New Regulation G Guidance For 2010 Earnings Season

In order to encourage registrants to provide more meaningful financial information to investors following the 2008-9 global economic crisis, the Division of Corporation Finance Staff has updated its Regulation G-related C&DIs (Compliance and Disclosure Interpretations). Chief financial officers, chief accounting officers, and other public company management should review these updates in connection with the preparation of their year-end earnings releases, SEC filed or furnished documents and other information provided to the public. Although not binding on the Securities and Exchange Commission, C&DIs contain the views of the staff of the SEC's Division of Corporation Finance and, therefore, will be reflected in Staff comment letters. The revised Regulation G guidance reflects the agenda of the Division's Director, Meredith Cross.

The updated C&DIs appear to reflect a shift in Staff attitude to Regulation G to permitting greater flexibility in reporting non-GAAP financial measures. For example, where a previous FAQ addressed whether a disclosure was "permitted", the new C&DI discusses whether the same disclosure is "prohibited", consistent with the Staff's view that some of its prior guidance may have been too restrictive. In addition, a number of cash flow-related interpretations changed substantively, reflecting a Staff response to investors' focus on public companies' ability to operate from a cash flow perspective. In light of the FASB's accounting codification effective September 15, 2009, the revisions reflect the relevant references to the FASB Accounting Standards Codification.

Regulation G. When a company publicly discloses material information with a non-GAAP financial measure, Regulation G requires that the disclosure be accompanied by a presentation of the most directly comparable GAAP measure and a reconciliation to that measure. If a company presents a non- GAAP financial measure orally, telephonically or by similar means, it may satisfy Regulation G by providing the required additional information by (i) posting that information on its website and (ii) disclosing the location and availability of the required information during the presentation. Item 10(e) of Regulation S-K sets forth requirements for non-GAAP measures where non-GAAP measures are included in filings with the SEC. Regulation G and Item 10(e) of Regulation S-K originated from a 2002 mandate under the Sarbanes-Oxley Act for the SEC to regulate non-GAAP financial...