CSA Staff Notice 52-306 Non-GAAP Financial Measures
Part II Non-GAAP Financial Measures

Lexata note: This staff notice will soon be replaced by new NI 52-112. See Part 5 of the new rule for transition details.

Non-GAAP Financial Measures

For the purpose of this notice, a non-GAAP financial measure is a numerical measure of an issuer’s historical or future financial performance, financial position or cash flow that is not specified, defined or determined under the issuer’s GAAP (as that term is defined in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards) and is not presented in an issuer’s financial statements. A non-GAAP financial measure excludes amounts that are included in, or includes amounts that are excluded from, the most directly comparable measure specified, defined or determined under the issuer’s GAAP.

Some issuers disclose non-GAAP financial measures in press releases, management’s discussion and analysis, prospectus filings, websites and marketing materials.

Many non-GAAP financial measures are derived from profit or loss determined under an issuer’s GAAP and, by omission of selected items, present a more positive picture of financial performance. Terms used to identify non-GAAP financial measures may include “pro forma earnings”, “cash earnings”, “free cash flow”, “distributable cash”, “Adjusted EBITDA”, “adjusted earnings”, and “earnings before non-recurring items”. Many of these terms lack standard meanings and different issuers may use the same term to refer to different calculations.

Staff is concerned that investors may be confused or even misled by non-GAAP financial measures. Staff is also concerned about the prominence of disclosure given to non-GAAP financial measures related to earnings compared to the prominence of earnings measures specified, defined or determined under an issuer’s GAAP. In staff’s view, these concerns can be addressed by appropriate disclosure accompanying non-GAAP financial measures.

Some issuers disclose performance measures that are calculated without using financial measures (for example, number of units or number of subscribers). Some issuers disclose performance measures that are calculated using financial information presented in the financial statements (for example, sales per square foot, where the sales figure is extracted directly from the financial statements). In both of the preceding scenarios, such performance measures are not considered to be non-GAAP financial measures. However, if a non-GAAP financial measure is used to calculate a performance measure (such as an “adjusted earnings” financial measure used to calculate an “adjusted earnings per unit” measure), then that non-GAAP financial measure should be disclosed and Section III of this notice applies to that non-GAAP financial measure.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(2)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Statement of Executive Compensation

In the context of Form 51-102F6 Statement of Executive Compensation (“Form 51-102F6”) or Form 51-102F6V Statement of Executive Compensation – Venture Issuers (“Form 51-102F6V”), if a financial measure is identified (e.g., adjusted net income) and the calculation is described (e.g., net income adjusted for foreign exchange gains or losses) but no financial amount is disclosed (i.e., no dollar amount), it would not be within the scope of the Instrument because a financial measure has not been disclosed, only identified and described.

If a specified financial measure that is in scope of the Instrument is disclosed in Form 51-102F6 or Form 51-102F6V (e.g., adjusted net income of $X), as outlined in subsection 4(2) of the Instrument, only the following information is required, as applicable: the identification of the non-GAAP financial measure under paragraph 6(1)(b) and the quantitative reconciliation of the specified financial measure under clause 6(1)(e)(ii)(C), paragraph 9(c) or clause 10(1)(b)(ii)(C).



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Total segments measures
Re s. 9

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Disclosure of total of segments measures

An entity’s financial reporting framework used in the preparation of the financial statements may permit disclosure of a broad range of segment measures, but may not necessarily specify how such financial measures should be calculated or require that these financial measures comply with the recognition and measurement requirements of the financial reporting framework used to prepare the financial statements of the entity.

When disclosed outside the financial statements, the disclosures made under section 9 of the Instrument should allow a reader to understand how these total of segments measures are calculated and how they relate to measures presented in the entity’s primary financial statements.

An example of a total of segments measure is when an issuer discloses adjusted EBITDA for each of its reportable segments in the notes to the financial statements: segment A, segment B, and segment C. The issuer then sums the adjusted EBITDA for each segment and discloses total “entity-adjusted EBITDA”. “Entity-adjusted EBITDA” is a total of segments measure and is not presented in the primary financial statements. When this financial measure is disclosed in a document other than the financial statements, the issuer must comply with section 9 of the Instrument. For clarity, the individual segment adjusted EBITDA measure for segment A, for instance, would not be captured as a total of segments measure and would not be subject to section 9 of the Instrument.

