Notice and Final Rule (effective January 1, 2001): OSC Rule - 51-501 - AIF and MD&A and Proposed Rescission of OSC Policy Statement No. 5.10 Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operations

Notice and Final Rule (effective January 1, 2001): OSC Rule - 51-501 - AIF and MD&A and Proposed Rescission of OSC Policy Statement No. 5.10 Annual Information Form and Management's Discussion and Analysis of Financial Condition and Results of Operations

Notice of Ministerial Approval OSC Rule



NOTICE OF MINISTER OF FINANCE APPROVAL OF
FINAL RULE 51-501 AIF & MD&A

On November 27, 2000, the Minister of Finance approved Rule 51-501 AIF & MD&A (the "Rule"). Materials related to the Rule and Companion Policy 51-501CP (the "Companion Policy") were published in the Bulletin on March 10, 2000 and October 27, 2000. The Rule and the Companion Policy will come into effect on January 1, 2001.

The final Rule and Companion Policy are published in chapter 5 of this Bulletin.

 

ONTARIO SECURITIES COMMISSION RULE 51-501
AIF AND MD&A

TABLE OF CONTENTS

PARTTITLE

PART 1DEFINITIONS AND APPLICATION
1.1Definitions
1.2Application
1.3Calculation of Aggregate Market Value of an Issuer's Equity Securities
1.4Exemption

PART 2FILING OF AIF
2.1Filing of AIF
2.2Filing of Annual MD&A Supplement for Canadian GAAP Discussion

PART 3DELIVERY OF ANNUAL MD&A
3.1Delivery of Annual MD&A
3.2Delivery of Annual MD&A Supplement for Canadian GAAP Discussion

PART 4INTERIM MD&A
4.1Filing of Interim MD&A
4.2Content of Interim MD&A
4.3Delivery of Interim MD&A
4.4Filing of Interim MD&A Supplement for Canadian GAAP Discussion
4.5Delivery of Interim MD&A Supplement for Canadian GAAP Discussion

PART 5EXEMPTION
5.1Exemption

PART 6EFFECTIVE DATE
6.1Effective Date

ONTARIO SECURITIES COMMISSION RULE 51-501
AIF AND MD&A

PART 1DEFINITIONS AND APPLICATION

1.1Definitions
- In this Rule

"annual MD&A" means, for an issuer, a MD&A for the annual financial statements of the issuer; and

"interim MD&A" means, for an issuer, a MD&A for the interim financial statements of the issuer.

1.2Application

(1)Except as otherwise provided in Ontario securities law, this Rule applies to a reporting issuer, other than a mutual fund, if

(a)the issuer's shareholders' equity or revenues exceeded $10,000,000 in the financial year of the issuer completed immediately preceding the coming into force of this Rule or in any subsequent financial year; or

(b)the aggregate market value of the issuer's outstanding equity securities for which there was a published market was $75,000,000 or more on the last day of the financial year of the issuer completed immediately preceding the coming into force of this Rule or on the last day of any subsequent financial year.

(2)A reporting issuer to which this Rule applies shall file

(a)annual MD&A for financial years of the issuer ending on or after January 1, 2001; and

(b)interim MD&A for interim periods of the issuer beginning

(i) on or after January 1, 2001 if the issuer filed an AIF for a financial year ending in 2000; or

(ii) the day after the end of the financial year for which the issuer files its first annual MD&A if the issuer did not file an AIF for a financial year ending in 2000.

1.3Calculation of Aggregate Market Value of an Issuer's Equity Securities

(1)For the purposes of sections 1.2 and 1.4, the aggregate market value of the equity securities of an issuer on the last day of a financial year is the aggregate of the market value on that date of each class of its equity securities for which there is a published market, calculated by multiplying

(a)the simple average of the closing prices of the class of equity securities for each of the 20 most recent trading days on which there was a closing price; by

(b)the simple average number of equity securities of the class outstanding over that 20 trading day period.

(2)For the purposes of the calculation under subsection (1), the closing price on the published market in Canada on which the class of equity securities is principally traded shall be used, unless there is no published market in Canada on which the class of equity securities is traded, in which case, the published market outside of Canada on which the class of equity securities is principally traded shall be used.

1.4Exemption - Despite section 1.2, this Rule does not apply with respect to a financial year of a reporting issuer if

(a)neither the shareholders' equity nor the revenues of the issuer exceeded $10,000,000 in each of the three immediately preceding financial years; and

(b)the aggregate market value of the issuer's outstanding equity securities for which there was a published market was less than $75,000,000 on the last day of each of the three immediatelypreceding financial years.


