For U.S. public companies, the legal landscape for the quarterly ritual of publicly announcing and discussing their financial results changed with the adoption by the SEC of Regulation G and the related amendments to Regulation S-K and Form 8-K which became effective on March 28, 2003.

Overview

Under the new rules, companies that disclose material non-public information regarding their results of operations or financial condition for a completed annual or quarterly fiscal period are required to furnish to the SEC the text of the public announcement or release under new Item 12 of Form 8 K and provide additional disclosure regarding any non-GAAP financial measures used in the announcement or release.

The staff of the SEC has recently published "Frequently Asked Questions" to provide guidance on a number of questions that have arisen in the application of the rules.

A "non-GAAP measure" is defined for purposes of the new rules as a numerical measure of a company's financial performance that:

Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the financial statements of the issuer; or

Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented. EBIT, EBITDA and "free cash flow" are all non-GAAP measures. Operating income that excludes non-recurring items also is a non-GAAP measure.

Before the new rules were adopted, it was common practice for companies to issue an earnings release and soon thereafter sponsor a conference call, webcast, or other oral presentation.

Six Steps

In light of the new rules, companies issuing earnings releases will generally want to furnish their earnings release on a Form 8-K before their earnings conference call and hold the call within 48 hours of issuing the press release in order to take advantage of the Item 12 exception to the requirement to file a second Form 8-K regarding the conference call itself.

The procedure for issuing earnings releases under the new rules can be divided into six steps:

Step 1: Issue Press Release Announcing Pending Earnings Release

The press release announcing the earnings call should include:

The proposed date of release of the earnings results; and

The details of any accompanying oral, telephonic, webcast, broadcast or similar presentation, including:

The date and time of the presentation;

The call-in number; and

The web address.

If material non-public information, including a non-GAAP financial measure, is to be provided as part of the oral presentation, then:

Any financial and other statistical information contained in the oral presentation must be provided on the company's web site no later than the time the presentation is made in order to avoid having to furnish the information on a Form 8-K; and

The press release announcing the earnings call should include the location of this information on the company's website.

The press release should also include log-ins, passwords or other special instructions for accessing the financial and other statistical information.

Step 2: Issue Earnings Release

If the earnings release includes a non-GAAP financial measure, the release must include:

A presentation of the most directly comparable GAAP financial measure, giving equal or greater prominence to the GAAP measure to which the non-GAAP measure relates; and

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

Companies may wish to consider including in the earnings release the disclosures required by Item 10(e) of Regulation S-K and Regulation S-B as to the purposes for which management uses the non-GAAP measures and the reasons management believes the non-GAAP measures are useful to investors. By doing so, companies can avoid adding these disclosures to the Form 8-K that includes the earnings release. (See Step 4.)

Alternatively, these disclosures may also be included in the company's latest Form 10-K or a subsequent SEC filing.

Step 3: Post on Website the Financial/Statistical Information That Will be

Provided in the Earnings Call

The financial and other statistical information contained in the oral presentation must be provided on the company's website no later than the time the oral presentation begins to avoid having to furnish the information on a Form 8-K.

If the company elects not to, or is unable to, provide this information on its website, a Form 8-K would need to be furnished within five days of the oral presentation.

If financial or other statistical information is disclosed unexpectedly during the earnings call, such as in the question and answer session, the information must be posted on the company's website promptly after it is disclosed. A webcast of the oral presentation will meet this requirement.

If the financial and other statistical information includes a non-GAAP financial measure, the additional disclosures required by Regulation G must be furnished:

A presentation of the most directly comparable GAAP financial measure, giving equal or greater prominence to the GAAP measure to which the non-GAAP measure relates; and

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

The financial and statistical data may be provided by posting the slides or any similar presentation on the website.

Alternatively, the requirement to place the data on the website can be satisfied by including an audio replay of the oral presentation on the website if investors can access it and replay it through the website and it includes all material financial and other statistical information included in the presentation that was not previously disclosed.

The SEC recommends that the information remain available on the website for at least 12 months.

Step 4: Furnish Earnings Release to the SEC on Form 8-K Before the

Earnings Call

The text of the earnings release must be furnished to the SEC under Item 12 of Form 8-K within five business days after the earnings release is issued.

In order to take advantage of the rule permitting the information provided as part of the oral presentation not to be furnished on a separate Form 8 K:

The Form 8-K including the earnings release must be furnished prior to the start of the oral presentation; and

The oral presentation must occur within 48 hours after the earnings release.

The SEC staff has clarified that the earnings release can be filed as an exhibit to a Form 10-Q prior to the oral presentation rather than furnished in an Item 12 Form 8-K.

For each non-GAAP financial measure used in the earnings release, the company must disclose:

The reasons why management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the company's financial condition and results of operations; and

Any material additional purposes, for which the company's management uses the non-GAAP financial measure.

The rules permit this disclosure to be made:

In the earnings release itself, which is furnished as an exhibit to the Form 8-K;

In the body of the Form 8-K; or

In the most recent annual report on Form 10-K or in a subsequent SEC filing as long as the disclosure has been updated if necessary to ensure accuracy.

Step 5: Earnings Call Within 48 Hours After Issuing the Press Release

To avoid a second Form 8-K (see Step 6), the oral presentation must take place within 48 hours after the related earnings release is issued and the Item 12 Form 8-K must be furnished to the SEC before the oral presentation begins.

The presentation must be broadly accessible to the public by dial-in conference call, by webcast, by broadcast or by similar means.

During the oral presentation, the company must communicate the location on the website where any non-GAAP financial measure is available.

Step 6: File a Second Form 8-K if Required

Under the new rules, a Form 8-K must be furnished to the SEC containing the text of any announcement or release that discloses material non-public information regarding the company's results of operations or financial condition for a completed quarterly or annual fiscal period.

This requirement covers not only the earnings release itself but also the earnings call if material non-public information (i.e., information not included in the earnings release) is included in the earnings call.

Item 12 of Form 8-K provides an exception from furnishing a Form 8-K as to the earnings call if:

The earnings call is no more than 48 hours after the issuance of the earnings press release;

The Item 12 Form 8-K relating to the earnings release is submitted to the SEC before the earnings call;

The financial and statistical information contained in the presentation is provided on the company's website; and

The oral presentation is complementary to the earnings release.

If the exception is not available and a second Form 8-K is required, it should include:

The text of the announcement or release;

The financial and statistical information not previously furnished on the first Form 8-K which contained the earnings release; and

Information relating to any non-GAAP financial measure used in the announcement or release or the financial and other statistical information, including:

A presentation, with equal or greater prominence, of the most directly comparable GAAP financial measure;

A reconciliation of the non-GAAP measure disclosed with the most directly comparable GAAP measure; and,

If not already included in the company's most recent Form 10-K or a more recent filing, appropriately updated:

The reasons why management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the company's financial condition and results of operations; and

Any material additional purposes for which the company's management uses the non-GAAP financial measure.

If a company is unable to rely on the 48 hour exception for earnings calls, the company must furnish, as an exhibit to a Form 8-K, the material, non-public, financial and other statistical information on Item 12 of Form 8-K.

A transcript of the portion of the conference call or slides or a similar presentation that includes the information will satisfy this requirement. All material, previously non-public financial and other statistical information must be included, including any provided in connection with any questions and answers.

The new procedures do not apply to foreign private issuers filing on Form 20-F or 40-F that are not required to make Form 8 K filings. These issuers, however, need to continue to comply with Regulation G with respect to their earnings releases.

This column solely reflects the views of its author, and should not be regarded as legal advice. It is for general information and discussion only, and is not a full analysis of the matters presented.

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