SRC RULE 68.1

SPECIAL RULE ON FINANCIAL STATEMENTS OF REPORTING COMPANIES

 UNDER SECTION 17.2 OF THE SECURITIES REGULATION CODE

 
1. APPLICATIONchan robles virtual law library

In addition to those set forth under Rule 68, this Rule (together with subsequent official pronouncements, interpretations and rulings on accounting and reporting matters, which may be issued by the Commission from time to time) provides for the special requirements on the financial statements required to be filed with the Commission by corporations which file registration statements under Section 12 of the Securities Regulation Code (the “Code”) or which meet the following criteria with respect to the requirements to file reports:

a.   issuer which has sold a class of their securities pursuant to a registration under Section 12 of the Code;

b.   issuer  with a class of securities listed for trading on an Exchange; andchan robles virtual law library

c.   issuer with assets of at least P50,000,000.00 or such other amount as the Commission shall prescribe and  having 200 or more holders each holding at  least 100 shares of a class of its equity securities as of the first day of the issuer’s fiscal year.

2.  AUDITOR’S OPINION ON FINANCIAL STATEMENTS

a.   Under SEC Resolution No. 22, Series of 2003, the Commission discourages the submission of audited financial statements for companies covered by this Rule accompanied by an auditor’s opinion which is other than unqualified. It is understood that the Commission retains the right to obtain clarification about the reason(s) for such opinion.

b.   Audited financial statements for periods beginning January 1, 2003 and thereafter, for companies covered by this Rule with auditors’ opinion other than unqualified as a result of departure(s) from generally accepted accounting principles in the Philippines shall be deemed not filed and appropriate sanctions shall be imposed thereon.

3. RESPONSIBILITY FOR FINANCIAL STATEMENTS

The financial statements filed with the Commission by companies covered by this Rule shall be accompanied by a statement of management's responsibility as follows:

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of (name of reporting company) is responsible for all information and representations contained in the financial statements for the year (s) ended (date).  The financial statements have been prepared in conformity with generally accepted accounting principles in the Philippines and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality.

In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls.

The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company.chan robles virtual law library

(name of auditing firm), the independent auditors appointed by the stockholders, has examined the financial statements of the company in accordance with generally accepted auditing standards in the Philippines and has expressed its opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors and stockholders.

Signed under oath by the following:

Chairman of the Board

Chief Executive Officer

Chief Financial Officer

 4. PERIODIC PRESENTATIONchan robles virtual law library

The periodic presentation and coverage of financial statements accompanying the registration statements, annual reports and information or proxy statements shall be in accordance with the requirements of this section.

a.   Registration Statements

i. Consolidated Balance Sheets

A.   If the registrant has been in existence for less than one fiscal year, there shall be filed an audited balance sheet as of a date within 135 days of the date of filing the registration statement.

B.   If a filing on SEC Form 12 -1 is made within one hundred five (105) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two (2) years prior to the most recently ended fiscal year and a separate interim balance sheet as of the end of the most recently ended fiscal year.chan robles virtual law library

C.   If a filing on SEC Form 12 -1 is made more than one hundred five (105) days but not more than one hundred thirty five (135) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years.chan robles virtual law library

D.   If a filing on SEC Form 12 -1 is made more than one hundred thirty five (135) days but not more than two hundred twenty five (225) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years and a separate interim balance sheet as of the end of the first fiscal quarter subsequent to the most recent fiscal year end.chan robles virtual law library

E.   If a filing on SEC Form 12 -1 is made more than two hundred twenty five (225) days but not more than three hundred fifteen (315) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years and a separate interim balance sheet as of the end of the second fiscal quarter subsequent to the most recent fiscal year end.chan robles virtual law library

F.   If a filing on Form 12 -1 is made more than three hundred fifteen (315) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years and a separate interim balance sheet as of the end of the third fiscal quarter subsequent to the most recent fiscal year end.

