Non-GAAP Financial Measures: The Latest Developments

Teleconference

Thursday, September 15, 2016

12:00 PM – 1:00 PM EDT

Presenters:

Scott Lesmes, Partner, Morrison & Foerster LLP

David Lynn, Partner, Morrison & Foerster LLP

1. Presentation

2. Morrison & Foerster Practice Pointers on Non-GAAP Financial Measures

3. SEC Non-GAAP Financial Measures Compliance and Disclosure

Interpretations (“C&DIs”)

4. SEC Division of Corporation Finance Financial Reporting Manual – “Topic 8: Non-GAAP Measures of Financial Performance, Liquidity, and Net Worth”

5. SEC Final Rule: Conditions for Use of Non-GAAP Financial Measures

NON-GAAP FINANCIAL MEASURES: THE LATEST DEVELOPMENTS September 15, 2016

• In 2015, SEC Chair Mary Jo White suggested that issuers consider: • Why are you using a non-GAAP measure, and how is it useful to investors?

• Are you giving non-GAAP measures no greater prominence, as required?

• Are your explanations of how you’re using non-GAAP measures accurate and complete, and without boilerplate?

• Are there appropriate controls over the calculation of non-GAAP measures?

• In March 2016, Chair White said that the SEC might need to use its rulemaking authority to address non-GAAP measures

• The Staff has recently stepped up its review of non-GAAP measures • The Staff has said that they will focus on companies using non-GAAP measures to accelerate

the recognition of revenue earlier than allowed under GAAP

• The Staff will also challenge companies reporting adjusted earnings on a per share basis when they appear to look to much like measures of cash flow

• It is also expected that the Staff will comment when companies “cherry-pick” non-GAAP measures

• The Staff recently updated the Non-GAAP Measures Compliance and Disclosure Interpretations to reflect a number of new and revised interpretive positions

Background

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• A numerical measure of historical or future performance, financial position or cash flows that either:

• Excludes (or adjusts) amounts included in the most comparable GAAP measure; or

• Includes (or adjusts) amounts excluded from the most comparable GAAP measure

• The following are not non-GAAP financial measures:

• Operating and other statistical measures

• Ratios or statistical measures that exclusively use GAAP financial measures; and/or

• Operating or other measures that are not non-GAAP financial measures

• Disclosure without “the math”

What is a Non-GAAP Financial Measure?

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• Applies only to non-GAAP financial measures in SEC filed documents

• Affirmative requirements:

• Most directly comparable GAAP measure must receive equal or greater prominence

• Must provide a quantitative reconciliation to GAAP — if prospective, required unless unreasonable effort

• If non-GAAP financial measure is derived from or based on a measure calculated in accordance with U.S. GAAP, the reconciliation must be to U.S. GAAP

• If reconciliation to prospective amounts would require unreasonable effort, instead describe the anticipated differences between the non-GAAP financial measure and the most directly comparable GAAP financial measure qualitatively

• Disclose how management uses the measure and why management believes the measure provides useful information to investors

Item 10 of Regulation S-K

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• Negative requirements

• Cannot exclude a cash charge from a liquidity measure — except EBIT and EBITDA

• Cannot exclude items identified as nonrecurring, infrequent or unusual if likely to recur — 2 year window (forward and backward)

• Cannot include on the face of or in footnotes to financial statements

• Cannot have a title that is the same as or similar to GAAP measures

• Item 10(e), however, permits foreign private issuers to use an otherwise prohibited non-GAAP financial measure if the measure:

• relates to home country GAAP or IFRS;

• is required or "expressly permitted" by the applicable standard-setter; and

• is included in the annual report used in its home jurisdiction for distribution to securityholders

Item 10 of Regulation S-K (cont’d)

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• Regulation G generally applies to all public disclosures that contain non-GAAP financial measures, including press releases, investor presentations and conference calls, whether such disclosure is made in print, orally, telephonically, by webcast or by broadcast

• In connection with the disclosure of a non-GAAP financial measure, Regulation G requires the presentation of:

• The most directly comparable financial measure calculated and presented in accordance with GAAP; and

• A reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measure

• For public disclosure made orally, telephonically, or by webcast, broadcast or similar means, an issuer may post the reconciliation simultaneously to its website and announce the location to investors of the presentation that includes the non-GAAP financial measure

Regulation G

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• Question 100.01 – A performance measure that excludes normal, recurring, cash operating expenses necessary to operate the business

• Question 100.02 – A non-GAAP measure that adjusts a particular charge or gain in the current period and for which other, similar charges or gains were not also adjusted in prior periods, unless the change between periods is disclosed and the reasons for it explained

• Question 100.03 – A non-GAAP measure that is adjusted only for nonrecurring charges when there were non-recurring gains that occurred during the same period

• Question 100.04 – A non-GAAP revenue measure that backs out the effect of GAAP revenue recognition and measurement principles applicable to a company’s business

Inherently Misleading Non-GAAP Measures

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• Question 102.10 – Examples of non-GAAP presentations that fail to give “equal or greater prominence” to the comparable GAAP measure:

• Omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures

• Presenting a non-GAAP measure using a style of presentation (e.g., bold, larger font) that emphasizes the non-GAAP measure over the comparable GAAP measure

• A non-GAAP measure that precedes the most directly comparable GAAP measure (including in an earnings release headline or caption)

• Describing a non-GAAP measure as, for example, “record performance” or “exceptional” without at least an equally prominent descriptive characterization of the comparable GAAP measure

• Providing tabular disclosure of non-GAAP financial measures without preceding it with an equally prominent tabular disclosure of the comparable GAAP measures or including the comparable GAAP measures in the same table

• Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence

Equal or Greater Prominence

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• Question 102.10 – More prominence is given to a non-GAAP measure when an issuer excludes a quantitative reconciliation with respect to a forward-looking non-GAAP measure in reliance on “unreasonable efforts” exception without disclosing that fact and identifying the information that is unavailable and its probable significance in a location of equal or greater prominence.

Forward-Looking Non-GAAP Information

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• Question 102.11 – Disclosure of tax effects of non-GAAP measures:

• If a liquidity measure includes income taxes, it “might be acceptable” to adjust GAAP taxes to show taxes paid in cash. If a measure is a performance measure, the disclosure should include current and deferred income tax expense commensurate with the non-GAAP measure of profitability

• Adjustments to arrive at a non-GAAP measure should not be presented “net of tax.” Rather, income taxes should be shown as a separate adjustment and clearly explained

Tax-Related Effects

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• Question 102.05 – With regard to the prohibition on presenting non-GAAP liquidity measures on a per share basis, the Staff notes that the prohibition applies based on whether a non-GAAP measure can be used as a liquidity measure, even if management presents it solely as a performance measure

• When analyzing these questions, “the staff will focus on the substance of the non-GAAP measure and not management’s characterization of the measure”

• In Questions 102.08 and 103.03 of the Compliance and Disclosure Interpretations, the Staff now emphasizes that free cash flow, EBIT and EBITDA must not be presented on a per share basis

Liquidity vs. Performance Measures; Per Share Presentation

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• Question 102.01 – The Staff reiterated that it accepts the NAREIT definition of FFO as a performance measure, and as a result does not object to its presentation on a per share basis

• Question 102.02 – The Staff, however, revised this interpretation to indicate that, while an issuer can further adjust from that accepted FFO measure, when making any such adjustments, the issuer must abide by all other requirements and interpretations that would apply in any context

• For example, further adjustments could result in the presentation of a liquidity measure than cannot be presented on a per share basis

Funds From Operations (FFO)

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• Reasons for non-GAAP measures • Additional details about usefulness and uses of non-GAAP measures

• No boilerplate

• Non-GAAP financial measure titles • Titles may not accurately reflect amounts reported

• Confusingly similar (or the same as) GAAP measures or common accepted non-GAAP measures (e.g., free cash flow, EBIT, EBITDA)

• Reconciliation to most directly comparable GAAP measure • Reconciling to wrong GAAP measure

• Characterization of adjustments • Whether characterization of adjustments as “non-recurring,” “unusual” or

“infrequent” is consistent with definitions of those terms in Item 10(e)(1)(ii)(B)

• Moving forward – At the recent ABA Business Law Section meeting, Corp Fin Director Higgins indicated that Staff review of Q2 earnings releases is underway, which may help clarify next steps

Frequent Staff Comments

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• In recent weeks, numerous issuers have received requests for information asking wide-ranging questions about non-GAAP financial measure disclosures

• Requests are a “matter of inquiry”, not an investigation

• Requests have typically sought an extensive range of documents related to the subject earnings releases and SEC filings going back several years

• Includes all drafts, e-mails, other electronic communications and related documentation

• The Staff also asks issuers to identify other instances of non-compliance with Regulation G and Item 10(e), as well as any mitigating circumstances the Staff should consider

• The Staff has been unwilling to pare back the information requests, but has allowed more time to comply

SEC Enforcement Sweep

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• Not clear whether related to the Corp Fin comment process

• Likely part of a coordinated effort by Enforcement’s Financial Reporting and Audit (“FRAud”) Group

• Part of “Broken Windows” policy initiative?

• Potential outcomes

SEC Enforcement Sweep (cont’d)

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• Transitioning away from Non-GAAP Measures?

• If not:

• Ensure presentation of non-GAAP measures is not misleading

• Ensure presentation of non-GAAP measures provides equal or greater prominence for GAAP measures, including in forward-looking disclosures

• Ensure no per share presentations of liquidity measures

• Ensure income tax effects on non-GAAP measures are appropriately adjusted

• Involvement of Audit Committee

Moving Forward with Non-GAAP Measures

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On June 27, 2016, Securities and Exchange Commission (“SEC”) Chair Mary Jo White, speaking at the International Corporate Governance Network’s Annual Conference in San Francisco, reiterated the SEC’s growing concern regarding the use by public companies of non-GAAP financial measures.1 In her keynote address, Chair White lamented that “[i]n too many cases, the non-GAAP information, which is meant to supplement the GAAP information, has become the key message to investors, crowding out and effectively supplanting the GAAP presentation.”2 While companies are allowed to present non-GAAP financial measures in their public disclosures to enable them to convey a clearer picture of their results of operations and “tell their own stories” to investors, Chair White voiced her concern that recently, companies have been “taking this flexibility too far and beyond what is intended and allowed by our rules.”3

Chair White’s comments echoed a statement she made in a December 2015 speech that these non-GAAP financial measures may be a source of confusion4 as well as similar sentiments expressed by senior SEC staff in the past few months, articulated in recent speeches and pronouncements by James Schnurr, the SEC’s Chief Accountant, Wesley R. Bricker, the SEC’s Deputy Chief Accountant and Mark Kronforst, the Chief Accountant in the SEC’s Division of Corporation Finance.5 In a March 2016 speech delivered at the 12th Annual Life Sciences Accounting and Reporting Congress, Mr. Schnurr pointed out that the staff of the SEC’s Division of Corporation Finance (the “Staff”) has observed a significant and “troubling increase” over the past few years in the use of non-GAAP financial measures, the nature of non-GAAP adjustments being made by companies, as well as the prominence being given by analysts and the media to these non-GAAP financial measures in their coverage.6 In early May of this year, Mr. Bricker noted that certain company practices related to non-GAAP financial measures have caused SEC concern for being potentially misleading to investors. These practices include, among others, apparent cherry picking adjustments within a non-GAAP financial measure; adjustments to remove normal, cash operating expenses; and the use of individually-tailored accounting principles to calculate non-GAAP earnings.7 Last mid-May, Mr. Kronforst declared that there will be an “uptick” in the number of SEC comments to companies with respect to their non-GAAP financial measure disclosures and expressed the view that the next reporting quarter would be a great opportunity for companies to “self-correct” their disclosures.8

On May 17, 2016, the Staff issued updated Compliance and Disclosure Interpretations (the “Updated C&DIs”) on the use of non-GAAP financial measures.9 The Updated C&DIs build on previous C&DIs issued by the Staff in 2011, 2010 and 2003 and provide further SEC guidance on Regulation G (“Regulation G”) under the Securities Act of 1933, as amended (the “Securities Act”), and Item 10(e) of Regulation S-K under the Securities Act (“Regulation S-K”), the two principal rules enacted by the SEC in 2003 to address the use of non-GAAP financial measures.

A copy of the Updated C&DIs, marked to show changes since the 2011 version of the C&DIs, is available at: http://www.mofo.com/~/media/Files/PDFs/160808UpdatedCDIsNonGAAPMeasures.pdf.

We discuss below the nature of non-GAAP financial measures, the disclosure rules governing them, and the Updated C&DIs. We also look at some recent SEC comment letters addressing non-GAAP financial measures and offer some practical guidance for public companies to comply with the updated SEC guidance.

What Is a “Non-GAAP Financial Measure”? Regulation G and Item 10(e) of Regulation S-K define a “non-GAAP financial measure” as a numerical measure of historical or future financial performance, financial position or cash flows, that excludes (or includes) amounts that are otherwise included in (or excluded from) the most directly comparable measure calculated and presented in the financial statements under generally accepted accounting principles (“GAAP”).10 Common examples of non-GAAP financial measures include EBIT (earnings before interest and taxes), EBITDA (earnings before

Practice Pointers on Non-GAAP Financial Measures

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interest, taxes, depreciation and amortization), Adjusted EBITDA, free cash flow, and funds from operations (“FFO”).

The definition of a non-GAAP financial measure excludes:

• operating and other statistical measures (such as unit sales, number of employees, numbers of subscribers, or number of advertisers);

• ratios or statistical measures that are calculated using exclusively one or both:

o financial measures calculated in accordance with GAAP (such as operating margin, where GAAP revenue is divided by GAAP operating income); and

o operating measures or other measures that are not non-GAAP financial measures (such as sales per square foot or same store sales, assuming that the sales figures were calculated in accordance with GAAP); and

• financial measures required to be disclosed by GAAP, SEC rules, or a system of regulation of a government or governmental authority or self-regulatory organization that is applicable to the registrant (such as measures of capital or reserves calculated for regulatory purposes).11

Why Do Companies Use Non-GAAP Financial Measures? A company often uses non-GAAP financial measures in the Management’s Discussion and Analysis (“MD&A”) section of its periodic reports, its earnings releases, investor presentations and other communications in order to supplement its GAAP financial presentations and to provide investors with a better understanding of the company’s performance, liquidity and financial position. Often, non-GAAP operating measures are used by equity research analysts, rating agencies, and other financial professionals in evaluating or comparing the performance of comparable companies. Non-GAAP financial measures are allowed by the SEC in order for a registrant to convey information to investors that the registrant believes is relevant and useful in understanding its performance; non-GAAP financial measures enable management to convey a “clearer picture of how they see the company’s results of operations in a way that GAAP results alone may not convey.”12

Requirements under Regulation G Regulation G contains a reconciliation requirement and a general disclosure requirement.13 The reconciliation requirement provides that whenever a registrant or a person acting on its behalf publicly discloses (whether in an SEC-filed report or in an earnings call or investor presentation) material information that includes a non-GAAP financial measure, it must accompany that non-GAAP financial measure with:

• A presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP; and

• A quantitative reconciliation of the differences between the non-GAAP financial measure and the most directly comparable GAAP financial measure.14

To illustrate, if a registrant presents EBITDA as a performance measure, then EBITDA should be reconciled to net income as presented in the statement of operations under GAAP15 since, in this case, net income is the most directly comparable financial measure calculated and presented in accordance with GAAP.

A quantitative reconciliation is required for historical non-GAAP financial measures. For forward-looking information, however, a quantitative reconciliation is required only to the extent available without unreasonable efforts to the registrant. In this latter case, however, the SEC has clarified that the registrant must: (i) disclose the fact that the GAAP financial measure is not accessible on a forward-looking basis; and (ii) identify the information that is unavailable and disclose its probable significance.16

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In turn, the general disclosure requirement provides that a registrant or a person acting on its behalf, should not make public a non-GAAP financial measure that, taken together with the information accompanying that measure, contains an untrue statement of a 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.17

Regulation G applies to all public disclosures and is not limited to the registrant’s written public filings. If a non-GAAP financial measure is made public orally, telephonically, by webcast, by broadcast, or by similar means, then the reconciliation requirement under Regulation G would be satisfied if:

• the required information (i.e., the presentation and reconciliation) is provided on the registrant’s website at the time the non-GAAP financial measure is made public; and

• the location of the website is made public in the same presentation in which the non-GAAP financial measure is made public.18

Requirements under Item 10(e) of Regulation S-K Item 10(e) applies to non-GAAP financial measures that are included in SEC filings. To comply with Item 10(e) of Regulation S-K, the registrant must comply with the requirements under Regulation G and, in addition, the registrant must include the following in its SEC filing:

• a presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP;

• a statement disclosing why the registrant’s management believes that presentation of the non-GAAP financial 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 the registrant's management uses the non-GAAP financial measure.19

Item 10(e) prohibits:

• non-GAAP financial measures of liquidity that exclude charges or liabilities requiring cash settlement, other than EBIT and EBITDA;

• adjustments to non-GAAP financial measures of performance that eliminate or smooth items identified as “nonrecurring, infrequent or unusual,” when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years;

• the presentation of non-GAAP financial measures on the face of the registrant’s financial statements prepared in accordance with GAAP or in the accompanying notes; and

• the use of titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures.

Exceptions for Proposed Business Combinations and Registered Investment Companies The requirements of Regulation G and Item 10(e) of Regulation S-K do not apply to:

• any non-GAAP financial measure included in a disclosure relating to a proposed business combination, the entity resulting therefrom or an entity that is a party thereto, if the disclosure is contained in a communication that is subject to the SEC’s communication rules applicable to business combination transactions;20 and

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• investment companies registered under Section 8 of the Investment Company Act of 1940, as amended.21

Application of Paragraph (1)(i) of Item 10(e) of Regulation S-K to Item 2.02 of Form 8-K Instruction 2 to Item 2.02 of Form 8-K provides that the requirements of paragraph (1)(i) of Item 10(e) of Regulation S-K apply to disclosures made by a registrant under Item 2.02. Item 2.02 is captioned “Results of Operations and Financial Condition” and pertains to earnings release disclosures that are made by a registrant (either in the body of the Current Report on Form 8-K or as an exhibit thereto) and are furnished to the SEC. Under Item 10(e), a registrant must include, either in the body of the Form 8-K or in the earnings release exhibit to the Form 8-K:

• a statement disclosing why the registrant's management believes that presentation of the non-GAAP financial 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 the registrant's management uses the non-GAAP financial measure.

Recent SEC Guidance: The Updated C&DIs The Updated C&DIs issued by the Staff can be grouped into four main areas: potentially misleading non-GAAP financial measure practices; equal or greater prominence presentation of GAAP measures; non-GAAP financial measures of liquidity that are presented on a per share basis; and other C&DIs relating to FFO and income tax effects of adjustments. We discuss each of these in turn.

Potentially Misleading Non-GAAP Financial Measure Practices Questions 100.01 through 100.04 of the Updated C&DIs illustrate certain practices concerning non-GAAP financial measures that the Staff believes could be potentially misleading and, therefore prohibited under Regulation G. The Staff’s guidance, along with its examples where adjustments to non-GAAP financial measures or their presentation could be potentially misleading, are summarized below:

• Certain adjustments, although not explicitly prohibited, may violate Rule 100(b) of Regulation G because they cause the presentation of the non-GAAP financial measure to be misleading. C&DI Question 100.01 provides, as an example, that presenting a performance measure that excludes normal, recurring, cash operating expenses necessary to operate a registrant’s business could be misleading.

• A non-GAAP financial measure may be misleading if it is presented inconsistently between periods. As an example, C&DI Question 100.02 states that a non-GAAP financial measure that adjusts a particular charge or gain in the current period and for which other, similar charges or gains were not also adjusted in prior periods, could violate Rule 100(b) of Regulation G, unless: (1) the change between periods is disclosed; (2) the reasons for the change are explained; and (3) if the change is sufficiently significant, the related non-GAAP financial measures presentation in the prior periods is recast to conform to the current presentation and to place the disclosure in the appropriate context.

• Non-GAAP financial measures that exclude charges but do not exclude any gains could violate Rule 100(b) of Regulation G for being misleading. As an example, C&DI Question 100.02 provides that a non-GAAP financial measure that is adjusted only for non-recurring charges when there were non-recurring gains that occurred during the same period could violate Rule 100(b) of Regulation G.

