[Federal Register Volume 68, Number 20 (Thursday, January 30, 2003)]
[Rules and Regulations]
[Pages 4820-4833]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-1977]



[[Page 4819]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 228, 229, et al.



Conditions for Use of Non-GAAP Financial Measures; Final Rule

  Federal Register / Vol. 68, No. 20 / Thursday, January 30, 2003 / 
Rules and Regulations  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR PARTS 228, 229, 244 and 249

[RELEASE NO. 33-8176; 34-47226; FR-65; FILE NO. S7-43-02]
RIN 3235-A169


Conditions for Use of Non-GAAP Financial Measures

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: As directed by the Sarbanes-Oxley Act of 2002, we are adopting 
new rules and amendments to address public companies' disclosure or 
release of certain financial information that is calculated and 
presented on the basis of methodologies other than in accordance with 
generally accepted accounting principles (GAAP). We are adopting a new 
disclosure regulation, Regulation G, which will require public 
companies that disclose or release such non-GAAP financial measures to 
include, in that disclosure or release, a presentation of the most 
directly comparable GAAP financial measure and a reconciliation of the 
disclosed non-GAAP financial measure to the most directly comparable 
GAAP financial measure. We also are adopting amendments to 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 adopting amendments to Form 
20-F to incorporate into that form the amendments to Item 10 of 
Regulation S-K. Finally, we are adopting amendments that require 
registrants to furnish to the Commission, on Form 8-K, earnings 
releases or similar announcements.

DATES: Effective Date: March 28, 2003. Compliance Dates: Regulation G 
will apply to all subject disclosures as of March 28, 2003. The 
requirement to furnish earnings releases and similar materials to the 
Commission on Form 8-K will apply to earnings releases and similar 
announcements made after March 28, 2003. The amendments to Item 10 of 
Regulation S-K, Item 10 of Regulation S-B and Form 20-F will apply to 
any annual or quarterly report filed with respect to a fiscal period 
ending after March 28, 2003.

FOR FURTHER INFORMATION CONTACT: Joseph P. Babits or Craig Olinger, 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 adopting new Regulation G.\1\ We also 
are adopting 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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    \1\ 17 CFR 244.100-244.102.
    \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\ As directed by Section 401(b) of 
the Sarbanes-Oxley Act, we published for comment a number of new rules 
and amendments to address the use of ``non-GAAP financial measures'' on 
November 4, 2002.\8\ As discussed in that proposing release, the 
Commission has expressed concerns regarding the improper use of non-
GAAP financial measures during the past 30 years.\9\ The rules we adopt 
today reflect the letter and spirit of the Sarbanes-Oxley Act, our 
history in regulating non-GAAP financial measures, and the comments we 
received on the proposals.
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    \7\ Pub. L. No. 107-204, 116 Stat. 745 (2002).
    \8\ See Release No. 33-8145 (Nov. 4, 2002) [67 FR 68490].
    \9\ See Accounting Series Release No. 142, Release No. 33-5337 
(Mar. 15, 1973); Cautionary Advice Regarding the Use of ``Pro 
Forma'' Financial Information, Release No. 33-8039 (Dec. 4, 2001); 
and In the Matter of Trump Hotels & Casino Resorts, Inc., Release 
No. 34-45287 (Jan. 16, 2002). We also note that the Financial 
Accounting Standards Board (FASB) has initiated a project called 
Financial Performance Reporting by Business Enterprises. The 
objective of the project is to ensure that users of financial 
statements have sufficient quality information in order to evaluate 
a company's performance. The project's focus includes the 
presentation of key performance measures, or information necessary 
to permit calculation of key financial measures, used by investors 
and creditors. However, it will not address non-GAAP measures in 
press releases or other communications outside financial statements.
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    We are adopting the proposals relating to the use of non-GAAP 
financial measures substantially as proposed.\10\ The rules we adopt 
today, however, reflect the following changes from those proposals:
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    \10\ Regulation G and the amendments to our rules are intended 
to ensure that investors receive adequate information in evaluating 
a company's use of non-GAAP financial measures. In addition, having 
earnings announcements furnished on Form 8-K would provide the 
public a source of reference for obtaining a company's most recent 
statements regarding its financial condition. Therefore, we believe 
that the new rules and amendments are in the public interest and 
consistent with the protection of investors.
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    [sbull] Regulation G--
    [sbull] Regulation G will not apply to a non-GAAP financial 
measure included in disclosure relating to a proposed business 
combination, the entity resulting therefrom or an entity that is a 
party thereto if the disclosure is contained in a communication that 
is subject to the communications rules applicable to business 
combination transactions;
    [sbull] The safe harbor from the application of Regulation G for 
disclosure of non-GAAP financial measures by foreign private issuers 
outside of the United States will make clearer that Regulation G 
does not apply to written communications released in the United 
States, as well as outside the United States, so long as the 
communication is released in the United States contemporaneously 
with or after its release outside the United States and is not 
otherwise targeted at persons located in the United States;
    [sbull] The reference to ``comparable [GAAP] financial measure 
or measures'' will read ``most directly comparable [GAAP] financial 
measure or measures''; and
    [sbull] The definition of GAAP for purposes of financial 
measures prepared by foreign private issuers will be further 
clarified.
    [sbull] Item 10 of Regulation S-K and Item 10 of Regulation S-
B--
    [sbull] These items will not include a prohibition on ``non-GAAP 
per share measures'' in documents filed with the Commission; \11\
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    \11\ While we have not included a prohibition on per share non-
GAAP financial measures in Item 10 of Regulation S-K or Item 10 of 
Regulation S-B, per share measures that are prohibited specifically 
under GAAP or Commission rules continue to be prohibited in 
materials filed with or furnished to the Commission. See, for 
example, the prohibition on cash flow per share in paragraph 33 of 
FASB Statement No. 95, Statement of Cash Flows.
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    [sbull] These items will not apply to a non-GAAP financial 
measure included in disclosure relating to a proposed business 
combination, the entity resulting therefrom or an entity that is a 
party thereto if the disclosure is contained in a communication that 
is subject to the communications rules applicable to business 
combination transactions;
    [sbull] The reference to ``comparable [GAAP] financial measure 
or measures'' will read ``most directly comparable [GAAP] financial 
measure or measures'';
    [sbull] The required quantitative reconciliation will include 
the same exception for forward-looking non-GAAP financial measures 
as in Regulation G;
    [sbull] The measures EBIT (earnings before interest and taxes) 
and EBITDA (earnings before interest, taxes, depreciation, and 
amortization) will be exempted specifically from the prohibition on 
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] The prohibition on 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 will make clear that such an 
adjustment is prohibited only when (1) the nature of the charge or 
gain is such that it is reasonably likely to recur within two years,

[[Page 4821]]

or (2) there was a similar charge or gain within the prior two 
years; and
    [sbull] The definition of GAAP for purposes of financial 
measures prepared by foreign private issuers will be further 
clarified.
    [sbull] Definition of non-GAAP financial measures--
    [sbull] ``Non-GAAP financial measures'' will not include 
financial measures that are required to be disclosed by GAAP, 
Commission rules or a system of regulation that is applicable to a 
registrant.
    [sbull] Form 8-K--
    [sbull] The Form 8-K requirement with respect to earnings 
releases and similar announcements will require that those materials 
be ``furnished to,'' rather than ``filed with,'' the Commission.

