[Federal Register Volume 67, Number 219 (Wednesday, November 13, 2002)]
[Proposed Rules]
[Pages 68790-68804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28603]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 229, 244 and 249

[Release No. 33-8145; 34-46788; File No. S7-43-02]
RIN 3235-A169


Conditions for Use of Non-GAAP Financial Measures

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: As directed by the Sarbanes-Oxley Act of 2002, we are 
proposing new rules and amendments to address public companies' 
disclosure or release of certain financial information that is derived 
on the basis of methodologies other than in accordance with Generally 
Accepted Accounting Principles (GAAP). We are proposing a new 
disclosure regulation, Regulation G, which would require public 
companies that disclose or release these non-GAAP financial measures to 
include, in that disclosure or release, a presentation of the most 
comparable GAAP financial measure and a reconciliation of the disclosed 
non-GAAP financial measure to the most comparable GAAP financial 
measure. We also are proposing to amend Item 10 of Regulation S-K and 
Item 10 of Regulation S-B to provide additional guidance to those 
registrants that include non-GAAP financial measures in Commission 
filings. Additionally, we are proposing to amend Form 20-F to 
incorporate the proposed amendments to Item 10 of Regulation S-K. 
Finally, we are proposing to require registrants to file on Form 8-K 
earnings releases or similar announcements, with those filings subject 
to the guidance in amended Item 10 of Regulation S-K and Item 10 of 
Regulation S-B.

DATES: Comments should be received on or before December 13, 2002.

ADDRESSES: To help us process and review your comments more 
efficiently, please send comments by one method only. Comments should 
be submitted in triplicate to Jonathan G. Katz, Secretary, U.S. 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609. Comments also may be submitted electronically at the 
following e-mail address: [email protected]. All comment letters 
should refer to File No. S7-43-02. This number should be included in 
the subject line if sent via electronic mail. Electronically submitted 
comment letters will be posted on the Commission's Internet Web Site 
(http://www.sec.gov). We do not edit personal information, such as 
names or electronic mail addresses, from electronic submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: Joseph P. Babits, Craig Olinger, or 
Jennifer Minke-Girard at (202) 942-2910, Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-0402.

SUPPLEMENTARY INFORMATION: We are proposing new Regulation G.\1\
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    \1\ 17 CFR 244.100 through 244.102.
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    We also are proposing amendments to Item 10 of Regulation S-K,\2\ 
Item 10 of Regulation S-B,\3\ and Securities Exchange Act of 1934\4\ 
Forms 8-K \5\ and 20-F.\6\
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    \2\ 17 CFR 229.10.
    \3\ 17 CFR 228.10.
    \4\ 15 U.S.C. Sec. Sec.  78a et seq.
    \5\ 17 CFR 249.308.
    \6\ 17 CFR 249.220.
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I. Background

    On July 30, 2002, President Bush signed into law the Sarbanes-Oxley 
Act of 2002 (``Sarbanes-Oxley Act'').\7\ Among its many goals, the 
Sarbanes-Oxley Act seeks to enhance the financial disclosures of public 
companies. As part of this effort to enhance disclosure to investors, 
Congress and the President recognized the immediate need to address 
issues relating to public companies' use of so-called ``pro forma 
financial information.''
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    \7\ Pub. L. No. 107-204, 116 Stat. 745 (2002).
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    Like Congress, the Commission also has been concerned with the use 
of ``pro forma financial information.'' In 1973, the Commission issued 
Accounting Series Release No. 142, warning of possible investor 
confusion from the use of financial measures outside of GAAP:

    [T]he unilateral development and presentation on an unaudited 
basis of various measures of performance by different companies 
which constitute departures from the generally understood accounting 
model has led to conflicting results and confusion for investors. 
Additionally, it is not clear that simple omission of depreciation 
and other non-cash charges deducted in the computation of net income 
provides an appropriate alternative measure of performance for any 
industry either in theory or in practice. * * * If accounting net 
income computed in conformity with generally accepted accounting 
principles is not an accurate reflection of economic performance for 
a company or an industry, it is not an appropriate solution to have 
each company independently decide what the best measure of its 
performance should be and present that figure to its shareholders as 
Truth.\8\
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    \8\ See Release No. 33-5337 (Mar. 15, 1973).

    More recently, in December 2001, we issued cautionary advice 
regarding the use of ``pro forma financial information'' in earnings 
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releases:

    [W]e are concerned that ``pro forma'' financial information, 
under certain circumstances, can mislead investors if it obscures 
GAAP results. Because this ``pro forma'' financial information by 
its very nature departs from traditional accounting conventions, its 
use can make it hard for investors to compare an issuer's financial 
information with other reporting periods and with other 
companies.\9\
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    \9\ See Release No. 33-8039 (Dec. 4, 2001) [66 FR 63731].

    Additionally, earlier this year, we brought an enforcement action 
against Trump Hotels & Casino Resorts, Inc., where we found the use of 
pro forma

[[Page 68791]]

financial information to be materially misleading.\10\
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    \10\ See In the Matter of Trump Hotels & Casino Resorts, Inc., 
Release No. 34-45287 (Jan. 16, 2002).
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    Like the Commission, Congress also was specifically concerned with 
pro forma results that are prepared or derived on a basis other than 
GAAP when it included Section 401(b) in the Sarbanes-Oxley Act. Because 
the Commission's rules and regulations address the use of ``pro forma 
financial information'' in other contexts, particularly in Regulation 
S-X,\11\ and use that term differently from its use in the Sarbanes-
Oxley Act,\12\ we are adopting the term ``non-GAAP financial measures'' 
to identify the types of information targeted by Section 401(b) of the 
Sarbanes-Oxley Act. The Sarbanes-Oxley Act sought to eliminate the 
manipulative or misleading use of non-GAAP financial measures and, at 
the same time, enhance the comparability associated with the use of 
that information. As the Senate Committee on Banking, Housing, and 
Urban Affairs noted in their Committee Report:
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    \11\ 17 CFR 210.1-01 through 210.12-29.
    \12\ In limited circumstances, such as in a merger, pro forma 
financial information is required to be disclosed in Commission 
filings. See Article 11 of Regulation S-X 17 CFR 210.11-01--210.11-
03] for the conditions that require the presentation of pro forma 
information, as well as the preparation requirements. Such pro forma 
information is intended to depict the continuing impact of an actual 
or proposed transaction on the historical GAAP financial statements. 
Article 11 requires tabular presentation of the balance sheet and 
income statements, starting with the historical GAAP financial 
statements, showing the specific adjustments that would have been 
required by GAAP had the transaction occurred at an earlier time, 
and ending with the pro forma statements, and also requires 
disclosure of the assumptions which underlie its preparation. Pro 
forma information presented pursuant to Article 11 would not be 
subject to the rules and amendments we propose in this release.

    The Committee seeks to address problems attendant to pro forma 
financial disclosures by requiring the SEC to promulgate rules 
requiring that issuers publish pro forma data with a reconciliation 
to comparable financial data calculated according to GAAP and in a 
way that is not misleading and does not contain untrue statements. 
The reconciliation presumes, and would require, the issuer to 
publish financial data calculated according to GAAP at the same time 
as it publishes pro forma data. This should enable investors to, at 
the least, simultaneously compare the pro forma financial data with 
the same types of financial disclosures (e.g., earnings) calculated 
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according to GAAP for the comparable reporting period.\13\

    \13\ Sen. Rep. No. 107-205, 107 Cong. 2d Sess. at 29 (2002).

    Accordingly, Section 401(b) of the Sarbanes-Oxley Act directs the 
Commission to adopt rules requiring that any public disclosure or 
release of non-GAAP financial measures by a company filing reports 
under Section 13(a) \14\ or 15(d) \15\ of the Exchange Act be presented 
in a manner that:
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    \14\ 15 U.S.C. Sec.  78m(a).
    \15\ 15 U.S.C. Sec.  78o(d).
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    [sbull] Does not contain an untrue statement of a material fact or 
omit to state a material fact necessary in order to make the non-GAAP 
financial measure, in light of the circumstances under which it is 
presented, not misleading; and
    [sbull] Reconciles the non-GAAP financial measure presented with 
the financial condition and results of operations of the registrant 
under GAAP.
These rules would address the use of non-GAAP financial measures, 
regardless of whether that use would violate current Commission 
disclosure or antifraud rules.
    As used in this release, a ``non-GAAP financial measure'' is a 
numerical measure of an issuer's historical or future financial 
performance, financial position or cash flows that:
    [sbull] Excludes amounts, or is subject to adjustments that have 
the effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    [sbull] Includes amounts, or is subject to adjustments that have 
the effect of including amounts, that are excluded from the comparable 
measure so calculated and presented.
    In their efforts to enhance financial disclosure, Congress and the 
President recognized the importance of timely information to investors 
and our markets. Section 409 of the Sarbanes-Oxley Act added to the 
Exchange Act new Section 13(l), which obligates public companies to 
``disclose to the public on a rapid and current basis such additional 
information concerning material changes in the financial condition or 
operations of the issuer, in plain English, which may include trend and 
qualitative information and graphic presentations, as the Commission 
determines, by rule, is necessary or useful for the protection of 
investors and in the public interest.''\16\ Before the adoption of the 
Sarbanes-Oxley Act, we had taken important steps in this regard by 
proposing accelerated deadlines by which companies would be required to 
disclose significantly expanded categories of material information.\17\ 
Comments regarding our proposed accelerated deadlines for periodic 
reports of registrants, while not fully supporting that proposal, 
recognized the need for more current information.\18\ In fact, the 
comments of the American Bar Association's Subcommittee on Disclosure 
and Continuous Reporting of the Committee on Federal Regulation of 
Securities, Section of Business Law, proposed alternatively that we 
require companies to file their earnings reports on Form 8-K. The ABA 
Subcommittee expressed the view that such a requirement:
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    \16\ 15 U.S.C. Sec.  78m(l).
    \17\ See Release No. 33-8106 (June 17, 2002) [67 FR 42913] and 
Release No. 33-8128 (Sept. 5, 2002) [67 FR 58479].
    \18\ See National Investor Relations Institute letter to Mr. 
Jonathan G. Katz dated May 20, 2002, and American Bar Association 
letter to Mr. Jonathan G. Katz dated June 4, 2002.
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    [sbull] Would enhance the attention and level of care companies 
bring to those disclosures because companies would be aware that the 
disclosures will become part of the formal reporting system; and
    [sbull] Would bring those disclosures into the formal disclosure 
system where they would be available electronically on a widespread 
basis.\19\
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    \19\ American Bar Association letter to Mr. Jonathan G. Katz 
dated June 4, 2002, at page 4.
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    Today, to implement the Sarbanes-Oxley Act's directives regarding 
the use of non-GAAP financial measures and further the statutory 
objective of increased real-time issuer disclosures, we are proposing 
new Regulation G, amendments to Item 10 of Regulation S-K, amendments 
to Item 10 of Regulation S-B and amendments to Exchange Act Forms 8-K 
and 20-F.

