3.01 The year-end earnings release quotes non-GAAP net income and operating margin as if they were the GAAP figures
Company F · a US-listed networking equipment company · Compliance or disclosure gap
In brief
In the fourth-quarter 2025 earnings release the Chief Financial Officer (CFO) is quoted on 'a disciplined [n]% operating margin' and '[wording masked] [amount] in quarterly net income'. Both are non-GAAP figures (not measured under generally accepted accounting principles, GAAP): GAAP operating margin for the quarter was [n]% and GAAP net income was [amount], below [amount]; only non-GAAP net income ([amount]) passed it. The quotation neither labels the figures non-GAAP nor gives the GAAP figures beside them.
The evidence, as filed
5 further page extracts: screenshot withheld to protect the company’s identity. The rows below say what each shows.
What the filing shows, and what the rule requires
| What the filing shows | What the rule requires |
|---|---|
Quotation: '[n]% operating margin' and 'surpassing [amount] in quarterly net income', unlabelled; GAAP: operating margin [n]%, net income [amount] | Each non-GAAP figure labelled as such, with the comparable GAAP figure given at least as prominently (for example 'non-GAAP net income of [amount]; GAAP net income of [amount]') |
| What we checked. Form 8-K of [date] (Item 2.02) and Exhibit 99.[n] in full, including the reconciliation table; the releases for the fourth quarter of 2024, the third quarter of 2025 and the first and second quarters of 2026; the 2025 Form 10-K statements | |
The rule
Form 8-K, Item 2.02, Instruction 2
The requirements of paragraph (e)(1)(i) of Item 10 of Regulation S-K (17 CFR 229.10(e)(1)(i)) shall apply to disclosures under this Item 2.02.
Version: Text in force at the date of this review · Source: Form 8-K and General Instructions (SEC [n]), current revision
Regulation S-K Item 10(e)(1)(i)(A)
A presentation, with equal or greater prominence, of the most directly comparable financial measure or measures calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP);
Version: Text in force at the date of this review · Source: Regulation S-K, 17 CFR 229.10(e), eCFR as amended
Regulation G, Rule 100(b)
shall not make public a non-GAAP financial measure that, taken together with the information accompanying that measure and any other accompanying discussion of that measure, contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the presentation of the non-GAAP financial measure, in light of the circumstances under which it is presented, not misleading.
Version: Text in force at the date of this review · Source: Regulation G, 17 CFR 244.100, eCFR as amended
SEC Corporation Finance Non-GAAP interpretation [n](a) ([date])
Describing a non-GAAP measure as, for example, “record performance” or “exceptional” without at least an equally prominent descriptive characterization of the comparable GAAP measure.
Version: Text in force at the date of this review · Source: SEC Division of Corporation Finance, Compliance and Disclosure Interpretations: Non-GAAP Financial Measures, Question [n](a), updated [date]
Why it applies here. The quotation uses the GAAP captions 'net income' and 'operating margin' for non-GAAP amounts, and celebrates a milestone that GAAP net income missed by [amount]. Every GAAP figure in the release agrees with the 10-K, which itself presents no non-GAAP measure.
Why it matters
- Investors reading the quotation are told of a [amount] net income quarter that GAAP net income did not reach.
- Non-GAAP prominence is among the most frequent SEC staff comment topics; a comment on the release and an undertaking for future releases is the realistic outcome. The [date] release repeats the pattern for earnings-per-share growth.
How often the SEC staff raises this. In 1,100 SEC staff comment letters on fiscal 2023 and 2024 Forms 10-K, released January 2025 to October 2026, non-GAAP measures drew 317 of the 1,774 numbered comments (17.9%): the most frequent topic.
The SEC staff has raised this with other companies
The SEC staff asked Capri Holdings and Aviat Networks to present the comparable GAAP measure with equal or greater prominence where non-GAAP figures led an earnings release.
