April 9, 2018

Non-GAAP: New CDIs Tie Up Loose Ends on M&A Forecasts

Last fall, the Staff issued a new CDI clarifying when forecasts provided to a financial advisor in connection with an M&A transaction won’t be regarded as non-GAAP financial measures subject to Reg G.  As we blogged at the time, however, some loose ends remained – such as whether financial forecasts provided to the bidder or the target’s board were also subject to similar treatment.

As Liz blogged last week on, the Staff recently issued 2 new CDIs – Non-GAAP CDIs 101.2 & 101.3 – that tie up those loose ends. This Wachtell memo explains the effect of the new guidance:

The underlying logic of the initial C&DI plainly applies to these circumstances too: disclosure of internal forecasts to bidders or the board is not intended to communicate performance expectations to investors, and reconciling them to GAAP is neither useful nor required. The SEC Staff has now helpfully confirmed that the same considerations animating the initial C&DI extend to these additional factual circumstances.

Specifically, new C&DI 101.02 confirms that companies may rely on the non-GAAP exemption from reconciliation if the forecasts provided to a financial advisor are also provided to the board of directors or board committees.

C&DI 101.03 further confirms that if a company determines that disclosure of material forecasts provided to bidders in a business combination transaction (or other material forecasts exchanged between the parties) is needed to comply with federal securities laws, including anti-fraud provisions, then “the financial measures included in such 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.”

John Jenkins