On June 13, 2016, the firm published an alert titled “Non-GAAP Financial Measures: The SEC’s Evolving Views.”
For months now, the Securities and Exchange Commission (the “SEC”) has been warning – in speeches by commissioners and senior staff, at conferences, and in comment letters to companies – about growing misuse of non-GAAP financial measures (“NGFMs”). On May 17, 2016, the SEC’s Division of Corporation Finance released new and updated Compliance and Disclosure Interpretations (“C&DIs”) on the use of NGFMs that demonstrate the SEC’s tightening policy. The C&DIs challenge practices that were previously considered permissible and indicate various types of practices that will likely prompt SEC scrutiny. This memorandum discusses the SEC’s views, as reflected in the new C&DIs, and recommends that companies review their approach to using NGFMs to take those views into account.