80 FR 59083 - Request for Comment on the Effectiveness of Financial Disclosures About Entities Other Than the Registrant
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 190 (October 1, 2015)
Federal Register Volume 80, Issue 190 (October 1, 2015)
| Page Range | 59083-59092 | |
| FR Document | 2015-24875 |
[Federal Register Volume 80, Number 190 (Thursday, October 1, 2015)] [Proposed Rules] [Pages 59083-59092] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-24875] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 210 [Release No. 33-9929; 34-75985; IC-31849; File No. S7-20-15] Request for Comment on the Effectiveness of Financial Disclosures About Entities Other Than the Registrant AGENCY: Securities and Exchange Commission. ACTION: Request for comment. ----------------------------------------------------------------------- SUMMARY: The Commission is publishing this request for comment to seek public comment regarding the financial disclosure requirements in Regulation S-X for certain entities other than a registrant. These disclosure requirements require registrants to provide financial information about acquired businesses, subsidiaries not consolidated and 50 percent or less owned persons, guarantors and issuers of guaranteed securities, and affiliates whose securities collateralize registered securities. This request for comment is related to an initiative by the Division of Corporation Finance to review the disclosure requirements applicable to public companies to consider ways to improve the requirements for the benefit of investors and public companies. DATES: Comments should be received on or before November 30, 2015. ADDRESSES: Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml); or Send an email to rule-comments@sec.gov. Please include File Number S7-20-15 on the subject line; or Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments Send paper comments to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-20-15. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method of submission. The Commission will post all comments on the Commission's Web site (http://www.sec.gov/rules/other.shtml). Comments also are available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. FOR FURTHER INFORMATION CONTACT: Todd E. Hardiman, Associate Chief Accountant, at (202) 551-3516, Division of Corporation Finance; Duc Dang, Special Counsel, at (202) 551-3386, Office of the Chief Accountant; or Matthew Giordano, Chief Accountant, at (202) 551-6892, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction II. Rule 3-05 of Regulation S-X--Financial Statements of Businesses Acquired or To Be Acquired and Related Requirements A. Current Rule 3-05 Disclosure and Related Requirements 1. Content of the Rule 3-05 Disclosure and Related Requirements 2. Tests for Determining Disclosure Required by Rule 3-05 and Related Requirements III. Rule 3-09 of Regulation S-X--Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons and Related Requirements A. Current Rule 3-09 Disclosure and Related Requirements B. Consideration of Current Rule 3-09 Disclosure and Related Requirements 1. Content of the Rule 3-09 Disclosure and Related Requirements 2. Tests for Determining Disclosure Required by Rule 3-09 and Related Requirements IV. Rule 3-10 of Regulation S-X--Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered A. Current Rule 3-10 Disclosure and Related Requirements B. Consideration of Current Rule 3-10 Disclosure and Related Requirements 1. Content of the Rule 3-10 Alternative Disclosure 2. Conditions To Providing Alternative Disclosure [[Page 59084]] V. Rule 3-16 of Regulation S-X--Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered A. Current Rule 3-16 Disclosure and Related Requirements B. Consideration of Current Rule 3-16 Disclosure and Related Requirements VI. Other Requirements VII. Closing I. Introduction Over the years, the Commission has considered its disclosure system and engaged periodically in rulemakings designed to enhance our disclosure and registration requirements. Some requirements have been considered and updated relatively frequently, while others have changed little since they were first adopted. For example, the Commission has revised the registration requirements a number of times, most recently in 2005 with Securities Offering Reform, and at that time, the Commission also adopted new methods of communicating offering information.\1\ As another example, the disclosure requirements applicable to small businesses also have been updated on a variety of occasions, most recently in 2007.\2\ In contrast, other requirements in Regulations S-K \3\ and S-X,\4\ which encompass many of the Commission's financial and non-financial disclosure rules, have not been updated frequently. --------------------------------------------------------------------------- \1\ See Securities Offering Reform, Release No. 33-8591 (July 19, 2005) [70 FR 44722]. \2\ See Smaller Reporting Company Regulatory Relief and Simplification, Release No. 33-8876 (Dec. 19, 2007) [73 FR 934]. \3\ 17 CFR 229.10 et seq. \4\ 17 CFR part 210. --------------------------------------------------------------------------- In 2013, the staff issued its Report on Review of Disclosure Requirements in Regulation S-K,\5\ which was mandated by Section 108 of the Jumpstart Our Business Startups Act (the ``JOBS Act'').\6\ Section 108(b) of the JOBS Act required the Commission to submit a report to Congress including the specific recommendations of the Commission on how to streamline the registration process in order to make it more efficient and less burdensome for the Commission and for prospective issuers who are emerging growth companies. The Commission staff recommended the development of a plan to systematically review the disclosure requirements in the Commission's rules and forms, including both Regulation S-K and Regulation S-X, and the presentation and delivery of information to investors and the marketplace. At the time the report was issued, Commission Chair Mary Jo White asked the staff to develop specific recommendations for updating the rules that dictate what a company must disclose in its filings.\7\ Pursuant to this request, the staff is undertaking a broad-based review of the disclosure requirements and the presentation and delivery of the disclosures, which the Commission may consider whether to review. This ongoing review by the staff is known as the Disclosure Effectiveness Initiative. --------------------------------------------------------------------------- \5\ Report on Review of Disclosure Requirements in Regulation S- K (Dec. 2013), available at http://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf. Section 108(a) of the JOBS Act directed the Commission to conduct a review of Regulation S-K to (1) comprehensively analyze the current registration requirements of such regulation; and (2) determine how such requirements can be updated to modernize and simplify the registration process and reduce the costs and other burdens associated with these requirements for issuers who are emerging growth companies. \6\ Jumpstart Our Business Startups Act, Public Law 112-106, 126 Stat. 306 (2012). \7\ See SEC Press Release 2013-269, dated December 20, 2013, available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540530982. --------------------------------------------------------------------------- Initially, the staff is focusing on the business and financial information that is required to be disclosed in periodic and current reports, namely Forms 10-K, 10-Q and 8-K, and registration statements.\8\ As part of the review, the staff requested public input,\9\ and received a number of comments. Two of the comment letters addressed Regulation S-X,\10\ which is the subject of this request for comment and the first product resulting from the Disclosure Effectiveness Initiative. --------------------------------------------------------------------------- \8\ See Keith F. Higgins, Disclosure Effectiveness: Remarks Before the American Bar Association Business Law Section Spring Meeting (April 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370541479332. \9\ See request for public comment at http://www.sec.gov/spotlight/disclosure-effectiveness.shtml. \10\ See letter from Thomas J. Kim, Chair, Disclosure Effectiveness Working Group of the Federal Regulation of Securities Committee and the Law and Accounting Committee, Business Law Section, American Bar Association, November 14, 2014 available at http://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness-23.pdf; but see letter from Sandra J. Peters and James C. Allen, CFA Institute, November 12, 2014 available at http://www.sec.gov/comments/disclosure-effectiveness/disclosureeffectiveness-24.pdf. --------------------------------------------------------------------------- Regulation S-X contains disclosure requirements that dictate the form and content of financial statements to be included in filings with the Commission. It addresses both registrant financial statements and financial statements of certain entities other than the registrant. As an initial step in the review of Regulation S-X, we are considering the requirements applicable to these other entities, which is a discrete, but important, subset of the Regulation S-X disclosure requirements. The staff is continuing to evaluate other Regulation S-X disclosure requirements applicable to the registrant and how those requirements integrate with, for example, Regulation S-K and the applicable accounting standards and will make further recommendations to the Commission for consideration. In this request for comment, we are seeking public comment on the following rules, along with certain related requirements: Rule 3-05, Financial Statements of Businesses Acquired or to be Acquired; \11\ --------------------------------------------------------------------------- \11\ 17 CFR 210.3-05. --------------------------------------------------------------------------- Rule 3-09, Separate Financial Statements of Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons; \12\ --------------------------------------------------------------------------- \12\ 17 CFR 210.3-09. --------------------------------------------------------------------------- Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered; \13\ and --------------------------------------------------------------------------- \13\ 17 CFR 210.3-10. --------------------------------------------------------------------------- Rule 3-16, Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered.\14\ --------------------------------------------------------------------------- \14\ 17 CFR 210.3-16. --------------------------------------------------------------------------- We seek to better understand how well these requirements, some of which have remained largely the same for many years,\15\ are informing investors and we are soliciting comment on how investors use the disclosures to make investment and voting decisions. We are also interested in learning about any challenges that registrants face in preparing and providing the required disclosures. Finally, we are interested in potential changes to these requirements that could enhance the information provided to investors and promote efficiency, competition, and capital formation.\16\ --------------------------------------------------------------------------- \15\ Rule 3-05 has not been thoroughly reconsidered since 1996. See Streamlining Disclosure Requirements Related to Significant Business Acquisitions, Release No. 33-7355 (Oct. 10, 1996) [61 FR 54509]. Rules 3-09 and 3-16 have not been thoroughly reconsidered since 1981. See Separate Financial Statements Required by Regulation S-X, Release No. 33-6359 (Nov. 6, 1981) [46 FR 56171]. Rule 3-10 was substantially revised in 2000. See Financial Statements and Periodic Reports for Related Issuers and Guarantors, Release No. 33-7878 (Aug. 4, 2000) [65 FR 51692]. \16\ Section 3(f) of the Securities Exchange Act of 1934 (``Exchange Act'') [15 U.S.C. 78a et seq.] requires that, whenever the Commission is engaged in rulemaking under the Exchange Act and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission shall consider, in addition to the protection of investors, promotion of efficiency, competition and capital formation. Section 2(b) of the Securities Act of 1933 (``Securities Act'') [15 U.S.C. 77a et seq.] also sets forth this same requirement. See also Section 23(a)(2) of the Exchange Act. --------------------------------------------------------------------------- To focus the discussion, this request for comment describes the [[Page 59085]] requirements \17\ that apply to domestic registrants \18\ that do not qualify as smaller reporting companies \19\ or emerging growth companies.\20\ When relevant, we note different disclosure requirements triggered by each type of registrant.\21\ In addition, unless otherwise noted, the disclosure requirements we describe in this request for comment should be assumed to apply to periodic reporting under the Exchange Act and registration statements filed under the Exchange Act and the Securities Act. --------------------------------------------------------------------------- \17\ The descriptions in this release are provided for the convenience of commenters and to facilitate the comment process. The descriptions should not be taken as Commission or staff guidance about the relevant rules. \18\ Generally, the requirements described in this release apply to entities registered as investment companies and entities that have elected to be treated as business development companies under the Investment Company Act of 1940 [15 U.S.C. 80a-1 et seq]. See Rule 6-03 of Regulation S-X [17 CFR 210.6-03], which states in part, ``[t]he financial statements filed for persons to which Sec. Sec. 210.6-01 to 210.6-10 are applicable shall be prepared in accordance with the . . . special rules [Sec. Sec. 210.6-01 to 210.6-10] in addition to the general rules in Sec. Sec. 210.1-01 to 210.4-10 (Articles 1, 2, 3, and 4). Where the requirements of a special rule differ from those prescribed in a general rule, the requirements of the special rule shall be met.'' \19\ Exchange Act Rule 12b-2 [17 CFR 240.12b-2] defines a smaller reporting company as an issuer that is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent that is not a smaller reporting company and that has a public float of less than $75 million. If an issuer has zero public float, it would be considered a smaller reporting company if its annual revenues are less than $50 million. \20\ Section 2(a)(19) of the Securities Act defines an emerging growth company as an issuer that had total gross revenues of less than $1 billion during its most recently completed fiscal year. It retains that status for five years after its initial public offering unless its revenues rise above $1 billion, it issues more than $1 billion of non-convertible debt in a three year period, or it qualifies as a large accelerated filer pursuant to Exchange Act Rule 12b-2. \21\ For example, we indicate by footnote where different disclosure requirements apply to foreign private issuers. The definition of foreign private issuer is contained in Securities Act Rule 405 [17 CFR 230.405] and Exchange Act Rule 3b-4(c) [17 CFR 240.3b-4(c)]. A foreign private issuer is any foreign issuer other than a foreign government, except for an issuer that (1) has more than 50 percent of its outstanding voting securities held of record by U.S. residents and (2) any of the following: (i) a majority of its officers and directors are citizens or residents of the United States; (ii) more than 50 percent of its assets are located in the United States; or (iii) its business is principally administered in the United States. --------------------------------------------------------------------------- II. Rule 3-05 of Regulation S-X--Financial Statements of Businesses Acquired or To Be Acquired and Related Requirements A. Current Rule 3-05 Disclosure and Related Requirements When a registrant acquires a business, Rule 3-05 generally requires it to provide separate audited annual and unaudited interim pre- acquisition financial statements (``Rule 3-05 Financial Statements'') of the business \22\ if it is significant to the registrant.\23\ A registrant determines whether an acquisition is significant using the investment, asset, and income tests defined in Rule 1-02(w) of Regulation S-X.\24\ Performing these tests for purposes of applying Rule 3-05 and related requirements can be generally described as follows: --------------------------------------------------------------------------- \22\ Registrants determine whether a ``business'' has been acquired by applying Rule 11-01(d) [17 CFR 210.11-01(d)] of Regulation S-X. This determination is separate and distinct from a determination made under the applicable accounting standards requiring registrants to account for and disclose the transaction in a registrant's financial statements. The definition of ``business'' in Regulation S-X focuses primarily on whether the nature of the revenue-producing activity of the target will remain generally the same as before the transaction. The definition in the applicable accounting standards (see Financial Accounting Standards Board (``FASB'') Accounting Standards Codification (``ASC'') 805, Business Combinations in U.S. GAAP and a similar definition in IFRS 3, Business Combinations) focuses on whether the target is an integrated set of activities and assets that is capable of being conducted and managed by a market participant for the purpose of providing a return. \23\ Domestic issuers file the disclosures required by Rule 3-05 and its related requirements in current reports filed on Form 8-K [17 CFR 249.308] under the Exchange Act, as well as in registration statements. Foreign private issuers, however, only file the disclosures in registration statements. In Foreign Issuer Reporting Enhancements, Release No. 33-8900 (Feb. 29, 2008) [73 FR 13404], the Commission proposed requiring foreign private issuers to provide certain financial information required by Rule 3-05 in periodic reports. This requirement was not adopted by the Commission. See Foreign Issuer Reporting Enhancements, Release No. 33-8959 (Sept. 23, 2008) [73 FR 58300]. \24\ 17 CFR 210.1-02(w). --------------------------------------------------------------------------- Investment Test--the purchase consideration is compared to the total assets of a registrant reflected in its most recent annual financial statements required to be filed at or prior to the acquisition date. Asset Test--a registrant's proportionate share of the business's total assets reflected in the business's most recent annual pre-acquisition financial statements is compared to the total assets of the registrant reflected in its most recent annual financial statements required to be filed at or prior to the acquisition date. Income Test--a registrant's equity in the income from continuing operations before income taxes and cumulative effect of a change in accounting principle,\25\ as reflected in the business's most recent annual pre-acquisition financial statements, exclusive of amounts attributable to any noncontrolling interests, is compared to the same measure of the registrant reflected in its most recent annual financial statements required to be filed at or prior to the acquisition date. Rule 3-05 requires more disclosure as the size of the acquisition, relative to the size of the registrant, increases based on the test results. If none of the Rule 3-05 tests exceeds 20 percent, a registrant is not required to file any Rule 3-05 Financial Statements. If any of the Rule 3-05 tests exceeds 20 percent, but none exceeds 40 percent, Rule 3-05 Financial Statements are required for the most recent fiscal year and any required interim periods. If any Rule 3-05 test exceeds 40 percent, but none exceeds 50 percent, a second fiscal year of Rule 3-05 Financial Statements is required. When at least one Rule 3-05 test exceeds 50 percent, a third fiscal year \26\ of Rule 3- 05 Financial Statements is required unless revenues of the acquired business were less than $50 million in its most recent fiscal year.