II. The Rules and Amendments

A. Regulation G

    We are adopting new Regulation G substantially as proposed. 
Regulation G will apply whenever a company publicly discloses or 
releases material information that includes a non-GAAP financial 
measure.\12\
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    \12\ Section 401(b) of the Sarbanes-Oxley Act directs the 
Commission to adopt rules concerning the public disclosure or 
release of ``pro forma financial information'' by a company filing 
reports under Section 13(a) [15 U.S.C. Sec.  78m(a)] or 15(d) [15 
U.S.C. Sec.  780(d)]. Because the Commission's rules and regulations 
address the use of ``pro forma financial information'' in other 
contexts, particularly in Regulation S-X, and use that term 
differently from its use in the Sarbanes-Oxley Act, 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.
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1.Application
a. General Standard
    Regulation G applies 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.\13\ Regulation G applies whenever such a 
registrant, or a person acting on its behalf, discloses publicly or 
releases publicly any material information that includes a non-GAAP 
financial measure.
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    \13\ See Rule 101(c) of Regulation G [17 CFR 244.101(c)]. 
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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b. Foreign Private Issuers
    Regulation G applies to registrants that are foreign private 
issuers,\14\ subject to a limited exception. Specifically, Regulation G 
does 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:
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    \14\ ``Foreign private issuer'' is defined in Rule 405 [17 CFR 
230.405] under the Securities Act 1933 [15 U.S.C. Sec. Sec.  77a et 
seq.].
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    [sbull] The securities of the foreign private issuer are listed or 
quoted on a securities exchange or inter-dealer quotation system 
outside the United States;
    [sbull] The non-GAAP financial measure is not derived from or based 
on a measure 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 foreign 
private issuer outside the United States, or is included in a written 
communication that is released by or on behalf of the foreign private 
issuer outside the United States.
    These conditions focus on whether the financial measure relates to 
U.S. GAAP and whether the disclosure is made by or on behalf of the 
foreign private issuer outside of the United States. We believe these 
conditions appropriately take into account the interests of U.S. 
investors (including both the interests reflected in the Sarbanes-Oxley 
Act and the interest of receiving information that is communicated 
globally) and the interests of foreign private issuers in communicating 
globally, including in their home markets.
    Therefore, 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 even 
where any one or more of the following circumstances are present:
    [sbull] A written communication is released in the United States as 
well as outside the United States, so long as the communication is 
released in the United States contemporaneously with or after the 
release outside the United States and is not otherwise targeted at 
persons located in the United States;
    [sbull] Foreign journalists, U.S. journalists or other third 
parties have access to the information;
    [sbull] 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; 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.\15\
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    \15\ 17 CFR 249.306.
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c. Disclosures Relating to Business Combination Transactions
    As proposed, Regulation G would have applied to disclosures of non-
GAAP financial measures that represent projections or forecasts of 
results of proposed business combination transactions. We sought 
comment specifically on this point, and several of the comment letters 
we received in response to the proposal argued strongly that Regulation 
G should not apply to these measures.\16\ After consideration of the 
comments regarding the application of Regulation G to these 
disclosures, we are including in Regulation G an exception for non-GAAP 
financial measures included in disclosure relating to a proposed 
business combination transaction, the entity resulting from the 
business combination transaction, or an entity that is a party to the 
business combination transaction if the disclosure is contained in a 
communication that is subject to the Commission's communications rules 
applicable to business combination transactions.\17\
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    \16\ See, for example, the comment letters of the Association of 
the Bar of the City of New York, Special Committee on Mergers, 
Acquisitions, and Corporate Control Contests; Association of the Bar 
of the City of New York, Committee on Securities Regulation; 
Deloitte & Touche, LLP; and Cleary, Gottlieb, Steen & Hamilton.
    \17\ See Exchange Act Rules 14a-12 (17 CFR 240.14a-12) and 14d-2 
(17 CFR 240.14d-2), Securities Act Rules 165 (17 CFR 230.165) and 
425 (17 CFR 230.425), and Item 1015 of Regulation M-A (17 CFR 
229.1015).
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2. Non-GAAP Financial Measures
a. Definition
    For purposes of Regulation G, a non-GAAP financial measure is 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 most 
directly 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 most 
directly comparable measure so calculated and presented.

In this regard, GAAP refers to generally accepted accounting principles 
in the United States.
    The proposed version of Regulation G indicated that, with respect 
to foreign private issuers whose primary financial statements are 
prepared in accordance with non-U.S. generally accepted accounting 
principles, references to

[[Page 4822]]

GAAP would ``also include'' the principles under which those primary 
financial statements are prepared. Commenters expressed the concern 
that the words ``also include'' meant that foreign private issuers 
would have to reconcile the non-GAAP financial measure to both GAAP in 
their home country and U.S. GAAP.\18\ As adopted, Regulation G 
clarifies this issue. First, in the case of foreign private issuers 
whose primary financial statements are prepared in accordance with non-
U.S. generally accepted accounting principles, Regulation G makes clear 
that GAAP refers to the principles under which those primary financial 
statements are prepared. Second, in the case of foreign private issuers 
that include a non-GAAP financial measure derived from or based on a 
measure calculated in accordance with U.S. generally accepted 
accounting principles, Regulation G makes clear that GAAP refers to 
U.S. generally accepted accounting principles for purposes of the 
application of the requirements of Regulation G to the disclosure of 
that measure.
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    \18\ See, for example, the comment letters of Deloitte & Touche, 
LLP and the Association of Private French Enterprises-Association of 
Large French Enterprises.
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b. Discussion of the Definition
    We do not intend the definition of ``non-GAAP financial measures'' 
to capture measures of operating performance or statistical measures 
that fall outside the scope of the definition set forth above. As such, 
non-GAAP financial measures do 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 statistical measures that are calculated using 
exclusively one or both of:
    [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 do not include financial information 
that does not have the effect of providing numerical measures that are 
different from the comparable GAAP measure. Examples of measures to 
which Regulation G does not apply include the following:
    [sbull] Disclosure of amounts of expected indebtedness, including 
contracted and anticipated amounts;
    [sbull] Disclosure of amounts of repayments that have been planned 
or decided upon but not yet made;
    [sbull] Disclosure of estimated revenues or expenses of a new 
product line, so long as such amounts were estimated in the same manner 
as would be computed under GAAP; and
    [sbull] Measures of profit or loss and total assets for each 
segment required to be disclosed in accordance with GAAP.\19\
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    \19\ FASB Statement No. 131, Disclosures About Segments of an 
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 No. 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 \20\ that excludes one or more expense or revenue 
items that are identified as ``non-recurring.'' Another example would 
be EBITDA, 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).
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    \20\ Rule 5-03(b)(1) through Rule 503(b)(7) of Regulation S-X 
[17 CFR 210.5-03(b)(1) through 17 CFR 210.5-03(b)(7)] includes 
guidance on the components of operating income (loss).
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    An example of a ratio that would not be a non-GAAP financial 
measure would be a measure of operating margin that is calculated by 
dividing revenues into operating income, where both revenue and 
operating income are calculated in accordance with GAAP. Conversely, an 
example of a ratio that would be a non-GAAP financial measure would be 
a measure of operating margin that is calculated by dividing revenues 
into operating income, where either revenue or operating income, or 
both, were not calculated in accordance with GAAP.
    We received comment regarding the exclusion of financial measures 
used for regulatory purposes from the definition.\21\ In response to 
these comments, we have provided an exclusion from the definition of 
``non-GAAP financial measure'' for financial measures required to be 
disclosed by GAAP, Commission rules, or a system of regulation of a 
government or governmental authority or self-regulatory organization 
that is applicable to the registrant. Examples of such financial 
measures would include measures of capital or reserves calculated for 
such a regulatory purpose.
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    \21\ See, for example, the comment letters of America's 
Community Bankers and the American Bankers Association.
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3. Requirements of Regulation G
    Regulation G contains a general disclosure requirement and a 
specific requirement of a reconciliation of the non-GAAP financial 
measure to the most directly comparable GAAP financial measure.
a. General Disclosure Requirement \22\
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    \22\ 17 CFR 244.100(b).
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    Regulation G includes the general disclosure requirement that 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, 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.\23\
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    \23\ In its comment letter, the Association for Investment 
Management and Research expressed concern regarding the presentation 
of non-GAAP financial measures that appear to have been calculated 
and presented in a manner consistent with prior presentations of 
that measure when, in fact, the method of calculating or presenting 
the measure has changed since prior periods. We agree with this 
concern. As such, registrants should consider whether a change in 
the method of calculating or presenting a non-GAAP financial measure 
from one period to another, without a complete description of the 
change in that methodology, complies with the requirement of 
Regulation G that 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, 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.