G.   Any interim balance sheet provided in compliance with this subparagraph may be unaudited and need not be presented in greater detail than is required by paragraph  (9) of this Rule.

ii.   Consolidated Income Statement

A.  There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited income statement in a comparative format for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence.

B.  In addition, income statement shall be provided for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding year.  Such interim financial statements may be unaudited and need not be presented in greater detail than is required by paragraph (9) of this Rule.chan robles virtual law library

iii.  Consolidated Statement of Changes in Equity

A.  There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited statements of changes in equity in comparative format for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence.

B.  In addition, statements of changes in equity shall be provided for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding year.  Such interim financial statements may be unaudited and need not be presented in greater detail than is required by Paragraph (9) of this Rule.chan robles virtual law library

iv.  Consolidated Cash Flow Statement

A.  There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited statements of cash flows in comparative format for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence.

B.  In addition, consolidated statement of cash flows shall be provided for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding year.  Such interim financial statements may be unaudited and need not be presented in greater detail than is required by Paragraph (9) of this Rule.chan robles virtual law library

v.   Age of Financial Statements

At the time a registration statement on SEC Form 12-1 is to become effective, the financial information therein must be as of a date within 135 days from effective date.  Interim financial statements required to be included in a registration statement, which are necessary to keep the registration statement current, need not be audited and need not be in greater detail than required by Paragraph 7 of this Rule.

b.   Annual Reports (SEC Form 17-A)

i.    There shall be filed consolidated audited balance sheets  (except if not applicable), in comparative format, as of the end of each of the two most recent completed fiscal years.

ii.   The Income Statement, Cash Flow Statement and Statement of Changes in Equity shall be in comparative format for the three most recent completed fiscal years or such shorter period as the company (including predecessors) has been in existence.chan robles virtual law library

c.   Information or Proxy Statements (SEC Form 17-IS or 20)

i.    There shall be filed consolidated audited balance sheets  (except if not applicable), in comparative format, as of the end of each of the two most recent completed fiscal years. If the meeting date is beyond one hundred thirty five (135) days from the company’s fiscal year end, a separate interim balance sheet as of the end of the most recent quarter with comparative figures as of the end of the preceding fiscal year shall likewise be filed.chan robles virtual law library

ii.   The Income Statement, Cash Flow Statement and Statement of Changes in Equity shall be in comparative format for the three most recent completed fiscal years or such shorter period as the company (including predecessors) has been in existence.  If the meeting date is beyond one hundred thirty five (135) days from the company’s fiscal year end, separate interim statements for the most recent quarter with comparative figures for period ending of the same quarter of the preceding year shall likewise be filed.

5. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED OR TO BE ACQUIRED

a.   Financial statements requiredchan robles virtual law library

i.    Financial statements prepared and audited in accordance with this Rule should be furnished for the periods specified in paragraph (b) below if any of the following conditions exist:

A.   Consummation of a business combination accounted for as a purchase has occurred or is probable (for purposes of this rule, the term “purchase” encompasses the purchase of an interest in a business accounted for by the equity method); orchan robles virtual law library

B.   Consummation of a business combination to be accounted for as a pooling of interests is probable.

ii.   For purposes of determining whether the provisions of this rule apply, the determination of whether a “business” has been acquired should be made in accordance with the guidance set forth in paragraph (6) of this Rule.

iii.  If consummation of more than one transaction has occurred or is probable, the required financial statements may be presented on a combined basis, if appropriate.

iv.   This subparagraph shall not apply to a business  which is totally owned by the registrant prior to consummation of the transaction.

b.   Periods to be presented

i.    If securities are being registered to be sold for cash, the audited financial statements shall be furnished for the business to be acquired [See also Pro-Forma Financial Information requirements in paragraph (6)].  In all other cases, the financial statements shall be furnished on an audited basis to the extent practicable for the business to be acquired.  The periods for which such financial statements are to be filed shall be determined using the conditions specified in the definition of “significant subsidiary” in paragraph 1(b)(x) of Rule 68.chan robles virtual law library

A.   If none of the conditions exceeds ten percent (10%), financial statements are not required.  However, if the aggregate impact of the individually insignificant businesses acquired since the date of the most recent audited balance sheet filed for the registrant exceeds twenty percent (20%), financial statements covering at least the substantial majority of the businesses acquired, combined if appropriate, shall be furnished.  Such financial statements shall be for at least the most recent fiscal year and any interim periods.