• Non-GAAP financial measures that substitute individually tailored revenue recognition and measurement methods for those of GAAP could violate Rule 100(b) of Regulation G. As an example, C&DI Question 100.04 provides a situation where a registrant presents a non-GAAP performance measure that is adjusted

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to accelerate revenue recognized ratably over time in accordance with GAAP as though it earned revenue when customers are billed. Aside from revenue, C&DI Question 100.04 also states that individually tailored recognition and measurement methods for other financial statement line items may also violate Rule 100(b) of Regulation G for being misleading.

With respect to C&DI Question 100.04, the Staff has recently stated that it would not object to a non-GAAP financial measure that adjusts revenue to reflect the upcoming change in revenue recognition accounting standards, and that these disclosures which seek to “bridge” the old GAAP revenue measure with the new GAAP revenue measure help investors understand the transition from the old to the new accounting standard.22

Equal or Greater Prominence Presentation of GAAP Measures Question 102.10 of the Updated C&DIs presents the Staff’s prescriptive approach to the “equal or greater prominence” requirement under Item 10(e) of Regulation S-K. In order to comply with Item 10(e), the registrant must include in its SEC filing, a presentation, with equal or greater prominence, of the most directly comparable GAAP measure. In Question 102.10 of the Updated C&DIs, the Staff provides examples where this requirement is not met, i.e., in the following instances, the non-GAAP financial measures may be considered to be more prominent than the GAAP measures, and therefore, such presentation does not comply with Item 10(e):

• Presenting a full income statement of non-GAAP measures or presenting a full non-GAAP income statement when reconciling non-GAAP measures to the most directly comparable GAAP measures;

• Omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures;

• Presenting a non-GAAP measure using a style of presentation (e.g., bold, larger font) that emphasizes the non-GAAP measure over the comparable GAAP measure;

• Including a non-GAAP measure that precedes the most directly comparable GAAP measure (including in an earnings release headline or caption);

• Describing a non-GAAP measure as, for example, “record performance” or “exceptional” without at least an equally prominent descriptive characterization of the comparable GAAP measure;

• Providing tabular disclosure of non-GAAP financial measures without preceding it with an equally prominent tabular disclosure of the comparable GAAP measures or including the comparable GAAP measures in the same table;

• Excluding a quantitative reconciliation with respect to a forward-looking non-GAAP measure in reliance on the “unreasonable efforts” exception in Item 10(e) without disclosing that fact and identifying the information that is unavailable and its probable significance in a location of equal or greater prominence; and

• Providing discussion and analysis of a non-GAAP measure without a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence.

While the Staff acknowledged that whether a non-GAAP financial measure is more prominent than the comparable GAAP measure generally depends on the facts and circumstances in which the disclosure is made, it did say that it would consider the above as examples where disclosure of non-GAAP financial measures are more prominent than GAAP measures.

Non-GAAP Financial Measures of Liquidity that Are Presented on a Per Share Basis The Staff updated existing C&DI Questions 102.05, 102.07 and 103.02 to highlight the point that a non-GAAP financial measure that is used as a liquidity measure cannot be presented on a per share basis. SEC guidance under these questions may be summarized as follows:

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• Non-GAAP per share performance measures may be meaningful from an operating standpoint and are allowed under Item 10(e). Non-GAAP per share performance measures should be reconciled to GAAP earnings per share.

• On the other hand, non-GAAP liquidity measures that measure cash generated must not be presented on a per share basis in documents filed or furnished with the SEC, consistent with Accounting Series Release No. 142.

• Whether per share data is prohibited depends on whether the non-GAAP measure can be used as a liquidity measure, even if management presents it solely as a performance measure. When analyzing these questions, the Staff will focus on the substance of the non-GAAP measure and not management’s characterization of the measure.

• Free cash flow is a liquidity measure that must not be presented on a per share basis.

• EBIT or EBITDA must not be presented on a per share basis.

In addition, the Staff has recently stated it utilizes a range or a spectrum in determining whether a particular measure is used as a liquidity measure or a performance measure: on the liquidity side of the spectrum, there is operating cash flow, and on the performance side of the spectrum, there is net income. While there are other measures in the middle of the spectrum, the Staff has recently indicated that for now, it will be focused on analyzing the liquidity end of the spectrum.23 Other C&DIs Relating to FFO and Income Tax Effects of Adjustments The Updated C&DIs made certain updates to Questions 102.01 and 102.02 of the existing C&DIs that pertain to the use of the metric “funds from operations” or FFO, a non-GAAP financial measure traditionally used by the National Association of Real Investment Trust (“NAREIT”). The Staff stated that it continues to accept NAREIT’s definition of FFO as in effect as of May 17, 2016, as a performance measure and does not object to such presentation on a per share basis. The Staff also stated that a registrant may present FFO on a basis other than as defined by NAREIT, provided that any adjustments made to FFO must comply with the requirements of Item 10(e) of Regulation S-K for a performance measure or a liquidity measure. Depending on the nature of the adjustments, if FFO is presented or adjusted as a liquidity measure, then the presentation of FFO on a per share basis is prohibited.

Last, the Updated C&DIs updated Question 102.11. The SEC’s guidance therein regarding the income tax effects related to adjustments is as follows:

• A registrant should provide income tax effects on its non-GAAP measures depending on the nature of the measures.

• If a measure is a liquidity measure that includes income taxes, it might be acceptable to adjust GAAP taxes to show taxes paid in cash.

• If a measure is a performance measure, the registrant should include current and deferred income tax expense commensurate with the non-GAAP measure of profitability.

• In addition, adjustments to arrive at a non-GAAP measure should not be presented “net of tax.” Rather, income taxes should be shown as a separate adjustment and clearly explained.

Recent SEC Comment Letters An examination of comment letters issued by the Staff since the Updated C&DIs came out in mid-May reveals the ongoing focus of the Staff on the use of non-GAAP financial measures by registrants in their filings. In what follows, we identify common themes or areas of concern identified by the Staff as they relate to the use of non-GAAP financial measures, and we also reproduce excerpts from the actual comments issued by the Staff recently.

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• Reconciliation to the Most Directly Comparable GAAP Measure

Examples of SEC Comments:

o Please reconcile each non-GAAP measure presented to the most comparable GAAP measure in accordance with Item 10(e)(1)(i)(a) of Regulation S-K. Specifically, we did not note a reconciliation for (a) adjusted earnings per share from earnings per share, (b) the percentage increase in constant currency adjusted earnings per share over the prior year from the percentage increase in earnings per share; and (c) the percentage increase in constant currency segment income from the percentage increase in income from operations.

o We note that you present the non-GAAP measures operating income and net loss excluding one-time items related to your facility relocation, but you have not provided the required reconciliations to the most directly comparable GAAP measures as well as the other disclosures required by Item 10(e)(i) of Regulation S-K. Please confirm that in future filings you will revise your presentations of non-GAAP measures to fully comply with that guidance. This comment also applies to your Forms 10-Q and your earnings releases on Form 8-K.

o Please revise your disclosure of your non-GAAP measure Net operating income in future filings to provide a reconciliation of the most directly comparable financial measure or measures calculated and presented in accordance with GAAP.

o The discussion of quarterly results appearing on the earnings release provided under Exhibit 99.1 is based on non-GAAP “core earnings”, and does not include a corresponding presentation and discussion of GAAP results. This is inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016, in particular C&DI 102.10. Please review this guidance when preparing your next earnings release.

• Non-Recurring, Infrequent or Unusual Items

Example of SEC Comment:

o We note that your non-GAAP measures exclude purchased intangible amortization, restructuring costs, assets impairments, acquisition-related costs, and income tax items and that you describe these items as infrequent or unusual although you have reported similar items for multiple fiscal years. Please note that Item 10(e)(1)(ii)(B) of Regulation S-K prohibits you from adjusting a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gain within the prior two years. In addition, your non-GAAP measures appear to exclude certain normal, recurring, cash operating expenses which is inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016. Please review this guidance when preparing your next earnings release.

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• Equal or Greater Prominence

Examples of SEC Comments:

o We note that in your executive summary you focus on key non-GAAP financial measures and not GAAP financial measures which may be inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016 (specifically Question 102.10). We also note issues related to prominence within your earnings release. Please review this guidance when preparing your next earnings release.

o We note that you present here and within the appendix full non-GAAP (“Adjusted Pro Forma”) income statements for the three months ended March 31, 2016 and 2015. This disclosure is inconsistent with the updated non-GAAP Compliance and Disclosure Interpretations issued on May 17, 2016 (refer to 102.10). Please review this guidance when preparing your next earnings release and modify your non-GAAP disclosures accordingly.

o We note that Core (Non-GAAP) Diluted Earnings per Share precedes the most directly comparable GAAP measure in the headlines to the earnings release filed as Exhibit 99.1. In addition, we note that the adjustments to GAAP EPS to reconcile to Core EPS are presented net of tax. These presentations are inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016. Please review this guidance when preparing your next earnings release.

o We note that you present non-GAAP operating income in the headline of your press release without also presenting GAAP operating income with equal or greater prominence, as required by Item 10(e)(1)(i)(A) of Regulation S-K. Please revise your future earnings releases filed on Form 8-K to fully comply with the guidance in Item 10(e)(1)(i)(A) of Regulation S-K.

o We note that you present non-GAAP EPS in the headline of your press release without also presenting GAAP earnings per share with equal or greater prominence, as required by Item 10(e)(1)(i)(A) of Regulation S-K. Similarly, you highlight a 5% non-GAAP constant currency sales growth in the first bullet and discuss other constant currency sales growth without discussing the corresponding change in GAAP sales. Your presentations appear to give greater prominence to the non-GAAP measures than to the comparable GAAP measures which is inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016. Please review this guidance when preparing your next earnings release.

• Usefulness to Investor of Non-GAAP Financial Measures

Examples of SEC Comments:

o In addition, you did not provide disclosures in the Non-GAAP Financial Measures section on why it is useful to investors in terms of evaluating your performance. Please revise to provide such disclosures as required by Item 10(e)(i)(C) of Regulation S-K.

o Please expand your disclosures to provide substantive justification specific to your circumstances as to why each non-GAAP measure presented is useful to investors in accordance with Item 10(e)(1)(i)(c) of Regulation S-K. Please also refer to Instruction 2 to Item 2.02 of Form 8-K that indicates that the requirements of Item 10(e)(1)(i) of Regulation S-X apply to information furnished under Item 2.02 of Form 8-K and Question 102.10 of the Compliance & Disclosure Interpretations on Non-GAAP Financial Measures.

o For each non-GAAP measure presented in future filings, please provide a statement disclosing the reasons why your management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the registrant’s financial condition and results of operations. Please note that each measure should be discussed separately, and that boilerplate disclosure alone, e.g. measure is useful to analysts, is not sufficient.

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o We have reviewed your response to our prior comment 2. You state that the non-GAAP measures are more reflective of your actual operating results. In this regard, your proposed disclosure of the reasons for these supplemental non-GAAP measures appears to give greater prominence for their use than the actual amounts in your GAAP financial statements. Please revise your proposed disclosure of how the non-GAAP measures are meaningful as supplemental information to the reported GAAP amounts.

o As previously requested, please expand your disclosures to provide substantive justification specific to your circumstances rather than boilerplate language included in your draft disclosure that clearly explains why each non-GAAP measure presented is useful to investors in accordance with Item 10(e)(1)(i)(c) of Regulation S-K.

• Use of Titles or Descriptions of Non-GAAP Financial Measures that are the Same as, or Confusingly

Similar to, GAAP Financial Measures

Examples of SEC Comments:

o We note that you have presented several non-GAAP measures that you refer to as pro forma, but it does not appear that these are pro forma measures in accordance with GAAP. Please rename these measures in future filings to avoid confusion.

o We note your definition of EBITDA. Please note that measures calculated differently from EBITDA (as described in Exchange Act Release No. 47226) should not be characterized as EBITDA and their titles should be distinguished from EBITDA, such as Adjusted EBITDA. Reference is also made to Question 103.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures.

o Refer to your discussion and tabular presentation of pro forma adjusted net income and pro forma adjusted net income per share data. Your presentation appears to be comprised of certain non-GAAP adjustments that are not pro forma adjustments pursuant to Article 11 of Regulation S-X. The tabular reconciliation appears to adjust your historical GAAP net income to a Non-GAAP measure of net income. In this regard, please revise the titles of the line items ‘pro forma income taxes’ and ‘pro forma adjusted net income’ to ‘adjusted income taxes’ and ‘adjusted net income,’ respectively, or similar revised captions to reflect to proper nature of these measures.

o We note your discussion of “core net income” and “core total revenue” in this section. Please note that the use of the word “core” implies you are referring to your most central or essential operations and results. Removal of gains or losses on the sale of securities and charges for asset-write downs, banking systems conversion, retention and severance expenses from net income to arrive at “core” income implies that sales of investments and asset write-downs, banking system conversions, retention and severance expenses are not an inherent part of your core operations even though you had net gains or losses on sale of securities and incurred charges for asset write-downs, banking system conversion, retention and severance expenses over the last five years. We believe it would be appropriate to use a more descriptive title to describe the non-GAAP financial measure, perhaps by eliminating the use of the word “core” in the title. Please revise your disclosure in future filings accordingly.

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• Liquidity versus Performance Measures

Example of SEC Comment:

o Please ensure your disclosures appropriately characterize your non-GAAP measures as operating performance measures and/or liquidity or cash flow measures. For example, you appear to have characterized free cash flow as an operating performance measure. However, you reconcile free cash flow from net cash used for operating activities, which indicates free cash flow is a liquidity measure.

• FFO

Example of SEC Comment:

o Please provide us an explanation of the adjustments you make to arrive at “recurring funds from operations,” in particular the “taxable REIT subsidiary revocation election” adjustment. Please also tell us why management believes this non-GAAP measure provides useful information to investors and the additional purposes, if any, for which management uses the non-GAAP measure. See Item 10(e)(1)(i) (C) of Regulation S-K.

• Income Tax Effects

Example of SEC Comment:

o You disclose (a) the change in constant currency segment income and segment income without also presenting the comparable GAAP measure and (b) you tax effect the adjustments to net income without a clear explanation for how the tax effect is calculated, which is inconsistent with the updated Compliance and Disclosure Interpretations issued on May 17, 2016. Please review this guidance when preparing your next earnings release.

Application of Regulation G and Item 10(e) of Regulation S-K to Earnings Releases, Webcasts and Other Materials Posted to Websites As noted above in the section entitled “Requirements under Regulation G,” Regulation G applies to all public disclosures, whether in writing or made orally, by registrants that contain non-GAAP financial measures. Hence, public disclosures in the form of earnings releases, webcasts and other materials posted to websites are within the scope of Regulation G. If a non-GAAP financial measure is made public orally, telephonically, by webcast, by broadcast, or by similar means, then the reconciliation requirement under Regulation G would be satisfied if:

• the required information (i.e., the presentation and reconciliation) is provided on the registrant’s website at the time the non-GAAP financial measure is made public; and

• the location of the website is made public in the same presentation in which the non-GAAP financial measure is made public.24

In contrast, Item 10(e) of Regulation S-K applies to all filings by the registrant with the SEC under the Securities Act and the Exchange Act. These would include: registration statements, annual reports on Form 10-K, quarterly

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reports on Form 10-Q, free writing prospectuses (if included or incorporated by reference into a registration statement), proxy statements and Current Reports on Form 8-K.

With respect to earnings releases in particular, Item 10(e) applies to a registrant’s Item 2.02 Form 8-K, pursuant to which earnings releases are furnished to the SEC. In addition, Item 2.02 of Form 8-K contains a conditional exemption from its requirement to furnish a Form 8-K where earnings information is presented orally, telephonically, by webcast, by broadcast or by similar means. Among other conditions, the company must provide on its website any material financial and other statistical information not previously disclosed and contained in the presentation, together with any information that would be required by Regulation G. In C&DI Question 105.01, the Staff also stated that an audio file of the initial webcast would satisfy the requirement provided that (1) the audio file contains all material financial and other statistical information included in the presentation that was not previously disclosed, and (2) investors can access it and replay it through the company’s website.

Application of Regulation G and Item 10(e) of Regulation S-K to Foreign Private Issuers In general, both Regulation G and Item 10(e) of Regulation S-K apply to foreign private issuers.

Under Rule 100(b) of Regulation G and under Item 10(e)(3), the term “GAAP”:

• in the case of foreign private issuers whose primary financial statements are prepared in accordance with non-U.S. GAAP or IFRS, shall refer to the principles under which those primary financial statements are prepared; and

• in the case of foreign private issuers that include a non-GAAP financial measure derived from a measure calculated in accordance with U.S. GAAP, shall refer to U.S. GAAP for purposes of the application of the requirements of Regulation G or Item 10(e) of Regulation S-K, as applicable, to the disclosure of that measure.

There is however an exception under Regulation G. Pursuant to Rule 100(c) of Regulation G, Regulation G shall not apply to a disclosure of a non-GAAP financial measure that is made by or on behalf of a registrant that is a foreign private issuer if the following conditions are satisfied:

• The securities of the registrant are listed or quoted on a securities exchange or inter-dealer quotation system outside the United States;

• The non-GAAP financial measure is not derived from or based on a measure calculated and presented in accordance with GAAP in the United States; and

• The disclosure is made by or on behalf of the registrant outside the United States, or is included in a written communication that is released by or on behalf of the registrant outside the United States.

Further, the exemption from Regulation G in favor of foreign private issuers shall continue to apply notwithstanding the existence of one or more the following circumstances below:

• A written communication is released in the United States as well as outside the United States, so long as the communication is released in the United States contemporaneously with or after the release outside the United States and is not otherwise targeted at persons located in the United States;

• Foreign journalists, U.S. journalists or other third parties have access to the information;

• The information appears on one or more websites maintained by the registrant, so long as the websites, taken together, are not available exclusively to, or targeted at, persons located in the United States; or

• Following the disclosure or release of the information outside the United States, the information is included in a submission by the registrant to the SEC made under cover of a Current Report on Form 6-K.

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Moreover, a non-GAAP financial measure that would otherwise be prohibited by Item 10(e) will be permitted in a filing of a foreign private issuer if:

• The non-GAAP financial measure relates to the GAAP used in the registrant’s primary financial statements included in its filing with the SEC;

• The non-GAAP financial measure is required or expressly permitted by the standard-setter that is responsible for establishing the GAAP used in such financial statements; and

• The non-GAAP financial measure is included in the annual report prepared by the registrant for use in the jurisdiction in which it is domiciled, incorporated or organized or for distribution to its security holders.25

Liability for Using Non-GAAP Financial Measures Rule 102 under Regulation G provides that neither the requirements of Regulation G nor a person’s compliance or non-compliance with its requirements shall in itself affect any person’s liability under Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or SEC Rule 10b-5 under the Exchange Act.

Issuers continue to be subject to the anti-fraud provisions of the federal securities law, in addition to the general disclosure requirement under Regulation G which provides that a registrant or a person acting on its behalf, shall not make public a non-GAAP financial measure that, taken together with the information accompanying that measure, contains an untrue statement of a 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.26

Recommendations With the recent SEC focus on the use by public companies of non-GAAP financial measures and the release of the updated SEC guidance in the form of the Updated C&DIs, registrants must be extra careful in their public disclosures and filings to ensure that they are complying with Regulation G and Item 10(e) of Regulation S-K. In what follows, we offer some practical guidance:

• Companies should carefully revisit the updated SEC guidance and their approach to non-GAAP financial measures disclosure.27 Non-GAAP financial measures should merely supplement GAAP measures and not be a substitute for them.28

• Appropriate controls on the use of non-GAAP financial measures should be considered and established by companies. The company’s audit committee should carefully oversee and monitor the use of non-GAAP financial measures and disclosures29 and this particular function of the audit committee should be expressly included in the audit committee’s charter. The audit committee should include, as a regular topic for discussion with the auditors, the company’s use of non-GAAP financial measures. The audit committee should ask management to explain the utility of non-GAAP financial measures in the company’s public disclosures.

• Management should monitor the use of non-GAAP financial measures by comparable companies and financial professionals.

• Companies should ensure that the non-GAAP financial measures they use are neither misleading nor prohibited by the rules.

• Companies should understand and articulate the reasons for using non-GAAP financial measures in their presentation, including how they would be useful for investors.

• The company’s disclosure committee should review the company’s public filings for non-GAAP financial measures.

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• Companies should ensure that each non-GAAP financial measure is accurately defined, described and captioned and that reconciliation is made to the most directly comparable GAAP measure.

