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The SEC Regulations Committee of the Center for Audit Quality recently posted these highlights from its June 2024 meeting with the SEC Staff. The discussion included this reminder about non-GAAP measures in earnings releases:

The Committee has observed recent staff comments on measures that are calculated in accordance with a company’s debt covenant indicating that a company should limit its discussion of these measures to the liquidity section of a filing (e.g., Form 10-K or Form 10-Q) and that these measures should not be discussed in a company’s earnings release.

The staff noted that it looks to Question 102.09 in the C&DIs on Non-GAAP Financial Measures which addresses the disclosures of material debt covenants. Disclosure of a covenant measure in an earnings release is not objectionable if it is clear that the information regarding the covenant is being presented only because it is material to the company’s financial condition or liquidity and is similar to the disclosure presented as part of the liquidity and capital resources section of the company’s MD&A.

However, if these disclosures appear to present the covenant measure as an indicator of performance rather than liquidity (e.g., highlighting it in the earnings release, comparing it to prior period results, and analyzing it like measures of the company’s performance), and that measure does not comply with the non-GAAP rules and regulations, the staff will comment and will likely object.

The meeting also covered:

– Staff feedback on cybersecurity annual disclosures (10-Ks) and incident reporting (8-Ks) since the new rules went into effect

– Regulation S-K C&DI 128D.18 – Stock and option awards subject to a dual vesting structure

– Applicability of S-X Rules 3-09, 4-08(g), 10-01(b)(1) and 8-03(b)(3) to investments accounted for under the Proportional Amortization Method

– Applicability of the non-GAAP rules to the presentation of more than one measure of a segment’s profit or loss

– Inventory Valuation Allowance

– Applicability of S-X Rule 3-01(c) [Rule 8-08, for SRCs] if the registrant has not been in existence for two full fiscal years preceding the most recently completed fiscal year

– Liz Dunshee