\27\ --------------------------------------------------------------------------- \25\ Rule 1-02(w) of Regulation S-X refers to extraordinary items, but the FASB eliminated this concept from U.S. GAAP in its Accounting Standards Update No. 2015-1, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, issued on January 9, 2015. IFRS prohibit the presentation and disclosure of extraordinary items in IAS 1, Presentation of Financial Statements. \26\ A smaller reporting company is subject to requirements similar to Rule 3-05 that are found in Rule 8-04 of Regulation S-X [17 CFR 210.8-04], but is never required to provide a third fiscal year. An emerging growth company, although subject to Rule 3-05, need not provide a third year of Rule 3-05 Financial Statements when it only presents two years of its own financial statements pursuant to Section 7(a)(2)(A) of the Securities Act. \27\ 17 CFR 210.3-05(b)(2). --------------------------------------------------------------------------- Rule 3-05 Financial Statements must be accompanied by the pro forma financial information described in Article 11 of Regulation S-X (``Pro Forma Information'').\28\ Pro Forma Information typically includes the most recent balance sheet and most recent annual and interim period income statements. The Pro Forma Information is based on the historical financial statements of the registrant and the acquired business and generally includes adjustments to show how the acquisition might have affected those financial statements had it occurred at an earlier time. Adjustments to the pro forma balance sheet and income statements must be ``factually supportable'' and ``directly attributable to the transaction.'' An additional criterion, ``continuing impact,'' applies only to adjustments to the pro forma [[Page 59086]] income statement.\29\ The adjustments are computed assuming the transaction occurred at the beginning of the fiscal year presented and carried forward through any interim period presented.\30\ --------------------------------------------------------------------------- \28\ 17 CFR 210.11. A smaller reporting company provides the pro forma financial information described in Rule 8-05 of Regulation S-X [17 CFR 210.8-05]. Although the preliminary notes to Article 8 indicate that smaller reporting companies may wish to consider Article 11, it is not required. \29\ 17 CFR 210.11-02(b)(6). \30\ For example, amortization expense of an acquired intangible asset would be shown in the fiscal year and subsequent interim period pro forma income statements as if the acquisition occurred on the first day of the fiscal year. --------------------------------------------------------------------------- A registrant must provide a brief description of a significant acquisition by filing a Form 8-K \31\ within four business days after consummation of the acquisition. If Rule 3-05 Financial Statements and Pro Forma Information are not provided with this Form 8-K, the registrant must provide them within approximately 75 days after consummation by filing an amendment to the Form 8-K.\32\ The 75-day period is intended to provide sufficient time to obtain the Rule 3-05 Financial Statements and prepare the Pro Forma Information. --------------------------------------------------------------------------- \31\ General Instruction B.1 of Form 8-K. \32\ Item 9.01(a)(4) of Form 8-K requires that the amendment be filed no later than 71 calendar days after the date that the initial Form 8-K must be filed. --------------------------------------------------------------------------- When filing certain registration statements,\33\ a registrant may need to update, based on the effective date, Rule 3-05 Financial Statements and Pro Forma Information previously provided on Form 8- K.\34\ A registrant must also include, in certain registration statements filed ahead of the due date of the Form 8-K, Rule 3-05 Financial Statements and Pro Forma Information for a recently- consummated acquisition when a Rule 3-05 test exceeds 50 percent.\35\ Finally, the following additional disclosures that are not required on Form 8-K must be provided in certain registration statements: \36\ --------------------------------------------------------------------------- \33\ These additional requirements do not apply to all registration statements. For example, they do not apply to registration statements filed on Form S-8 [17 CFR 239.16b] or registration statements filed pursuant to Rule 462(b) of Regulation C [17 CFR 230.462(b)]. \34\ 17 CFR 210.3-12. \35\ 17 CFR 210.3-05(b)(4). \36\ In 1996, the Commission partially conformed these reporting requirements in Streamlining Disclosure Requirements Related to Significant Business Acquisitions, Release No. 33-7355 (Oct. 10, 1996) [61 FR 54509] and retained these disclosures because it recognized that ``an acquisition could be so large relative to an issuer that investors would need financial statements of the acquired business for a reasoned evaluation of any primary capital raising transaction by the issuer.'' --------------------------------------------------------------------------- Rule 3-05 Financial Statements and Pro Forma Information for a probable acquisition when a Rule 3-05 test exceeds 50%; and Rule 3-05 Financial Statements and Pro Forma Information for the substantial majority of individually insignificant consummated and probable acquisitions since the date of the most recent audited balance sheet if a Rule 3-05 test exceeds 50 percent for any combination of the acquisitions.\37\ --------------------------------------------------------------------------- \37\ 17 CFR 210.3-05(b)(2)(i). Commission staff has clarified that certain significant acquisitions should also be included. See Sec. 2035.2 of the Division of Corporation Finance's Financial Reporting Manual. This manual was originally prepared by the staff of the Division of Corporation Finance to serve as internal guidance. In 2008, in an effort to increase transparency of informal staff interpretations, the Division of Corporation Finance posted the manual to its Web site at http://www.sec.gov/divisions/corpfin/cffinancialreportingmanual.shtml. --------------------------------------------------------------------------- The accounting standards require disclosure \38\ to enable investors to understand the nature and financial effect of a business combination that occurs during the periods presented in the registrant's financial statements or subsequent to the most recent balance sheet date, but before the registrant's financial statements are issued. Some of the disclosures required by the accounting standards are the same as those required by Rule 3-05 and the related requirements, such as the name and description of the acquired business. Others, such as pro forma financial information, are similar although the Pro Forma Information required by Article 11 of Regulation S-X is significantly more detailed. More significantly, Rule 3-05 requires historical financial statements of the acquired entity and the accounting standards do not. --------------------------------------------------------------------------- \38\ See FASB ASC 805, Business Combinations and IFRS 3, Business Combinations. --------------------------------------------------------------------------- B. Consideration of Current Rule 3-05 Disclosure and Related Requirements 1. Content of the Rule 3-05 Disclosure and Related Requirements Financial disclosures required by our rules about a business acquisition are important to investors because an acquisition will result in changes to a registrant's financial condition, results of operations, liquidity, and future prospects. Depending on the impact of the acquisition, those changes could be significant. While it is important to provide investors with information about an acquisition, the types of financial information currently required under the rules may have some limitations as a predictor of the financial condition and results of operations of the combined entity following the acquisition. Prior to the adoption of Rule 3-05 in 1982, some commenters questioned the need for financial statements of acquired businesses for periods prior to the acquisition. Those commenters criticized the utility and relevance of pre-acquisition financial statements in assessing the future impacts of an acquisition on a registrant. Specifically, commenters noted that pre-acquisition financial statements do not reflect the new basis of accounting that arises upon consummation, changes in management, or various other items affected by the acquisition.\39\ Although the Pro Forma Information addresses some of these concerns by showing how the accounting for an acquisition might have affected a registrant's historical financial statements had the transaction been consummated at an earlier time, restrictions on pro forma adjustments prohibit a registrant from reflecting other significant changes it expects to result from the acquisition. For example, Commission staff has stated that workforce reductions and facility closings, both actions that registrants frequently take when acquiring businesses, are generally too uncertain to meet the criteria for adjustment.\40\ In addition, Pro Forma Information usually lacks comparative prior periods and is unaudited. Finally, unless a registrant files certain registration statements that trigger the required disclosures earlier, investors typically must wait approximately 75 days for the Rule 3-05 Financial Statements and the Pro Forma Information. --------------------------------------------------------------------------- \39\ These comments were received in connection with the proposal, Instructions for the Presentation and Preparation of Pro Forma Financial Information and Financial Statements of Companies Acquired or to be Acquired, Release 33-6350 (September 24, 1981) [46 FR 48943]. In the adopting release, Instructions for the Presentation and Preparation of Pro Forma Financial Information and Requirements for Financial Statements of Businesses Acquired or to be Acquired, Release No. 33-6413 (June 24, 1982) [47 FR 29832], the Commission considered reducing the required disclosure to condensed or summarized information. However, the Commission decided that full financial statements of an acquired business were necessary because it believed that there was important information in the notes to the financial statements that would not be reflected in condensed or summarized information and that it was essential that financial information about an acquired business be audited by an independent auditor. \40\ See Sec. 3250.1 of the Division of Corporation Finance's Financial Reporting Manual. --------------------------------------------------------------------------- Request for Comment 1. How do investors use each of the following: The Rule 3-05 Financial Statements; the Pro Forma Information; and the disclosures required by the applicable accounting standards? Are there challenges that investors face in using these disclosures? 2. Are there changes to these requirements we should consider to further facilitate the disclosure of useful information to investors? For example, is there different or additional information that investors need about [[Page 59087]] acquired businesses or about how the combined entities might perform following the acquisition? If so, what information is needed and are there challenges that registrants would face in preparing and providing it? 3. Are there challenges that registrants face in preparing and providing the required disclosures? If so, what are the challenges? Are there changes to these requirements we should consider to address those challenges? If so, what changes and how would those changes affect investors' ability to make informed decisions? 4. Are there requirements that result in disclosures that investors do not consider useful? If so, what changes to these requirements would make them useful or should we consider eliminating or replacing all or part of those requirements? 5. How could we improve the usefulness of the Pro Forma Information? Could we do so by changing the extent of information required and/or the methodologies used to prepare it? For example, should we add a requirement for comparative pro forma income statements of the prior year and/or modify the restrictions on pro forma adjustments? If so, what changes should be made and should auditors have any level of involvement with the information? Are there disclosures we should consider adding to the Pro Forma Information that are currently found only in the Rule 3-05 Financial Statements? 6. If we make changes to improve the usefulness of the Pro Forma Information, should we modify the requirement to provide Rule 3-05 Financial Statements? If so, how? If not, why? 7. Should we modify the amount of time that registrants have to provide disclosures about acquired businesses to investors? If so, under what circumstances and how? If not, why? 8. Should certain registration statements continue to require accelerated and additional disclosure as compared to the Form 8-K requirements? If so, to what extent and why? If not, why? 2. Tests for Determining Disclosure Required by Rule 3-05 and Related Requirements The Rule 3-05 tests employ bright-line percentage thresholds that a registrant must apply to a limited set of financial statement measures. Use of these thresholds provides registrants with certainty and promotes consistency. At the same time, they do not allow judgment to be applied to all of the facts and circumstances. In addition, the tests can be difficult to apply in certain situations and have not eliminated the need for implementation guidance.\41\ Commission staff receives frequent requests \42\ to consider anomalous disclosure outcomes, particularly resulting from application of the income test.\43\ --------------------------------------------------------------------------- \41\ Topic 2 of the Division of Corporation Finance's Financial Reporting Manual addresses several significance testing implementation issues including (1) acquisitions achieved in multiple stages; (2) acquisitions after a reverse merger; (3) aggregation of multiple individually insignificant acquisitions for a registration statement; (4) multiple acquisitions prior to an initial public offering; and (5) acquisitions of foreign businesses where the acquired company uses a different basis of accounting than the registrant. \42\ During 2014, Commission staff received approximately 60 requests. The Commission has the authority under Rule 3-13 of Regulation S-X [17 CFR 210.3-13] to permit the omission of one or more of the financial statements required, and the Commission has delegated that authority to the staff. \43\ Anomalous results can occur, for example, when applying the income test where the registrant's income is at or near zero. An acquisition of a small entity, in terms of the asset and investment tests, may trigger Rule 3-05 disclosures as a result of the income test even if the acquired business has very modest income. --------------------------------------------------------------------------- Request for Comment 9. Are significance tests the appropriate means to determine the nature, timing, and extent of disclosure under Rule 3-05 and the related requirements? 10. Are there changes or alternatives to the tests that we should consider to further facilitate the disclosure of useful information to investors? If so, what changes and are there challenges that registrants would face as a result? 11. Are there changes to the tests we should consider to address challenges registrants face in preparing and providing the required disclosures? If so, what changes and how would those changes affect investors' ability to make informed decisions? 12. Should we revise the financial measures used to determine significance or change the percentage thresholds? For example, should we consider limiting the use of the income test and/or devise new tests such as purchase price compared to a registrant's market capitalization? 13. Should we allow registrants to apply more judgment in determining what is considered a significant acquisition? If so, why and how? What concerns might arise from allowing registrants to apply more judgment and, if allowed, should registrants disclose the rationale for the judgments? Additional Request for Comment on Rule 3-05 and Related Requirements 14. Should we consider requiring foreign private issuers to provide disclosures similar to those provided by domestic companies when reporting on Form 8-K? Why or why not? Are there other issues that we should address related to acquisitions by foreign private issuers or acquisitions of foreign businesses? 15. Should smaller reporting companies and emerging growth companies be subject to the same requirements or should requirements for those registrants be scaled? If they should be scaled, in what way? If not, why? 16. Investment companies, and particularly business development companies, generally file Rule 3-05 Financial Statements in cases where the investment company is acquiring one or more private funds. This type of acquisition typically occurs early in the life of the investment company when it has little or no financial information of its own. In these cases, Rule 3-05 Financial Statements of the private funds(s) may be the primary financial information considered by investors when making investment decisions with respect to the investment company. Should Rule 3-05 continue to apply to investment companies, or should investment companies be subject to different requirements? If so, how and why should the requirements be different? For example, should Rule 3-05 and the related requirements apply when an investment company purchases a significant portion of the assets of a fund, but not all of the assets and liabilities of the fund? 17. Should we align the definition of a business in Rule 11-01(d) with the definitions in the applicable accounting standards? Why or why not? III. Rule 3-09 of Regulation S-X--Separate Financial Statements of Subsidiaries not Consolidated \44\ and 50 Percent or Less Owned Persons and Related Requirements --------------------------------------------------------------------------- \44\ Commission staff has observed, based on filing reviews, that investment companies, particularly business development companies, may have unconsolidated subsidiaries not accounted for using the equity method, but other registrants typically do not. As a result, the body of this section focuses on requirements that apply to 50 percent or less owned persons accounted for using the equity method. Requirements applying to unconsolidated subsidiaries, not accounted for using the equity method, if different, are footnoted. --------------------------------------------------------------------------- A. Current Rule 3-09 Disclosure and Related Requirements When a registrant owns 50 percent or less of an entity (``Investee''), Rule 3-09 [[Page 59088]] of Regulation S-X generally requires the registrant to provide separate audited or unaudited annual financial statements (``Rule 3-09 Financial Statements'') of the Investee if it is significant.\45\ The Rule 3-09 Financial Statements provide investors with detailed financial information about Investees that have a significant financial impact on the registrant through its investment, but are not subject to the disclosure requirements that would apply if it were a consolidated subsidiary. Insofar as practicable, the Rule 3-09 Financial Statements must be as of the same dates and for the same periods as a registrant's annual financial statements.