• Companies should ensure that the GAAP measures are presented with equal or more prominence than the non-GAAP financial measures. They should carefully observe the examples given by the Staff in Updated C&DI Question 102.10 where this requirement is not met. For instance, companies should refrain from the following practices:

• Omitting comparable GAAP measures from an earnings release headline or caption that includes non-GAAP measures;

• Presenting a non-GAAP measure using a style of presentation (e.g., bold, larger font) that emphasizes the non-GAAP measure over the comparable GAAP measure;

• Presenting a non-GAAP measure that precedes the most directly comparable GAAP measure (including in an earnings release headline or caption); and

• Describing a non-GAAP measure as, for example, “record performance” or “exceptional” without at least an equally prominent descriptive characterization of the comparable GAAP measure.

• Companies should ensure that the nature of adjustments being made to arrive at their non-GAAP financial measures has a reasonable basis and is customary among peer companies. The SEC has been focusing on apparent cherry picking adjustments within a non-GAAP measure, adjustments to remove normal, cash operating expenses, and the use of individually-tailored accounting principles to calculate non-GAAP earnings.

• Companies should remember that certain adjustments, although not explicitly prohibited, may violate Rule 100(b) of Regulation G because they cause the presentation of the non-GAAP financial measure to be misleading. Companies should ensure that the non-GAAP financial measures they are presenting is balanced (i.e., it adjusts not only for nonrecurring expenses but also for nonrecurring gains).

• Because Regulation G applies to all public disclosures made by the Company, whether made orally or in writing, registrants must take a closer look at how and when they present non-GAAP financial measures in their press releases, webcasts, investor presentations, earnings releases, conference calls and other disclosures. Companies should pay particular attention to earnings calls and scripts. Regulation G requires at the minimum that registrants post the required presentation and reconciliation on their website at the time the non-GAAP financial measure is made public and announce the location of its website in the same presentation in which the non-GAAP financial measure is made public.

• Companies must always be mindful whether they are using non-GAAP financial measures as a performance measure or as a liquidity measure. The presentation of a non-GAAP liquidity measure on a per share basis is prohibited. The Staff has said that going forward, it will focus on the substance of the non-GAAP measure and not management’s characterization of the measure in making the performance versus liquidity determination.

14

Author

Ryan Castillo New York (212) 336-4432 rcastillo@mofo.com

Additional Contacts Ze’-ev Eiger New York (212) 468-8222 zeiger@mofo.com

David Lynn Washington, D.C. (202) 887-1563 dlynn@mofo.com

Anna Pinedo New York (212) 468-8179 apinedo@mofo.com

Endnotes: 1 See Mary Jo White, Chair, U.S. Securities and Exchange Commission, Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability (June 27, 2016), available at: https://www.sec.gov/news/speech/chair-white-icgn-speech.html (hereinafter, “White June 2016 Speech”). 2 Id. 3 Id. 4 See Mary Jo White, Chair, U.S. Securities and Exchange Commission, Maintaining High-Quality, Reliable Financial Reporting: A Shared and Weighty Responsibility (Dec. 9, 2015), available at: https://www.sec.gov/news/speech/keynote-2015-aicpa-white.html (hereinafter, “White December 2015 Speech”). 5 See James V. Schnurr, Chief Accountant, U.S. Securities and Exchange Commission, Remarks before the 12thAnnual Life Sciences Accounting and Reporting Congress (Mar. 22, 2016), available at: https://www.sec.gov/news/speech/schnurr-remarks-12th-life-sciences-accounting-congress.html (hereinafter, “Schnurr Speech”); Wesley R. Bricker, Deputy Chief Accountant, U.S. Securities and Exchange Commission, Remarks before the 2016 Baruch College Financial Reporting Conference (May 5, 2016), available at: https://www.sec.gov/news/speech/speech-bricker-05-05-16.html (hereinafter, “Brickner Speech”) and Mark Kronforst, Chief Accountant, Division of Corporate Finance, U.S. Securities and Exchange Commission, Remarks at the 36th Annual Ray Garret Jr. Corporate and Securities Law Institute (Apr. 28, 2016). 6 See Schnurr Speech, supra note 4. 7 See Bricker Speech, supra note 4. 8 See SEC Tightens Crackdown on ‘Adjusted’ Accounting Measures, Wall Street Journal (May 18, 2016), available at: http://www.wsj.com/articles/sec-tightens-crackdown-on-adjusted-accounting-measures-1463608923. 9 See Compliance & Disclosure Interpretations on Non-GAAP Financial Measures, available at: https://www.sec.gov/divisions/corpfin/guidance/nongaapinterp.htm. 10 Regulation G, Rule 101(a)(1); Regulation S-K, Item 10(e)(2). 11 Regulation G, Rule 101(a)(2) and (3); Regulation S-K, Item 10(e)(4) and (5); see also SEC Release No. 33-8176; 34-47226, Conditions for Use of Non-GAAP Financial Measures (Jan. 22, 2003) (hereinafter, “SEC Release No. 33-8176”). 12 See White December 2015 Speech, supra note 4; and White June 2016 Speech, supra note 1. 13 See SEC Release No. 33-8176, supra note 11. 14 Regulation G, Rule 100(a). 15 See C&DI Question 102.05.

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16 See SEC Release No. 33-8176, supra note 11. Note that the Updated C&DIs added a new requirement that the required disclosure should now be “in a location of equal or greater prominence.” See discussion in “Recent SEC Guidance: The Updated C&DIs−−Equal or Greater Prominence Presentation of GAAP Measures.” 17 Regulation G, Rule 102; 17 CFR 244.100(b). 18 Note to Regulation G, Rule 100. 19 Regulation S-K, Item 10(e)(1)(i). 20 Regulation G, Rule 100(d); Regulation S-K, Item 10(e)(6). 21 Regulation G, Rule 101(c); Regulation S-K, Item 10(e)(7). 22 See also “Non-GAAP Disclosures: The SEC Speaks!” (July 6, 2016), a webcast sponsored by TheCorporateCounsel.net, where Mr. Kronforst, speaking in his personal capacity and neither for the SEC nor for the Staff, answered specific questions from Morrison & Foerster LLP partner David M. Lynn and WilmerHale LLP partner Meredith B. Cross regarding the Updated C&DIs. A copy of the transcript and an audio archive for the webcast are available at: http://www.thecorporatecounsel.net/member/Webcast/2016/07_06/transcript.htm. (subscription required). 23 Id. 24 Note to Regulation G, Rule 100. 25 Note to Paragraph (e) under Item 10(e) of Regulation S-K. 26 Regulation G, Rule 102; 17 CFR 244.100(b). 27 See White June 2016 Speech, supra note 1. 28 See Schnurr Speech, supra note 5. 29 See White June 2016 Speech, supra note 1.

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Last Update: May 17, 2016

These Compliance & Disclosure Interpretations ("C&DIs") comprise the Division'sinterpretations of the rules and regulations on the use of non­GAAP financial measures.The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 100. General

Question 100.01

Question: Can certain adjustments, although not explicitly prohibited, result in a non­GAAP measure that is misleading?

Answer: Yes. Certain adjustments may violate Rule 100(b) of Regulation G because theycause the presentation of the non­GAAP measure to be misleading. For example,presenting a performance measure that excludes normal, recurring, cash operatingexpenses necessary to operate a registrant’s business could be misleading. [May 17,2016]

Question 100.02

Question: Can a non­GAAP measure be misleading if it is presented inconsistentlybetween periods?

Answer: Yes. For example, a non­GAAP measure that adjusts a particular charge or gainin the current period and for which other, similar charges or gains were not also adjustedin prior periods could violate Rule 100(b) of Regulation G unless the change betweenperiods is disclosed and the reasons for it explained. In addition, depending on thesignificance of the change, it may be necessary to recast prior measures to conform to thecurrent presentation and place the disclosure in the appropriate context. [May 17, 2016]

Question 100.03

Question: Can a non­GAAP measure be misleading if the measure excludes charges, butdoes not exclude any gains?

Answer: Yes. For example, a non­GAAP measure that is adjusted only for non­recurringcharges when there were non­recurring gains that occurred during the same period couldviolate Rule 100(b) of Regulation G. [May 17, 2016]

Question 100.04

Question: A registrant presents a non­GAAP performance measure that is adjusted toaccelerate revenue recognized ratably over time in accordance with GAAP as though itearned revenue when customers are billed. Can this measure be presented in documentsfiled or furnished with the Commission or provided elsewhere, such as on companywebsites?

Answer: No. Non­GAAP measures that substitute individually tailored revenuerecognition and measurement methods for those of GAAP could violate Rule 100(b) ofRegulation G. Other measures that use individually tailored recognition and measurementmethods for financial statement line items other than revenue may also violate Rule100(b) of Regulation G. [May 17, 2016]

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Section 101. Business Combination Transactions

Question 101.01

Question: Does the exemption from Regulation G and Item 10(e) of Regulation S­K fornon­GAAP financial measures disclosed in communications relating to a businesscombination transaction extend to the same non­GAAP financial measures disclosed inregistration statements, proxy statements and tender offer materials?

Answer: No. There is an exemption from Regulation G and Item 10(e) of Regulation S­Kfor non­GAAP financial measures disclosed in communications subject to Securities ActRule 425 and Exchange Act Rules 14a­12 and 14d­2(b)(2); it is also intended to apply tocommunications subject to Exchange Act Rule 14d­9(a)(2). This exemption does notextend beyond such communications. Consequently, if the same non­GAAP financialmeasure that was included in a communication filed under one of those rules is alsodisclosed in a Securities Act registration statement or a proxy statement or tender offerstatement, no exemption from Regulation G and Item 10(e) of Regulation S­K would beavailable for that non­GAAP financial measure.

In addition, there is an exemption from Regulation G and Item 10(e) of Regulation S­K fornon­GAAP financial measures disclosed pursuant to Item 1015 of Regulation M­A, whichapplies even if such non­GAAP financial measures are included in Securities Actregistration statements, proxy statements and tender offer statements. [Jan. 11, 2010]

Question 101.02

Question: If reconciliation of a non­GAAP financial measure is required and the mostdirectly comparable measure is a "pro forma" measure prepared and presented inaccordance with Article 11 of Regulation S­X, may companies use that measure forreconciliation purposes, in lieu of a GAAP financial measure?

Answer: Yes. [Jan. 11, 2010]

Section 102. Item 10(e) of Regulation S­K

Question 102.01

Question: What measure was contemplated by "funds from operations" in footnote 50 toExchange Act Release No. 47226, Conditions for Use of Non­GAAP Financial Measures,which indicates that companies may use "funds from operations per share" in earningsreleases and materials that are filed or furnished to the Commission, subject to therequirements of Regulation G and Item 10(e) of Regulation S­K?

Answer: The reference to "funds from operations" in footnote 50, or “FFO,” refers to themeasure defined as of January 1, 2000, by the National Association of Real EstateInvestment Trusts (NAREIT). NAREIT has revised and clarified the definition since 2000.The staff accepts NAREIT’s definition of FFO in effect as of May 17, 2016 as a performancemeasure and does not object to its presentation on a per share basis. [May 17, 2016]

Question 102.02

Question: May a registrant present FFO on a basis other than as defined by NAREIT as ofMay 17, 2016?

Answer: Yes, provided that any adjustments made to FFO comply with Item 10(e) ofRegulation S­K and the measure does not violate Rule 100(b) of Regulation G. Anyadjustments made to FFO must comply with the requirements of Item 10(e) ofRegulation S­K for a performance measure or a liquidity measure, depending on thenature of the adjustments, some of which may trigger the prohibition on presenting thismeasure on a per share basis. See Section 100 and Question 102.05. [May 17, 2016]

Question 102.03

Question: Item 10(e) of Regulation S­K prohibits adjusting a non­GAAP financialperformance measure to eliminate or smooth items identified as non­recurring, infrequentor unusual when the nature of the charge or gain is such that it is reasonably likely torecur within two years or there was a similar charge or gain within the prior two years. Isthis prohibition based on the description of the charge or gain, or is it based on the natureof the charge or gain?

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Answer: The prohibition is based on the description of the charge or gain that is beingadjusted. It would not be appropriate to state that a charge or gain is non­recurring,infrequent or unusual unless it meets the specified criteria. The fact that a registrantcannot describe a charge or gain as non­recurring, infrequent or unusual, however, doesnot mean that the registrant cannot adjust for that charge or gain. Registrants can makeadjustments they believe are appropriate, subject to Regulation G and the otherrequirements of Item 10(e) of Regulation S­K. See Question 100.01. [May 17, 2016]

Question 102.04

Question: Is the registrant required to use the non­GAAP measure in managing itsbusiness or for other purposes in order to be able to disclose it?

Answer: No. Item 10(e)(1)(i)(D) of Regulation S­K states only that, "[t]o the extentmaterial," there should be a statement disclosing the additional purposes, "if any," forwhich the registrant's management uses the non­GAAP financial measure. There is noprohibition against disclosing a non­GAAP financial measure that is not used bymanagement in managing its business. [Jan. 11, 2010]

Question 102.05

Question: While Item 10(e)(1)(ii) of Regulation S­K does not prohibit the use of pershare non­GAAP financial measures, the adopting release for Item 10(e), Exchange ActRelease No. 47226, states that "per share measures that are prohibited specifically underGAAP or Commission rules continue to be prohibited in materials filed with or furnished tothe Commission." In light of Commission guidance, specifically Accounting Series ReleaseNo. 142, Reporting Cash Flow and Other Related Data, and Accounting StandardsCodification 230, are non­GAAP earnings per share numbers prohibited in documents filedor furnished with the Commission?

Answer: No. Item 10(e) recognizes that certain non­GAAP per share performancemeasures may be meaningful from an operating standpoint. Non­GAAP per shareperformance measures should be reconciled to GAAP earnings per share. On the otherhand, non­GAAP liquidity measures that measure cash generated must not be presentedon a per share basis in documents filed or furnished with the Commission, consistent withAccounting Series Release No. 142. Whether per share data is prohibited depends onwhether the non­GAAP measure can be used as a liquidity measure, even if managementpresents it solely as a performance measure. When analyzing these questions, the staffwill focus on the substance of the non­GAAP measure and not management’scharacterization of the measure. [May 17, 2016]

Question 102.06

Question: Is Item 10(e)(1)(i) of Regulation S­K, which requires the prominentpresentation of, and reconciliation to, the most directly comparable GAAP financialmeasure or measures, intended to change the staff's practice of requiring the prominentpresentation of amounts for the three major categories of the statement of cash flowswhen a non­GAAP liquidity measure is presented?

Answer: No. The requirements in Item 10(e)(1)(i) are consistent with the staff'spractice. The three major categories of the statement of cash flows should be presentedwhen a non­GAAP liquidity measure is presented. [Jan. 11, 2010]

Question 102.07

Question: Some companies present a measure of "free cash flow," which is typicallycalculated as cash flows from operating activities as presented in the statement of cashflows under GAAP, less capital expenditures. Does Item 10(e)(1)(ii) of Regulation S­Kprohibit this measure in documents filed with the Commission?

Answer: No. The deduction of capital expenditures from the GAAP financial measure ofcash flows from operating activities would not violate the prohibitions in Item 10(e)(1)(ii).However, companies should be aware that this measure does not have a uniformdefinition and its title does not describe how it is calculated. Accordingly, a clear descriptionof how this measure is calculated, as well as the necessary reconciliation, shouldaccompany the measure where it is used. Companies should also avoid inappropriate orpotentially misleading inferences about its usefulness. For example, "free cash flow"should not be used in a manner that inappropriately implies that the measure representsthe residual cash flow available for discretionary expenditures, since many companieshave mandatory debt service requirements or other non­discretionary expenditures that

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are not deducted from the measure. Also, free cash flow is a liquidity measure that mustnot be presented on a per share basis. See Question 102.05. [May 17, 2016]

Question 102.08

Question: Does Item 10(e) of Regulation S­K apply to filed free writing prospectuses?

Answer: Regulation S­K applies to registration statements filed under the Securities Act,as well as registration statements, periodic and current reports and other documents filedunder the Exchange Act. A free writing prospectus is not filed as part of the issuer'sregistration statement, unless the issuer files it on Form 8­K or otherwise includes it orincorporates it by reference into the registration statement. Therefore, Item 10(e) ofRegulation S­K does not apply to a filed free writing prospectus unless the free writingprospectus is included in or incorporated by reference into the issuer's registrationstatement or included in an Exchange Act filing. [Jan. 11, 2010]

Question 102.09

Question: Item 10(e)(1)(ii)(A) of Regulation S­K prohibits "excluding charges or liabilitiesthat required, or will require, cash settlement, or would have required cash settlementabsent an ability to settle in another manner, from non­GAAP liquidity measures, otherthan the measures earnings before interest and taxes (EBIT) and earnings before interest,taxes, depreciation and amortization (EBITDA)." A company's credit agreement contains amaterial covenant regarding the non­GAAP financial measure "Adjusted EBITDA." Ifdisclosed in a filing, the non­GAAP financial measure "Adjusted EBITDA" would violateItem 10(e), as it excludes charges that are required to be cash settled. May a companynonetheless disclose this non­GAAP financial measure?

Answer: Yes. The prohibition in Item 10(e) notwithstanding, because MD&A requiresdisclosure of material items affecting liquidity, if management believes that the creditagreement is a material agreement, that the covenant is a material term of the creditagreement and that information about the covenant is material to an investor'sunderstanding of the company's financial condition and/or liquidity, then the companymay be required to disclose the measure as calculated by the debt covenant as part of itsMD&A. In disclosing the non­GAAP financial measure in this situation, a company shouldconsider also disclosing the following:

the material terms of the credit agreement including the covenant;

the amount or limit required for compliance with the covenant; and

the actual or reasonably likely effects of compliance or non­compliance with thecovenant on the company's financial condition and liquidity. [Jan. 11, 2010]

Question 102.10

Question: Item 10(e)(1)(i)(A) of Regulation S­K requires that when a registrant presentsa non­GAAP measure it must present the most directly comparable GAAP measure withequal or greater prominence. This requirement applies to non­GAAP measures presentedin documents filed with the Commission and also earnings releases furnished under Item2.02 of Form 8­K. Are there examples of disclosures that would cause a non­GAAPmeasure to be more prominent?

Answer: Yes. Although whether a non­GAAP measure is more prominent than thecomparable GAAP measure generally depends on the facts and circumstances in which thedisclosure is made, the staff would consider the following examples of disclosure of non­GAAP measures as more prominent:

Presenting a full income statement of non­GAAP measures or presenting a full non­GAAP income statement when reconciling non­GAAP measures to the most directlycomparable GAAP measures;

Omitting comparable GAAP measures from an earnings release headline or caption thatincludes non­GAAP measures;

Presenting a non­GAAP measure using a style of presentation (e.g., bold, larger font)that emphasizes the non­GAAP measure over the comparable GAAP measure;

A non­GAAP measure that precedes the most directly comparable GAAP measure(including in an earnings release headline or caption);

Describing a non­GAAP measure as, for example, “record performance” or“exceptional” without at least an equally prominent descriptive characterization of the

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comparable GAAP measure;

Providing tabular disclosure of non­GAAP financial measures without preceding it withan equally prominent tabular disclosure of the comparable GAAP measures or includingthe comparable GAAP measures in the same table;

Excluding a quantitative reconciliation with respect to a forward­looking non­GAAPmeasure in reliance on the “unreasonable efforts” exception in Item 10(e)(1)(i)(B)without disclosing that fact and identifying the information that is unavailable and itsprobable significance in a location of equal or greater prominence; and

Providing discussion and analysis of a non­GAAP measure without a similar discussionand analysis of the comparable GAAP measure in a location with equal or greaterprominence. [May 17, 2016]

Question 102.11

Question: How should income tax effects related to adjustments to arrive at a non­GAAPmeasure be calculated and presented?

Answer: A registrant should provide income tax effects on its non­GAAP measuresdepending on the nature of the measures. If a measure is a liquidity measure thatincludes income taxes, it might be acceptable to adjust GAAP taxes to show taxes paid incash. If a measure is a performance measure, the registrant should include current anddeferred income tax expense commensurate with the non­GAAP measure of profitability.In addition, adjustments to arrive at a non­GAAP measure should not be presented “netof tax.” Rather, income taxes should be shown as a separate adjustment and clearlyexplained. [May 17, 2016]

Question 102.12

Question: A registrant discloses a financial measure or information that is not inaccordance with GAAP or calculated exclusively from amounts presented in accordancewith GAAP. In some circumstances, this financial information may have been prepared inaccordance with guidance published by a government, governmental authority or self­regulatory organization that is applicable to the registrant, although the information is notrequired disclosure by the government, governmental authority or self­regulatoryorganization. Is this information considered to be a "non­GAAP financial measure" forpurposes of Regulation G and Item 10 of Regulation S­K?