PART 2FILING OF AIF

2.1Filing of AIF

(1)An issuer shall file an AIF prepared in accordance with Form 44-101F1 for each financial year within 140 days after the end of the financial year.

(2)An issuer is not required to file an AIF under subsection (1) for a financial year ended prior to the coming into force of this Rule.

(3)Despite subsection (1), an issuer that has securities registered under section 12 of the 1934 Act or has a reporting obligation under subsection 15(d) of the 1934 Act may file an AIF in the form of a current annual report on Form 10-K, or on Form 20-F, under the 1934 Act.

(4)An issuer that files an AIF under subsection (3) shall file the AIF as nearly as practicable contemporaneously with the filing of the Form 10-K or Form 20-F with the SEC.

(5)An issuer that files an AIF under subsection (3) shall file with the AIF an undertaking to the Director to the effect that the issuer will provide to any person or company, upon request to the secretary of the issuer

(i)one copy of the AIF of the issuer, together with one copy of any document, or the pertinent pages of any document, incorporated by reference in the AIF,

(ii)one copy of the comparative financial statements of the issuer for its most recently completed financial year for which financial statements have been filed together with the accompanying report of the auditor and one copy of the most recent interim financial statements of the issuer that have been filed, if any, for any period after the end of its most recently completed financial year, and

(iii)one copy of the information circular of the issuer in respect of its most recent annual meeting of shareholders that involved the election of directors or one copy of any annual filing prepared instead of that information circular.

2.2Filing of Annual MD&A Supplement for Canadian GAAP Discussion

(1)An issuer that has filed an AIF in a form permitted under subsection 2.1(3) shall file, concurrently with its AIF, a supplement prepared in accordance with subsection (2) if the issuer

(a)is incorporated, organized or continued under the laws of Canada or a jurisdiction; and

(b)has based the discussion in the annual MD&A that forms part of its AIF on financial statements prepared other than in accordance with Canadian GAAP.

(2)A supplement required to be filed by an issuer under subsection (1) shall restate, based on financial statements of the issuer prepared in accordance with Canadian GAAP, those parts of the annual MD&A that

(a)are based on financial statements of the issuer prepared in accordance with foreign GAAP; and

(b)would read differently if they were based on financial statements of the issuer prepared in accordance with Canadian GAAP.


PART 3DELIVERY OF ANNUAL MD&A

3.1Delivery of Annual MD&A - An issuer shall send the annual MD&A to all securityholders to whom it sends its annual audited financial statements

(a)concurrently with the sending to those securityholders of its annual audited financial statementsto which the annual MD&A relates; or

(b)if its annual audited financial statements appear in more than one document that are sent separately to securityholders, then concurrently with the sending to securityholders of one of the documents containing its annual audited financial statements to which the annual MD&A relates, so long as the annual MD&A is sent to securityholders within 140 days after the end of the financial year to which the annual MD&A relates.

3.2Delivery of Annual MD&A Supplement for Canadian GAAP Discussion - An issuer required to file a supplement under section 2.2 shall send the supplement to all securityholders to whom it sends the annual MD&A, concurrently with the sending of the annual MD&A.


PART 4INTERIM MD&A

4.1Filing of Interim MD&A

(1)An issuer that is required to file an AIF for a financial year shall file in the following financial year, concurrently with the filing of its interim financial statements, an interim MD&A prepared in accordance with section 4.2.

(2)Despite subsection (1) and section 4.2, an issuer that has securities registered under section 12 of the 1934 Act or has a reporting obligation under subsection 15(d) of the 1934 Act may file an interim MD&A prepared in accordance with paragraph (b) of Item 303 of Regulation S-K under the 1934 Act.

(3)An issuer that files an interim MD&A under subsection (2) shall file the interim MD&A as nearly as practicable contemporaneously with the filing of the Form 10-Q or Form 6-K with the SEC.

4.2Content of Interim MD&A

(1)An issuer's interim MD&A shall include

(a)an update of the analysis of the issuer's financial condition in the annual MD&A for the most recently completed financial year;

(b)an analysis of the issuer's results from operations and cash flows for the most recently completed interim period; and

(c)a comparison of the issuer's financial condition, results of operations and cash flows as at the dates and for the periods set out in subsection (2).

(2)The dates and periods are:

1.For financial condition, the date of the balance sheet for the issuer's most recently completed financial year and the date of its most recent interim balance sheet.