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b. Reconciliation Requirement \24\
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    \24\ 17 CFR 244.100(a).
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    Whenever a company that is subject to Regulation G, or a person 
acting on its behalf, publicly discloses any material information that 
includes a non-GAAP financial measure, Regulation G requires the 
registrant to provide the following information as part of the 
disclosure or release of the non-GAAP financial measure:\25\

    \25\ A registrant's failure to include all of the information 
required to be included in a public disclosure or release 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)).
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    [sbull] A presentation of the most directly comparable financial 
measure calculated and presented in accordance with GAAP;\26\ and
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    \26\ 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. We 
believe that it is most appropriate to provide registrants with the 
flexibility to best make the determination as to which is the ``most 
directly comparable financial measure calculated and presented in 
accordance with GAAP.'' We, therefore, do not believe that it is 
appropriate to provide a specific definition of that term. As 
general guidance, however, we note that our staff has been, and 
continues to be, of the view that (1) non-GAAP financial measures 
that measure cash or ``funds'' generated from operations (liquidity) 
should be balanced with disclosure of amounts from the statement of 
cash flows (cash flows from operating, investing and financing 
activities); and (2) non-GAAP financial measures that depict 
performance should be balanced with net income, or income from 
continuing operations, taken from the statement of operations.
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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 most 
directly comparable financial measure or measures calculated and 
presented in accordance with GAAP.\27\
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    \27\ In the case of ratios or measures where a non-GAAP 
financial measure is the numerator and/or the denominator in the 
calculation of that ratio or measure, the registrant must provide a 
reconciliation with regard to each non-GAAP financial measure used 
in the calculation. The registrant must also show the ratio or 
measure as calculated using the most directly comparable GAAP 
financial measure(s).

    If a non-GAAP financial measure is released orally, telephonically, 
by webcast, by broadcast, or by similar means, the registrant may 
provide the accompanying information required by Regulation G by: (1) 
Posting that information on the registrant's web site; and (2) 
disclosing the location and availability of the required accompanying 
information during its presentation.\28\
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    \28\ Note 1 to Rule 100 of Regulation G [17 CFR 244.100]. While 
Note 1 to Regulation G does not state how long a company must keep 
this information available on its web site, we encourage companies 
to provide ongoing web site access to this information. At a 
minimum, we suggest that companies provide web site access to this 
information for at least a 12-month period.
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    With regard to the quantitative reconciliation of non-GAAP 
financial measures that are forward-looking, Regulation G requires a 
schedule or other presentation detailing the differences between the 
forward-looking non-GAAP financial measure and the appropriate forward-
looking GAAP financial measure. If the GAAP financial measure is not 
accessible on a forward-looking basis, the registrant must disclose 
that fact and provide reconciling information that is available without 
an unreasonable effort. Furthermore, the registrant must identify 
information that is unavailable and disclose its probable significance.
    Some commenters suggested that we define ``public'' disclosure and 
persons acting ``on behalf of'' a registrant.\29\ In both cases, the 
commenters made reference to Regulation FD \30\ as a precedent. We 
believe that the precedent of Regulation FD is largely inapposite in 
this regard and, therefore, have not added these definitions. Under 
Regulation FD, broad ``public'' disclosure is the requirement, not the 
triggering event. The perceived need for exclusions from the triggering 
disclosures and the specified list of company officials that are acting 
for the company under Regulation FD was the concern that any 
disclosure--private or otherwise--would trigger a public disclosure 
requirement. There should be no such concerns with Regulation G. Only 
``public'' disclosure triggers Regulation G, and an issuer is properly 
responsible for any person making ``public'' disclosures on its 
behalf.\31\
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    \29\ See, for example, the comment letter of the American Bar 
Association Committee on Federal Regulation of Securities and the 
American Bar Association Committee on Law and Accounting.
    \30\ 17 CFR 243.100-243.103.
    \31\ Whether disclosure is ``public'' will, of course, depend on 
all of the facts and circumstances surrounding that disclosure. 
Whether disclosure is ``on behalf of'' the registrant also will 
depend on all of the facts surrounding that disclosure. However, 
consistent with Regulation FD, we intend that a person who discloses 
material non-public information in breach of a duty of trust or 
confidence to the registrant should not be considered to be acting 
``on behalf of'' the registrant.
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    We understand, and indeed intend, that Regulation FD and Regulation 
G will operate in tandem. A ``private'' communication of material, non-
public information to, for example, an analyst or a shareholder 
triggers a requirement for broad public disclosure under Regulation FD. 
If that public disclosure is of material information containing a non-
GAAP financial measure, Regulation G will apply to that disclosure.
4. Liability Matters
    Rule 102 of Regulation G \32\ expressly provides that neither the 
requirements of Regulation G nor a person's compliance or non-
compliance with the requirements of Regulation G shall in itself affect 
any person's liability under Exchange Act Section 10(b) \33\ or Rule 
10b-5 thereunder.\34\ Disclosure pursuant to Regulation G that is 
materially deficient may, in addition to violating Regulation G, give 
rise to a violation of Section 10(b) or Rule 10b-5 thereunder 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 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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    \32\ 17 CFR 244.102
    \33\ 15 U.S.C. Sec.  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.

B. Non-GAAP Financial Measures in Filings With the Commission--
Amendments to Item 10 of Regulation S-K, Item 10 of Regulation S-B and 
Form 20-F

1. Application
a. General Standard
    We are amending Item 10 of Regulation S-K and Item 10 of Regulation 
S-B to include a statement concerning the use of non-GAAP financial 
measures in filings with the Commission. The amendments do not apply to 
registered investment

[[Page 4824]]

companies.\37\ The non-GAAP financial measures provisions in amended 
Item 10 of Regulation S-K and Item 10 of Regulation S-B apply to the 
same categories of non-GAAP financial measures as are covered by 
Regulation G.\38\
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    \37\ Regulation S-B does not apply to registered investment 
companies, as they are excluded from the definition of ``small 
business issuer'' [17 CFR 228.10(a)(1)(iii)]. The amendments to 
Regulation S-K include a specific exemption for registered 
investment companies [17 CFR 229.10(e)(7)].
    \38\ These amendments apply only to non-GAAP financial measures 
in filings with the Commission. Regulation G applies to any public 
disclosure of material information that includes a non-GAAP 
financial measure, regardless of whether it is in a filing with the 
Commission. Accordingly, 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, also applies 
to disclosures in documents filed with the Commission.
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b. Foreign Private Issuers
    We are amending Exchange Act Form 20-F to incorporate Item 10 of 
Regulation S-K. Accordingly, foreign private issuers will be subject to 
the same requirements as domestic issuers with respect to the use of 
non-GAAP financial measures in filings with the Commission on Form 20-
F.\39\ Consistent with the proposal, filers on Form 40-F under the 
Multi-Jurisdictional Disclosure System are not subject to those 
requirements.\40\
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    \39\ Item 10 of Regulation S-K will not apply to materials 
submitted to the Commission on Form 6-K. However, if the information 
in the Form 6-K is incorporated by reference into a registration 
statement, prospectus or annual report, Item 10 of Regulation S-K 
would then apply to that information.
    \40\ Any public disclosure by these issuers that is not covered 
by the exclusion for foreign private issuers would, however, be 
subject to Regulation G.
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    As noted above, the definition of ``non-GAAP financial measure'' is 
the same for purposes of these amendments as for Regulation G. However, 
a non-GAAP financial measure that would otherwise be prohibited will be 
permitted in a Form 20-F filing of a foreign private issuer if the 
measure is (1) required or expressly permitted by the standard-setter 
that establishes the generally accepted accounting principles used in 
the foreign private issuer's primary financial statements and (2) 
included in the foreign private issuer's annual report or financial 
statements used in its home country jurisdiction or market.\41\ We have 
modified the language of this provision to clarify its application. We 
intended, however, that this exception cover only situations where the 
foreign organization affirmatively acts to require or permit the 
measure, and not situations where the measure was merely not 
prohibited. We have, therefore, maintained the requirement of 
``express'' permission, notwithstanding certain comments we 
received.\42\
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    \41\ While such a non-GAAP financial measure would not be 
prohibited in a Form 20-F, the remaining requirements of Item 10 of 
Regulation S-K would, of course, continue to apply.
    \42\ See, for example, the comment letters of the American 
Institute of Certified Public Accountants; Deloitte & Touche, LLP; 
and Cleary, Gottlieb, Steen & Hamilton.
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2. Requirements of Amended Item 10 of Regulation S-K and Item 10 of 
Regulation S-B
    The amendments to Item 10 of Regulation S-K and Item 10 of 
Regulation S-B require registrants using non-GAAP financial measures in 
filings with the Commission to provide: \43\
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    \43\ As with Regulation G, the requirements of Item 10 of 
Regulation [chyph]S-K and Item 10 of Regulation S-B will not apply 
to non-GAAP financial measures included in disclosure relating to a 
proposed business combination transaction, the entity resulting from 
the business combination transaction, or an entity that is a party 
to the business combination transaction if the disclosure is 
contained in a communication that is subject to the Commission's 
communications rules applicable to business combination 
transactions.