Answer: Yes. Unless this information is required to be disclosed by a system of regulationthat is applicable to the registrant, it is considered to be a "non­GAAP financial measure"under Regulation G and Item 10 of Regulation S­K. Registrants that disclose suchinformation must provide the disclosures required by Regulation G or Item 10 ofRegulation S­K, if applicable, including the quantitative reconciliation from the non­GAAPfinancial measure to the most comparable measure calculated in accordance with GAAP.This reconciliation should be in sufficient detail to allow a reader to understand the natureof the reconciling items. [Apr. 24, 2009]

Section 103. EBIT and EBITDA

Question 103.01

Question: Exchange Act Release No. 47226 describes EBIT as "earnings before interestand taxes" and EBITDA as "earnings before interest, taxes, depreciation andamortization." What GAAP measure is intended by the term "earnings"? May measuresother than those described in the release be characterized as "EBIT" or "EBITDA"? Doesthe exception for EBIT and EBITDA from the prohibition in Item 10(e)(1)(ii)(A) ofRegulation S­K apply to these other measures?

Answer: "Earnings" means net income as presented in the statement of operationsunder GAAP. Measures that are calculated differently than those described as EBIT andEBITDA in Exchange Act Release No. 47226 should not be characterized as "EBIT" or"EBITDA" and their titles should be distinguished from "EBIT" or "EBITDA," such as"Adjusted EBITDA." These measures are not exempt from the prohibition in Item 10(e)(1)(ii)(A) of Regulation S­K, with the exception of measures addressed in Question 102.09.[Jan. 11, 2010]

Question 103.02

Question: If EBIT or EBITDA is presented as a performance measure, to which GAAPfinancial measure should it be reconciled?

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Answer: If a company presents EBIT or EBITDA as a performance measure, suchmeasures should be reconciled to net income as presented in the statement of operationsunder GAAP. Operating income would not be considered the most directly comparableGAAP financial measure because EBIT and EBITDA make adjustments for items that arenot included in operating income. In addition, these measures must not be presented on aper share basis. See Question 102.05. [May 17, 2016]

Section 104. Segment Information

Question 104.01

Question: Is segment information that is presented in conformity with AccountingStandards Codification 280, pursuant to which a company may determine segmentprofitability on a basis that differs from the amounts in the consolidated financialstatements determined in accordance with GAAP, considered to be a non­GAAP financialmeasure under Regulation G and Item 10(e) of Regulation S­K?

Answer: No. Non­GAAP financial measures do not include financial measures that arerequired to be disclosed by GAAP. Exchange Act Release No. 47226 lists "measures ofprofit or loss and total assets for each segment required to be disclosed in accordance withGAAP" as examples of such measures. The measure of segment profit or loss and segmenttotal assets under Accounting Standards Codification 280 is the measure reported to thechief operating decision maker for purposes of making decisions about allocating resourcesto the segment and assessing its performance.

The list of examples in Exchange Act Release No. 47226 is not exclusive. As an additionalexample, because Accounting Standards Codification 280 requires or expressly permits thefootnotes to the company's consolidated financial statements to include specific additionalfinancial information for each segment, that information also would be excluded from thedefinition of non­GAAP financial measures. [Jan. 11, 2010]

Question 104.02

Question: Does Item 10(e)(1)(ii) of Regulation S­K prohibit the discussion in MD&A ofsegment information determined in conformity with Accounting Standards Codification280?

Answer: No. Where a company includes in its MD&A a discussion of segment profitabilitydetermined consistent with Accounting Standards Codification 280, which also requiresthat a footnote to the company's consolidated financial statements provide areconciliation, the company also should include in the segment discussion in the MD&A acomplete discussion of the reconciling items that apply to the particular segment beingdiscussed. In this regard, see Financial Reporting Codification Section 501.06.a, footnote28. [Jan. 11, 2010]

Question 104.03

Question: Is a measure of segment profit/loss or liquidity that is not in conformity withAccounting Standards Codification 280 a non­GAAP financial measure under Regulation Gand Item 10(e) of Regulation S­K?

Answer: Yes. Segment measures that are adjusted to include amounts excluded from, orto exclude amounts included in, the measure reported to the chief operating decisionmaker for purposes of making decisions about allocating resources to the segment andassessing its performance do not comply with Accounting Standards Codification 280.Such measures are, therefore, non­GAAP financial measures and subject to all of theprovisions of Regulation G and Item 10(e) of Regulation S­K. [Jan. 11, 2010]

Question 104.04

Question: In the footnote that reconciles the segment measures to the consolidatedfinancial statements, a company may total the profit or loss for the individual segments aspart of the Accounting Standards Codification 280 required reconciliation. Would thepresentation of the total segment profit or loss measure in any context other than theAccounting Standards Codification 280 required reconciliation in the footnote be thepresentation of a non­GAAP financial measure?

Answer: Yes. The presentation of the total segment profit or loss measure in any contextother than the Accounting Standards Codification 280 required reconciliation in thefootnote would be the presentation of a non­GAAP financial measure because it has no

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authoritative meaning outside of the Accounting Standards Codification 280 requiredreconciliation in the footnotes to the company's consolidated financial statements. [Jan.11, 2010]

Question 104.05

Question: Company X presents a table illustrating a breakdown of revenues by certainproducts, but does not sum this to the revenue amount presented on Company X'sfinancial statements. Is the information in the table considered a non­GAAP financialmeasure under Regulation G and Item 10(e) of Regulation S­K?

Answer: No, assuming the product revenue amounts are calculated in accordance withGAAP. The presentation would be considered a non­GAAP financial measure, however, ifthe revenue amounts are adjusted in any manner. [Jan. 11, 2010]

Question 104.06

Question: Company X has operations in various foreign countries where the localcurrency is used to prepare the financial statements which are translated into thereporting currency under the applicable accounting standards. In preparing its MD&A,Company X will explain the reasons for changes in various financial statement captions. Aportion of these changes will be attributable to changes in exchange rates betweenperiods used for translation. Company X wants to isolate the effect of exchange ratedifferences and will present financial information in a constant currency — e.g., assume aconstant exchange rate between periods for translation. Would such a presentation beconsidered a non­GAAP measure under Regulation G and Item 10(e) of Regulation S­K?

Answer: Yes. Company X may comply with the reconciliation requirements of RegulationG and Item 10(e) by presenting the historical amounts and the amounts in constantcurrency and describing the process for calculating the constant currency amounts andthe basis of presentation. [Jan. 11, 2010]

Section 105. Item 2.02 of Form 8­K

Question 105.01

Question: Item 2.02 of Form 8­K contains a conditional exemption from its requirementto furnish a Form 8­K where earnings information is presented orally, telephonically, bywebcast, by broadcast or by similar means. Among other conditions, the company mustprovide on its web site any financial and other statistical information contained in thepresentation, together with any information that would be required by Regulation G.Would an audio file of the initial webcast satisfy this condition to the exemption?

Answer: Yes, provided that: (1) the audio file contains all material financial and otherstatistical information included in the presentation that was not previously disclosed, and(2) investors can access it and replay it through the company's web site. Alternatively,slides or a similar presentation posted on the web site at the time of the presentationcontaining the required, previously undisclosed, material financial and other statisticalinformation would satisfy the condition. In each case, the company must provide allpreviously undisclosed material financial and other statistical information, includinginformation provided in connection with any questions and answers. Regulation FD alsomay impose disclosure requirements in these circumstances. [Jan. 11, 2010]

Question 105.02

Question: Item 2.02 of Form 8­K contains a conditional exemption from its requirementto furnish a Form 8­K where earnings information is presented orally, telephonically, bywebcast, by broadcast or by similar means. Among other conditions, the company mustprovide on its web site any material financial and other statistical information notpreviously disclosed and contained in the presentation, together with any information thatwould be required by Regulation G. When must all of this information appear on thecompany's web site?

Answer: The required information must appear on the company's web site at the timethe oral presentation is made. In the case of information that is not provided in apresentation itself but, rather, is disclosed unexpectedly in connection with the questionand answer session that was part of that oral presentation, the information must beposted on the company's web site promptly after it is disclosed. Any requirements ofRegulation FD also must be satisfied. A webcast of the oral presentation would besufficient to meet this requirement. [Jan. 11, 2010]

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Question 105.03

Question: Does a company's failure to furnish to the Commission the Form 8­K requiredby Item 2.02 in a timely manner affect the company's eligibility to use Form S­3?

Answer: No. Form S­3 requires the company to have filed in "a timely manner all reportsrequired to be filed in twelve calendar months and any portion of a month immediatelypreceding the filing of the registration statement." Because an Item 2.02 Form 8­K isfurnished to the Commission, rather than filed with the Commission, failure to furnishsuch a Form 8­K in a timely manner would not affect a company's eligibility to use FormS­3. While not affecting a company's Form S­3 eligibility, failure to comply with Item 2.02of Form 8­K would, of course, be a violation of Section 13(a) of the Exchange Act and therules thereunder. [Jan. 11, 2010]

Question 105.04 [withdrawn]

Question 105.05

Question: Company X files its quarterly earnings release as an exhibit to its Form 10­Qon Wednesday morning, prior to holding its earnings conference call Wednesdayafternoon. Assuming that all of the other conditions of Item 2.02(b) are met, may thecompany rely on the exemption for its conference call even if it does not also furnish theearnings release in an Item 2.02 Form 8­K?

Answer: Yes. Company X's filing of the earnings release as an exhibit to its Form 10­Q,rather than in an Item 2.02 Form 8­K, before the conference call takes place, would notpreclude reliance on the exemption for the conference call. [Jan. 11, 2010]

Question 105.06

Question: Company A issues a press release announcing its results of operations for ajust­completed fiscal quarter, including its expected adjusted earnings (a non­GAAPfinancial measure) for the fiscal period. Would this press release be subject to Item 2.02 ofForm 8­K?

Answer: Yes, because it contains material, non­public information regarding its results ofoperations for a completed fiscal period. The adjusted earnings range presented would besubject to the requirements of Item 2.02 applicable to non­GAAP financial measures. [Jan.11, 2010]

Question 105.07

Question: A company issues its earnings release after the close of the market and holdsa properly noticed conference call to discuss its earnings two hours later. That conferencecall contains material, previously undisclosed, information of the type described underItem 2.02 of Form 8­K. Because of this timing, the company is unable to furnish itsearnings release on a Form 8­K before its conference call. Accordingly, the companycannot rely on the exemption from the requirement to furnish the information in theconference call on a Form 8­K. What must the company file with regard to its conferencecall?

Answer: The company must furnish the material, previously non­public, financial andother statistical information required to be furnished on Item 2.02 of Form 8­K as anexhibit to a Form 8­K and satisfy the other requirements of Item 2.02 of Form 8­K. Atranscript of the portion of the conference call or slides or a similar presentation includingsuch information will satisfy this requirement. In each case, all material, previouslyundisclosed, financial and other statistical information, including that provided inconnection with any questions and answers, must be provided. [Jan. 15, 2010]

Section 106. Foreign Private Issuers

Question 106.01

Question: The Note to Item 10(e) of Regulation S­K permits a foreign private issuer toinclude in its filings a non­GAAP financial measure that otherwise would be prohibited byItem 10(e)(1)(ii) if, among other things, the non­GAAP financial measure is required orexpressly permitted by the standard setter that is responsible for establishing the GAAPused in the company's primary financial statements included in its filing with theCommission. What does "expressly permitted" mean?

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Answer: A measure is "expressly permitted" if the particular measure is clearly andspecifically identified as an acceptable measure by the standard setter that is responsiblefor establishing the GAAP used in the company's primary financial statements included inits filing with the Commission.

The concept of "expressly permitted" can be also be demonstrated with explicit acceptanceof a presentation by the primary securities regulator in the foreign private issuer's homecountry jurisdiction or market. Explicit acceptance by the regulator would include (1)published views of the regulator or members of the regulator's staff or (2) a letter fromthe regulator or its staff to the foreign private issuer indicating the acceptance of thepresentation — which would be provided to the Commission's staff upon request. [Jan. 11,2010]

Question 106.02

Question: A foreign private issuer furnishes a press release on Form 6­K that includes asection with non­GAAP financial measures. Can a foreign private issuer incorporate byreference into a Securities Act registration statement only those portions of the furnishedpress release that do not include the non­GAAP financial measures?

Answer: Yes. Reports on Form 6­K are not incorporated by reference automatically intoSecurities Act registration statements. In order to incorporate a Form 6­K into a SecuritiesAct registration statement, a foreign private issuer must specifically provide for suchincorporation by reference in the registration statement and in any subsequentlysubmitted Form 6­K. See Item 6(c) of Form F­3. Where a foreign private issuer wishes toincorporate by reference a portion or portions of the press release provided on a Form 6­K,the foreign private issuer should either: (1) specify in the Form 6­K those portions of thepress release to be incorporated by reference, or (2) furnish two Form 6­K reports, onethat contains the full press release and another that contains the portions that would beincorporated by reference (and specifies that the second Form 6­K is so incorporated).Using a separate report on Form 6­K containing the portions that would be incorporatedby reference may provide more clarity for investors in most circumstances. A companymust also consider whether its disclosure is rendered misleading if it incorporates only aportion (or portions) of a press release. [Jan. 11, 2010]

Question 106.03

Question: A foreign private issuer publishes a non­GAAP financial measure that does notcomply with Regulation G, in reliance on Rule 100(c), and then furnishes the informationin a report on Form 6­K. Must the foreign private issuer comply with Item 10(e) ofRegulation S­K with respect to that information if the company chooses to incorporatethat Form 6­K report into a filed Securities Act registration statement (other than anMJDS registration statement)?

Answer: Yes, the company must comply with all of the provisions of Item 10(e) ofRegulation S­K. [Jan. 11, 2010]

Question 106.04

Question: If a Canadian company includes a non­GAAP financial measure in an annualreport on Form 40­F, does the company need to comply with Regulation G or Item 10(e)of Regulation S­K with respect to that information if the company files a non­MJDSSecurities Act registration statement that incorporates by reference the Form 40­F?

Answer: No. Information included in a Form 40­F is not subject to Regulation G or Item10(e) of Regulation S­K. [Jan. 11, 2010]

Section 107. Voluntary Filers

Question 107.01

Question: Section 15(d) of the Exchange Act suspends automatically its application toany company that would be subject to the filing requirements of that section where, ifother conditions are met, on the first day of the company's fiscal year it has fewer than300 holders of record of the class of securities that created the Section 15(d) obligation.This suspension, which relates to the fiscal year in which the fewer than 300 recordholders determination is made on the first day thereof, is automatic and does not requireany filing with the Commission. The Commission adopted Rule 15d­6 under the ExchangeAct to require the filing of a Form 15 as a notice of the suspension of a company'sreporting obligation under Section 15(d). Such a filing, however, is not a condition to the

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Modified: May 17, 2016

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suspension. A number of companies whose Section 15(d) reporting obligation issuspended automatically by the statute choose not to file the notice required by Rule 15d­6 and continue to file Exchange Act reports as though they continue to be required. Musta company whose reporting obligation is suspended automatically by Section 15(d) butcontinues to file periodic reports as though it were required to file periodic reports complywith Regulation G and the requirements of Item 10(e) of Regulation S­K?

Answer: Yes. Regulation S­K relates to filings with the Commission. Accordingly, acompany that is making filings as described in this question must comply with RegulationS­K or Form 20­F, as applicable, in its filings.

As to other public communications, any company "that has a class of securities registeredunder Section 12 of the Securities Exchange Act of 1934, or is required to file reportsunder Section 15(d) of the Securities Exchange Act of 1934" must comply withRegulation G. The application of this standard to those companies that no longer are"required" to report under Section 15(d) but choose to continue to report presents adifficult dilemma, as those companies technically are not subject to Regulation G but theircontinued filing is intended to and does give the appearance that they are a publiccompany whose disclosure is subject to the Commission's regulations. It is reasonablethat this appearance would cause shareholders and other market participants to expectand rely on a company's required compliance with the requirements of the federalsecurities laws applicable to companies reporting under Section 15(d). Accordingly, whileRegulation G technically does not apply to a company such as the one described in thisquestion, the failure of such a company to comply with all requirements (includingRegulation G) applicable to a Section 15(d)­reporting company can raise significant issuesregarding that company's compliance with the anti­fraud provisions of the federalsecurities laws. [Jan. 11, 2010]

Section 108. Compensation Discussion and Analysis/Proxy Statement

Question 108.01

Question: Instruction 5 to Item 402(b) provides that "[d]isclosure of target levels thatare non­GAAP financial measures will not be subject to Regulation G and Item 10(e);however, disclosure must be provided as to how the number is calculated from theregistrant's audited financial statements." Does this instruction extend to non­GAAPfinancial information that does not relate to the disclosure of target levels, but isnevertheless included in Compensation Discussion & Analysis ("CD&A") or other parts ofthe proxy statement ­ for example, to explain the relationship between pay andperformance?

Answer: No. Instruction 5 to Item 402(b) is limited to CD&A disclosure of target levelsthat are non­GAAP financial measures. If non­GAAP financial measures are presented inCD&A or in any other part of the proxy statement for any other purpose, such as toexplain the relationship between pay and performance or to justify certain levels oramounts of pay, then those non­GAAP financial measures are subject to the requirementsof Regulation G and Item 10(e) of Regulation S­K.

In these pay­related circumstances only, the staff will not object if a registrant includesthe required GAAP reconciliation and other information in an annex to the proxystatement, provided the registrant includes a prominent cross­reference to such annex.Or, if the non­GAAP financial measures are the same as those included in the Form 10­Kthat is incorporating by reference the proxy statement's Item 402 disclosure as part of itsPart III information, the staff will not object if the registrant complies with Regulation Gand Item 10(e) by providing a prominent cross­reference to the pages in the Form 10­Kcontaining the required GAAP reconciliation and other information. [July 8, 2011]

Disclaimer: This Manual was originally prepared by the staff of the Division of Corporation Finance to serve as internal guidance. In 2008, in an effort to increase transparency of informal staff interpretations, the Division posted a version of the Manual to its website. Because of its informal nature, the Manual does not necessarily contain a discussion of all material considerations necessary to reach an accounting or disclosure conclusion. Such conclusions about a particular transaction are very fact dependent and require careful analysis of the transaction and of the relevant authoritative accounting literature and Commission requirements. The information in this Manual is non-authoritative. If it conflicts with authoritative or source material, the authoritative or source material governs. The information presented also may not reflect the views of other Divisions and Offices at the Commission. The guidance is not a rule, regulation or statement of the Commission and the Commission has neither approved nor disapproved this information. The information included in this Manual may be updated from time to time and positions may change. As a result, the information in this manual may not be current.

Financial Reporting Manual

Division of Corporation Finance

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TOPIC 8

NON-GAAP MEASURES OF FINANCIAL PERFORMANCE, LIQUIDITY, AND NET WORTH

8100 USE OF NON-GAAP FINANCIAL MEASURES (Last updated: 9/30/2008)

8110 Applicable Guidance (Last updated: 12/31/2009) 8110.1 Authoritative guidance regarding the use of non-GAAP financial measures can

be found in:

a. Regulation G b. S-K 10(e) c. Exchange Act Release No. 47226, Conditions for Use of Non-GAAP

Financial Measures 8110.2 Non-authoritative staff 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:

a. Section 101 – Business Combination Transactions

b. Section 102 – Item 10(e) of Regulation S-K

c. Section 103 – EBIT and EBITDA

d. Section 104 – Segment Information

e. Section 105 – Item 2.02 of Form 8-K

f. Section 106 – Foreign Private Issuers

g. Section 107 – Voluntary Filers 8120 Definition of a Non-GAAP Financial Measure 8120.1 A non-GAAP financial measure is a numerical measure of a registrant’s

historical or future financial performance, financial position, or cash flow that:

a. excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable

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measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement of cash flows of the issuer; or

b. 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.

