(w)  Significant subsidiary. The term "significant subsidiary" means a subsidiary, including its subsidiaries, which meets any of the following conditions:

      [Editor’s note: See SEC 4400 for guidance regarding application of the significant subsidiary test.]

(1)   The registrant's and its other subsidiaries' investments in and advances to the subsidiary exceed 10 percent of the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year (for a proposed combination between entities under common control, this condition is also met when the number of common shares exchanged or to be exchanged by the registrant exceeds 10 percent of its total common shares outstanding at the date the combination is initiated); or

(2)   The registrant's and its other subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the subsidiary exceeds 10 percent of the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year; or

(3)   The registrant's and its other subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the subsidiary exclusive of amounts attributable to any noncontrolling interests exceeds 10 percent of such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year.

Note to paragraph (w): A registrant that files its financial statements in accordance with or provides a reconciliation to U.S. Generally Accepted Accounting Principles shall make the prescribed tests using amounts determined under U.S. Generally Accepted Accounting Principles. A foreign private issuer that files its financial statements in accordance with IFRS as issued by the IASB shall make the prescribed tests using amounts determined under IFRS as issued by the IASB.

Computational note: For purposes of making the prescribed income test the following guidance should be applied:

1.    When a loss exclusive of amounts attributable to any noncontrolling interests has been incurred by either the parent and its subsidiaries consolidated or the tested subsidiary, but not both, the equity in the income or loss of the tested subsidiary exclusive of amounts attributable to any noncontrolling interests should be excluded from such income of the registrant and its subsidiaries consolidated for purposes of the computation.

2.    If income of the registrant and its subsidiaries consolidated exclusive of amounts attributable to any noncontrolling interests for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five fiscal years, such average income should be [substituted] for purposes of the computation. Any loss years should be omitted for purposes of computing average income.

3.    Where the test involves combined entities, as in the case of determining whether summarized financial data should be presented, entities reporting losses shall not be aggregated with entities reporting income.

Rule 3-05 Financial statements of businesses acquired or to be acquired

[Editor’s note: See SEC 4550 for guidance regarding financial statements of businesses acquired or to be acquired.]

(a)  Financial statements required.

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

(i)    A business combination has occurred or is probable (for purposes of this rule, this encompasses the acquisition of an interest in a business accounted for by the equity method); or

(ii)   Consummation of a combination between entities under common control is probable.

(2)   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 Rule 11-01(d).

(3)   Acquisitions of a group of related businesses that are probable or that have occurred subsequent to the latest fiscal year-end for which audited financial statements of the registrant have been filed shall be treated under this section as if they are a single business combination. The required financial statements of related businesses may be presented on a combined basis for any periods they are under common control or management. For purposes of this section, businesses shall be deemed to be related if:

(i)    They are under common control or management;

(ii)   The acquisition of one business is conditional on the acquisition of each other business; or

(iii)   Each acquisition is conditioned on a single common event.

(4)  This rule shall not apply to a business which is totally held by the registrant prior to consummation of the transaction.

(b)   Periods to be presented.

(1)   If securities are being registered to be offered to the security holders of the business to be acquired, the financial statements specified in Rule 3-01 and Rule 3-02 shall be furnished for the business to be acquired, except as provided otherwise for filings on Form N-14, S-4 or F-4. The financial statements covering fiscal years shall be audited except as provided in Item 14 of Schedule 14A, with respect to certain proxy statements or in registration statements filed on Forms N-14, S-4 or F-4.

(2)   In all cases not specified in paragraph (b)(1) of this section, financial statements of the business acquired or to be acquired shall be filed for the periods specified in this paragraph (b)(2) or such shorter period as the business has been in existence. 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 Rule 1-02(w) as follows:

(i)    If none of the conditions exceeds 20 percent, 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 50%, financial statements covering at least the substantial majority of the businesses acquired shall be furnished. Such financial statements shall be for at least the most recent fiscal year and any interim periods specified in Rule 3-01 and Rule 3-02.

(ii)   If any of the conditions exceeds 20 percent, but none exceed 40 percent, financial statements shall be furnished for at least the most recent fiscal year and any interim periods specified in Rule 3-01 and Rule 3-02.

(iii)   If any of the conditions exceeds 40 percent, but none exceed 50 percent, financial statements shall be furnished for at least the two most recent fiscal years and any interim periods specified in Rule 3-01 and Rule 3-02.

(iv)   If any of the conditions exceeds 50 percent, the full financial statements specified in Rule 3-01 and Rule 3-02 shall be furnished. However, financial statements for the earliest of the three fiscal years required may be omitted if net revenues reported by the acquired business in its most recent fiscal year are less than $50 million.

(3)   The determination shall be made by comparing the most recent annual financial statements of each such business, or group of related businesses on a combined basis, 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 8-K which included audited financial statements of such acquired business for the periods required by this section and the pro forma financial information required by Article 11, such determination may be made by using pro forma amounts for the latest fiscal year in the report on Form 8-K rather than by using the historical amounts of the registrant. The tests may not be made by "annualizing" data.