II. Discussion of Proposals

    We intend the proposed rules and amendments to implement the 
requirements of the Sarbanes-Oxley Act, improve the transparency and 
quality of disclosure of non-GAAP financial measures and related 
information and enhance the current reporting of earnings information. 
We are taking a two-part approach to the disclosure of non-GAAP 
financial measures. First, we are proposing new Regulation G, which 
would apply whenever a company publicly discloses or releases material 
information that includes a non-GAAP financial measure. While Section 
401(b) of the Sarbanes-Oxley Act refers to any communication of ``pro 
forma financial information,'' we believe that proposing to make 
Regulation G applicable to public disclosures of material information 
containing or accompanied by non-GAAP financial measures delineates 
appropriately the scope of the rules required by Section 401(b). This 
regulation would impose specific requirements in connection with the

[[Page 68792]]

public communication of non-GAAP financial measures and, without 
affecting the existing antifraud regime, would prohibit material 
misstatements or omissions that would make the presentation of the 
material non-GAAP financial measure, under the circumstances in which 
it is made, misleading. Regulation G provides a limited exception for 
foreign private issuers based on what we believe to be an appropriate 
territorial approach. This limited exception applies the principles of 
territoriality based on where the disclosure is initially made and is 
similar to that provided by Rule 135e \20\ under the Securities Act of 
1933\21\ for offshore press and related activities.
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    \20\ 17 CFR 230.135e.
    \21\ 15 U.S.C. Sec. Sec.  77a et seq.
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    Second, pursuant to the Sarbanes-Oxley Act and our existing 
authority under the Securities Act and Exchange Act, we are proposing 
to amend Item 10 of Regulation S-K and Item 10 of Regulation S-B to 
address specifically the use of non-GAAP financial measures in filings 
with the Commission.\22\ These proposed amendments would apply to the 
same categories of non-GAAP financial measures as are covered by 
proposed Regulation G, but contain somewhat more detailed requirements 
than proposed Regulation G.\23\
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    \22\ We also are proposing amendments to Exchange Act Form 20-F 
that would reference Item 10 of Regulation S-K.
    \23\ These proposed amendments would apply only to non-GAAP 
financial measures in filings with the Commission. Regulation G 
would apply to any public disclosure of material non-public 
information that included a non-GAAP financial measure, regardless 
of whether it is in a filing with the Commission.
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    In addition to these proposals, in order to bring earnings 
information within our current reporting system, we are proposing an 
amendment to Form 8-K that would require the filing with the Commission 
of releases or announcements disclosing material non-public financial 
information about completed annual or quarterly fiscal periods. Our 
proposal would not require the issuance of earnings releases or similar 
announcements. However, such releases and announcements would trigger 
the new proposed filing requirement. The proposed filing requirement 
would apply regardless of whether the release or announcement included 
disclosure of a non-GAAP financial measure. Public disclosure of 
financial information for a completed fiscal period in a presentation 
that is made orally, telephonically, by webcast, broadcast or similar 
means would not be required to be filed, if the presentation:
    [sbull] Occurs within 48 hours of a related release or announcement 
that is filed under proposed Item 1.04 of Form 8-K; and
    [sbull] Is accessible to the public.

A. Proposed Regulation G

    Proposed Regulation G would apply to any entity that is required to 
file reports pursuant to Sections 13(a) or 15(d) of the Exchange Act, 
other than a registered investment company.\24\ Regulation G would 
apply whenever such a registrant, or a person acting on its behalf, 
discloses or releases publicly any material information that includes a 
non-GAAP financial measure. Regulation G would require the registrant 
to provide the following information as part of the disclosure or 
release of the non-GAAP financial measure:
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    \24\ See proposed Section 244.101(c) of Regulation G. Registered 
investment companies are excluded from the definition of 
``registrant'' for purposes of Regulation G, as Section 405 of the 
Sarbanes-Oxley Act exempts investment companies registered under 
Section 8 of the Investment Company Act of 1940 (15 U.S.C. Sec.  
80a-8) from Section 401 of the Sarbanes-Oxley Act and any rules 
adopted by the Commission under Section 401.
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    [sbull] A presentation of the most comparable financial measure 
calculated and presented in accordance with GAAP; \25\ and
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    \25\ Examples of financial measures calculated and presented in 
accordance with GAAP would include, but not be limited to, earnings 
or cash flows as reported in the GAAP financial statements.
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    [sbull] A reconciliation (by schedule or other clearly 
understandable method), which shall be quantitative for historic 
measures and quantitative, to the extent available without unreasonable 
efforts, for prospective measures, of the differences between the non-
GAAP financial measure presented and the comparable financial measure 
or measures calculated and presented in accordance with GAAP.
    If a non-GAAP financial measure is released orally, telephonically, 
in a webcast or broadcast or by similar means, proposed Regulation G 
would permit a registrant to provide the required accompanying 
information by posting it on the registrant's website. The registrant 
would be required to disclose the location and availability of the 
required accompanying information during its presentation.
    With regard to the quantitative reconciliation of non-GAAP 
financial measures that are forward-looking, a schedule or other 
presentation detailing the differences between the forward-looking non-
GAAP financial measure and the appropriate forward-looking GAAP 
financial measure would be required. If the GAAP financial measure is 
not accessible on a forward-looking basis, the registrant must disclose 
that fact, explain why it is not accessible on a forward-looking basis 
and provide any reconciling information that is available without an 
unreasonable effort. Furthermore, the registrant must identify any 
information that is unavailable and disclose its probable significance.
    Proposed Regulation G also provides that a non-GAAP financial 
measure, taken together with the accompanying information, may not 
misstate a material fact or omit to state a material fact necessary to 
make the presentation of the non-GAAP financial measure not misleading, 
in light of the circumstances under which it is presented.\26\
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    \26\ 17 CFR 244.100(b).
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    For purposes of Regulation G, a non-GAAP financial measure would be 
a numerical measure of a registrant's historical or future financial 
performance, financial position or cash flows that:
    [sbull] Excludes amounts, or is subject to adjustments that have 
the effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    [sbull] Includes amounts, or is subject to adjustments that have 
the effect of including amounts, that are excluded from the comparable 
measure so calculated and presented.
    In this regard, ``GAAP'' refers to generally accepted accounting 
principles in the United States, except that in the case of foreign 
private issuers whose primary financial statements are prepared in 
accordance with other generally accepted accounting principles, 
references to GAAP also include the principles under which those 
primary financial statements are prepared. We do not intend today's 
proposals to capture measures of operating performance or financial 
measures that fall outside the scope of the definition set forth above.
    Non-GAAP financial measures would not include:
    [sbull] Operating and other statistical measures (such as unit 
sales, numbers of employees, numbers of subscribers, or numbers of 
advertisers); and
    [sbull] Ratios or measures that are calculated using only:
    [sbull] Financial measures calculated in accordance with GAAP; and
    [sbull] Operating measures or other measures that are not non-GAAP 
financial measures.
    Non-GAAP financial measures would not include financial information 
that does not have the effect of providing

[[Page 68793]]

numerical measures that are different from the comparable GAAP measure. 
Examples of measures to which Regulation G would not apply would 
include the following:
    [sbull] Disclosure of amounts of expected indebtedness, including 
contracted and anticipated amounts;
    [sbull] Disclosures or amounts of repayments that have been planned 
or decided upon but not yet made;
    [sbull] Disclosures of estimated revenues or expenses of a new 
product line, so long as such amounts were estimated as GAAP figures; 
and
    [sbull] Measures of profit or loss and total assets for each 
segment required to be disclosed in accordance with GAAP.\27\
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    \27\ FASB Statement 131, Disclosures about Segments of and 
Enterprise and Related Information, requires that companies report a 
measure of profit or loss and total assets for each reportable 
segment. This tabular information is presented in a note to the 
audited financial statements and is required to be reconciled to the 
GAAP measures, with all significant reconciling items separately 
identified and described. A registrant is required to provide a 
Management's Discussion & Analysis of segment information if such a 
discussion is necessary to an understanding of the business. Such 
discussion would generally include the measures reported under FASB 
Statement 131.
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    We do intend that the definition of non-GAAP financial measure 
capture all measures that have the effect of depicting either:
    [sbull] A measure of performance that is different from that 
presented in the financial statements, such as income or loss before 
taxes, or net income or loss as calculated in accordance with GAAP; or
    [sbull] A measure of liquidity that is different from cash flow or 
cash flow from operations computed in accordance with GAAP.
    An example of a non-GAAP financial measure would be a measure of 
operating income that excludes one or more expense or revenue items 
that are identified as ``non-recurring.'' Another example would be 
EBITDA (earnings before interest, taxes, depreciation and 
amortization), which could be calculated using elements derived from 
GAAP financial presentations but, in any event, is not presented in 
accordance with GAAP. Examples of ratios and measures that would not be 
non-GAAP financial measures would include sales per square foot 
(assuming that the sales figure was calculated in accordance with GAAP) 
or same store sales (again assuming the sales figures for the stores 
were calculated in accordance with GAAP). An example of a ratio that 
would be a non-GAAP financial measure would be a measure of operating 
margin where either the revenue component or the operating income 
component of the calculation, or both, were not calculated in 
accordance with GAAP.
    The proposed regulation would apply to registrants that are foreign 
private issuers,\28\ subject to a limited exception. Specifically, 
Regulation G would not apply to public disclosure of a non-GAAP 
financial measure by or on behalf of a registrant that is a foreign 
private issuer if the following conditions were satisfied:
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    \28\ ``Foreign private issuer'' is defined in Rule 405 under the 
Securities Act [17 CFR 230.405].
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    [sbull] The securities of the issuer are listed or quoted on a 
securities exchange or inter-dealer quotation system outside the United 
States;
    [sbull] The non-GAAP financial measure and the most comparable GAAP 
financial measure are not calculated and presented in accordance with 
generally accepted accounting principles in the United States; and
    [sbull] The disclosure is made by or on behalf of the registrant 
outside the United States, or is included in a written communication 
that is released by or on behalf of the registrant only outside the 
United States.
    We believe that these conditions, by focusing on whether the 
financial measure relates to U.S. GAAP and on the territorial principle 
of where the disclosure is made by or on behalf of the foreign private 
issuer, appropriately balance the interests of U.S. investors, 
including those interests as provided by the Sarbanes-Oxley Act, with 
the interests of foreign private issuers in communicating in their home 
markets. The Commission has not historically applied specific 
disclosure requirements to communications by foreign private issuers 
other than in their annual reports on Form 20-F. We believe that it is 
appropriate to take the Sarbanes-Oxley Act as a direction to apply 
Regulation G to foreign private issuers, subject to the exception we 
have proposed.
    In addition, we believe that the worldwide availability of 
information properly disclosed outside the United States and the 
interests of U.S. investors in information communicated by or on behalf 
of the issuer outside the United States dictate that the exception for 
foreign private issuers should continue to apply where:
    [sbull] Foreign or U.S. journalists or other third parties have 
access to the information, so long as the information is disclosed or 
released by or on behalf of the registrant only outside the United 
States;
    [sbull] Following its release or disclosure, the information 
appears on one or more web sites maintained by the registrant, so long 
as the web sites, taken together, are not available exclusively to, or 
targeted at, persons located in the United States; and/or
    [sbull] Following the disclosure or release of the information 
outside the United States, the information is included in a submission 
to the Commission made under cover of a Form 6-K.\29\
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    \29\ 17 CFR 249.306.
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    Indeed, regulators worldwide have been addressing this issue within 
their own jurisdictions. In May 2002, the Technical Committee of the 
International Organization of Securities Commissions (IOSCO) published 
a Cautionary Statement Regarding Non-GAAP Results Measures that urged 
issuers, investors and other users of financial information to use care 
when presenting and interpreting such information.\30\ This IOSCO 
Cautionary Statement notes the universal concerns that regulators have 
about the potential misuse of non-GAAP earnings measures and provides 
examples of statements of cautionary advice regarding the appropriate 
use of non-GAAP information that have been issued in various countries.
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    \30\ This document is available at www.iosco.org/press/presscomm020530.html.
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    Proposed Regulation G would be a disclosure provision applicable to 
entities that are required to file reports under Section 13(a) or 
Section 15(d) of the Exchange Act, other than registered investment 
companies.\31\ Proposed Rule 102 of Regulation G \32\ expressly 
provides that nothing in Regulation G shall affect any person's 
liability under Exchange Act Section 10(b)\33\ or Rule 10b-5 
thereunder.\34\ Proposed Rule 102 also states that a person's 
compliance or non-compliance with the requirements of Regulation G 
would not affect that person's liability under Section 10(b) or Rule 
10b-5. The facts and circumstances surrounding a violation of 
Regulation G, however, may give rise to a Rule 10b-5 violation if all 
the elements for such a violation are present. In this regard, we 
reminded companies in December 2001 that, under certain circumstances, 
non-GAAP financial measures could mislead investors if they obscure the 
company's