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

measures include the following:

a. Funds from operations (FFO) (Non-GAAP C&DI Questions 102.01 and 102.02)

b. EBIT / EBITDA / adjusted EBITDA (Non-GAAP C&DI Questions 102.09, 103.01 and 103.02)

c. Adjusted revenues

d. Broadcast cash flow (BCF)

e. Free cash flow (FCF) (Non-GAAP C&DI Question 102.07)

f. Core earnings

g. 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) 8120.3 Measures 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:

a. Operating and statistical measures (such as unit sales, number of

employees, number of subscribers)

b. 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)

c. Disclosure of expected or contracted indebtedness

d. Disclosure of amounts of repayments that have been planned but not yet made

e. 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)

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f. 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)

g. 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).

8120.4 [Reserved]

(Last updated: 12/31/2009)

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

(Last updated: 12/31/2011)

Applicability Requirements Prohibitions Reg 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. 9

• 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.

9 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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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.

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8140 General 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).

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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)

8140.1 [Reserved]

(Last updated: 12/31/2009) 8140.2 [Reserved]

(Last updated: 12/31/2009) 8150 [Reserved]

(Last updated: 12/31/2009) 8160 [Reserved]

(Last updated: 12/31/2009) 8170 [Reserved]

(Last updated: 12/31/2009)

8200 RATIO OF EARNINGS TO FIXED CHARGES [S-K 503] (Last updated: 9/30/2008)

8210 Required 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.

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8220 Definition 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.

8230 Dividend 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).

8240 Definition of Earnings 8240.1 For purposes of the ratio, earnings are defined as the registrant’s:

a. pre-tax income from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees, plus

b. fixed charges,

c. amortization of capitalized interest,

d. distributed income of equity investees, and

e. share of pre-tax losses of equity investees for which charges arising from guarantees are included in fixed charges. [S-K 503]

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8240.2 From this total, subtract the following:

a. interest capitalized,

b. preference security dividend requirements of consolidated subsidiaries (not preferred dividends of parent), and

c. minority interest in pre-tax income of subsidiaries that have not incurred fixed charges.

8240.3 Public 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

8250 Equity 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.

8260 Pro 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.

8270 Foreign 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.

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8280 Exhibit 12 Calculations demonstrating the determination of the ratios should be filed as an

exhibit to the registration statement. 8300 TANGIBLE BOOK VALUE PER SHARE

[S-K 506] (Last updated: 9/30/2008)

8310 Presentation 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.

8320 Definition

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.

8330 Staff 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.

* * * * *

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Final Rule:Conditions for Use of Non­GAAP Financial Measures

Securities and Exchange Commission

17 CFR PARTS 228, 229, 244 and 249

[Release No. 33­8176; 34­47226; FR­65; FILE NO. S7­43­02]

RIN 3235­A169

Conditions for Use of Non­GAAP Financial Measures

Agency: Securities and Exchange Commission

Action: Final rule

Summary: As directed by the Sarbanes­Oxley Act of 2002, we are adopting new rules and amendments to address publiccompanies' disclosure or release of certain financial information that is calculated and presented on the basis of methodologiesother than in accordance with generally accepted accounting principles (GAAP). We are adopting a new disclosure regulation,Regulation G, which will require public companies that disclose or release such non­GAAP financial measures to include, in thatdisclosure or release, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosednon­GAAP financial measure to the most directly comparable GAAP financial measure. We also are adopting amendments to Item10 of Regulation S­K and Item 10 of Regulation S­B to provide additional guidance to those registrants that include non­GAAPfinancial measures in Commission filings. Additionally, we are adopting amendments to Form 20­F to incorporate into that form theamendments to Item 10 of Regulation S­K. Finally, we are adopting amendments that require registrants to furnish to theCommission, on Form 8­K, earnings releases or similar announcements.

Dates: Effective Date: March 28, 2003. Compliance Dates: Regulation G will apply to all subject disclosures as of March 28, 2003.The requirement to furnish earnings releases and similar materials to the Commission on Form 8­K will apply to earnings releasesand similar announcements made after March 28, 2003. The amendments to Item 10 of Regulation S­K, Item 10 of Regulation S­Band Form 20­F will apply to any annual or quarterly report filed with respect to a fiscal period ending after March 28, 2003.

For Further Information Contact: Joseph P. Babits or Craig Olinger, at (202) 942­2910, Division of Corporation Finance, U.S.Securities and Exchange Commission, 450 Fifth Street, NW, Washington DC 20549­0402.

Supplementary Information: We are adopting new Regulation G.1 We also are adopting amendments to Item 10 of Regulation S­K,2 Item 10 of Regulation S­B,3 and Securities Exchange Act of 19344 Forms 8­K5 and 20­F.6

I. Background

On July 30, 2002, President Bush signed into law the Sarbanes­Oxley Act of 2002 (Sarbanes­Oxley Act).7 As directed by Section401(b) of the Sarbanes­Oxley Act, we published for comment a number of new rules and amendments to address the use of "non­GAAP financial measures" on November 4, 2002.8 As discussed in that proposing release, the Commission has expressedconcerns regarding the improper use of non­GAAP financial measures during the past 30 years.9 The rules we adopt today reflectthe letter and spirit of the Sarbanes­Oxley Act, our history in regulating non­GAAP financial measures, and the comments wereceived on the proposals.

We are adopting the proposals relating to the use of non­GAAP financial measures substantially as proposed.10 The rules we adopttoday, however, reflect the following changes from those proposals:

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Regulation G ­

Regulation G will not apply to a non­GAAP financial measure included in disclosure relating to a proposed businesscombination, the entity resulting therefrom or an entity that is a party thereto if the disclosure is contained in acommunication that is subject to the communications rules applicable to business combination transactions; The safe harbor from the application of Regulation G for disclosure of non­GAAP financial measures by foreignprivate issuers outside of the United States will make clearer that Regulation G does not apply to writtencommunications released in the United States, as well as outside the United States, so long as the communication isreleased in the United States contemporaneously with or after its release outside the United States and is nototherwise targeted at persons located in the United States; The reference to "comparable [GAAP] financial measure or measures" will read "most directly comparable [GAAP]financial measure or measures"; and The definition of GAAP for purposes of financial measures prepared by foreign private issuers will be further clarified.

Item 10 of Regulation S­K and Item 10 of Regulation S­B ­

These items will not include a prohibition on "non­GAAP per share measures" in documents filed with theCommission;11 These items will not apply to a non­GAAP financial measure included in disclosure relating to a proposed businesscombination, the entity resulting therefrom or an entity that is a party thereto if the disclosure is contained in acommunication that is subject to the communications rules applicable to business combination transactions; The reference to "comparable [GAAP] financial measure or measures" will read "most directly comparable [GAAP]financial measure or measures"; The required quantitative reconciliation will include the same exception for forward­looking non­GAAP financialmeasures as in Regulation G; The measures EBIT (earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation,and amortization) will be exempted specifically from the prohibition on excluding charges or liabilities that required, orwill require, cash settlement, or would have required cash settlement absent an ability to settle in another manner,from non­GAAP liquidity measures; The prohibition on adjusting a non­GAAP performance measure to eliminate or smooth items identified as non­recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur willmake clear that such an adjustment is prohibited only when (1) the nature of the charge or gain is such that it isreasonably likely to recur within two years, or (2) there was a similar charge or gain within the prior two years; and The definition of GAAP for purposes of financial measures prepared by foreign private issuers will be further clarified.

Definition of non­GAAP financial measures ­

"Non­GAAP financial measures" will not include financial measures that are required to be disclosed by GAAP,Commission rules or a system of regulation that is applicable to a registrant.

Form 8­K ­

The Form 8­K requirement with respect to earnings releases and similar announcements will require that thosematerials be "furnished to," rather than "filed with," the Commission.

II. The Rules and Amendments

A. Regulation G

We are adopting new Regulation G substantially as proposed. Regulation G will apply whenever a company publicly discloses orreleases material information that includes a non­GAAP financial measure.12

1. Application

a. General Standard

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Regulation G applies to any entity that is required to file reports pursuant to Sections 13(a) or 15(d) of the Exchange Act, other than aregistered investment company.13 Regulation G applies whenever such a registrant, or a person acting on its behalf, disclosespublicly or releases publicly any material information that includes a non­GAAP financial measure.

b. Foreign Private Issuers

Regulation G applies to registrants that are foreign private issuers,14 subject to a limited exception. Specifically, Regulation G doesnot apply to public disclosure of a non­GAAP financial measure by, or on behalf of, a registrant that is a foreign private issuer if:

the securities of the foreign private issuer are listed or quoted on a securities exchange or inter­dealer quotation systemoutside the United States; the non­GAAP financial measure is not derived from or based on a measure calculated and presented in accordance withgenerally accepted accounting principles in the United States; and the disclosure is made by or on behalf of the foreign private issuer outside the United States, or is included in a writtencommunication that is released by or on behalf of the foreign private issuer outside the United States.

These conditions focus on whether the financial measure relates to U.S. GAAP and whether the disclosure is made by or on behalfof the foreign private issuer outside of the United States. We believe these conditions appropriately take into account the interests ofU.S. investors (including both the interests reflected in the Sarbanes­Oxley Act and the interest of receiving information that iscommunicated globally) and the interests of foreign private issuers in communicating globally, including in their home markets.

Therefore, we believe that the worldwide availability of information properly disclosed outside the United States and the interests ofU.S. investors in information communicated by, or on behalf of, the issuer outside the United States dictate that the exception forforeign private issuers should continue to apply even where any one or more of the following circumstances are present:

a written communication is released in the United States as well as outside the United States, so long as the communicationis released in the United States contemporaneously with or after the release outside the United States and is not otherwisetargeted at persons located in the United States; foreign journalists, U.S. journalists or other third parties have access to the information; the information appears on one or more web sites maintained by the registrant, so long as the web sites, taken together, arenot available exclusively to, or targeted at, persons located in the United States; or following the disclosure or release of the information outside the United States, the information is included in a submission tothe Commission made under cover of a Form 6­K.15

c. Disclosures relating to business combination transactions

As proposed, Regulation G would have applied to disclosures of non­GAAP financial measures that represent projections orforecasts of results of proposed business combination transactions. We sought comment specifically on this point, and several of thecomment letters we received in response to the proposal argued strongly that Regulation G should not apply to these measures.16After consideration of the comments regarding the application of Regulation G to these disclosures, we are including in RegulationG an exception for non­GAAP financial measures included in disclosure relating to a proposed business combination transaction,the entity resulting from the business combination transaction, or an entity that is a party to the business combination transaction ifthe disclosure is contained in a communication that is subject to the Commission's communications rules applicable to businesscombination transactions.17

2. Non­GAAP Financial Measures

a. Definition

For purposes of Regulation G, a non­GAAP financial measure is a numerical measure of a registrant's historical or future financialperformance, financial position or cash flows that:

excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the mostdirectly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheetor statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the mostdirectly comparable measure so calculated and presented.

In this regard, GAAP refers to generally accepted accounting principles in the United States.

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The proposed version of Regulation G indicated that, with respect to foreign private issuers whose primary financial statements areprepared in accordance with non­U.S. generally accepted accounting principles, references to GAAP would "also include" theprinciples under which those primary financial statements are prepared. Commenters expressed the concern that the words "alsoinclude" meant that foreign private issuers would have to reconcile the non­GAAP financial measure to both GAAP in their homecountry and U.S. GAAP.18 As adopted, Regulation G clarifies this issue. First, in the case of foreign private issuers whose primaryfinancial statements are prepared in accordance with non­U.S. generally accepted accounting principles, Regulation G makes clearthat GAAP refers to the principles under which those primary financial statements are prepared. Second, in the case of foreignprivate issuers that include a non­GAAP financial measure derived from or based on a measure calculated in accordance with U.S.generally accepted accounting principles, Regulation G makes clear that GAAP refers to U.S. generally accepted accountingprinciples for purposes of the application of the requirements of Regulation G to the disclosure of that measure.

b. Discussion of the definition

We do not intend the definition of "non­GAAP financial measures" to capture measures of operating performance or statisticalmeasures that fall outside the scope of the definition set forth above. As such, non­GAAP financial measures do not include:

operating and other statistical measures (such as unit sales, numbers of employees, numbers of subscribers, or numbers ofadvertisers); and ratios or statistical measures that are calculated using exclusively one or both of:

financial measures calculated in accordance with GAAP; and operating measures or other measures that are not non­GAAP financial measures.

Non­GAAP financial measures do not include financial information that does not have the effect of providing numerical measuresthat are different from the comparable GAAP measure. Examples of measures to which Regulation G does not apply include thefollowing:

disclosure of amounts of expected indebtedness, including contracted and anticipated amounts; disclosure of amounts of repayments that have been planned or decided upon but not yet made; disclosure of estimated revenues or expenses of a new product line, so long as such amounts were estimated in the samemanner as would be computed under GAAP; and measures of profit or loss and total assets for each segment required to be disclosed in accordance with GAAP.19

We do intend that the definition of non­GAAP financial measure capture all measures that have the effect of depicting either:

a measure of performance that is different from that presented in the financial statements, such as income or loss beforetaxes or net income or loss, as calculated in accordance with GAAP; or a measure of liquidity that is different from cash flow or cash flow from operations computed in accordance with GAAP.

An example of a non­GAAP financial measure would be a measure of operating income20 that excludes one or more expense orrevenue items that are identified as "non­recurring." Another example would be EBITDA, which could be calculated using elementsderived from GAAP financial presentations but, in any event, is not presented in accordance with GAAP. Examples of ratios andmeasures that would not be non­GAAP financial measures would include sales per square foot (assuming that the sales figure wascalculated in accordance with GAAP) or same store sales (again assuming the sales figures for the stores were calculated inaccordance with GAAP).

An example of a ratio that would not be a non­GAAP financial measure would be a measure of operating margin that is calculated bydividing revenues into operating income, where both revenue and operating income are calculated in accordance with GAAP.Conversely, an example of a ratio that would be a non­GAAP financial measure would be a measure of operating margin that iscalculated by dividing revenues into operating income, where either revenue or operating income, or both, were not calculated inaccordance with GAAP.

We received comment regarding the exclusion of financial measures used for regulatory purposes from the definition.21 In responseto these comments, we have provided an exclusion from the definition of "non­GAAP financial measure" for financial measuresrequired to be disclosed by GAAP, Commission rules, or a system of regulation of a government or governmental authority or self­regulatory organization that is applicable to the registrant. Examples of such financial measures would include measures of capitalor reserves calculated for such a regulatory purpose.

3. Requirements of Regulation G

Regulation G contains a general disclosure requirement and a specific requirement of a reconciliation of the non­GAAP financialmeasure to the most directly comparable GAAP financial measure.

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a. General disclosure requirement22

Regulation G includes the general disclosure requirement that a registrant, or a person acting on its behalf, shall not make public anon­GAAP financial measure that, taken together with the information accompanying that measure, contains an untrue statement ofa material fact or omits to state a material fact necessary in order to make the presentation of the non­GAAP financial measure, inlight of the circumstances under which it is presented, not misleading.23

b. Reconciliation Requirement24

Whenever a company that is subject to Regulation G, or a person acting on its behalf, publicly discloses any material informationthat includes a non­GAAP financial measure, Regulation G requires the registrant to provide the following information as part of thedisclosure or release of the non­GAAP financial measure:25

a presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP;26 and a reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historic measures andquantitative, to the extent available without unreasonable efforts, for prospective measures, of the differences between thenon­GAAP financial measure presented and the most directly comparable financial measure or measures calculated andpresented in accordance with GAAP.27

If a non­GAAP financial measure is released orally, telephonically, by webcast, by broadcast, or by similar means, the registrant mayprovide the accompanying information required by Regulation G by: (1) posting that information on the registrant's web site; and (2)disclosing the location and availability of the required accompanying information during its presentation.28

With regard to the quantitative reconciliation of non­GAAP financial measures that are forward­looking, Regulation G requires aschedule or other presentation detailing the differences between the forward­looking non­GAAP financial measure and theappropriate forward­looking GAAP financial measure. If the GAAP financial measure is not accessible on a forward­looking basis,the registrant must disclose that fact and provide reconciling information that is available without an unreasonable effort.Furthermore, the registrant must identify information that is unavailable and disclose its probable significance.

Some commenters suggested that we define "public" disclosure and persons acting "on behalf of" a registrant.29 In both cases, thecommenters made reference to Regulation FD30 as a precedent. We believe that the precedent of Regulation FD is largelyinapposite in this regard and, therefore, have not added these definitions. Under Regulation FD, broad "public" disclosure is therequirement, not the triggering event. The perceived need for exclusions from the triggering disclosures and the specified list ofcompany officials that are acting for the company under Regulation FD was the concern that any disclosure ­ private or otherwise ­would trigger a public disclosure requirement. There should be no such concerns with Regulation G. Only "public" disclosuretriggers Regulation G, and an issuer is properly responsible for any person making "public" disclosures on its behalf.31

We understand, and indeed intend, that Regulation FD and Regulation G will operate in tandem. A "private" communication ofmaterial, non­public information to, for example, an analyst or a shareholder triggers a requirement for broad public disclosure underRegulation FD. If that public disclosure is of material information containing a non­GAAP financial measure, Regulation G will applyto that disclosure.

4. Liability matters

Rule 102 of Regulation G32 expressly provides that neither the requirements of Regulation G nor a person's compliance or non­compliance with the requirements of Regulation G shall in itself affect any person's liability under Exchange Act Section 10(b)33 orRule 10b­5 thereunder.34 Disclosure pursuant to Regulation G that is materially deficient may, in addition to violating Regulation G,give rise to a violation of Section 10(b) or Rule 10b­5 thereunder if all the elements for such a violation are present. In this regard, wereminded companies in December 2001 that, under certain circumstances, non­GAAP financial measures could mislead investors ifthey obscure the company's GAAP results.35 We continue to be of the view that some disclosures of non­GAAP financial measurescould give rise to actions under Rule 10b­5.36

Section 3(b) of the Sarbanes­Oxley Act provides that a violation of that Act or the Commission's rules thereunder shall be treated forall purposes as a violation of the Exchange Act. Therefore, if an issuer, or any person acting on its behalf, fails to comply withRegulation G, the issuer and/or the person acting on its behalf could be subject to a Commission enforcement action allegingviolations of Regulation G. Additionally, if the facts and circumstances warrant, we could bring an action under both Regulation Gand Rule 10b­5.

B. Non­GAAP financial measures in filings with the Commission ­ Amendments to Item 10 ofRegulation S­K, Item 10 of Regulation S­B and Form 20­F

1. Application

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a. General standard

We are amending Item 10 of Regulation S­K and Item 10 of Regulation S­B to include a statement concerning the use of non­GAAPfinancial measures in filings with the Commission. The amendments do not apply to registered investment companies.37 The non­GAAP financial measures provisions in amended Item 10 of Regulation S­K and Item 10 of Regulation S­B apply to the samecategories of non­GAAP financial measures as are covered by Regulation G.38

b. Foreign private issuers

We are amending Exchange Act Form 20­F to incorporate Item 10 of Regulation S­K. Accordingly, foreign private issuers will besubject to the same requirements as domestic issuers with respect to the use of non­GAAP financial measures in filings with theCommission on Form 20­F.39 Consistent with the proposal, filers on Form 40­F under the Multi­Jurisdictional Disclosure System arenot subject to those requirements.40

As noted above, the definition of "non­GAAP financial measure" is the same for purposes of these amendments as for Regulation G.However, a non­GAAP financial measure that would otherwise be prohibited will be permitted in a Form 20­F filing of a foreignprivate issuer if the measure is (1) required or expressly permitted by the standard­setter that establishes the generally acceptedaccounting principles used in the foreign private issuer's primary financial statements and (2) included in the foreign private issuer'sannual report or financial statements used in its home country jurisdiction or market.41 We have modified the language of thisprovision to clarify its application. We intended, however, that this exception cover only situations where the foreign organizationaffirmatively acts to require or permit the measure, and not situations where the measure was merely not prohibited. We have,therefore, maintained the requirement of "express" permission, notwithstanding certain comments we received.42

2. Requirements of amended Item 10 of Regulation S­K and Item 10 of Regulation S­B

The amendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B require registrants using non­GAAP financialmeasures in filings with the Commission to provide:43

a presentation, with equal or greater prominence, of the most directly comparable financial measure calculated andpresented in accordance with GAAP; a reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non­GAAPmeasures presented, and quantitative, to the extent available without unreasonable efforts, for forward­looking information, ofthe differences between the non­GAAP financial measure disclosed or released with the most directly comparable financialmeasure or measures calculated and presented in accordance with GAAP; a statement disclosing the reasons why the registrant's management believes that presentation of the non­GAAP financialmeasure provides useful information to investors regarding the registrant's financial condition and results of operations;44and to the extent material, a statement disclosing the additional purposes, if any, for which the registrant's management uses thenon­GAAP financial measure that are not otherwise disclosed.