    [sbull] A presentation, with equal or greater prominence, of the 
most directly comparable financial measure calculated and presented 
in accordance with GAAP;
    [sbull] 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 directly comparable 
financial measure or measures calculated and presented in accordance 
with GAAP;
    [sbull] 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;\44\ and
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    \44\ With regard to the issuer's statement as to why management 
believes the non-GAAP financial measure provides useful information 
to investors, the 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 
substantive justification that causes a measure to be used by or 
useful to analysts.
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    [sbull] To the extent material, a statement disclosing the 
additional purposes, if any, for which the registrant's management 
uses the non-GAAP financial measure that are not otherwise 
disclosed.

    In addition to these mandated disclosure requirements, amended Item 
10 of Regulation S-K and Item 10 of Regulation S-B prohibit the 
following:

    [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, other than the measures EBIT and EBITDA;
    [sbull] Adjusting a non-GAAP performance measure to eliminate or 
smooth items identified as non-recurring, infrequent or unusual, 
when (1) the nature of the charge or gain is such that it is 
reasonably likely to recur within two years, or (2) there was a 
similar charge or gain within the prior two years;\45\
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    \45\ Permitted adjustments (including those permitted because 
they satisfy the two-year condition) would, of course, be subject to 
the reconciliation requirement.
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    [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; and
    [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.

    The requirements and prohibitions for filed information are more 
extensive and detailed than those of Regulation G. The additional 
requirements and prohibitions are generally consistent with the staff's 
historical practice in situations where it has reviewed filings 
containing non-GAAP financial measures.
    Commenters expressed the concern that the prohibition on excluding 
from non-GAAP liquidity measures charges or liabilities that required, 
or will require, cash settlement, or would have required cash 
settlement absent an ability to settle in another manner, would 
prohibit the use of the non-GAAP financial measure EBITDA.\46\ We are 
exempting EBIT and EBITDA from this provision because of their wide and 
recognized existing use. However, registrants must reconcile these 
measures to their most directly comparable GAAP financial measure. 
Also, in the discussion of why the measure is useful to investors, 
registrants must discuss why investors would find it valuable in the 
context in which it is presented, given the excluded items.
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    \46\ See, for example, the comment letters of Latham & Watkins; 
Intel Corporation; the Association of the Bar of the City of New 
York, Committee on Securities Regulation; BDO Seidman, LLP; and 
Ernst & Young LLP.
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    We had proposed that the requirements for a reconciliation to the 
most directly comparable GAAP financial measure be slightly more 
stringent than those set forth under Regulation G. In particular, in 
filings

[[Page 4825]]

with the Commission, it was proposed that there 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. Commenters 
expressed the view that the need for such an exception was present 
equally in disclosure that was filed with the Commission and disclosure 
that was not filed.\47\ In response to these comments, we have revised 
the requirement for filed documents to include the same exception as in 
Regulation G. Accordingly, with regard to the quantitative 
reconciliation of non-GAAP financial measures that are forward-looking, 
Item 10 of Regulation S-K and Item 10 of Regulation S-B require a 
schedule or other presentation detailing the differences between the 
forward-looking non-GAAP financial measure and the appropriate forward-
looking GAAP financial measure. If the GAAP financial measure is not 
accessible on a forward-looking basis, the registrant must disclose 
that fact and provide reconciling information that is available without 
an unreasonable effort. Furthermore, the registrant must identify 
information that is unavailable and disclose its probable significance.
---------------------------------------------------------------------------

    \47\ See, for example, the comment letters of the Securities Law 
Committee of the American Society of Corporation Secretaries and 
Deloitte & Touche, LLP.
---------------------------------------------------------------------------

    As proposed, Item 10 of Regulation [chyph]S-K and Item 10 of 
Regulation S-B would have included a prohibition on the use of ``non-
GAAP per share financial measures.'' We received significant comment 
expressing concern with this part of the proposal.\48\ The commenters 
were of the view that the proposed prohibition would deprive investors 
of useful information and that the other requirements of Regulation G 
and Item 10 would provide adequate protections with regard to the use 
of such financial measures.\49\ In response to those comments, we have 
not included a prohibition on ``non-GAAP per share financial measures'' 
in the amendments to Item 10 of Regulation S-K or Item 10 of Regulation 
S-B.\50\
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    \48\ See, for example, the comment letters of Fannie Mae; the 
Securities Law Committee of the American Society of Corporate 
Secretaries; the American Council of Life Insurers; the American 
Institute of Certified Public Accountants; the National Association 
of Real Estate Investment Trusts; the Real Estate Roundtable; the 
New York Clearing House Association; and the Committee on Corporate 
Reporting of Financial Executives International.
    \49\ See footnote 11 for additional information regarding the 
use of ``non-GAAP per share financial measures.'' Further, despite 
the absence of a prohibition against the use of ``non-GAAP per share 
financial measures'' in Item 10 of Regulation S-K and Item 10 of 
Regulation S-B, registrants should consider whether the use of any 
per share measure that is not calculated using a share figure that 
is presented on a diluted basis complies with (1) the requirement of 
Regulation G that 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, 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; and (2) generally accepted accounting 
principles (see, for example, FASB Statement No. 128, Earnings Per 
Share).
    \50\ A number of commenters in the real estate industry 
expressed concern regarding the use of the non-GAAP financial 
measure ``funds from operations per share'' in earnings releases and 
materials that are filed with or furnished to the Commission. 
Because amended Item 10 of Regulation S-K and amended Item 10 of 
Regulation S-B do not include a prohibition on ``non-GAAP per share 
financial measures,'' registrants may use the ``funds from 
operations per share'' measure, subject to the requirements of 
Regulation G, amended Item 10 of Regulation S-K and amended Item 10 
of Regulation S-B.
---------------------------------------------------------------------------

    Some commenters were of the view that the proposed requirements of 
(1) a statement regarding the purposes for which management uses the 
non-GAAP financial measure and (2) a statement of the utility of the 
non-GAAP financial measure to investors would likely result in 
duplicative disclosure.\51\ In response to these comments, we have 
revised the requirement of a statement of the purposes for which 
management uses the non-GAAP financial measure to apply only to the 
extent that the information is material and is not presented in the 
statement of the utility of the non-GAAP financial measure to 
investors. Consistent with the proposal, the requirement for these 
statements may 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 containing the non-GAAP financial measure.
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    \51\ See, for example, the comment letter of the American Bar 
Association Committee on Federal Regulation of Securities and the 
American Bar Association Committee on Law and Accounting.
---------------------------------------------------------------------------

    The required statements of the purposes for which management uses 
the non-GAAP financial measure and the utility of the information to 
investors should not be boilerplate. We intend these statements to be 
clear and understandable. We also intend these statements to be 
specific to the non-GAAP financial measure used, the registrant, the 
nature of the registrant's business and industry, and the manner in 
which management assesses the non-GAAP financial measure and applies it 
to management decisions.

