2.6 Other Measures That Are Not Non-GAAP Measures

2.6.1 GAAP Operating and Other Statistical Measures

Financial measures (e.g., ratios or other measures) calculated exclusively from amounts presented in accordance with GAAP are not non-GAAP financial measures. Generally, a GAAP amount may be divided by another GAAP amount in the calculation of a specific ratio, and the resulting amount is not considered a non-GAAP measure. For example, disclosure of operating margin that is calculated by dividing GAAP operating income by GAAP revenues is not a non-GAAP measure.

2.6.2 Financial Measures Required by Commission Rules or a System of Regulation of a Government or Government Authority or Self-Regulatory Organization

Financial measures required by SEC rules (e.g., information required pursuant to an SEC industry guide) are not non-GAAP measures.

In addition, financial measures required by a regulatory organization that apply to the registrant (e.g., measures of capital or reserves calculated for such regulatory purpose) are not non-GAAP measures. The Release specifies that disclosure of such measures should be presented outside the financial statements “unless the financial measure is required or expressly permitted by the standard setter that is responsible for establishing the GAAP.” However, if the above organizations do not require the information, but a registrant elects to present it, the information is considered a non-GAAP measure and thus subject to the appropriate non-GAAP disclosures required by the Rules.

C&DIs — Non-GAAP Financial Measures

Question 102.12

Question: A registrant discloses a financial measure or information that is not in accordance with GAAP or calculated exclusively from amounts presented in accordance with GAAP. In some circumstances, this financial information may have been prepared in accordance with guidance published by a government, governmental authority or self-regulatory organization that is applicable to the registrant, although the information is not required disclosure by the government, governmental authority or self-regulatory organization. Is this information considered to be a “non-GAAP financial measure” for purposes of Regulation G and Item 10 of Regulation S-K?

Answer: Yes. Unless this information is required to be disclosed by a system of regulation that is applicable to the registrant, it is considered to be a “non-GAAP financial measure” under Regulation G and Item 10 of Regulation S-K. Registrants that disclose such information must provide the disclosures required by Regulation G or Item 10 of Regulation S-K, if applicable, including the quantitative reconciliation from the non-GAAP financial measure to the most comparable measure calculated in accordance with GAAP. This reconciliation should be in sufficient detail to allow a reader to understand the nature of the reconciling items. [Apr. 24, 2009]

2.6.3 Business Combination Transactions

The Rules provide limited exceptions to the use and disclosure of non-GAAP financial measures related to business combination transactions. Accordingly, they do not apply to non-GAAP measures used in projections or forecasts applicable to a business combination, as described in C&DI Questions 101.01 through 101.03 or in the communications specifically identified in C&DI Question 101.04.7 In 2018, the SEC issued C&DI Questions 101.02 and 101.03, which clarified that the limited exceptions to the Rules related to non-GAAP projections or forecasts discussed in C&DI Question 101.01 also apply if such projections or forecasts were also provided to the (1) board or (2) bidders to comply with anti-fraud provisions of the federal securities law.

C&DIs — Non-GAAP Financial Measures

Question 101.01

Question: Are financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction non-GAAP financial measures?

Answer: No, if the conditions described below are met.

Item 10(e)(5) of Regulation S-K and Rule 101(a)(3) of Regulation G provide that 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. Accordingly, financial measures provided to a financial advisor would be excluded from the definition of non-GAAP financial measures, and therefore not subject to Item 10(e) of Regulation S-K and Regulation G, if and to the extent:

the financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction; and
the forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law, including case law, regarding disclosure of the financial advisor’s analyses or substantive work. [Oct. 17, 2017]

Question 101.02

Question: Can the registrant rely on the Answer to Question 101.01 if the same forecasts provided to its financial advisor are also provided to its board of directors or board committee?

Answer: Yes. [April 4, 2018]

Question 101.03

Question: A registrant provides forecasts to bidders in a business combination transaction. To avoid anti-fraud concerns under the federal securities laws or ensure that the other disclosures in the document are not misleading, it determines that such forecasts should be disclosed. Are the financial measures contained in forecasts disclosed for this purpose considered non-GAAP financial measures?

Answer: If a registrant determines that forecasts exchanged between the parties in a business combination transaction are material and that disclosure of such forecasts is required to comply with the anti-fraud and other liability provisions of the federal securities laws, the financial measures included in such forecasts would be excluded from the definition of non-GAAP financial measures and therefore not subject to Item 10(e) of Regulation S-K and Regulation G. [April 4, 2018]

Question 101.04

Question: Does the exemption from Regulation G and Item 10(e) of Regulation S-K for non-GAAP financial measures disclosed in communications relating to a business combination transaction extend to the same non-GAAP financial measures disclosed in registration statements, proxy statements and tender offer statements?

Answer: No. There is an exemption from Regulation G and Item 10(e) of Regulation S-K for non-GAAP financial measures disclosed in communications subject to Securities Act Rule 425 and Exchange Act Rules 14a-12 and 14d-2(b)(2); it is also intended to apply to communications subject to Exchange Act Rule 14d-9(a)(2). This exemption does not extend beyond such communications. Consequently, if the same non-GAAP financial measure that was included in a communication filed under one of those rules is also disclosed in a Securities Act registration statement, proxy statement, or tender offer statement, this exemption from Regulation G and Item 10(e) of Regulation S-K would not be available for that non-GAAP financial measure. [Oct. 17, 2017]

The exemptions in C&DI Questions 101.01 through 101.04 do not extend beyond financial measures provided to a financial adviser in connection with a business combination or communications that are subject to the rules specified in these C&DIs.

Footnotes

See applicable rules under the Exchange Act; the Securities Act; and Regulation M-A, Item 1015.

Confidential and Proprietary — for Use Solely by Authorized Personnel

This SEC Reporting Interpretations manual provides comprehensive guidance; however, the manual does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.