Disclosure of the reasons why non-GAAP measures provide useful information to investors is required. Income Tax Effects C&DI Question 102.11 provides that the calculation and presentation of income tax effects related to adjustments to arrive at a non-GAAP measure . OMAM to delay annual report pending resolution of SEC non-GAAP comments. Equal Prominence. Non-GAAP measures are being used more than ever; nearly all of the S&P 500 report at least one. SEC's Division of Corporation Finance has become increasingly focused on disclosure of non-GAAP financial measures, as evidenced by its guidance in May 20161 and numerous issuer comment letters. SEC rules require that when an issuer presents a non-GAAP measure, the most directly comparable GAAP measure must be reported with equal or greater prominence. SEC rules require that when an issuer presents a non-GAAP measure, the most directly comparable GAAP measure must be reported with equal or greater prominence. (a) Whenever a registrant, or person acting on its behalf, publicly discloses material information that includes a . This differs from the requirements of using non-GAAP metrics in earnings releases, where companies must provide a table that reconciles the non-GAAP metric back to its original GAAP amount, and comparable GAAP metrics must be presented with equal prominence. This requires that non-GAAP financial measures should not be used to avoid presenting adverse information to the market. This action is the first concerning the requirement that comparable GAAP financial measures be presented with equal or greater prominence with non-GAAP financial measures. Non-GAAP measures cannot be presented on the face of the financial statements . Undue Prominence of Non-GAAP Measures [New C&DI] Pursuant to Item 10(e)(1)(i)(A) of Regulation S-K, SEC filings (including earnings releases furnished under Item 2.02 of Form 8-K) that contain a non-GAAP financial measure must present the most directly comparable GAAP measure with equal or greater prominence. As clarified in C&DI published by the SEC on May 17, 2016, even specifically allowable non-GAAP financial measures may violate Regulation G if they are misleading. Currently, in most cases, under Reg G and Item 10(e), the SEC requires that companies, among other things, reconcile NGFMs to the comparable GAAP measures, display the GAAP measures with equal prominence and provide statements of NGFM purpose and utility, and prohibits the use of certain custom or "tailored" accounting measures that may be . Exhibit 99.1 a presentation, with equal or greater prominence, of the most directly comparable financial measure calculated and presented in accordance with GAAP; . GAAP measures should be presented with the same or greater prominence than non-GAAP measures under Item 10 (e) of Regulation S-K. They have to have equal prominence. Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. You disclose non-GAAP measures without presenting the comparable GAAP measures with equal or greater prominence. Question: 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. Guidelines for using non-GAAP in your investor relations strategy. Non-GAAP liquidity measures that measure cash generated, such as "free cash flow," cannot be presented on a per share basis, even if an issuer presents these measures solely as a performance measure. In the May Compliance and Disclosure Interpretation question 102.10, the SEC gave bullet point examples of what they . Question: 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. A registrant that presents a non-GAAP measure is required to present the most directly comparable GAAP measure with "equal or greater prominence." For example: If GAAP and non-GAAP measures are presented in a particular section of a document, the GAAP measures should be presented before the non-GAAP measures. Also, the Staff has continued to focus on non-GAAP compliance in . Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. If a company decides to highlight a non-GAAP number in its headline, it must also include the GAAP number, which needs to come first. The U.S. rules, applicable to filings with the SEC, are covered in Regulation S-K item 10, which requires: (i) a presentation, with equal or greater prominence, of the most directly comparable GAAP measure, (ii) a reconciliation between the non-GAAP and most directly comparable GAAP measures and (iii) disclosure of why the non-GAAP measure .

