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Financial Reporting Manual

Dec. 11, 2017

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TOPIC 8 - Non-GAAP Measures of Financial Performance, Liquidity, and Net Worth


(Last updated: 9/30/2008)

8110Applicable Guidance

(Last updated: 12/31/2009)

8110.1Authoritative guidance regarding the use of non-GAAP financial measures can be found in:

  1. Regulation G
  2. S-K 10(e)
  3. Exchange Act Release No. 47226, Conditions for Use of Non-GAAP Financial Measures

8110.2Staff guidance regarding the use of non-GAAP financial measures can be found in the Division of Corporation Finance's Compliance and Disclosure Interpretations, Non-GAAP Financial Measures. The questions are grouped into the following categories:

  1. Section 100 – General
  2. Section 101 – Business Combination Transactions
  3. Section 102 – Item 10(e) of Regulation S-K
  4. Section 103 – EBIT and EBITDA
  5. Section 104 – Segment Information
  6. Section 105 – Item 2.02 of Form 8-K
  7. Section 106 – Foreign Private Issuers
  8. Section 107 – Voluntary Filers
  9. Section 108 – Compensation Discussion and Analysis/Proxy Statement (Last updated: 11/9/2016)

8120Definition of a Non-GAAP Financial Measure

8120.1A non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position, or cash flow that:

  1. excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows of the issuer; or
  2. includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable GAAP measure so calculated and presented.

8120.2Some common examples of measures that meet the definition of non-GAAP measures include the following:

  1. Funds from operations (FFO) (Non-GAAP C&DI Questions 102.01 and 102.02)
  2. EBIT / EBITDA / adjusted EBITDA (Non-GAAP C&DI Questions 102.09, 103.01 and 103.02)
  3. Adjusted revenues
  4. Broadcast cash flow (BCF)
  5. Free cash flow (FCF) (Non-GAAP C&DI Question 102.07)
  6. Core earnings
  7. Measures presented on a constant-currency basis (e.g., revenues, operating expenses, etc.) (Non-GAAP C&DI Question 104.06)
    (Last updated: 3/31/2013)

8120.3Measures of operating performance or statistical measures that fall outside the scope of the definition set forth above are not "non-GAAP financial measures". Additionally, "non-GAAP financial measure" excludes financial information that does not have the effect of providing numerical measures that are different from the comparable GAAP measure.  Examples of measures that are not non-GAAP financial measures include:

  1. Operating and statistical measures (such as unit sales, number of employees, number of subscribers)
  2. Measures of profit or loss and total assets for each segment that are consistent with disclosures made in accordance with ASC Topic 280. (Non-GAAP C&DI Questions 104.01 through 104.06)
  3. Disclosure of expected or contracted indebtedness
  4. Disclosure of amounts of repayments that have been planned but not yet made
  5. Disclosure of estimated revenues or expenses of a new product line (so long as the amounts were estimated in the same manner as would be computed under GAAP) (Non-GAAP C&DI Question 104.05)
  6. Financial measures that are required to be disclosed by a system of regulation of a governmental authority or self-regulatory organization that is applicable to the registrant (such as different levels of capital required by banks or ratio of earnings to fixed charges) (Non-GAAP C&DI Question 102.12)
  7. Ratios or statistical measures that are calculated using exclusively one or both of:
    1. financial measures calculated in accordance with GAAP (such as earnings per share); and
    2. 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).

(Last updated: 12/31/2009)

8130General Applicability and Requirements of Regulation G and S-K 10(e)

(Last updated: 12/31/2011)

Applicability Requirements Prohibitions
Regulation G Applies whenever a registrant required to file reports under Section 13(a) or 15(d) of the Exchange Act (other than a registered investment company), or a person acting on the registrant's behalf, discloses or releases publicly any material information that includes a non-GAAP financial measure. Typically, this information is furnished under Item 2.02 of Form 8-K. (1)
  • A presentation of the most directly comparable GAAP measure; and
  • A reconciliation of the differences between the non-GAAP measure disclosed or released with the most directly comparable GAAP measure. With regard to forward-looking information, a quantitative reconciliation is only required to the extent available without unreasonable efforts. If all of the information necessary is not available without unreasonable efforts, the registrant must identify the information that is unavailable and disclose probable significance.
  • Reg G prohibits any registrant (or person acting on the registrant’s behalf) from making public a non-GAAP financial measure that, taken together with any information accompanying it, contains an untrue statement of material fact or omits to state a material fact necessary in order to make the presentation of the non-GAAP financial measure, in light of the circumstances under which it is presented, not misleading.
Regulation S-K 10(e) Applies to a registrant’s filings with the SEC