(4)   Financial statements required for the periods specified in paragraph (b)(2) of this section may be omitted to the extent specified as follows:

(i)    Registration statements not subject to the provisions of Rule 419 of Regulation C and proxy statements need not include separate financial statements of the acquired or to be acquired business if it does not exceed any of the conditions of significance in the definition of significant subsidiary in Rule 1-02 at the 50 percent level, and either:

(A)  The consummation of the acquisition has not yet occurred; or

(B)  The date of the final prospectus or prospectus supplement relating to an offering as filed with the Commission pursuant to Rule 424(b) of Regulation C, or mailing date in the case of a proxy statement, is no more than 74 days after consummation of the business combination, and the financial statements have not previously been filed by the registrant.

(ii)   An issuer, other than a foreign private issuer required to file reports on Form 6-K, that omits from its initial registration statement financial statements of a recently consummated business combination pursuant to paragraph (b)(4)(i) of this section shall furnish those financial statements and any pro forma information specified by Article 11 under cover of Form 8-K no later than 75 days after consummation of the acquisition.

(iii)  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 Rule 1-02 at the 80 percent 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 Rule 3-02.

(iv)   A separate audited balance sheet of the acquired business is not required when the registrant's most recent audited balance sheet required by Rule 3-01 is for a date after the date the acquisition was consummated.

(c)   Financial statements of foreign businesses.

If the business acquired or to be acquired is a foreign business, financial statements of the business meeting the requirements of Item 17 of Form 20-F will satisfy this section.

REGISTRATION AND REPORTING UNDER THE SECURITIES EXCHANGE ACT OF 1934

THE SIGNIFICANT SUBSIDIARY TESTS

  SEC 4400

.1 General

.2 SEC Staff interpretations of the significant subsidiary tests

[Editor's note: Unless the context indicates otherwise, the guidance in this section relating to acquisitions assumes that the transaction was completed in a fiscal year beginning on or after December 15, 2008. Prior guidance should be consulted with respect to transactions completed in fiscal years beginning before December 15, 2008.]

.1 GENERAL

Many SEC reporting requirements are based, at least in part, on the determination of whether or not an entity is a "significant subsidiary". The SEC defines the term significant subsidiary in Rule 1-02(w) of Regulation S-X as an entity that meets any of the following criteria:

1.   Investment test - the registrant's and its other subsidiaries' investment in and any advances to the subsidiary exceed 10% of consolidated assets; or

2.   Asset test - the registrant's and its other subsidiaries' proportionate share of total assets of the subsidiary exceeds 10% of consolidated assets; or

3.   Income test - the registrant's and its other subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of accounting changes exclusive of amounts attributable to any noncontrolling interests, exceeds 10% of such consolidated income or, in certain instances described in Regulation S-X Rule 1-02(w), the average of such consolidated income for the most recent five years.

The significance threshold set forth in the text of Rule 1-02(w) is 10%. It is important to note, however, that the various SEC rules that make use of the significant subsidiary tests may specify different thresholds. For example, the threshold for determining whether the historical financial statements of an acquired business need to be filed on Form 8-K is 20%. The relevant rules must be carefully analyzed to determine the proper threshold. Registrants should not round the results of the significance tests.

Examples of situations that require the consideration of whether an entity is a significant subsidiary include:

-    Whether or not historical financial statements of an acquired business (and related pro forma financial information) need to be filed with the SEC (Rule 3-05 of Regulation S-X and Item 2.01 of Form 8-K). The threshold is 20%. See SEC 4550 and SEC 3150.5.

-     Whether or not the historical financial statements of individually insignificant acquired businesses need to be provided in connection with a registration statement (Rule 3-05(b)(2)(i) of Regulation S-X). The aggregated threshold is 50%. See SEC 4550.34.

-     Whether or not historical financial statements of a 50% or less owned entity accounted for by the equity method or an unconsolidated subsidiary need to be filed with the SEC (Rule 3-09 of Regulation S-X). The threshold is 20%. See SEC 4520.

   -     Whether or not summarized financial data for 50% or less owned entities accounted for by the equity method or unconsolidated subsidiaries need to be presented in the notes to the registrant's annual financial statements (Rule 4-08(g) of Regulation S-X). The threshold is 10%. See SEC 4520.2.

-     Whether or not summarized financial data for 50% or less owned entities accounted for by the equity method or unconsolidated subsidiaries need to be presented in the notes to the registrant's interim financial statements (Rule 10-01(b)(1) of Regulation S-X). The threshold is 20%. See SEC 4520.2.

-     Whether or not the disposal of a business requires the filing of pro forma financial information (Rule 11-01(a)(4) of Regulation S-X and Item 2.01 of Form 8-K). The threshold is 10%. See SEC 3150.2201.

-     Whether or not the unaudited financial statements of a business to be disposed of are required in a proxy statement (where proxies are being solicited relating to the disposal of that business). The threshold is 20%. See SEC 7100.5.

-     Whether or not the financial statements of a foreign business filed with the SEC using a basis of accounting other than US GAAP or IFRS as issued by the IASB need to include a reconciliation to US GAAP. The threshold is 30%. See SEC 4550.38 and SEC 4520.3.

.2 SEC STAFF INTERPRETATIONS OF THE SIGNIFICANT SUBSIDIARY TESTS

The following SEC staff interpretations refer to the definition of "significant subsidiary" in S-X Rule 1-02(w).

