Corp Fin Posts Two New CDIs Regarding Non-GAAP Financial Measures in the M&A Context

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On April 4, 2018, the Securities and Exchange Commission’s ("SEC") Division of Corporation Finance ("Corp Fin") posted two new compliance and disclosure interpretations ("CDIs")1 regarding the use of non-GAAP financial measures in connection with business combinations:


Question 101.02

In Question 101.01, Corp Fin states that financial measures included in forecasts provided to a financial advisor and used in connection with a business combination transaction are not considered non-GAAP financial measures if certain conditions are met2. New CDI 101.023 provides that if the same forecasts provided to the company's financial advisor are also provided to its board of directors or a board committee, the financial measures will still be outside the definition of non-GAAP financial measures, so long as the specified conditions are satisfied.


Question 101.03

In this CDI, Corp Fin confirms that, if a registrant determines that forecasts exchanged between the parties in a business combination transaction are material and that disclosure of those forecasts is required to comply with the anti-fraud and other liability provisions of the federal securities laws, the financial measures included in those forecasts would be excluded from the definition of non-GAAP financial measures and, therefore, not subject to Item 10(e) of Regulation S-K and Regulation G.


1 The CDIs are available here.
2 This is because under Item 10(e)(5) of Regulation S-K and Rule 101(a)(3) of Regulation G, financial measures that are required to be disclosed by GAAP, SEC rules, or an applicable system of regulation of a government or governmental authority or self-regulatory organization are not considered non-GAAP measures. The specified conditions are: (i) the financial measures are included in forecasts provided to the financial advisor for the purpose of rendering an opinion that is materially related to the business combination transaction; and (ii) the forecasts are being disclosed in order to comply with Item 1015 of Regulation M-A or requirements under state or foreign law, including case law, regarding disclosure of the financial advisor’s analyses or substantive work.
3 Note that former Question 101.02 has been renumbered as 101.04.

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