Ex: 10-K, 10-Q, 20-F, S-1, F-1
  • Presentation, with equal or greater prominence, of the most directly comparable GAAP measure;
  • A reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure;
  • A statement disclosing the reasons why management believes the presentation of the non-GAAP measure provides useful information to investors regarding the registrant’s financial condition and results of operations; and
  • To the extent material, a statement disclosing the additional purposes, if any, for which management uses the non-GAAP measure.
  • Excluding charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures. This prohibition does not apply to EBIT and EBITDA used as liquidity measures.
  • Adjusting a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent, or unusual, when (1) the nature of the charge or gain is reasonably likely to recur within 2 years or (2) there was a similar charge or gain within the prior 2 years.
  • Presenting non-GAAP financial measures on the face of the GAAP financial statements or in the notes.
  • Presenting non-GAAP financial measures on the face of any pro forma information required to be disclosed by Article 11.
  • Using titles or descriptions of non-GAAP measures that are the same or confusingly similar to GAAP titles.

8140General Application of Regulation G and S-K 10(e) to Foreign Private Issuers

Regulation G S-K 10(e)
Foreign Private Issuers FPIs are exempt from Regulation G if three conditions are met:
  • The securities of the FPI are listed or quoted on a securities exchange or inter-dealer quotation system outside the U.S.;
  • The non-GAAP financial measure is not derived from or based on a measure calculated and presented in accordance with U.S. GAAP; and
  • The disclosure is made by or on behalf of the FPI outside the U.S., or is included in a written communication that is released by or on behalf of the FPI outside the U.S.
Regulation G will not apply to disclosures made by or on behalf of the FPI notwithstanding the existence of one or more of the following circumstances:
  • Disclosure is included in a written communication released in the U.S. as well as outside the U.S., as long as the communication is released contemporaneously with or after its release outside the U.S. and is not otherwise targeted at persons located in the U.S.;
  • Foreign or U.S. journalists or other third parties have access to the information;
  • Disclosures appear on one or more of a registrant’s websites, so long as the websites, taken together, are not available exclusively to, or are targeted at, persons in the U.S; or
  • After disclosure of the information outside the U.S., the information is included in a submission on Form 6-K.
FPIs are subject to S-K 10(e) requirements with respect to use of non-GAAP measures in filings on Form 20-F or 1933 Act registration statements. However, a non-GAAP measure that would otherwise be prohibited under S-K 10 (e)(1)(ii) will be permitted in a filing if the measure is:
  • Required or expressly permitted by the standard-setter that establishes the GAAP principles used in the registrant’s primary financial statements; and
  • Included in the foreign private issuer’s annual report or financial statements used in its home-country jurisdiction or market.
The exemption from the prohibitions under S-K 10(e)(1)(ii) does not cover situations where the measure is merely not prohibited by the foreign standard setter; it only applies where the standard-setter affirmatively acts to require or permit the measure. Note that these measures are still subject to the remaining requirements of S-K 10(e). (Non-GAAP C&DI Question 106.01).

NOTE: With respect to foreign private issuers whose primary financial statements are prepared in accordance with IFRS or a home-country GAAP, references to "GAAP" in the definition of a non-GAAP financial measure refer to the principles under which those primary financial statements are prepared. However, if a foreign private issuer calculates a non-GAAP measure derived from or based on a measure calculated in accordance with U.S. GAAP, then for purposes of the application of the non-GAAP rules, GAAP for that measure would be defined as U.S. GAAP.

The reference to "generally accepted accounting principles in the United States" in the FPI exemption from Regulation G refers to U.S. GAAP regardless of the accounting principles used in the primary financial statements.
(Last updated: 12/31/2011)

(Last updated: 12/31/2009)

(Last updated: 12/31/2009)


(Last updated: 12/31/2009)


(Last updated: 12/31/2009)


(Last updated: 12/31/2009)


(Last updated: 9/30/2008)

8210Required Disclosure

(Last updated: 6/30/2013)

If debt securities are being registered, present a ratio of earnings to fixed charges in the registration statement. If preference equity securities are being registered, present a ratio of earnings to combined fixed charges and preference security dividend requirements in the registration statement. Non-EGCs should present the ratios for each of the last five fiscal years and the latest interim period for which financial statements are presented. (See Section 10220.3 for EGCs.) Either ratio may be disclosed voluntarily in other filings, including 1934 Act forms.