Evaluating the investment test in connection with a business combination completed in fiscal years beginning on or after December 15, 2008

--   In a business combination, compare the total consideration transferred (excluding the carrying value of any assets transferred by the acquirer to the acquiree that will remain with the combined company after the business combination) to the registrant's consolidated assets. The fair value of consideration transferred includes the fair value of contingent consideration, but excludes acquisition-related costs. See Section 2015.5 of SEC Division of Corporation Finance Financial Reporting Manual.

--   Acquisition accounting principles permit a measurement period which can extend for a year from the date of business combination and may result in an adjustment of amounts recognized at the acquisition date. In some circumstances, retrospective adjustment of provisional amounts recognized at the acquisition date and the recognition of additional assets or liabilities that were not originally recognized at the acquisition date are required. These measurement period adjustments should be included in the determination of the significance of an acquisition if the new information obtained about the facts and circumstances that existed at the acquisition date that is giving rise to these adjustments is known prior to effectiveness of an IPO for a new registrant or on or before the date the initial Item 2.01 Form 8-K reporting the acquisition must be filed for an existing registrant. See Section 2020.2 of SEC Division of Corporation Finance Financial Reporting Manual.

--   As it relates to the fair value of contingent consideration, the SEC staff has agreed that significance does not need to be remeasured when the preliminary estimate of the fair value of contingent consideration changes (i.e., during the "measurement period") as long as a good faith estimate was made at the time of acquisition. See Discussion Document A-2 from the April 2008 meeting of the AICPA SEC Regulations Committee.

Guidance applicable to transactions that are completed in fiscal years beginning before December 15, 2008.

--   For transactions accounted for under the purchase accounting principles applicable to transactions that closed in fiscal years beginning before December 15, 2008, transaction costs were included in the investment test because those costs were considered part of the GAAP purchase price for accounting purposes. Additionally, for these transactions the SEC staff had stated that the gross amount of contingent consideration (and not the fair value) that will be included as part of the cost of the acquired company should be considered as part of the total investment in the acquiree unless its payment was deemed remote. The potential inclusion of contingent consideration in the calculation of the investment test meant that "total investment" for purposes of calculating the significant subsidiary test might have included amounts that were not recorded in the financial statements as consideration at the date of purchase. Under the prior purchase accounting rules, contingent consideration was usually recorded when the contingency was resolved and consideration was issued or became issuable, a standard much different from the SEC's probability standard discussed above.

Evaluating the investment test in connection with a combination of entities under common control

--    In a combination of entities under common control, audited financial statements of the target are required if either of the following investment tests are met:

(1)   the number of shares exchanged or to be exchanged by the registrant exceeds 20% of the registrant's outstanding shares at the date the combination is initiated or

(2)   the net book value of the acquired entity’s net assets at its most recent year end exceeds 20% of the registrant's total assets at its most recent year end.

      Generally, with respect to combinations of entities under common control that occur in connection with an initial public offering, the historical financial statements are retroactively restated to reflect the combination and Rule   3-05 of Regulation S-X does not apply.

Evaluating the investment test in connection with the acquisition of an investment accounted by the equity method

--    The SEC staff considers the acquisition of an investment accounted for by the equity method to be the acquisition of a business for reporting purposes. See section 2010.3 of the SEC Division of Corporation Finance Financial Reporting Manual.

--    The numerator of the investment test of significance in connection with the purchase of an equity method investment should start with the GAAP purchase price (which generally follows a cost accumulation model). Accordingly, the numerator of the investment test would generally include acquisition-related costs. Additionally, the staff has indicated that the numerator should include contingent consideration (on a gross basis) if the likelihood of payment is more than remote. This is true even though the contingent consideration may not be recorded until a later date. This model is different from the model that would be used for purposed of calculating the investment test in connection with a business combination.

Evaluating the investment test in connection with the disposition of a business

--    When performing the investment test with respect to a disposal of a business, the numerator should be the greater of (i) the carrying value (as of the end of the most recently completed fiscal year) of the investment disposed or (ii) the proceeds received.

Interpretations relating to the phrase "after intercompany eliminations" in the significance tests

--    Rule 1-02(w)(2) states that a subsidiary is significant if the parent's and its other subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the subsidiary exceeds 10 percent of assets of the registrant and subsidiaries consolidated as of the end of the most recently completed fiscal year.

--    Section 2015.11 of the SEC Division of Corporation Finance Financial Reporting Manual clarifies the staff's view that intercompany transactions between a registrant and acquiree should be eliminated in the same way as if the acquiree was consolidated, and that this view applies to all three of the significance tests.

--    The elimination procedure may result in asymmetrical adjustments, meaning the elimination adjustments could impact the numerator of the significance calculation, the denominator of the calculation, or both the numerator and the denominator. For example, if an acquirer's total assets include a receivable from the acquiree, then for purposes of testing significance the acquirer's total assets would be reduced by the receivable, but no adjustment would be made to the acquiree's total assets (for that item) because the amount is a liability in the financial statements of the acquiree (i.e., not a part of the acquiree's total assets).

--    Although the phrase "after intercompany eliminations" is not used in Rule 1-02(w)(3), adjustments to the numerator and/or the denominator of the income test should be made for intercompany profits or to eliminate any other intercompany transactions.