B.   If any of the conditions exceeds ten percent (10%), but none exceed twenty percent (20%), financial statements shall be furnished for at least the most recent fiscal year and any interim periods.

C.   If any of the conditions exceeds twenty percent (20%) but none exceed forty percent (40%), financial statements shall be furnished for at least the two most recent fiscal years and interim periods.

D.   If any of the conditions exceeds forty percent (40%), the full financial information specified in Paragraph (5) of this Rule shall be furnished.chan robles virtual law library

E.   The determinations under subparagraphs (A), (B), (C), and (D) shall be made by comparing the most recent annual financial statements of each such business to the registrant’s most recent annual consolidated financial statements filed at or prior to the date of acquisition.  However, if the registrant made a significant acquisition subsequent to the latest fiscal year-end and filed a report on Form 17-C which included audited financial statements of such acquired business for the periods required by this subparagraph and the pro forma financial information required by Paragraph (10), such determination may be made by using the pro forma amounts for the latest fiscal year in the report on Form 17-C rather than by using the historical amounts for the latest fiscal year of the registrant.  The tests may not be made by “annualizing” data.chan robles virtual law library

F.   Notwithstanding the requirements in subparagraph (b)(i)(A) above, separate financial statements of the acquired business need not be presented once the operating results of the acquired business have been reflected in the audited consolidated financial statements of the registrant for a complete fiscal year unless such financial statements have not been previously filed or unless the acquired business is of such significance to the registrant that omission of such financial statements would materially impair an investor’s ability to understand the historical financial results of the registrant.  For example, if, at the date of acquisition, the acquired business met at least one of the conditions in the definition of “significant subsidiary” in Paragraph 1(b)(x) of Rule 68 at the 60 percent (60%) level the income statements of the acquired business should normally continue to be furnished for such periods prior to the purchase as may be necessary when added to the time for which audited income statements after the purchase are filed to cover the equivalent of the period specified in Paragraph 5 of this Rule.

G.  A separate audited balance sheet of the acquired business is not required when the registrant’s most recent audited balance sheet required by Paragraph 5 of this Rule is for a date after the date the acquisition was consummated.

c.   Separate financial statements of subsidiaries not consolidated and fifty percent (50%) or less owned persons

i.    If any of the conditions set forth in the definition of “significant subsidiary” in Paragraph 1(b)(x) of Rule 68, substituting twenty percent (20%) for ten percent (10%) in the tests used therein to determine a significant subsidiary are met for a majority-owned subsidiary not consolidated by the registrant or by a subsidiary of the registrant, separate financial statements of such subsidiary shall be filed.  Similarly, if any of the conditions set forth therein, substituting twenty percent (20%) for ten percent (10%), are met by a fifty percent (50%) or less owned person accounted for by the equity method either by the registrant or a subsidiary of the registrant, separate financial statements of such fifty percent (50%) or less owned person shall be filed.

ii.   Insofar as practicable, the separate financial statements required by this Part shall be as of the same dates and for the same periods as the audited consolidated financial statements required by Paragraph 5.  However, these separate financial statements are required to be audited only for those fiscal years in which any of the conditions described in the definition of “significant subsidiary” in Paragraph 1(b)(x), substituting 20 percent (20%) for 10 percent (10%), are met.

iii.   Notwithstanding the requirements for separate financial statements under this paragraph, where financial statements of two or more majority-owned subsidiaries not consolidated are required, combined or consolidated statements of such subsidiaries may be filed subject to principles of inclusion and exclusion which clearly exhibit the financial position, cash flows and results of operations of the combined or consolidated group.  Similarly, where financial statements of two or more 50 percent or less owned persons are required, combined or consolidated statements of such persons may be filed subject to the same principles of inclusion or exclusion referred to above.