\46\ Significance is determined using the tests defined in Rule 1-02(w) of Regulation S-X, although only the investment and income tests are used.\47\ The Rule 3-09 tests can be generally described as follows: --------------------------------------------------------------------------- \45\ Rule 3-09 does not apply to smaller reporting companies nor does Article 8 of Regulation S-X contain similar requirements. \46\ Rule 3-09 does not require the presentation of separate interim financial statements of Investees. \47\ 17 CFR 210.3-09(a). --------------------------------------------------------------------------- Investment Test--A registrant's investment in and advances to the Investee as of the end of each fiscal year presented by a registrant is compared to the total assets of the registrant at the end of each of those same years. Income Test--A registrant's equity in the Investee's income from continuing operations before income taxes and cumulative effect of a change in accounting principle, exclusive of amounts attributable to any noncontrolling interests, for each fiscal year presented by a registrant is compared to the same measure of the registrant for each of those same years. If neither of the Rule 3-09 tests exceeds 20 percent, Rule 3-09 Financial Statements are not required. If at least one Rule 3-09 test exceeds 20 percent, Rule 3-09 Financial Statements are required for all years and must be audited for each year that a test exceeds 20 percent.\48\ --------------------------------------------------------------------------- \48\ Registrants with majority-owned subsidiaries that are not consolidated must perform the asset test in addition to the investment and income tests described in Rule 1-02(w). See Rule 3- 09(a) of Regulation S-X. --------------------------------------------------------------------------- Separately, Rule 4-08(g) of Regulation S-X \49\ requires disclosure, in the notes to a registrant's audited annual financial statements, of summarized balance sheet and income statement information on an aggregate basis for all Investees (``Summarized Financial Information'').\50\ These disclosures are only required if a Rule 3-09 test or an additional asset test \51\ exceeds 10 percent for any individual Investee or combination of Investees.\52\ If a registrant includes Rule 3-09 Financial Statements of an Investee in its annual report, then notes to the registrant's financial statements need not include Summarized Financial Information for that particular Investee.\53\ --------------------------------------------------------------------------- \49\ 17 CFR 210.4-08(g). \50\ 17 CFR 210.1-02(bb). \51\ In 1994, Rule 3-09 was revised to eliminate the asset test; however, the test was retained for Rule 4-08(g) to ensure a minimum level of financial information about an investee when the investment test was small, but a registrant's proportionate interest in the Investee's assets was material, as might be the case for a highly- leveraged Investee. See Financial Statements of Significant Foreign Equity Investees and Acquired Foreign Businesses of Domestic Issuers and Financial Schedules, Release No. 33-7118 (Dec. 13, 1994) [59 FR 65632]. \52\ A smaller reporting company must provide summarized information in its annual financial statements if a Rule 3-09 test or an additional asset test exceeds 20 percent, rather than 10 percent, for any individual Investee or combination of Investees. Although Article 8 of Regulation S-X does not include an explicit annual requirement analogous to Rule 4-08(g), Commission staff analogizes to Rule 8-03(b)(3) and typically issues a comment to request annual summarized information if it is not otherwise included. See Sec. 2420.9 of the Division of Corporation Finance's Financial Reporting Manual. \53\ See Staff Accounting Bulletin Topic 6.K.4.b. The purpose of the summarized information is to provide minimum standards of disclosure when the impact of Investees on the consolidated financial statements is significant. If the registrant furnishes more financial information in the annual report than is required by these minimum disclosure standards, such as separate audited statements, the summarized information can be excluded. --------------------------------------------------------------------------- Interim financial statements of a registrant must also include summarized income statement information of individually significant Investees.\54\ Individual Investees are considered significant for purposes of this rule if a Rule 3-09 test, using interim period information, exceeds 20 percent.\55\ --------------------------------------------------------------------------- \54\ 17 CFR 210.10-01(b)(1). \55\ A smaller reporting company must provide summarized information in its interim financial statements pursuant to Rule 8- 03(b)(3). Unless it is registering securities, a foreign private issuer need not provide interim information because it is not required to file quarterly financial information pursuant to Exchange Act Rules 13a-13 or 15d-13. --------------------------------------------------------------------------- The applicable accounting standards also require that the notes to the annual financial statements include summarized balance sheet and income statement information about equity-method investees.\56\ Commission staff has observed, based on filing reviews, that registrants typically follow the Commission rules rather than making separate judgments under the applicable accounting standards. --------------------------------------------------------------------------- \56\ FASB ASC 323, Investments-Equity Method and Joint Ventures, requires disclosure if material in relation to the financial position or results of operations of the registrant. Paragraphs B12 and B13 of IFRS 12, Disclosure of Interests in Other Entities, require similar disclosure. --------------------------------------------------------------------------- B. Consideration of Current Rule 3-09 Disclosure and Related Requirements 1. Content of the Rule 3-09 Disclosure and Related Requirements Financial disclosures required by our rules about an Investee are important to investors because the Investee can have a significant financial impact on a registrant. Also, the Investee is not consolidated so it is not subject to the same disclosure requirements that apply to consolidated subsidiaries. While it is important to provide information about Investees, the types of financial information currently required may have limitations and there may be opportunities for improvement. For example, Rule 3-09 Financial Statements may be presented using different accounting standards, fiscal year ends, and/ or reporting currencies than those used by a registrant.\57\ In addition, Rule 3-09 Financial Statements are required only for significant Investees rather than all Investees that may affect a registrant's financial statements. As a result, Rule 3-09 Financial Statements often cannot be reconciled to the amounts recognized in a registrant's financial statements for that Investee. The Summarized Financial Information also may not be reconcilable because the financial information of multiple Investees, each one with a different percentage owned by a registrant, can be aggregated in the presentation. --------------------------------------------------------------------------- \57\ For example, when the Investee is a foreign business. --------------------------------------------------------------------------- Summarized Financial Information is required more often \58\ than Rule 3-09 financial statements and it also may have limitations. For example, the aggregate presentation, combined with the lack of reconciliation to amounts recognized in a registrant's financial statements, could diminish an investor's ability to discern the impact of significant Investees on a registrant's financial statements. This ability may be further diminished when Investees with income and Investees with losses are combined in the presentation. --------------------------------------------------------------------------- \58\ Summarized Financial Information is required by Rule 4- 08(g) when certain tests exceed 10%, while Rule 3-09 Financial Statements are required when certain tests exceed 20%. --------------------------------------------------------------------------- Request for Comment 18. How do investors use each of the following: The Rule 3-09 Financial Statements; the Summarized Financial Information; and the interim disclosures? Are there challenges that [[Page 59089]] investors face in using these disclosures? 19. Are there changes to these requirements we should consider to further facilitate the disclosure of useful information to investors? For example, is there different or additional information that investors need about Investees? If so, what information is needed and are there challenges that registrants would face in preparing and providing it? 20. Are there challenges that registrants face in preparing and providing the required disclosures? If so, what are the challenges? Are there changes to these requirements we should consider to address those challenges? If so, what changes and how would those changes affect investors' ability to make informed decisions? 21. Are there requirements that result in disclosures that investors do not consider useful? If so, what changes to these requirements would make them useful or should we consider eliminating or replacing all or part of those requirements? 22. How could we improve the usefulness of the Summarized Financial Information? Could we do so by adding a requirement to present separately each significant Investee and/or reconcile the disclosures to the amounts recognized in a registrant's financial statements? Are there disclosures we should consider adding that are currently found only in Rule 3-09 Financial Statements? 23. If we make changes to improve the usefulness of the Summarized Financial Information, would it be appropriate to modify the requirement to provide Rule 3-09 Financial Statements? If so, how? If not, why? 24. Are unaudited Rule 3-09 Financial Statements and Summarized Financial Information for fiscal years during which an Investee was not significant useful to investors? Why or why not? 2. Tests for Determining Disclosure Required by Rule 3-09 and Related Requirements The tests used for determining disclosure pursuant to Rule 3-09 and the related requirements employ bright-line percentage thresholds similar to Rule 3-05. In addition, the use of these tests to determine the need for disclosure in interim financial statements is different than the other financial statement footnote disclosure requirements specified in Rule 10-01(a)(5) of Regulation S-X.\59\ Rule 10-01(a)(5) allows registrants to apply judgment and omit details of accounts which have not changed significantly in amount or composition since the end of the most recently completed fiscal year. --------------------------------------------------------------------------- \59\ 17 CFR 210.10-01(a)(5). --------------------------------------------------------------------------- Additionally, investment companies may face challenges when applying the income test. The numerator of the income test, as defined in Rule 1-02(w) of Regulation S-X, includes the registrant's equity in the Investee's income from continuing operations; however, investment companies account for their Investees using fair value rather than the equity method. The denominator used for the test includes changes in the fair value of investments that can cause the denominator to fluctuate significantly. As a result, registrants frequently consult with Commission staff about anomalous results. Request for Comment 25. Are significance tests the appropriate means to determine the nature, timing, and extent of disclosure under Rule 3-09 and the related requirements? 26. Are there changes or alternatives to the tests that we should consider to further facilitate the disclosure of useful information to investors? If so, what changes and are there challenges that registrants would face as a result? 27. Are there changes to the tests that we should consider to address challenges that registrants face in preparing and providing the required disclosures? If so, what changes and how would those changes affect investors' ability to make informed decisions? 28. Should we allow more judgment to be applied by registrants in determining significance? Why or why not? What concerns might arise from allowing registrants to apply more judgment and, if allowed, should registrants disclose the rationale for the judgments? 29. Should we revise the current percentage thresholds and/or the financial measures used to determine significance? For example, should we consider limiting the use of the income test or devise new tests? 30. Should we consider revising the requirements to provide interim disclosures about Investees to focus on significant changes similar to Rule 10-01(a)(5) of Regulation S-X, which allows registrants to apply judgment and omit details of accounts that have not changed significantly in amount or composition since the end of the most recently completed fiscal year? Why or why not? Additional Request for Comment on Rule 3-09 and Related Requirements 31. Should smaller reporting companies and emerging growth companies be subject to the same requirements or should requirements for those registrants be scaled? If they should be scaled, in what way? If not, why? 32. Should investment companies, particularly business development companies, be subject to different requirements? If so, how and why should the requirements be different? For example, should the significance tests be modified to apply measures other than the income test or asset test that are more relevant to investment companies? Should there be a different income test related to investment companies? Should we tailor the disclosures provided by unconsolidated subsidiaries of investment companies further by, for example, creating separate requirements for Summarized Financial Information and/or requiring a schedule of investments for unconsolidated subsidiaries not accounted for as investment companies \60\ that are in similar lines of business? --------------------------------------------------------------------------- \60\ Rule 3-09 Financial Statements for unconsolidated subsidiaries accounted for as investment companies are required to include the schedules required by Rule 6-10 of Regulation S-X. --------------------------------------------------------------------------- IV. Rule 3-10 of Regulation S-X--Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered A. Current Rule 3-10 Disclosure and Related Requirements A guarantor of a registered security is an issuer because the guarantee of a security is a separate security.\61\ As a result, both issuers of registered securities that are guaranteed and guarantors of registered securities must file their own audited annual and unaudited interim \62\ financial statements required by Regulation S-X.\63\ Rule 3-10 of Regulation S-X provides certain exemptions \64\ from those financial reporting requirements and is commonly relied upon by a parent company when it raises capital through: (1) An offering of its own securities guaranteed by one or more of [[Page 59090]] its subsidiaries; or (2) an offering of securities by its subsidiary that it guarantees and, sometimes, that one or more of its other subsidiaries also guarantees. Under Rule 3-10, if the subsidiary issuers and guarantors (``issuers/guarantors'') satisfy specified conditions, the parent company can provide disclosures in its own annual and interim consolidated financial statements in lieu of providing financial statements of each subsidiary issuer and guarantor (``Alternative Disclosures''). --------------------------------------------------------------------------- \61\ See Section 2(a)(1) of the Securities Act. \62\ A foreign private issuer need only provide interim period disclosure in certain registration statements. \63\ 17 CFR 210.3-10(a). \64\ Rule 3-10 exemptions are available to issuers/guarantors of securities that are ``debt or debt-like.'' See Financial Statements and Periodic Reports for Related Issuers and Guarantors, Release No. 33-7878 (August 4, 2000) [65 FR 51692]. --------------------------------------------------------------------------- The Alternative Disclosures are available in a variety of fact patterns. The rule addresses six specific fact patterns, two of which are: A single subsidiary guarantees securities issued by its parent; \65\ and --------------------------------------------------------------------------- \65\ 17 CFR 210.3-10(e). --------------------------------------------------------------------------- an operating subsidiary issues securities guaranteed only by its parent.\66\ --------------------------------------------------------------------------- \66\ 17 CFR 210.3-10(c). --------------------------------------------------------------------------- All fact patterns must satisfy two primary conditions to qualify for the Alternative Disclosure. First, the subsidiary issuers/ guarantors must be ``100% owned'' \67\ by the parent company. Second, the guarantees must be ``full and unconditional.'' \68\ Once those two conditions are met, the form and content of the Alternative Disclosure is determined based upon additional conditions. For example, in the fact patterns above, the parent company can provide abbreviated narrative disclosure in its financial statements if: (1) It has no independent assets or operations \69\ and (2) all of its subsidiaries other than the issuer or guarantor, depending on the fact pattern, are minor.\70\ Otherwise, the parent company must provide the more detailed condensed consolidating financial information (``Consolidating Information'') described below. --------------------------------------------------------------------------- \67\ 17 CFR 210.3-10(h)(1). A subsidiary is ``100% owned'' if all of its outstanding voting shares are owned, either directly or indirectly, by its parent company. A subsidiary not in corporate form is 100% owned if the sum of all interests are owned, either directly or indirectly, by its parent company other than: (1) Securities that are guaranteed by its parent, and, if applicable, other 100%-owned subsidiaries of its parent; and (2) securities that guarantee securities issued by its parent and, if applicable, other 100%-owned subsidiaries of its parent. \68\ 17 CFR 210.3-10(h)(2). A guarantee is ``full and unconditional,'' if, when an issuer of a guaranteed security has failed to make a scheduled payment, the guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the guaranteed security may immediately bring suit directly against the guarantor for payment of all amounts due and payable. \69\ 17 CFR 210.3-10(h)(5). \70\ 17 CFR 210.3-10(h)(6). --------------------------------------------------------------------------- Consolidating Information is a columnar footnote presentation of each category of parent and subsidiaries as issuer, guarantor, or non- guarantor.\71\ It must include all major captions of the balance sheet, income statement, and cash flow statement that are required to be shown separately in interim financial statements under Article 10 of Regulation S-X.\72\ In order to distinguish the assets, liabilities, operations and cash flows of the entities that are legally obligated to make payments under the guarantee from those that are not, the columnar presentation must show: (1) A parent company's investments in all consolidated subsidiaries based upon its proportionate share of the net assets; \73\ and (2) subsidiary issuer/guarantor investments in certain consolidated subsidiaries using the equity method.