A foreign private issuer is any issuer (other than a foreign government) incorporated or organized under the laws of a jurisdiction outside the US, unless (1) more than 50% of its outstanding voting securities are directly or indirectly owned by US residents and (2) either (a) the majority of its executive officers or directors are US citizens or residents, (b) more than 50% of its assets are located in the US or (c) its business is principally administered in the US. Rule 405 under the Securities Act. The financial statement requirements discussed in this guide also apply to registration statements on Form 10 for the spin-off of a subsidiary to the existing shareholders of a public company. Form 20-F, Item 8.A.1. Id. Item 8.A.2. S-X Rule 3-02(a). Form 20-F, Instruction 1 to Item 8.A.2. Id. Instruction 3 to Item 8.A.2. The rules regarding the age or staleness of the required financial statements for foreign private issuers vary a great deal from those applicable to domestic issuers. Generally speaking, the financial statements for domestic issuers go stale at a much faster rate. Form 20-F, Item 8.A.4. The SEC will, however, waive this requirement, and apply the 15-month rule, in an initial public offering where the issuer is able to represent that it is not required to comply with this requirement in any other jurisdiction outside the US and that complying with the requirement is impracticable and would involve undue hardship. As a result, the SEC expects that the majority of initial public offerings will be subject only to the 15-month rule. Id. Instruction 2 to Item 8.A.4; SEC Division of Corporation Finance, International Financial Reporting and Disclosure Issues, May 1 2001, Section II.A.1(c) [hereinafter International Financial Reporting and Disclosure Issues]. Form 20-F, Instruction 2 to Item 8. Id. Item 8.A.5. Id. Id. Item 3.A.1. The selected financials must include at least each of the following line items: net sales or operating revenues, income (loss) from operations, income (loss) from continuing operations, net income (loss), net income (loss) from operations per share, income (loss) from continuing operations per share, total assets, net assets, capital stock (excluding long-term debt and redeemable preferred stock), number of shares adjusted to reflect changes in capital, dividends declared per share in both the currency of the financial statements and US dollars, including the formula used for any adjustments to dividends declared, and diluted net income per share. The selected financials may also include any additional items that would enhance an understanding of the issuer's financial condition and results of operations. Id. Id. Id. Id. Item 3.B. Id. Instruction 1 to Item 3. Id. Item 17(c). Id. However, reconciliation is not required for interim financial statements included in an annual report. Simplification of Registration and Reporting Requirements for Foreign Companies; Safe Harbors for Public Announcements of Unregistered Offerings and Broker-Dealer Research Reports, Securities Act Release No. 7053, Exchange Act Release No. 33918, International Series Release No. 653 [1993-1994 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 85,331, at 85,206, n.36 (April 19, 1994) [hereinafter Simplification Release]. Form 20-F, Item 17(c). International Financial Reporting and Disclosure Issues, Section III.A.2. See also Simplification Release, ¶ 85,331, at 85,206 (adoption of requirement that reconciliation for earliest of the three years may be omitted); Form 20-F, Item 17(c)(2)(i) (reconciliation of net income of the earliest of the required three years may be omitted if that information has not previously been included in a registration statement under the Securities Act). Note that it is not permissible to present restructuring charges in the income statement as a separate caption after income from continuing operations before income taxes (i.e., preceding income taxes and/or discontinued operations). Codification of Staff Accounting Bulletins, Staff Accounting Bulletin No. 103, Topic 5.P.3 (May 9 2003) [hereinafter SAB 103]. When a restructuring charge is classified as an operating expense, it is generally inappropriate in the Staff's view to present a preceding subtotal captioned or representing operating income before restructuring charges, since this is not a measurement