6. APPLICABILITY WITH OTHER REPORTS

The schedules required by Paragraph 8(d) and set forth in “Annex 68.1-M” of Rule 68.1 and the separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons required under paragraph (6) of this Rule, are not required in annual reports to shareholders.chan robles virtual law library

7. ADDITIONAL DISCLOSURE REQUIREMENTS

a.   Balance Sheetchan robles virtual law library

In addition to the disclosures required under the Statements of Financial Accounting Standards (SFAS)/International Accounting Standards (IAS) and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in “Annex 68.1-K” if applicable, should appear on the face of the balance sheets or related notes filed by the persons to whom this Rule pertains.

b.   Income Statementchan robles virtual law library

In addition to the disclosures required under the SFAS/IAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in “Annex 68.1-L” if applicable, should appear on the face of the income statements  or related notes filed by the persons to whom this Rule pertains.

c.   Cash Flow Statement

In addition to the disclosures required under the SFAS/IAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in “Annex 68.1-M” if applicable, should appear on the face of the cash flow statements or related notes filed by the persons to whom this Rule pertains.

d.   General Notes to Financial Statements

In addition to the disclosures required under the SFAS/IAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in “Annex 68.1-J” if applicable, should appear on the face of the financial statements or related notes filed by the persons to whom this Rule pertains.

e.   Scheduleschan robles virtual law library

Please see “Annex  68.1-M”  for disclosure requirements.

8. INTERIM FINANCIAL STATEMENTS

The following additional instructions shall be applicable for purposes of preparing interim financial statements:

a.   Summarized income statement information (See definition of "Summarized Financial Information, Paragraph 1(b)(xii) under Rule 68) shall be given separately as to each subsidiary not consolidated or 50 percent owned person or as to each group of such subsidiaries or 50 percent or less owned persons for which separate individual or group statements would otherwise be required for annual periods.

b.   If appropriate, the income statement shall show earnings per share and dividends declared per share applicable to common stock.  The basis of the earnings per share computation shall be stated together with the number of shares used in the computation.

c.   If, during the most recent interim period presented, the registrant or any of its consolidated subsidiaries entered into a business combination treated for accounting purposes as a pooling of interests, the interim financial statements for both the current year and the preceding year shall reflect the combined results of the pooled businesses.  Supplemental disclosure of the separate results of the combined entities for the periods prior to the combination shall be given, with appropriate explanations.

i.    Where a material business combination accounted for as a purchase has occurred during the current fiscal year, pro forma disclosure shall be made of the results of operations for the current year up to the date of the most recent interim balance sheet provided (and for the corresponding period in the preceding year) as though the companies had combined at the beginning of the period being reported on.  This pro forma information should as a minimum show revenues, income before extraordinary items and the cumulative effect of accounting changes, including such income on a per share basis, and net income per share.

ii.   Where the registrant has disposed of any significant segment of its business, revenues and net income--total and per share--for all periods shall be disclosed.

iii.   In addition to meeting the reporting requirements specified by existing standards for accounting changes, the registrant shall state the date of any material accounting change and the reasons for making it.  In addition, for filings on Form 17-Q, a letter from the independent accountant shall be filed as an exhibit in the first Form 17-Q filed subsequent to the date of an accounting change indicating whether or not the change is to an alternative principle which in his judgment is preferable under the circumstances; except that no letter from the accountant need be filed when the change is made in response to a standard adopted by the Philippine ASC which requires such change.