[[Page 68794]]

GAAP results.\35\ We continue to be of the view that some disclosures 
of non-GAAP financial measures could give rise to actions under Rule 
10b-5.\36\
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    \31\ A registrant's failure to include all of the information 
required to be included in a public announcement by Regulation G 
would not affect that registrant's form eligibility under the 
Securities Act or whether there is adequate current public 
information regarding the registrant for purposes of Securities Act 
Rule 144(c) [17 CFR 230.144(c)].
    \32\ 17 CFR 244.102
    \33\ 15 U.S.C. 78j.
    \34\ 17 CFR 240.10b-5.
    \35\ See Release No. 33-8039 (Dec. 4, 2001) [59 FR 63731].
    \36\ See Release No. 33-8039 (Dec. 4, 2001) [59 FR 63731] and In 
the Matter of Trump Hotels & Casino, Inc., Release No. 34-45287 
(Jan. 16, 2002).
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    Section 3(b) of the Sarbanes-Oxley Act provides that a violation of 
that Act or the Commission's rules thereunder shall be treated for all 
purposes as a violation of the Exchange Act. Therefore, if an issuer, 
or any person acting on its behalf, fails to comply with Regulation G, 
the issuer and/or the person acting on its behalf could be subject to a 
Commission enforcement action alleging violations of Regulation G. 
Additionally, if the facts and circumstances warrant, we could bring an 
action under both Regulation G and Rule 10b-5.
Questions Regarding Proposed Regulation G
    [sbull] As proposed, Regulation G would apply only to companies 
that are required to file reports pursuant to Section 13(a) or 15(d) of 
the Exchange Act. Should we expand the scope of the regulation to apply 
to all companies that publicly disclose non-GAAP financial measures, 
excluding registered investment companies?
    [sbull] As an alternative to requiring reconciliation to the most 
directly comparable financial measure calculated and presented in 
accordance with GAAP, should we require reconciliation to specific GAAP 
financial measures in all cases, such as net income and cash flow from 
operating activities? If yes, to which GAAP financial measures should 
we require reconciliation?
    [sbull] Should the presentation of certain non-GAAP financial 
measures require the presentation of a reconciled (full or summary) 
consolidated balance sheet, income statement and cash flow statement? 
If so, which non-GAAP financial measure(s) should trigger this 
requirement?
    [sbull] Should the requirement of a quantitative reconciliation 
include an exception for prospective measures where the necessary 
information cannot be obtained without unreasonable effort?
    [sbull] Should we limit the definition of non-GAAP financial 
measures to historical financial measures?
    [sbull] Does the proposed definition of ``non-GAAP financial 
measure'' capture non-GAAP information where enhanced disclosure is 
appropriate? Does the proposed definition capture the pro forma 
financial information that the Sarbanes-Oxley Act targets? Should 
Regulation G apply to disclosures of material information including any 
financial measure calculated and presented otherwise than in accordance 
with GAAP? Is the proposed definition otherwise too narrow or too 
broad? If so, how should it be changed?
    [sbull] Should we exclude non-GAAP financial measures communicated 
orally from the proposed regulation? Would such an exclusion be 
consistent with the terms of the Sarbanes-Oxley Act?
    [sbull] Is there a danger that investors would consider the 
reconciliation to have been audited or reviewed by the issuer's 
independent auditors? Should Regulation G require companies to disclose 
whether the reconciliation has been reviewed or audited by their 
independent accountants in order to avoid investor confusion?
    [sbull] In this release, we propose to require companies that 
include non-GAAP financial measures in filings to also include a 
discussion of the purposes for which the company's management uses the 
non-GAAP financial measure and why management believes the presentation 
of the non-GAAP financial measure provides useful information to 
investors.\37\ Should we require that information in all communications 
that are subject to Regulation G? If so, why? If not, why not?
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    \37\ See the discussion of the proposed amendments to Item 10 of 
Regulation S-K and Item 10 of Regulation S-B in Section II.B. of 
this release.
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    [sbull] Should we allow registrants greater latitude to satisfy the 
requirements of proposed Regulation G by posting the non-GAAP financial 
measure's components and the comparative GAAP financial measure on 
their website or in their Commission filings?
    [sbull] As proposed below, and consistent with staff practice, the 
Commission generally has more detailed disclosure requirements where 
non-GAAP financial measures are included in Commission filings. Should 
we require these additional disclosure requirements in all cases, even 
in documents not filed with the Commission?
    [sbull] Should we prohibit the presentation, whether or not 
included in filings with the Commission, of certain non-GAAP financial 
measures (for example, certain per-share measures or liquidity measures 
that exclude cash items)? If so, which measures?
    [sbull] Will proposed Regulation G limit the use of non-GAAP 
financial measures? Please explain.
    [sbull] Is the limited exception from Regulation G for foreign 
private issuers appropriate in furtherance of the purposes of the 
Sarbanes-Oxley Act? Should the exception be broader or more limited? If 
so, how?
    [sbull] Does the limited exception from Regulation G for foreign 
private issuers deprive U.S. investors of material information? 
Alternatively, would eliminating the limited exception for foreign 
private issuers deprive U.S. investors of non-GAAP financial measures? 
Furthermore, would eliminating the limited exception from Regulation G 
for foreign private issuers result in foreign private issuers de-
registering and exiting the U.S. capital markets?
    [sbull] Proposed Regulation G would apply to disclosures of non-
GAAP financial measures that represent projections or forecasts of 
results of business combination transactions (``post-transaction 
measures'') and that are filed with the Commission as information 
pursuant to the communications rules applicable to business combination 
transactions,\38\ as well as non-GAAP financial measures of each 
registrant that are used to calculate post-transaction measures. Should 
there be an exception from certain requirements of Regulation G for 
post-transaction measures or other measures filed as information under 
the business combination rules? Should such measures be treated 
differently under Regulation G? If so, how? Business combination 
communications often include brief statements regarding the potential 
benefits to be achieved by the business combination (e.g., synergies, 
valuations, dividend amounts, etc.). Either instead of or in addition 
to the requirements of proposed Regulation G, should the rules 
specifically require the disclosure of any assumptions or bases 
underlying these measures?
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    \38\ See Exchange Act Rules 14a-12 [17 CFR 240.14a-12] and 14d-2 
[17 CFR 240.14d-2] and Securities Act Rules 165 [17 CFR 230.165] and 
425 [17 CFR 230.425].
---------------------------------------------------------------------------

    [sbull] Should Regulation G be enforceable by the Commission only 
or also by private plaintiffs? Should language be included in 
Regulation G that makes explicit the manner in which it is to be 
enforced?
    [sbull] Will proposed Regulation G meet the goals of Section 401(b) 
of the Sarbanes-Oxley Act? Does proposed Regulation G meet those goals 
in the most appropriate manner? Is there a way to achieve those goals 
that is less burdensome than that in proposed Regulation G? If so, what 
is it?

[[Page 68795]]

B. Proposed Amendments to Item 10 of Regulation S-K, Item 10 of 
Regulation S-B and Form 20-F

    We are proposing to amend Item 10 of Regulation S-K and Item 10 of 
Regulation S-B to add a statement concerning the use of non-GAAP 
financial measures in filings made with the Commission.\39\ In 
addition, we are proposing to amend Exchange Act Form 20-F to 
incorporate Item 10 of Regulation S-K (as proposed to be amended). The 
proposed amendments to Item 10 of Regulation S-K and Item 10 of 
Regulation S-B would make clear that registrants using non-GAAP 
financial measures in filings with the Commission would have to 
provide:
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    \39\ The proposed amendments to Item 10 of Regulation S-K would 
not apply to registered investment companies [17 CFR 229.10(e)(5)].
---------------------------------------------------------------------------