C. New Item 12 of Form 8-K

    We are amending Form 8-K to add new Item 12, ``Disclosure of 
Results of Operations and Financial Condition.'' \52\ The addition of 
Item 12 to Form 8-K will bring earnings information within our current 
reporting system by requiring registrants to furnish to the Commission 
all releases or announcements disclosing material non-public financial 
information about completed annual or quarterly fiscal periods. New 
Item 12 does not require that companies issue earnings releases or 
similar announcements. However, such releases and announcements will 
trigger the requirements of Item 12.
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    \52\ In Release No. 33-8106 (June 17, 2002) [67 FR 42913], we 
proposed significant amendments to Form 8-K. We intend to address 
those proposals in the near future. As we have not yet revised Form 
8-K as proposed in Release No. 33-8106, we have adopted the proposed 
requirement regarding earnings releases and similar disclosures 
without using the new numbering system proposed for Form 8-K. At the 
time we address the proposals in Release No. 33-8106, we will 
consider the need to renumber all of the items in Form 8-K, 
including new Item 12.
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1. General Requirement
    Item 12 requires registrants to furnish to the Commission a Form 8-
K within five 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.\53\ The requirements of Item 12 will 
apply regardless of whether the release or announcement includes 
disclosure of a non-GAAP financial measure. Item 12 requires the 
registrant to identify briefly the announcement or release and include 
the announcement or release as an exhibit to the Form 8-K.
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    \53\ The proposing release would have required a registrant to 
file the Form 8-K under Item 12 within two business days after the 
earnings release or similar disclosure. We had proposed this 
deadline in anticipation of the adoption of our proposal, in Release 
No. 33-8106, to shorten the filing deadline for all reports on Form 
8-K. As we have not yet addressed those proposals, we believe it is 
appropriate to adopt a temporary deadline for furnishing a report on 
Form 8-K under Item 12 of five business days, the shorter of the two 
existing Form 8-K deadlines. When we address the Form 8-K proposals, 
we may then shorten the Item 12 deadline. At that time, we will 
consider the comments received in response to the proposing release 
and our proposal therein to set a two-business day deadline for 
earnings releases or similar disclosures on Form 8-K.
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    Repetition of information that was publicly disclosed previously or 
the release of the same information in a different form (for example in 
an interim or annual report to shareholders) would not trigger the Item 
12 requirement. This result would not

[[Page 4826]]

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 operations or financial condition for a 
completed fiscal year or quarter would trigger an additional Item 12 
obligation. Issuers that make earnings announcements or other 
disclosures of material non-public information regarding a completed 
fiscal quarter or year in an interim or annual report to shareholders 
would be permitted to specify in the Form 8-K which portion of that 
report contains the information required to be furnished under Item 12. 
In addition, the requirement to furnish a Form 8-K under Item 12 would 
not apply to issuers that make these announcements and disclosures only 
in their quarterly reports filed with the Commission on Form 10-Q \54\ 
(or 10-QSB \55\) or their annual reports filed with the Commission on 
Form 10-K \56\ (or 10-KSB\57\).
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    \54\ 17 CFR 249.308a.
    \55\ 17 CFR 249.308b.
    \56\ 17 CFR 249.310.
    \57\ 17 CFR 249.310b.
---------------------------------------------------------------------------

    Item 12 includes an exception from its requirements where non-
public information is disclosed orally, telephonically, by webcast, by 
broadcast, or by similar means in a presentation that is complementary 
to, and occurs within 48 hours after, a related, written release or 
announcement that triggers the requirements of Item 12.\58\ In this 
situation, Item 12 would not require the registrant to furnish an 
additional Form 8-K with regard to the information that is disclosed 
orally, telephonically, by webcast, by broadcast, or by similar means 
if: \59\
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    \58\ We intend this exception to permit current practices where 
these presentations include information that, although not already 
included in the related, written release or announcement, is 
complementary thereto. We do not intend this exception to foster 
changes in practice whereby disclosure is shifted from the written 
release or announcement to the complementary presentation.
    \59\ In its comment letter, the American Bar Association 
Committee on Federal Regulation of Securities asked whether the 
phrase ``similar means'' in proposed Item 1.04(b) related to the 
entire preceding list (as proposed, this list read ``orally, 
telephonically, webcast, or by similar means'') or whether it merely 
related to ``webcast.'' We intend the phrase ``similar means'' to 
relate to the entire preceding list. We have revised Item 12 to be 
clearer in this regard.

    [sbull] The related, written release or announcement has been 
furnished to the Commission on Form 8-K pursuant to Item 12 prior to 
the presentation; \60\
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    \60\ As the deadline for furnishing the Form 8-K to the 
Commission is five business days, this exception would be available 
only to registrants that furnish that Form 8-K to the Commission in 
advance of the deadline specified in Item 12.
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    [sbull] The presentation is broadly 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 Regulation G; \61\ 
and
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    \61\ While Item 12 does not state how long a company must keep 
this information available on its web site, we encourage companies 
to provide ongoing web site access to this information. At a 
minimum, we suggest that companies provide web site access to this 
information for at least a 12-month period. Further, we understand 
that a company may have multiple web sites that it uses for various 
purposes, such as investor relations, product information and 
business-to-business activities. We interpret this requirement to 
mean that the information is provided on the web site or page that 
the company normally uses for its investor relations functions.
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    [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.

    Item 12 of Form 8-K will 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 Item 12. Accordingly, 
Item 12 will 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.\62\
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    \62\ Of course, Regulation FD would continue to apply to 
disclosure of such forward-looking information if it were material.
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2. Filing Versus Furnishing--Liability and Incorporation by Reference
    As proposed, Item 12 would have required registrants to ``file'' a 
Form 8-K meeting the requirements of Item 12. This proposal was in 
contrast to Item 9 of Form 8-K, which permits registrants to 
``furnish'' a Form 8-K to the Commission. The most significant 
implications of ``furnishing'' a Form 8-K to the Commission, rather 
than ``filing'' a Form 8-K with the Commission are clear:

    [sbull] Information that is ``furnished to the Commission'' in 
such a Form 8-K is not subject to Section 18 \63\ of the Exchange 
Act unless the registrant specifically states that the information 
is to be considered ``filed'';
---------------------------------------------------------------------------

    \63\ 15 U.S.C. Sec.  78r.
---------------------------------------------------------------------------

    [sbull] Information that is ``furnished to the Commission'' in 
such a Form 8-K is not incorporated by reference into a registration 
statement, proxy statement or other report unless the registrant 
specifically incorporates that information into those documents by 
reference; and
    [sbull] Information that is ``furnished to the Commission'' in 
such a Form 8-K is not subject to the requirements of amended Item 
10 of Regulation S-K or Item 10 of Regulation S-B, while ``filed'' 
information would be subject to those requirements.

