[Code of Federal Regulations]
[Title 17, Volume 2]
[Revised as of April 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR229.10]

[Page 350-353]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER II--SECURITIES AND EXCHANGE COMMISSION
 
 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--Table of Contents
 
                         Subpart 229.1--General
 
Sec. 229.10  General.


    (a) Application of Regulation S-K. This part (together with the 
General Rules and Regulations under the Securities Act of 1933, 15 
U.S.C. 77a et seq., as amended (Securities Act), and the Securities 
Exchange Act of 1934, 15 U.S.C. 78a et seq., as amended (Exchange Act) 
(parts 230 and 240 of this chapter), the Interpretative Releases under 
these Acts (parts 231 and 241 of this chapter) and the forms under these 
Acts (parts 239 and 249 of this chapter)) states the requirements 
applicable to the content of the non-financial statement portions of:
    (1) Registration statements under the Securities Act (part 239 of 
this chapter) to the extent provided in the forms to be used for 
registration under such Act; and
    (2) Registration statements under section 12 (subpart C of part 249 
of this chapter), annual or other reports under sections 13 and 15(d) 
(subparts D and E of part 249 of this chapter), going-private 
transaction statements under section 13 (part 240 of this chapter), 
tender offer statements under sections 13 and 14 (part 240 of this 
chapter), annual reports to security holders and proxy and information 
statements under section 14 (part 240 of this chapter), and any other 
documents required to be filed under the Exchange Act, to the extent 
provided in the forms and rules under that Act.
    (b) Commission policy on projections. The Commission encourages the 
use in documents specified in Rule 175 under the Securities Act 
(Sec. 230.175 of this chapter) and Rule 3b-6 under the Exchange Act 
(Sec. 240.3b-6 of this chapter) of management's projections of future 
economic performance that have a reasonable basis and are presented in 
an appropriate format. The guidelines set forth herein represent the 
Commission's views on important factors to be considered in formulating 
and disclosing such projections.
    (1) Basis for projections. The Commission believes that management 
must have the option to present in Commission filings its good faith 
assessment of

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a registrant's future performance. Management, however, must have a 
reasonable basis for such an assessment. Although a history of 
operations or experience in projecting may be among the factors 
providing a basis for management's assessment, the Commission does not 
believe that a registrant always must have had such a history or 
experience in order to formulate projections with a reasonable basis. An 
outside review of management's projections may furnish additional 
support for having a reasonable basis for a projection. If management 
decides to include a report of such a review in a Commission filing, 
there also should be disclosure of the qualifications of the reviewer, 
the extent of the review, the relationship between the reviewer and the 
registrant, and other material factors concerning the process by which 
any outside review was sought or obtained. Moreover, in the case of a 
registration statement under the Securities Act, the reviewer would be 
deemed an expert and an appropriate consent must be filed with the 
registration statement.
    (2) Format for projections. In determining the appropriate format 
for projections included in Commission filings, consideration must be 
given to, among other things, the financial items to be projected, the 
period to be covered, and the manner of presentation to be used. 
Although traditionally projections have been given for three financial 
items generally considered to be of primary importance to investors 
(revenues, net income (loss) and earnings (loss) per share), projection 
information need not necessarily be limited to these three items. 
However, management should take care to assure that the choice of items 
projected is not susceptible of misleading inferences through selective 
projection of only favorable items. Revenues, net income (loss) and 
earnings (loss) per share usually are presented together in order to 
avoid any misleading inferences that may arise when the individual items 
reflect contradictory trends. There may be instances, however, when it 
is appropriate to present earnings (loss) from continuing operations, or 
income (loss) before extraordinary items in addition to or in lieu of 
net income (loss). It generally would be misleading to present sales or 
revenue projections without one of the foregoing measures of income. The 
period that appropriately may be covered by a projection depends to a 
large extent on the particular circumstances of the company involved. 
For certain companies in certain industries, a projection covering a two 
or three year period may be entirely reasonable. Other companies may not 
have a reasonable basis for projections beyond the current year. 
Accordingly, management should select the period most appropriate in the 
circumstances. In addition, management, in making a projection, should 
disclose what, in its opinion, is the most probable specific amount or 
the most reasonable range for each financial item projected based on the 
selected assumptions. Ranges, however, should not be so wide as to make 
the disclosures meaningless. Moreover, several projections based on 
varying assumptions may be judged by management to be more meaningful 
than a single number or range and would be permitted.
    (3) Investor understanding. (i) When management chooses to include 
its projections in a Commission filing, the disclosures accompanying the 
projections should facilitate investor understanding of the basis for 
and limitations of projections. In this regard investors should be 
cautioned against attributing undue certainty to management's 
assessment, and the Commission believes that investors would be aided by 
a statement indicating management's intention regarding the furnishing 
of updated projections. The Commission also believes that investor 
understanding would be enhanced by disclosure of the assumptions which 
in management's opinion are most significant to the projections or are 
the key factors upon which the financial results of the enterprise 
depend and encourages disclosure of assumptions in a manner that will 
provide a framework for analysis of the projection.
    (ii) Management also should consider whether disclosure of the 
accuracy or inaccuracy of previous projections would provide investors 
with important insights into the limitations of