2.For results of operations

(a)the most recent financial year-to-date period for which an income statement of the issuer is provided and the corresponding year-to-date period of the issuer's preceding financial year; and

(b)the most recent quarter of the issuer's financial year, and the corresponding quarter of the preceding financial year.

3.For cash flows

(a)the most recent financial year-to-date period for which a cash flow statement of the issuer is provided and the corresponding year-to-date period of the issuer's preceding financial year; and

(b)the most recent quarter of the issuer's financial year, and the corresponding quarter of the preceding financial year.

(3)An issuer's interim MD&A shall identify changes in results of operations that are material and any significant elements of the issuer's income or loss from continuing operations that do not arise from, or are not necessarily representative of, the issuer's ongoing business.

(4)An issuer's interim MD&A shall include a discussion of any seasonal aspects of the issuer's business that have had a material effect upon its financial condition, results of operations or cash flows.

4.3Delivery of Interim MD&A - An issuer shall send the interim MD&A referred to in subsection 4.1(1) or (2) to all securityholders to whom it sends its interim financial statements to which the interim MD&A relates, concurrently with the sending to those securityholders of the interim financial statements.

4.4Filing of Interim MD&A Supplement for Canadian GAAP Discussion

(1)An issuer that has filed an interim MD&A prepared in accordance with paragraph (b) of Item 303 of Regulation S-K under the 1934 Act shall file, concurrently with the filing of its interim MD&A, a supplement prepared in accordance with subsection (2) if the issuer

(a)is incorporated, organized or continued under the laws of Canada or a jurisdiction; and

(b)has based the discussion in the interim MD&A on financial statements prepared other than in accordance with Canadian GAAP.

(2)A supplement required to be filed by an issuer under subsection (1) shall restate, based on interim financial statements of the issuer prepared in accordance with Canadian GAAP, those parts of the interim MD&A that

(a)are based on financial statements of the issuer prepared in accordance with foreign GAAP; and

(b)would read differently if they were based on financial statements of the issuer prepared in accordance with Canadian GAAP.

4.5Delivery of Interim MD&A Supplement for Canadian GAAP Discussion - An issuer required to file a supplement under section 4.4 shall send the supplement to all securityholders to whom it sends its interim MD&A to which the supplement relates, concurrently with the sending of the interim MD&A.


PART 5EXEMPTION

5.1Exemption
- The Director may grant an exemption to this Rule, in whole or in part, subject to such conditions or restrictions as may be imposed in the exemption.


PART 6EFFECTIVE DATE

6.1Effective Date
- This Rule comes into force on January, 1, 2001.

COMPANION POLICY 51-501CP
TO ONTARIO SECURITIES COMMISSION RULE 51-501
AIF AND MD&A

PART 1GENERAL

1.1Introduction

The purpose of this Companion Policy is to provide guidance to assist reporting issuers in complying with their obligations under Rule 51-501. It provides the Commission's views with respect to certain relevant matters.

1.2 Implementation

Rule 51-501 applies to annual MD&A for financial years ending on or after January 1, 2001. It applies to interim MD&A for interim periods beginning (i) on or after January 1, 2001 if the issuer filed an AIF for a financial year ending in 2000; or (ii) the day after the end of the financial year for which the issuer files its first annual MD&A if the issuer did not file an AIF for a financial year ending in 2000. Annual MD&A is the foundation upon which interim MD&A is built. Consequently, the requirement to file interim MD&A does not arise until an annual MD&A has been filed. For example, interim MD&A for the interim period beginning February 1, 2001 and following interim periods must be filed if an issuer has an obligation to file an AIF for the financial year ending October 31, 2000. If an issuer is subject to an obligation to file an AIF for the first time for the financial year ending January 31, 2001, interim MD&A must be filed and delivered for the interim period beginning February 1, 2001 and following interim periods. Refer to Appendix A for further examples.

1.3Debt-Only Reporting Issuers

Rule 51-501 requires all reporting issuers that exceed the thresholds in section 1.2 of Rule 51-501, other than mutual funds, to file an AIF, including annual MD&A, and interim MD&A for the periods required under Rule 51-501. This includes reporting issuers that are reporting issuers solely because they have debt securities outstanding. However, debt-only reporting issuers are not required under Rule 51-501 to send the annual or interim MD&A to securityholders.

1.4Interrelationship with NI 44-101

National Instrument 44-101 Short Form Prospectus Distributions ("NI 44-101") requires most issuers to file an AIF in order to be qualified to distribute securities under a short form prospectus. Form 44-101F1, the form of AIF, incorporates Form 44-101F2, the form of annual MD&A. An issuer that files an AIF under NI 44-101 within 140 days after its financial year end satisfies the requirement to file an AIF for its financial year under Rule 51-501 without filing a separate AIF under Rule 51-501. The interim MD&A filing requirement is in addition to the requirement to file annual MD&A.


