Non-GAAP financial measures
Regulation G is the SEC rule, codified at 17 CFR 244.100 through 244.102, that governs how public companies present non-GAAP financial measures whenever they publicly disclose them. A company that releases a figure such as adjusted earnings or EBITDA must also present the most directly comparable GAAP measure and a reconciliation between the two, and the non-GAAP presentation must not be misleading.
Rule 101 defines a non-GAAP financial measure as a numerical measure of historical or future performance, financial position, or cash flows that excludes amounts included in the most directly comparable GAAP measure, or includes amounts excluded from it. Operating metrics and ratios built entirely from GAAP figures or from non-financial operating measures do not count, and neither do measures that GAAP, SEC rules, or another applicable regulator requires. Regulation G applies to companies with securities registered under Section 12 or reporting under Section 15(d), excluding registered investment companies.
Under Rule 100, the reconciliation must be quantitative for historical measures and quantitative for forward-looking measures to the extent available without unreasonable efforts. When a measure is disclosed orally, for example on an earnings call or webcast, the requirement can be met by posting the information on the company's website and announcing its location in the same presentation. There are narrow exemptions for certain disclosures by foreign private issuers outside the United States and for communications about business combinations. Rule 102 makes clear that complying with Regulation G does not by itself affect antifraud liability under Rule 10b-5.
Regulation G covers public disclosures generally, including press releases. Item 10(e) of Regulation S-K adds stricter rules when non-GAAP measures appear in an SEC filing, including equal or greater prominence for the GAAP figure, and Item 2.02 of Form 8-K applies part of Item 10(e) to earnings releases. The reconciliation is where an investor sees exactly which costs a company chose to exclude.
A: It is a figure of performance, financial position, or cash flow that adds back or removes amounts relative to the most comparable GAAP measure, such as adjusted net income or EBITDA. Ratios computed entirely from GAAP numbers are not non-GAAP measures.
A: Regulation G applies to any public disclosure of a non-GAAP measure, such as a press release or call. Item 10(e) of Regulation S-K applies when the measure is included in an SEC filing and adds further requirements and prohibitions.
A: Yes. For measures disclosed orally or by webcast, the company can satisfy the rule by posting the GAAP comparison and reconciliation on its website and stating where it is during the presentation.
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