iv.   Any material retroactive prior period adjustment made during any period covered by the interim financial statements shall be disclosed, together with the effect thereof upon net income--total and per share--of any prior period included and upon the balance of retained earnings.  If results of operations for any period presented have been adjusted retroactively by such an item subsequent to the initial reporting of such period, similar disclosure of the effect of the change shall be made.chan robles virtual law library

v.    Any unaudited interim financial statements furnished shall reflect all adjustments  which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  A statement to that effect shall be included.  Such adjustments shall include, for example, appropriate estimated provisions for bonus and profit sharing arrangements normally determined or settled at year-end.  If all such adjustments are of a normal recurring nature, a statement to that effect shall be made; otherwise, there shall be furnished information describing in appropriate detail the nature and amount of any adjustments other than normal recurring adjustments entering into the determination of the results shown.

d.   Periods to be covered - The periods for which interim financial statements are to be provided in registration forms are stated in Paragraph 4 of this Rule.  For filings on Form 17-Q, financial statements shall be provided as set forth below:chan robles virtual law library

i.    An interim balance sheet as of the end of the current interim period and a comparative balance sheet as of the end of the immediately preceding financial year.  The balance sheet as of the end of the preceding fiscal year may be condensed to the same degree as the interim balance sheet provided.  An interim balance sheet as of the end of the corresponding fiscal quarter of the preceding fiscal year need not be provided unless necessary for an understanding of the impact of seasonal fluctuations on the registrant's financial condition.chan robles virtual law library

ii.   Interim statements of income shall be provided for the current interim period and cumulatively for the current financial year to date, with comparative income statements for the comparable interim periods (current and year -to-date) of the immediately preceding financial year.

iii.   Statement showing changes in equity cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year; and

iv.   Interim statements of cash flows shall be provided for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year.

v.   For registrants whose business is highly seasonal, financial information for the twelve months ending on the interim reporting date and comparative information for the prior twelve-month period may be useful.  They may provide interim statements of income and of cash flows for the twelve month period ended during the most recent quarterly period and for the corresponding preceding period in lieu of the year-to-date statements specified in (ii) and (iii) above.

e.   Filing of other interim financial information in certain cases - The Commission may, upon the informal written request of the registrant, and where consistent with the protection of investors, permit the omission of any of the interim financial information herein required or the filing in substitution therefor of appropriate information of comparable character.  The Commission may also by informal written notice require the filing of other information in addition to, or in substitution for, the interim information herein required in any case where such information is necessary or appropriate for an adequate presentation of the financial condition of any person for which interim financial information is required, or whose financial information is otherwise necessary for the protection of investors.

9. PRO FORMA FINANCIAL INFORMATION

a.   Presentation requirements

i.    Pro forma financial information shall be furnished when any of the following conditions exist:

A.   During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Paragraph 4 of this Rule, a significant business combination accounted for as a purchase has occurred (for purposes of this Rule, the term "purchase" encompasses the purchase of an interest in a business accounted for by the equity method);

B.   After the date of the most recent balance sheet filed pursuant to Paragraph 4, consummation of a significant business combination to be accounted for by either the purchase method or pooling-of-interests method of accounting has occurred or is probable;chan robles virtual law library

C.   Securities being registered by the registrant are to be offered to the security holders of a significant business to be acquired or the proceeds from the offered securities will be applied directly or indirectly to the purchase of a specific significant business;chan robles virtual law library

D.   The disposition of a significant portion of a business either by sale, abandonment or distribution to shareholders by means of a spin-off, split-up or split-off has occurred or is probable and such disposition is not fully reflected in the financial statements of the registrant included in the filing;chan robles virtual law library

E.   During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Paragraph 4, the registrant has acquired one or more real estate operations or properties which in the aggregate are significant, or since the date of the most recent balance sheet filed pursuant to that Part the registrant has acquired or proposes to acquire one or more operations or properties which in the aggregate are significant.chan robles virtual law library