Item 10(e)(1)(i)(A) of Regulation S-K requires that a presentation in an SEC filing of a non-GAAP financial measure must be accompanied, with equal or greater prominence, by the most directly . On December 26, 2018, the Securities and Exchange . The SEC's non-GAAP rules are set forth in Regulation G and in Item 10 of Regulation S-K, with the form of the disclosure driving which provision applies. The most significant change regarding equal prominence is that the GAAP number of any accounting metric must be included before the non-GAAP number. . The SEC found that a company provided non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and . Non-GAAP measures must be accompanied by, and reconciled to, the corresponding GAAP measures in a manner that is consistent with their use as either performance measures or liquidity measures, and those GAAP measures must be presented with equal or greater prominence. You have to lead with GAAP or have it be equal on . While the SEC has not sought to ban non-GAAP measures that exclude stock-based compensation, under Item 10(e) of Regulation S-K, whenever a non-GAAP figure is used in an SEC filing or an earnings release, the most directly comparable GAAP measure must be presented with "equal or greater prominence." In addition, the non-GAAP financial . In the ten years since the non-GAAP rules were adopted, the SEC has put out a . When presenting a non-GAAP measure it must be presented with the most directly comparable GAAP measure given equal or greater prominence. Providing a discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. On May 17, 2016, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) issued 12 new or revised Compliance and Disclosure Interpretations (C&DIs) to its existing body of interpretations relating to the use of non-GAAP financial information. Inappropriate presentations include: Non-GAAP . that a GAAP number be given "equal or greater prominence" compared to the comparable non-GAAP measure. For more information on the non-GAAP C&DIs, see our Legal Update " SEC Provides Guidance on Non-GAAP Financial Measures, " dated May 26, 2016. In addition, companies should carefully review non-GAAP/non-IFRS adjustments relating to the COVID-19 pandemic to ensure compliance with applicable SEC rules. Business Acquisitions SEC Reporting Considerations Business Combinations Carve-Out Transactions Comparing IFRS Standards and U.S. GAAP Consolidation Identifying a Controlling Financial Interest Contingencies, Loss Recoveries, and Guarantees Contracts on an Entity's Own Equity Convertible Debt (Before Adoption of ASU 2020-06) Current . The Securities and Exchange Commission (SEC) permits companies to present non-GAAP financial measures in their public disclosures as well as registration statements filed under the Securities Act of 1933 (Securities Act) and periodic reports filed under the Securities Exchange Act of 1934 (Exchange Act), subject to compliance with Regulation G . "However, we continue to see some companies disclose non-GAAP measures more prominently than their GAAP results," Lowe said. Here, we provide insigh Prominence of GAAP measures versus non-GAAP financial measuress.

The meaning of "greater or equal prominence" is a point of contention. The SEC continues to focus on noncompliant use of non-GAAP financial measures, including in earnings releases.

No GAAP or non-GAAP restatement is expected. When a non-GAAP measure is presented in a 10-k filing or an earnings release, the GAAP measure should be presented with equal or greater prominence to the non-GAAP measure. improperly use Generally Accepted Accounting Principles (GAAP) and non-GAAP financial measures in public disclosures. Prominence. Non-GAAP earnings are an alternative method used to measure the earnings of a company, and many companies report non-GAAP earnings in addition to their earnings as calculated through generally . Non-GAAP measures and their most directly comparable GAAP measures should be presented with equal prominence, or the GAAP measure given greater prominence, and . 244.100 General rules regarding disclosure of non-GAAP financial measures. The non-GAAP financial measure is required or expressly permitted by the . Non-GAAP financial measures that substitute individually tailored recognition and measurement methods for financial statement line items may violate Rule 100(b) of . Specifically, the SEC found that ADT violated the "equal or greater prominence" requirement in its earnings releases for fiscal year 2017 and for the first quarter of 2018 (both furnished under Item 2.02 of Form 8-K) by providing non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and free cash flow, without giving . Under Item 10 of Regulation S-K, a registrant that presents a non-GAAP measure must present the "most directly comparable" GAAP measure with "equal or greater prominence.". The SEC prohibits a company from excluding charges or liabilities requiring cash settlement from any non-GAAP liquidity measures, other than EBIT and EBITDA. This equal prominence 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. When an issuer uses a non-GAAP measure in its earnings releases and other SEC filings, the GAAP measure should be of equal or greater prominence than the non-GAAP measure.

The SEC instituted a cease-and-desist proceeding in a fairly straightforward enforcement action that nonetheless emphasizes the importance of the requirement that GAAP measures must be provided with "equal or greater prominence" when a company discloses non-GAAP measures.. Business Acquisitions SEC Reporting Considerations Business Combinations Carve-Out Transactions Comparing IFRS Standards and U.S. GAAP Consolidation Identifying a Controlling Financial Interest Contingencies, Loss Recoveries, and Guarantees Contracts on an Entity's Own Equity Convertible Debt (Before Adoption of ASU 2020-06) Current . On December 26, 2018, the SEC issued an order requiring a registrant . Companies often supplement their financial reporting under U.S. generally accepted accounting principles (GAAP) with non-GAAP . Item 10(e)(1)(i)(A) of Regulation S-K requires that when an issuer presents a non-GAAP measure, . For more information about the use or disclosure of non-GAAP financial measures, please contact the authors of this alert, Robert B. Murphy (202-906-8721) and Mark A. Metz (313-568-5434), or your Dykema relationship attorney. For example, the SEC would consider the following presentation as the non-GAAP measure being more prominent: presenting a complete "income statement" of non-GAAP measures when reconciling non-GAAP measures to the . When a registrant . It is a friendly reminder to companies that disclose non-GAAP financial measures in earnings releases that the requirement to give equal or greater prominence to GAAP financial measures generally also applies to percentages and ratios calculated using a non-GAAP financial measure. Non-GAAP measures cannot be presented on the face of the financial statements . Non-GAAP is the issue du jour, and the past month stuck with the theme.One of the most significant bits of news came directly from the SEC. Non-GAAP measures continue to be an area of focus and frequent comment from the SEC. Give GAAP prominence. The recent SEC enforcement action against ADT Inc. for its failure to comply with the SEC's equal prominence requirements applicable to non-GAAP financial measures, as outlined in our recent blog post, is a clear reminder that public companies need to continue to be vigilant about the SEC's non-GAAP financial measure rules.