    [sbull] A presentation, with equal or greater prominence, of the 
most directly comparable financial measure calculated and presented in 
accordance with GAAP;
    [sbull] A quantitative reconciliation (by schedule or other clearly 
understandable method) of the differences between the non-GAAP 
financial measure disclosed with the most directly comparable measure 
or measures calculated and presented in accordance with GAAP;
    [sbull] A statement disclosing the purposes for which the 
registrant's management uses the non-GAAP financial measure presented; 
and
    [sbull] A statement describing the reasons why the registrant's 
management believes such non-GAAP financial measures provide useful 
information to investors.
    In addition to these mandated disclosure requirements, we propose 
to amend Item 10 of Regulation S-K and Item 10 of Regulation S-B to 
prohibit the following:
    [sbull] Presenting a non-GAAP financial measure in a manner that 
would give it greater authority or prominence than the comparable GAAP 
financial measure or measures;
    [sbull] Excluding charges or liabilities that required, or will 
require, cash settlement, or would have required cash settlement absent 
an ability to settle in another manner, from non-GAAP liquidity 
measures;
    [sbull] Adjusting a non-GAAP performance measure to eliminate or 
smooth items identified as non-recurring, infrequent or unusual, when 
the nature of the charge or gain is such that it is reasonably likely 
to recur;
    [sbull] Presenting non-GAAP financial measures on the face of the 
registrant's financial statements prepared in accordance with GAAP or 
in the accompanying notes;
    [sbull] Presenting non-GAAP financial measures on the face of any 
pro forma financial information required to be disclosed by Article 11 
of Regulation S-X;
    [sbull] Using titles or descriptions of non-GAAP financial measures 
that are the same as, or confusingly similar to, titles or descriptions 
used for GAAP financial measures; and
    [sbull] Presenting a non-GAAP per-share measure.
    The requirement of Regulation G that the presentation of a non-GAAP 
financial measure, taken together with the information accompanying the 
measure and any other accompanying discussion, not contain a material 
misstatement or material omission necessary in order to make the 
presentation not misleading, in light of the circumstances in which the 
presentation is made, would also apply to disclosures in documents 
filed with the Commission.
    The requirements for filed information are proposed to be more 
extensive and detailed than those of proposed Regulation G. The 
additional requirements would be generally consistent with the staff's 
historical practice in situations where it has reviewed filings 
containing non-GAAP financial measures. In addition, the requirements 
for a GAAP presentation and for a reconciliation would be slightly more 
stringent than those set forth under Regulation G. In particular, in 
filings with the Commission, the presentation of the comparable GAAP 
financial measure must have equal or greater prominence, and there 
would not be an ``unreasonable effort'' exception for forward-looking 
information to the requirement for a quantitative reconciliation 
between the non-GAAP financial measure and the comparable GAAP 
financial measure. Additionally, any non-GAAP financial measure 
presented must be accompanied by statements disclosing the purposes for 
which the registrant's management uses the non-GAAP financial measure 
and why the registrant believes the non-GAAP financial measure would be 
useful to investors. This requirement is designed to ensure that 
companies are using non-GAAP financial measures that provide 
information that is important in analyzing and understanding the 
registrant. We believe that these more stringent requirements are 
appropriate for filings with the Commission.
    The requirements that a statement regarding the purposes for which 
management uses the non-GAAP financial measure and the utility of the 
non-GAAP financial measure to investors could be satisfied by including 
the statements in the most recent annual report filed with the 
Commission (or a more recent filing) and by updating those statements, 
as necessary, no later than the time of the filing.\40\
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    \40\ With regard to the issuer's statement as to why investors 
may find the non-GAAP financial measure useful, the sole fact that 
the non-GAAP financial measure is used by or useful to analysts 
cannot be the sole support for presenting the non-GAAP financial 
measure. Rather, the justification for the use of the measure must 
be substantive; it can, of course, be a justification that causes a 
measure to be used by or useful to analysts.
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    The definition of ``non-GAAP financial measure'' would be the same 
for purposes of these proposals as for Regulation G. Unlike under 
Regulation G, however, there is no limited exception for foreign 
private issuers and, therefore, the proposed requirements would apply 
to filings on Form 20-F. However, a non-GAAP financial measure that 
would otherwise be prohibited would be permitted in a Form 20-F filing 
of a foreign private issuer if the measure was expressly permitted 
under the generally accepted accounting principles used in the issuer's 
primary financial statements and was included in the issuer's annual 
report or financial statements used in its home country jurisdiction or 
market.
    We are not proposing to subject filers on Form 40-F under the 
Multi-Jurisdictional Disclosure System (MJDS) to the proposed 
requirements because, under the philosophy of MJDS, which is currently 
applicable to certain Canadian issuers, the Canadian disclosure form 
requirements dictate required disclosure in filings with the 
Commission. Public disclosures in the United States by these issuers, 
including filings with the Commission on Form 40-F, would be subject to 
proposed Regulation G.
Questions Regarding Amendments to Item 10 of Regulation S-K, Item 10 of 
Regulation S-B and Form 20-F
    [sbull] Are the proposed additional disclosures required in filings 
necessary in light of proposed Regulation G?
    [sbull] Consistent with current staff policy, our proposal would 
prohibit the use of non-GAAP per-share measures. Is such a prohibition 
necessary, or would it suffice to reconcile both the numerator and 
denominator of the non-GAAP per-share measure with comparable GAAP 
measures, respectively?
    [sbull] Should the non-GAAP financial measures be presented in a 
separate section of a Commission filing?
    [sbull] Should the requirements for filings and those required in 
Regulation G be

[[Page 68796]]

different? For example, should the requirement that the GAAP measure in 
a filing be presented with equal or greater prominence be included in 
Regulation G or not included in Item 10 of Regulation S-K and Item 10 
of Regulation S-B?
    [sbull] Should the requirement that a quantitative reconciliation 
of prospective measures be included in the filing have an exception 
similar to that proposed in Regulation G where the necessary 
information cannot be obtained without unreasonable effort?
    [sbull] Are there additional disclosures that should be required in 
filings? If so, what disclosure items would be beneficial to investors?
    [sbull] Consistent with current staff policy, our proposals would 
prohibit specified types of disclosures. Is such a prohibition 
necessary and appropriate?
    [sbull] Should the proposed requirements apply to foreign private 
issuers' reports on Form 20-F?
    [sbull] Should the proposed requirements apply to filings by 
Canadian issuers under the MJDS on Form 40-F?
    [sbull] As with Regulation G, in the case of business combinations, 
the proposed requirements would apply to ``post-transaction measures'' 
filed as information under the communication rules applicable to 
business combination transactions.\41\ Is an exception from certain of 
the requirements for post-transaction measures or other measures filed 
as information under the business combination rules appropriate? Should 
such measures be treated differently? If so, how? Either instead of or 
in addition to the requirements of proposed Regulation G, should the 
rules specifically require the disclosure of assumptions or bases 
underlying announcements of potential benefits to be achieved by the 
business combination (e.g., synergies, valuations, dividend amounts, 
etc.)?
---------------------------------------------------------------------------

    \41\ See footnote 38.
---------------------------------------------------------------------------

    [sbull] If a company presents a non-GAAP measurement for a previous 
completed fiscal period, should it be required to present that same 
non-GAAP measurement in future filings where the previous period is 
compared to a recent completed fiscal period? For example, if a company 
presents a non-GAAP financial measurement that for the first fiscal 
quarter of 2002, should it be required to present the same non-GAAP 
measurement for the first fiscal quarter of 2003?

C. Proposed New Item 1.04 of Form 8-K

    We propose to amend Form 8-K to add new Item 1.04 ``Disclosure of 
Results of Operations and Financial Condition.''\42\ New Item 1.04 
would require registrants to file a Form 8-K within two business days 
of any public announcement or release disclosing material non-public 
information regarding a registrant's results of operations or financial 
condition for an annual or quarterly fiscal period that has ended.
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    \42\ In Release No. 33-8106, we proposed significant amendments 
to Form 8-K. This release should be read as a companion proposing 
release to Release No. 33-8106. Accordingly, Item numbers used in 
this release refer to those proposed in Release No. 33-8106.
---------------------------------------------------------------------------

    Today, these types of announcements and releases are subject to 
Regulation FD.\43\ Unlike disclosure made to satisfy Regulation FD, 
however, historical information filed under proposed Item 1.04 of Form 
8-K always would be considered filed with the Commission for liability 
purposes.\44\ Further, a Form 8-K filed pursuant to Item 1.04 would 
satisfy an issuer's obligation under Regulation FD only if the Form 8-K 
were filed within the time frame required by Regulation FD. Regulation 
FD could, of course, be satisfied by public disclosure other than 
through the filing of a Form 8-K meeting Regulation FD's requirements; 
in that case, a Form 8-K filed pursuant to Item 1.04 would be required 
to be filed within the two-business day timeframe.
---------------------------------------------------------------------------

    \43\ 17 CFR 243.100--243.103.
    \44\ The requirements of proposed Item 1.04 would be in addition 
to the requirements of Regulation FD. Accordingly, information 
furnished under existing Item 9 (proposed to be Item, 6.01) of Form 
8-K for the purpose of Regulation FD would not satisfy proposed Item 
1.04 as it would not be considered filed with the Commission. Of 
course, information filed pursuant to Item 1.04, if filed in 
accordance with the time frame established by Regulation FD, would 
satisfy an issuer's Regulation FD obligation.
---------------------------------------------------------------------------

    Proposed Item 1.04 would require the registrant to identify briefly 
the announcement or release and file the announcement or release as an 
exhibit to the Form 8-K. Further, the requirements of proposed Item 
10(e) of Regulation S-K or Item 10(h) of Regulation S-B would apply to 
a Form 8-K filed under proposed Item 1.04.
    If non-public information is disclosed orally, telephonically, by 
webcast, broadcast, or similar means, Item 1.04 would not require the 
registrant to file a Form 8-K if:
    [sbull] The disclosure initially occurs within 48 hours of a 
written release or announcement filed on Form 8-K pursuant to Item 
1.04;
    [sbull] The presentation is accessible to the public by dial-in 
conference call, webcast or similar technology;
    [sbull] The financial and statistical information contained in the 
presentation is provided on the registrant's Web site, together with 
any information that would be required under proposed Regulation G; and
    [sbull] The presentation was announced by a widely disseminated 
press release that included instructions as to when and how to access 
the presentation and the location on the registrant's Web site where 
the information would be available.
    As noted above, our proposal would not require any registrant to 
issue an earnings release or similar announcement. However, if a 
registrant issues such a release or announcement containing material 
non-public information regarding the registrant's results of operations 
or financial condition for an annual or quarterly fiscal period that 
has ended, it would trigger the new proposed filing requirement.
    The filing requirement under proposed Item 1.04 of Form 8-K would 
be triggered by the disclosure of material non-public information 
regarding a completed fiscal year or quarter. Repetition of previously 
publicly disclosed information or release of the same information in a 
different form, for example in an interim or annual report to 
shareholders, would not trigger the proposed Item 1.04 requirement. 
This result would not change if the repeated information were 
accompanied by information that was not material, whether or not 
already public. However, release of additional or updated material non-
public information regarding the registrant's results of operation or 
financial condition for a completed fiscal year or quarter would 
trigger an additional Item 1.04 filing requirement. Issuers that make 
earnings announcements or other disclosures of material non-public 
information regarding a completed fiscal year or quarter in an interim 
or annual report to shareholders would be permitted to specify which 
portion of the report contains the information required to be filed 
under Item 1.04. In addition, the requirement to file under Item 1.04 
of Form 8-K would not apply to issuers that make these announcements 
and disclosures only in their quarterly reports filed with the 
Commission on Form 10-Q \45\ (or 10-QSB \46\) or their annual reports 
filed

[[Page 68797]]

with the Commission on Form 10-K \47\ (or 10-KSB \48\).
---------------------------------------------------------------------------

    \45\ 17 CFR 249.308a.
    \46\ 17 CFR 249.308b.
    \47\ 17 CFR 249.310.
    \48\ 17 CFR 249.310b.
---------------------------------------------------------------------------

    Proposed Item 1.04 of Form 8-K would apply only to publicly 
disclosed or released material non-public information concerning an 
annual or quarterly fiscal period that has ended. While such disclosure 
may also include forward-looking information, it is the material 
information about the completed fiscal period that triggers proposed 
Item 1.04. Accordingly, proposed Item 1.04 would not apply to public 
disclosure of earnings estimates for future or ongoing fiscal periods, 
unless those estimates are included in the public announcement or 
release of material non-public information regarding an annual or 
quarterly fiscal period that has ended.\49\ In such a case, 
specifically identified forward-looking information could be furnished 
under Item 6.01 \50\ rather than filed under proposed Item 1.04. 
Information furnished under Item 6.01 should be included in the same 
Form 8-K that contains the historical material information filed 
pursuant to Item 1.04.
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    \49\ Of course, Regulation FD would continue to apply to 
disclosure of such forward-looking information if it were material.
    \50\ In Release No. 33-8106 we proposed to revise and move Item 
9 of Form 8-K to Item 6.01. See footnote 42. We include in this 
release proposed amendments to Item 6.01 of Form 8-K to reflect 
proposed Item 1.04.
---------------------------------------------------------------------------

