3.6 Consistency of Non-GAAP Measures

A registrant should consider whether its various forms of communications with investors, including both filed and furnished documents, include non-GAAP measures and, if so, whether those non-GAAP measures are consistently determined and presented in the various forms of communications. For example, a registrant should be aware of inconsistencies or contradictions in (1) the non-GAAP measures disclosed outside its SEC filings, such as on its Web site and in its press releases and earnings calls, and (2) the non-GAAP measures disclosed in its filings. Although the SEC staff does not require a registrant to include non-GAAP measures in its filings, it may comment if, for example, the non-GAAP disclosures in the registrant’s press release or other communications appear to be inconsistent with those in its periodic or other filings.

Registrants should consider establishing a formal policy for disclosing and calculating non-GAAP measures that defines and describes the adjustments (see Section 5.1.1). Non-GAAP financial measures should generally be calculated and presented consistently from period to period and, if there are any changes in the measures, such changes should be clearly disclosed (see Section 3.6.3). It may therefore be helpful for registrants to consider the following when they present non-GAAP measures:

• Consistent presentation — Generally registrants should consistently prepare and present non-GAAP measures from period to period in accordance with a defined policy, and they should use that policy to compute the measure for all periods presented.
• Consistent types of adjustments — A registrant should be cognizant of eliminating certain unfavorable charges in one year if it does not expect to eliminate them in a subsequent period if the charges happen to reverse, such as an accrual for a litigation contingency that it is ultimately settled in a later period for a favorable amount. Further, C&DI Question 100.03 (see Section 4.3) discusses a scenario in which a registrant excludes certain nonrecurring charges from a non-GAAP measure but fails to exclude nonrecurring gains (i.e., the registrant cherry-picks).
• Consistent with non-GAAP measures used in the industry — A registrant may want to consider whether its non-GAAP measures are consistent with standard measures used in its industry or by its peers and, if they are not, how the differences may affect comparability with other companies. A registrant’s non-GAAP measures may differ from those used in its industry or of its peer companies. However, the registrant should consider whether any differences should be explained.

As noted above, non-GAAP measures should generally be calculated and presented consistently for all periods presented. However, a registrant can change an existing non-GAAP measure for various reasons, such as changes that occur in the company’s business. For example, a registrant may want to change a non-GAAP performance measure to add back significant restructuring costs in the current period related to a new streamlining initiative to be implemented over the next two years if it does not believe that such costs reflect its ongoing operations. In such a case, management, the audit committee, and others as appropriate should evaluate the appropriateness of the change, and the registrant should provide full and transparent disclosure about the change. As indicated in C&DI Question 100.02 (see Section 4.3), a non-GAAP measure may be considered misleading if a registrant adjusts an item in the current reporting period but does not adjust for a similar item in the prior period without appropriately disclosing the change and explaining the reasons for it.