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Recent SEC Comment Letters Addressing Non-GAAP Financial Disclosures

Since the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) released updated guidance addressing the use of non-GAAP financial measures on May 17, 2016, the Staff has made public over 200 comment letters sent to companies relating to non-GAAP disclosures.  The below chart summarizes the major topics addressed in those comment letters and the frequency with which each topic appears. 

The Staff’s comment letters relate to non-GAAP disclosures contained in earnings releases, Exchange Act reports, registration statements, proxy statements and even investor presentation slide decks that were never furnished to or filed with the Commission.  A majority of the comment letters address multiple non-GAAP disclosure issues.  Because the comments are not limited to a single topic and because non-GAAP disclosures often implicate multiple overlapping topics, this chart is best understood as a general guide to the topics the Staff finds important, rather than as a precise tabulation of all topics covered during the relevant period. 

The Staff is just now beginning to upload comment letters addressing filings made after the May 2016 guidance was published.  As such, in the coming weeks and months we expect to see many more comments addressing the Staff’s new interpretations.

Special thanks to Mike Titera and Matt Haskell for compiling the summary below.

 


Topics

Frequency

Equal or greater prominence

37%

Historical reconciliation

34%

Explanation of why each financial measure provides useful information to investors

30%

Explanation of how financial measure is defined or calculated

26%

Incorrect calculation or use of defined term (e.g., EBIT, EBITDA, FFO)

14%

Explanation of tax adjustments

13%

Exclusion of items requiring cash settlement from liquidity measure

12%

Prohibition on adjustments to eliminate or smooth items identified as non-recurring

11%

Forward-looking reconciliation to the extent available without unreasonable efforts

11%

Use of “organic” or “core” financial measures

5%

Potentially misleading or confusing non-GAAP disclosures

5%

Explanation of other reasons for which management uses a financial measure

4%

Constant currency or currency-neutral financial measures

4%

Exclusion of normal, recurring, cash operating expenses from performance measures

4%

Inconsistent presentation of financial measures between reporting periods

3%

Presentation of non-GAAP measures on a segment basis

3%

Use of individually tailored accounting principles

3%

Exclusion of charges but not gains

1%

 






















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