    Information furnished under Item 6.01 would not be subject to 
Section 18 \51\ of the Exchange Act, nor would it be incorporated by 
reference into a registration statement, proxy statement or other 
report. The registrant would be required to identify the specific 
forward-looking statements it did not want to be considered filed.\52\
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    \51\ 15 U.S.C. Sec.  78r.
    \52\ If information that was not forward-looking in nature or 
did not meet the definition in Section 21E of the Exchange Act [15 
U.S.C. Sec.  78u-5] was identified as forward-looking information, 
that information would, nonetheless, be considered filed for 
purposes of Section 18 of the Exchange Act and would, where 
appropriate, be incorporated by reference into a registration 
statement, proxy statement or other report.
---------------------------------------------------------------------------

Questions Regarding Proposed Item 1.04 of Form 8-K
    [sbull] Is proposed Item 1.04 necessary given Regulation FD and 
proposed Regulation G?
    [sbull] Should the Commission define ``public disclosure'' for 
purposes of proposed Item 1.04?
    [sbull] Proposed Item 1.04 would apply only to disclosures 
regarding completed annual or quarterly fiscal periods. Should we 
expand the scope of proposed Item 1.04 to require the filing of all 
material updates to estimates for current or future fiscal periods?
    [sbull] Will proposed Item 1.04 have the effect of decreasing the 
extent to which public companies make public announcements or releases 
of material non-public information regarding completed fiscal periods? 
If so, what are the specific factors that would result in that 
decrease? Why would those factors result in that decrease?
    [sbull] Is the posting of the complementary information on a Web 
site sufficient disclosure or should a filing be required for this 
information as well?
    [sbull] Regulation G requires that any information provided on a 
Web site be available at the time the original public communication is 
made. Is it necessary for Item 1.04 to contain the same timing 
requirement?
    [sbull] Should we require forward-looking information to be 
considered filed for purposes of Section 18 of the Exchange Act? Should 
forward-looking information, where appropriate, be incorporated by 
reference into a registration statement, proxy statement or other 
report?
    [sbull] Should the disclosure requirements of Item 10 of Regulation 
S-K and Item 10 of Regulation S-B apply to complementary information 
not filed with the Commission?
    [sbull] Would the application of Item 1.04 only to disclosures 
regarding completed annual or quarterly periods cause public companies 
to increase their disclosure of intra-period information, rather than 
disclosure regarding completed periods, in an effort to avoid the 
requirements of Item 1.04?

D. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding:
    [sbull] The proposed rule and amendments that are the subject of 
this release;
    [sbull] Additional or different changes; or
    [sbull] Other matters that may have an effect on the proposals 
contained in this release.
    We request comment from the point of view of registrants, investors 
and other market participants. With regard to any comments, we note 
that such comments are of great assistance to our rulemaking initiative 
if accompanied by supporting data and analysis of the issues addressed 
in those comments.

III. Paperwork Reduction Act

    Proposed Regulation G and related amendments to Regulations S-K, 
Form 8-K and Form 20-F contain ``collections of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''),\53\ and the Commission has submitted the proposals to the 
Office of Management and Budget (``OMB'') for review in accordance with 
44 U.S.C. 3507(d) and 5 CFR 1320.11. The titles for the information 
collections are: Regulation G, Regulation S-K, Regulation S-B, Form 8-K 
and Form 20-F.
---------------------------------------------------------------------------

    \53\ 44 U.S.C. Sec.  3501 et seq.
---------------------------------------------------------------------------

    The Commission is proposing Regulation G pursuant to Section 401 of 
the Sarbanes-Oxley Act. Proposed Regulation G would require registrants 
when publicly disclosing material information that include non-GAAP 
financial measures to provide a reconciliation to comparable GAAP 
figures. Regulation G is intended to implement the requirements of the 
Sarbanes-Oxley Act. Specifically, Regulation G is intended to provide 
investors with balanced financial disclosure when non-GAAP financial 
measures are presented. Regulation G defines a non-GAAP financial 
measure as a numerical measure of an issuer's historical or future 
financial performance, financial position or cash flow that:
    [sbull] Excludes amounts, or is subject to adjustments that have 
the effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    [sbull] Includes amounts, or is subject to adjustments that have 
the effect of including amounts, that are excluded from the comparable 
measure calculated and presented in accordance with GAAP.
    Accordingly, by definition, a non-GAAP financial measure that 
triggers the application of Regulation G would have been derived from a 
GAAP measure. For example, generally, EBITDA is net income before 
interest, taxes, depreciation and amortization. In order for a company 
to present EBITDA it must already know the amount of net income. We 
expect the cost of obtaining the additional disclosure required by 
Regulation G to be minimal. Moreover, much of the disclosure mandated 
by Regulation G, such as the most directly comparable GAAP measure, is 
already required to be provided pursuant to other forms and 
regulations, such as Form 10-K, Form 10-Q and Regulation S-X. 
Therefore, most of the costs associated with collecting such 
information are already included in the burden hours associated with 
those forms and regulations. Thus, we have estimated for purposes of 
the PRA that

[[Page 68798]]

it will take .5 burden hour for compliance with Regulation G. We 
anticipate that on average a company will have to comply with 
Regulation G roughly six times a year. Since there are approximately 
14,000 public companies that would be subject to Regulation G we have 
estimated that there will be 84,000 disclosures made in accordance with 
Regulation G for a total of 42,000 burden hours. We would expect that 
an in house junior accountant would prepare the actual reconciliation.
    Regulations S-K (OMB Control No. 3235-0071) and S-B (OMB Control 
No. 3235-0417) prescribe disclosure requirements that registrants must 
follow when filing registration statements, reports and schedule with 
the Commission. Our amendments to Item 10 of Regulation S-K and S-B 
incorporate the requirements of Regulation G and codify existing staff 
interpretations. Because the collection of information regarding the 
reconciliation is already being accounted for in Regulation G, we do 
not believe adding the same requirement to Item 10 of Regulation S-K 
and Item 10 of Regulation S-B incurs an additional collection of 
information within the meaning of the PRA. To account for the proposed 
reconciliation in both Regulation G and Item 10 or Regulation S-K and 
Item 10 of Regulation S-B would result in double counting. 
Additionally, companies already, usually and customarily, disclose the 
purposes for which the registrant's management uses the non-GAAP 
financial measure and why it believes that its presentation of the non-
GAAP financial measure provides useful information to investors. 
Accordingly, we do not believe that our amendments to Item 10 of 
Regulation S-K and Item 10 of Regulation S-B contain a new ``collection 
of information'' or alter the existing burden of these collections of 
information within the meaning of the PRA.
    Form 8-K (OMB Control No. 3235-0060) prescribes information, such 
as material events or corporate changes that a registrant must 
disclose. Proposed Item 1.04 of Form 8-K would require a company that 
publicly discloses material information regarding its actual or 
expected quarterly or annual results of operations or financial 
condition for a completed fiscal period to file the text of the public 
disclosure and any accompanying analysis. Proposed Item 1.04 of Form 8-
K would not require companies to actually issue an earnings 
announcement or release but only require that it be filed if they 
choose to issue an earnings announcement or release. Proposed Item 1.04 
would bring earnings announcements and releases into the formal 
disclosure system where they would be available to investors on a 
widespread basis.
    Proposed Item 1.04 of Form 8-K would impose the obligation to file 
a public company's earnings release. We estimate for purposes of the 
PRA that the burden associated with actually filing the Form 8-K to be 
minimal. We believe that proposed Item 1.04 of Form 8-K would require 
approximately .5 of a burden hour. We estimate that approximately 
14,000 public companies would make an average of four filings per year. 
We believe the total burden hours associated with proposed Item 1.04 
would be 28,000 hours. We would expect that companies would use in 
house personal to file the Form 8-K.
    We have amended Form 20-F (OMB Control Number 3235-0288) to 
incorporate our amendment to Item 10 of Regulation S-K. While proposed 
Regulation G provides a limited exception for foreign private issuers, 
this exception would not apply to their Form 20-F filing or any 
disclosure of non-GAAP financial measures made in the United States. 
Accordingly, we do not believe our amendment to Form 20-F would result 
in an additional collection of information as any burden is already 
accounted for in Regulation G.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a 
currently valid OMB control number. Compliance with the disclosure 
requirements is mandatory. There is no mandatory retention period for 
the information disclosed, and responses to the disclosure requirements 
will not be kept confidential.

Request for Comment

    We request comment in order to: (a) Evaluate whether the proposed 
collection of information and amendments to existing collections of 
information are necessary for the proper performance of the functions 
of the Commission, including whether the information will have 
practical utility; (b) evaluate the accuracy of our estimate of the 
burden of the proposed collection of information and amendments to 
existing collection of information; (c) determine whether there are 
ways to enhance the quality, utility and clarity of the information to 
be collected; and (d) evaluate whether there are ways to minimize the 
burden of the proposed collection of information and amendments of 
existing collections of information on those who respond, including 
through the use of automated collection techniques or other forms of 
information technology.\54\
---------------------------------------------------------------------------

    \54\ Comments are requested pursuant to 44 U.S.C. Sec.  
3506(c)(2)(B).
---------------------------------------------------------------------------

    Persons who desire to submit comments on the proposed collections 
of information requirements should direct their comments to the OMB, 
Attention: Desk Officer for the Securities and Exchange Commission, 
Office of Information and Regulatory Affairs, Washington, DC 20503, and 
send a copy of the comments to Jonathan G. Katz, Secretary, Securities 
and Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-
0609, with reference to File No. S7-XX-02. Requests for materials 
submitted to the OMB by us with regard to this collection of 
information should be in writing, refer to File No. S7-XX-02 and be 
submitted to the Securities and Exchange Commission, Records 
Management, Office of Filings and Information Services, 450 Fifth 
Street NW., Washington, DC 20549. Because the OMB is required to make a 
decision concerning the collections of information between 30 and 60 
days after publication, your comments are best assured of having their 
full effect if the OMB receives them within 30 days of publication.

IV. Cost and Benefits

    The Sarbanes-Oxley Act seeks to enhance the financial disclosure of 
public companies. In furtherance of this goal, the Sarbanes-Oxley Act 
has required the Commission, among other things, to adopt rules 
requiring that if a company publicly discloses non-GAAP financial 
measures or includes them in a Commission filing, the company must 
reconcile those non-GAAP financial measurements to a company's 
financial condition and results of operations under GAAP. Moreover, 
Sarbanes-Oxley requires that any public disclosure of non-GAAP 
financial measures not contain an untrue statement of a material fact 
or omit to state a material fact necessary in order to make the non-
GAAP financial measure, in light of circumstances under which it is 
presented not misleading. Additionally, the Sarbanes-Oxley Act seeks to 
have companies that report under Sections 13(a) and 15(d) of the 
Exchange Act disclose to the public on a rapid and current basis such 
additional information concerning material changes in its financial 
condition or operations.
    Proposed Regulation G, amendments to Item 10 of Regulation S-K, 
Item 10 of Regulation S-B and Form 20-F, upon

[[Page 68799]]

adoption, would fulfill the statutory directive under Section 401(b) of 
the Sarbanes-Oxley Act. We recognize that any implementation of the 
Sarbanes-Oxley Act would likely result in costs as well as benefits and 
have an effect on the economy. We are sensitive to the costs and 
benefits of our proposals. We discuss these costs and benefits below as 
well as the costs and benefits associated with our amendments to Form 
8-K.