    We have considered the views of commenters that requiring earnings 
releases to be filed would have a detrimental effect on the level and 
quality of information that is provided to investors.\64\ These 
commenters expressed the concern that the enhanced liability may 
preclude registrants from making earnings releases or similar 
disclosures. Further, the commenters were concerned that the need to 
satisfy the more stringent requirements in amended Item 10 of 
Regulation S-K and Item 10 of Regulation S-B within the required 
timeframe of Form 8-K would cause registrants to limit their 
publication of earnings releases or similar disclosures.
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    \64\ See, for example, the comment letters of the American Bar 
Association Committee on Federal Regulation of Securities; the 
American Bar Association Committee on Law and Accounting; the 
American Council of Life Insurers; and the Association of the Bar of 
the City of New York, Committee on Securities Regulation.
---------------------------------------------------------------------------

    After consideration of these comments, Item 12 of Form 8-K, as 
adopted, requires that earnings releases or similar disclosures be 
furnished to the Commission rather than filed. Regulation G would, of 
course, apply to these releases and disclosures. In addition, to 
provide certain of the protections provided by the amendments to Item 
10 of Regulation S-K and Item 10 of Regulation S-B to earnings 
releases, even if they are not filed, we have included in Item 12 of 
Form 8-K the requirements of paragraph (e)(1)(i) of Item 10 of 
Regulation S-K and paragraph (h)(1)(i) of Item 10 of Regulation S-B. As 
a result, in addition to the requirements already imposed by Regulation 
G, registrants would be required to disclose:

    [sbull] 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; \65\ and
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    \65\ See footnote 44 and the related discussion of the 
amendments to Item 10 of Regulation S-K and Item 10 of Regulation S-
B for additional information with regard to this requirement.
---------------------------------------------------------------------------

    [sbull] to the extent material, the additional purposes, if any, 
for which the registrant's management uses the non-GAAP financial 
measure that are not otherwise disclosed.

    Registrants may satisfy this requirement by including the 
disclosure

[[Page 4827]]

in the Form 8-K or in the release or announcement that is included as 
an exhibit to the Form 8-K. As indicated above, registrants also may 
satisfy the requirement to provide these additional two statements by 
including the disclosure in their 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 the Form 8-K is 
furnished to the Commission. The other amendments to Item 10 of 
Regulation S-K and Item 10 of Regulation S-B would not apply.
3. Relationship of Item 12 to Regulation FD
    Earnings releases and similar disclosures that trigger the 
requirements of Item 12 are also subject to Regulation FD. The 
application of Item 12 would differ from Regulation FD, however, in 
that the requirements of Item 12 would always implicate Form 8-K for 
those disclosures, while Regulation FD provides that Form 8-K is an 
alternative means of satisfying its requirements. Further, a Form 8-K 
furnished to the Commission pursuant to Item 9 would satisfy an 
issuer's obligation under Regulation FD only if the Form 8-K were 
furnished to the Commission 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, Item 12 would require that 
a Form 8-K be furnished to the Commission within the five business day 
timeframe of Item 12. A Form 8-K furnished within the timeframe 
required by Regulation FD and otherwise satisfying the requirements of 
both Item 9 and Item 12 could be furnished to the Commission once, 
indicating that it is being furnished under both Item 9 and Item 12, 
and satisfy both requirements.

III. Paperwork Reduction Act

    Regulation G and related amendments to Regulation S-K, Regulation 
S-B, Form 8-K and Form 20-F contain ``collections of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''),\66\ 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 [chyph]S-K, Regulation S-B, 
Form 8-K and Form 20-F. The Commission did not receive any comments on 
the paperwork burden. OMB has approved all but one of the collections 
of information. OMB has not yet approved the changes to Form 8-K. We 
will announce the approval by separate release.
---------------------------------------------------------------------------

    \66\ 44 U.S.C. Sec.  3501 et seq.
---------------------------------------------------------------------------

    The Commission is adopting Regulation G pursuant to Section 401 of 
the Sarbanes-Oxley Act. Regulation G will require registrants that 
publicly disclose material information that includes non-GAAP financial 
measures to provide a reconciliation to the most directly comparable 
GAAP financial measures. 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 most 
directly 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 most 
directly 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. We continue to expect the cost of obtaining the additional 
disclosure required by Regulation G to be minimal. Accordingly, we have 
estimated for purposes of the PRA that it will take .5 burden hour for 
each time a respondent complies 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.
    Regulation S-K (OMB Control No. 3235-0071) and Regulation S-B (OMB 
Control No. 3235-0417) prescribe disclosure requirements that 
registrants must follow when filing registration statements, reports 
and schedules with the Commission. Our amendments to Item 10 of 
Regulation S-K and Item 10 of Regulation 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 that 
adding the same requirement to Item 10 of Regulation [chyph]S-K and 
Item 10 of Regulation S-B creates an additional collection of 
information within the meaning of the PRA. To account for the 
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 continue to believe that our amendments to Item 10 of 
Regulation [chyph]S-K and Item 10 of Regulation S-B do not 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. Item 12 of Form 8-K requires 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 furnish the text of the public disclosure 
and any accompanying analysis. Item 12 of Form 8-K does not require 
companies to actually issue an earnings announcement or release but 
only requires that it be furnished if they choose to issue an earnings 
announcement or release. Item 12 will bring earnings announcements and 
releases into the formal disclosure system although they would not be 
deemed filed or, absent additional action by the registrant, 
incorporated into registration statements or proxy statements filed 
with the Commission. The Forms 8-K would be available to investors on a 
widespread basis on our Internet Web site.
    Item 12 of Form 8-K was modified from our proposing release in that 
the Form 8-K is no longer considered to be filed with the Commission 
but, rather, it would be considered furnished to the Commission. This 
change does not, however, alter the paperwork burden. We estimate, for 
purposes of the PRA, the burden associated with actually furnishing the 
Form 8-K to be minimal.

[[Page 4828]]

We believe that complying with Item 12 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 Item 12 would be 
28,000 hours. We would expect that companies would use in-house 
personnel to file the Form 8-K.
    We have amended Form 20-F (OMB Control Number 3235-0288) to 
incorporate our amendments to Item 10 of Regulation S-K. While 
Regulation G provides a limited exception for foreign private issuers, 
this exception would not apply to their Form 20-F filings 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.

IV. Cost-Benefit Analysis

    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 measures to a company's financial 
condition and results of operations under GAAP. Moreover, the Sarbanes-
Oxley Act requires that any public disclosure of a non-GAAP financial 
measure 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 information 
concerning material changes in their financial condition or operations.
    New Regulation G and the amendments to Item 10 of Regulation S-K, 
Item 10 of Regulation S-B and Form 20-F will 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. While our proposals received 
significant public comment, no commenter provided any quantitative data 
on costs or benefits.

A. Benefits

    Regulation G and the amendments to our rules are intended to ensure 
that investors and others are not misled by the use of non-GAAP 
financial measures. Additionally, the amendments to Form 8-K are 
intended to create a central depository where investors and other 
market participants can look to find the latest earnings announcements 
and releases by public companies and provide enhanced attention to 
those announcements and releases.
    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 directly 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. We continue to believe 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.

