Pro Forma Information in Earnings Releases

SEC Releases Cautionary Advice and Tips for Investors regarding pro forma financial information

By John M. Baker, Esq.

The Securities and Exchange Commission today issued “cautionary advice” to registrants, as well as a “tips for investors,” on the use of pro forma financial information in earnings releases. Release Nos. 33-8039, 34-45124, FR-59 (Dec. 4, 2001) (cautionary advice statement).

The cautionary advice states that pro forma financial information can serve useful purposes but, under certain circumstances, can mislead investors if it obscures financial results prepared under generally accepted accounting principles (“GAAP”).

The cautionary advice makes the following points: –Securities law antifraud provisions apply to a company issuing pro forma financial information. —

  • A presentation that is addressed to a limited feature of a company’s overall financial results, such as earnings before interest, taxes, depreciation, and amortization, or that sets forth calculations of financial results on a basis other than GAAP, raises particular concerns and misleads investors when the company does not clearly disclose the basis of its presentation.
  • Companies must pay attention to the materiality of the information that is omitted from a pro forma presentation. –The SEC commends the earnings press release guidelines jointly developed by the Financial Executives International and the National Investor Relations Institute. A presentation generally will not be deemed to be misleading merely due to its deviation from GAAP if the company in the same public statement discloses in plain English how it has deviated from GAAP and the amounts of each of those deviations.
  • Investors are encouraged to compare any summary or pro forma financial presentation with the results reported on GAAP-based financials by the same company.

The SEC press release, with links to the cautionary advice statement and the tips for investors, is available online at

The FEI/NIRI earnings press release guidelines endorsed by the SEC are available online at

Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.