(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Rules Proposed on Pro Forma Reports, Trading Blackouts

The SEC approved proposals to deal with pro forma reporting, off-balance sheet transactions and prohibitions on trading during "blackout periods" in which employees may not trade company stock held in retirement plans. These actions were taken in connection with the requirements of the Sarbanes-Oxley Act.

Pro Forma Reporting

Section 401(b) of the Sarbanes-Oxley Act requires the SEC to issue final rules by January 26, 2003, which would require that any public disclosure or release of pro forma financial information by a public company be presented in a manner that 1) does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the pro forma financial information, in light of the circumstances under which it is presented, not misleading and 2) reconciles the pro forma financial information presented with the financial condition and results of operations of the company under Generally Accepted Accounting Principles.

The SEC's proposal would create a new Regulation G to apply whenever a public company discloses material information that includes non-GAAP information. Regulation G would prohibit the use of non-GAAP data to mislead and would also require all non-GAAP data to be accompanied by data in GAAP form.

Foreign issuers would have limited exemptions from Regulation G. Such foreign issuers would be exempt if 1) the securities of the issuer were listed or quoted on a securities exchange or inter-dealer quotation system outside the United States, 2) the non-GAAP financial measure and the most comparable GAAP financial measure are not calculated and presented in accordance with generally accepted accounting principles in the United States and 3) the disclosure is made by or on behalf of the issuer outside the United States, or is included in a written communication that is released by or on behalf of the issuer only outside the United States.

The SEC also proposed to amend Regulation S-K and Regulation S-B to address specifically the use of non-GAAP financial measures in filings with the Commission. These proposed amendments would apply to the same categories of non-GAAP financial measures as are covered by proposed Regulation G, but contain more detailed requirements than proposed Regulation G. The Commission also proposed to amend Exchange Act Form 20-F to reference Item 10 of Regulation S-K.

Real-Time Disclosure

The SEC also approved a proposal to change Form 8-K, as required by Section 409 of the Sarbanes-Oxley Act, to require real-time reporting of material information. Section 409 requires the disclosure to be in plain English and authorizes the SEC to establish specific disclosure requirements. Certain types of disclosure would not have to be filed with the SEC under the proposal. Web casts opened to the public, and available over the company's Internet site, would not need to be filed with the SEC if made within 48 hours of a related release that is filed on a Form 8-K.

Off-Balance Sheet Disclosure

The SEC also acted to require enhanced reporting of off-balance sheet activities, as required by Section 401(a) of the Sarbanes-Oxley Act. The proposal is similar to guidance issued by the SEC in January 2002 (2001-02 CCH Dec. ¶86,617). The new proposal goes further, however, by requiring disclosure of off-balance sheet items in cases where the likelihood that they will have a material effect on the company is more than "remote. " The current standard requires disclosure if the transaction is "reasonably likely" to have a material effect. The disclosure for off-balance sheet items is to be made in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the quarterly and annual reports.

Trading Blackouts

Section 306(a) of Sarbanes-Oxley requires regulators to prohibit directors and officers from trading in their company's equity during blackout periods when employees cannot trade company stock in pension plans. The SEC's proposal would apply to the directors and officers of an issuer that is either registered under Exchange Act Section 12, is required to report under Exchange Act Section 15(d) or that files or has filed a registration statement with the SEC that has not become effective yet but also has not been withdrawn. The proposal would apply to the directors and officers of all reporting companies, including foreign private issuers, banks and savings associations and small business issuers. The proposal will use the definition of director and officer from the Exchange Act.

The proposal makes clear that it covers derivative securities relating to the officer or director's company, even if the company did not issue the derivative. Covered under the blackout restrictions would be trades by family members of the officer or executive, as well as by limited liability companies and trusts. However, certain trades would be exempt. These include: 1) acquisitions made by dividend or interest reinvestment plans, 2) trades that satisfy the insider trading affirmative defense conditions of Exchange Act Rule 10b5-1(c), 3) trades for employee benefit plans, and 4) increases or decreases in securities due to stock splits, stock dividends, or pro rata distributions.

The restrictions are triggered when the blackout lasts more than 3 consecutive business days and temporarily suspends the trading ability of at least 50 percent of the participants in the plan. Any plans for a blackout period would require a Form 8-K filing. A violation of the statutory trading prohibition of Section 306(a) by a director or executive officer would be subject to possible enforcement action by the Commission. In addition, Section 306(a) provides that an issuer, or a security holder of behalf of the issuer, may bring an action to recover the profits realized by a director or executive officer from a prohibited transaction during a blackout period. The proposed rules would provide guidance on how the computation of profits would be made in a private action and solicit comment on alternative approaches.

¨ The proposing releases will be published in a forthcoming REPORT