A. Benefits

    The proposed rules and amendments are intended to ensure that 
investors and others are not misled by the use of non-GAAP financial 
measures. Additionally, the proposed amendments to Form 8-K are 
intended to create a central depository where investors and other 
market participants can look to find the latest earning announcements 
and releases by public companies and provide enhanced attention to 
those announcements and releases. Furthermore, as the ABA noted in 
their comment letter regarding the Commission's recent proposal on 
accelerated reporting periods, the filing of the earnings reports would 
enhance the attention and level of care companies bring to those 
disclosures because they will become part of the formal reporting 
system and provide widespread access to investors. Therefore, we would 
expect the accuracy and reliability of a company's earnings report to 
be enhanced.
    Regulation G and amendments to Item 10 of Regulations S-K and S-B 
require that any non-GAAP financial measure presented be reconciled 
with its most comparable financial measure prepared in accordance with 
GAAP. We anticipate that this reconciliation will help investors and 
market professionals to better evaluate the non-GAAP financial measures 
presented. It is possible that the reconciliation will provide the 
securities markets with additional information to more accurately 
evaluate companies' securities and in turn result in a more accurate 
pricing of securities. We, however, do not currently have sufficient 
information to quantify these or other benefits that Regulation G and 
our amendments to Item 10 of Regulation S-K, Regulation S-B, and Form 
8-K and Form 20-F would provide. We therefore request your comments, 
including supporting data, on the benefits of these proposals.

B. Costs

    As discussed in the PRA section, we believe that the costs 
associated with the proposed Regulation G and amendments will be 
minimal. With regard to Regulation G, the costs associated with the 
requirement to reconcile the non-GAAP financial measure, should be 
minimal since by definition the non-GAAP financial measure would have 
been derived from a GAAP financial measure. Accordingly, in most cases, 
the registrant already will have available the comparable GAAP 
financial measure. Moreover, in cases where the GAAP financial measure 
is not available, any costs associated with obtaining the GAAP 
financial measure would reduce future costs associated with filing 
other forms, such as the Form 10-Q and Form 10-K where the GAAP measure 
must be presented.
    We have estimated that public companies would have to comply with 
Regulation G six times a year. There are roughly 14,000 public 
companies. Using our estimates from the PRA section, we would expect 
that it would take a junior accountant roughly .5 hours to complete the 
required reconciliation and ensure there are no material misstatements. 
Accordingly, we have estimated that the total burden hours needed to 
comply with Regulation G would be 42,000 hours. Using cost data from 
the Securities Industry Association's Report on Management & 
Professional Earnings in the Securities Industry 2001 (SIA Report) \55\ 
and adding an additional 35% for costs associated with overhead, we 
find that, on average, a junior accountant would earn $26 an hour. We 
believe the salary of a junior accountant is appropriate for our 
estimates since in most cases we would expect the most directly 
comparable GAAP measure to be available. Therefore, we have estimated 
the total costs associated with complying with Regulation G to be 
$1,092,000.
---------------------------------------------------------------------------

    \55\ The cost estimates are based on the SIA Report for 
employees based outside the New York City metropolitan area.
---------------------------------------------------------------------------

    Our amendments to Item 10 of Regulation S-K and Item 10 of 
Regulation S-B incorporate the requirements of Regulation G. Because 
the costs associated with providing a reconciliation are already being 
accounted for in Regulation G, we do not believe adding the same 
requirement to Item 10 of Regulation S-K and Item 10 of Regulation S-B 
incurs any additional cost to the registrant. To account for the 
required reconciliation in both Regulation G and Item 10 or Regulation 
S-K and Item 10 of Regulation S-B would result in double counting. 
Additionally, because companies currently disclose the purposes for 
which the registrant's management uses the non-GAAP financial measure 
and why it believes that presentation of the non-GAAP financial measure 
provides useful information to investors, this aspect of the proposed 
rule would not increase costs already being borne by registrants. 
Accordingly, we do not believe our amendments to Item 10 of Regulation 
S-K and Item 10 of Regulation S-B would result in any additional costs 
not already included in Regulation G or current filing requirements.
    Our amendment to Form 8-K, would result in the additional cost of 
actually filing the earnings release or earnings announcement. There is 
no requirement to actually make an earnings announcement or release. 
The only requirement is to file such announcement or release if it is 
publicly disclosed. We have not included in our estimates any 
additional legal review costs associated with the filing of earnings 
releases or announcements, since we do not anticipate any additional 
significant review would be needed. In this regard, we note that many 
issuers already file their earnings releases and those releases whether 
filed or not are subject to Rule 10b-5.
    We believe that personnel in finance, investor relations or 
corporate communications departments would most likely file the 
earnings announcements or releases since most earnings announcements 
are disseminated via press release. We have estimated that the actual 
time required to file an earnings announcement or release on Form 8-K 
to be .5 hour. In estimating this time burden we note that most press 
releases are fairly short in length, making the actual process of 
filing easier. We also note that the software necessary to file a Form 
8-K is available free of charge from the Commission. We have estimated 
that public companies would be required to comply with Item 1.04 of 
Form 8-K roughly four times a year. Assuming 14,000 public companies 
and a total burden of .5 hour for the filing, we estimate that 
companies will spend 28,000 hours complying with our proposed Form 8-K 
amendment. Again using the SIA Report, and adding an additional 35% for 
costs associated with overhead, we find that a Corporate Communications 
Manager, on average, earns $56.00 an hour. Accordingly, we have 
estimated the total salary cost associated with our amendments to Form 
8-K to be $1,568,000.
    Finally, our proposed amendments to Form 20-F would incorporate 
Item 10 of Regulation S-K. While proposed Regulation G provides a 
limited exception for foreign private issuers, this exception would not 
apply to their

[[Page 68800]]

Form 20-F filing or any disclosure of non-GAAP financial measures made 
in the United States. Accordingly, the costs associated with our 
amendment to Form 20-F are already accounted for in our cost estimates 
for Regulation G.
    We request your comments, including any supporting data, on our 
estimates of the costs of the proposals and any alternative options 
that may reduce the costs or enhance the benefits of our proposal.

C. Questions

    [sbull] We have assumed that non-GAAP measures are derived and 
calculated from the GAAP measures. Accordingly, we do not believe there 
would be significant costs associated with the proposed reconciliation. 
Is our assumption that the comparable GAAP measure would be available 
at the time the non-GAAP measure is presented correct? If not, please 
discuss the nature and type of costs that may be incurred as a result 
of the reconciliation requirement.
    [sbull] We believe the costs associated with the proposed filing 
requirement of Item 1.04 Form 8-K to be mainly administrative in 
nature. Are there other additional costs that may be incurred as a 
result of the proposed filing requirement of Form 8-K? If yes, please 
discuss the types and expected dollar amounts of such costs.

V. Effect on Efficiency, Competition, and Capital Formation

    Section 23(a)(2) \56\ of the Exchange Act requires us when adopting 
rules under the Exchange Act, to consider the impact that any new rule 
would have on competition. In addition, Section 23(a)(2) prohibits us 
from adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purpose of the Exchange 
Act. Proposed Regulation G and our proposed amendments to Item 10 of 
Regulation S-K, Item 10 of Regulation S-B, Form 20-F and Form 8-K would 
apply only to companies subject to the reporting requirements of 
Sections 13(a) and 15(d) of the Exchange Act, other than registered 
investment companies. Given that the estimated costs associated with 
our proposals are small we do not expect that competitors not subject 
to our proposals would gain any competitive advantage over those 
subject to the proposals. We, however, request comment on whether our 
proposals, if adopted, would impose a burden on competition. Commenters 
are requested to provide empirical data and other factual support for 
their views if possible.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. Sec.  78w(a)(2).
---------------------------------------------------------------------------

    In addition, Section 2(b) \57\ of the Securities Act and Section 
3(f) \58\ of the Exchange Act require us, when engaging in rulemaking 
where we are required to consider or determine whether an action is 
necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition and capital formation. Proposed 
Regulation G and our proposed amendments to Item 10 of Regulation S-K, 
Item 10 of Regulation S-B and Form 20-F are proposed pursuant to the 
Sarbanes-Oxley Act. As noted above the costs associated with these 
proposals and our proposed amendment to Form 8-K are expected to be 
minimal. Accordingly we do not believe that there will be any 
significant effects on competition or capital formation. We do believe, 
however, that there may be some benefits with regard to investor 
protection and efficiency of the market. The additional information 
provided has the potential to limit any misunderstanding with regard to 
the value of certain non-GAAP measures. Accordingly, this may allow the 
market to more rapidly and accurately price securities. If this occurs 
there would be a benefit to capital formation.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. Sec.  77b(b).
    \58\ 15 U.S.C. Sec.  78c(f).
---------------------------------------------------------------------------

    We request comment on whether proposed Regulation G and our 
proposed amendments, if adopted would promote efficiency, competition, 
and capital formation. Commenters are requested to provide empirical 
data and other factual support for their views if possible.

VI. Regulatory Flexibility Analysis

    The Commission hereby certifies pursuant to 5 U.S.C. Sec.  605(b), 
that proposed Regulation G, amendments to Item 10 of Regulation S-K, 
Item 10 of Regulation S-B, Form 20-F and Form 8-K, contained in this 
release, if adopted, would not have a significant economic impact on a 
substantial number of small entities. The certification is based on the 
following analysis.
    The proposals would affect companies that are small entities. Rule 
0-10(a) \59\ defines a company, other than an investment company, to be 
a ``small business'' or ``small organization'' for purposes of the 
Regulatory Flexibility Act if it had total assets of $10 million or 
less on the last day of its most recent fiscal year. We estimate that 
there were approximately 2,500 public companies, other than investment 
companies, that may be considered small entities.
---------------------------------------------------------------------------

    \59\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    Proposed Regulation G would require registrants when publicly 
disclosing material information that includes a non-GAAP financial 
measure to provide a quantified reconciliation to the most directly 
comparable GAAP financial measure. Regulation G is intended to 
implement the requirements of the Sarbanes-Oxley Act. Specifically, 
Regulation G is intended to provide investors with balanced financial 
disclosure when non-GAAP financial measures are presented. Regulation G 
defines a non-GAAP financial measure as a numerical measure of an 
issuer's historical or future financial performance, financial position 
or cash flow that:
    [sbull] Excludes amounts, or is subject to adjustments that have 
the effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    [sbull] Includes amounts, or is subject to adjustments that have 
the effect of including amounts, that are excluded from the comparable 
measure calculated and presented in accordance with GAAP.
    Accordingly, by definition, a non-GAAP financial measure that 
triggers the application of Regulation G would have been derived from a 
GAAP financial measure. Therefore, we expect the cost of obtaining the 
additional disclosure required by Regulation G to be minimal. Moreover, 
much of the disclosure mandated by Regulation G, such as the most 
directly comparable GAAP measure, is already required to be provided 
pursuant to other forms and regulations, such as Form 10-KSB, Form 10-
QSB and Regulation S-X. We have estimated for purpose of the PRA that 
it will take .5 hour for small businesses to comply with Regulation G. 
We anticipate that on average a company will have to comply with 
Regulation G six times year. We would expect that an in house junior 
accountant would prepare the actual reconciliation.
    Using cost data from the Securities Industry Association's Report 
on Management & Professional Earnings in the Securities Industry 2001 
(``SIA'') and adding an additional 35% for costs associated with 
overhead, we find that, on average, a junior accountant would earn $26 
an hour. We believe the salary of a junior accountant is appropriate 
for our estimates since in most cases we

