[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: 17CFR229.303]

[Page 367-371]
 
              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 229.300--Financial Information
 
Sec. 229.303  (Item 303) Management's discussion and analysis of financial condition and results of operations.

    (a) Full fiscal years. Discuss registrant's financial condition, 
changes in financial condition and results of operations. The discussion 
shall provide information as specified in paragraphs (a) (1), (2) and 
(3) with respect to liquidity, capital resources and results of 
operations and also shall provide such other information that the 
registrant believes to be necessary to an understanding of its financial 
condition, changes in financial condition and results of operations. 
Discussions of liquidity and capital resources may be combined whenever 
the two topics are interrelated. Where in the registrant's judgment a 
discussion of segment information or of other subdivisions of the 
registrant's business would be appropriate to an understanding of such 
business, the discussion shall focus on each relevant, reportable 
segment or other subdivision of the business and on the registrant as a 
whole.
    (1) Liquidity. Identify any known trends or any known demands, 
commitments, events or uncertainties that will result in or that are 
reasonably likely to result in the registrant's liquidity increasing or 
decreasing in any material way. If a material deficiency is identified, 
indicate the course of action that the registrant has taken or

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proposes to take to remedy the deficiency. Also identify and separately 
describe internal and external sources of liquidity, and briefly discuss 
any material unused sources of liquid assets.
    (2) Capital resources. (i) Describe the registrant's material 
commitments for capital expenditures as of the end of the latest fiscal 
period, and indicate the general purpose of such commitments and the 
anticipated source of funds needed to fulfill such commitments.
    (ii) Describe any known material trends, favorable or unfavorable, 
in the registrant's capital resources. Indicate any expected material 
changes in the mix and relative cost of such resources. The discussion 
shall consider changes between equity, debt and any off-balance sheet 
financing arrangements.
    (3) Results of operations. (i) Describe any unusual or infrequent 
events or transactions or any significant economic changes that 
materially affected the amount of reported income from continuing 
operations and, in each case, indicate the extent to which income was so 
affected. In addition, describe any other significant components of 
revenues or expenses that, in the registrant's judgment, should be 
described in order to understand the registrant's results of operations.
    (ii) Describe any known trends or uncertainties that have had or 
that the registrant reasonably expects will have a material favorable or 
unfavorable impact on net sales or revenues or income from continuing 
operations. If the registrant knows of events that will cause a material 
change in the relationship between costs and revenues (such as known 
future increases in costs of labor or materials or price increases or 
inventory adjustments), the change in the relationship shall be 
disclosed.
    (iii) To the extent that the financial statements disclose material 
increases in net sales or revenues, provide a narrative discussion of 
the extent to which such increases are attributable to increases in 
prices or to increases in the volume or amount of goods or services 
being sold or to the introduction of new products or services.
    (iv) For the three most recent fiscal years of the registrant, or 
for those fiscal years beginning after December 25, 1979, or for those 
fiscal years in which the registrant has been engaged in business, 
whichever period is shortest, discuss the impact of inflation and 
changing prices on the registrant's net sales and revenues and on income 
from continuing operations.

Instructions to Paragraph 303(a): 1. The registrant's discussion and 
analysis shall be of the financial statements and of other statistical 
data that the registrant believes will enhance a reader's understanding 
of its financial condition, changes in financial condition and results 
of operations. Generally, the discussion shall cover the three year 
period covered by the financial statements and shall use year-to-year 
comparisons or any other formats that in the registrant's judgment 
enhance a reader's understanding. However, where trend information is 
relevant, reference to the five year selected financial data appearing 
pursuant to Item 301 of Regulation S-K (Sec. 229.301) may be necessary.
    2. The purpose of the discussion and analysis shall be to provide to 
investors and other users information relevant to an assessment of the 
financial condition and results of operations of the registrant as 
determined by evaluating the amounts and certainty of cash flows from 
operations and from outside sources. The information provided pursuant 
to this Item need only include that which is available to the registrant 
without undue effort or expense and which does not clearly appear in the 
registrant's financial statements.
    3. The discussion and analysis shall focus specifically on material 
events and uncertainties known to management that would cause reported 
financial information not to be necessarily indicative of future 
operating results or of future financial condition. This would include 
descriptions and amounts of (A) matters that would have an impact on 
future operations and have not had an impact in the past, and (B) 
matters that have had an impact on reported operations and are not 
expected to have an impact upon future operations.
    4. Where the consolidated financial statements reveal material 
changes from year to year in one or more line items, the causes for the 
changes shall be described to the extent necesary to an understanding of 
the registrant's businesses as a whole; Provided, however, That if the 
causes for a change in one line item also relate to other line items, no 
repetition is required and a line-by-line analysis of the financial 
statements as a whole is not required or generally appropriate. 
Registrants need not recite the amounts of changes from year to year 
which are readily computable from the financial statements. The 
discussion shall not merely