If an issuer discloses a financial measure of a reportable segment and such financial measure is not presented or disclosed in the financial statements to which the financial measure relates, the issuer should consider whether this financial measure meets the definition of a non-GAAP financial measure.

A total of segments measure does not include a component of a financial statement line item for which the component has been calculated in accordance with the accounting policies used to prepare the line item presented in the financial statements (see Component Information in section 1 of the Policy).

An SEC issuer may characterize a total of segments measure as a non-GAAP financial measure in compliance with SEC rules on non-GAAP financial measures and in doing so, the issuer would be complying with the requirements in section 9 of the Instrument in respect of this measure.



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Introduction

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Interpretation of “made available to the public” and “filed”, “delivered” or “submitted”

Documents made available to the public include not only information filed on SEDAR but also information on a website and disclosure provided through social media platforms.

The Instrument uses the terms “filed” and “submitted”. This Policy also uses the term “delivered”. Material that is filed in a jurisdiction will be made available to the public in that jurisdiction, subject to the provisions of securities legislation in the local jurisdiction. Material that is delivered to a regulator or securities regulatory authority, or submitted to a recognized exchange, but not filed, is not generally required under securities legislation to be made available to the public.



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Introduction

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Entity

An “entity” may include, but is not limited to:

  • An issuer, meaning a person or company that has outstanding securities, is issuing securities, or proposes to issue securities;
  • An affiliate or a subsidiary of an issuer;
  • A company, such as a corporation, incorporated association, incorporated syndicate or other incorporated organization;
  • A person, such as a partnership, unincorporated association, unincorporated syndicate, unincorporated organization or a trust;
  • A group of assets of an issuer for which financial statements are prepared, whether or not the asset or group of assets are held in a legal entity; or
  • Two or more issuers or portions of an issuer that are not all linked by a parent-subsidiary relationship, typically referred to as a “combined entity”.

An entity is not necessarily a legal person or company.



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Introduction

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Specified Financial Measures Disclosed by an Issuer and Financial Statements of an Entity

An issuer may disclose a specified financial measure that is derived from its financial statements or the financial statements of another entity. The following are examples of financial statements of an entity, other than the issuer’s financial statements, that a specified financial measure may be derived from:



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Introduction

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Financial Measures

The Instrument applies when a specified financial measure is disclosed in a document. If the financial measure is identified only by label without a corresponding numerical amount or measure, a specified financial measure has not been disclosed and, thus, the disclosure requirements within the Instrument do not apply.

For clarity, the Instrument does not apply to qualitative disclosure of targets, benchmarks or covenants that are not accompanied by the disclosure of a financial numerical amount for the measure.



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Introduction

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Financial Reporting Framework, Accounting Principles, and Accounting Policies

In Canada, there are different financial reporting frameworks for different types of entities. Generally Accepted Accounting Principles (“GAAP”) is a common term used to refer to a financial reporting framework that comprises the accounting principles that are generally accepted in a jurisdiction. National Instrument 52-107 Accounting and Auditing Principles prescribes, among other things, acceptable accounting principles, such as International Financial Reporting Standards (“IFRS”).

The application of accounting principles often requires specific accounting policies. Accounting policies encompass all accounting policies applied in preparing and presenting financial statements, not just those which are disclosed in the notes to the financial statements.



Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Definitions
Re s. 1

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Definition of a non-GAAP financial measure

Common terms used to identify non-GAAP financial measures include “adjusted earnings”, “adjusted EBITDA”, “free cash flow”, “pro forma earnings”, “cash earnings”, “distributable cash”, “adjusted funds from operations”, “earnings before non-recurring items” and measures presented on a constant-currency basis. Many of these terms lack standard meanings. Issuers across a spectrum of industries, and within the same industry, may use the same term to refer to different compositions.

