure that is most applicable to non-financial
firms, as interest expense is an operating expense for Financial Services firms.
Therefore, EBIT is not available for companies in the Banks, Brokerage and Financial
Services formats in S&P Capital IQ. Caution is advised when using this measure to
evaluate Conglomerates or other large firms with captive Financing Divisions.

What is the difference between the various EBIT values that S&P Capital IQ
provides?
In addition to the EBIT values defined above, S&P Capital IQ calculates an alternative
EBIT used in the calculation of trading multiples This EBIT calculation, EBIT Incl. Equity
Income from Affiliates, is adjusted for Income from Equity Method investments and is a
component of all of our TEV/EBIT and TEV/EBITDA multiples. The TEV values that S&P
Capital IQ calculates include the book value of equity method investments, and in order
to account for the income or loss from these investments we adjust EBIT accordingly. For
more on TEV refer to the FAQ “How Does S&P Capital IQ CalculateTotal Enterprise
Value?” This variety of EBIT is used exclusively for calculation of multiples and is not
used in any other EBIT ratio calculation or presentation of EBIT.
S&P Capital IQ has created two additional supplementary versions of EBIT adjusted for
Stock Based Compensation, which is included as an expense in Operating Income: EBIT
(Excl. Stock-Based Comp.) and EBIT (Excl. Stock Based Comp and Incl. Equity from
Affiliates). S&P Capital IQ adds Stock Based Compensation back to these two EBIT
values for better comparability since historically some companies chose to expense
Stock Based Compensation on their Income Statements and others did not and also for
comparability of periods before and after the adoption of SFAS 123R.
Historically, S&P Capital IQ used to calculate EBIT by adding back Stock Based
Compensation but after the adoption of SFAS 123R this adjustment became irrelevant.

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S&P Capital IQ Financials Methodology

Therefore we are now only adding back Stock Based Compensation to the two
supplementary EBIT values labeled as "Excl. Stock Based Comp."
The four values of EBIT discussed above are used to calculate additional EBIT based
items such as EBITA, EBITDA, and EBITDAR. Therefore, these three items are also
calculated, presented and used in four different varieties similar to EBIT as discussed
above.

How does S&P Capital IQ define EBITDA?

S&P Capital IQ calculates EBITDA (Earnings Before Interest, Taxes, Depreciation &
Amortization) by adding the Total Depreciation & Amortization found on a company's
standardized Statement of Cash Flows to the value calculated for EBIT (see definition of
the different varieties of EBIT above). When a value for D&A is not available for any
reason, S&P Capital IQ will estimate current period D&A by a) using a value for D&A from
an earlier instance of the same period, b) using a D&A value from the current or the
previous quarter adjusted for the length of the period, c) using the most recently available
annual D&A value, adjusted for the length of the period; or, d) using the value for D&A on
the Income Statement for the same instance and period. If none of these options are
available, S&P Capital IQ will not estimate EBITDA for the current period and EBITDA will
be null.

How does S&P Capital IQ calculate Total Enterprise Value?

Total Enterprise Value (TEV) represents the cash-less value of a firm as an asset. In
theory, this should be equal to the present value of expected cash flows discounted at the
Weighted Average Cost of Capital (WACC). These cash flows are un-levered and
available to all suppliers of capital.
S&P Capital IQ does not adjust TEV for the book value of non-consolidated long-term
investments recorded using the equity method.
For companies in our Standard, REIT and Utility formats S&P Capital IQ calculates Total
Enterprise Value as:
Market Capitalization
+ Book Value of Total Debt
+ Book Value of Preferred Stock
+ Book Value of Minority Interest
- Cash & Short Term Investments
For Insurance companies, S&P Capital IQ calculates Total Enterprise Value as:
Market Capitalization
+ Book Value of Total Debt
+ Book Value of Preferred Stock
+ Book Value of Minority Interest
- Cash & Equivalents
As most of the Short Term Investments of an Insurance company are operating assets
we exclude them from the TEV calculation. S&P Capital IQ does not calculate TEV for
Banks, Brokers or Financial Services companies as most of the inputs used in a TEV
calculation represent operating and not financial assets and liabilities for these
companies.
When a company has issued an earnings press release without a balance sheet for a
particular period, S&P Capital IQ will use balance sheet components from the previous
period to calculate TEV until a detailed balance sheet is released for that given period.

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 FAQs

How does S&P Capital IQ define Levered and Unlevered Free Cash Flow?
Free Cash Flow (FCF) is a normalized measure of the net cash flows generated by a
company's operating, investing and financing activities that can be distributed to common
equity, debt, and preferred equity holders. Levered FCF measures the discretionary net
cash flows a company can distribute to its shareholders after it meets its interest payment
and tax obligations, while Unlevered FCF assumes that the company has no immediate
interest payments to cover.
S&P Capital IQ calculates Levered Free Cash Flow as follows:
EBIT * (1-37.5%)
- Interest Expense * (1-37.5%)
+ Depreciation & Amortization, Total
+ Other Amortization
+ Sale/(Purchase) of Intangible Assets
- Capital Expenditure
- Change of Net Working Capital
= Levered Free Cash Flow
S&P Capital IQ calculates Unlevered Free Cash Flow as follows:
EBIT * (1-37.5%)
+ Depreciation & Amortization, Total
+ Other Amortization
+ Sale/(Purchase) of Intangible Assets
- Capital Expenditure
- Change in Net Working Capital
= Unlevered Free Cash Flow
To estimate cash outflows associated with tax obligations, S&P Capital IQ applies a
statutory tax rate of 37.5% for all companies across the board. We realize that a lot of
companies outside the United States are subject to different tax regulations and rates
and the tax rate we are using in the formulas above is only a proxy and an estimate.
Caution is advised when an in-depth free cash flow analysis is required.

