Non-GAAP: SEC Finds Violation of “Equal or Greater Prominence”

Here’s the intro from this blog by Davis Polk’s Ning Chiu: The SEC instituted a cease-and-desist proceeding in a fairly straightforward enforcement action that nonetheless emphasizes the importance of the requirement that GAAP measures must be provided with “equal or greater prominence” when a company discloses non-GAAP measures. The SEC found that a company provided non-GAAP financial measures, such as adjusted EBITDA, adjusted net income and free cash flow before special items, without giving equal or greater prominence to the comparable GAAP measures. In the headline for the FY 2017 earnings release, the company presented its adjusted EBITDA for the fiscal year and stated that it was up 8% year-over-year, without mentioning its net income or loss (the comparable GAAP financial measure) in the headline. Similarly, in the headline for the Q1 2018 earnings release, the company presented its adjusted EBITA for the first quarter of 2018 and stated that it…

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