\74\ This presentation is a unique format designed to ensure, for example, that a subsidiary guarantor does not consolidate, within this presentation, its own non-guarantor subsidiary. --------------------------------------------------------------------------- \71\ 17 CFR 210.3-10(i)(6). \72\ 17 CFR 210.10-01(a). \73\ 17 CFR 210.3-10(i)(3). \74\ 17 CFR 210.3-10(i)(5). --------------------------------------------------------------------------- Recently-acquired subsidiary issuers/guarantors create an information gap in the Consolidating Information because the subsidiaries will only be included from the date that the subsidiaries were acquired. The Securities Act registration statement of a parent company \75\ must include one year of audited pre-acquisition financial statements for these subsidiaries in its registration statement if: (1) The subsidiary is significant; and (2) the subsidiary is not reflected in the audited consolidated results for at least nine months of the most recent fiscal year.\76\ A subsidiary is significant if its net book value or purchase price, whichever is greater, is 20 percent or more of the principal amount of the securities being registered. --------------------------------------------------------------------------- \75\ Filed in connection with the offer and sale of the debt or debt-like securities. \76\ 17 CFR 210.3-10(g)(1). --------------------------------------------------------------------------- Issuers/guarantors availing themselves of the exemption that allows for Alternative Disclosure are automatically exempt from Exchange Act reporting by Exchange Act Rule 12h-5.\77\ The parent company, however, must continue to provide the Alternative Disclosure for as long as the guaranteed securities are outstanding.\78\ The parent company may not cease to report this information even at such time that the subsidiary issuers/guarantors, had they declined to avail themselves of the exemptions and reported separately, could have suspended their reporting obligations under Section 15(d) of the Exchange Act.\79\ --------------------------------------------------------------------------- \77\ 17 CFR 240.12h-5. \78\ Section III.C.1 of Release No. 33-7878 (August 4, 2000) [65 FR 51692]. \79\ 15 U.S.C. 78o(d). --------------------------------------------------------------------------- B. Consideration of Current Rule 3-10 Disclosure and Related Requirements 1. Content of the Rule 3-10 Alternative Disclosure Separate financial disclosures required by our rules about issuers of guaranteed debt and guarantors of those securities are important to investors because the disclosures allow investors to evaluate separately the likelihood of payment by the issuer and guarantors. The content of the Alternative Disclosure, despite being less robust than financial statements required by Regulation S-X, is detailed and unique. For example, the Consolidating Information includes all major captions that are found in quarterly reports filed on Form 10-Q \80\ and must be prepared using a unique format that is not found elsewhere in Commission rules or the applicable accounting standards. A parent company may also need to provide, in a registration statement, pre- acquisition financial statements of significant, recently-acquired subsidiary issuers/guarantors. These financial statements are required even if those subsidiaries will qualify for the Alternative Disclosure once included in a registrant's audited consolidated results for nine months of the most recent fiscal year. --------------------------------------------------------------------------- \80\ 17 CFR 249.308a. --------------------------------------------------------------------------- Request for Comment 33. How do investors use the information provided in financial statements of subsidiary issuers/guarantors and the information provided in the Alternative Disclosure? Are there challenges that investors face in using the disclosures? 34. Are there changes to these requirements we should consider to further facilitate the disclosure of useful information to investors? For example, is there different or additional information that investors need about guarantors and issuers of guaranteed securities? If so, what information is needed and are there challenges that registrants would face in preparing and providing it? 35. Are there challenges that registrants face in preparing and providing the required disclosures? If so, what are the challenges? Are there changes to these requirements we should consider to address those challenges? If so, what changes and how would those changes affect investors' ability to make informed decisions? [[Page 59091]] 36. Are there requirements that result in disclosures that investors do not consider useful? If so, what changes would make them useful or should we consider eliminating or replacing all or part of those requirements? 37. How could we improve the usefulness of the Consolidating Information? Could we do so by revising its content requirements? If so, what changes should be made and why? 38. Should we consider revising the requirement to provide Consolidating Information for interim periods to focus on significant changes similar to Rule 10-01(a)(5) of Regulation S-X, which allows registrants to apply judgment and omit details of accounts that have not changed significantly in amount or composition since the end of the most recently completed fiscal year? Why or why not? 39. Is there other disclosure that would allow us to modify the requirement for separate, audited financial statements of recently- acquired subsidiary issuers/guarantors that would be useful to investors? If so, what disclosure would be appropriate and in what circumstances? If not, why? 2. Conditions to Providing Alternative Disclosure As stated above, one of the primary conditions that must be met for a parent company to provide the Alternative Disclosure is that the subsidiary issuers/guarantors are ``100% owned.'' For example, the Alternative Disclosure is not available if a subsidiary is organized in a jurisdiction that requires directors to own a small number of shares unless the registrant obtains relief from Commission staff.\81\ The condition is intended to ensure the risks associated with an investment in a parent company and the risks associated with its subsidiary are ``identical.'' \82\ Similarly, ``full and unconditional'' is intended to ensure the payment obligations of the issuer and guarantor are ``essentially identical.'' \83\ Registrants may not provide the Alternative Disclosure unless the guarantee operates such that, when an issuer of a guaranteed security has failed to make a scheduled payment, the guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the guaranteed security may immediately bring suit directly against the guarantor for payment of all amounts due and payable. For example, registrants are not allowed to use the Alternative Disclosure when guarantees become enforceable after the passage of some time period after default. These are precise standards that must be met in order to reduce disclosure from, for example, full financial statements to the detailed and unique Consolidating Information. --------------------------------------------------------------------------- \81\ Release No. 33-7878 (Aug. 4, 2000) [65 FR 51692, fn. 29]. \82\ Id. \83\ Id. --------------------------------------------------------------------------- Separately, the duration of the obligation to provide the Alternative Disclosure is different than the obligation to provide separate financial statements. To obtain the exemption under Rule 12h- 5, a parent company must provide the Alternative Disclosures as long as the securities are outstanding, while the obligation to provide separate financial statements can be suspended earlier as provided in Section 15(d) of the Exchange Act. Request for Comment 40. Do the current conditions to providing the Alternative Disclosure influence the structure of guarantee relationships? If so, how and what are the consequences, if any, to investors and registrants? 41. Should we consider allowing a parent company to provide the Alternative Disclosure if its subsidiary issuers or guarantors do not meet the current definition of 100% owned? If so, how should we revise the Alternative Disclosure conditions and what additional disclosure might address concerns about the presence of outside ownership interests? If not, why? 42. Should we consider allowing a parent company to provide the Alternative Disclosure if a guarantee does not meet the current definition of full and unconditional? If so, how should we revise the Alternative Disclosure conditions? Should we consider, for example, allowing the Alternative Disclosure for guarantees that become enforceable after the passage of some time period after default? What additional disclosure might address concerns about the delayed enforceability? If not, why? 43. Should we consider revising the conditions that must be satisfied to qualify for the abbreviated narrative disclosure? If so, how? If not, why? 44. Should we modify the parent company's requirement to provide the Alternative Disclosure during the period in which the securities are outstanding? If so, how? If not, why? Additional Request for Comment on Rule 3-10 and Related Requirements 45. Should smaller reporting companies and emerging growth companies be subject to the same requirements or should requirements for those registrants be scaled? If they should be scaled, in what way? V. Rule 3-16 of Regulation S-X--Financial Statements of Affiliates Whose Securities Collateralize an Issue Registered or Being Registered A. Current Rule 3-16 Disclosure and Related Requirements Rule 3-16 of Regulation S-X requires a registrant to provide separate annual and interim financial statements for each affiliate \84\ whose securities constitute a substantial portion of the collateral for any class of securities registered or being registered as if the affiliate were a separate registrant (``Rule 3-16 Financial Statements'').\85\ The affiliate's portion of the collateral is determined by comparing: (a) The highest amount among the aggregate principal amount, par value, book value, or market value of the affiliates' securities to (b) the principal amount of the securities registered or being registered. If this test equals or exceeds 20 percent for any fiscal year presented by a registrant, Rule 3-16 Financial Statements are required.\86\ --------------------------------------------------------------------------- \84\ 17 CFR 210.1-02(b) states, ``An affiliate of, or a person affiliated with, a specific person is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified.'' Although not the same, in practice such affiliates are almost always consolidated subsidiaries of the registrant. \85\ Both domestic registrants and foreign private issuers need only provide interim period information in certain registration statements. \86\ 17 CFR 210.3-16(b). --------------------------------------------------------------------------- Separately, Rule 4-08(b) of Regulation S-X \87\ requires disclosure, in the notes to a registrant's annual financial statements, of the amounts of assets mortgaged, pledged, or otherwise subject to lien. --------------------------------------------------------------------------- \87\ 17 CFR 210.4-08(b). --------------------------------------------------------------------------- B. Consideration of Current Rule 3-16 Disclosure and Related Requirements Disclosures required by our rules that facilitate an evaluation of an affiliate's ability to satisfy its commitment in the event of a default by a registrant are important to investors. Rule 3-16 requires financial statements as though the affiliate were a registrant despite the fact that the collateral pledge is not considered a separate security. Also, registrants have suggested, in consultations with Commission staff, that the Rule 3-16 Financial Statements can be confusing. For example, where the securities of a subsidiary of a registrant (``Subsidiary A'') are pledged as collateral and the securities of an entity consolidated by Subsidiary A (``Subsidiary B'') are also pledged, Rule 3-16 Financial Statements may be [[Page 59092]] required for both subsidiaries and both will include Subsidiary B's assets, liabilities, operations, and cash flows. The test used in applying Rule 3-16 employs a bright-line percentage threshold that a registrant must apply to a limited set of measures similar to Rules 3-05 and 3-09. Unlike those rules, the market value of an affiliate's securities may not be readily available in the absence of a public market for those securities. Request for Comment 46. Do the Rule 3-16 requirements influence the structure of collateral arrangements? If so, how and what are the consequences, if any, to investors and registrants? 47. How do investors use Rule 3-16 Financial Statements and the Rule 4-08(b) footnote disclosures? Are there challenges that investors face in using the disclosures? 48. Are there changes to these requirements we should consider to further facilitate the disclosure of useful information to investors? For example, is there different or additional information that investors need about affiliates whose securities collateralize registered securities? If so, what information is needed and are there challenges that registrants would face in preparing and providing it? 49. Are there challenges that registrants face in preparing and providing the required disclosures? If so, what are the challenges? Are there changes to these requirements we should consider to address those challenges? If so, what changes and how would those changes affect investors' ability to make informed decisions? 50. Are there requirements that result in disclosures that investors do not consider useful? If so, what changes would make them useful or should we consider eliminating or replacing all or part of those requirements? 51. How could we improve the usefulness of the Rule 4-08(b) footnote disclosure? Could we do so by adding a requirement to disclose additional details about the affiliates? If so, what additional details should we require? 52. If we make changes to improve the usefulness of the footnote disclosure, would it be appropriate to modify the requirement to provide Rule 3-16 Financial Statements? If so, how? If not, why? 53. Should we revise the test used in applying Rule 3-16? If so, how? If not, why? Additional Request for Comment on Rule 3-16 and Related Requirements 54. Should smaller reporting companies and emerging growth companies continue to be subject to the same requirements or should requirements for those registrants be scaled? If they should be scaled, in what way? If not, why? VI. Other Requirements In addition to the issues raised in this request for comment, we encourage all interested persons to submit their views on any issues relating to the financial information about entities, or portions of entities, other than a registrant. For example, Rule 3-14, Special Instructions for Real Estate Operations to be Acquired,\88\ while separate and distinct from Rule 3-05, is intended to achieve similar objectives within a particular industry. In addition, Item 2.01 of Form 8-K uses significance tests to determine when to provide disclosure about asset acquisitions. The requirements addressed in this request for comment may apply more broadly than the situations described. To the extent there may be additional effects, please provide comments. --------------------------------------------------------------------------- \88\ 17 CFR 210.3-14. --------------------------------------------------------------------------- Request for Comment 55. As we continue our ongoing efforts to review disclosure rules, what other rules and forms should be considered for review and why? 56. Currently, financial disclosures related to entities other than a registrant are filed in XBRL format to the extent that they are part of the registrant's financial statements.\89\ Other disclosures, such as the separate financial statements of entities other than the registrant and Pro Forma Financial Information are not required to be presented in a structured, machine-readable format. Would investors benefit from having all of the disclosures related to these entities made in an interactive data format? Would it depend on the nature of the information being disclosed (e.g., disclosure related to a one-time transaction such as an acquisition or ongoing disclosure related to an Investee)? What would be the cost to registrants? --------------------------------------------------------------------------- \89\ For example, the Summarized Financial Information required by Rule 4-08(g) of Regulation S-X and the Consolidating Information required by Rule 3-10 of Regulation S-X. --------------------------------------------------------------------------- 57. In what other ways could we utilize technology to further facilitate the disclosure of useful information to investors or address challenges faced by investors and registrants? 58. Are there ways that we could further facilitate the use of information by all types of investors? If so, please explain. For example, should we consider alternative ways of presenting the information, such as specifically allowing or requiring registrants to provide a summary along with more detailed required information to enable investors to review the information at the level of detail that they prefer? VII. Closing This request for comment is not intended in any way to limit the scope of comments, views, issues or approaches to be considered. In addition to investors and registrants, the Commission welcomes comment from other market participants and particularly welcomes statistical, empirical, and other data from commenters that may support their views and/or support or refute the views or issues raised. By the Commission. Dated: September 25, 2015. Robert W. Errett, Deputy Secretary. [FR Doc. 2015-24875 Filed 9-30-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules 59083
maintenance manual for aft bolt holes of the Issued in Burlington, Massachusetts, on should be included on the subject line
HPC cone shaft on the affected engines is September 24, 2015. if email is used. To help the
incorrect. We are issuing this AD to prevent Colleen M. D’Alessandro, Commission process and review your
failure of the HPC cone shaft, which could Directorate Manager, Engine & Propeller comments more efficiently, please use
lead to uncontained engine failure and Directorate, Aircraft Certification Service. only one method of submission. The
damage to the airplane. [FR Doc. 2015–24731 Filed 9–30–15; 8:45 am] Commission will post all comments on
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Comply with this AD within the
Comments also are available for Web
compliance times specified, unless already
SECURITIES AND EXCHANGE site viewing and printing in the
done.
COMMISSION Commission’s Public Reference Room,
(1) For HPC cone shafts with serial
100 F Street NE., Washington, DC
numbers listed in EA Service Bulletin (SB)
17 CFR Part 210 20549, on official business days
No. EAGP7–72–330, dated July 21, 2015,
inspect the inner diameter of the HPC cone [Release No. 33–9929; 34–75985; IC–31849; between the hours of 10:00 a.m. and
shaft aft bolt holes for nicks, dents, and File No. S7–20–15] 3:00 p.m. All comments received will be
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or scratch that is greater than 0.002 inches in About Entities Other Than the information that you wish to make
depth. Registrant publicly available.
