May 5, 2017

Non-GAAP: Corp Fin’s Post-CDI Comments

It’s been almost a full year since Corp Fin dropped its updated CDIs on the use of non-GAAP information – and this Sullivan & Cromwell memo reports on nearly 300 Staff comment letters issued since that time. Here’s an excerpt identifying the “hot button” issues:

Based on our analysis of these comment letters, we have identified a number of areas of SEC staff focus during this period, in descending order of frequency:

– Failure to present GAAP measure with equal or greater prominence (C&DI 102.10)

– Inadequate explanation of usefulness of non-GAAP measure

– Misleading adjustments, such as exclusion of normal, recurring cash expenses (C&DI 100.01)

– Inadequate presentation of income tax effects of non-GAAP measure (C&DI 102.11)

– Individually tailored revenue recognition or measurement methods (C&DI 100.04)

– Misleading title or description of non-GAAP measure

– Use of per share liquidity measures (C&DI 102.05)

Five of the areas of emphasis tie specifically to the issues raised in the May 2016 CDIs, while the other 2 (inadequate explanations of usefulness & misleading title or description) are issues that have traditionally drawn comments from Corp Fin.

By the way, it’s official – Jay Clayton was sworn in yesterday afternoon as the SEC’s 32nd Chair by Justice Kennedy. Here’s the SEC’s press release.

Blockchain: Broadridge & Banks Wrap Pilot Voting Project

Broadridge recently announced that it had completed a pilot project with J.P. Morgan, Banco Santander & Northern Trust that employed blockchain technology to “enhance global proxy vote transparency and analytics.” The pilot was Broadridge’s first application of blockchain technology, and adapted distributed ledger capabilities to provide a limited group of users with secure, daily insight into the progress of the annual meeting vote throughout the proxy voting period.

Why all the interest in blockchain technology for proxy voting?  This “IR Magazine” article provides some insight:

One financial services function ripe for reimagining is the proxy voting process. A blockchain can, in theory, end errors associated with manual audits, improve efficiency, reduce reporting costs and – potentially – support deeper regulatory oversight.

Blockchain’s potential as a proxy voting solution is being explored by a number of other interested parties, including Nasdaq and TMX Group, the parent of the Toronto Stock Exchange.

“Freedonia’s Going to Market”: FAQs on Foreign Government Offerings

Honestly, I don’t know how relevant this Latham memo on FAQs about registered offerings by foreign governments is to many of our members. But they called it “Hail, Hail Freedonia: Frequently Asked Questions About SEC Registration on Schedule B by Foreign Governments” – and as far as I’m concerned, anybody who references the Marx Bros. in the title of a client memo has earned a plug from me.

For those of you who aren’t Marx Bros. fans, the reference is to the 1933 classic “Duck Soup,” & the fictional nation of Freedonia, for which Groucho’s “Rufus T. Firefly” serves as an unlikely war leader.  It also contains my favorite Groucho quote:  “Chicolini may look like an idiot and sound like an idiot, but don’t let that fool you – he really is an idiot.”

John Jenkins