B. Costs

    We believe that the costs associated with the Regulation G and 
amendments will be minimal. As noted earlier, no commenter provided any 
quantitative data in their comment letters to the Commission. We 
contacted a sample of commenters to gather additional data about the 
costs associated with reconciling a non-GAAP financial measure with the 
most directly comparable GAAP financial measure. The commenters stated 
that, in most cases, for historical measures, registrants have the most 
directly comparable GAAP financial measure available at the time they 
prepare or release a non-GAAP financial measure.\67\ In addition, the 
commenters stated that the cost of reconciling a non-GAAP financial 
measure with the most directly comparable GAAP financial measure is not 
significant for historical measures. Most of the commenters that 
responded to our inquiries already prepare a reconciliation (either for 
internal use, external release, or both) between a non-GAAP financial 
measure and the most directly comparable GAAP financial measure when a 
non-GAAP financial measure, on an historical basis, is presented. 
Accordingly, those companies do not expect to incur any significant 
incremental costs in complying with the proposal in this particular 
area.\68\
---------------------------------------------------------------------------

    \67\ We continue to believe that, in cases where the GAAP 
financial measure is not available for historical measures, 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. 
See also footnote 68.
    \68\ One company indicated that, for a performance-based non-
GAAP financial measure, the company already prepares a 
reconciliation to net income determined in accordance with GAAP by 
the date of the earnings release. However, for non-GAAP measures 
that are liquidity measures, the company does not currently prepare 
a reconciliation to the most comparable GAAP measure by the date of 
the company's earnings release because the statement of cash flows 
is not prepared until later in the financial reporting process. This 
company estimated that, under the proposal, the company would not 
necessarily incur significant additional costs to reconcile its non-
GAAP liquidity financial measures to GAAP-based cash flow measures, 
but some salaried employees would be required to work additional 
hours earlier in the financial reporting process to complete the 
preparation of the statement of cash flows by the date of the 
earnings release.
---------------------------------------------------------------------------

    Three commenters in the group that we contacted indicated that they 
present forward-looking non-GAAP financial measures in earnings 
releases. Those companies indicated that they do not have the most 
directly comparable GAAP financial measure available at the time they 
prepare their non-GAAP measure because they are unable to quantify 
certain amounts that would be required to be included in the GAAP 
measure.\69\ However, those companies would be able to explain, at the 
date the forward-looking non-GAAP financial measure is released, the 
types of gains, losses, revenues or expenses that would need to be 
added to or subtracted from the non-GAAP financial measure to arrive at 
the most directly comparable GAAP measure, even though they cannot 
quantify all of those items. The companies indicated that if they were 
to be required to quantify the reconciling items between the non-GAAP 
forward-looking financial measure and the most directly comparable GAAP 
financial

[[Page 4829]]

measure, it would be very difficult and may result in the company 
deciding not to provide the non-GAAP financial measure to the public. 
Regulation G requires that, for forward-looking measures, the 
reconciliation between non-GAAP and GAAP financial measures must be 
quantitative ``to the extent available and without unreasonable 
efforts.'' Accordingly, we do not believe Regulation G will impose 
significant additional costs on registrants with respect to reconciling 
forward-looking non-GAAP and GAAP financial measures.
---------------------------------------------------------------------------

    \69\ For example, one company that uses a non-GAAP financial 
measure derived from net income told us that it excludes realized 
capital gains and losses, gains and/or losses on dispositions of 
operations, and accounting changes in preparing its non-GAAP 
financial measure, because it is unable to forecast with any degree 
of comfort the amounts that would be recorded under GAAP for these 
items.
---------------------------------------------------------------------------

    We continue to estimate 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 Paperwork Reduction Act 
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) \70\ 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 because, 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.
---------------------------------------------------------------------------

    \70\ The cost estimates are based on the SIA Report for 
employees based outside the New York City metropolitan area.
---------------------------------------------------------------------------

    Most commenters had concerns with our amendments to Item 10 of 
Regulation S-K and Item 10 of Regulation S-B and our requirement to 
file their earnings release, if any, on Form 8-K. Commenters generally 
opposed the prohibitions of Item 10 as they would apply to their 
earnings release. Commenters particularly opposed the prohibition 
against presenting a non-GAAP per share measure. Accordingly, we have 
made two modifications to our proposals. First, Item 10 would no longer 
prohibit the presentation of a non-GAAP per share measure.\71\ Second, 
the earnings release would no longer be required to be filed on Form 8-
K but, rather, it would be required to be furnished to the Commission 
under Form 8-K. The change from filing to furnishing has two 
consequences. First, a company's earnings releases would no longer be 
subject to Item 10 prohibitions. Second, the earnings release would no 
longer be subject to Section 18 of the Exchange Act.
---------------------------------------------------------------------------

    \71\ However, see the guidance on the use of per share measures 
in footnote 11.
---------------------------------------------------------------------------

    With regard to other filings with the Commission, Item 10 would 
continue to apply. 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 incremental cost to the 
registrant. To account for the required reconciliation in both 
Regulation G and Item 10 of Regulation S-K and Item 10 of Regulation S-
B would result in double counting. Additionally, because companies 
currently are expected to 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 rule would not 
increase costs already properly 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.
    With regard to the required submission on Form 8-K, we continue to 
believe that personnel in finance, investor relations or corporate 
communications departments would most likely submit the earnings 
announcements or releases, as most earnings announcements are 
disseminated via press release. We have estimated that the actual time 
required to submit 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 the required 
submission on 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 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 amendments to Form 20-F would incorporate Item 10 of 
Regulation S-K. While 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, the costs associated with our amendment 
to Form 20-F are already accounted for in our cost estimates for 
Regulation G.

V. Regulatory Flexibility Act Certification

    Pursuant to 5 U.S.C. Sec.  605(b), the Commission has certified 
that Regulation G and our amendments to Item 10 of Regulation S-B, Item 
10 of Regulation S-K and Form 8-K under the Securities Act and the 
Exchange Act will not have a significant economic impact on a 
substantial number of small entities. This certification, including the 
basis for the certification, was included in the proposing release. We 
solicited comments on the potential impact of the amendments on small 
entities, but received none.

VI. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act \72\ requires us to consider 
the anti-competitive effects of any rules that we adopt under the 
Exchange Act. 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 purposes of the Exchange Act. Furthermore, Section 
2(b) of the Securities Act \73\ and Section 3(f) of the Exchange Act 
\74\ require us, when engaging in rulemaking, to consider or determine 
whether an action is necessary or appropriate in the public interest, 
and consider whether the action will promote efficiency, competition, 
and capital formation.
---------------------------------------------------------------------------

    \72\ 15 U.S.C. Sec.  78w(a)(2).
    \73\ 15 U.S.C Sec.  77b(b).
    \74\ 15 U.S.C. Sec.  78c(f).
---------------------------------------------------------------------------

    We requested comment on any anti-competitive effects of the 
proposals. We did not receive any comments regarding any anti-
competitive effects of the proposal. We do not believe that Regulation 
G or our amendments to Item 10 of Regulation S-K, Item 10 of Regulation 
S-B, Form 8-K or Form 20-F will have a quantifiable effect on

[[Page 4830]]

efficiency, competition, and capital formation.

VII. Statutory Basis

    New Regulation G, new Item 12 to Form 8-K and the amendments to the 
General Instructions to Form 8-K, Item 10 of Regulation S-K, Item 10 of 
Regulation S-B and Form 20-F are being adopted 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 Amendments

    In accordance with the foregoing, the Securities and Exchange 
Commission amends 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. 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, 80a-37 and 80b-11.
* * * * *

    2. Amend Sec.  228.10 by adding paragraph (h) to read as follows:


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 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 directly comparable 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 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
    (D) To the extent material, a statement disclosing the additional 
purposes, if any, for which the registrant's management uses the non-
GAAP financial measure that are not disclosed pursuant to paragraph 
(h)(1)(i)(C) of this section; and
    (ii) A registrant must not:
    (A) 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, 
other than the measures earnings before interest and taxes (EBIT) and 
earnings before interest, taxes, depreciation, and amortization 
(EBITDA);
    (B) 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 within two years or there was a similar charge or gain within the 
prior two years;
    (C) Present non-GAAP financial measures on the face of the 
registrant's financial statements prepared in accordance with GAAP or 
in the accompanying notes;
    (D) 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); or
    (E) 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; 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 most directly 
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 most directly 
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:
    (i) Operating and other statistical measures; and
    (ii) Ratios or statistical measures calculated using exclusively 
one or both of:
    (A) Financial measures calculated in accordance with GAAP; and
    (B) Operating measures or other measures that are not non-GAAP 
financial measures.
    (5) For purposes of this paragraph (h), non-GAAP financial measures 
exclude financial measures required to be disclosed by GAAP, Commission 
rules, or a system of regulation of a government or governmental 
authority or self-regulatory organization that is applicable to the 
registrant. However, the financial measure should be presented outside 
of the financial statements unless the financial measure is required or 
expressly permitted by the standard setter that is responsible for 
establishing the GAAP used in such financial statements.
    (6) The requirements of paragraph (h) of this section shall not 
apply to a non-GAAP financial measure included in disclosure relating 
to a proposed business combination, the entity resulting therefrom or 
an entity that is a party thereto, if the disclosure is contained in a 
communication that is subject to Sec.  230.425 of this chapter, Sec.  
240.14a-12 or Sec.  240.14d-2(b)(2) of this chapter or Sec.  229.1015 
of this chapter.

