Covers SEC rules on use of non-GAAP financial measures

• Adopted per SOX Act § 401(b)
• Following prior SEC warnings and enforcement actions
• Final release commentary

Requires enhanced disclosure when any public disclosure is made of "material information that includes
a non-GAAP financial measure

• Regulation G applies to any public release
• S-K Item 10(e) applies to SEC filings

Rules

• Regulation G 101(a)
• S-K 10(e)(2)

• Same definition applies to Reg G / Reg S-K
• e.g. EBITDA, "earnings before recurring charges"
• Final release commentary

Not intended to cover performance measures / ratios

• e.g. same store sales, operating margin

Excludes financial measures required by GAAP

• e.g., FASB 131 segment information

Excludes financial measures used for regulatory purposes

• e.g., bank regulatory capital

GAAP defined: Reg G 101(b) / S-K 10(e)(3)

Exchange Act filers, generally

• Regulation G covers use in public releases
• Regulation S-K 10(e) covers use in SEC filings

Small business issuers

Foreign private issuers

Investment companies are excluded

"Voluntary filers"

EBIT / EBITDA

Per share measures

Cash flows

"Free cash flow"

Product / Geographic segment information

"Funds from operations" - Real estate

For public disclosures

• Must present the most directly comparable GAAP measure
• Must reconcile to the most directly comparable GAAP measure
• If release is oral, reconciliation should be provided
  on company's website 
• Material misstatements or omissions are prohibited

When used in SEC filings, must :

• Present the most directly comparable GAAP measure,
  with equal or greater prominence
• Reconcile to the most directly comparable GAAP measure
• Justify its use
• Disclose how management uses the measure

When used in SEC filings, mustn't :

• Exclude items requiring cash settlement
• Exclude items to "smooth earnings"
• Use in GAAP financials, including notes
• Use in S-X Article 11 pro forma financials
• Use titles that are confusingly similar to GAAP measures

Regulation G 100(d)

S-K 10(e)(6)

SEC FAQs

Regulation G 102

Form 8-K Item ___  requires filing of
quarterly and annual earnings releases

• Furnished not filed, for liability purposes
• Reg G applies to earnings release itself
• 8-K must also address purposes / reasons
  for use of non-GAAP measure

Form 8-K

Final release 33-8176 2003

• Background I
• Rules and amendments II

• Regulation G II.A
  ◊ Application II.A.1
  ◊ Non-GAAP financial measures II.A.2
  ◊ Requirements II.A.3
• SEC filings II.B
  ◊ Application II.B.1
  ◊ S-K Item 10 - S-B Item 10 II.B.2
  ◊ Requirements II.B.3
• New Form 8-K item II.C
  ◊ General requirement II.C.1
  ◊ Filing v furnishing II.C.2
  ◊ Regulation FD II.C.3

• Proposal release 33-8145 2002
• Comment letters

SEC cautionary advice 2001

• Preceded formal SEC rule-making

2003 FAQs

• Transition issues
• Business combination transactions
• Item 10(e) of Regulation S-K
• EBIT and EBITDA
• Segment information
• Form 8-K
• Foreign private issuers
• Voluntary filers

SEC disclosure issues 2005

• Topic I.G   Conditions for use

In re Trump Hotels 2002

• SEC press release
• SEC C&D Order

• Failure to disclose one-time gain,
  while showing pro forma exclusion of one-time charge,
  was misleading
• Pre-dated adoption of Regulation G

Earnings Releases

Form 8-K Item ___