(2) For HPC cone shafts with serial AGENCY: Securities and Exchange FOR FURTHER INFORMATION CONTACT:
numbers listed in EA SB No. EAGP7–72–329, Commission. Todd E. Hardiman, Associate Chief
dated July 21, 2015, shot peen the HPC cone Accountant, at (202) 551–3516, Division
ACTION: Request for comment.
shaft aft bolt holes before accumulating 9,000 of Corporation Finance; Duc Dang,
CSN. Use paragraph 1 of the SUMMARY: The Commission is Special Counsel, at (202) 551–3386,
Accomplishment Instructions in EA SB No. publishing this request for comment to Office of the Chief Accountant; or
EAGP7–72–329 to do the shotpeening. seek public comment regarding the Matthew Giordano, Chief Accountant, at
(f) Installation Prohibition financial disclosure requirements in (202) 551–6892, Division of Investment
Regulation S–X for certain entities other Management, Securities and Exchange
After the effective date of this AD, do not
than a registrant. These disclosure Commission, 100 F Street NE.,
install an HPC cone shaft onto an engine with
requirements require registrants to Washington, DC 20549.
the following:
provide financial information about
(1) A nick, dent, or scratch in an HPC cone SUPPLEMENTARY INFORMATION:
acquired businesses, subsidiaries not
shaft aft bolt hole that is greater than 0.002
consolidated and 50 percent or less Table of Contents
inches in depth; or
owned persons, guarantors and issuers I. Introduction
(2) any repair of an HPC cone shaft aft bolt
hole that did not include shot peening.
of guaranteed securities, and affiliates II. Rule 3–05 of Regulation S–X—Financial
whose securities collateralize registered Statements of Businesses Acquired or To
(g) Alternative Methods of Compliance securities. This request for comment is Be Acquired and Related Requirements
(AMOCs) related to an initiative by the Division A. Current Rule 3–05 Disclosure and
The Manager, Engine Certification Office, of Corporation Finance to review the Related Requirements
may approve AMOCs for this AD. Use the disclosure requirements applicable to 1. Content of the Rule 3–05 Disclosure and
procedures found in 14 CFR 39.19 to make public companies to consider ways to Related Requirements
improve the requirements for the benefit 2. Tests for Determining Disclosure
your request. You may email your request to:
Required by Rule 3–05 and Related
ANE-AD-AMOC@faa.gov. of investors and public companies. Requirements
DATES: Comments should be received on III. Rule 3–09 of Regulation S–X—Separate
(h) Related Information
or before November 30, 2015. Financial Statements of Subsidiaries Not
(1) For more information about this AD, Consolidated and 50 Percent or Less
ADDRESSES: Comments may be
contact Martin Adler, Aerospace Engineer, Owned Persons and Related
submitted by any of the following
Engine & Propeller Directorate, FAA, 12 New Requirements
methods:
England Executive Park, Burlington, MA A. Current Rule 3–09 Disclosure and
01803; phone: 781–238–7157; fax: 781–238– Electronic Comments Related Requirements
7199; email: martin.adler@faa.gov. B. Consideration of Current Rule 3–09
• Use the Commission’s Internet
(2) EA SB No. EAGP7–72–329, dated July Disclosure and Related Requirements
comment form (http://www.sec.gov/ 1. Content of the Rule 3–09 Disclosure and
21, 2015; and EA SB No. EAGP7–72–330, rules/other.shtml); or
dated July 21, 2015, can be obtained from EA Related Requirements
• Send an email to rule-comments@ 2. Tests for Determining Disclosure
using the contact information in paragraph sec.gov. Please include File Number S7– Required by Rule 3–09 and Related
(h)(3) of this proposed AD. 20–15 on the subject line; or Requirements
(3) For service information identified in • Use the Federal eRulemaking Portal IV. Rule 3–10 of Regulation S–X—Financial
this AD, contact Engine Alliance, 400 Main (http://www.regulations.gov). Follow the Statements of Guarantors and Issuers of
St., East Hartford, CT 06108, M/S 169–10; instructions for submitting comments. Guaranteed Securities Registered or
phone: 800–565–0140; email: help24@ Being Registered
tkelley on DSK3SPTVN1PROD with PROPOSALS
pw.utc.com; Web site: Paper Comments A. Current Rule 3–10 Disclosure and
sp.engineallianceportal.com. • Send paper comments to Secretary, Related Requirements
(4) You may view this service information Securities and Exchange Commission, B. Consideration of Current Rule 3–10
at the FAA, Engine & Propeller Directorate, Disclosure and Related Requirements
100 F Street NE., Washington, DC 1. Content of the Rule 3–10 Alternative
12 New England Executive Park, Burlington, 20549–1090.
MA. For information on the availability of Disclosure
All submissions should refer to File 2. Conditions To Providing Alternative
this material at the FAA, call 781–238–7125.
Number S7–20–15. This file number Disclosure
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![59084 Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules
V. Rule 3–16 of Regulation S–X—Financial development of a plan to systematically disclosure requirements applicable to
Statements of Affiliates Whose Securities review the disclosure requirements in the registrant and how those
Collateralize an Issue Registered or Being the Commission’s rules and forms, requirements integrate with, for
Registered
including both Regulation S–K and example, Regulation S–K and the
A. Current Rule 3–16 Disclosure and
Related Requirements Regulation S–X, and the presentation applicable accounting standards and
B. Consideration of Current Rule 3–16 and delivery of information to investors will make further recommendations to
Disclosure and Related Requirements and the marketplace. At the time the the Commission for consideration. In
VI. Other Requirements report was issued, Commission Chair this request for comment, we are
VII. Closing Mary Jo White asked the staff to develop seeking public comment on the
I. Introduction specific recommendations for updating following rules, along with certain
the rules that dictate what a company related requirements:
Over the years, the Commission has must disclose in its filings.7 Pursuant to • Rule 3–05, Financial Statements of
considered its disclosure system and this request, the staff is undertaking a Businesses Acquired or to be
engaged periodically in rulemakings broad-based review of the disclosure Acquired; 11
designed to enhance our disclosure and requirements and the presentation and • Rule 3–09, Separate Financial
registration requirements. Some delivery of the disclosures, which the Statements of Subsidiaries Not
requirements have been considered and Commission may consider whether to Consolidated and 50 Percent or Less
updated relatively frequently, while review. This ongoing review by the staff Owned Persons; 12
others have changed little since they is known as the Disclosure Effectiveness • Rule 3–10, Financial Statements of
were first adopted. For example, the Initiative. Guarantors and Issuers of Guaranteed
Commission has revised the registration Initially, the staff is focusing on the Securities Registered or Being
requirements a number of times, most business and financial information that Registered; 13 and
recently in 2005 with Securities is required to be disclosed in periodic • Rule 3–16, Financial Statements of
Offering Reform, and at that time, the and current reports, namely Forms Affiliates Whose Securities Collateralize
Commission also adopted new methods 10–K, 10–Q and 8–K, and registration an Issue Registered or Being
of communicating offering information.1 statements.8 As part of the review, the Registered.14
As another example, the disclosure staff requested public input,9 and We seek to better understand how
requirements applicable to small received a number of comments. Two of well these requirements, some of which
businesses also have been updated on a the comment letters addressed have remained largely the same for
variety of occasions, most recently in Regulation S–X,10 which is the subject many years,15 are informing investors
2007.2 In contrast, other requirements in of this request for comment and the first and we are soliciting comment on how
Regulations S–K 3 and S–X,4 which product resulting from the Disclosure investors use the disclosures to make
encompass many of the Commission’s Effectiveness Initiative. investment and voting decisions. We are
financial and non-financial disclosure Regulation S–X contains disclosure also interested in learning about any
rules, have not been updated frequently. requirements that dictate the form and challenges that registrants face in
In 2013, the staff issued its Report on content of financial statements to be preparing and providing the required
Review of Disclosure Requirements in included in filings with the disclosures. Finally, we are interested in
Regulation S–K,5 which was mandated Commission. It addresses both registrant potential changes to these requirements
by Section 108 of the Jumpstart Our financial statements and financial that could enhance the information
Business Startups Act (the ‘‘JOBS statements of certain entities other than provided to investors and promote
Act’’).6 Section 108(b) of the JOBS Act the registrant. As an initial step in the efficiency, competition, and capital
required the Commission to submit a review of Regulation S–X, we are formation.16
report to Congress including the specific considering the requirements applicable To focus the discussion, this request
recommendations of the Commission on to these other entities, which is a for comment describes the
how to streamline the registration discrete, but important, subset of the
process in order to make it more Regulation S–X disclosure 11 17 CFR 210.3–05.
efficient and less burdensome for the requirements. The staff is continuing to
12 17 CFR 210.3–09.
Commission and for prospective issuers evaluate other Regulation S–X
13 17 CFR 210.3–10.
14 17 CFR 210.3–16.
who are emerging growth companies.
15 Rule 3–05 has not been thoroughly
The Commission staff recommended the 7 See SEC Press Release 2013–269, dated
reconsidered since 1996. See Streamlining
December 20, 2013, available at http://www.sec.gov/ Disclosure Requirements Related to Significant
1 See Securities Offering Reform, Release No. 33– News/PressRelease/Detail/PressRelease/ Business Acquisitions, Release No. 33–7355 (Oct.
8591 (July 19, 2005) [70 FR 44722]. 1370540530982. 10, 1996) [61 FR 54509]. Rules 3–09 and 3–16 have
2 See Smaller Reporting Company Regulatory 8 See Keith F. Higgins, Disclosure Effectiveness:
not been thoroughly reconsidered since 1981. See
Relief and Simplification, Release No. 33–8876 Remarks Before the American Bar Association Separate Financial Statements Required by
(Dec. 19, 2007) [73 FR 934]. Business Law Section Spring Meeting (April 2014), Regulation S–X, Release No. 33–6359 (Nov. 6, 1981)
3 17 CFR 229.10 et seq. available at http://www.sec.gov/News/Speech/ [46 FR 56171]. Rule 3–10 was substantially revised
4 17 CFR part 210. Detail/Speech/1370541479332. in 2000. See Financial Statements and Periodic
5 Report on Review of Disclosure Requirements in 9 See request for public comment at http:// Reports for Related Issuers and Guarantors, Release
Regulation S–K (Dec. 2013), available at http:// www.sec.gov/spotlight/disclosure- No. 33–7878 (Aug. 4, 2000) [65 FR 51692].
www.sec.gov/news/studies/2013/reg-sk-disclosure- effectiveness.shtml. 16 Section 3(f) of the Securities Exchange Act of
requirements-review.pdf. Section 108(a) of the JOBS 10 See letter from Thomas J. Kim, Chair, 1934 (‘‘Exchange Act’’) [15 U.S.C. 78a et seq.]
Act directed the Commission to conduct a review Disclosure Effectiveness Working Group of the requires that, whenever the Commission is engaged
of Regulation S–K to (1) comprehensively analyze Federal Regulation of Securities Committee and the in rulemaking under the Exchange Act and is
tkelley on DSK3SPTVN1PROD with PROPOSALS
the current registration requirements of such Law and Accounting Committee, Business Law required to consider or determine whether an action
regulation; and (2) determine how such Section, American Bar Association, November 14, is necessary or appropriate in the public interest,
requirements can be updated to modernize and 2014 available at http://www.sec.gov/comments/ the Commission shall consider, in addition to the
simplify the registration process and reduce the disclosure-effectiveness/disclosureeffectiveness- protection of investors, promotion of efficiency,
costs and other burdens associated with these 23.pdf; but see letter from Sandra J. Peters and competition and capital formation. Section 2(b) of
requirements for issuers who are emerging growth James C. Allen, CFA Institute, November 12, 2014 the Securities Act of 1933 (‘‘Securities Act’’) [15
companies. available at http://www.sec.gov/comments/ U.S.C. 77a et seq.] also sets forth this same
6 Jumpstart Our Business Startups Act, Public disclosure-effectiveness/disclosureeffectiveness- requirement. See also Section 23(a)(2) of the
Law 112–106, 126 Stat. 306 (2012). 24.pdf. Exchange Act.
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![Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules 59085
requirements 17 that apply to domestic provide separate audited annual and the business’s most recent annual pre-
registrants 18 that do not qualify as unaudited interim pre-acquisition acquisition financial statements,
smaller reporting companies 19 or financial statements (‘‘Rule 3–05 exclusive of amounts attributable to any
emerging growth companies.20 When Financial Statements’’) of the noncontrolling interests, is compared to
relevant, we note different disclosure business 22 if it is significant to the the same measure of the registrant
requirements triggered by each type of registrant.23 A registrant determines reflected in its most recent annual
registrant.21 In addition, unless whether an acquisition is significant financial statements required to be filed
otherwise noted, the disclosure using the investment, asset, and income at or prior to the acquisition date. Rule
requirements we describe in this request tests defined in Rule 1–02(w) of 3–05 requires more disclosure as the
for comment should be assumed to Regulation S–X.24 Performing these tests size of the acquisition, relative to the
apply to periodic reporting under the for purposes of applying Rule 3–05 and size of the registrant, increases based on
Exchange Act and registration related requirements can be generally the test results. If none of the Rule 3–
statements filed under the Exchange Act described as follows: 05 tests exceeds 20 percent, a registrant
and the Securities Act. • Investment Test—the purchase
is not required to file any Rule 3–05
consideration is compared to the total
Financial Statements. If any of the Rule
assets of a registrant reflected in its most
II. Rule 3–05 of Regulation S–X— 3–05 tests exceeds 20 percent, but none
recent annual financial statements
Financial Statements of Businesses required to be filed at or prior to the exceeds 40 percent, Rule 3–05 Financial
Acquired or To Be Acquired and acquisition date. Statements are required for the most
Related Requirements • Asset Test—a registrant’s recent fiscal year and any required
proportionate share of the business’s interim periods. If any Rule 3–05 test
A. Current Rule 3–05 Disclosure and exceeds 40 percent, but none exceeds 50
total assets reflected in the business’s
Related Requirements percent, a second fiscal year of Rule
most recent annual pre-acquisition
When a registrant acquires a business, financial statements is compared to the 3–05 Financial Statements is required.
Rule 3–05 generally requires it to total assets of the registrant reflected in When at least one Rule 3–05 test
its most recent annual financial exceeds 50 percent, a third fiscal year 26
17 The descriptions in this release are provided
statements required to be filed at or of Rule 3–05 Financial Statements is
for the convenience of commenters and to facilitate required unless revenues of the acquired
the comment process. The descriptions should not
prior to the acquisition date.
be taken as Commission or staff guidance about the • Income Test—a registrant’s equity business were less than $50 million in
relevant rules. in the income from continuing its most recent fiscal year.27
18 Generally, the requirements described in this
operations before income taxes and Rule 3–05 Financial Statements must
release apply to entities registered as investment cumulative effect of a change in
companies and entities that have elected to be be accompanied by the pro forma
treated as business development companies under accounting principle,25 as reflected in
financial information described in
the Investment Company Act of 1940 [15 U.S.C.
80a-1 et seq]. See Rule 6–03 of Regulation S–X [17 22 Registrants determine whether a ‘‘business’’
Article 11 of Regulation S–X (‘‘Pro
CFR 210.6–03], which states in part, ‘‘[t]he financial has been acquired by applying Rule 11–01(d) [17 Forma Information’’).28 Pro Forma
statements filed for persons to which §§ 210.6–01 CFR 210.11–01(d)] of Regulation S–X. This Information typically includes the most
to 210.6–10 are applicable shall be prepared in determination is separate and distinct from a recent balance sheet and most recent
accordance with the . . . special rules [§§ 210.6–01 determination made under the applicable
to 210.6–10] in addition to the general rules in accounting standards requiring registrants to annual and interim period income
§§ 210.1–01 to 210.4–10 (Articles 1, 2, 3, and 4). account for and disclose the transaction in a statements. The Pro Forma Information
Where the requirements of a special rule differ from registrant’s financial statements. The definition of is based on the historical financial
those prescribed in a general rule, the requirements ‘‘business’’ in Regulation S–X focuses primarily on
of the special rule shall be met.’’ whether the nature of the revenue-producing
statements of the registrant and the
19 Exchange Act Rule 12b–2 [17 CFR 240.12b–2]
activity of the target will remain generally the same acquired business and generally
defines a smaller reporting company as an issuer as before the transaction. The definition in the includes adjustments to show how the
that is not an investment company, an asset-backed applicable accounting standards (see Financial acquisition might have affected those
issuer, or a majority-owned subsidiary of a parent Accounting Standards Board (‘‘FASB’’) Accounting
that is not a smaller reporting company and that has Standards Codification (‘‘ASC’’) 805, Business
financial statements had it occurred at
a public float of less than $75 million. If an issuer Combinations in U.S. GAAP and a similar an earlier time. Adjustments to the pro
has zero public float, it would be considered a definition in IFRS 3, Business Combinations) forma balance sheet and income
smaller reporting company if its annual revenues focuses on whether the target is an integrated set
are less than $50 million. statements must be ‘‘factually
of activities and assets that is capable of being
20 Section 2(a)(19) of the Securities Act defines an
conducted and managed by a market participant for supportable’’ and ‘‘directly attributable
emerging growth company as an issuer that had the purpose of providing a return. to the transaction.’’ An additional
total gross revenues of less than $1 billion during 23 Domestic issuers file the disclosures required criterion, ‘‘continuing impact,’’ applies
its most recently completed fiscal year. It retains by Rule 3–05 and its related requirements in current
that status for five years after its initial public only to adjustments to the pro forma
reports filed on Form 8–K [17 CFR 249.308] under
offering unless its revenues rise above $1 billion, it
the Exchange Act, as well as in registration
issues more than $1 billion of non-convertible debt extraordinary items in IAS 1, Presentation of
statements. Foreign private issuers, however, only
in a three year period, or it qualifies as a large Financial Statements.
file the disclosures in registration statements. In
accelerated filer pursuant to Exchange Act Rule
Foreign Issuer Reporting Enhancements, Release 26 A smaller reporting company is subject to
12b–2.