The following are examples of measures that are not captured by the definition:

  • Amounts that do not depict historical or future “financial performance”, “financial position” or “cash flow”, which relate to elements of the primary financial statements as defined in the Instrument, such as share price, market capitalization, or credit rating;
  • Financial information that does not have the effect of providing a financial measure that is different from a financial measure presented in the primary financial statements, such as the addition or subtraction of an identical line item, or a subtotal or total originating from multiple periods of primary financial statements. For example, rolling 12-month results or fourth quarter revenue calculated by subtracting year-to-date third quarter revenue from the annual revenue presented in primary financial statements; or
  • A financial measure which does not exclude an amount that is included in, or include an amount that is excluded from, the composition of the most directly comparable financial measure presented in the primary financial statements of the entity. For example, assets under management representing the total market value of invested assets managed by the issuer which are beneficially owned by clients and not reported in the primary financial statements of the issuer.

Component Information

When an issuer presents a financial statement line item in a more granular way outside the financial statements, otherwise known as a disaggregation, that number is a component of a line item that has been calculated in accordance with the accounting policies used to prepare the line item presented in the financial statements. Such a financial measure would not be a non-GAAP financial measure because it is not a financial measure which excludes an amount that is included in, or includes an amount that is excluded from, the composition of the most directly comparable financial measure presented in the primary financial statements of the entity. However, even though such a measure would not be a non-GAAP financial measure, it may still meet the definition of a supplementary financial measure.

For example, an issuer may disclose sales per square foot on a periodic basis to depict its financial performance. When the sales figure, included in sales per square foot, is extracted directly from the primary financial statements or is a component of such line item (when the component is calculated in accordance with the issuer’s accounting policies used to prepare the line item presented in the financial statements), the “sales per square foot” measure would not meet the definition of a non-GAAP ratio but would meet the definition of a supplementary financial measure. However, if the sales figure is not calculated in accordance with the issuer’s accounting policies, the “sales per square foot” measure in this example would meet the definition of a non-GAAP ratio.

Combinations of Line Items

A financial measure calculated by combining financial information that originates from different line items from the primary financial statements would meet the definition of a non-GAAP financial measure if the measure depicts financial performance, financial position or cash flow, unless that resulting measure is separately disclosed in the notes to the financial statements.

Non-GAAP Financial Measures that are Forward-looking Information

Forward-looking information for which there is an equivalent historical financial measure disclosed in the financial statements does not meet the definition of a non-GAAP financial measure. Therefore, section 7 of the Instrument does not apply to measures such as future capital management measures and future total of segments measures.

In addition, if, for example, revenue is disclosed on a forward-looking basis using the accounting policies applied by the issuer in its latest set of financial statements (i.e., revenue as presented in the primary financial statements adjusted only for assumptions about future economic conditions and courses of action), this forward-looking revenue is not a non-GAAP financial measure. Conversely, if an issuer discloses EBITDA on a forward-looking basis and does not disclose this financial measure in the financial statements, this forward-looking EBITDA does meet the definition of a non-GAAP financial measure that is forward-looking information.

Issuers are reminded that forward-looking information is subject to the disclosure requirements in Parts 4A and 4B and section 5.8 of National Instrument 51-102 Continuous Disclosure Obligations (“NI 51-102”).

Non-Financial Information

For clarity, the definition of a non-GAAP financial measure does not include non-financial information such as the following:

  • Number of units;
  • Number of subscribers;
  • Volumetric information;
  • Number of employees or workforce by type of contract or geographical location;
  • Environmental measures such as greenhouse gas emissions;
  • Information on major shareholdings;
  • Acquisition or disposal of the issuer’s own shares; and
  • Total number of voting rights.

The above list is not exhaustive.

We remind issuers that while non-financial information is not subject to the requirements of the Instrument, non-financial information is subject to various disclosure requirements under applicable securities legislation, including the requirement not to disclose misleading information.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re s. 2

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Application to reporting issuers

Websites and Social Media

The Instrument applies to a reporting issuer in respect of its disclosure, on a website and social media, of a specified financial measure.