[Editor's note: Intercompany transactions should not be eliminated when measuring significance of an equity method investee under Rules 3-09, 4-08(g) and 10-01(b)(1). See section 2410.5 of the SEC Division of Corporation Finance Financial Reporting Manual.]

Impact of losses when performing the income test

--    In the case of a single acquisition, if either the registrant or the acquired business reported a pretax loss and the other entity reported pretax income, use the absolute values to perform the income test.

--    In situations where there is a loss figure (exclusive of amounts attributable to noncontrolling interests) for either (i) the parent and its consolidated subsidiaries or (ii) the tested subsidiary (but not both), the denominator for the income test should exclude the parent's and its other subsidiaries' equity in the income or loss from continuing operations before income taxes, extraordinary items and the cumulative effect of an accounting change of the tested subsidiary (exclusive of amounts attributable to any noncontrolling interests). See computational note 1 to Rule 1-02(w). The income or loss of the tested subsidiary may only be excluded when measuring the significance of equity investees when the income or loss of the equity investee is included in the consolidated results; it is not applicable for calculating the significance of acquisitions under Rule 3-05 since the income or loss of the equity investee would not be included in the registrant’s consolidated results.

Illustration of computation of income test:

  Loss of tested subsidiary $(1,000)  Income of parent and its subsidiaries $ 5,000  Income of parent and its subsidiaries excluding      loss of tested subsidiary ($5,000 + $1,000) $ 6,000  Percentage effect 16.7%

Impact of restructuring charges or non-recurring gains/losses or other special charges on the income test (no alternative tests of significance)

--   The income test does not permit income (of the registrant or the tested entity) to be adjusted for restructuring charges, nonrecurring gains or losses or other special charges or credits. The SEC staff expects registrants to perform the significance tests based on the provisions in Regulation S-X. The SEC staff will not accept alternative significance tests. However, if a registrant believes the application of the required tests produces requirements beyond what is reasonably necessary for the information of investors, the registrant may wish to discuss its facts

and circumstances with the SEC staff. See Section 2020.1 of the SEC Division of Corporation Finance Financial Reporting Manual.

Impact of discontinued operations and retrospective changes in accounting on the significance tests

-- In connection with a new or amended registration statement or proxy statement a registrant may be required to revise its audited annual financial statements to reflect a discontinued operation or a retrospective change in accounting principle that was appropriately not reflected in the audited financial statements for the most recently completed fiscal year included in its Form 10-K.

The SEC staff has indicated that:

the retrospectively revised financial statements for the most recent year should be used to perform the significance tests for:

a.   individual businesses acquired after the date the retrospectively adjusted financial statements are filed;

b.   probable acquisitions; and

c.   for measuring the aggregate impact of all individually insignificant businesses that have occurred since the end of the most recently completed fiscal year (including those that were completed before the date that the revised financial statements were filed).

either the most recent year's previously filed financial statements (i.e., prior to retrospective adjustment) or the retrospectively adjusted financial statements that reflect the discontinued operation or change in accounting may be used to evaluate individual acquisitions that were completed on or before the filing date of the financial statements that are retrospectively adjusted for a discontinued operation or a retrospective change in accounting. However, the SEC staff has stated that registrants must consistently use the financial statements it chooses to measure the significance for all individual acquisitions completed on or before the date the retrospectively adjusted financial statements are filed.

See section 2025.1 of the SEC Division of Corporation Finance Financial Reporting Manual.

-- A registrant that has already filed a Form 10-K and subsequently revises its financial statements to reflect a discontinued operation or a retrospective accounting change should evaluate the need for financial statements/note disclosures of significant equity investees (Rules 3-09 and 4-08(g) of Regulation S-X) in a subsequently filed registration or proxy statement based on the financial statements included in its most recent Form 10-K (i.e., not the financial statements that give retrospective effect to the discontinued operation/accounting change). However, when the registrant files its next Form 10-K, it must recompute the significance (under

both Rules 3-09 and 4-08(g) of Regulation S-X) for each financial statement period presented using the revised historical financial statements. The practical effect of this requirement is that a previously insignificant investee may become significant. However, the SEC staff generally will not require financial statements for an investee that was previously insignificant and was disposed of prior to the event that required the retrospective revision to the registrant's financial statements as described in the note to sections 2405.4 and .5 of the SEC Division of Corporation Finance Financial Reporting Manual. Registrants should consider their individual facts and circumstances with the SEC staff if they believe this requirement results in the presentation of investee financial statements that are not necessary to reasonably inform investors. See also section 2410.6 of the SEC Division of Corporation Finance Financial Reporting Manual.

     [Editor's note: These same principles should be applied when analyzing the requirements of Rule 10-01(b)(1) of Regulation S-X.]

The amount to be used as the numerator of the income test when testing an equity method investee for significance under Rules 3-09 and 4-08(g) is generally different from the amount recorded by the registrant in its financial statements.

--   The numerator of the income test for an equity investee is not necessarily the same dollar amount that the registrant records in its financial statements. The amount must be calculated separately by adjusting for items such as the registrant's share of income taxes related to the equity investee and the registrant's share of the equity investee's discontinued operations. Consideration must also be given to the proper treatment of items recorded by the registrant relating to the investee (e.g., impairments of its investment and amortization of basis differences, as well as certain gains and losses). See Section 2410.2 of the SEC Division of Corporation Finance Financial Reporting Manual.