In addition to these mandated disclosure requirements, amended Item 10 of Regulation S­K and Item 10 of Regulation S­B prohibitthe following:

excluding charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absentan ability to settle in another manner, from non­GAAP liquidity measures, other than the measures EBIT and EBITDA; adjusting a non­GAAP performance measure to eliminate or smooth items identified as non­recurring, infrequent or unusual,when (1) the nature of the charge or gain is such that it is reasonably likely to recur within two years, or (2) there was a similarcharge or gain within the prior two years;45 presenting non­GAAP financial measures on the face of the registrant's financial statements prepared in accordance withGAAP or in the accompanying notes; presenting non­GAAP financial measures on the face of any pro forma financial information required to be disclosed byArticle 11 of Regulation S­X; and using titles or descriptions of non­GAAP financial measures that are the same as, or confusingly similar to, titles ordescriptions used for GAAP financial measures.

The requirements and prohibitions for filed information are more extensive and detailed than those of Regulation G. The additionalrequirements and prohibitions are generally consistent with the staff's historical practice in situations where it has reviewed filingscontaining non­GAAP financial measures.

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Commenters expressed the concern that the prohibition on excluding from non­GAAP liquidity measures charges or liabilities thatrequired, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner,would prohibit the use of the non­GAAP financial measure EBITDA.46 We are exempting EBIT and EBITDA from this provisionbecause of their wide and recognized existing use. However, registrants must reconcile these measures to their most directlycomparable GAAP financial measure. Also, in the discussion of why the measure is useful to investors, registrants must discuss whyinvestors would find it valuable in the context in which it is presented, given the excluded items.

We had proposed that the requirements for a reconciliation to the most directly comparable GAAP financial measure be slightly morestringent than those set forth under Regulation G. In particular, in filings with the Commission, it was proposed that there not be an"unreasonable effort" exception for forward­looking information to the requirement for a quantitative reconciliation between the non­GAAP financial measure and the comparable GAAP financial measure. Commenters expressed the view that the need for such anexception was present equally in disclosure that was filed with the Commission and disclosure that was not filed.47 In response tothese comments, we have revised the requirement for filed documents to include the same exception as in Regulation G.Accordingly, with regard to the quantitative reconciliation of non­GAAP financial measures that are forward­looking, Item 10 ofRegulation S­K and Item 10 of Regulation S­B require a schedule or other presentation detailing the differences between theforward­looking non­GAAP financial measure and the appropriate forward­looking GAAP financial measure. If the GAAP financialmeasure is not accessible on a forward­looking basis, the registrant must disclose that fact and provide reconciling information thatis available without an unreasonable effort. Furthermore, the registrant must identify information that is unavailable and disclose itsprobable significance.

As proposed, Item 10 of Regulation S­K and Item 10 of Regulation S­B would have included a prohibition on the use of "non­GAAPper share financial measures." We received significant comment expressing concern with this part of the proposal.48 Thecommenters were of the view that the proposed prohibition would deprive investors of useful information and that the otherrequirements of Regulation G and Item 10 would provide adequate protections with regard to the use of such financial measures.49In response to those comments, we have not included a prohibition on "non­GAAP per share financial measures" in theamendments to Item 10 of Regulation S­K or Item 10 of Regulation S­B.50

Some commenters were of the view that the proposed requirements of (1) a statement regarding the purposes for whichmanagement uses the non­GAAP financial measure and (2) a statement of the utility of the non­GAAP financial measure to investorswould likely result in duplicative disclosure.51 In response to these comments, we have revised the requirement of a statement of thepurposes for which management uses the non­GAAP financial measure to apply only to the extent that the information is materialand is not presented in the statement of the utility of the non­GAAP financial measure to investors. Consistent with the proposal, therequirement for these statements may be satisfied by including the statements in the most recent annual report filed with theCommission (or a more recent filing) and by updating those statements, as necessary, no later than the time of the filing containingthe non­GAAP financial measure.

The required statements of the purposes for which management uses the non­GAAP financial measure and the utility of theinformation to investors should not be boilerplate. We intend these statements to be clear and understandable. We also intend thesestatements to be specific to the non­GAAP financial measure used, the registrant, the nature of the registrant's business and industry,and the manner in which management assesses the non­GAAP financial measure and applies it to management decisions.

C. New Item 12 of Form 8­K

We are amending Form 8­K to add new Item 12, "Disclosure of Results of Operations and Financial Condition."52 The addition ofItem 12 to Form 8­K will bring earnings information within our current reporting system by requiring registrants to furnish to theCommission all releases or announcements disclosing material non­public financial information about completed annual orquarterly fiscal periods. New Item 12 does not require that companies issue earnings releases or similar announcements. However,such releases and announcements will trigger the requirements of Item 12.

1. General requirement

Item 12 requires registrants to furnish to the Commission a Form 8­K within five business days of any public announcement orrelease disclosing material non­public information regarding a registrant's results of operations or financial condition for an annualor quarterly fiscal period that has ended.53 The requirements of Item 12 will apply regardless of whether the release orannouncement includes disclosure of a non­GAAP financial measure. Item 12 requires the registrant to identify briefly theannouncement or release and include the announcement or release as an exhibit to the Form 8­K.

Repetition of information that was publicly disclosed previously or the release of the same information in a different form (forexample in an interim or annual report to shareholders) would not trigger the Item 12 requirement. This result would not change ifthe repeated information were accompanied by information that was not material, whether or not already public. However, release ofadditional or updated material non­public information regarding the registrant's results of operations or financial condition for acompleted fiscal year or quarter would trigger an additional Item 12 obligation. Issuers that make earnings announcements or otherdisclosures of material non­public information regarding a completed fiscal quarter or year in an interim or annual report toshareholders would be permitted to specify in the Form 8­K which portion of that report contains the information required to befurnished under Item 12. In addition, the requirement to furnish a Form 8­K under Item 12 would not apply to issuers that make these

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announcements and disclosures only in their quarterly reports filed with the Commission on Form 10­Q54 (or 10­QSB55) or theirannual reports filed with the Commission on Form 10­K56 (or 10­KSB57).

Item 12 includes an exception from its requirements where non­public information is disclosed orally, telephonically, by webcast, bybroadcast, or by similar means in a presentation that is complementary to, and occurs within 48 hours after, a related, written releaseor announcement that triggers the requirements of Item 12.58 In this situation, Item 12 would not require the registrant to furnish anadditional Form 8­K with regard to the information that is disclosed orally, telephonically, by webcast, by broadcast, or by similarmeans if:59

the related, written release or announcement has been furnished to the Commission on Form 8­K pursuant to Item 12 prior tothe presentation;60 the presentation is broadly accessible to the public by dial­in conference call, webcast or similar technology; the financial and statistical information contained in the presentation is provided on the registrant's web site, together withany information that would be required under Regulation G;61 and the presentation was announced by a widely disseminated press release that included instructions as to when and how toaccess the presentation and the location on the registrant's web site where the information would be available.

Item 12 of Form 8­K will apply only to publicly disclosed or released material non­public information concerning an annual orquarterly fiscal period that has ended. While such disclosure may also include forward­looking information, it is the materialinformation about the completed fiscal period that triggers Item 12. Accordingly, Item 12 will not apply to public disclosure ofearnings estimates for future or ongoing fiscal periods, unless those estimates are included in the public announcement or releaseof material non­public information regarding an annual or quarterly fiscal period that has ended.62

2. Filing versus furnishing ­ liability and incorporation by reference

As proposed, Item 12 would have required registrants to "file" a Form 8­K meeting the requirements of Item 12. This proposal was incontrast to Item 9 of Form 8­K, which permits registrants to "furnish" a Form 8­K to the Commission. The most significant implicationsof "furnishing" a Form 8­K to the Commission, rather than "filing" a Form 8­K with the Commission are clear:

information that is "furnished to the Commission" in such a Form 8­K is not subject to Section 1863 of the Exchange Actunless the registrant specifically states that the information is to be considered "filed"; information that is "furnished to the Commission" in such a Form 8­K is not incorporated by reference into a registrationstatement, proxy statement or other report unless the registrant specifically incorporates that information into thosedocuments by reference; and information that is "furnished to the Commission" in such a Form 8­K is not subject to the requirements of amended Item 10 ofRegulation S­K or Item 10 of Regulation S­B, while "filed" information would be subject to those requirements.

We have considered the views of commenters that requiring earnings releases to be filed would have a detrimental effect on thelevel and quality of information that is provided to investors.64 These commenters expressed the concern that the enhanced liabilitymay preclude registrants from making earnings releases or similar disclosures. Further, the commenters were concerned that theneed to satisfy the more stringent requirements in amended Item 10 of Regulation S­K and Item 10 of Regulation S­B within therequired timeframe of Form 8­K would cause registrants to limit their publication of earnings releases or similar disclosures.

After consideration of these comments, Item 12 of Form 8­K, as adopted, requires that earnings releases or similar disclosures befurnished to the Commission rather than filed. Regulation G would, of course, apply to these releases and disclosures. In addition, toprovide certain of the protections provided by the amendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B toearnings releases, even if they are not filed, we have included in Item 12 of Form 8­K the requirements of paragraph (e)(1)(i) of Item10 of Regulation S­K and paragraph (h)(1)(i) of Item 10 of Regulation S­B. As a result, in addition to the requirements alreadyimposed by Regulation G, registrants would be required to disclose:

the reasons why the registrant's management believes that presentation of the non­GAAP financial measure provides usefulinformation to investors regarding the registrant's financial condition and results of operations;65 and to the extent material, the additional purposes, if any, for which the registrant's management uses the non­GAAP financialmeasure that are not otherwise disclosed.

Registrants may satisfy this requirement by including the disclosure in the Form 8­K or in the release or announcement that isincluded as an exhibit to the Form 8­K. As indicated above, registrants also may satisfy the requirement to provide these additionaltwo statements by including the disclosure in their most recent annual report filed with the Commission (or a more recent filing) andby updating those statements, as necessary, no later than the time the Form 8­K is furnished to the Commission. The otheramendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B would not apply.

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3. Relationship of Item 12 to Regulation FD

Earnings releases and similar disclosures that trigger the requirements of Item 12 are also subject to Regulation FD. The applicationof Item 12 would differ from Regulation FD, however, in that the requirements of Item 12 would always implicate Form 8­K for thosedisclosures, while Regulation FD provides that Form 8­K is an alternative means of satisfying its requirements. Further, a Form 8­Kfurnished to the Commission pursuant to Item 9 would satisfy an issuer's obligation under Regulation FD only if the Form 8­K werefurnished to the Commission within the time frame required by Regulation FD. Regulation FD could, of course, be satisfied by publicdisclosure other than through the filing of a Form 8­K meeting Regulation FD's requirements; in that case, Item 12 would require thata Form 8­K be furnished to the Commission within the five business day timeframe of Item 12. A Form 8­K furnished within thetimeframe required by Regulation FD and otherwise satisfying the requirements of both Item 9 and Item 12 could be furnished to theCommission once, indicating that it is being furnished under both Item 9 and Item 12, and satisfy both requirements.

III. Paperwork Reduction ActRegulation G and related amendments to Regulation S­K, Regulation S­B, Form 8­K and Form 20­F contain "collections ofinformation" requirements within the meaning of the Paperwork Reduction Act of 1995 ("PRA"),66 and the Commission hassubmitted the proposals to the Office of Management and Budget ("OMB") for review in accordance with 44 U.S.C, 3507(d) and 5CFR 1320.11. The titles for the information collections are: Regulation G, Regulation S­K, Regulation S­B, Form 8­K and Form 20­F.The Commission did not receive any comments on the paperwork burden. OMB has approved all but one of the collections ofinformation. OMB has not yet approved the changes to Form 8­K. We will announce the approval by separate release.

The Commission is adopting Regulation G pursuant to Section 401 of the Sarbanes­Oxley Act. Regulation G will require registrantsthat publicly disclose material information that includes non­GAAP financial measures to provide a reconciliation to the most directlycomparable GAAP financial measures. Regulation G is intended to implement the requirements of the Sarbanes­Oxley Act.Specifically, Regulation G is intended to provide investors with balanced financial disclosure when non­GAAP financial measuresare presented. Regulation G defines a non­GAAP financial measure as a numerical measure of an issuer's historical or futurefinancial performance, financial position or cash flow that:

excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the mostdirectly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheetor statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the mostdirectly comparable measure calculated and presented in accordance with GAAP.

Accordingly, by definition, a non­GAAP financial measure that triggers the application of Regulation G would have been derivedfrom a GAAP measure. We continue to expect the cost of obtaining the additional disclosure required by Regulation G to be minimal.Accordingly, we have estimated for purposes of the PRA that it will take .5 burden hour for each time a respondent complies withRegulation G. We anticipate that on average a company will have to comply with Regulation G roughly six times a year. Since thereare approximately 14,000 public companies that would be subject to Regulation G we have estimated that there will be 84,000disclosures made in accordance with Regulation G for a total of 42,000 burden hours. We would expect that an in house junioraccountant would prepare the actual reconciliation.

Regulation S­K (OMB Control No. 3235­0071) and Regulation S­B (OMB Control No. 3235­0417) prescribe disclosure requirementsthat registrants must follow when filing registration statements, reports and schedules with the Commission. Our amendments to Item10 of Regulation S­K and Item 10 of Regulation S­B incorporate the requirements of Regulation G and codify existing staffinterpretations. Because the collection of information regarding the reconciliation is already being accounted for in Regulation G, wedo not believe that adding the same requirement to Item 10 of Regulation S­K and Item 10 of Regulation S­B creates an additionalcollection of information within the meaning of the PRA. To account for the reconciliation in both Regulation G and Item 10 orRegulation S­K and Item 10 of Regulation S­B would result in double counting. Additionally, companies already, usually andcustomarily, disclose the purposes for which the registrant's management uses the non­GAAP financial measure and why it believesthat its presentation of the non­GAAP financial measure provides useful information to investors. Accordingly, we continue to believethat our amendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B do not contain a new "collection of information" oralter the existing burden of these collections of information within the meaning of the PRA.

Form 8­K (OMB Control No. 3235­0060) prescribes information, such as material events or corporate changes that a registrant mustdisclose. Item 12 of Form 8­K requires a company that publicly discloses material information regarding its actual or expectedquarterly or annual results of operations or financial condition for a completed fiscal period to furnish the text of the public disclosureand any accompanying analysis. Item 12 of Form 8­K does not require companies to actually issue an earnings announcement orrelease but only requires that it be furnished if they choose to issue an earnings announcement or release. Item 12 will bringearnings announcements and releases into the formal disclosure system although they would not be deemed filed or, absentadditional action by the registrant, incorporated into registration statements or proxy statements filed with the Commission. TheForms 8­K would be available to investors on a widespread basis on our Internet web site.

Item 12 of Form 8­K was modified from our proposing release in that the Form 8­K is no longer considered to be filed with theCommission but, rather, it would be considered furnished to the Commission. This change does not, however, alter the paperworkburden. We estimate, for purposes of the PRA, the burden associated with actually furnishing the Form 8­K to be minimal. Webelieve that complying with Item 12 of Form 8­K would require approximately .5 of a burden hour. We estimate that approximately

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14,000 public companies would make an average of four filings per year. We believe the total burden hours associated with Item 12would be 28,000 hours. We would expect that companies would use in­house personnel to file the Form 8­K.

We have amended Form 20­F (OMB Control Number 3235­0288) to incorporate our amendments to Item 10 of Regulation S­K.While Regulation G provides a limited exception for foreign private issuers, this exception would not apply to their Form 20­F filingsor any disclosure of non­GAAP financial measures made in the United States. Accordingly, we do not believe our amendment toForm 20­F would result in an additional collection of information as any burden is already accounted for in Regulation G.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays acurrently valid OMB control number. Compliance with the disclosure requirements is mandatory. There is no mandatory retentionperiod for the information disclosed, and responses to the disclosure requirements will not be kept confidential.

IV. Cost­Benefit Analysis

The Sarbanes­Oxley Act seeks to enhance the financial disclosure of public companies. In furtherance of this goal, the Sarbanes­Oxley Act has required the Commission, among other things, to adopt rules requiring that if a company publicly discloses non­GAAPfinancial measures or includes them in a Commission filing, the company must reconcile those non­GAAP financial measures to acompany's financial condition and results of operations under GAAP. Moreover, the Sarbanes­Oxley Act requires that any publicdisclosure of a non­GAAP financial measure not contain an untrue statement of a material fact or omit to state a material factnecessary in order to make the non­GAAP financial measure, in light of circumstances under which it is presented, not misleading.Additionally, the Sarbanes­Oxley Act seeks to have companies that report under Sections 13(a) and 15(d) of the Exchange Actdisclose to the public on a rapid and current basis information concerning material changes in their financial condition or operations.

New Regulation G and the amendments to Item 10 of Regulation S­K, Item 10 of Regulation S­B and Form 20­F will fulfill thestatutory directive under Section 401(b) of the Sarbanes­Oxley Act. We recognize that any implementation of the Sarbanes­Oxley Actwould likely result in costs as well as benefits and have an effect on the economy. We are sensitive to the costs and benefits. Whileour proposals received significant public comment, no commenter provided any quantitative data on costs or benefits.

A. Benefits

Regulation G and the amendments to our rules are intended to ensure that investors and others are not misled by the use of non­GAAP financial measures. Additionally, the amendments to Form 8­K are intended to create a central depository where investorsand other market participants can look to find the latest earnings announcements and releases by public companies and provideenhanced attention to those announcements and releases.

Regulation G and amendments to Item 10 of Regulations S­K and S­B require that any non­GAAP financial measure presented bereconciled with its most directly comparable financial measure prepared in accordance with GAAP. We anticipate that thisreconciliation will help investors and market professionals to better evaluate the non­GAAP financial measures presented. Wecontinue to believe that the reconciliation will provide the securities markets with additional information to more accurately evaluatecompanies' securities and, in turn, result in a more accurate pricing of securities.

B. Costs

We believe that the costs associated with the Regulation G and amendments will be minimal. As noted earlier, no commenterprovided any quantitative data in their comment letters to the Commission. We contacted a sample of commenters to gatheradditional data about the costs associated with reconciling a non­GAAP financial measure with the most directly comparable GAAPfinancial measure. The commenters stated that, in most cases, for historical measures, registrants have the most directly comparableGAAP financial measure available at the time they prepare or release a non­GAAP financial measure.67 In addition, the commentersstated that the cost of reconciling a non­GAAP financial measure with the most directly comparable GAAP financial measure is notsignificant for historical measures. Most of the commenters that responded to our inquiries already prepare a reconciliation (eitherfor internal use, external release, or both) between a non­GAAP financial measure and the most directly comparable GAAP financialmeasure when a non­GAAP financial measure, on an historical basis, is presented. Accordingly, those companies do not expect toincur any significant incremental costs in complying with the proposal in this particular area.68

Three commenters in the group that we contacted indicated that they present forward­looking non­GAAP financial measures inearnings releases. Those companies indicated that they do not have the most directly comparable GAAP financial measureavailable at the time they prepare their non­GAAP measure because they are unable to quantify certain amounts that would berequired to be included in the GAAP measure.69 However, those companies would be able to explain, at the date the forward­looking non­GAAP financial measure is released, the types of gains, losses, revenues or expenses that would need to be added toor subtracted from the non­GAAP financial measure to arrive at the most directly comparable GAAP measure, even though theycannot quantify all of those items. The companies indicated that if they were to be required to quantify the reconciling items betweenthe non­GAAP forward­looking financial measure and the most directly comparable GAAP financial measure, it would be verydifficult and may result in the company deciding not to provide the non­GAAP financial measure to the public. Regulation G requiresthat, for forward­looking measures, the reconciliation between non­GAAP and GAAP financial measures must be quantitative "to theextent available and without unreasonable efforts." Accordingly, we do not believe Regulation G will impose significant additionalcosts on registrants with respect to reconciling forward­looking non­GAAP and GAAP financial measures.