21 For example, we indicate by footnote where
No. 33–8900 (Feb. 29, 2008) [73 FR 13404], the requirements similar to Rule 3–05 that are found in
Commission proposed requiring foreign private Rule 8–04 of Regulation S–X [17 CFR 210.8–04], but
different disclosure requirements apply to foreign
issuers to provide certain financial information is never required to provide a third fiscal year. An
private issuers. The definition of foreign private
required by Rule 3–05 in periodic reports. This emerging growth company, although subject to Rule
issuer is contained in Securities Act Rule 405 [17
requirement was not adopted by the Commission. 3–05, need not provide a third year of Rule 3–05
CFR 230.405] and Exchange Act Rule 3b–4(c) [17
See Foreign Issuer Reporting Enhancements, Financial Statements when it only presents two
tkelley on DSK3SPTVN1PROD with PROPOSALS
CFR 240.3b–4(c)]. A foreign private issuer is any
foreign issuer other than a foreign government, Release No. 33–8959 (Sept. 23, 2008) [73 FR 58300]. years of its own financial statements pursuant to
except for an issuer that (1) has more than 50
24 17 CFR 210.1–02(w). Section 7(a)(2)(A) of the Securities Act.
25 Rule 1–02(w) of Regulation S–X refers to 27 17 CFR 210.3–05(b)(2).
percent of its outstanding voting securities held of
record by U.S. residents and (2) any of the extraordinary items, but the FASB eliminated this 28 17 CFR 210.11. A smaller reporting company
following: (i) a majority of its officers and directors concept from U.S. GAAP in its Accounting provides the pro forma financial information
are citizens or residents of the United States; (ii) Standards Update No. 2015–1, Simplifying Income described in Rule 8–05 of Regulation S–X [17 CFR
more than 50 percent of its assets are located in the Statement Presentation by Eliminating the Concept 210.8–05]. Although the preliminary notes to
United States; or (iii) its business is principally of Extraordinary Items, issued on January 9, 2015. Article 8 indicate that smaller reporting companies
administered in the United States. IFRS prohibit the presentation and disclosure of may wish to consider Article 11, it is not required.
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![59086 Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules
income statement.29 The adjustments insignificant consummated and assessing the future impacts of an
are computed assuming the transaction probable acquisitions since the date of acquisition on a registrant. Specifically,
occurred at the beginning of the fiscal the most recent audited balance sheet if commenters noted that pre-acquisition
year presented and carried forward a Rule 3–05 test exceeds 50 percent for financial statements do not reflect the
through any interim period presented.30 any combination of the acquisitions.37 new basis of accounting that arises upon
A registrant must provide a brief The accounting standards require consummation, changes in management,
description of a significant acquisition disclosure 38 to enable investors to or various other items affected by the
by filing a Form 8–K 31 within four understand the nature and financial acquisition.39 Although the Pro Forma
business days after consummation of the effect of a business combination that Information addresses some of these
acquisition. If Rule 3–05 Financial occurs during the periods presented in concerns by showing how the
Statements and Pro Forma Information the registrant’s financial statements or accounting for an acquisition might
are not provided with this Form 8–K, subsequent to the most recent balance have affected a registrant’s historical
the registrant must provide them within sheet date, but before the registrant’s financial statements had the transaction
approximately 75 days after financial statements are issued. Some of been consummated at an earlier time,
consummation by filing an amendment the disclosures required by the restrictions on pro forma adjustments
to the Form 8–K.32 The 75-day period is accounting standards are the same as prohibit a registrant from reflecting
intended to provide sufficient time to those required by Rule 3–05 and the other significant changes it expects to
obtain the Rule 3–05 Financial related requirements, such as the name result from the acquisition. For
Statements and prepare the Pro Forma and description of the acquired example, Commission staff has stated
Information. business. Others, such as pro forma that workforce reductions and facility
When filing certain registration financial information, are similar closings, both actions that registrants
statements,33 a registrant may need to although the Pro Forma Information frequently take when acquiring
update, based on the effective date, Rule required by Article 11 of Regulation businesses, are generally too uncertain
3–05 Financial Statements and Pro S–X is significantly more detailed. More to meet the criteria for adjustment.40 In
Forma Information previously provided significantly, Rule 3–05 requires addition, Pro Forma Information usually
on Form 8–K.34 A registrant must also historical financial statements of the lacks comparative prior periods and is
include, in certain registration acquired entity and the accounting unaudited. Finally, unless a registrant
statements filed ahead of the due date standards do not. files certain registration statements that
of the Form 8–K, Rule 3–05 Financial trigger the required disclosures earlier,
Statements and Pro Forma Information B. Consideration of Current Rule 3–05
Disclosure and Related Requirements investors typically must wait
for a recently-consummated acquisition approximately 75 days for the Rule
when a Rule 3–05 test exceeds 50 1. Content of the Rule 3–05 Disclosure 3–05 Financial Statements and the Pro
percent.35 Finally, the following and Related Requirements Forma Information.
additional disclosures that are not Financial disclosures required by our
required on Form 8–K must be provided rules about a business acquisition are Request for Comment
in certain registration statements: 36 important to investors because an 1. How do investors use each of the
• Rule 3–05 Financial Statements and following: The Rule 3–05 Financial
acquisition will result in changes to a
Pro Forma Information for a probable registrant’s financial condition, results Statements; the Pro Forma Information;
acquisition when a Rule 3–05 test of operations, liquidity, and future and the disclosures required by the
exceeds 50%; and prospects. Depending on the impact of applicable accounting standards? Are
• Rule 3–05 Financial Statements and
the acquisition, those changes could be there challenges that investors face in
Pro Forma Information for the
significant. While it is important to using these disclosures?
substantial majority of individually 2. Are there changes to these
provide investors with information
29 17
about an acquisition, the types of requirements we should consider to
CFR 210.11–02(b)(6).
30 For example, amortization expense of an
financial information currently required further facilitate the disclosure of useful
acquired intangible asset would be shown in the under the rules may have some information to investors? For example,
fiscal year and subsequent interim period pro forma limitations as a predictor of the is there different or additional
income statements as if the acquisition occurred on financial condition and results of information that investors need about
the first day of the fiscal year.
31 General Instruction B.1 of Form 8–K.
operations of the combined entity
32 Item 9.01(a)(4) of Form 8–K requires that the
following the acquisition. Prior to the 39 These comments were received in connection
adoption of Rule 3–05 in 1982, some with the proposal, Instructions for the Presentation
amendment be filed no later than 71 calendar days and Preparation of Pro Forma Financial
after the date that the initial Form 8–K must be commenters questioned the need for Information and Financial Statements of
filed. financial statements of acquired Companies Acquired or to be Acquired, Release 33–
33 These additional requirements do not apply to
businesses for periods prior to the 6350 (September 24, 1981) [46 FR 48943]. In the
all registration statements. For example, they do not adopting release, Instructions for the Presentation
apply to registration statements filed on Form S–8
acquisition. Those commenters
and Preparation of Pro Forma Financial
[17 CFR 239.16b] or registration statements filed criticized the utility and relevance of Information and Requirements for Financial
pursuant to Rule 462(b) of Regulation C [17 CFR pre-acquisition financial statements in Statements of Businesses Acquired or to be
230.462(b)]. Acquired, Release No. 33–6413 (June 24, 1982) [47
34 17 CFR 210.3–12.
37 17 CFR 210.3–05(b)(2)(i). Commission staff has FR 29832], the Commission considered reducing
35 17 CFR 210.3–05(b)(4). the required disclosure to condensed or
clarified that certain significant acquisitions should
36 In 1996, the Commission partially conformed also be included. See § 2035.2 of the Division of summarized information. However, the
these reporting requirements in Streamlining Corporation Finance’s Financial Reporting Manual. Commission decided that full financial statements
tkelley on DSK3SPTVN1PROD with PROPOSALS
Disclosure Requirements Related to Significant This manual was originally prepared by the staff of of an acquired business were necessary because it
Business Acquisitions, Release No. 33–7355 (Oct. the Division of Corporation Finance to serve as believed that there was important information in
10, 1996) [61 FR 54509] and retained these internal guidance. In 2008, in an effort to increase the notes to the financial statements that would not
disclosures because it recognized that ‘‘an transparency of informal staff interpretations, the be reflected in condensed or summarized
acquisition could be so large relative to an issuer Division of Corporation Finance posted the manual information and that it was essential that financial
that investors would need financial statements of to its Web site at http://www.sec.gov/divisions/ information about an acquired business be audited
the acquired business for a reasoned evaluation of corpfin/cffinancialreportingmanual.shtml. by an independent auditor.
any primary capital raising transaction by the 38 See FASB ASC 805, Business Combinations 40 See § 3250.1 of the Division of Corporation
issuer.’’ and IFRS 3, Business Combinations. Finance’s Financial Reporting Manual.
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![Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules 59087
acquired businesses or about how the addition, the tests can be difficult to Additional Request for Comment on
combined entities might perform apply in certain situations and have not Rule 3–05 and Related Requirements
following the acquisition? If so, what eliminated the need for implementation 14. Should we consider requiring
information is needed and are there guidance.41 Commission staff receives foreign private issuers to provide
challenges that registrants would face in frequent requests 42 to consider disclosures similar to those provided by
preparing and providing it? anomalous disclosure outcomes,
3. Are there challenges that registrants domestic companies when reporting on
particularly resulting from application Form 8–K? Why or why not? Are there
face in preparing and providing the of the income test.43
required disclosures? If so, what are the other issues that we should address
challenges? Are there changes to these Request for Comment related to acquisitions by foreign private
requirements we should consider to issuers or acquisitions of foreign
address those challenges? If so, what 9. Are significance tests the businesses?
changes and how would those changes appropriate means to determine the 15. Should smaller reporting
affect investors’ ability to make nature, timing, and extent of disclosure companies and emerging growth
informed decisions? under Rule 3–05 and the related companies be subject to the same
4. Are there requirements that result requirements? requirements or should requirements for
in disclosures that investors do not those registrants be scaled? If they
10. Are there changes or alternatives
consider useful? If so, what changes to should be scaled, in what way? If not,
to the tests that we should consider to
these requirements would make them why?
further facilitate the disclosure of useful
useful or should we consider 16. Investment companies, and
information to investors? If so, what
eliminating or replacing all or part of particularly business development
changes and are there challenges that
those requirements? companies, generally file Rule 3–05
registrants would face as a result? Financial Statements in cases where the
5. How could we improve the
usefulness of the Pro Forma 11. Are there changes to the tests we investment company is acquiring one or
Information? Could we do so by should consider to address challenges more private funds. This type of
changing the extent of information registrants face in preparing and acquisition typically occurs early in the
required and/or the methodologies used providing the required disclosures? If life of the investment company when it
to prepare it? For example, should we so, what changes and how would those has little or no financial information of
add a requirement for comparative pro changes affect investors’ ability to make its own. In these cases, Rule 3–05
forma income statements of the prior informed decisions? Financial Statements of the private
year and/or modify the restrictions on 12. Should we revise the financial funds(s) may be the primary financial
pro forma adjustments? If so, what measures used to determine significance information considered by investors
changes should be made and should or change the percentage thresholds? when making investment decisions with
auditors have any level of involvement respect to the investment company.
For example, should we consider
with the information? Are there Should Rule 3–05 continue to apply to
limiting the use of the income test and/
disclosures we should consider adding investment companies, or should
or devise new tests such as purchase
to the Pro Forma Information that are investment companies be subject to
price compared to a registrant’s market different requirements? If so, how and
currently found only in the Rule 3–05
capitalization? why should the requirements be
Financial Statements?
6. If we make changes to improve the 13. Should we allow registrants to different? For example, should Rule 3–
usefulness of the Pro Forma apply more judgment in determining 05 and the related requirements apply
Information, should we modify the what is considered a significant when an investment company
requirement to provide Rule 3–05 acquisition? If so, why and how? What purchases a significant portion of the
Financial Statements? If so, how? If not, concerns might arise from allowing assets of a fund, but not all of the assets
why? registrants to apply more judgment and, and liabilities of the fund?