[[Page 68801]]

would expect the most directly comparable GAAP financial measure to be 
available. Therefore, we have estimated the total salary costs 
associated with complying with Regulation G to be $78 per small 
business\60\.
---------------------------------------------------------------------------

    \60\ Our $78 estimate is calculated by multiplying six (the 
estimated number of Regulation G occurrences in a year) by .5 (the 
estimated hourly burden for each occurrence) and then multiplying 
that total by $26 (the estimated cost per hour).
---------------------------------------------------------------------------

    Our amendments to Item 10 of Regulation S-K and Item 10 of 
Regulation S-B incorporate the requirements of Regulation G and codify 
certain staff interpretations. Because the costs associated with 
providing a reconciliation are already being accounted for in 
Regulation G, we do not believe adding the same requirement to Item 10 
of Regulation S-K and Item 10 of Regulation S-B incurs any additional 
costs to small businesses. To account for the required reconciliation 
in both Regulation G and Item 10 or Regulation S-K and Item 10 of 
Regulation S-B would result in double counting. Additionally, because 
the staff companies currently disclose the purposes for which the 
registrant's management uses the non-GAAP financial measure and why it 
believes that presentation of the non-GAAP financial measure provides 
useful information to investors, this disclosure would not impose new 
costs on small businesses. Accordingly, we do not believe our 
amendments to Item 10 Regulation S-K and Regulation S-B result in any 
additional costs not already included in Regulation G or current filing 
requirements.
    Our amendment to Form 8-K, would require the filing of earnings 
releases or earnings announcement. There is no requirement to actually 
make an earnings announcement or release. We have not included in our 
estimates any additional legal review costs associated with the filing 
of earnings releases or announcements, since we do not anticipate any 
additional significant review would be needed. In this regard, we note 
that many issuers already file their earnings releases and those 
releases whether filed or not are subject to Rule 10b-5.
    We believe that personnel in finance, investor relations or 
corporate communications departments would most likely file the 
earnings announcement or release since most earnings announcements and 
releases are disseminated via press release. We have estimated that the 
actual time required to file an earnings announcement or release on 
Form 8-K to be .5 hours. In estimating this time burden we note that 
most press releases are fairly short in length, making the actual 
process of filing easier. We also note that the software necessary to 
file a Form 8-K is available free of charge from the Commission.
    We have estimated that small businesses would be required to comply 
with Item 1.04 of Form 8-K roughly four times a year. Again using the 
SIA Report and adding an additional 35% for costs associated with 
overhead, a Corporate Communications Manager, on average, earns $56.00 
an hour. Accordingly, we have estimated the total costs to a small 
business associated with our amendments to Form 8-K to be $112.\61\
---------------------------------------------------------------------------

    \61\ Our $112 estimate is calculated by multiplying four (the 
estimated number of Item 1.04 Forms 8-K expected to be filed) by .5 
(the estimated hourly burden for each filing) and then multiplying 
that total by $56 (the estimate cost per hour).
---------------------------------------------------------------------------

    Additionally, our proposed amendments to Form 20-F would 
incorporate Item 10 of Regulation S-K. Because only foreign private 
issuers file Form 20-F we do not include the impact on them in our 
analysis.
    Finally, to further examine the possible impact of the proposals on 
small businesses, we sampled publicly available information about 75 
small businesses. We searched the Dow Jones Press Release Wire, for the 
period January 1, 2001 to July 1, 2002 to review any earnings 
announcements or earnings releases by the 75 small businesses. We found 
that 30 small businesses had no earnings announcements or releases 
available over the period and the other 45 companies reported only GAAP 
earnings. Accordingly, the cost impact would be significantly less if 
the small business does not use non-GAAP financial measures since there 
would be no reconciliation required. Additionally, if the small 
business does not issue earnings releases or announcements there would 
be no filing requirement on Form 8-K.
    In sum, the proposals are expected to result in minimal additional 
costs to all subject companies, large or small. Accordingly, we believe 
the proposals should not have a significant economic impact on a 
substantial number of small entities.
    We encourage written comments regarding this certification. We 
solicit comment as to whether the proposed changes could have an effect 
that we have not considered. We request that commenters describe the 
nature of any impact on small entities and provide empirical data to 
support the extent of the impact.

VII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, a rule is ``major'' if it has resulted, or is likely to 
result in:
    [sbull] An annual effect on the economy of $100 million or more;
    [sbull] A major increase in costs or prices for consumers or 
individual industries; or
    [sbull] Significant adverse effects on competition, investment or 
innovation.
    We request comment with regard to our analysis. Commenters should 
provide empirical data on (a) the annual effect on the economy; (b) any 
increase in costs or prices for consumers or individual industries; and 
(c) any effect on competition, investment or innovation.

VIII. Statutory Basis

    The proposed new Regulation G, new Item 1.04 to Form 8-K and the 
amendments to Item 6.01 of Form 8-K, Item 10 of Regulation S-K, Item 10 
of Regulation S-B and Form 20-F are being proposed pursuant to Sections 
2(b), 6, 7, 8, 19(a), and 28 of the Securities Act of 1933 as amended, 
Sections 3, 4, 10, 12, 13, 15, 23 and 36 of the Securities Exchange Act 
of 1934, as amended and Sections 3(a), 401 and 409 of the Sarbanes-
Oxley Act.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small 
businesses.

17 CFR Parts 229, 244 and 249

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendments

    In accordance with the foregoing, the Securities and Exchange 
Commission proposes to amend Title 17, chapter II of the Code of 
Federal Regulations as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

    1. The general authority citation for Part 228 is revised to read 
as follows:

    Authority: 15 U.S.C. 7261, 77e, 77f, 77g, 77h, 77j 77k, 77s, 
77z-2, 77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 
77nnn, 77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 
80a-29, 80a-30, and 80b-11.
* * * * *
    2. Amend Sec.  228.10 by adding paragraph (h) to read as follows:

[[Page 68802]]

Sec.  228.10  (Item 10) General.

* * * * *
    (h) Use of non-GAAP financial measures in Commission filings. (1) 
Whenever one or more non-GAAP financial measures are included in a 
filing with the Commission:
    (i) The registrant must include the following in the filing:
    (A) A presentation with equal or greater prominence of the most 
directly comparable financial measure or measures calculated and 
presented in accordance with Generally Accepted Accounting Principles 
(GAAP);
    (B) A quantitative reconciliation (by schedule or other clearly 
understandable method) of the differences between the non-GAAP 
financial measure disclosed or released with the financial measure or 
measures calculated and presented in accordance with GAAP identified in 
paragraph (h)(1)(i)(A) of this section;
    (C) A statement disclosing the purposes for which the registrant's 
management uses the non-GAAP financial measure; and
    (D) A statement disclosing the reasons why the registrant's 
management believes that presentation of the non-GAAP financial measure 
provides useful information to investors regarding the registrant's 
financial condition and results of operations; and
    (ii) A registrant must not:
    (A) Present the non-GAAP financial measure in a manner that would 
give it greater authority or prominence than the comparable GAAP 
financial measure or measures;
    (B) Exclude charges or liabilities that required, or will require, 
cash settlement, or would have required cash settlement absent an 
ability to settle in another manner, from non-GAAP liquidity measures;
    (C) Adjust a non-GAAP performance measure to eliminate or smooth 
items identified as non-recurring, infrequent or unusual, when the 
nature of the charge or gain is such that it is reasonably likely to 
recur;
    (D) Present non-GAAP financial measures on the face of the 
registrant's financial statements prepared in accordance with GAAP or 
in the accompanying notes;
    (E) Present non-GAAP financial measures on the face of any pro 
forma financial information required to be disclosed by Article 11 of 
Regulation S-X (17 CFR 210.11-01 through 210.11-03);
    (F) Use titles or descriptions of non-GAAP financial measures that 
are the same as, or confusingly similar, to titles or descriptions used 
for GAAP measures; or
    (G) Present a non-GAAP per-share measure; and
    (iii) If the filing is not an annual report on Form 10-KSB (17 CFR 
249.310b), a registrant need not include the information required by 
paragraphs (h)(1)(i)(C) and (h)(1)(i)(D) of this section if that 
information was included in its most recent annual report on Form 10-
KSB or a more recent filing, provided that the required information is 
updated to the extent necessary to meet the requirements of paragraphs 
(h)(1)(i)(C) and (h)(1)(i)(D) of this section at the time of the 
registrant's current filing.
    (2) For purposes of this paragraph (h), a non-GAAP financial 
measure is a numerical measure of a registrant's historical or future 
financial performance, financial position or cash flow that:
    (i) Excludes amounts, or is subject to adjustments that have the 
effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    (ii) Includes amounts, or is subject to adjustments that have the 
effect of including amounts, that are excluded from the comparable 
measure so calculated and presented.
    (3) For purposes of this paragraph (h), ``GAAP'' refers to 
generally accepted accounting principles in the United States.
    (4) For purposes of this paragraph (h), non-GAAP financial measures 
exclude operating and other financial measures and ratios or measures 
calculated using only:
    (i) Financial measures calculated in accordance with GAAP and;
    (ii) Operating measures or other measures that are not non-GAAP 
financial measures.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

    3. The general authority citation for Part 229 is revised to read 
as follows:

    Authority: 15 U.S.C. 7261, 77e, 77f, 77g, 77h, 77j, 77k, 77s, 
77z-2, 77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 
77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 
78ll(d), 78mm, 79e, 79n, 79t, 80a-8, 80a-29, 80a-30, 80a-31(c), 80a-
37, 80a-38(a) and 80b-11, unless otherwise noted.
* * * * *
    4. Amend Sec.  229.10 by revising the section heading and adding 
paragraph (e) to read as follows:


Sec.  229.10  (Item 10) General.

