On Oct. 17, 2017, the Division of Corporation Finance of the Securities and Exchange Commission (SEC ) released updated Compliance and Disclosure Interpretations (CDIs) on the use of non-GAAP financial measures. These regulations apply to public disclosures of non-GAAP financial measures, including in earnings press releases, investor presentations and required SEC filings, by any issuer with securities registered under Section 12 of the Securities Exchange Act of 1934 (Exchange Act) or that is required to file reports under Section 15(d) of the Exchange Act. Two new CDIs were included in this release, addressing the use of non-GAPP measures in business combination transactions.

One of the new CDIs (Question 101.01) poses the question whether financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction would constitute a use of non-GAAP financial measures subject to Regulation G. The SEC answered in the negative, relying on Item 10(e)(5) of Regulation S-K and Rule 101(a)(3) of Regulation G, which provided that non-GAAP financial measures do not include, among others, financial measures required to be disclosed by a system of regulation of a government or governmental authority. Accordingly, to the extent (i) the financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction and (ii) the forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law regarding disclosure of the financial advisor’s analyses or substantive work, such financial measures would not be non-GAAP financial measures.

The other new CDI (Question 101.02) poses the question whether that same exemption extends to disclosure of such non-GAAP financial measures relating to a business combination transaction in registration statements, proxy statements and tender offer statements. The SEC answered in the negative, explaining that the exemption from Regulation G and Item 10(e) of Regulation S-K for non-GAAP financial measures disclosed in communications subject to Securities Act Rule 425 and Exchange Act Rules 14a-12 and 14d-2(b)(2) is also intended to apply to communications subject to Exchange Act Rule 14d-9(a)(2). However, this exemption does not extend beyond such communications. Consequently, if the same non-GAAP financial measure that was included in a communication filed under one of those rules is also disclosed in a Securities Act registration statement, proxy statement or tender offer statement, this exemption from Regulation G and Item 10(e) of Regulation S-K would not be available for that non-GAAP financial measure.

For more information, the complete CDIs are available here.