7. Should we modify the amount of if allowed, should registrants disclose 17. Should we align the definition of
time that registrants have to provide the rationale for the judgments? a business in Rule 11–01(d) with the
disclosures about acquired businesses to definitions in the applicable accounting
investors? If so, under what 41 Topic 2 of the Division of Corporation standards? Why or why not?
circumstances and how? If not, why? Finance’s Financial Reporting Manual addresses
8. Should certain registration several significance testing implementation issues III. Rule 3–09 of Regulation S–X—
statements continue to require including (1) acquisitions achieved in multiple Separate Financial Statements of
accelerated and additional disclosure as stages; (2) acquisitions after a reverse merger; (3) Subsidiaries not Consolidated 44 and 50
aggregation of multiple individually insignificant Percent or Less Owned Persons and
compared to the Form 8–K acquisitions for a registration statement; (4)
requirements? If so, to what extent and multiple acquisitions prior to an initial public Related Requirements
why? If not, why? offering; and (5) acquisitions of foreign businesses
where the acquired company uses a different basis
A. Current Rule 3–09 Disclosure and
2. Tests for Determining Disclosure of accounting than the registrant. Related Requirements
42 During 2014, Commission staff received
Required by Rule 3–05 and Related When a registrant owns 50 percent or
approximately 60 requests. The Commission has the
Requirements authority under Rule 3–13 of Regulation S–X [17 less of an entity (‘‘Investee’’), Rule 3–09
The Rule 3–05 tests employ bright- CFR 210.3–13] to permit the omission of one or
more of the financial statements required, and the 44 Commission staff has observed, based on filing
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line percentage thresholds that a
Commission has delegated that authority to the reviews, that investment companies, particularly
registrant must apply to a limited set of staff. business development companies, may have
financial statement measures. Use of 43 Anomalous results can occur, for example, unconsolidated subsidiaries not accounted for using
these thresholds provides registrants when applying the income test where the the equity method, but other registrants typically do
with certainty and promotes registrant’s income is at or near zero. An acquisition not. As a result, the body of this section focuses on
of a small entity, in terms of the asset and requirements that apply to 50 percent or less owned
consistency. At the same time, they do investment tests, may trigger Rule 3–05 disclosures persons accounted for using the equity method.
not allow judgment to be applied to all as a result of the income test even if the acquired Requirements applying to unconsolidated
of the facts and circumstances. In business has very modest income. Continued
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![59088 Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules
of Regulation S–X generally requires the only required if a Rule 3–09 test or an separate judgments under the applicable
registrant to provide separate audited or additional asset test 51 exceeds 10 accounting standards.
unaudited annual financial statements percent for any individual Investee or
B. Consideration of Current Rule 3–09
(‘‘Rule 3–09 Financial Statements’’) of combination of Investees.52 If a
Disclosure and Related Requirements
the Investee if it is significant.45 The registrant includes Rule 3–09 Financial
Rule 3–09 Financial Statements provide Statements of an Investee in its annual 1. Content of the Rule 3–09 Disclosure
investors with detailed financial report, then notes to the registrant’s and Related Requirements
information about Investees that have a financial statements need not include
significant financial impact on the Summarized Financial Information for Financial disclosures required by our
registrant through its investment, but that particular Investee.53 rules about an Investee are important to
are not subject to the disclosure investors because the Investee can have
Interim financial statements of a a significant financial impact on a
requirements that would apply if it were
registrant must also include registrant. Also, the Investee is not
a consolidated subsidiary. Insofar as
practicable, the Rule 3–09 Financial summarized income statement consolidated so it is not subject to the
Statements must be as of the same dates information of individually significant same disclosure requirements that apply
and for the same periods as a registrant’s Investees.54 Individual Investees are to consolidated subsidiaries. While it is
annual financial statements.46 considered significant for purposes of important to provide information about
Significance is determined using the this rule if a Rule 3–09 test, using Investees, the types of financial
tests defined in Rule 1–02(w) of interim period information, exceeds 20 information currently required may
Regulation S–X, although only the percent.55 have limitations and there may be
investment and income tests are used.47 The applicable accounting standards opportunities for improvement. For
The Rule 3–09 tests can be generally also require that the notes to the annual example, Rule 3–09 Financial
described as follows: financial statements include Statements may be presented using
• Investment Test—A registrant’s summarized balance sheet and income different accounting standards, fiscal
investment in and advances to the statement information about equity- year ends, and/or reporting currencies
Investee as of the end of each fiscal year method investees.56 Commission staff than those used by a registrant.57 In
presented by a registrant is compared to has observed, based on filing reviews, addition, Rule 3–09 Financial
the total assets of the registrant at the that registrants typically follow the Statements are required only for
end of each of those same years. Commission rules rather than making significant Investees rather than all
• Income Test—A registrant’s equity Investees that may affect a registrant’s
in the Investee’s income from 51 In 1994, Rule 3–09 was revised to eliminate the financial statements. As a result, Rule
continuing operations before income asset test; however, the test was retained for Rule 3–09 Financial Statements often cannot
taxes and cumulative effect of a change 4–08(g) to ensure a minimum level of financial be reconciled to the amounts recognized
in accounting principle, exclusive of information about an investee when the investment in a registrant’s financial statements for
test was small, but a registrant’s proportionate
amounts attributable to any interest in the Investee’s assets was material, as that Investee. The Summarized
noncontrolling interests, for each fiscal might be the case for a highly-leveraged Investee. Financial Information also may not be
year presented by a registrant is See Financial Statements of Significant Foreign reconcilable because the financial
compared to the same measure of the Equity Investees and Acquired Foreign Businesses information of multiple Investees, each
of Domestic Issuers and Financial Schedules,
registrant for each of those same years. Release No. 33–7118 (Dec. 13, 1994) [59 FR 65632]. one with a different percentage owned
If neither of the Rule 3–09 tests 52 A smaller reporting company must provide by a registrant, can be aggregated in the
exceeds 20 percent, Rule 3–09 Financial summarized information in its annual financial presentation.
Statements are not required. If at least statements if a Rule 3–09 test or an additional asset
Summarized Financial Information is
one Rule 3–09 test exceeds 20 percent, test exceeds 20 percent, rather than 10 percent, for
any individual Investee or combination of required more often 58 than Rule 3–09
Rule 3–09 Financial Statements are Investees. Although Article 8 of Regulation S–X financial statements and it also may
required for all years and must be does not include an explicit annual requirement have limitations. For example, the
audited for each year that a test exceeds analogous to Rule 4–08(g), Commission staff
aggregate presentation, combined with
20 percent.48 analogizes to Rule 8–03(b)(3) and typically issues a
comment to request annual summarized the lack of reconciliation to amounts
Separately, Rule 4–08(g) of Regulation information if it is not otherwise included. See recognized in a registrant’s financial
S–X 49 requires disclosure, in the notes § 2420.9 of the Division of Corporation Finance’s statements, could diminish an investor’s
to a registrant’s audited annual financial Financial Reporting Manual.
ability to discern the impact of
53 See Staff Accounting Bulletin Topic 6.K.4.b.
statements, of summarized balance significant Investees on a registrant’s
The purpose of the summarized information is to
sheet and income statement information provide minimum standards of disclosure when the financial statements. This ability may be
on an aggregate basis for all Investees impact of Investees on the consolidated financial further diminished when Investees with
(‘‘Summarized Financial statements is significant. If the registrant furnishes
income and Investees with losses are
Information’’).50 These disclosures are more financial information in the annual report
than is required by these minimum disclosure combined in the presentation.
standards, such as separate audited statements, the
subsidiaries, not accounted for using the equity summarized information can be excluded. Request for Comment
method, if different, are footnoted. 54 17 CFR 210.10–01(b)(1).
45 Rule 3–09 does not apply to smaller reporting
55 A smaller reporting company must provide
18. How do investors use each of the
companies nor does Article 8 of Regulation S–X
summarized information in its interim financial following: The Rule 3–09 Financial
contain similar requirements. Statements; the Summarized Financial
46 Rule 3–09 does not require the presentation of
statements pursuant to Rule 8–03(b)(3). Unless it is
registering securities, a foreign private issuer need Information; and the interim
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separate interim financial statements of Investees. not provide interim information because it is not
47 17 CFR 210.3–09(a). disclosures? Are there challenges that
required to file quarterly financial information
48 Registrants with majority-owned subsidiaries
pursuant to Exchange Act Rules 13a–13 or 15d–13.
that are not consolidated must perform the asset test 56 FASB ASC 323, Investments-Equity Method 57 For example, when the Investee is a foreign
in addition to the investment and income tests and Joint Ventures, requires disclosure if material business.
described in Rule 1–02(w). See Rule 3–09(a) of in relation to the financial position or results of 58 Summarized Financial Information is required
Regulation S–X. operations of the registrant. Paragraphs B12 and by Rule 4–08(g) when certain tests exceed 10%,
49 17 CFR 210.4–08(g).
B13 of IFRS 12, Disclosure of Interests in Other while Rule 3–09 Financial Statements are required
50 17 CFR 210.1–02(bb). Entities, require similar disclosure. when certain tests exceed 20%.
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![Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules 59089
investors face in using these which have not changed significantly in Additional Request for Comment on
disclosures? amount or composition since the end of Rule 3–09 and Related Requirements
19. Are there changes to these the most recently completed fiscal year. 31. Should smaller reporting
requirements we should consider to Additionally, investment companies companies and emerging growth
further facilitate the disclosure of useful may face challenges when applying the companies be subject to the same
information to investors? For example, income test. The numerator of the requirements or should requirements for
is there different or additional income test, as defined in Rule 1–02(w) those registrants be scaled? If they
information that investors need about
of Regulation S–X, includes the should be scaled, in what way? If not,
Investees? If so, what information is
registrant’s equity in the Investee’s why?
needed and are there challenges that 32. Should investment companies,
income from continuing operations;
registrants would face in preparing and particularly business development
however, investment companies
providing it? companies, be subject to different
account for their Investees using fair
20. Are there challenges that
value rather than the equity method. requirements? If so, how and why
registrants face in preparing and
The denominator used for the test should the requirements be different?
providing the required disclosures? If
includes changes in the fair value of For example, should the significance
so, what are the challenges? Are there
investments that can cause the tests be modified to apply measures
changes to these requirements we
denominator to fluctuate significantly. other than the income test or asset test
should consider to address those
As a result, registrants frequently that are more relevant to investment
challenges? If so, what changes and how
consult with Commission staff about companies? Should there be a different
would those changes affect investors’
anomalous results. income test related to investment
ability to make informed decisions?
21. Are there requirements that result companies? Should we tailor the
Request for Comment disclosures provided by unconsolidated
in disclosures that investors do not
consider useful? If so, what changes to 25. Are significance tests the subsidiaries of investment companies
these requirements would make them appropriate means to determine the further by, for example, creating
useful or should we consider nature, timing, and extent of disclosure separate requirements for Summarized
eliminating or replacing all or part of under Rule 3–09 and the related Financial Information and/or requiring a
those requirements? requirements? schedule of investments for
22. How could we improve the unconsolidated subsidiaries not
26. Are there changes or alternatives accounted for as investment
usefulness of the Summarized Financial to the tests that we should consider to
Information? Could we do so by adding companies 60 that are in similar lines of
further facilitate the disclosure of useful business?
a requirement to present separately each information to investors? If so, what
significant Investee and/or reconcile the changes and are there challenges that IV. Rule 3–10 of Regulation S–X—
disclosures to the amounts recognized registrants would face as a result? Financial Statements of Guarantors and
in a registrant’s financial statements? Issuers of Guaranteed Securities
Are there disclosures we should 27. Are there changes to the tests that
we should consider to address Registered or Being Registered
consider adding that are currently found
only in Rule 3–09 Financial Statements? challenges that registrants face in A. Current Rule 3–10 Disclosure and
23. If we make changes to improve the preparing and providing the required Related Requirements
usefulness of the Summarized Financial disclosures? If so, what changes and A guarantor of a registered security is
Information, would it be appropriate to how would those changes affect an issuer because the guarantee of a
modify the requirement to provide Rule investors’ ability to make informed security is a separate security.61 As a
3–09 Financial Statements? If so, how? decisions? result, both issuers of registered
If not, why? 28. Should we allow more judgment securities that are guaranteed and
24. Are unaudited Rule 3–09 to be applied by registrants in guarantors of registered securities must
Financial Statements and Summarized determining significance? Why or why file their own audited annual and
Financial Information for fiscal years not? What concerns might arise from unaudited interim 62 financial
during which an Investee was not allowing registrants to apply more statements required by Regulation S–
significant useful to investors? Why or judgment and, if allowed, should X.63 Rule 3–10 of Regulation S–X
why not? registrants disclose the rationale for the provides certain exemptions 64 from
2. Tests for Determining Disclosure judgments? those financial reporting requirements
Required by Rule 3–09 and Related 29. Should we revise the current and is commonly relied upon by a
Requirements percentage thresholds and/or the parent company when it raises capital
financial measures used to determine through: (1) An offering of its own
The tests used for determining securities guaranteed by one or more of
disclosure pursuant to Rule 3–09 and significance? For example, should we
the related requirements employ bright- consider limiting the use of the income
60 Rule 3–09 Financial Statements for
line percentage thresholds similar to test or devise new tests?
unconsolidated subsidiaries accounted for as
Rule 3–05. In addition, the use of these 30. Should we consider revising the investment companies are required to include the
tests to determine the need for requirements to provide interim schedules required by Rule 6–10 of Regulation S–
X.
disclosure in interim financial disclosures about Investees to focus on 61 See Section 2(a)(1) of the Securities Act.
tkelley on DSK3SPTVN1PROD with PROPOSALS
statements is different than the other significant changes similar to Rule 10– 62 A foreign private issuer need only provide
financial statement footnote disclosure 01(a)(5) of Regulation S–X, which interim period disclosure in certain registration
requirements specified in Rule 10– allows registrants to apply judgment statements.
01(a)(5) of Regulation S–X.59 Rule 10– and omit details of accounts that have 63 17 CFR 210.3–10(a).
64 Rule 3–10 exemptions are available to issuers/
01(a)(5) allows registrants to apply not changed significantly in amount or
guarantors of securities that are ‘‘debt or debt-like.’’
judgment and omit details of accounts composition since the end of the most See Financial Statements and Periodic Reports for
recently completed fiscal year? Why or Related Issuers and Guarantors, Release No. 33–
59 17 CFR 210.10–01(a)(5). why not? 7878 (August 4, 2000) [65 FR 51692].
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![59090 Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules
its subsidiaries; or (2) an offering of issuer, guarantor, or non-guarantor.71 It suspended their reporting obligations
securities by its subsidiary that it must include all major captions of the under Section 15(d) of the Exchange
guarantees and, sometimes, that one or balance sheet, income statement, and Act.79
more of its other subsidiaries also cash flow statement that are required to
B. Consideration of Current Rule 3–10
guarantees. Under Rule 3–10, if the be shown separately in interim financial
Disclosure and Related Requirements
subsidiary issuers and guarantors statements under Article 10 of
(‘‘issuers/guarantors’’) satisfy specified Regulation S–X.72 In order to 1. Content of the Rule 3–10 Alternative
conditions, the parent company can distinguish the assets, liabilities, Disclosure
provide disclosures in its own annual operations and cash flows of the entities Separate financial disclosures
and interim consolidated financial that are legally obligated to make required by our rules about issuers of
statements in lieu of providing financial payments under the guarantee from guaranteed debt and guarantors of those
statements of each subsidiary issuer and those that are not, the columnar securities are important to investors
guarantor (‘‘Alternative Disclosures’’). presentation must show: (1) A parent because the disclosures allow investors
The Alternative Disclosures are company’s investments in all to evaluate separately the likelihood of
available in a variety of fact patterns. consolidated subsidiaries based upon its payment by the issuer and guarantors.
The rule addresses six specific fact proportionate share of the net assets; 73 The content of the Alternative
patterns, two of which are: and (2) subsidiary issuer/guarantor Disclosure, despite being less robust
• A single subsidiary guarantees investments in certain consolidated than financial statements required by
securities issued by its parent; 65 and subsidiaries using the equity method.74 Regulation S–X, is detailed and unique.
• an operating subsidiary issues This presentation is a unique format For example, the Consolidating
securities guaranteed only by its designed to ensure, for example, that a Information includes all major captions
parent.66 subsidiary guarantor does not
All fact patterns must satisfy two that are found in quarterly reports filed
consolidate, within this presentation, its on Form 10–Q 80 and must be prepared
primary conditions to qualify for the own non-guarantor subsidiary.