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We continue to estimate that public companies would have to comply with Regulation G six times a year. There are roughly 14,000public companies. Using our estimates from the Paperwork Reduction Act section, we would expect that it would take a junioraccountant roughly .5 hours to complete the required reconciliation and ensure there are no material misstatements. Accordingly,we have estimated that the total burden hours needed to comply with Regulation G would be 42,000 hours. Using cost data from theSecurities Industry Association's Report on Management & Professional Earnings in the Securities Industry 2001 (SIA Report)70 andadding an additional 35% for costs associated with overhead, we find that, on average, a junior accountant would earn $26 an hour.We believe the salary of a junior accountant is appropriate for our estimates because, in most cases, we would expect the mostdirectly comparable GAAP measure to be available. Therefore, we have estimated the total costs associated with complying withRegulation G to be $1,092,000.

Most commenters had concerns with our amendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B and ourrequirement to file their earnings release, if any, on Form 8­K. Commenters generally opposed the prohibitions of Item 10 as theywould apply to their earnings release. Commenters particularly opposed the prohibition against presenting a non­GAAP per sharemeasure. Accordingly, we have made two modifications to our proposals. First, Item 10 would no longer prohibit the presentation ofa non­GAAP per share measure.71 Second, the earnings release would no longer be required to be filed on Form 8­K but, rather, itwould be required to be furnished to the Commission under Form 8­K. The change from filing to furnishing has two consequences.First, a company's earnings releases would no longer be subject to Item 10 prohibitions. Second, the earnings release would nolonger be subject to Section 18 of the Exchange Act.

With regard to other filings with the Commission, Item 10 would continue to apply. Because the costs associated with providing areconciliation are already being accounted for in Regulation G, we do not believe adding the same requirement to Item 10 ofRegulation S­K and Item 10 of Regulation S­B incurs any incremental cost to the registrant. To account for the required reconciliationin both Regulation G and Item 10 of Regulation S­K and Item 10 of Regulation S­B would result in double counting. Additionally,because companies currently are expected to disclose the purposes for which the registrant's management uses the non­GAAPfinancial measure and why it believes that presentation of the non­GAAP financial measure provides useful information to investors,this aspect of the rule would not increase costs already properly being borne by registrants. Accordingly, we do not believe ouramendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B would result in any additional costs not already included inRegulation G or current filing requirements.

With regard to the required submission on Form 8­K, we continue to believe that personnel in finance, investor relations or corporatecommunications departments would most likely submit the earnings announcements or releases, as most earnings announcementsare disseminated via press release. We have estimated that the actual time required to submit an earnings announcement orrelease on Form 8­K to be .5 hour. In estimating this time burden we note that most press releases are fairly short in length, makingthe actual process of filing easier. We also note that the software necessary to file a Form 8­K is available free of charge from theCommission. We have estimated that public companies would be required to comply with the required submission on Form 8­Kroughly four times a year. Assuming 14,000 public companies and a total burden of .5 hour for the filing, we estimate that companieswill spend 28,000 hours complying with our Form 8­K amendment. Again using the SIA Report, and adding an additional 35% forcosts associated with overhead, we find that a Corporate Communications Manager, on average, earns $56.00 an hour. Accordingly,we have estimated the total salary cost associated with our amendments to Form 8­K to be $1,568,000.

Finally, our amendments to Form 20­F would incorporate Item 10 of Regulation S­K. While Regulation G provides a limitedexception for foreign private issuers, this exception would not apply to their Form 20­F filing or any disclosure of non­GAAP financialmeasures made in the United States. Accordingly, the costs associated with our amendment to Form 20­F are already accounted forin our cost estimates for Regulation G.

V. Regulatory Flexibility Act Certification

Pursuant to 5 U.S.C. §605(b), the Commission has certified that Regulation G and our amendments to Item 10 of Regulation S­B,Item 10 of Regulation S­K and Form 8­K under the Securities Act and the Exchange Act will not have a significant economic impacton a substantial number of small entities. This certification, including the basis for the certification, was included in the proposingrelease. We solicited comments on the potential impact of the amendments on small entities, but received none.

VI. Consideration of Impact on the Economy, Burden on Competition and Promotion ofEfficiency, Competition and Capital Formation

Section 23(a)(2) of the Exchange Act72 requires us to consider the anti­competitive effects of any rules that we adopt under theExchange Act. Section 23(a)(2) prohibits us from adopting any rule that would impose a burden on competition not necessary orappropriate in furtherance of the purposes of the Exchange Act. Furthermore, Section 2(b) of the Securities Act73 and Section 3(f) ofthe Exchange Act74 require us, when engaging in rulemaking, to consider or determine whether an action is necessary orappropriate in the public interest, and consider whether the action will promote efficiency, competition, and capital formation.

We requested comment on any anti­competitive effects of the proposals. We did not receive any comments regarding any anti­competitive effects of the proposal. We do not believe that Regulation G or our amendments to Item 10 of Regulation S­K, Item 10 ofRegulation S­B, Form 8­K or Form 20­F will have a quantifiable effect on efficiency, competition, and capital formation.

VII. Statutory Basis

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New Regulation G, new Item 12 to Form 8­K and the amendments to the General Instructions to Form 8­K, Item 10 of Regulation S­K,Item 10 of Regulation S­B and Form 20­F are being adopted pursuant to Sections 2(b), 6, 7, 8, 19(a), and 28 of the Securities Act of1933, as amended, Sections 3, 4, 10, 12, 13, 15, 23, and 36 of the Securities Exchange Act of 1934, as amended, and Sections 3(a),401, and 409 of the Sarbanes­Oxley Act.

List of Subjects

17 CFR Part 228

Reporting and recordkeeping requirements, Securities, Small businesses.

17 CFR Parts 229, 244 and 249

Reporting and recordkeeping requirements, Securities.

TEXT OF THE AMENDMENTS

In accordance with the foregoing, the Securities and Exchange Commission amends Title 17, chapter II of the Code of FederalRegulations as follows:

PART 228 ­ INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

1. The general authority citation for Part 228 is revised to read as follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z­2, 77z­3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn,77sss, 78l, 78m, 78n, 78o, 78u­5, 78w, 78ll, 78mm, 80a­8, 80a­29, 80a­30, 80a­37 and 80b­11.

* * * * *

2. Amend § 228.10 by adding paragraph (h) to read as follows:

§ 228.10 (Item 10) General.

* * * * *

(h) Use of non­GAAP financial measures in Commission filings. (1) Whenever one or more non­GAAP financial measures areincluded in a filing with the Commission:

(i) The registrant must include the following in the filing:

(A) A presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated andpresented in accordance with Generally Accepted Accounting Principles (GAAP);

(B) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non­GAAPmeasures presented, and quantitative, to the extent available without unreasonable efforts, for forward­looking information, of thedifferences between the non­GAAP financial measure disclosed or released with the most directly comparable financial measure ormeasures calculated and presented in accordance with GAAP identified in paragraph (h)(1)(i)(A) of this section;

(C) A statement disclosing the reasons why the registrant's management believes that presentation of the non­GAAP financialmeasure provides useful information to investors regarding the registrant's financial condition and results of operations; and

(D) To the extent material, a statement disclosing the additional purposes, if any, for which the registrant's management uses thenon­GAAP financial measure that are not disclosed pursuant to paragraph (h)(1)(i)(C) of this section; and

(ii) A registrant must not:

(A) Exclude charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent anability to settle in another manner, from non­GAAP liquidity measures, other than the measures earnings before interest and taxes(EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA);

(B) Adjust a non­GAAP performance measure to eliminate or smooth items identified as non­recurring, infrequent or unusual, whenthe nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gainwithin the prior two years;

(C) Present non­GAAP financial measures on the face of the registrant's financial statements prepared in accordance with GAAP orin the accompanying notes;

(D) Present non­GAAP financial measures on the face of any pro forma financial information required to be disclosed by Article 11 ofRegulation S­X (17 CFR 210.11­01 through 210.11­03); or

(E) Use titles or descriptions of non­GAAP financial measures that are the same as, or confusingly similar to, titles or descriptionsused for GAAP measures; and

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(iii) If the filing is not an annual report on Form 10­KSB (17 CFR 249.310b), a registrant need not include the information required byparagraphs (h)(1)(i)(C) and (h)(1)(i)(D) of this section if that information was included in its most recent annual report on Form 10­KSB or a more recent filing, provided that the required information is updated to the extent necessary to meet the requirements ofparagraphs (h)(1)(i)(C) and (h)(1)(i)(D) of this section at the time of the registrant's current filing.

(2) For purposes of this paragraph (h), a non­GAAP financial measure is a numerical measure of a registrant's historical or futurefinancial performance, financial position or cash flow that:

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directlycomparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement ofcash flows (or equivalent statements) of the issuer; or

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directlycomparable measure so calculated and presented.

(3) For purposes of this paragraph (h), GAAP refers to generally accepted accounting principles in the United States.

(4) For purposes of this paragraph (h), non­GAAP financial measures exclude:

(i) operating and other statistical measures; and

(ii) ratios or statistical measures calculated using exclusively one or both of:

(A) Financial measures calculated in accordance with GAAP; and

(B) Operating measures or other measures that are not non­GAAP financial measures.

(5) For purposes of this paragraph (h), non­GAAP financial measures exclude financial measures required to be disclosed by GAAP,Commission rules, or a system of regulation of a government or governmental authority or self­regulatory organization that isapplicable to the registrant. However, the financial measure should be presented outside of the financial statements unless thefinancial measure is required or expressly permitted by the standard setter that is responsible for establishing the GAAP used insuch financial statements.

(6) The requirements of paragraph (h) of this section shall not apply to a non­GAAP financial measure included in disclosure relatingto a proposed business combination, the entity resulting therefrom or an entity that is a party thereto, if the disclosure is contained ina communication that is subject to § 230.425 of this chapter,

§ 240.14a­12 or § 240.14d­2(b)(2) of this chapter or § 229.1015 of this chapter.

PART 229 ­STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGEACT OF 1934 AND ENERGY POLICY AND CONSERVATION ACT OF 1975 ­ REGULATION S­K

3. The general authority citation for Part 229 is revised to read as follows:

Authority: 15 U.S.C. 7261, 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z­2, 77z­3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii,77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u­5, 78w, 78ll(d), 78mm, 79e, 79n, 79t, 80a­8, 80a­29, 80a­30, 80a­31(c),80a­37, 80a­38(a) and 80b­11, unless otherwise noted.

* * * * *

4. Amend § 229.10 by revising the section heading and adding paragraph (e) to read as follows:

§229.10 (Item 10) General.

* * * * *

(e) Use of non­GAAP financial measures in Commission filings. (1) Whenever one or more non­GAAP financial measures areincluded in a filing with the Commission:

(i) The registrant must include the following in the filing:

(A) A presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated andpresented in accordance with Generally Accepted Accounting Principles (GAAP);

(B) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non­GAAPmeasures presented, and quantitative, to the extent available without unreasonable efforts, for forward­looking information, of thedifferences between the non­GAAP financial measure disclosed or released with the most directly comparable financial measure ormeasures calculated and presented in accordance with GAAP identified in paragraph (e)(1)(i)(A) of this section;

(C) A statement disclosing the reasons why the registrant's management believes that presentation of the non­GAAP financialmeasure provides useful information to investors regarding the registrant's financial condition and results of operations; and

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(D) To the extent material, a statement disclosing the additional purposes, if any, for which the registrant's management uses thenon­GAAP financial measure that are not disclosed pursuant to paragraph (e)(1)(i)(C) of this section; and

(ii) A registrant must not:

(A) Exclude charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent anability to settle in another manner, from non­GAAP liquidity measures, other than the measures earnings before interest and taxes(EBIT) and earnings before interest, taxes, depreciation, and amortization (EBITDA);

(B) Adjust a non­GAAP performance measure to eliminate or smooth items identified as non­recurring, infrequent or unusual, whenthe nature of the charge or gain is such that it is reasonably likely to recur within two years or there was a similar charge or gainwithin the prior two years;

(C) Present non­GAAP financial measures on the face of the registrant's financial statements prepared in accordance with GAAP orin the accompanying notes;

(D) Present non­GAAP financial measures on the face of any pro forma financial information required to be disclosed by Article 11 ofRegulation S­X (17 CFR 210.11­01 through 210.11­03); or

(E) Use titles or descriptions of non­GAAP financial measures that are the same as, or confusingly similar to, titles or descriptionsused for GAAP financial measures; and

(iii) If the filing is not an annual report on Form 10­K or Form 20­F (17 CFR 249.220f), a registrant need not include the informationrequired by paragraphs (e)(1)(i)(C) and (e)(1)(i)(D) of this section if that information was included in its most recent annual report onForm 10­K or Form 20­F or a more recent filing, provided that the required information is updated to the extent necessary to meet therequirements of paragraphs (e)(1)(i)(C) and (e)(1)(i)(D) of this section at the time of the registrant's current filing.

(2) For purposes of this paragraph (e), a non­GAAP financial measure is a numerical measure of a registrant's historical or futurefinancial performance, financial position or cash flows that:

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directlycomparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement ofcash flows (or equivalent statements) of the issuer; or

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directlycomparable measure so calculated and presented.

(3) For purposes of this paragraph (e), GAAP refers to generally accepted accounting principles in the United States, except that (i)in the case of foreign private issuers whose primary financial statements are prepared in accordance with non­U.S. generallyaccepted accounting principles, GAAP refers to the principles under which those primary financial statements are prepared; and (ii)in the case of foreign private issuers that include a non­GAAP financial measure derived from or based on a measure calculated inaccordance with U.S. generally accepted accounting principles, GAAP refers to U.S. generally accepted accounting principles forpurposes of the application of the requirements of this paragraph (e) to the disclosure of that measure.

(4) For purposes of this paragraph (e), non­GAAP financial measures exclude:

(i) operating and other statistical measures; and

(ii) ratios or statistical measures calculated using exclusively one or both of:

(A) Financial measures calculated in accordance with GAAP; and

(B) Operating measures or other measures that are not non­GAAP financial measures.

(5) For purposes of this paragraph (e), non­GAAP financial measures exclude financial measures required to be disclosed by GAAP,Commission rules, or a system of regulation of a government or governmental authority or self­regulatory organization that isapplicable to the registrant. However, the financial measure should be presented outside of the financial statements unless thefinancial measure is required or expressly permitted by the standard­setter that is responsible for establishing the GAAP used insuch financial statements.

(6) The requirements of paragraph (e) of this section shall not apply to a non­GAAP financial measure included in disclosure relatingto a proposed business combination, the entity resulting therefrom or an entity that is a party thereto, if the disclosure is contained ina communication that is subject to § 230.425 of this chapter,

§ 240.14a­12 or § 240.14d­2(b)(2) of this chapter or § 229.1015 of this chapter.

(7) The requirements of paragraph (e) of this section shall not apply to investment companies registered under Section 8 of theInvestment Company Act of 1940 (15 U.S.C. 80a­8).

Note to paragraph (e). A non­GAAP financial measure that would otherwise be prohibited by paragraph (e)(1)(ii) of this section ispermitted in a filing of a foreign private issuer if:

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1. The non­GAAP financial measure relates to the GAAP used in the registrant's primary financial statements included in its filingwith the Commission;

2. The non­GAAP financial measure is required or expressly permitted by the standard­setter that is responsible for establishing theGAAP used in such financial statements; and

3. The non­GAAP financial measure is included in the annual report prepared by the registrant for use in the jurisdiction in which it isdomiciled, incorporated or organized or for distribution to its security holders.

5. Part 244 is added to read as follows:

PART 244 ­ Regulation G

Sec.

244.100 General rules regarding disclosure of non­GAAP financial measures.

244.101 Definitions.

244.102 No effect on antifraud liability.

Authority: 15 U.S.C. 7261, 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 80a­29

§ 244.100 General rules regarding disclosure of non­GAAP financial measures.

(a) Whenever a registrant, or person acting on its behalf, publicly discloses material information that includes a non­GAAP financialmeasure, the registrant must accompany that non­GAAP financial measure with:

(1) A presentation of the most directly comparable financial measure calculated and presented in accordance with GenerallyAccepted Accounting Principles (GAAP); and

(2) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non­GAAPmeasures presented, and quantitative, to the extent available without unreasonable efforts, for forward­looking information, of thedifferences between the non­GAAP financial measure disclosed or released with the most comparable financial measure ormeasures calculated and presented in accordance with GAAP identified in paragraph (a)(1) of this section.

(b) A registrant, or a person acting on its behalf, shall not make public a non­GAAP financial measure that, taken together with theinformation accompanying that measure and any other accompanying discussion of that measure, contains an untrue statement of amaterial fact or omits to state a material fact necessary in order to make the presentation of the non­GAAP financial measure, in lightof the circumstances under which it is presented, not misleading.

(c) This section shall not apply to a disclosure of a non­GAAP financial measure that is made by or on behalf of a registrant that is aforeign private issuer if the following conditions are satisfied:

(1) The securities of the registrant are listed or quoted on a securities exchange or inter­dealer quotation system outside the UnitedStates;

(2) The non­GAAP financial measure is not derived from or based on a measure calculated and presented in accordance withgenerally accepted accounting principles in the United States; and

(3) The disclosure is made by or on behalf of the registrant outside the United States, or is included in a written communication thatis released by or on behalf of the registrant outside the United States.

(d) This section shall not apply to a non­GAAP financial measure included in disclosure relating to a proposed businesscombination, the entity resulting therefrom or an entity that is a party thereto, if the disclosure is contained in a communication that issubject to § 230.425 of this chapter, § 240.14a­12 or § 240.14d­2(b)(2) of this chapter or § 229.1015 of this chapter.

Notes to § 244.100:

1. If a non­GAAP financial measure is made public orally, telephonically, by webcast, by broadcast, or by similar means, therequirements of paragraphs (a)(1)(i) and (a)(1)(ii) of this section will be satisfied if:

(i) The required information in those paragraphs is provided on the registrant's web site at the time the non­GAAP financial measureis made public; and

(ii) The location of the web site is made public in the same presentation in which the non­GAAP financial measure is made public.

2. The provisions of paragraph (c) of this section shall apply notwithstanding the existence of one or more of the followingcircumstances:

(i) A written communication is released in the United States as well as outside the United States, so long as the communication isreleased in the United States contemporaneously with or after the release outside the United States and is not otherwise targeted atpersons located in the United States;

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(ii) Foreign journalists, U.S. journalists or other third parties have access to the information;

(iii) The information appears on one or more web sites maintained by the registrant, so long as the web sites, taken together, are notavailable exclusively to, or targeted at, persons located in the United States; or

(iv) Following the disclosure or release of the information outside the United States, the information is included in a submission bythe registrant to the Commission made under cover of a Form 6­K.

§ 244.101 Definitions.

This section defines certain terms as used in Regulation G (§§ 244.100 through 244.102).

(a)(1) Non­GAAP financial measure. A non­GAAP financial measure is a numerical measure of a registrant's historical or futurefinancial performance, financial position or cash flows that:

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directlycomparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet or statement ofcash flows (or equivalent statements) of the issuer; or

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directlycomparable measure so calculated and presented.

(2) A non­GAAP financial measure does not include operating and other financial measures and ratios or statistical measurescalculated using exclusively one or both of:

(i) Financial measures calculated in accordance with GAAP; and

(ii) Operating measures or other measures that are not non­GAAP financial measures.

(3) A non­GAAP financial measure does not include financial measures required to be disclosed by GAAP, Commission rules, or asystem of regulation of a government or governmental authority or self­regulatory organization that is applicable to the registrant.

(b) GAAP. GAAP refers to generally accepted accounting principles in the United States, except that (1) in the case of foreign privateissuers whose primary financial statements are prepared in accordance with non­U.S. generally accepted accounting principles,GAAP refers to the principles under which those primary financial statements are prepared; and (2) in the case of foreign privateissuers that include a non­GAAP financial measure derived from a measure calculated in accordance with U.S. generally acceptedaccounting principles, GAAP refers to U.S. generally accepted accounting principles for purposes of the application of therequirements of Regulation G to the disclosure of that measure.

(c) Registrant. A registrant subject to this regulation is one that has a class of securities registered under Section 12 of the SecuritiesExchange Act of 1934 (15 U.S.C. 78l), or is required to file reports under Section 15(d) of the Securities Exchange Act of 1934 (15U.S.C. 78o(d)), excluding any investment company registered under Section 8 of the Investment Company Act of 1940 (15 U.S.C.80a­8).

(d) United States. United States means the United States of America, its territories and possessions, any State of the United States,and the District of Columbia.

§ 244.102 No effect on antifraud liability.