[[Page 369]]

repeat numerical data contained in the consolidated financial 
statements.
    5. The term ``liquidity'' as used in this Item refers to the ability 
of an enterprise to generate adequate amounts of cash to meet the 
enterprise's needs for cash. Except where it is otherwise clear from the 
discussion, the registrant shall indicate those balance sheet conditions 
or income or cash flow items which the registrant believes may be 
indicators of its liquidity condition. Liquidity generally shall be 
discussed on both a long-term and short-term basis. The issue of 
liquidity shall be discussed in the context of the registrant's own 
business or businesses. For example a discussion of working capital may 
be appropriate for certain manufacturing, industrial or related 
operations but might be inappropriate for a bank or public utility.
    6. Where financial statements presented or incorporated by reference 
in the registration statement are required by Sec. 210.4-08(e)(3) of 
Regulation S-X [17 CFR part 210] to include disclosure of restrictions 
on the ability of both consolidated and unconsolidated subsidiaries to 
transfer funds to the registrant in the form of cash dividends, loans or 
advances, the discussion of liquidity shall include a discussion of the 
nature and extent of such restrictions and the impact such restrictions 
have had and are expected to have on the ability of the parent company 
to meet its cash obligations.
    7. Registrants are encouraged, but not required, to supply forward-
looking information. This is to be distinguished from presently known 
data which will impact upon future operating results, such as known 
future increases in costs of labor or materials. This latter data may be 
required to be disclosed. Any forward-looking information supplied is 
expressly covered by the safe harbor rule for projections. See Rule 175 
under the Securities Act [17 CFR 230.175], Rule 3b-6 under the Exchange 
Act [17 CFR 240.3b-6] and Securities Act Release No. 6084 (June 25, 
1979) (44 FR 38810).
    8. Registrants are only required to discuss the effects of inflation 
and other changes in prices when considered material. This discussion 
may be made in whatever manner appears appropriate under the 
circumstances. All that is required is a brief textual presentation of 
management's views. No specific numerical financial data need be 
presented except as Rule 3-20(c) of Regulation S-X (Sec. 210.3-20(c) of 
this chapter) otherwise requires. However, registrants may elect to 
voluntarily disclose supplemental information on the effects of changing 
prices as provided for in Statement of Financial Accounting Standards 
No. 89, ``Financial Reporting and Changing Prices'' or through other 
supplemental disclosures. The Commission encourages experimentation with 
these disclosures in order to provide the most meaningful presentation 
of the impact of price changes on the registrant's financial statements.
    9. Registrants that elect to disclose supplementary information on 
the effects of changing prices as specified by SFAS No. 89, ``Financial 
Reporting and Changing Prices,'' may combine such explanations with the 
discussion and analysis required pursuant to this Item or may supply 
such information separately with appropriate cross reference.
    10. All references to the registrant in the discussion and in this 
Item shall mean the registrant and its subsidiaries consolidated.
    11. Foreign private registrants also shall discuss briefly any 
pertinent governmental economic, fiscal, monetary, or political policies 
or factors that have materially affected or could materially affect, 
directly or indirectly, their operations or investments by United States 
nationals.
    12. If the registrant is a foreign private issuer, the discussion 
shall focus on the primary financial statements presented in the 
registration statement or report. There shall be a reference to the 
reconciliation to United States generally accepted accounting 
principles, and a discussion of any aspects of the difference between 
foreign and United States generally accepted accounting principles, not 
discussed in the reconciliation, that the registrant believes is 
necessary for an understanding of the financial statements as a whole.

    (b) Interim periods. If interim period financial statements are 
included or are required to be included by Article 3 of Regulation S-X 
(17 CFR 210), a management's discussion and analysis of the financial 
condition and results of operations shall be provided so as to enable 
the reader to assess material changes in financial condition and results 
of operations between the periods specified in paragraphs (b) (1) and 
(2) of this Item. The discussion and analysis shall include a discussion 
of material changes in those items specifically listed in paragraph (a) 
of this Item, except that the impact of inflation and changing prices on 
operations for interim periods need not be addressed.
    (1) Material changes in financial condition. Discuss any material 
changes in financial condition from the end of the preceding fiscal year 
to the date of the most recent interim balance sheet provided. If the 
interim financial statements include an interim balance sheet as of the 
corresponding interim date of the preceding fiscal year, any material 
changes in financial condition from