F.   The registrant previously was a part of another entity and such presentation is necessary to reflect operations and financial position of the registrant as an autonomous entity; orchan robles virtual law library

G.   Consummation of other events or transactions has occurred or is probable for which disclosure of pro forma financial information would be material to investors.chan robles virtual law library

ii.    A business combination or disposition of a business shall be considered significant if:

A.   A comparison of the most recent annual financial statements of the business acquired or to be acquired and the registrant's most recent annual consolidated financial statements filed at or prior to the date of acquisition indicates that the business would be a significant subsidiary pursuant to the definition specified in Paragraph 1(b)(x) of Rule 68.chan robles virtual law library

B.   The business to be disposed of meets the definition of a significant subsidiary in Paragraph 1(b)(x) of Rule 68.chan robles virtual law library

iii.   When consummation of more than one transaction has occurred or is probable during a fiscal year, the tests of significance in (ii) above shall be applied to the cumulative effect of those transactions.. If the cumulative effect of the transactions is significant, pro forma financial information shall be presented.chan robles virtual law library

iv.   For purposes of this Rule, the term 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 the following:

A.   Whether the nature of the revenue-producing activity of the component will remain generally the same as before the transaction; orchan robles virtual law library

B.   Whether any of the following attributes remain with the component after the transaction:

I.  Physical facilities. chan robles virtual law library

II.  Employee base. chan robles virtual law library

III.  Market distribution system. chan robles virtual law library

IV.  Sales  force. chan robles virtual law library

V.  Customer base. chan robles virtual law library

VI.  Operating  rights. chan robles virtual law library

VII.  Production techniques, or chan robles virtual law library

VIII.  Trade names. chan robles virtual law library

v.    This Rule does not apply to transactions between a parent company and its wholly -owned subsidiary.

b.   Preparation requirements

i.    Objective - Pro forma financial information should provide investors with information about the continuing impact of a particular transaction by showing how it might have affected historical financial statements if the transaction had been consummated at an earlier time.  Such statements should assist investors in analyzing the future prospects of the registrant because they illustrate the possible scope of the change in the registrant's historical financial position and results of operations caused by the transaction.

ii.   Form and content

A.  Pro forma financial information shall consist of a pro forma condensed balance sheet, pro forma condensed statements of income, and accompanying explanatory notes.  In certain circumstance (i.e., where a limited number of pro forma adjustments are required and those adjustments are easily understood), a narrative description of the pro forma effects of the transactions may be furnished in lieu of the statements described herein.chan robles virtual law library

B.   The pro forma financial information shall be accompanied by an introductory paragraph  which briefly sets forth a description of (I) the transaction, (II) the entities involved, and (III) the periods for which the pro forma information is presented.  In addition, an explanation of what the pro forma presentation shows shall be set forth.

C.   The pro forma condensed financial information need only include major captions (i.e., the numbered captions) prescribed by the applicable paragraphs of this Regulation. Where any major balance sheet caption is less than 10 percent of total assets, the caption may be combined with others.  When any major income statement caption is less than 15 percent of average net income of the registrant for the most recent three fiscal years, the caption may be combined with others.  In calculating average net income, a loss year should be excluded unless losses were incurred in each of the most recent three years, in which case the average loss shall be used for purposes of this test.  Notwithstanding these tests, "minimal" amounts need not be shown separately.