--   The numerator of the income test should include the registrant's equity in the income or loss of the investee as presented in the registrant's income statement, including:

a.    any write-down of the investment for impairment that is not otherwise reflected in the investee's financial statements,

b.    any impairment of goodwill associated with the registrant's equity investment,

c.    any amortization/accretion of a difference between the carrying amount of an investment and the underlying equity in net assets of the investee, and

d.    any gains or losses of the registrant in the most recently completed fiscal year stemming from dispositions of an interest in the tested equity method investee by the registrant or gains and losses recorded by the registrant as a result of an issuance or reacquisition by the investee of its stock, provided that the investee was accounted for using the equity method immediately prior to the disposition and continues to be accounted for by the equity method immediately after the disposition. All other gains or losses stemming from dispositions of interests in the tested equity method investee may be excluded.

--   Any "holding gain or loss" resulting from the remeasurement of a registrant's previously held equity interest in an acquiree, that is recognized in earnings when an acquirer obtains control of an acquiree in which it held an equity interest immediately before the acquisition date, should be excluded from the numerator. See section 2410.3 of the SEC Division of Corporation Finance Financial Reporting Manual.

--   Intercompany transactions should not be eliminated when measuring significance of an equity method investee under Rules 3-09, 4-08(g) and 10-01(b)(1). See section 2410.5 of the SEC Division of Corporation Finance Financial Reporting Manual.

Calculating the denominator of the income test when the registrant has an equity method investee and non-controlling interests

--    Assumptions for registrant are as follows:

Income before taxes and other items - $ 1,000  Income taxes (400)  Equity in investee earnings         300   Net income (amounts applicable to parent and non-controlling interest) 900  Net income applicable to non-controlling interest     (100 )Net income applicable to parent $     800

The registrant has two equity investees in which it owns 50% interests. Investee A has pretax income of $800 and net income of $500 while Investee B has pretax income of $290 and net income of $100. Investees A and B have no non-controlling interests in any of their subsidiaries. The registrant has two 80% owned consolidated subsidiaries. Subsidiary X has pretax income of $300 and net income of $200. Subsidiary Y has pretax income of $700 and net income of $300.

The registrant would calculate the denominator for the income test as follows:

Income before taxes and other items   $ 1,000      Plus registrant's share (50%) of:       - Equity Investee A pre-tax income 400   - Equity Investee B pre-tax income 145      Less portion of income before taxes and other items applicable to     non-controlling interest (20%) in registrant's consolidated subsidiaries of:       - Subsidiary X pre-tax income   (60)   - Subsidiary Y pre-tax income   (140 )

    $ 1,345

Determining the denominator in the income test by averaging the registrants income

--    Computational Note 2 to Rule 1-02(w) indicates that if the income of the registrant and its subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five fiscal years, then the average income should be substituted for purposes of the computation. Any loss years should be omitted (i.e., counted as $0) for purposes of computing average income. The average should be computed as the sum of earnings in non-loss years divided by 5 (see example below).

--   The SEC staff has indicated that the five-year averaging method is not permitted if the registrant reported a loss from continuing operations before taxes and change in accounting and exclusive of amounts attributable to any noncontrolling interests in its most recent year. In that case, significance should be evaluated relative to the absolute value of the most recent year's loss.

--    The SEC staff has indicated that the earnings of the subsidiary being tested may not be averaged.

--   The SEC staff has also indicated that if the test is being used to measure the significance of an equity investee, that the registrant should not exclude its equity in the income or loss of the investee for purposes of determining whether the registrant may use income averaging provisions under computational note 2 to Regulation S-X 1-02(w). If a registrant so qualifies and uses averaging, and a tested equity investee incurred losses in any of the five years averaged, the equity in the loss of the investee should be excluded from the income of the registrant in computing the registrant's average income.

--   The following example illustrates the application of Computational Note 2 to Rule 1-02(w), as it pertains to a 50% owned equity investee (assumes equity investee is not subject to income taxes and neither the investee nor the registrant have any non-controlling interests).

Registrant consolidated:

Consolidated pre-tax income (loss) from continuing operations (includes equity in pre-tax loss from continuing operations of 50% equity investee) for the last 5 years:

2009 $ 300,0002008 700,0002007 300,0002006 (300,000)2005 900,000

50% equity investee:

Registrant's 50% share of pre-tax (loss) from continuing operations of equity investee for the last 5 years:

    2009 $ (45,000)2008 (50,000)

2007 (30,000)2006 (50,000)2005 (100,000)

Registrant amounts used to determine whether the registrant qualifies to use income averaging:

2009 $   300,000  2008 700,000  2007 300,000  2006   (3)  2005 900,000  Total income for years with income $

2,200,000Number of years ÷                 5 (3) Average income $     440,000

Registrant amounts used to compute five year average(1):

2009 $   345,000(2)  2008 750,000(2)  2007 330,000(2)  2006   (3)  2005 1,000,000(2)  Total income for years with income $

2,425,000Number of years ÷                   5 (3) Average income $     485,000 (A)

(1)   As set forth above, the registrant has determined that it may use the 5 year averaging technique for purposes of calculating the denominator of the income significance test. Since the registrant qualifies to use averaging, the tested equity investee's losses should be excluded from the income of the registrant in computing the registrant's average income. As noted above, the SEC staff has indicated that the registrant should not exclude its equity in the income or loss of the investee for purposes of determining whether the registrant may use income averaging provisions under computational note 2 to Regulation S-X 1-02(w).

