Chapter 4 — Non-GAAP Measures That May Be Misleading or Prohibited and Other Considerations Related to Common Non-GAAP Measures

4.1 Overview

Under Regulation G, Rule 100(b), a registrant is prohibited from presenting a non-GAAP measure that is misleading. Regulation G states that a registrant should not publicly disclose a non-GAAP financial measure “that . . . contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the presentation of the non-GAAP measure . . . not misleading.” Regulation G applies to all public statements that include or refer to non-GAAP measures. The guidance also applies to any SEC filing or furnished press releases under Form 8-K, Item 2.02 (see discussion in Chapter 6).

In May 2016 and December 2022, the SEC staff issued several new and updated C&DIs that provide guidance on misleading or prohibited non-GAAP measures. Section 100 of the C&DIs (see discussion below) illustrates various types of disclosures that could be potentially misleading and indicates that no amount of disclosure can make a non-GAAP measure compliant with non-GAAP rules if it has been determined to be misleading.

Further, the requirements and prohibitions under Regulation S-K, Item 10(e), are more extensive and detailed than those under Regulation G. In addition to mandating certain disclosures, Item 10(e)(1)(ii) prohibits a registrant from:

Excluding “charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures, other than [EBIT and EBITDA]” (the “liquidity measure prohibition”; emphasis added).
Adjusting “a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when” (1) the nature of the charge or gain is such that it is reasonably likely to recur within two years or (2) there was a similar charge or gain within the prior two years (the “performance measure prohibition”).
Presenting “non-GAAP financial measures on the face of the registrant’s financial statements prepared in accordance with GAAP or in the accompanying notes” (emphasis added).
Presenting “non-GAAP financial measures on the face of any pro forma financial information required to be disclosed by Article 11 of Regulation S-X.”
Using “titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures.”

A registrant is also prohibited from presenting per-share measures of liquidity in documents filed with and furnished to the SEC. See Section 4.4.

The table below summarizes the prohibitions against certain presentations of non-GAAP measures that apply to domestic1 registrants under the Rules. Although Regulation G and Form 8-K, Item 2.02, do not refer to the prohibitions in Item 10(e)(1)(ii), registrants should consider the concepts in these and other prohibitions when using non-GAAP measures.

Prohibitions	All Disclosure of Non-GAAP Financial Measures (Regulation G2,3)	SEC Filings (Item 10(e) of Regulation S-K4,5)	Press Releases Furnished to the SEC (Item 2.02 of Form 8-K6)
Prohibitions against certain presentations of non-GAAP financial measures:7
Material misstatements or omissions that would make the presentation of the non-GAAP financial measure misleading8	X	X	X
Presenting per-share measures of liquidity9		X	X
Excluding charges or liabilities that require, or will require, cash settlement, or would have required cash settlement in the absence of an ability to settle in another manner, from non-GAAP liquidity measures (other than EBIT and EBITDA)		X
Adjusting a non-GAAP performance measure to eliminate or smooth items identified as nonrecurring, infrequent, or unusual when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. The prohibition is based on the description of the charge or gain that is being adjusted		X
Presenting non-GAAP financial measures on the face of the GAAP financial statements or in the accompanying notes		X
Presenting non-GAAP financial measures on the face of any pro forma financial statements required to be disclosed by of Regulation S-X, Article 11		X
Using titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures		X

Footnotes

For guidance on FPIs, see the following: Regulation G; Regulation S-K, Item 10(e); Section 106 of the C&DIs; and Section 8140 of the FRM.

Regulation G applies whenever a registrant, or person acting on its behalf, publicly discloses or releases material information that includes a non-GAAP financial measure. Such information may be furnished to or filed with the SEC or publicly disclosed or released in another manner.

In certain situations, Regulation G and Item 10(e) do not apply. For example, they do not apply to non-GAAP measures related to projections or forecasts provided to a financial adviser as part of a proposed business combination or measures required to be disclosed by a governmental authority. See Section 2.3 for a discussion of measures that do not meet the definition of a non-GAAP measure under the Rules.

Item 10(e) applies to all SEC filings that include non-GAAP financial measures.

See footnote 3.

Form 8-K, Item 2.02, requires registrants to furnish to the SEC all releases or announcements disclosing material nonpublic financial information about completed annual or quarterly fiscal periods, regardless of whether the release or announcement includes disclosure of a non-GAAP financial measure. Item 2.02 also specifies that the requirements in Item 10(e)(1)(i) apply to such disclosures. If a registrant elects to file the release or announcement with the SEC, all the requirements in Item 10(e) apply.

Although Regulation G and Form 8-K, Item 2.02, do not refer to the prohibitions in Item 10(e)(1)(ii), registrants should consider the concepts in these and other prohibitions when using non-GAAP measures.

See Regulation G, Rule 100(b), and Section 100 of the C&DIs.

Footnote 11 of the Release notes that certain non-GAAP per-share measures are prohibited under GAAP and SEC rules.

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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.