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projections. In this regard, consideration should be given to presenting 
the projections in a format that will facilitate subsequent analysis of 
the reasons for differences between actual and forecast results. An 
important benefit may arise from the systematic analysis of variances 
between projected and actual results on a continuing basis, since such 
disclosure may highlight for investors the most significant risk and 
profit-sensitive areas in a business operation.
    (iii) With respect to previously issued projections, registrants are 
reminded of their responsibility to make full and prompt disclosure of 
material facts, both favorable and unfavorable, regarding their 
financial condition. This responsibility may extend to situations where 
management knows or has reason to know that its previously disclosed 
projections no longer have a reasonable basis.
    (iv) Since a registrant's ability to make projections with relative 
confidence may vary with all the facts and circumstances, the 
responsibility for determining whether to discontinue or to resume 
making projections is best left to management. However, the Commission 
encourages registrants not to discontinue or to resume projections in 
Commission filings without a reasonable basis.
    (c) Commission policy on security ratings. In view of the importance 
of security ratings (ratings) to investors and the marketplace, the 
Commission permits registrants to disclose, on a voluntary basis, 
ratings assigned by rating organizations to classes of debt securities, 
convertible debt securities and preferred stock in registration 
statements and periodic reports. In addition, the Commission permits, 
pursuant to Rule 134(a)(14) under the Securities Act 
(Sec. 230.134(a)(14) of this chapter), voluntary disclosure of ratings 
assigned by any nationally recognized statistical rating organizations 
(NRSROs) in certain communications deemed not to be a prospectus 
(tombstone advertisements). Set forth herein are the Commission's views 
on important matters to be considered in disclosing security ratings.
    (1) Securities Act filings. (i) If a registrant includes in a 
registration statement filed under the Securities Act any rating(s) 
assigned to a class of securities, it should consider including: (A) Any 
other rating intended for public dissemination assigned to such class by 
a NRSRO (additional NRSRO rating) that is available on the date of the 
initial filing of the document and that is materially different from any 
rating disclosed; and (B) the name of each rating organization whose 
rating is disclosed; each such rating organization's definition or 
description of the category in which it rated the class of securities; 
the relative rank of each rating within the assigning rating 
organization's overall classification system; and a statement informing 
investors that a security rating is not a recommendation to buy, sell or 
hold securities, that it may be subject to revision or withdrawal at any 
time by the assigning rating organization, and that each rating should 
be evaluated independently of any other rating. The registrant also 
should include the written consent of any rating organization that is 
not a NRSRO whose rating is included. With respect to the written 
consent of any NRSRO whose rating is included, see Rule 436(g) under the 
Securities Act (Sec. 230.436(g) of this chapter). When the registrant 
has filed a registration statement on Form F-9 (Sec. 239.39 of this 
chapter), see Rule 436(g) (Sec. 230.436(g) of this chapter) under the 
Securities Act with respect to the written consent of any rating 
organization specified in the Instruction to paragraph (a)(2) of General 
Instruction I of Form F-9.
    (ii) If a change in a rating already included is available 
subsequent to the filing of the registration statement, but prior to its 
effectiveness, the registrant should consider including such rating 
change in the final prospectus. If the rating change is material or if a 
materially different rating from any disclosed becomes available during 
this period, the registrant should consider amending the registration 
statement to include the rating change or additional rating and 
recirculating the preliminary prospectus.
    (iii) If a materially different additional NRSRO rating or a 
material change in a rating already included becomes available during 
any period in

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which offers or sales are being made, the registrant should consider 
disclosing such additional rating or rating change by means of post-
effective amendment or sticker to the prospectus pursuant to Rule 424(b) 
under the Securities Act (Sec. 230.424(b) of this chapter), unless, in 
the case of a registration statement on Form S-3 (Sec. 239.13 of this 
chapter), it has been disclosed in a document incorporated by reference 
into the registration statement subsequent to its effectiveness and 
prior to the termination of the offering.
    (2) Exchange Act filings. (i) If a registrant includes in a 
registration statement or periodic report filed under the Exchange Act 
any rating(s) assigned to a class of securities, it should consider 
including the information specified in paragraphs (c)(1)(i)(A) and (B) 
of this section.
    (ii) If there is a material change in the rating(s) assigned by any 
NRSRO(s) to any outstanding class(es) of securities of a registrant 
subject to the reporting requirements of section 13(a) or 15(d) of the 
Exchange Act, the registrant should consider filing a report on Form 8-K 
(Sec. 249.308 of this chapter) or other appropriate report under the 
Exchange Act disclosing such rating change.
    (d) Incorporation by Reference. Where rules, regulations, or 
instructions to forms of the Commission permit incorporation by 
reference, a document may be so incorporated by reference to the 
specific document and to the prior filing or submission in which such 
document was physically filed or submitted. Except where a registrant or 
issuer is expressly required to incorporate a document or documents by 
reference, reference may not be made to any document which incorporates 
another document by reference if the pertinent portion of the document 
containing the information or financial statements to be incorporated by 
reference includes an incorporation by reference to another document. No 
document on file with the Commission for more than five years may be 
incorporated by reference except:
    (1) Documents contained in registration statements, which may be 
incorporated by reference as long as the registrant has a reporting 
requirement with the Commission; or
    (2) Documents that the registrant specifically identifies by 
physical location by SEC file number reference, provided such materials 
have not been disposed of by the Commission pursuant to its Records 
Control Schedule (17 CFR 200.80f).

[47 FR 11401, Mar. 16, 1982, as amended at 52 FR 21260, June 5, 1987; 58 
FR 14665, Mar. 18, 1993; 58 FR 62029, Nov. 23, 1993; 60 FR 32824, June 
23, 1995; 64 FR 61443, Nov. 10, 1999]