(2)   In accordance with Computational Note 1 to S-X Rule 1-02(w), the registrant's share of the investee pre-tax loss is added back to the registrant's pre-tax income from continuing operations (e.g., 2009 - $300,000 (registrant) + $45,000 (share of investee pre-tax loss) = $345,000). If the registrant's share of the equity investee's pre-tax results had been income of $45,000 in 2009, rather than a loss of $45,000, no adjustment would be required and $300,000 would be used for 2009 (assumes equity investee is not subject to income taxes).

(3)   Loss years are assigned a value of zero, however, the average is still calculated based on 5 years.

Significance calculation of equity investee:

Registrant S-X Rule1-02(w)(3) pre-tax income   $485,000(4)50% equity investee S-X Rule1-02(w)(3) pre-tax loss   $(45,000)    Level of significance               9.3 %

  (4)   Average income computed for the registrant ((A) above) is utilized due to the application of Computational Note 2 to S-X 1-02(w).

Treatment of receivables, inventory and other working capital amounts not acquired

--   Ordinary receivables, inventory and other working capital amounts not acquired should nevertheless be included in tests of significance on the theory that working capital will be required and funded after the acquisition. However, the pro forma balance sheet should exclude any assets or liabilities not acquired.

Treatment of pro forma effects of anticipated public offerings

--   The registrant's assets may not be increased by the pro forma effect of anticipated public offering proceeds for purposes of significance tests.

Evaluating significance of individually insignificant business acquisitions (and probable business acquisitions that are 50% or less significant and significant business acquisitions for which separate financial statements are not yet filed/required to be filed) when some entities have income but others have losses

--   With regard to the aggregation of individually insignificant acquisitions (and probable acquisitions that are 50% or less significant and significant business acquisitions for which separate financial statements are not yet filed/required to be filed), separate calculations should be performed for profitable entities and for those with losses. Each group should then be measured separately against the consolidated totals. The absolute values of the results of operations of the two groups would not be aggregated for purposes of applying the significance tests. However, when selecting the mathematical majority, the absolute values of the results of operations would be aggregated to determine which financial statements to present. (See also SEC 4550.34.)

      The following examples illustrate how to determine whether the aggregate significance test is met:

     Example 1 (assume income test yields the greatest level of significance)

-     Aggregate significance under the income test of entities reporting income is 49%.

-     Aggregate significance under the income test of entities reporting losses is 49%.

      In the above example, the 50% aggregate significance threshold has not been met for either group and therefore financial statements are not required.

      Example 2 (assume income test yields the greatest level of significance)

-     Aggregate significance under the income test of entities reporting income is 44%.

-     Aggregate significance under the income test of entities reporting losses is 52%.

      In this example, the 50% aggregate significance threshold is met as a result of the entities reporting losses and therefore financial statements are required by Rule 3-05. In selecting which entities will be provided to represent the mathematical majority, the absolute values of the results of operations would be aggregated to determine which financial statements to present. Financial statements must be provided for entities that comprise more than 48% of the absolute value (i.e., a mathematical majority of the 96% absolute value of the income tests).

--    As discussed above, a registrant should calculate the aggregate significance of individually insignificant acquired businesses based on the most recent pre-acquisition audited annual financial statements of the acquired businesses and the registrant's most recent annual audited pre-acquisition financial statements filed with the SEC. This methodology is not necessarily consistent with the calculation of individual significance made at the date of each acquisition. See section 2025.1 of the SEC Division of Corporation Finance Financial Reporting Manual.

Consideration for providing financial statements for lower tier acquirees

--    Financial statements of businesses recently acquired by the acquiree of the registrant (e.g. lower tier acquirees) do not need to be provided unless their omission would render the acquiree’s financial statements misleading or substantially incomplete. A situation where financial statements of businesses recently acquired by the acquiree would be provided is when the acquiree is newly formed and the acquisitions consummated by the acquiree are deemed the predecessor of the acquiree. Since practice in this area may vary, consultation with the SEC Services Group should be considered.

--    If an acquisition occurs after a reverse recapitalization of the legal target but before the registrant's audited financial statements for the fiscal year in which the reverse recapitalization occurred are filed and the audited financial statements for the legal target have been filed with the SEC then significance should be measured against the legal target's financial statements.

Measuring significance after a reverse acquisition or reverse recapitalization

--    If an acquisition is made after a transaction accounted for as a reverse acquisition of the registrant but before the audited financial statements for the fiscal year in which the reverse acquisition occurred are filed and the audited financial statements of the accounting acquirer

have been filed, significance should be measured against the accounting acquirer’s financial statements.

--    If an acquisition occurs after a reverse recapitalization of the legal target but before the registrant's audited financial statements for the fiscal year in which the reverse recapitalization occurred are filed and the audited financial statements for the legal target have been filed with the SEC then significance should be measured against the legal target's financial statements.