What share count(s) does S&P Capital IQ provide?

For each balance sheet, S&P Capital IQ provides two share counts: shares outstanding
as of the filing date and as of the date of the balance sheet for all classes of common
shares outstanding. For each Income Statement period, S&P Capital IQ provides both a
Basic and a Diluted Weighted-Average share count. These Income Statement share
counts are used to calculate EPS and Historical Market Caps in Average Historical
Multiples. These share counts are disclosed by the companies in their SEC filings and
S&P Capital IQ updates these figures to account for all stock splits.
For the purpose of calculating latest Market Capitalization, S&P Capital IQ also provides
a share count that represents an estimate for currently outstanding shares. In the cases
of North American companies with a single class of traded stock, this share count takes
into account corporate actions, such as stock issued as consideration in M&A
transactions that have occurred since the latest period end date. In the cases of
international companies or companies with multiple classes of common stock, this share
count is an aggregate of all classes of shares shown on a primary class equivalent basis.
For companies that we deem the primary traded stock as an exchange-listed ADR
(American Depository Receipt), we show all share and per share items on an ADR
equivalent basis. S&P Capital IQ provides the ADR Factor indicating the relationship
between the ADR and Actual Common Shares Outstanding in the home country.

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S&P Capital IQ Financials Methodology

Does S&P Capital IQ provide Diluted Shares Outstanding?

To properly estimate diluted shares outstanding on any given day requires detailed
information on convertible securities, employee options outstanding and other potentially
dilutive securities that S&P Capital IQ currently does not collect. We are always working
on ways to enhance the product and will make such an estimate available when we have
the data to make the proper calculation. If a company had positive earnings in the latest
fiscal quarter and has not made any significant changes to its equity capital structure
since filing its last 10-Q, the value for Weighted-Average Diluted Shares Outstanding
found on the latest Quarterly Income Statement is the best proxy for this value short of
your own estimation/calculation.

How does S&P Capital IQ calculate Float %?

S&P Capital IQ collects data on the holdings of Insider, 5% and Strategic shareholders
from annual reports and DEF14A proxy forms. The combined number of these holdings is
subtracted from the company's total number of shares outstanding and the result,
presented as a percentage of total common shares outstanding, is the company's Float
%. Presently, annual reports and DEF14A proxy forms are our only source for this
information and therefore the number of shares outstanding in the free float is only
updated annually.

How does S&P Capital IQ calculate the Dividend Adjusted Stock Price?
S&P Capital IQ adjusts the close price on the day prior to the Ex-Dividend date by
subtracting the percentage amount of the dividend as follows:
(1-(Div. Amount (t)/Close Price (t-1)), where (t) is the Ex-Dividend date and (t-1) is the
trading day prior to that date.
The dividend adjustment factor is cumulative and applies to all historical stock price data.
S&P Capital IQ does not adjust stock prices for stock dividends or spin-offs.

How does S&P Capital IQ calculate Betas?

S&P Capital IQ's levered unadjusted betas are derived from a least squares regression
analysis using stock and benchmark index returns based on a monthly or weekly
frequency and over a given period of time:
5 Year Betas: monthly returns over a five year period
2 Year Betas: weekly returns over a two year period
1 Year Betas: weekly returns over a one year period
S&P Capital IQ uses four different benchmark indices to better estimate a stock's volatility
against a respective market: the S&P 500 for all US stocks, the S&P/TSX index for all
Canadian Stocks, and the MSCI EAFE (Developed Markets) and MSCI Emerging
Markets for all other international stocks.
The MSCI EAFE (Developed Markets) index includes equities from the following
countries: Japan, UK, France, Switzerland, Germany, Australia, Italy, Spain, Netherlands,
Sweden, Hong Kong, Finland, Belgium, Singapore, Denmark, Ireland, Norway, Greece,
Austria, Portugal, New Zealand.

What is the Altman Z Score?

The Altman Z Score is a multi-variable metric that has been empirically shown to be an
accurate indicator of future bankruptcy for large manufacturing firms. It is not a relevant
metric for Financial or Insurance firms.
It is calculated as follows:

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 FAQs

Cutoffs:
Z < 1.81 (high risk of bankruptcy)
Z > 3.00 (low risk)
1.81 < Z < 3.00 ("gray area")

19
 Revision History
The changes made to this document include the following:
Table 1. Revision History

Version Date Changes

1.0 01/14/2011 Initial version

1.1 12/15/2011 Revised to include Premium Financials and Latest

Financials data set offerings
1.2 04/11/2012 Minor cosmetic and language revisions

1.3 08/15/2012 Updated to reflect branding changes

1.4 09/26/2012 Minor cosmetic revisions

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