8220Definition of Fixed Charges

(Last updated: 3/31/2009)

For purposes of the ratios, fixed charges are defined as the sum of interest, whether expensed or capitalized (and from both continuing and discontinued operations), amortization of premiums, discounts and capitalized expenses related to indebtedness, amounts accrued with respect to guarantees of other parties' obligations, and the estimated interest component of rental expense.

NOTE: Fixed charges should only include amounts with respect to the guarantee of another party's obligation when it is probable that such obligation will be incurred by the registrant as opposed to using the amounts accrued for guarantees pursuant to FIN 45 [ASC 460]. However, registrants should disclose the nature of the guarantee arrangements accounted for under FIN 45 [ASC 460] and how the company has treated the guarantee in the calculation.

The staff expects the computation of the ratio of earnings to fixed charges to provide a transparent disclosure of the treatment of interest on FIN 48 [ASC 740] liabilities and other types of interest on non-third party indebtedness.

8230Dividend Requirements

Preference security dividend requirements for purposes of the ratio are intended to represent the amount of pre-tax earnings that would be required to pay the dividends on outstanding preference securities of the registrant and other fully or proportionally consolidated entities. Preferred dividend requirements include accretion in the carrying value of redeemable preferred stock. The amount should be computed as the dividend requirement divided by (1 - income tax rate).

8240Definition of Earnings

8240.1For purposes of the ratio, earnings are defined as the registrant's:

  1. pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees, plus
  2. fixed charges,
  3. amortization of capitalized interest,
  4. distributed income of equity investees, and
  5. share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges. [S-K 503]

8240.2From this total, subtract the following:

  1. interest capitalized,
  2. preference security dividend requirements of consolidated subsidiaries (not preferred dividends of parent), and
  3. minority interest in pre-tax income of subsidiaries that have not incurred fixed charges.

8240.3Public utilities following SFAS 71 [ASC 980] should not add amortization of capitalized interest in determining earnings, nor reduce fixed charges by any allowance for funds used during construction

8250Equity in Investee's Losses

Unless the registrant is obligated directly or indirectly to service debt, dividend requirements or rental obligations of an investee, equity in investee's losses are not included in earnings calculation noted at Section 8240 above. If the registrant is so obligated, its equity in the investee's loss should be included in earnings, and fixed charges should include the investee's fixed charges that are related to the obligation.

8260Pro Forma Effect of Refinancing

If proceeds from the sale of the debt or preferred stock being registered will be used to extinguish a portion or all of one or more specific issues of outstanding debt or preferred stock, a pro forma ratio depicting the effect of the refinancing should be presented if the change in the ratio would be ten percent or greater. The adjustments to derive the pro forma ratio should be limited to the net change in interest or dividends resulting from the refinancing. If only a portion of the proceeds will be used to retire debt or preferred stock, only a related portion of the interest or preferred dividend should be used in the pro forma adjustment. The pro forma ratio should be presented for the latest year and interim period only.

8270Foreign Private Issuer

If the registrant is a foreign private issuer, the ratio should be computed on the basis of the primary financial statements and, if materially different, on a U.S. GAAP basis. However, if the primary financial statements are prepared in accordance with IFRS as issued by the IASB, the registrant is not required to present the ratio on a U.S. GAAP basis, regardless of the size of the difference between U.S. GAAP and IFRS as issued by IASB.

8280Exhibit 12

Calculations demonstrating the determination of the ratios should be filed as an exhibit to the registration statement.


(Last updated: 9/30/2008)

8310Presentation of Net Tangible Book Value per Share

In IPOs of common stock where there is substantial disparity between the public offering price and the offering price previously paid by officers, directors, promoters and affiliates (dilution), presentation of net tangible book value per share is required as part of the dilution table.


There are no rules or authoritative guidelines that define tangible book value. Tangible book value per share is used generally as a conservative measure of net worth, approximating liquidation value. The staff believes generally that tangible assets should exclude any intangible asset (such as deferred costs or goodwill) that cannot be sold separately from all other assets of the business, and should exclude any other intangible asset for which recovery of book value is subject to significant uncertainty or illiquidity.

8330Staff Practice

In some cases, the staff allows dual calculations of tangible book value. For example, some intangible assets (such as patents) may be sold separately, but the ability to recover their carrying value may be indeterminable. Also, some material deferred costs are accounted for as adjustments to the yield on specific assets or liabilities (debt costs or policy acquisition costs). The staff has allowed tangible book value per share calculations made with and without those assets, with appropriate explanation.

[1] Per Instruction 2 to Item 2.02 of Form 8-K, the requirements of S-K 10(e)(1)(i) apply to disclosures (furnished or filed) under Item 2.02 of Form 8-K.

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