June 1, 2022

Reg G: Not GAAP v. Non-GAAP

This Goodwin blog discusses the distinction between “non-GAAP financial measures” (NGFMs) subject to Reg G and Item 10(e) of S-K, and other disclosures that, while they aren’t GAAP numbers, aren’t subject to the requirements imposed by those rules. Here’s an excerpt:

In very general terms, a NGFM is a numerical financial measure that reflects adjustments not permitted or required by GAAP. Because the application of this definition may not always be clear, Regulation G specifically excludes operating and other financial measures and ratios and statistical measures calculated using financial measures calculated in accordance with GAAP and/or the somewhat circular and often less than helpful category of “operating measures or other measures that are not non-GAAP financial measures.” The Financial Reporting Manual, prepared by the Division of Corporation Finance, provides a series of examples, including among others the following:

– operating and statistical measures (such as unit sales, number of employees, number of subscribers), and

– ratios or statistical measures that are calculated using exclusively operating measures or other measures that are not non-GAAP measures (such as dollar revenues per square foot for hotels, same store sales, and revenues per slot machine for casinos, assuming that sales/revenues for each measure is based on GAAP numbers).

The blog provides a reminder that because metrics like these aren’t subject to the requirements that apply to NGFMs, adjustments to them that would be problematic if applied to a GAAP financial measure are not per se problematic in these cases. However, it also points out that Rule 10b-5 applies to these statements and the SEC’s guidance on disclosure of KPIs should also be kept in mind.

For helpful resources on Reg G and non-GAAP issues – including our 133-page handbook with common questions & answers – visit our “Non-GAAP” Practice Area.

John Jenkins