D.   Pro forma statements shall ordinarily be in columnar form showing condensed historical statements, pro forma adjustments, and the pro forma results.chan robles virtual law library

E.   The pro forma condensed income statement shall disclose income (loss) from continuing operations before non-recurring charges or credits directly attributable to the transaction.  Material non-recurring charges or credits and related tax effects which result directly from the transaction and which will be included in the income of the registrant within the 12 months succeeding the transaction shall be disclosed separately.  It should be clearly indicated that such charges or credits were not considered in the pro forma condensed income statement.  If the transaction for which pro forma financial information is presented relates to the disposition of a business, the pro forma results should give effect to the disposition and be presented under an appropriate caption.chan robles virtual law library

F.   Pro forma adjustments related to the pro forma condensed income statement shall be computed assuming the transaction was consummated at the beginning of the fiscal year presented and shall include adjustments which give effect to events that are (I) directly attributable to the transaction, (II) expected to have a continuing impact on the registrant, and (III) factually supportable.  Pro forma adjustments to the pro forma condensed balance sheet shall be computed assuming the transaction was consummated at the end of the most recent period for which a balance sheet is required by Paragraph 4 of this Rule and shall include adjustments which give effect to events that are directly attributable to the transaction and factually supportable regardless of whether they have a continuing impact or are non-recurring.  All adjustments should be referenced to notes  which clearly explain the assumptions involved.

G.   Historical primary and fully diluted per share data based on continuing operations (or net income if the registrant does not report either discontinued operations, extraordinary items, or the cumulative effect of accounting changes) for the registrant, and primary and fully diluted pro forma per share data based on continuing operations before non-recurring charges or credits directly attributable to the transaction shall be presented on the face of the pro forma condensed income statement together with the number of shares used to compute the per share data.  For transactions involving the issuance of securities, the number of shares used in the calculation of the pro forma per share data should be based on the weighted average number of shares outstanding during the period adjusted to give effect to shares subsequently issued or assumed to be issued had the particular transaction or event taken place at the beginning of the period presented.  If a convertible security is being issued in the transaction, consideration should be given to the possible dilution of the pro forma per share data.chan robles virtual law library

H.   If the transaction is structured in such a manner that significantly different results may occur, additional pro forma presentations shall be made which give effect to the range of possible results.

INSTRUCTIONS

The historical statements of income used in the pro forma financial information shall not report operations of a segment that has been discontinued, extraordinary items, or the cumulative effects of accounting changes.  If the historical statement of income includes such items, only the portion of the income statement through "income from continuing operations" (or the appropriate modification thereof) should be used in preparing pro forma results. chan robles virtual law library

For a purchase transaction, pro forma adjustments for the income statement shall include amortization of goodwill, depreciation and other adjustments based on the allocated purchase price of net assets acquired.  In some transactions, such as in financial institution acquisitions, the purchase adjustments may include significant discounts of the historical cost of the acquired assets to their fair value at the acquisition date.  When such adjustments will result in a significant effect on earnings (losses) in periods immediately subsequent to the acquisition which will be progressively eliminated over a relatively short period, the effect of the purchase adjustments on reported results of operations for each of the next five years should be disclosed in a note.

For a disposition transaction, the pro forma financial information shall begin with the historical financial statements of the existing entity and show the deletion of the business to be divested along with the pro forma adjustments necessary to arrive at the remainder of the existing entity.  For example, pro forma adjustments would include adjustments of interest expense arising from revised debt structures and expenses  which will be or have been incurred on behalf of the business to be divested such as advertising costs, executive salaries and other costs.

For entities  which were previously a component of another entity, pro forma adjustments should include adjustments similar in nature to those referred to in Instruction 3 above.  Adjustments may also be necessary when charges for corporate overhead, interest, or income taxes have been allocated to the entity on a basis other than one deemed reasonable by management. chan robles virtual law library

Adjustments to reflect the acquisition of real estate operations or properties for the pro forma income statement shall include a depreciation charge based on the new accounting basis for the assets, interest financing on any additional or refinanced debt, and other appropriate adjustments that can be factually supported.  See also Instruction 4 above. chan robles virtual law library

When consummation of more than one transaction has occurred or is probable during a fiscal year, the pro forma financial information may be presented on a combined basis; however, in some circumstances (e.g. depending upon the combination of probable and consummated transactions, and the nature of the filing) it may be more useful to present the pro forma financial information on a disaggregated basis even though some or all of the transactions would not meet the tests of significance individually.  For combination presentations, a note should explain the various transactions and disclose the maximum variances in the pro forma financial information  which would occur for any of the possible combinations.  If the pro forma financial information is presented in a proxy or information statement for purposes of obtaining shareholder approval of one of the transactions, the effects of that transaction must be clearly set forth.

