{"id":1585,"date":"2019-10-16T13:31:18","date_gmt":"2019-10-16T17:31:18","guid":{"rendered":"https:\/\/seci.wpenginepowered.com\/?p=1585"},"modified":"2019-10-16T13:31:18","modified_gmt":"2019-10-16T17:31:18","slug":"is-it-nongaap-or-non-nongaap-part-one","status":"publish","type":"post","link":"https:\/\/seciblog.pli.edu\/index.php\/is-it-nongaap-or-non-nongaap-part-one\/","title":{"rendered":"Is it NonGAAP or Non-NonGAAP? \u2013 Part One"},"content":{"rendered":"

One frequently misunderstood aspect of the SEC\u2019s non-GAAP measure guidance is whether or not certain \u201coperational metrics\u201d such as same-store sales are non-GAAP measures.\u00a0 Here is an example SEC comment that raises this question:<\/p>\n

Item\u00a06. Selected Financial Data, page 52\u00a0<\/u><\/p>\n\n\n\n
 <\/td>\nIn your selected financial data and your results of operations discussion for your segments, you present certain amounts, such as \u201caverage realized price per metric ton of primary aluminum\u201d, \u201caverage cost per dry metric ton of bauxite\u201d, \u201caverage cost per metric ton of alumina\u201d and \u201caverage cost per metric ton of primary aluminum\u201d. Please disclose the numerators and denominators used to compute each amount and reconcile the numerators to amounts presented in your financial statements.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Are measures such as \u201caverage cost per dry metric ton of bauxite\u201d non-GAAP measures?\u00a0 The comment above leaves this question open.\u00a0 The starting point in researching whether such measures are non-GAAP measures is the definition of a non-GAAP measure in Reg G<\/a> and S-K Item 10(e)<\/a>.\u00a0 This is the definition from Reg G<\/a>:<\/p>\n

(a)(1)\u00a0Non-GAAP financial measure.<\/em>\u00a0A non-GAAP financial measure is a numerical measure of a registrant’s historical or future financial performance, financial position or cash flows that:<\/p>\n

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or<\/p>\n

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented.<\/p>\n

(2) A non-GAAP financial measure does not include operating and other financial measures and ratios or statistical measures calculated using exclusively one or both of:<\/p>\n

(i) Financial measures calculated in accordance with GAAP; and<\/p>\n

(ii) Operating measures or other measures that are not non-GAAP financial measures.<\/p>\n

(3) A non-GAAP financial measure does not include financial measures required to be disclosed by GAAP, Commission rules, or a system of regulation of a government or governmental authority or self-regulatory organization that is applicable to the registrant.<\/p>\n

(Note:\u00a0 The definitions in Reg G<\/a> and S-K Item 10(e)<\/a> are not exactly the same wording, but are substantially identical.\u00a0 You can review the differences with the links above)<\/p>\n

For measures such as same-store sales and those in the comment above this definition may not be simple to apply.\u00a0 In particular a measure such as \u201caverage cost per dry metric ton of bauxite\u201d does not fit easily into this thought process.\u00a0 This is an example of a situation where it will be important to look past the S-K guidance and dig a bit deeper.<\/p>\n

A good first place to start digging is in the Compliance and Disclosure Interpretations or C&DI\u2019s, published by CorpFin.\u00a0 While they are not \u201cauthoritative\u201d they are frequently go-to guidance.\u00a0 As you may know, the SEC has provided guidance about the use of non-GAAP measures in several C&DI\u2019s<\/a>.\u00a0 These C&DI\u2019s include all the May 2016 and subsequent guidance from the staff that created such discussion and change in the registrant community.\u00a0 However, these C&DI\u2019s don\u2019t address issues in the definition of a non-GAAP measure.<\/p>\n

So, what is the next research step?\u00a0 This is a great example of how sometimes questions go beyond the actual rules and the related C&DI\u2019s.\u00a0 To resolve some issues, it is necessary to go all the way back to the SEC Release that adopted the related rules.\u00a0 Here is a quote from the adopting release<\/a> for the SEC\u2019s non-GAAP measure guidance, which implemented the non-GAAP provisions of SOX:<\/p>\n

    \n
  1. Discussion of the definition<\/li>\n<\/ol>\n

    We do not intend the definition of “non-GAAP financial measures” to capture measures of operating performance or statistical measures that fall outside the scope of the definition set forth above. As such, non-GAAP financial measures do not include:<\/p>\n