When presenting a non-GAAP measure, the most directly comparable GAAP measure must be presented with equal or greater prominence. For example, the SEC would consider the following presentation as the non-GAAP measure being more prominent: presenting a complete "income statement" of non-GAAP measures when reconciling non-GAAP measures to the . 2. In SEC filings, a comparable GAAP measure must be displayed with equal prominence beside non-GAAP financial measures. . excluding a quantitative reconciliation with respect to a forward-looking non-GAAP measure using the "unreasonable efforts" exception in Item 10(e) of Regulation S-K, without disclosing that fact and identifying the information that is unavailable and its probable significance in a location of equal or greater prominence; and The use of non-GAAP metrics in other areas of the proxy statement must comply with .

"However, we continue to see some companies disclose non-GAAP measures more prominently than their GAAP results," Lowe said. Item 10(e)(1)(i)(A) of Regulation S-K provides that when an issuer presents a non-GAAP financial measure in a filing with the SEC, it must include a "presentation, with equal or greater prominence . This Practice Update discusses some of this new SEC guidance in four categories as follows. Both non-GAAP financial measures and the reconciliation to GAAP can be included directly in the financial statements. As stated in the C&DI, any document filed with the Commission and any earnings release furnished under Item 2.02 of Form 8-K that contains a non-GAAP financial measure must present the most directly comparable GAAP measure "with equal or greater prominence." . You can't lead with a non-GAAP item. The ADT enforcement action is a strong reminder that the SEC regards compliance with the "equal or greater prominence" requirement as a serious matter, and will take enforcement action in appropriate cases. Please present with equal or greater prominence the comparable margins computed on a GAAP basis wherever these non-GAAP margins are presented. Prominence.

Item 10(e) of Reg S-K requires the most directly comparable GAAP measure to be given "greater or equal prominence" when reporting non-GAAP data.

Friday, January 11, 2019. In May 2016, the SEC staff issued compliance and disclosure interpretations (C&DIs) that clarify the SEC's guidance on non-GAAP measures in response to concerns about the increased use and prominence of such measures, their potential to be misleading, and the progressively larger difference between the amounts reported for non-GAAP and GAAP . The most significant change regarding equal prominence is that the GAAP number of any accounting metric must be included before the non-GAAP number. The Division's stance on the prominence of . The non-GAAP financial measure relates to the GAAP used in the registrant's primary financial statements included in its filing with the Commission; .

2. This requirement applies to non-GAAP measures presented in documents filed with the Commission and also earnings releases furnished under Item 2.02 of Form 8-K. Presentation of GAAP Measures with Equal or Greater Prominence Item 10(e) of Regulation S-K requires that when a registrant presents a non-GAAP financial measure, it must include a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP. Refer to Item 10(e)(1)(i)(A) of Regulation S-K and . GAAP presentation of information must have equal or greater prominence than non-GAAP financial measures. SEC's Division of Corporation Finance has become increasingly focused on disclosure of non-GAAP financial measures, as evidenced by its guidance in May 20161 and numerous issuer comment letters. Solution. Longstanding SEC rules require that when an issuer presents a non-GAAP measure, it must present the most directly comparable GAAP measure with equal or greater prominence. The most directly comparable GAAP measure presented be with equal or greater prominence than that of the non-GAAP measure. Non-GAAP measures disclosed in documents filed with the SEC or furnished to the SEC under Item 2.02 of Form 8-K (including in earnings releases furnished under that Item) must include a presentation of the most directly comparable GAAP measure with a prominence equal to or greater than that of the non-GAAP measure. A registrant that presents a non-GAAP measure is required to present the most directly comparable GAAP measure with "equal or greater prominence." For example: If GAAP and non-GAAP measures are presented in a particular section of a document, the GAAP measures should be presented before the non-GAAP measures. Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. Form 8-K filed May 5, 2016. Non-GAAP measures must be accompanied by, and reconciled to, the corresponding GAAP measures in a manner that is consistent with their use as either performance measures or liquidity measures, and those GAAP measures must be presented with equal or greater prominence. SEC enforcement action for violation of non-GAAP "equal or greater" prominence requirement. 1. SEC previously reviewed OMAM non-GAAP in 2014. A PDF version of this publication is attached here: To GAAP or to non-GAAP COVID-19: What you should know (PDF 279kb) What you need to know. The C&DIs that are likely to have the biggest effect on current disclosure practices are those that squarely address the "prominence" of non-GAAP measures in relation to GAAP measures. Finally, the Staff reflected its long . SEC guidance has emphasized the following: Ensure that when a non-GAAP/non-IFRS measure is used, the comparable GAAP/IFRS measure is disclosed with equal or greater prominence, and a . Takeaways. If a company decides to highlight a non-GAAP number in its headline, it must also include the GAAP number, which needs to come first. In a cease-and-desist order dated December 26, 2018, the . In case you were questioning whether the SEC continues (assuming it reopens at some point) to address the inappropriate use of non-GAAP financial measures with the same level of gravity as in prior years, you might take note of this recent (cusp of SEC shutdown) enforcement action against ADT. . SEC Penalizes Issuer for Presenting Non-GAAP Financial Measures Without Giving Equal Prominence to GAAP Measures. As companies with calendar fiscal year ends approach "earnings season," companies and their counsel should review earnings releases and SEC filings that contain non-GAAP financial .

