One of the more complex traps when presenting non-GAAP measures is this question:<\/p>\n
Which source of SEC non-GAAP measure guidance applies to your earnings release:<\/p>\n
Reg G, or<\/p>\n
S-K Item 10(e)?<\/p>\n
In case you are not familiar with Reg G and S-K Item 10(e) and when each of them applies:<\/p>\n
Reg G applies when you use a non-GAAP measure in a non-filed source, and<\/p>\n
S-K Item 10(e) applies when you use a non-GAAP measure in a filed document.<\/p>\n
You can learn more about these two non-GAAP rules in some of the earlier posts on our blog. Here is a post with the basics:<\/p>\n
<\/p>\n
seciblog.pli.edu\/?p=401<\/u><\/a><\/p>\n <\/p>\n You can also check out our one-hour briefing about non-GAAP measures from March 2016 at:<\/p>\n www.pli.edu\/Content\/Non_GAAP_Measures_and_Metrics_Getting_it\/_\/N-1z10vnyZ4n?ID=282910<\/u><\/a><\/p>\n <\/p>\n The trap here is this: You might believe that since an earnings release is not a filed document Reg G is the applicable guidance, and all you have to do is present the most directly comparable GAAP measure and provide a reconciliation.<\/p>\n That is NOT the case.<\/strong> The reason that S-K Item 10(e) applies to your earnings release<\/strong> is actually very subtle. It is in the instructions to Form 8-K. Tucked away in the earnings release 8-K, Item 2.02, is this instruction:<\/p>\n <\/p>\n <\/p>\n Thus, the first part of S-K Item 10(e)<\/strong> DOES<\/strong> apply to your earnings release, even though it is not \u201cfiled\u201d and even though the Item 2.02 8-K is not a filed document!<\/p>\n <\/p>\n So, to be very detailed, this part of S-K Item 10(e) applies to year earnings release (there are other requirements in S-K Item 10(e) that do not apply, we won\u2019t list them here):<\/p>\n <\/p>\n (e) Use of non-GAAP financial measures in Commission filings. (1) Whenever one or more non-GAAP financial measures are included in a filing with the Commission:<\/p>\n <\/p>\n (i) The registrant must include the following in the filing:<\/p>\n (A) A presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP);<\/p>\n <\/p>\n (B) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non-GAAP measures presented, and quantitative, to the extent available without unreasonable efforts, for forward-looking information, of the differences between the non-GAAP financial measure disclosed or released with the most directly comparable financial measure or measures calculated and presented in accordance with GAAP identified in paragraph (e)(1)(i)(A) of this section;<\/p>\n <\/p>\n (C) A statement disclosing the reasons why the registrant’s management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the registrant’s financial condition and results of operations; and<\/p>\n <\/p>\n (D) To the extent material, a statement disclosing the additional purposes, if any, for which the registrant’s management uses the non-GAAP financial measure that are not disclosed pursuant to paragraph (e)(1)(i)(C) of this section; and<\/p>\n <\/p>\n One area the staff will comment on is the \u201cequal or greater prominence\u201d<\/strong> requirement in paragraph (A) above. Here is an example comment:<\/p>\n <\/p>\n <\/p>\n As always, your thoughts and comments are welcome!<\/strong><\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" One of the more complex traps when presenting non-GAAP measures is this question: Which source of SEC non-GAAP measure guidance applies to your earnings release: Reg G, or S-K Item 10(e)? In case you are not familiar with Reg G and S-K Item 10(e) and when each of them applies: Reg G applies when you … Continue reading A non-GAAP Measure Subtle Trap<\/span> \n
\n