of operating results under Gaap. However, it is permissible to discuss the effect on net income and earnings per share of restructuring charges within MD&A, since in the Staff's view discussions in MD&A (and elsewhere) that quantify unusual or infrequent items are beneficial. id. For a discussion of revenue recognition issues, see id., Topic 13. Form 20-F, Item 17(c)(2)(i). Id. Instruction 2 to Item 17. Id. Item 17(c)(2)(ii). Id. Item 17(c)(2)(iii). Id. Instruction 2 to Item 3.A. Id. Simplification Release, ¶ 85,331, at 85,206. Id. Id. n.37; International Financial Reporting and Disclosure Issues, Section III.A.3. SEC Division of Corporation Finance, Accounting Disclosure Rules and Practices: An Overview, Topic 6.III.A.2.b (Mar. 31 2000) [hereinafter SEC Accounting Overview]. Form 20-F, Instruction 2 to Item 5. Id. SAB 103, Topic 1.D.1 Id. For a discussion of the disclosure of loss contingencies, see id. Topic 5.Y. Sarbanes-Oxley Act, Section 2(a)(7). Conditions for Use of Non-Gaap Financial Measures, Securities Act Release No. 8176, Exchange Act Release No. 47226, Financial Reporting Release No. 65 (Jan. 22 2003) [hereinafter Non-Gaap Financial Measures Adopting Release]; see also Latham & Watkins Client Alert No. 257, SEC Adopts Rules for Disclosure of EBITDA and Other "Non-Gaap Financial Measures" (http://www.lw.com/resource/publications/_pdf/pub578.pdf). Conditions for Use of Non-Gaap Financial Measures, Securities Act Release No. 8145, Exchange Act Release No. 46788 [2002 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 86,737, at 86,444-86,446 (Nov. 4 2002). Regulation G, Rule 100(a). Id. Rule 101(a)(1). The term does not cover operating measures. Id. Rule 101(a)(2). Id. Rule 101(b). In addition, if the foreign private issuer prepares its primary financial statements under US Gaap, "Gaap" would mean US Gaap. Id. Id. Rule 100(a). Id. Rule 100(b). Non-Gaap Financial Measures Adopting Release. Regulation G, Rule 100(c). Non-Gaap Financial Measures Adopting Release. Regulation S-K, Item 10(e)(1)(i). Id. Item 10(e)(1)(ii). Id. Item 10, Note to Paragraph (e). See Disclosure in Management's Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, Securities Act Release No. 8182, Exchange Act Release No.47264, Financial Reporting Release No. 67, International Series Release No. 1266 (Jan. 27 2003) [hereinafter Off-Balance Sheet Adopting Release]. Id. Form 20-F, Item 5.E.1. Id. Items 5.E.1.(a)-(d). Id. Item 5.E.2. Off-Balance Sheet Adopting Release, Sections II.B.1 and III.A.1. Id. Section III.G. Id. Form 20-F, Item 5.F.1. Id. Item 5.F.2. Off-Balance Sheet Adopting Release, Section III.D and n.73. Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations, Securities Act Release No. 8056, Exchange Act Release No. 45321, Financial Reporting Release No. 61 (Jan. 22 2002). Off-Balance Sheet Adopting Release, Section II.B.4. Form 20-F, Item 8.A.1, Item 8.A.3. S-X Rule 2-02. Form 20-F, Item 8.A.3. Id. Instruction to Item 8.A.3. See also SAB 103, Topic 1.E.2 (financial statements on which the auditors' opinions are qualified because of a limitation on the scope of the audit do not meet the requirements of S-X Rule 2-02(b); financial statements for which the auditors' opinions contain qualifications relating to the acceptability of accounting principles used or the completeness of disclosures made are also unacceptable). As an example, the SEC recently released a statement regarding certain advice rendered by The Institute of Chartered Accountants of England and Wales. The advice concerned the inclusion of certain language in audit opinions limiting the right of reliance by third parties on those opinions. The SEC made clear that such language would not be acceptable in audit reports accompanying SEC filings. See Letter from SEC Acting Chief Accountant and Director of Corporation Finance to The Institute of Chartered Accountants of England and Wales re: the Use of Clarifying Language in UK Audit Opinions (Feb. 28 2003) (www.sec.gov/info/accountants/staffletters/icaew022803.htm). International Financial Reporting and Disclosure Issues, Section IV.A. Form 20-F, General Instruction E.