PART 2MD&A

2.1Sending of Annual MD&A - An issuer may satisfy the obligation in section 3.1 of Rule 51-501 to send the annual MD&A to its securityholders by including the annual MD&A in an annual report sent to securityholders.

2.2MD&A Supplement for Canadian GAAP Discussion - A Canadian issuer that files its AIF in the form of a current annual report on Form 10-K, or Form 20-F, under the 1934 Act and prepares MD&A based on financial statements that have been prepared in accordance with foreign GAAP is required under section 2.2 of Rule 51-501 to file a supplement to its annual MD&A and under section 4.4 to file a supplement to its interim MD&A. The purpose of the supplement is to identify, and to restate based on financial statements prepared in accordance with Canadian GAAP, those parts of the MD&A that would have been different if the MD&A had been based on the financial statements prepared in accordance with Canadian GAAP. The supplement does not need to restate the MD&A in its entirety.

2.3Interim MD&A

(1)In preparing the interim MD&A, issuers may presume that readers of the MD&A have read or have access to the annual MD&A. Issuers should discuss both the current quarter and the year-to-date period in the interim MD&A and how they compare to the corresponding periods in the previous year, includingcommentary on any known trends or uncertainties that have had or that the issuer reasonably expects will have a favourable or unfavourable effect. Prominence should be given to the discussion of the current quarter and how events and changes occurring in the quarter will affect the issuer. The interim MD&A should include a discussion of changes that are likely to have a significant impact in the future. A discussion that would largely duplicate the disclosure contained in the annual MD&A need not be repeated. For example, a discussion of the external economic and industry factors affecting the issuer need not be repeated if those factors are substantially unchanged from the annual MD&A. A statement that those factors remain substantially unchanged would suffice. On the other hand, when external factors or the specific circumstances of an issuer have changed subsequent to the end of the most recently completed financial year, disclosure is required. For example, significant changes in the nature and extent of an issuer's use of financial instruments would require discussion.

(2)In preparing the interim MD&A, it is not sufficient for an issuer to recite, without explanation, the amount of changes from period to period that are readily computable from the financial statements. The discussion need not repeat numerical data contained in the financial statements. The issuer should include information that is available to the issuer and does not clearly appear in the issuer's financial statements.

(3)In preparing the interim MD&A, issuers are required to address changes that are material. Materiality is a matter of judgement in particular circumstances, and should generally be determined in relation to an item's significance to investors, analysts and other users of the information. An item of information, or an aggregate of items, is considered by the Commission to be material if it is probable that its omission or misstatement would influence or change an investment decision with respect to the issuer's securities. In considering whether items are material, issuers should consider the potential significance of items individually rather than on a net basis where factors have an offsetting effect. An issuer should also take into account both quantitative and qualitative factors. This concept of materiality is consistent with the financial reporting notion of materiality contained in the Handbook.

(4)An issuer may combine the interim MD&A with the annual MD&A, if the issuer's interim financial statements to which the interim MD&A relates are presented together with its annual audited financial statements.

(5)The Commission is not mandating the form of the interim MD&A. Issuers are not required to prepare a formal glossy quarterly report. Issuers are encouraged to prepare the interim MD&A in a format that provides investors with quality information on a timely basis.

2.4Review by Audit Committee - In the Commission's view, if an issuer has an audit committee, MD&A should be carefully reviewed and considered by the audit committee.

2.5Additional Guidance - Commission staff from time to time publishes MD&A guides and reports on MD&A and financial statement reviews. Issuers are encouraged to refer to this material.

 

APPENDIX A
TO
COMPANION POLICY 51-501CP
TO ONTARIO SECURITIES COMMISSION RULE 51-501
AIF & MD&A

Implementation Examples

Financial Year End Oct. 31 Oct. 31 Dec. 31 Dec. 31
Filed AIF for 2000 financial year
Yes
No
No
Yes
Q1, 2001 Interim MD&A
Q2, 2001 Interim MD&A
Q3, 2001 Interim MD&A
No
Yes
Yes
No
No
No
No
No
No
Yes
Yes
Yes
Filed AIF for 2001 financial year under Rule 51-501
Yes
Yes
Yes
Yes
Q1, 2002 Interim MD&A
Q2, 2002 Interim MD&A
Q3, 2002 Interim MD&A
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes