Non-GAAP Financial Measures: SEC Staff Updates Guidance and Indicates Plans to Increase Scrutiny of Non-GAAP Financial Measures

Sullivan & Cromwell LLP - May 24, 2016

The SEC’s Division of Corporation Finance has issued new and revised Compliance and Disclosure Interpretations (“C&DIs”) regarding the use of non-GAAP financial measures by reporting companies in public disclosures and filings.  The new C&DIs note several uses of non-GAAP financial measures that the staff views as potentially misleading; interpret very expansively the “equal or greater prominence” requirement applicable to SEC filings and earnings releases included in a Form 8-K Report; and provide restrictive new guidance on the use of certain per share measures.  The guidance comes against a backdrop of growing criticism in the financial press and in recent public statements by senior SEC officials of companies’ use of non-GAAP financial measures.  In public comments since the release of the new guidance, the staff has indicated that it intends to increase its scrutiny of non-GAAP financial measures and the number of comments it issues relating to use of these measures by reporting companies.