Neither the requirements of this Regulation G (17 CFR § 244.100 through 244.102) nor a person's compliance or non­compliancewith the requirements of this Regulation shall in itself affect any person's liability under Section 10(b) (15 U.S.C. 78j(b)) of theSecurities Exchange Act of 1934 or § 240.10b­5 of this chapter.

PART 249 ­FORMS, SECURITIES EXCHANGE ACT OF 1934

7. The authority citation for part 249 continues to read in part as follows:

Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.

* * * * *

8. Amend Form 8­K (referenced in §249.308) by adding General Instruction B.6., revising Item 9 and adding Item 12.

Note ­ The text of Form 8­K does not, and this amendment will not, appear in the Code of Federal Regulations.

Form 8­K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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General Instructions

* * * * *

B. Events to Be Reported and Time of Filing for Reports

* * * * *

6. A report on this form is required to be furnished upon the occurrence of any of the events specified in Item 12 of this form. A reportof an event specified in Item 12 is to be furnished within 5 business days after the occurrence of the event; if the event occurs on aSaturday, Sunday or holiday on which the Commission is not open for business, the 5 business day period shall begin to run on andinclude the first business day thereafter. The information in a report furnished pursuant to Item 12 shall not be deemed to be "filed"for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, except if the registrant specificallystates that the information is to be considered "filed" under the Exchange Act or incorporates it by reference into a filing under theSecurities Act or the Exchange Act.

* * * * *

Information to Be Included in the Report

* * * * *

Item 12. Results of Operations and Financial Condition.

(a) If a registrant, or any person acting on its behalf, makes any public announcement or release (including any update of an earlierannouncement or release) disclosing material non­public information regarding the registrant's results of operations or financialcondition for a completed quarterly or annual fiscal period, the registrant shall briefly identify the announcement or release andinclude the text of that announcement or release as an exhibit;

(b) A Form 8­K is not required to be furnished to the Commission under this Item 12 in the case of disclosure of material non­publicinformation that is disclosed orally, telephonically, by webcast, by broadcast, or by similar means if:

(1) The information is provided as part of a presentation that is complementary to, and initially occurs within 48 hours after, a related,written announcement or release that has been furnished on Form 8­K pursuant to this Item 12 prior to the presentation;

(2) The presentation is broadly accessible to the public by dial­in conference call, by webcast, by broadcast, or by similar means;

(3) The financial and other statistical information contained in the presentation is provided on the registrant's web site, together withany information that would be required under §244.100 of Regulation G; and

(4) The presentation was announced by a widely disseminated press release, that included instructions as to when and how toaccess the presentation and the location on the registrant's web site where the information would be available.

Instructions.

1. The requirements of this Item 12 are triggered by the disclosure of material non­public information regarding a completed fiscalyear or quarter. Release of additional or updated material non­public information regarding a completed fiscal year or quarter wouldtrigger an additional Item 12 requirement.

2. The requirements of paragraph (e)(1)(i) of Item 10 of Regulation S­K (or paragraph (h)(1)(i) of Item 10 of Regulation S­B in thecase of a small business issuer) shall apply to disclosures under this Item 12.

3. Issuers that make earnings announcements or other disclosures of material non­public information regarding a completed fiscalyear or quarter in an interim or annual report to shareholders, are permitted to specify which portion of the report contains theinformation required to be furnished under Item 12.

4. This Item 12 does not apply in the case of a disclosure that is made in a quarterly report filed with the Commission on Form 10­Q(or 10­QSB) or an annual report filed with the Commission on Form 10­K (or 10­KSB).

* * * * *

9. By amending Form 20­F (referenced in §249.220) by removing in General Instruction C.(e) the words "performance and theCommission's policy on securities ratings" and adding, in their place, the words "performance, the Commission's policy on securitiesratings, and the Commission's policy on use of non­GAAP financial measures in Commission filings".

By the Commission.

January 22, 2003

Margaret H. McFarlandDeputy Secretary

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Endnotes1 17 CFR 244.100 ­ 244.102.

2 17 CFR 229.10.

3 17 CFR 228.10.

4 15 U.S.C. §§ 78a et seq.

5 17 CFR 249.308.

6 17 CFR 249.220.

7 Pub. L. No. 107­204, 116 Stat. 745 (2002).

8 See Release No. 33­8145 (Nov. 4, 2002) [67 FR 68490].

9 See Accounting Series Release No. 142, Release No. 33­5337 (Mar. 15, 1973); Cautionary Advice Regarding the Use of "ProForma" Financial Information, Release No. 33­8039

(Dec. 4, 2001); and In the Matter of Trump Hotels & Casino Resorts, Inc., Release No. 34­45287 (Jan. 16, 2002). We also note thatthe Financial Accounting Standards Board (FASB) has initiated a project called Financial Performance Reporting by BusinessEnterprises. The objective of the project is to ensure that users of financial statements have sufficient quality information in order toevaluate a company's performance. The project's focus includes the presentation of key performance measures, or informationnecessary to permit calculation of key financial measures, used by investors and creditors. However, it will not address non­GAAPmeasures in press releases or other communications outside financial statements.

10 Regulation G and the amendments to our rules are intended to ensure that investors receive adequate information in evaluating acompany's use of non­GAAP financial measures. In addition, having earnings announcements furnished on Form 8­K would providethe public a source of reference for obtaining a company's most recent statements regarding its financial condition. Therefore, webelieve that the new rules and amendments are in the public interest and consistent with the protection of investors.

11 While we have not included a prohibition on per share non­GAAP financial measures in Item 10 of Regulation S­K or Item 10 ofRegulation S­B, per share measures that are prohibited specifically under GAAP or Commission rules continue to be prohibited inmaterials filed with or furnished to the Commission. See, for example, the prohibition on cash flow per share in paragraph 33 ofFASB Statement No. 95, Statement of Cash Flows.

12 Section 401(b) of the Sarbanes­Oxley Act directs the Commission to adopt rules concerning the public disclosure or release of"pro forma financial information" by a company filing reports under Section 13(a) [15 U.S.C. § 78m(a)] or 15(d) [15 U.S.C. § 780(d)].Because the Commission's rules and regulations address the use of "pro forma financial information" in other contexts, particularly inRegulation S­X, and use that term differently from its use in the Sarbanes­Oxley Act, we are adopting the term "non­GAAP financialmeasures" to identify the types of information targeted by Section 401(b) of the Sarbanes­Oxley Act.

13 See Rule 101(c) of Regulation G [17 CFR 244.101(c)]. Registered investment companies are excluded from the definition of"registrant" for purposes of Regulation G, as Section 405 of the Sarbanes­Oxley Act exempts investment companies registeredunder Section 8 of the Investment Company Act of 1940 (15 U.S.C. § 80a­8) from Section 401 of the Sarbanes­Oxley Act and anyrules adopted by the Commission under Section 401.

14 "Foreign private issuer" is defined in Rule 405 [17 CFR 230.405] under the Securities Act 1933 [15 U.S.C. §§ 77a et seq.].

15 17 CFR 249.306.

16 See, for example, the comment letters of the Association of the Bar of the City of New York, Special Committee on Mergers,Acquisitions, and Corporate Control Contests; Association of the Bar of the City of New York, Committee on Securities Regulation;Deloitte & Touche, LLP; and Cleary, Gottlieb, Steen & Hamilton.

17 See Exchange Act Rules 14a­12 [17 CFR 240.14a­12] and 14d­2 [17 CFR 240.14d­2], Securities Act Rules 165 [17 CFR230.165] and 425 [17 CFR 230.425], and Item 1015 of Regulation M­A [17 CFR 229.1015].

18 See, for example, the comment letters of Deloitte & Touche, LLP and the Association of Private French Enterprises­Association ofLarge French Enterprises.

19 FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, requires that companies reporta measure of profit or loss and total assets for each reportable segment. This tabular information is presented in a note to the auditedfinancial statements and is required to be reconciled to the GAAP measures, with all significant reconciling items separatelyidentified and described. A registrant is required to provide a Management's Discussion & Analysis of segment information if such a

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discussion is necessary to an understanding of the business. Such discussion would generally include the measures reported underFASB Statement No. 131.

20 Rule 5­03(b)(1) through Rule 503(b)(7) of Regulation S­X [17 CFR 210.5­03(b)(1) through 17 CFR 210.5­03(b)(7)] includesguidance on the components of operating income (loss).

21 See, for example, the comment letters of America's Community Bankers and the American Bankers Association.

22 17 CFR 244.100(b).

23 In its comment letter, the Association for Investment Management and Research expressed concern regarding the presentation ofnon­GAAP financial measures that appear to have been calculated and presented in a manner consistent with prior presentations ofthat measure when, in fact, the method of calculating or presenting the measure has changed since prior periods. We agree with thisconcern. As such, registrants should consider whether a change in the method of calculating or presenting a non­GAAP financialmeasure from one period to another, without a complete description of the change in that methodology, complies with therequirement of Regulation G that a registrant, or a person acting on its behalf, shall not make public a non­GAAP financial measurethat, taken together with the information accompanying that measure, contains an untrue statement of a material fact or omits to statea material fact necessary in order to make the presentation of the non­GAAP financial measure, in light of the circumstances underwhich it is presented, not misleading.

24 17 CFR 244.100(a).

25 A registrant's failure to include all of the information required to be included in a public disclosure or release by Regulation Gwould not affect that registrant's form eligibility under the Securities Act or whether there is adequate current public informationregarding the registrant for purposes of Securities Act Rule 144(c) [17 CFR 230.144(c)].

26 Examples of financial measures calculated and presented in accordance with GAAP would include, but not be limited to, earningsor cash flows as reported in the GAAP financial statements. We believe that it is most appropriate to provide registrants with theflexibility to best make the determination as to which is the "most directly comparable financial measure calculated and presented inaccordance with GAAP." We, therefore, do not believe that it is appropriate to provide a specific definition of that term. As generalguidance, however, we note that our staff has been, and continues to be, of the view that (1) non­GAAP financial measures thatmeasure cash or "funds" generated from operations (liquidity) should be balanced with disclosure of amounts from the statement ofcash flows (cash flows from operating, investing and financing activities); and (2) non­GAAP financial measures that depictperformance should be balanced with net income, or income from continuing operations, taken from the statement of operations.

27 In the case of ratios or measures where a non­GAAP financial measure is the numerator and/or the denominator in the calculationof that ratio or measure, the registrant must provide a reconciliation with regard to each non­GAAP financial measure used in thecalculation. The registrant must also show the ratio or measure as calculated using the most directly comparable GAAP financialmeasure(s).

28 Note 1 to Rule 100 of Regulation G [17 CFR 244.100]. While Note 1 to Regulation G does not state how long a company mustkeep this information available on its web site, we encourage companies to provide ongoing web site access to this information. At aminimum, we suggest that companies provide web site access to this information for at least a 12­month period.

29 See, for example, the comment letter of the American Bar Association Committee on Federal Regulation of Securities and theAmerican Bar Association Committee on Law and Accounting.

30 17 CFR 243.100 ­ 243.103.

31 Whether disclosure is "public" will, of course, depend on all of the facts and circumstances surrounding that disclosure. Whetherdisclosure is "on behalf of" the registrant also will depend on all of the facts surrounding that disclosure. However, consistent withRegulation FD, we intend that a person who discloses material non­public information in breach of a duty of trust or confidence tothe registrant should not be considered to be acting "on behalf of" the registrant.

32 17 CFR 244.102

33 15 U.S.C. § 78j.

34 17 CFR 240.10b­5.

35 See Release No. 33­8039 (Dec. 4, 2001) [59 FR 63731].

36 See Release No. 33­8039 (Dec. 4, 2001) [59 FR 63731] and In the Matter of Trump Hotels & Casino, Inc., Release No. 34­45287(Jan. 16, 2002).

37 Regulation S­B does not apply to registered investment companies, as they are excluded from the definition of "small businessissuer" [17 CFR 228.10(a)(1)(iii)]. The amendments to Regulation S­K include a specific exemption for registered investmentcompanies [17 CFR 229.10(e)(7)].

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38 These amendments apply only to non­GAAP financial measures in filings with the Commission. Regulation G applies to anypublic disclosure of material information that includes a non­GAAP financial measure, regardless of whether it is in a filing with theCommission. Accordingly, the requirement of Regulation G that the presentation of a non­GAAP financial measure, taken togetherwith the information accompanying the measure and any other accompanying discussion, not contain a material misstatement ormaterial omission necessary in order to make the presentation not misleading, in light of the circumstances in which the presentationis made, also applies to disclosures in documents filed with the Commission.

39 Item 10 of Regulation S­K will not apply to materials submitted to the Commission on Form 6­K. However, if the information in theForm 6­K is incorporated by reference into a registration statement, prospectus or annual report, Item 10 of Regulation S­K wouldthen apply to that information.

40 Any public disclosure by these issuers that is not covered by the exclusion for foreign private issuers would, however, be subjectto Regulation G.

41 While such a non­GAAP financial measure would not be prohibited in a Form 20­F, the remaining requirements of Item 10 ofRegulation S­K would, of course, continue to apply.

42 See, for example, the comment letters of the American Institute of Certified Public Accountants; Deloitte & Touche, LLP; andCleary, Gottlieb, Steen & Hamilton.

43 As with Regulation G, the requirements of Item 10 of Regulation S­K and Item 10 of Regulation S­B will not apply to non­GAAPfinancial measures included in disclosure relating to a proposed business combination transaction, the entity resulting from thebusiness combination transaction, or an entity that is a party to the business combination transaction if the disclosure is contained ina communication that is subject to the Commission's communications rules applicable to business combination transactions.

44 With regard to the issuer's statement as to why management believes the non­GAAP financial measure provides usefulinformation to investors, the fact that the non­GAAP financial measure is used by or useful to analysts cannot be the sole support forpresenting the non­GAAP financial measure. Rather, the justification for the use of the measure must be substantive; it can, ofcourse, be a substantive justification that causes a measure to be used by or useful to analysts.

45 Permitted adjustments (including those permitted because they satisfy the two­year condition) would, of course, be subject to thereconciliation requirement.

46 See, for example, the comment letters of Latham & Watkins; Intel Corporation; the Association of the Bar of the City of New York,Committee on Securities Regulation; BDO Seidman, LLP; and Ernst & Young LLP.

47 See, for example, the comment letters of the Securities Law Committee of the American Society of Corporation Secretaries andDeloitte & Touche, LLP.

48 See, for example, the comment letters of Fannie Mae; the Securities Law Committee of the American Society of CorporateSecretaries; the American Council of Life Insurers; the American Institute of Certified Public Accountants; the National Association ofReal Estate Investment Trusts; the Real Estate Roundtable; the New York Clearing House Association; and the Committee onCorporate Reporting of Financial Executives International.

49 See footnote 11 for additional information regarding the use of "non­GAAP per share financial measures." Further, despite theabsence of a prohibition against the use of "non­GAAP per share financial measures" in Item 10 of Regulation S­K and Item 10 ofRegulation S­B, registrants should consider whether the use of any per share measure that is not calculated using a share figurethat is presented on a diluted basis complies with (1) the requirement of Regulation G that a registrant, or a person acting on itsbehalf, shall not make public a non­GAAP financial measure that, taken together with the information accompanying that measure,contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the presentation of thenon­GAAP financial measure, in light of the circumstances under which it is presented, not misleading; and (2) generally acceptedaccounting principles (see, for example, FASB Statement No. 128, Earnings Per Share).

50 A number of commenters in the real estate industry expressed concern regarding the use of the non­GAAP financial measure"funds from operations per share" in earnings releases and materials that are filed with or furnished to the Commission. Becauseamended Item 10 of Regulation S­K and amended Item 10 of Regulation S­B do not include a prohibition on "non­GAAP per sharefinancial measures," registrants may use the "funds from operations per share" measure, subject to the requirements of RegulationG, amended Item 10 of Regulation S­K and amended Item 10 of Regulation S­B.

51 See, for example, the comment letter of the American Bar Association Committee on Federal Regulation of Securities and theAmerican Bar Association Committee on Law and Accounting.

52 In Release No. 33­8106 (June 17, 2002) [67 FR 42913], we proposed significant amendments to Form 8­K. We intend to addressthose proposals in the near future. As we have not yet revised Form 8­K as proposed in Release No. 33­8106, we have adopted theproposed requirement regarding earnings releases and similar disclosures without using the new numbering system proposed forForm 8­K. At the time we address the proposals in Release No. 33­8106, we will consider the need to renumber all of the items inForm 8­K, including new Item 12.

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53 The proposing release would have required a registrant to file the Form 8­K under Item 12 within two business days after theearnings release or similar disclosure. We had proposed this deadline in anticipation of the adoption of our proposal, in Release No.33­8106, to shorten the filing deadline for all reports on Form 8­K. As we have not yet addressed those proposals, we believe it isappropriate to adopt a temporary deadline for furnishing a report on Form 8­K under Item 12 of five business days, the shorter of thetwo existing Form 8­K deadlines. When we address the Form 8­K proposals, we may then shorten the Item 12 deadline. At that time,we will consider the comments received in response to the proposing release and our proposal therein to set a two­business daydeadline for earnings releases or similar disclosures on Form 8­K.

54 17 CFR 249.308a.

55 17 CFR 249.308b.

56 17 CFR 249.310.

57 17 CFR 249.310b.

58 We intend this exception to permit current practices where these presentations include information that, although not alreadyincluded in the related, written release or announcement, is complementary thereto. We do not intend this exception to fosterchanges in practice whereby disclosure is shifted from the written release or announcement to the complementary presentation.

59 In its comment letter, the American Bar Association Committee on Federal Regulation of Securities asked whether the phrase"similar means" in proposed Item 1.04(b) related to the entire preceding list (as proposed, this list read "orally, telephonically,webcast, or by similar means") or whether it merely related to "webcast." We intend the phrase "similar means" to relate to the entirepreceding list. We have revised Item 12 to be clearer in this regard.

60 As the deadline for furnishing the Form 8­K to the Commission is five business days, this exception would be available only toregistrants that furnish that Form 8­K to the Commission in advance of the deadline specified in Item 12.

61 While Item 12 does not state how long a company must keep this information available on its web site, we encourage companiesto provide ongoing web site access to this information. At a minimum, we suggest that companies provide web site access to thisinformation for at least a 12­month period. Further, we understand that a company may have multiple web sites that it uses forvarious purposes, such as investor relations, product information and business­to­business activities. We interpret this requirementto mean that the information is provided on the web site or page that the company normally uses for its investor relations functions.

62 Of course, Regulation FD would continue to apply to disclosure of such forward­looking information if it were material.

63 15 U.S.C. § 78r.

64 See, for example, the comment letters of the American Bar Association Committee on Federal Regulation of Securities; theAmerican Bar Association Committee on Law and Accounting; the American Council of Life Insurers; and the Association of the Barof the City of New York, Committee on Securities Regulation.

65 See footnote 44 and the related discussion of the amendments to Item 10 of Regulation S­K and Item 10 of Regulation S­B foradditional information with regard to this requirement.

66 44 U.S.C. § 3501 et seq.

67 We continue to believe that, in cases where the GAAP financial measure is not available for historical measures, any costsassociated with obtaining the GAAP financial measure would reduce future costs associated with filing other forms, such as the Form10­Q and Form 10­K where the GAAP measure must be presented. See also footnote 68.

68 One company indicated that, for a performance­based non­GAAP financial measure, the company already prepares areconciliation to net income determined in accordance with GAAP by the date of the earnings release. However, for non­GAAPmeasures that are liquidity measures, the company does not currently prepare a reconciliation to the most comparable GAAPmeasure by the date of the company's earnings release because the statement of cash flows is not prepared until later in thefinancial reporting process. This company estimated that, under the proposal, the company would not necessarily incur significantadditional costs to reconcile its non­GAAP liquidity financial measures to GAAP­based cash flow measures, but some salariedemployees would be required to work additional hours earlier in the financial reporting process to complete the preparation of thestatement of cash flows by the date of the earnings release.

69 For example, one company that uses a non­GAAP financial measure derived from net income told us that it excludes realizedcapital gains and losses, gains and/or losses on dispositions of operations, and accounting changes in preparing its non­GAAPfinancial measure, because it is unable to forecast with any degree of comfort the amounts that would be recorded under GAAP forthese items.

70 The cost estimates are based on the SIA Report for employees based outside the New York City metropolitan area.

71 However, see the guidance on the use of per share measures in footnote 11.

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72 15 U.S.C. §78w(a)(2).

73 15 U.S.C §77b(b).

74 15 U.S.C. §78c(f).