[[Page 4831]]

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, 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 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 directly comparable 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 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
    (D) To the extent material, a statement disclosing the additional 
purposes, if any, for which the registrant's management uses the non-
GAAP financial measure that are not disclosed pursuant to paragraph 
(e)(1)(i)(C) of this section; and
    (ii) A registrant must not:
    (A) 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, 
other than the measures earnings before interest and taxes (EBIT) and 
earnings before interest, taxes, depreciation, and amortization 
(EBITDA);
    (B) 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 within two years or there was a similar charge or gain within the 
prior two years;
    (C) Present non-GAAP financial measures on the face of the 
registrant's financial statements prepared in accordance with GAAP or 
in the accompanying notes;
    (D) 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); or
    (E) Use 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
    (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 most directly 
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 most directly 
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:
    (i) In the case of foreign private issuers whose primary financial 
statements are prepared in accordance with non-U.S. generally accepted 
accounting principles, GAAP refers to the principles under which those 
primary financial statements are prepared; and
    (ii) In the case of foreign private issuers that include a non-GAAP 
financial measure derived from or based on a measure calculated in 
accordance with U.S. generally accepted accounting principles, GAAP 
refers to U.S. generally accepted accounting principles for purposes of 
the application of the requirements of this paragraph (e) to the 
disclosure of that measure.
    (4) For purposes of this paragraph (e), non-GAAP financial measures 
exclude:
    (i) Operating and other statistical measures; and
    (ii) Ratios or statistical measures calculated using exclusively 
one or both of:
    (A) Financial measures calculated in accordance with GAAP; and
    (B) Operating measures or other measures that are not non-GAAP 
financial measures.
    (5) For purposes of this paragraph (e), non-GAAP financial measures 
exclude financial measures required to be disclosed by GAAP, Commission 
rules, or a system of regulation of a government or governmental 
authority or self-regulatory organization that is applicable to the 
registrant. However, the financial measure should be presented outside 
of the financial statements unless the financial measure is required or 
expressly permitted by the standard-setter that is responsible for 
establishing the GAAP used in such financial statements.
    (6) The requirements of paragraph (e) of this section shall not 
apply to a non-GAAP financial measure included in disclosure relating 
to a proposed business combination, the entity resulting therefrom or 
an entity that is a party thereto, if the disclosure is contained in a 
communication that is subject to Sec.  230.425 of this chapter, Sec.  
240.14a-12 or Sec.  240.14d-2(b)(2) of this chapter or Sec.  229.1015 
of this chapter.
    (7) The requirements of paragraph (e) of this section shall not 
apply 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

[[Page 4832]]

this section is permitted in a filing of a foreign private issuer if:
    1. The non-GAAP financial measure relates to the GAAP used in the 
registrant's primary financial statements included in its filing with 
the Commission;
    2. The non-GAAP financial measure is required or expressly 
permitted by the standard-setter that is responsible for establishing 
the GAAP used in such financial statements; and
    3. 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) of this section.
    (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 is not derived from or based on 
a measure 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 outside the United 
States.
    (d) This section shall not apply to a non-GAAP financial measure 
included in disclosure relating to a proposed business combination, the 
entity resulting therefrom or an entity that is a party thereto, if the 
disclosure is contained in a communication that is subject to Sec.  
230.425 of this chapter, Sec.  240.14a-12 or Sec.  240.14d-2(b)(2) of 
this chapter or Sec.  229.1015 of this chapter.
    Notes to Sec.  244.100: 1.If a non-GAAP financial measure is made 
public orally, telephonically, by Web cast, by 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 more of the following 
circumstances:
    (i) A written communication is released in the United States as 
well as outside the United States, so long as the communication is 
released in the United States contemporaneously with or after the 
release outside the United States and is not otherwise targeted at 
persons located in the United States;
    (ii) Foreign journalists, U.S. journalists or other third parties 
have access to the information;
    (iii) 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; or
    (iv) 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 most directly 
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 most directly 
comparable measure so calculated and presented.
    (2) A non-GAAP financial measure does not include operating and 
other financial measures and ratios or statistical measures calculated 
using exclusively one or both of:
    (i) Financial measures calculated in accordance with GAAP; and
    (ii) Operating measures or other measures that are not non-GAAP 
financial measures.
    (3) A non-GAAP financial measure does not include financial 
measures required to be disclosed by GAAP, Commission rules, or a 
system of regulation of a government or governmental authority or self-
regulatory organization that is applicable to the registrant.
    (b) GAAP. GAAP refers to generally accepted accounting principles 
in the United States, except that:
    (1) In the case of foreign private issuers whose primary financial 
statements are prepared in accordance with non-U.S. generally accepted 
accounting principles, GAAP refers to the principles under which those 
primary financial statements are prepared; and
    (2) In the case of foreign private issuers that include a non-GAAP 
financial measure derived from a measure calculated in accordance with 
U.S. generally accepted accounting principles, GAAP refers to U.S. 
generally accepted accounting

[[Page 4833]]

principles for purposes of the application of the requirements of 
Regulation G to the disclosure of that measure.
    (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.

    Neither the requirements of this Regulation G (17 CFR 244.100 
through 244.102) nor a person's compliance or non-compliance with the 
requirements of this Regulation shall in itself 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) by adding General 
Instruction B.6., revising Item 9 and adding Item 12.

    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

* * * * *

General Instructions

* * * * *

B. Events To Be Reported and Time of Filing for Reports

* * * * *
    6. A report on this form is required to be furnished upon the 
occurrence of any of the events specified in Item 12 of this form. A 
report of an event specified in Item 12 is to be furnished within 5 
business days after the occurrence of the event; if the event occurs on 
a Saturday, Sunday or holiday on which the Commission is not open for 
business, the 5 business day period shall begin to run on and include 
the first business day thereafter. The information in a report 
furnished pursuant to Item 12 shall not be deemed to be ``filed'' for 
purposes of Section 18 of the Exchange Act or otherwise subject to the 
liability of that section, except if the registrant specifically states 
that the information is to be considered ``filed'' under the Exchange 
Act or incorporates it by reference into a filing under the Securities 
Act or the Exchange Act.
* * * * *

Information To Be Included in the Report

* * * * *

Item 12. 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 include the text of 
that announcement or release as an exhibit;
    (b) A Form 8-K is not required to be furnished to the Commission 
under this Item 12 in the case of disclosure of material non-public 
information that is disclosed orally, telephonically, by webcast, by 
broadcast, or by similar means if:
    (1) The information is provided as part of a presentation that is 
complementary to, and initially occurs within 48 hours after, a 
related, written announcement or release that has been furnished on 
Form 8-K pursuant to this Item 12 prior to the presentation;
    (2) The presentation is broadly accessible to the public by dial-in 
conference call, by webcast, by broadcast, or by similar means;
    (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.

Instructions

    1. The requirements of this Item 12 are 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 12 requirement.
    2. The requirements of paragraph (e)(1)(i) of Item 10 of Regulation 
S-K (or paragraph (h)(1)(i) of Item 10 of Regulation S-B in the case of 
a small business issuer) shall apply to disclosures under this Item 12.
    3. 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 furnished under Item 12.
    4. This Item 12 does not apply in the case of a disclosure 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).
* * * * *

    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''.

    By the Commission.

    Dated: January 22, 2003.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1977 Filed 1-29-03; 8:45 am]
BILLING CODE 8010-01-P