Exposure
A staff comment letter on the furnished earnings release and a future-releases undertaking; no fixed penalty
Our workings
the release is furnished under Item 2.02 of Form 8-K. Its highlight bullets give GAAP net income for the quarter of [amount] and non-GAAP net income of [amount]; its reconciliation table gives GAAP operating margin of [n]% and non-GAAP operating margin of [n]% for the quarter, and non-GAAP net income of [amount]. The CFO quotation then speaks of 'a disciplined [n]% operating margin' and of 'surpassing [amount] in quarterly net income' as a 'historic milestone', with no non-GAAP label and no GAAP figure.
non-GAAP exceeds GAAP net income by [amount], and GAAP net income is [amount] short of [amount]; the operating margin quoted is [n] points above GAAP.
the quotation uses the GAAP captions 'net income' and 'operating margin' for non-GAAP amounts and celebrates a milestone that the GAAP figure did not reach. Instruction 2 to Item 2.02 applies the equal-or-greater-prominence condition of Item 10(e)(1)(i)(A) to the release, and the staff's interpretation treats omitting the comparable GAAP measure, or describing a non-GAAP measure as a record-type achievement without an equal description of the GAAP measure, as undue prominence. Regulation G also bars a non-GAAP measure that, with its accompanying discussion, is misleading. The 2025 Form 10-K itself presents no non-GAAP measure, so the point sits in the release only; every GAAP figure in the release agrees with the 10-K.
| Measure | GAAP | Non-GAAP | Quotation | Computation |
|---|---|---|---|---|
| Net income, fourth quarter 2025 ($ million) | [n] | [n] | surpassing [amount] | [n] - [n] = [n] |
| [amount] against GAAP net income ($ million) | [n] | [n] - [n] = [n] short | ||
| Operating margin, fourth quarter 2025 | [n]% | [n]% | [n]% operating margin | [n] - [n] = [n] points |
| Diluted EPS growth, second quarter 2026 on 2025 | [n] / [n] - 1 = [n]% | 1.02 / [n] - 1 = [n]% | EPS up [n]% | the quoted growth is the non-GAAP figure |
Management’s best defense, and our reply
The company can say the release puts the GAAP figures first in its highlight bullets, with GAAP net income of [amount] printed above the quotation, and reconciles every non-GAAP measure, so a reader of the whole release is not misled. It can add that prominence is judged on the release as a whole, that executive quotations are commentary on the non-GAAP view management uses to run the business, and that [n]% is the operating margin it guides to. However, the staff's interpretation names omitting the comparable GAAP measure, and describing a non-GAAP measure as a record-type achievement without an equal description of the GAAP measure, as undue prominence; here the quotation uses the GAAP caption 'net income' for an amount that is not GAAP net income, and on the GAAP basis the milestone was not reached. The same form recurs in the second-quarter 2026 release, so it is a practice rather than a slip.
The fix
- In quotations and headline bullets, label every non-GAAP figure and give the GAAP figure beside it, e.g. 'non-GAAP net income of [amount] (GAAP net income of [amount])' and 'non-GAAP operating margin of [n]% (GAAP [n]%)'; add quotations to the disclosure committee's release checklist.
Earnings release of [date], page 1: CFO quotation
Also: the same treatment for non-GAAP figures in headline bullets
Evidence relied on
| # | What it shows | Type | Where |
|---|---|---|---|
| 1 | The release is furnished under Item 2.02 of Form 8-K | Document | |
| 2 | The quotation gives a [n]% operating margin with no non-GAAP label | Document | |
| 3 | The quotation calls passing [amount] of quarterly net income a milestone | Document | |
| 4 | GAAP net income for the quarter is below [amount] | Document | |
| 5 | Only the non-GAAP figure passes [amount] | Document | |
| 6 | GAAP operating margin for the quarter is [n]% | Document | |
| 7 | The [n]% quoted is the non-GAAP operating margin | Document | |
| 8 | Non-GAAP net income for the quarter in the reconciliation | Document | |
| 9 | Later release: the quoted EPS growth is the non-GAAP growth | Document | |
| 10 | Later release: GAAP and non-GAAP EPS for the second quarter of 2026 | Document | |
| 11 | Later release: the comparative GAAP and non-GAAP EPS | Document | |
| 12 | Later release: the first headline bullet gives non-GAAP EPS growth with no GAAP growth beside it | Document |
Prepared by Pramanex from the company’s public SEC filings, without the company’s involvement, to show how a 10-K Pre-filing Check reads. The company is not named, and nothing on this page is a statement about any identifiable company. Observations are not an audit, review or other attestation or assurance engagement, and not legal advice. An SEC-style question is a question, not a conclusion.
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