Alternative Disclosure. First, the using a unique format that is not found
Recently-acquired subsidiary issuers/ elsewhere in Commission rules or the
subsidiary issuers/guarantors must be guarantors create an information gap in
‘‘100% owned’’ 67 by the parent applicable accounting standards. A
the Consolidating Information because parent company may also need to
company. Second, the guarantees must the subsidiaries will only be included
be ‘‘full and unconditional.’’ 68 Once provide, in a registration statement, pre-
from the date that the subsidiaries were acquisition financial statements of
those two conditions are met, the form acquired. The Securities Act registration
and content of the Alternative significant, recently-acquired subsidiary
statement of a parent company 75 must issuers/guarantors. These financial
Disclosure is determined based upon include one year of audited pre-
additional conditions. For example, in statements are required even if those
acquisition financial statements for subsidiaries will qualify for the
the fact patterns above, the parent these subsidiaries in its registration
company can provide abbreviated Alternative Disclosure once included in
statement if: (1) The subsidiary is a registrant’s audited consolidated
narrative disclosure in its financial significant; and (2) the subsidiary is not results for nine months of the most
statements if: (1) It has no independent reflected in the audited consolidated recent fiscal year.
assets or operations 69 and (2) all of its results for at least nine months of the
subsidiaries other than the issuer or most recent fiscal year.76 A subsidiary is Request for Comment
guarantor, depending on the fact significant if its net book value or 33. How do investors use the
pattern, are minor.70 Otherwise, the purchase price, whichever is greater, is information provided in financial
parent company must provide the more 20 percent or more of the principal statements of subsidiary issuers/
detailed condensed consolidating amount of the securities being guarantors and the information
financial information (‘‘Consolidating registered. provided in the Alternative Disclosure?
Information’’) described below. Issuers/guarantors availing Are there challenges that investors face
Consolidating Information is a themselves of the exemption that allows in using the disclosures?
columnar footnote presentation of each for Alternative Disclosure are 34. Are there changes to these
category of parent and subsidiaries as automatically exempt from Exchange requirements we should consider to
Act reporting by Exchange Act Rule further facilitate the disclosure of useful
65 17 CFR 210.3–10(e). 12h–5.77 The parent company, however, information to investors? For example,
66 17 CFR 210.3–10(c). must continue to provide the is there different or additional
67 17 CFR 210.3–10(h)(1). A subsidiary is ‘‘100%
Alternative Disclosure for as long as the information that investors need about
owned’’ if all of its outstanding voting shares are
owned, either directly or indirectly, by its parent guaranteed securities are outstanding.78 guarantors and issuers of guaranteed
company. A subsidiary not in corporate form is The parent company may not cease to securities? If so, what information is
100% owned if the sum of all interests are owned, report this information even at such needed and are there challenges that
either directly or indirectly, by its parent company time that the subsidiary issuers/
other than: (1) Securities that are guaranteed by its
registrants would face in preparing and
parent, and, if applicable, other 100%-owned guarantors, had they declined to avail providing it?
subsidiaries of its parent; and (2) securities that themselves of the exemptions and 35. Are there challenges that
guarantee securities issued by its parent and, if reported separately, could have registrants face in preparing and
applicable, other 100%-owned subsidiaries of its providing the required disclosures? If
parent.
68 17 CFR 210.3–10(h)(2). A guarantee is ‘‘full and
71 17 CFR 210.3–10(i)(6). so, what are the challenges? Are there
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72 17 CFR 210.10–01(a).
unconditional,’’ if, when an issuer of a guaranteed changes to these requirements we
73 17 CFR 210.3–10(i)(3).
security has failed to make a scheduled payment,
74 17 CFR 210.3–10(i)(5).
should consider to address those
the guarantor is obligated to make the scheduled challenges? If so, what changes and how
75 Filed in connection with the offer and sale of
payment immediately and, if it does not, any holder
of the guaranteed security may immediately bring the debt or debt-like securities. would those changes affect investors’
suit directly against the guarantor for payment of all 76 17 CFR 210.3–10(g)(1). ability to make informed decisions?
amounts due and payable. 77 17 CFR 240.12h–5.
69 17 CFR 210.3–10(h)(5). 78 Section III.C.1 of Release No. 33–7878 (August 79 15 U.S.C. 78o(d).
70 17 CFR 210.3–10(h)(6). 4, 2000) [65 FR 51692]. 80 17 CFR 249.308a.
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![Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules 59091
36. Are there requirements that result Disclosure when guarantees become those registrants be scaled? If they
in disclosures that investors do not enforceable after the passage of some should be scaled, in what way?
consider useful? If so, what changes time period after default. These are
V. Rule 3–16 of Regulation S–X—
would make them useful or should we precise standards that must be met in
Financial Statements of Affiliates
consider eliminating or replacing all or order to reduce disclosure from, for Whose Securities Collateralize an Issue
part of those requirements? example, full financial statements to the Registered or Being Registered
37. How could we improve the detailed and unique Consolidating
usefulness of the Consolidating Information. A. Current Rule 3–16 Disclosure and
Information? Could we do so by revising Separately, the duration of the Related Requirements
its content requirements? If so, what obligation to provide the Alternative Rule 3–16 of Regulation S–X requires
changes should be made and why? Disclosure is different than the a registrant to provide separate annual
38. Should we consider revising the obligation to provide separate financial and interim financial statements for
requirement to provide Consolidating statements. To obtain the exemption each affiliate 84 whose securities
Information for interim periods to focus under Rule 12h–5, a parent company constitute a substantial portion of the
on significant changes similar to Rule must provide the Alternative collateral for any class of securities
10–01(a)(5) of Regulation S–X, which Disclosures as long as the securities are registered or being registered as if the
allows registrants to apply judgment outstanding, while the obligation to affiliate were a separate registrant
and omit details of accounts that have provide separate financial statements (‘‘Rule 3–16 Financial Statements’’).85
not changed significantly in amount or can be suspended earlier as provided in The affiliate’s portion of the collateral is
composition since the end of the most Section 15(d) of the Exchange Act. determined by comparing: (a) The
recently completed fiscal year? Why or highest amount among the aggregate
why not? Request for Comment
principal amount, par value, book value,
39. Is there other disclosure that 40. Do the current conditions to or market value of the affiliates’
would allow us to modify the providing the Alternative Disclosure securities to (b) the principal amount of
requirement for separate, audited influence the structure of guarantee the securities registered or being
financial statements of recently- relationships? If so, how and what are registered. If this test equals or exceeds
acquired subsidiary issuers/guarantors the consequences, if any, to investors 20 percent for any fiscal year presented
that would be useful to investors? If so, and registrants? by a registrant, Rule 3–16 Financial
what disclosure would be appropriate 41. Should we consider allowing a Statements are required.86
and in what circumstances? If not, why? parent company to provide the Separately, Rule 4–08(b) of Regulation
2. Conditions to Providing Alternative Alternative Disclosure if its subsidiary S–X 87 requires disclosure, in the notes
Disclosure issuers or guarantors do not meet the to a registrant’s annual financial
current definition of 100% owned? If so, statements, of the amounts of assets
As stated above, one of the primary how should we revise the Alternative mortgaged, pledged, or otherwise
conditions that must be met for a parent Disclosure conditions and what subject to lien.
company to provide the Alternative additional disclosure might address
Disclosure is that the subsidiary issuers/ B. Consideration of Current Rule 3–16
concerns about the presence of outside Disclosure and Related Requirements
guarantors are ‘‘100% owned.’’ For ownership interests? If not, why?
example, the Alternative Disclosure is Disclosures required by our rules that
42. Should we consider allowing a
not available if a subsidiary is organized facilitate an evaluation of an affiliate’s
parent company to provide the
in a jurisdiction that requires directors ability to satisfy its commitment in the
Alternative Disclosure if a guarantee
to own a small number of shares unless event of a default by a registrant are
does not meet the current definition of
the registrant obtains relief from important to investors. Rule 3–16
full and unconditional? If so, how
Commission staff.81 The condition is requires financial statements as though
should we revise the Alternative
intended to ensure the risks associated the affiliate were a registrant despite the
Disclosure conditions? Should we
with an investment in a parent company fact that the collateral pledge is not
consider, for example, allowing the
and the risks associated with its considered a separate security. Also,
Alternative Disclosure for guarantees
subsidiary are ‘‘identical.’’ 82 Similarly, registrants have suggested, in
that become enforceable after the
‘‘full and unconditional’’ is intended to consultations with Commission staff,
passage of some time period after
ensure the payment obligations of the that the Rule 3–16 Financial Statements
default? What additional disclosure can be confusing. For example, where
issuer and guarantor are ‘‘essentially
might address concerns about the the securities of a subsidiary of a
identical.’’ 83 Registrants may not
delayed enforceability? If not, why? registrant (‘‘Subsidiary A’’) are pledged
provide the Alternative Disclosure
43. Should we consider revising the as collateral and the securities of an
unless the guarantee operates such that,
conditions that must be satisfied to entity consolidated by Subsidiary A
when an issuer of a guaranteed security
qualify for the abbreviated narrative (‘‘Subsidiary B’’) are also pledged, Rule
has failed to make a scheduled payment,
disclosure? If so, how? If not, why? 3–16 Financial Statements may be
the guarantor is obligated to make the
scheduled payment immediately and, if 44. Should we modify the parent
it does not, any holder of the guaranteed company’s requirement to provide the 84 17 CFR 210.1–02(b) states, ‘‘An affiliate of, or
security may immediately bring suit Alternative Disclosure during the period a person affiliated with, a specific person is a
in which the securities are outstanding? person that directly, or indirectly through one or
directly against the guarantor for more intermediaries, controls, or is controlled by,
tkelley on DSK3SPTVN1PROD with PROPOSALS
payment of all amounts due and If so, how? If not, why? or is under common control with, the person
payable. For example, registrants are not specified.’’ Although not the same, in practice such
Additional Request for Comment on affiliates are almost always consolidated
allowed to use the Alternative Rule 3–10 and Related Requirements subsidiaries of the registrant.
85 Both domestic registrants and foreign private
81 Release No. 33–7878 (Aug. 4, 2000) [65 FR 45. Should smaller reporting issuers need only provide interim period
51692, fn. 29]. companies and emerging growth information in certain registration statements.
82 Id. companies be subject to the same 86 17 CFR 210.3–16(b).
83 Id. requirements or should requirements for 87 17 CFR 210.4–08(b).
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![59092 Federal Register / Vol. 80, No. 190 / Thursday, October 1, 2015 / Proposed Rules
required for both subsidiaries and both Additional Request for Comment on 58. Are there ways that we could
will include Subsidiary B’s assets, Rule 3–16 and Related Requirements further facilitate the use of information
liabilities, operations, and cash flows. 54. Should smaller reporting by all types of investors? If so, please
The test used in applying Rule 3–16 companies and emerging growth explain. For example, should we
employs a bright-line percentage companies continue to be subject to the consider alternative ways of presenting
threshold that a registrant must apply to same requirements or should the information, such as specifically
a limited set of measures similar to requirements for those registrants be allowing or requiring registrants to
Rules 3–05 and 3–09. Unlike those scaled? If they should be scaled, in what provide a summary along with more
rules, the market value of an affiliate’s way? If not, why? detailed required information to enable
securities may not be readily available investors to review the information at
VI. Other Requirements the level of detail that they prefer?
in the absence of a public market for
those securities. In addition to the issues raised in this VII. Closing
request for comment, we encourage all
Request for Comment interested persons to submit their views This request for comment is not
on any issues relating to the financial intended in any way to limit the scope
46. Do the Rule 3–16 requirements of comments, views, issues or
information about entities, or portions
influence the structure of collateral approaches to be considered. In
of entities, other than a registrant. For
arrangements? If so, how and what are addition to investors and registrants, the
example, Rule 3–14, Special
the consequences, if any, to investors Instructions for Real Estate Operations Commission welcomes comment from
and registrants? to be Acquired,88 while separate and other market participants and
47. How do investors use Rule 3–16 distinct from Rule 3–05, is intended to particularly welcomes statistical,
Financial Statements and the Rule achieve similar objectives within a empirical, and other data from
4–08(b) footnote disclosures? Are there particular industry. In addition, Item commenters that may support their
challenges that investors face in using 2.01 of Form 8–K uses significance tests views and/or support or refute the views
the disclosures? to determine when to provide disclosure or issues raised.
48. Are there changes to these about asset acquisitions. The By the Commission.
requirements we should consider to requirements addressed in this request Dated: September 25, 2015.
further facilitate the disclosure of useful for comment may apply more broadly Robert W. Errett,
information to investors? For example, than the situations described. To the Deputy Secretary.
is there different or additional extent there may be additional effects, [FR Doc. 2015–24875 Filed 9–30–15; 8:45 am]
information that investors need about please provide comments. BILLING CODE 8011–01–P
affiliates whose securities collateralize Request for Comment
registered securities? If so, what
55. As we continue our ongoing
information is needed and are there DEPARTMENT OF HOUSING AND
efforts to review disclosure rules, what
challenges that registrants would face in URBAN DEVELOPMENT
other rules and forms should be
preparing and providing it?
considered for review and why? 24 CFR Part 60
49. Are there challenges that 56. Currently, financial disclosures
registrants face in preparing and related to entities other than a registrant [Docket No FR–5888–P–01]
providing the required disclosures? If are filed in XBRL format to the extent
so, what are the challenges? Are there that they are part of the registrant’s Federal Policy for the Protection of
changes to these requirements we financial statements.89 Other Human Subjects
should consider to address those disclosures, such as the separate AGENCY: Office of the Assistant
challenges? If so, what changes and how financial statements of entities other Secretary for Policy, Development and
would those changes affect investors’ than the registrant and Pro Forma Research, HUD.
ability to make informed decisions? Financial Information are not required ACTION: Proposed rule.
50. Are there requirements that result to be presented in a structured,
in disclosures that investors do not machine-readable format. Would SUMMARY: On September 8, 2015, 16
consider useful? If so, what changes investors benefit from having all of the Federal departments and agencies
would make them useful or should we disclosures related to these entities published a proposed rule pertaining to
consider eliminating or replacing all or made in an interactive data format? Federal Policy for the Protection of
part of those requirements? Would it depend on the nature of the Human Subjects. Due to certain
information being disclosed (e.g., statutory prepublication requirements
51. How could we improve the disclosure related to a one-time applicable to HUD rules, HUD was
usefulness of the Rule 4–08(b) footnote transaction such as an acquisition or unable to be a signatory to the
disclosure? Could we do so by adding ongoing disclosure related to an September 8, 2015, proposed rule.
a requirement to disclose additional Investee)? What would be the cost to Through this HUD proposed rule, HUD
details about the affiliates? If so, what registrants? adopts the September 8, 2015, proposal
additional details should we require? 57. In what other ways could we and solicits public comment on the
52. If we make changes to improve the utilize technology to further facilitate proposal.
usefulness of the footnote disclosure, the disclosure of useful information to DATES: Comment Due Date: No later
tkelley on DSK3SPTVN1PROD with PROPOSALS
would it be appropriate to modify the investors or address challenges faced by than 5:00 p.m. on December 7, 2015.
requirement to provide Rule 3–16 investors and registrants? ADDRESSES: You may submit comments,
Financial Statements? If so, how? If not, identified by docket ID number HHS–
why? 88 17CFR 210.3–14.
OPHS–2015–0008, by one of the
89 Forexample, the Summarized Financial
53. Should we revise the test used in Information required by Rule 4–08(g) of Regulation following methods:
applying Rule 3–16? If so, how? If not, S–X and the Consolidating Information required by • Federal eRulemaking Portal: http://
why? Rule 3–10 of Regulation S–X. www.regulations.gov. Enter the above
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Document Created: 2015-12-15 08:41:24
Document Modified: 2015-12-15 08:41:24
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Request for comment. | |
| Dates | Comments should be received on or before November 30, 2015. | |
| Contact | Todd E. Hardiman, Associate Chief Accountant, at (202) 551-3516, Division of Corporation Finance; Duc Dang, Special Counsel, at (202) 551-3386, Office of the Chief Accountant; or Matthew Giordano, Chief Accountant, at (202) 551-6892, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. | |
| FR Citation | 80 FR 59083 |
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