* * * * *
    (e) Use of non-GAAP financial measures in Commission filings. (1) 
Whenever one or more non-GAAP financial measures are included in a 
filing with the Commission:
    (i) The registrant must include the following in the filing:
    (A) A presentation of the most directly comparable financial 
measure or measures calculated and presented in accordance with 
Generally Accepted Accounting Principles (GAAP);
    (B) A quantitative reconciliation (by schedule or other clearly 
understandable method) of the differences between the non-GAAP 
financial measure disclosed with the financial measure or measures 
calculated and presented in accordance with GAAP identified in 
paragraph (e)(1)(i)(A) of this section;
    (C) A statement disclosing the purposes for which the registrant's 
management uses the non-GAAP financial measure; and
    (D) A statement disclosing the reasons why the registrant's 
management believes that presentation of the non-GAAP financial measure 
provides useful information to investors regarding the registrant's 
financial condition and results of operations; and
    (ii) A registrant must not:
    (A) Present the non-GAAP financial measure in a manner that would 
give it greater authority or prominence than the comparable GAAP 
financial measure or measures;
    (B) Exclude charges or liabilities that required, or will require, 
cash settlement, or would have required cash settlement absent an 
ability to settle in another manner, from non-GAAP liquidity measures;
    (C) Adjust a non-GAAP performance measure to eliminate or smooth 
items identified as non-recurring, infrequent or unusual, when the 
nature of the charge or gain is such that it is reasonably likely to 
recur;
    (D) Present non-GAAP financial measures on the face of the 
registrant's financial statements prepared in accordance with GAAP or 
in the accompanying notes;
    (E) Present non-GAAP financial measures on the face of any pro 
forma financial information required to be disclosed by Article 11 of 
Regulation S-X (17 CFR 210.11-01 through 210.11-03);
    (F) Use titles or descriptions of non-GAAP financial measures that 
are the

[[Page 68803]]

same as, or confusingly similar to, titles or descriptions used for 
GAAP financial measures; or
    (G) Present a non-GAAP per share measure; and
    (iii) If the filing is not an annual report on Form 10-K or Form 
20-F (17 CFR 249.220f), a registrant need not include the information 
required by paragraphs (e)(1)(i)(C) and (e)(1)(i)(D) of this section if 
that information was included in its most recent annual report on Form 
10-K or Form 20-F or a more recent filing, provided that the required 
information is updated to the extent necessary to meet the requirements 
of paragraphs (e)(1)(i)(C) and (e)(1)(i)(D) of this section at the time 
of the registrant's current filing.
    (2) For purposes of this paragraph (e), a non-GAAP financial 
measure is a numerical measure of a registrant's historical or future 
financial performance, financial position or cash flows that:
    (i) Excludes amounts, or is subject to adjustments that have the 
effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    (ii) Includes amounts, or is subject to adjustments that have the 
effect of including amounts, that are excluded from the comparable 
measure so calculated and presented.
    (3) For purposes of this paragraph (e), ``GAAP'' refers to 
generally accepted accounting principles in the United States, except 
that in the case of foreign private issuers whose primary financial 
statements are prepared in accordance with other generally accepted 
accounting principles, references to GAAP also include the principles 
under which those primary financial statements are prepared.
    (4) For purposes of this paragraph (e), non-GAAP financial measures 
exclude operating and other financial measures and ratios or measures 
calculated using only:
    (i) Financial measures calculated in accordance with GAAP; and
    (ii) Operating measures or other measures that are not non-GAAP 
financial measures.
    (5) This paragraph (e) is not applicable to investment companies 
registered under Section 8 of the Investment Company Act of 1940 (15 
U.S.C. 80a-8).

    Note to paragraph (e). A non-GAAP financial measure that would 
otherwise be prohibited by paragraph (e)(1)(ii) of this section is 
permitted in a filing of a foreign private issuer if:
    1. The non-GAAP financial measure is expressly permitted under 
the GAAP used in the registrant's primary financial statements 
included in the filing with the Commission; and
    2. The non-GAAP financial measure is included in the annual 
report prepared by the registrant for use in the jurisdiction in 
which it is domiciled, incorporated or organized or for distribution 
to its security holders.

    5. Part 244 is added to read as follows:

PART 244--Regulation G

Sec.
244.100 General rules regarding disclosure of non-GAAP financial 
measures.
244.101 Definitions.
244.102 No effect on antifraud liability.

    Authority: 15 U.S.C. 7261, 78c, 78i, 78j, 78m, 78o, 78w, 78mm, 
and 80a-29.


Sec.  244.100  General rules regarding disclosure of non-GAAP financial 
measures.

    (a) Whenever a registrant, or person acting on its behalf, publicly 
discloses material information that includes a non-GAAP financial 
measure, the registrant must accompany that non-GAAP financial measure 
with:
    (1) A presentation of the most directly comparable financial 
measure calculated and presented in accordance with Generally Accepted 
Accounting Principles (GAAP); and
    (2) A reconciliation (by schedule or other clearly understandable 
method), which shall be quantitative for historical non-GAAP measures 
presented, and quantitative, to the extent available without 
unreasonable efforts, for forward-looking information, of the 
differences between the non-GAAP financial measure disclosed or 
released with the most comparable financial measure or measures 
calculated and presented in accordance with GAAP identified in 
paragraph (a)(1)(i) of this section; and
    (b) A registrant, or a person acting on its behalf, shall not make 
public a non-GAAP financial measure that, taken together with the 
information accompanying that measure and any other accompanying 
discussion of that measure, contains an untrue statement of a material 
fact or omits to state a material fact necessary in order to make the 
presentation of the non-GAAP financial measure, in light of the 
circumstances under which it is presented, not misleading.
    (c) This section shall not apply to a disclosure of a non-GAAP 
financial measure that is made by or on behalf of a registrant that is 
a foreign private issuer if the following conditions are satisfied:
    (1) The securities of the registrant are listed or quoted on a 
securities exchange or inter-dealer quotation system outside the United 
States;
    (2) The non-GAAP financial measure and the most comparable GAAP 
financial measure are not calculated and presented in accordance with 
generally accepted accounting principles in the United States; and
    (3) The disclosure is made by or on behalf of the registrant 
outside the United States, or is included in a written communication 
that is released by or on behalf of the registrant only outside the 
United States.

    Notes to Sec.  244.100: 
    1. If a non-GAAP financial measure is made public orally, 
telephonically, by webcast or broadcast or by similar means, the 
requirements of paragraphs (a)(1)(i) and (a)(1)(ii) of this section 
will be satisfied if:
    (i) The required information in those paragraphs is provided on 
the registrant's Web site at the time the non-GAAP financial measure 
is made public; and
    (ii) The location of the Web site is made public in the same 
presentation in which the non-GAAP financial measure is made public.
    2. The provisions of paragraph (c) of this section shall apply 
notwithstanding the existence of one or all of the following 
circumstances:
    (i) Foreign or U.S. journalists or other third parties have 
access to the information, so long as the information is disclosed 
or released by or on behalf of the registrant only outside the 
United States;
    (ii) Following its release or disclosure, the information 
appears on one or more web sites maintained by the registrant, so 
long as the web sites, taken together, are not available exclusively 
to, or targeted at, persons located in the United States; and/or
    (iii) Following the disclosure or release of the information 
outside the United States, the information is included in a 
submission by the registrant to the Commission made under cover of a 
Form 6-K.

Sec.  244.101  Definitions.

    This section defines certain terms as used in Regulation G 
(Sec. Sec.  244.100 through 244.102).
    (a)(1) Non-GAAP financial measure. A non-GAAP financial measure is 
a numerical measure of a registrant's historical or future financial 
performance, financial position or cash flows that:
    (i) Excludes amounts, or is subject to adjustments that have the 
effect of excluding amounts, that are included in the comparable 
measure calculated and presented in accordance with GAAP in the 
statement of income, balance sheet or statement of cash flows (or 
equivalent statements) of the issuer; or
    (ii) Includes amounts, or is subject to adjustments that have the 
effect of including amounts, that are excluded

[[Page 68804]]

from the comparable measure so calculated and presented.
    (2) A non-GAAP financial measure would not include operating and 
other financial measures and ratios or measures calculated using only:
    (i) Financial measures calculated in accordance with GAAP; and
    (ii) Operating measures or other measures that are not non-GAAP 
financial measures.
    (b) GAAP. GAAP refers to generally accepted accounting principles 
in the United States, except that in the case of foreign private 
issuers whose primary financial statements are prepared in accordance 
with other generally accepted accounting principles, references to GAAP 
also include the principles under which those primary financial 
statements are prepared.
    (c) Registrant. A registrant subject to this regulation is one that 
has a class of securities registered under Section 12 of the Securities 
Exchange Act of 1934 (15 U.S.C. 78l), or is required to file reports 
under Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(d)), excluding any investment company registered under Section 8 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-8).
    (d) United States. United States means the United States of 
America, its territories and possessions, any State of the United 
States, and the District of Columbia.


Sec.  244.102  No effect on antifraud liability.

    Nothing in this Regulation G (Sec. Sec. 244.100 through 244.102) 
shall affect any person's liability, and a person's compliance or non-
compliance with this Regulation G shall not affect any person's 
liability, under Section 10(b) (15 U.S.C. 78j(b)) of the Securities 
Exchange Act of 1934 or Sec.  240.10b-5 of this chapter.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    7. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.
* * * * *
    8. Amend Form 8-K (referenced in Sec.  249.308 as proposed in 
Release No. 33-8106, 67 FR 42913) by adding Item 1.04 and revising Item 
6.01 of Section 1.

    Note.-- The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 8-K--Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

* * * * *

Section 1--Registrant's Business Operations

* * * * *

Item 1.04. Results of Operations and Financial Condition

    (a) If a registrant, or any person acting on its behalf, makes 
any public announcement or release (including any update of an 
earlier announcement or release) disclosing material non-public 
information regarding the registrant's results of operations or 
financial condition for a completed quarterly or annual fiscal 
period, the registrant shall briefly identify the announcement or 
release and file the text of that announcement or release as an 
exhibit;
    (b) A filing under this Item shall not be required in the case 
of disclosure of material non-public information that is disclosed 
orally, telephonically, webcast, or by similar means if:
    (1) The information is provided as part of a presentation that 
initially occurs within 48 hours of a related, written announcement 
or release that is filed on Form 8-K pursuant to this Item 1.04;
    (2) The presentation is accessible to the public by dial-in 
conference call, webcast or similar technology;
    (3) The financial and other statistical information contained in 
the presentation is provided on the registrant's Web site, together 
with any information that would be required under Sec.  244.100 of 
Regulation G; and
    (4) The presentation was announced by a widely disseminated 
press release, that included instructions as to when and how to 
access the presentation and the location on the registrant's Web 
site where the information would be available.
    (c) Forward-looking information, as defined by Section 21E of 
the Securities Exchange Act of 1934, included in an announcement or 
release that would otherwise be required to be filed pursuant to 
paragraph (a) of this Item, may instead be identified specifically 
and furnished under Item 6.01 in the same Form 8-K that contains the 
historical information filed pursuant to Item 1.04.

Instructions

    1. The filing requirement under this Item 1.04 is triggered by 
the disclosure of material non-public information regarding a 
completed fiscal year or quarter. Release of additional or updated 
material non-public information regarding a completed fiscal year or 
quarter would trigger an additional Item 1.04 filing requirement.
    2. Issuers that make earnings announcements or other disclosures 
of material non-public information regarding a completed fiscal year 
or quarter in an interim or annual report to shareholders, are 
permitted to specify which portion of the report contains the 
information required to be filed under Item 1.04.
    3. This Item 1.04 does not apply in the case of a disclosure of 
material non-public information that is made in a quarterly report 
filed with the Commission on Form 10-Q (or 10-QSB) or an annual 
report filed with the Commission on Form 10-K (or 10-KSB).
* * * * *

Item 6.01. Regulation FD Disclosure and Forward Looking Information.

    Unless filed under Item 7.01 or Item 1.04, report under this 
item only information that the registrant elects to disclose through 
Form 8-K pursuant to Regulation FD (Sec. Sec.  243.100--243.103 of 
this chapter) or forward-looking information that is required to be 
filed under Item 1.04 of this form.
* * * * *
    9. By amending Form 20-F (referenced in Sec.  249.220) by 
removing in General Instruction C.(e) the words ``performance and 
the Commission's policy on securities ratings'' and adding, in their 
place, the words ``performance, the Commission's policy on 
securities ratings and the Commission's policy on use of non-GAAP 
financial measures in Commission filings''.

    Dated: November 4, 2002.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-28603 Filed 11-12-02; 8:45 am]
BILLING CODE 8010-01-P