Non-GAAP information cannot be any more prominent than GAAP information. The CD&Is provide the following specific examples of presentations that the SEC would deem to be inappropriate under this requirement: . The Staff, giving particular emphasis to the equal prominence requirement of Item 10(e)(1)(i)(A) of Regulation S-K, also provided examples . Question 102.10. When presenting a non-GAAP measure, the most directly comparable GAAP measure must be presented with equal or greater prominence. The registrant include a statement indicating how the non-GAAP measure provides useful information to investors about the registrant's financial condition and results of operations. Inappropriate presentations include: The staff believes that adherence to this requirement has eroded over time and now has taken this remedial action.

Non-GAAP measures result in frequent comments regarding compliance with Item 10(e) of Regulation S-K and the related compliance and disclosure interpretations. A non-GAAP financial measure that would otherwise be prohibited by paragraph (e)(1)(ii) of this section is permitted in a filing of a foreign private issuer if: . Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. On May 17, the watchdog released an additional . Please ensure any discussion regarding non-GAAP measures is preceded . The SEC's Division of Enforcement recently instituted cease-and-desist proceedings against a company for violating Section 13(a) of the Exchange Act and Rule 13a-11 by including non-GAAP financial measures in two of its earnings releases without presenting the most directly comparable GAAP financial measures "with equal or greater prominence." [May 17, 2016] Send . This requirement applies to non-GAAP measures presented in documents filed with the Commission and also earnings releases furnished under Item 2 . As is generally the case with SEC reporting, companies are advised to be consistent over time. (I) Presenting GAAP Measures With Equal or Greater Prominence. 1. Special rules apply to foreign private issuers, which rules are not discussed in this blog. For more information on the non-GAAP C&DIs, see our Legal Update " SEC Provides Guidance on Non-GAAP Financial Measures, " dated May 26, 2016. Item 10(e)(1)(i)(A) of Regulation S-K requires that a presentation in an SEC filing of a non-GAAP financial measure must be accompanied, with equal or greater prominence, by the most directly . Item 10(e) of Regulation S-K requires that when a company presents a non-GAAP measure it must present the most directly comparable GAAP measure with equal or greater prominence. For example, an earnings press release should cite GAAP net income before a non-GAAP "adjusted net income". The correct answer is A. The Securities and Exchange Commission (SEC) recently demonstrated that it is willing to use its regulatory power against registrants that improperly use Generally Accepted Accounting Principles (GAAP) and non-GAAP financial measures in public disclosures. measure calculated in accordance with GAAP presented with equal or greater prominence than the non-GAAP figure.

While the relevant facts and . The differences between Item 10 and Regulation G are small, but important, with the difference that comes into play most often being the requirement under Item 10(e) that a GAAP number be given "equal or greater prominence" compared to the comparable non-GAAP measure. Equal or Greater Prominence Requirement. Prominence - Regulation S-K Item 10(e)(1)(i)(A) requires that when a non-GAAP measure is presented in a filing or earnings release, the most directly comparable GAAP measure must be presented with "equal or greater prominence." C&DI 102.10 provides examples of disclosures the Division would consider noncompliant with this requirement . Item 10(e)(l)(i)(A) of Regulation S-K provides that an issuer, when including a non-GAAP financial measure in a filing with the Commission, must include a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP.