Letter in response to SEC’s request for comment on financial disclosure requirements in Regulation S-X applicable to entities other than the Registrant

SUMMARY

The Financial Reporting and Securities Regulation Committees submitted a letter in response to the SEC’s request for comment regarding the financial disclosure requirements in Regulation S-X applicable to certain entities other than the registrant. With respect to Rule 3-05’s requirement that three years of audited financial statements for an acquired business be filed if any of the specified significance tests exceeds 50 percent (unless revenues of the acquired business were less than $50 million in its most recent fiscal year), the Committees urged the SEC to raise the significance threshold from 50 to 80 percent—noting, inter alia, that preparing Rule 3-05 financial statements is expensive and time consuming and can delay (or even derail) transactions, and that the third year of historical financial statements is often of limited value to investors. With respect to Rule 3-10’s exemptions from the requirement to provide separate audited financial statements for the issuer and the guarantors of registered debt securities where the subsidiary issuers/guarantors are “100% owned” by the parent company, the Committees recommended that “100% owned” be replaced with a “wholly owned subsidiary” standard; they also recommended eliminating the requirement that a parent company have no independent assets or operations as a prerequisite to providing abbreviated narrative disclosure. In addition, they called on the SEC to codify in Rule 3-10 its guidance as to customary circumstances for release of a subsidiary’s guarantee.