A reporting issuer should not disclose a specified financial measure using social media, if it is unable to include or incorporate by reference all the required disclosure.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re s. 3

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Application to issuers that are not reporting issuers

The Instrument applies to an issuer that is not a reporting issuer in respect of its disclosure of a specified financial measure in a document if the document is filed with a regulator or a securities regulatory authority in connection with a distribution made in reliance on the offering memorandum exemption under NI 45-106, including the following documents:

  • Offering memorandum; and
  • Offering memorandum marketing materials.


Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(c)(i) and (ii)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Mineral projects

The Instrument does not apply to disclosure required under National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) related to an issuer’s material mineral project. For example, Item 22 of Form 43-101F1 Technical Report requires an issuer to disclose an economic analysis that includes certain financial measures. Section 5.4 of Form 51-102F2 Annual Information Form requires an issuer to disclose certain measures such as capital and operating costs, and annual cash flow, net present value, internal rate of return, and payback period disclosed in an economic analysis.

The Instrument does not apply to these measures because they are specifically required to be disclosed under NI 43-101. However, if an issuer discloses a financial measure that is not specifically required to be disclosed under NI 43-101, for example, EBITDA, it may be considered a specified financial measure and, thus, is within the scope of the Instrument.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(c)(iii)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Oil and gas metrics

The Instrument does not apply to disclosure required under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). However, disclosures of oil and gas metrics that are made under section 5.14 of NI 51-101 are subject to the requirements of the Instrument because such disclosure is made on a voluntary basis.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(d)(i)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Reports prepared by a person or company other than the issuer or entity that is the subject of the specified financial measure

The Instrument does not apply to reports that are prepared by a person or company other than the issuer or entity that is the subject of the specified financial measure. An example is an analyst report disclosed by an issuer (i.e., either through posting a copy of this analyst report or by providing a link to such a report on its website), where this report has been prepared by a person or company other than the issuer (i.e., a “third-party”) and contains financial measures that provide information about the issuer itself (i.e., “the subject of the specified financial measure”).

Examples of these “third-party” reports include analyst reports, fairness opinions and valuation reports. These reports may also include those filed under subparagraphs 9.1(1)(a)(vi) or 9.2(a)(v) of National Instrument 41-101 General Prospectus Requirements, subparagraphs 4.1(1)(a)(vi) or 4.2(a)(iv) of National Instrument 44-101 Short Form Prospectus Distributions, section 2.5 of Form 51-102F4 Business Acquisition Report or Part 6 of Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions.

However, when an issuer discloses a specified financial measure that has been taken from such a report prepared by a person or company other than the issuer, this specified financial measure is within the scope of the Instrument.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(d)(iii)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Pro forma financial statements

The Instrument does not apply to pro-forma financial statements included in a filing required under securities legislation, such as pro-forma financial statements required to be included in a business acquisition report under NI 51-102.

The Instrument does apply to pro-forma financial statements included in a filing made on a voluntary basis (i.e., it is not explicitly required under securities legislation).



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(e)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Financial measures required under law or by an SRO

Paragraph 4(1)(e) includes financial measures disclosed in accordance with prescribed (i.e., mandatory) requirements under applicable securities legislation, for example, disclosure of earnings coverage ratios prescribed by Item 9 of Form 41-101F1 Information Required in a Prospectus. Voluntary disclosure that is permitted but not required by other securities legislation is subject to the requirements of the Instrument.

The Instrument also does not apply to a financial measure that is disclosed in accordance with the laws of a jurisdiction of Canada, or jurisdiction outside Canada, including governments, governmental authorities and SROs. This exclusion is, however, only applicable in situations when a financial measure is required to be disclosed and the law specifically specifies its composition.

If an issuer discloses a financial measure that is prepared in accordance with voluntary guidance published by a government, governmental authority or SRO that is applicable to the issuer, then the financial measure is subject to the requirements of this Instrument.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(f)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Specified financial measure where its calculation is derived from a financial covenant in a written agreement

The Instrument does not apply to an issuer in respect of disclosure of a specified financial measure where its calculation is derived from a financial covenant in a written agreement, for example, a specified financial measure whose calculation and composition are derived from a financial covenant within a credit agreement.



