On December 13th, the SEC’s Division of Corporation Finance posted an update to Non-GAAP Financial Measures Compliance & Disclosure Interpretations Questions 100.01, 100.04, 100.05, 100.06, and 102.10(a)(b)(c). The questions and answers are the Division's interpretations of the rules and regulations on the use of non-GAAP financial measures.
The following non-GAAP Financial Measures Compliance & Disclosure Interpretations have been updated and/or expanded:
Section 100. General
Question 100.01: Can certain adjustments, although not explicitly prohibited, result in a non-GAAP measure that is misleading?
Question 100.04: Can a non-GAAP measure violate Rule 100(b) of Regulation G if the recognition and measurement principles used to calculate the measure are inconsistent with GAAP?
Question 100.05: Can a non-GAAP measure be misleading if it, and/or any adjustment made to the GAAP measure, is not appropriately labeled and clearly described?
Question 100.06: Can a non-GAAP measure be misleading, and violate Rule 100(b) of Regulation G, even if it is accompanied by disclosure about the nature and effect of each adjustment made to the most directly comparable GAAP measure?
Section 102. Item 10(e) of Regulation S-K
Question 102.10(a): Item 10(e)(1)(i)(A) of Regulation S-K requires that when a registrant presents a non-GAAP measure, it must present the most directly comparable GAAP measure with equal or greater prominence. This requirement applies to non-GAAP measures presented in documents filed with the SEC and also earnings releases furnished under Item 2.02 of Form 8-K. Are there examples of disclosures that would cause a non-GAAP measure to be more prominent?
Question 102.10(b): Are there examples of disclosures that would cause the non-GAAP reconciliation required by Item 10(e)(1)(i)(B) of Regulation S-K to give undue prominence to a non-GAAP measure?
Question 102.10(c): The staff considers the presentation of a non-GAAP income statement, alone or as part of the required non-GAAP reconciliation, as giving undue prominence to non-GAAP measures. What is considered to be a non-GAAP income statement?