On January 22, 2003, the SEC issued final rules, applicable to all public companies, on the use of non-GAAP financial measures and earnings disclosures. These three rules became effective on March 28, 2003 and consist of:
Regulation G which prohibits the public disclosure of non-GAAP financial measures without the disclosure of, and a reconciliation to, the most directly comparable GAAP financial measure;
Amendments to Item 10 of Regulation S-K which regulate the use of non-GAAP financial measures contained in SEC filed documents; and
Item 12 of Form 8-K which requires registrants to furnish to the SEC on Form 8-K all announcements of quarterly and annual earnings results.
The SEC has stated that Regulation G and the amendments to Item 10 of Regulation S-K are generally consistent with the SEC staff’s comments regarding non-GAAP financial measures contained in financial statements that it has reviewed in the past. Given the complexity of these rules and the questions that have arisen, however, further clarification by the SEC will be necessary and the SEC has indicated that it will soon provide additional guidance on these new rules. Click here for an expanded explanation of these rules and their impact on disclosure . We will update this memorandum as additional guidance becomes available.