Application and exceptions
Companion Policy to NI 52-112 Non-GAAP and Other Financial Measures Disclosure
Re ss. 4(1)(g)

Lexata note: This companion policy is not yet effectve. See Part 5 of NI 52-112 for transition details.

Specified financial measure disclosed in a document by a registered firm that is intended to be, or is reasonably likely to be, made available to a client or a prospective client of the registered firm

The Instrument does not apply to an issuer that is a registered firm in respect of disclosure of a specified financial measure if (i) the document in which the disclosure is made is intended to be, or is reasonably likely to be, made available to a client or a prospective client of the registered firm, and (ii) the measure does not relate to the registered firm’s financial performance, financial position or cash flow. Examples would include a report prepared and disclosed by a registered firm, such as an analyst report which contains data and analysis of an unrelated issuer or entity.



National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure
Part 1 Definitions and Application
Section 4

Lexata note: This national instrument is not yet effective. See Part 5 for transition details.

Application – exceptions

(1) Despite sections 2 and 3, this Instrument does not apply to the following:

(a) an investment fund as defined in National Instrument 81-106 Investment Fund Continuous Disclosure;

(b) a designated foreign issuer, or an SEC foreign issuer, as defined in National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards;

(c) an issuer in respect of disclosure required under any of the following:

(i) National Instrument 43-101 Standards of Disclosure for Mineral Projects;

(ii) section 5.4 of Form 51-102F2 Annual Information Form;

(iii) National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, other than section 5.14 of that Instrument;

(d) an issuer in respect of disclosure in any of the following:

(i) a report prepared by a person or company other than the issuer or entity that is the subject of the specified financial measure;

(ii) a transcript of an oral statement;

(iii) pro forma financial statements required to be filed under securities legislation;

(iv) a filing required under section 12.1 or 12.2 of National Instrument 51-102 Continuous Disclosure Obligations or subparagraphs 9.1(1)(a)(ii) and 9.2(a)(ii) and section 9.3 of National Instrument 41-101 General Prospectus Requirements;

(e) an issuer in respect of disclosure of a specified financial measure that is required under law, or by an SRO of which the issuer is a member, if

(i) the law or the SRO’s requirement specifies the composition of the measure and the measure was determined in compliance with that law or requirement, and

(ii) in proximity to the measure, the issuer discloses the law or the SRO’s requirement under which the measure is disclosed;

(f) an issuer in respect of disclosure of a specified financial measure if the calculation of the specified financial measure is derived from a financial covenant in a written agreement;

(g) an issuer that is a registered firm in respect of disclosure of a specified financial measure if

(i) the document in which the disclosure is made is intended to be, or is reasonably likely to be, made available to a client or a prospective client of the registered firm, and

(ii) the measure does not relate to the registered firm’s financial performance, financial position or cash flow.

(2) Despite sections 2 and 3, this Instrument does not apply to disclosure required under Form 51-102F6 Statement of Executive Compensation and Form 51-102F6V Statement of Executive Compensation – Venture Issuers, except for the information required under paragraph 6(1)(b), clause 6(1)(e)(ii)(C), paragraph 9(c) and clause 10(1)(b)(ii)(C) of this Instrument.



National Instrument 52-112 Non-GAAP and Other Financial Measures Disclosure
Part 1 Definitions and Application
Section 3

Lexata note: This national instrument is not yet effective. See Part 5 for transition details.

Application – issuers that are not reporting issuers

This Instrument applies to an issuer that is not a reporting issuer in respect of its disclosure of a specified financial measure in a document if the document is made available to the public and is

(a) subject to National Instrument 41-101 General Prospectus Requirements.

(b) filed with a regulator or a securities regulatory authority in connection with a distribution made under section 2.9 of National Instrument 45-106 Prospectus Exemptions, or

(c) submitted to a recognized exchange in connection with a qualifying transaction, reverse takeover, change of business, listing application, significant acquisition or similar transaction.