Evaluating significance when the registrant or the tested entity has been in existence for less than a full fiscal year (including situations in which the registrant is a "successor") or when there has been a change in year end

--    If the registrant or the tested entity has been in existence for less than one fiscal year, the historical financial statements should still be used in the significant subsidiary tests. This is true even if the financial statements cover a period of less than a year. The financial statements should not be annualized. If the registrant believes another approach should be considered (e.g., use of pro forma amounts), it should preclear the suggested approach with the SEC staff.

--    If the registrant or the tested entity has changed its fiscal year and the transition period is less than 9 months, the registrant may measure significance using either (A) the most recently completed audited fiscal year prior to the change or (B) audited financial statements for the 12 months ending on the last day of the transition period. If both the registrant and the acquiree have changed their fiscal years, registrants should measure significance using a consistent approach [either (A) or (B)] for both the registrant and the acquiree [not (A) for one and (B) for the other]. If the transition period is greater than 9 months, the registrant should use the audited financial statements for that period. See section 2025.6 of SEC Division of Corporation Finance Financial Reporting Manual.

--    If the registrant was formerly a shell company that completed an acquisition of an entity deemed to be its predecessor (but not accounted for as a reverse acquisition or reverse recapitalization) in its most recent full fiscal year, then in any subsequent acquisitions by the registrant, significance should be measured against the historical financial statements of the registrant. This would be the case even if the registrant, as successor, does not have a full year of the operations of the acquired predecessor business included in its consolidated results to serve as the basis in the calculation of the income test. If the registrant believes a different method should be considered, the registrant should preclear its suggested presentation with the SEC staff. The registrant should not use pro forma amounts or otherwise add together the predecessor and successor periods without preclearing the calculation. See section 2025.9 of SEC Division of Corporation Finance Financial Reporting Manual and Discussion Document C from the June 2006 meeting of the AICPA SEC Regulations Committee.

     Common examples where this situation might also arise include a registrant that recently emerged from bankruptcy and adopted fresh-start reporting during the year or a registrant that applied push down accounting to reflect a change in basis of accounting. In these situations, the financial statements in the year of the change generally are divided between the predecessor and successor periods with a vertical black line.

     [Editor's note: The SEC staff has indicated that the 5-year averaging method described in Computational Note 2 to Rule 1-02(w) did not contemplate the use of successor and predecessor periods. Registrants that wish to consider averaging when the 5 year-period includes both predecessor and successor periods should pre-clear their methodology with the SEC staff.]

--   When the tested company's financial statements for the year used to perform the significance test reflect both predecessor and successor periods, the SEC staff has indicated that successor period should serve as the "starting point" for evaluating significance. However, the SEC staff has indicated that judgment is required and there is no single method that would be applicable in every situation. The registrant should consider preclearing its suggested approach with the SEC staff. Engagement teams should consider consulting with SEC Services. See Discussion Document C from the October 2007 meeting of the AICPA SEC Regulations Committee.

Evaluating significance with respect to acquirees/investees that do not prepare their financial statements in accordance with US GAAP

--    When a US company is applying the significance test to non-US acquisitions/investees, the calculations should be based on U.S. GAAP data. If the non-US company’s financial statements are prepared in accordance with the accounting principles of another country, the test should be applied after adjusting those financial statements to U.S. GAAP. This is true even if the non-US acquiree/investee prepares its financial statements using IFRS as issued by the IASB.

      [Editor's note: A foreign private issuer that files its financial statements in accordance with IFRS as issued by the IASB must perform the significance tests using amounts determined under IFRS as issued by the IASB. A non-US registrant that files its financial statements in accordance with or provides a reconciliation to US GAAP must perform the significance tests using amounts determined under US GAAP (not local GAAP).]

The registrant's financial statements generally should not be adjusted to include the balances of a target when performing the significance tests

--   The calculation of the significant subsidiary test for a business combination should generally be performed on a stand-alone basis. That is, the target company’s balances should not be included with the registrant’s amounts.

--   Under certain defined circumstances pro forma amounts for the registrant may be used when evaluating significance. Refer to SEC 4550 for information relating to the specific circumstances in which significance tests may be performed using pro forma balances and amounts. See also sections 2025.3 and 2035.5 of the SEC Division of Corporation Finance Financial Reporting Manual.

Considerations relating to portions of an acquired business that the registrant expects to dispose

--   The registrant may not exclude that portion of a business acquired that it expects to dispose of in calculating the significant subsidiary test. Expected dispositions should be considered when preparing the pro forma financial statements.

Considerations when only information relating to revenues and direct expenses and assets acquired and liabilities assumed of an acquired business is available

--    If a registrant has received an accommodation from the SEC staff to present a statement of revenues and direct expenses of an acquired business, the excess of revenues over direct expenses of the acquired business should be compared to the registrant's income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle (exclusive of amounts attributable to any noncontrolling interests) when calculating the significance of the acquisition. The registrant's income should not be adjusted to exclude corporate overhead. See sections 2020.7 and 2065.9 of the SEC Division of Corporation Finance Financial Reporting Manual. If this test results in requirements that the registrant believes are anomalous or otherwise in excess of the information reasonably necessary to inform investors, they should consider discussing their particular facts and circumstances with the SEC staff.