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that date to the date of the most recent interim balance sheet provided 
also shall be discussed. If discussions of changes from both the end and 
the corresponding interim date of the preceding fiscal year are 
required, the discussions may be combined at the discretion of the 
registrant.
    (2) Material changes in results of operations. Discuss any material 
changes in the registrant's results of operations with respect to the 
most recent fiscal year-to-date period for which an income statement is 
provided and the corresponding year-to-date period of the preceding 
fiscal year. If the registrant is required to or has elected to provide 
an income statement for the most recent fiscal quarter, such discussion 
also shall cover material changes with respect to that fiscal quarter 
and the corresponding fiscal quarter in the preceding fiscal year. In 
addition, if the registrant has elected to provide an income statement 
for the twelve-month period ended as of the date of the most recent 
interim balance sheet provided, the discussion also shall cover material 
changes with respect to that twelve-month period and the twelve-month 
period ended as of the corresponding interim balance sheet date of the 
preceding fiscal year. Notwithstanding the above, if for purposes of a 
registration statement a registrant subject to paragraph (b) of 
Sec. 210.3-03 of Regulation S-X provides a statement of income for the 
twelve-month period ended as of the date of the most recent interim 
balance sheet provided in lieu of the interim income statements 
otherwise required, the discussion of material changes in that twelve-
month period will be in respect to the preceding fiscal year rather than 
the corresponding preceding period.

Instructions to Paragraph (b) of Item 303: 1. If interim financial 
statements are presented together with financial statements for full 
fiscal years, the discussion of the interim financial information shall 
be prepared pursuant to this paragraph (b) and the discussion of the 
full fiscal year's information shall be prepared pursuant to paragraph 
(a) of this Item. Such discussions may be combined.
    2. In preparing the discussion and analysis required by this 
paragraph (b), the registrant may presume that users of the interim 
financial information have read or have access to the discussion and 
analysis required by paragraph (a) for the preceding fiscal year.
    3. The discussion and analysis required by this paragraph (b) is 
required to focus only on material changes. Where the interim financial 
statements reveal material changes from period to period in one or more 
significant line items, the causes for the changes shall be described if 
they have not already been disclosed: Provided, however, That if the 
causes for a change in one line item also relate to other line items, no 
repetition is required. Registrants need not recite the amounts of 
changes from period to period which are readily computable from the 
financial statements. The discussion shall not merely repeat numerical 
data contained in the financial statements. The information provided 
shall include that which is available to the registrant without undue 
effort or expense and which does not clearly appear in the registrant's 
condensed interim financial statements.
    4. The registrant's discussion of material changes in results of 
operations shall identify any significant elements of the registrant's 
income or loss from continuing operations which do not arise from or are 
not necessarily representative of the registrant's ongoing business.
    5. The registrant shall discuss any seasonal aspects of its business 
which have had a material effect upon its financial condition or results 
of operation.
    6. Registrants are encouraged but are not required to discuss 
forward-looking information. Any forward-looking information supplied is 
expressly covered by the safe harbor rule for projections. See Rule 175 
under the Securities Act [17 CFR 230. 175], Rule 3b-6 under the Exchange 
Act [17 CFR 249.3b-6] and

[[Page 371]]

Securities Act Release No. 6084 (June 25, 1979) (44 FR 38810).

(Secs. 7 and 19a of the Securities Act, 15 U.S.C. 77g, 77s(a), 
77aa(25)(26); secs. 12, 13, 14, 15(d), and 23(a) of the Securities 
Exchange Act of 1934, 15 U.S.C. 78l, 78m, 78n, 78o(d), 78w(a), secs. 
5(b), 10(a), 14, 20(a) of the Public Utility Holding Company Act, 15 
U.S.C. 79e(a), 79n, 79t(a); secs. 8, 20, 30, 31(c), 38(a) of the 
Investment Company Act of 1940, 15 U.S.C. 80a-8, 80a-20, 80a-29, 80a-
30(c), 80a-37(a); secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85; 
secs. 205, 209, 48 Stat. 906, 908; sec. 301, 54 Stat. 857; sec. 8, 68 
Stat. 685; sec. 1, 79 Stat. 1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 
13, 15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 1, 3, 8, 49 Stat. 
1375, 1377, 1379; sec. 203(a), 49 Stat. 704; sec. 202, 68 Stat. 686; 
secs. 3, 4, 6, 78 Stat. 565-568, 569, 570-574; secs. 1, 2, 82 Stat. 454; 
sec. 28(c), 84 Stat. 1435; secs. 1, 2, 84 Stat. 1497; sec. 105(b), 88 
Stat. 1503; secs. 8, 9, 10, 18, 89 Stat. 117, 118, 119, 155; sec. 
308(b), 90 Stat. 57; secs. 202, 203, 204, 91 Stat. 1494, 1498, 1499, 
1500; secs. 8 30, 31(c), 38(a), 54 Stat. 803, 836, 838, 841; 74 Stat. 
201; 84 Stat. 1415; 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 78l, 78m, 
78o(d), 78w(a), 80a-8, 80a-29, 80a-30(c), 80a-37(a))

[47 FR 11401, Mar. 16, 1982, as amended at 47 FR 29839, July 9, 1982; 47 
FR 54768, Dec. 6, 1982; 52 FR 30919, Aug. 18, 1987]