(c), second paragraph. Id. S-X Rule 3-20(a). International Financial Reporting and Disclosure Issues, Section VII.C.1. S-X Rule 3-20(b). Id. Id. Id. See also International Financial Reporting and Disclosure Issues, Section VII.E (discussing issues arising from material currency devaluations after the date of the balance sheet). International Financial Reporting and Disclosure Issues, Section VII.D.1. Note that disclosure may be required about the impact of the euro conversion on items such as the business description, MD&A and market risk disclosure. Id. Section VII.D.2. Form 20-F, Item 3.A.3. Id. See id. Item 17(a) (financial statements must be included if they would be required for a registration statement on Form 10 or an annual report on Form 10-K); Form 10-K, Item 8 (financial statements must comply with Regulation S-X, other than S-X Rule 3-05 and S-X Article 11). Id. Instruction 1 to Item 8. See also Form F-1, Item 4(b) (requiring issuers to provide the financial statements called for by Rule 3-05). Whether an acquisition is of a "business" should be evaluated in light of the facts and circumstances involved and whether there is sufficient continuity of the acquired entity's operations prior to and after the transactions so that disclosure of prior financial information is material to an understanding of future operations. A presumption exists that a separate entity, a subsidiary, or a division is a business. However, a lesser component of an entity may also constitute a business. Among the facts and circumstances which should be considered in evaluating whether an acquisition of a lesser component of an entity constitutes a business are: whether the nature of the revenue-producing activity of the component will remain generally the same as before the transaction; or whether any of the following attributes remain with the component after the transaction: (i) physical facilities; (ii) employee base; (iii) market distribution system; (iv) sales force; (v) customer base; (vi) operating rights; (vii) production techniques; or (viii) trade names. However, a different conclusion may be reached depending upon the customary practice for an industry or a particular issuer. For example, an issuer may be submitting a letter of intent as one of many parties in a bidding process, or a roll-up entity may routinely sign letters of intent to further its due diligence investigations of multiple potential targets, but with the acquisition of only a minority of those companies becoming probable. If the acquired business had a net loss, then the absolute value of the negative amount is generally used for the test. S-X Rule 3-05(b)(3). Note that, under Rule 3-05(b)(3), the calculation of the significance of an acquired business for purposes of determining whether separate audited financials need to be included in a registration statement (and if so, how many years) is generally made on the basis of the issuer's most recent annual financial statement. However, if the issuer has made a significant acquisition subsequent to the latest fiscal year end and filed a report on Form 8-K that included audited financial statements for that business for the periods required by Rule 3-05 and the pro forma information required by S-X Rule 11-01, the test is based upon the pro forma amounts for the latest fiscal year in the Form 8-K rather than the historical amounts for the latest fiscal year. SEC Accounting Overview, Topic 2.I.D.1.e.2. Item 17(b) of Form F-4 provides some accommodations with respect to acquirees that are not reporting companies under the Exchange Act and in certain other cases where financial statements have previously been provided to security holders. The date of an offering will be deemed to be the date of the final prospectus or prospectus supplement filed pursuant to Rule 424(b). By analogy, the pricing date would be the date of an offering in a Rule 144A transaction. In order for the pre-acquisition statements of an acquiree to be omitted from the registration statement, each of the following conditions must be met: the combined significance of businesses acquired or to be acquired for which audited financial statements cover a period of less than 9 months may not exceed 10%; the combined significance of businesses acquired or to be acquired for which audited financial statements cover a period of less than 21 months may not exceed 20%; and the combined significance of businesses acquired or to be acquired for which audited financial statements cover a period of less than 33 months may not exceed 40%.
October 08 2003
