4.3 Interaction With U.S. GAAP Disclosure Requirements

Rule 4-08(g) requires a registrant to disclose summarized financial information of equity method investee(s) when the significance of the investee(s) to the registrant (individually or in the aggregate) exceeds 10 percent. ASC 323-10-50-3(c) requires similar disclosures when an equity method investee is material. The summarized financial information required by Rule 4-08(g) generally satisfies the requirements of ASC 323-10-50-3(c). If an equity method investee does not exceed the 10 percent significance test but is material, the registrant should provide the information required by ASC 323-10-50-3(c).

However, under SAB Topic 6.K.4(b), the summarized financial information required by Rule 4-08(g) and ASC 323-10-50-3(c) may be omitted if a registrant includes the separate financial statements of a significant equity method investee when the registrant files its Form 10-K in accordance with Rule 3-09. In providing relief from the requirement to present summarized financial information of an equity method investee, SAB Topic 6.K.4(b) clarifies that the objective of Rule 4-08(g) is to provide the minimum level of disclosure about a registrant’s investment in an equity method investee that would be considered relevant to users of the registrant’s financial statements. When a registrant includes the audited financial statements of an equity method investee, the registrant has actually provided more than the minimum level of information and therefore has satisfied the requirements of Rule 4-08(g) and ASC 323 (for more information, see paragraph 2420.5 of the FRM). However, if the registrant has more than one equity method investee and the aggregate significance of all equity method investees (including the entity for which separate financial statements are filed) to the registrant exceeds 10 percent, summarized financial information under Rule 4-08(g) would be required for the equity method investees for which separate financial statements are not provided.

In certain circumstances, such as when the registrant and equity method investee have different fiscal year-ends, the financial statements of the equity method investee may not be required as of the original due date of the Form 10-K and may be filed in an amendment to the Form 10-K. As explained in paragraph 2420.5 of the FRM, if the separate financial statements of the equity method investee “are not filed at the same time as the [registrant’s] Form 10-K,” the guidance in SAB Topic 6.K.4(b) does not apply and “the registrant must include [the] summarized financial information in its audited financial statements.”

Further, if the separate financial statements of the equity method investee are not included in the same document or filing as the registrant’s financial statements, the registrant’s financial statements may not be compliant with U.S. GAAP (e.g., ASC 323) or SEC rules and regulations (e.g., Rule 4-08(g)) if the summarized financial information is omitted. For example, this could be the case in an annual report to shareholders in which the registrant is permitted to omit the separate financial statements of the equity method investee (for more information, see the note to paragraph 2420.5 of the FRM). In this situation, the registrant is required to include summarized financial information for equity method investees in its financial statements.

A registrant should carefully consider the circumstances under which it may rely on the accommodation in SAB Topic 6.K.4(b) to omit the summarized financial information of an equity method investee that is otherwise required by Rule 4-08(g) and ASC 323-10-50-3(c).