--    For the asset test, the registrant should compare the book value of the assets acquired to their total assets

Considerations relating to preferred stock dividends relating to an equity investee

--    For purposes of measuring significance of equity method investees, the numerator should include dividends on preferred stock of the equity investee owned by the registrant in addition to the registrant’s common stock interest. The SEC staff has commented that they are unable to contemplate a scenario in which preferred stock dividends would not be included in the numerator. See Discussion Document N from the April 2004 meeting of the AICPA SEC Regulations Committee.

--    Even though the income test described in Rule 1-02(w) of Regulation S-X refers to income (rather than income available to common shareholders), the SEC staff has indicated that the test should be performed on a basis that is consistent with the registrant's method of recording its share of income of the investee (which would generally be based on income available to common shareholders). See Discussion Document C from the March 2002 meeting of the AICPA SEC Regulations Committee.

Calculating the significance of an equity investee when there are changes in ownership (including disposition of the entire investment)

--    The significance of an equity investee must be calculated in the year of disposition. Gains or losses resulting from the disposition of an equity investee that results in either the disposal of the entire interest, or in the remaining investment being accounted for under the cost method, may be excluded from the numerator of the calculation. If the investee was accounted for under the equity method both before and after a partial disposition, gains and losses of the registrant

resulting from the partial disposition of the tested equity investee, as well as gains or losses recorded by the registrant as a result of an issuance or reacquisition by the investee of its stock, should be included in the numerator of the test. See section 2410.2 of the SEC Division of Corporation Finance Financial Reporting Manual..

--    In years in which a formerly consolidated subsidiary becomes an equity method investee, the registrant should calculate the income test based on the registrant's equity in the investee's pretax earnings for the period of the fiscal year in which it was accounted for by the equity method. Any gain or loss arising from the transaction that caused the former subsidiary to become an equity investee may be excluded from the numerator in the significance test.

--    In years in which an investment previously accounted for under the equity method becomes an investment accounted for under the cost method, the registrant's equity in the investee's pretax income or loss of the equity method investee should be included in the income test up to the date at which the investment no longer qualified for accounting under the equity method. As noted above, any gain or loss relating to a decrease in ownership interest may be excluded from the numerator of the significance calculation.

--    In years in which an investment previously accounted for under the equity method is consolidated, financial statements would be required for the period during which the investee was accounted for under the equity method if the income significance test is met. The significance should be measured based on the period during which the investee was accounted for under the equity method. The SEC staff has indicated that a "holding" gain or loss recorded at the time of consolidation as a result of the required remeasurement to fair value of the existing equity investment would not be included in the numerator of the significance calculation. See sections 2020.4 and 2410.3 of the SEC Division of Corporation Finance Financial Reporting Manual and Discussion Document A-3 from the April 2008 meeting of the AICPA SEC Regulations Committee

--    If significant, the registrant should provide audited financial statements of the equity method investee for the period of the fiscal year in which it was accounted for by the equity method. If it is impractical to obtain audited financial statements only for this period, the registrant should preclear its suggested presentation with the SEC staff.

Considerations when an entity being tested for significance is included as a component of discontinued operations

--    The income test requires a registrant to calculate the contribution of the tested entity to the registrant's total pre-tax income from continuing operations. However, if the tested entity is reflected in the registrant's historical financial statements as a discontinued operation, the registrant's total pre-tax income from continuing operations would not include any income related to the tested subsidiary. Therefore, the numerator in the test should be the historical pre-tax operating results of the tested entity (included in the registrant's discontinued operations). The denominator in the test should likewise be adjusted to include the pre-tax income from discontinued operations. If the tested entity is not a component of the registrant's discontinued operations, then the registrant should not include any amounts relating to discontinued operations

in the denominator of the income test. See Discussion Document H from the June 2001 meeting of the AICPA SEC Regulations Committee.

Performing the significance test on an investment accounted for using the "fair value option" that otherwise would be accounted for under the equity method

--   Under the "fair value option", a company may account for financial assets, including investments that are otherwise required to be accounted for under the equity method, at fair value. Under the fair value option, the investment is reflected on the balance sheet at fair value, with changes in fair value between reporting periods reflected in the income statement. The investor would no longer record its share of investee income or loss in the income statement. The numerator for the significance tests should be determined as follows:

Income test : Use the change in fair value during the relevant period as recorded by the registrant in its income statement.

Investment test : Use the investment recorded by the registrant (i.e., at fair value) at the end of the relevant reporting period.

Asset test: (when applicable): Same as traditional asset test.

     See sections 2400.4 and 2435.2 of the SEC Division of Corporation Finance Financial Reporting Manual.

Performing the income significance test with respect to an equity method investee whose results are recorded on a "lag" basis

--   The registrant should use the amount recorded in its annual financial statements to perform the income test. Accordingly, if a calendar year-end registrant records its equity in the earnings of an equity method investee with a September 30, 2009 year-end on a 3 month lag, the income significance test for the registrant's year ended December 31, 2009 would be based on the investee's income for the 12 month period ended September 30, 2009 (i.e., the period used to prepare the registrant's financial statements for the year ended December 31, 2009). See Discussion Document D from the June 2001 meeting of the AICPA SEC Regulations Committee.