Tax effect, if any, of pro forma adjustments normally should be calculated at the statutory rate in effect during the periods for which pro forma condensed income statements are presented and should be reflected as a separate pro forma adjustment. chan robles virtual law library
 

iii.   Periods to be presented

A.   A pro forma condensed balance sheet as of the end of the most recent period for which a consolidated balance sheet of the registrant is required shall be filed unless the transaction is already reflected in such balance sheet.

B.   Pro forma condensed statements of income shall be filed for only the most recent fiscal year and for the period from the most recent fiscal year end to the most recent interim date for which a balance sheet is required.  A pro forma condensed statement of income may be filed for the corresponding interim period of the preceding fiscal year.  A pro forma condensed statement of income shall not be filed when the historical income statement reflects the transaction for the entire period.

C.   For a business combination accounted for as a pooling of interests, the pro forma income statements (which are in effect a restatement of the historical income statements as if the combination had been consummated) shall be filed for all periods for which historical income statements of the registrant are required.

D.   Pro forma condensed statements of income shall be presented using the registrant's fiscal year end.  If the most recent fiscal year end of any other entity involved in the transaction differs from the registrant's most recent fiscal year end by more than 93 days, the other entity's income statement shall be brought up to within 93 days of the registrant's most recent fiscal year end, if practicable.  This updating could be accomplished by adding subsequent interim period results to the most recent fiscal year-end information and deducting the comparable preceding year interim period results.  Disclosure shall be made of the periods combined and of the sales and revenues and income for any periods which were excluded from or included more than once in the condensed pro forma income statements (e.g., and interim period that is included both as a part of the fiscal year and the subsequent interim period.)

E.   Whenever unusual events enter into the determination of the results shown for the most recently completed fiscal year, the effect of such unusual events should be disclosed and consideration should be given to presenting a pro forma condensed income statement for the most recent twelve-month period in addition to those required in paragraph (iii)(B) above if the most recent twelve-month period is more representative of normal operations.chan robles virtual law library

10. CONSOLIDATED FINANCIAL STATEMENTS

In addition to those required under the applicable SFAS/IAS, the following requirements shall be complied with by the reporting company:chan robles virtual law library

a.   Disclosure about Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons

i.    Summarized financial information (see definitions in paragraph 1(b)(xii) of Rule 68) shall be furnished in the notes to the financial statements for each significant subsidiary not consolidated and for each 50 percent or less owned person.  Notwithstanding the requirement for separate summarized   financial information for each significant subsidiary, where summarized financial information of two or more majority-owned subsidiaries not consolidated are required, combined or consolidated summarized financial information of such subsidiaries may be filed subject to principles of inclusion and exclusion which clearly exhibit the financial position, cash flows and results of operations of the combined or consolidated group.

Similarly, where summarized financial information of two or more 50 percent or less owned persons are required, combined or consolidated summarized financial information of such persons may be filed subject to the same principles of inclusion or exclusion referred to above.chan robles virtual law library

ii.   Summarized financial information shall be furnished in the aggregate for (A) subsidiaries not consolidated and (B) 50 percent or less owned persons, not reported upon pursuant to (A) hereof.  If in the aggregate, either subsidiaries not consolidated or 50 percent or less owned persons would not constitute a significant subsidiary, it may be stated that such groupings would not constitute a significant subsidiary and summarized financial information is not required.chan robles virtual law library

b.   Foreign Subsidiarieschan robles virtual law library

A company covered by this Rule which has a significant foreign subsidiary or subsidiaries shall submit to the Commission copies of the financial statements of said subsidiaries.chan robles virtual law library