Topic 2: Other Financial Statements Required

2110.2 “Business” — See S-X 11-01(d) for the definition of a “business.”

2120.2 Proxy and Information Statements — If authorization is sought from shareholders for disposition of a significant business (including spin-offs), unaudited financial statements of that business should be provided in the proxy statements for the same periods as are required for the registrant (along with pro forma information); however, audited financial statements for each of the 2 most recent fiscal years of that business should be provided if they are available. See the Division of Corporation Finance's July 2001 Interim Supplement to Publicly Available Telephone Interpretations, Section H6. Also, see related discussion in Section 1140.6.

The same financial statement content described above for proxy statements also applies to Schedule 14C Information Statements. (Last updated: 6/30/2012)

2120.3 Registering Shares of Disposed Business — If disposition of a business is being accomplished through the registrant's distribution to shareholders of its ownership interests in that business, audited financial statements of the separate legal “spinee” (which may not be the spinee for accounting purposes) for the same periods required for the registrant are required in a Form 10 or 1933 Act registration statement filed in connection with the spin-off.

2130.1 General — Measure significance of a disposed business using the three significance tests in S-X 1-02(w). If any of the three tests exceeds 10%, the business is significant. [Instruction 4(ii) Item 2.01, Form 8-K and S-X 11-01(b)(2)]

Asset Test — The numerator of the asset test should be the total assets of the disposed business as of the end of its most recently completed fiscal year prior to disposal. The denominator of the asset test should be the registrant’s total assets as of the end of its most recently completed fiscal year prior to disposal. A registrant’s total assets as of the end of its most recently completed fiscal year will include assets related to both its continuing operations and its discontinued operations.

Income Test — The numerator of the income test should be the pre-tax income or loss from continuing operations of the disposed business for its most recently completed fiscal year prior to disposal. The denominator of the income test should be the historical pre-tax income or loss from continuing operations of the registrant for its most recently completed fiscal year prior to disposal. Because S-X 1-02(w) specifies that the denominator equals the registrant’s pre-tax income or loss from continuing operations, the denominator will not include the results of a disposed business which was previously appropriately reported as a discontinued operation.

Because the asset test and the income test include only amounts reflected in both the disposed business’s and the registrant’s consolidated financial statements for their most recently completed fiscal year prior to the disposal date, the accounting in the period of disposal does not affect either the asset test or the income test.

A triple net lease typically requires the lessee to pay costs normally associated with ownership of the property such as property taxes, insurance, utilities and maintenance costs. Based on these attributes, the leasing arrangement is similar to a financing arrangement for the lessee. When a registrant has triple net leased one or more real estate properties to a single lessee/tenant (including in the capacity as co-lessee or guarantor), and such properties represent a “significant” portion of the registrant’s assets, an investor may need to consider the lessee’s financial statements or other financial information in order to evaluate the risk to the registrant from this asset concentration. An asset concentration is generally considered “significant” if it exceeds 20% of the registrant’s assets as of its most recent balance sheet.

In circumstances where a registrant acquires a property resulting in a significant asset concentration, the registrant should generally provide full audited financial statements of the lessee or guarantor for the periods required by S-X 3-01 and 3­02 / S-X 8-02 and 8-03. If the lessee is a public company subject to the periodic reporting obligations of the Exchange Act, the registrant may instead include in the filing a statement referring investors to a publicly-available website with the lessee’s SEC filed financial information. If a registrant with an asset concentration related to a lessee believes that less detailed financial information is appropriate based on the registrant’s particular facts and circumstances or the lessee financial statements are not available, the registrant should consult with CF-OCA on a pre-filing basis.

In an annual report, registrants may provide the lessee financial statements based on the due dates for financial statements of a significant equity method investee under S-X 3-09 by analogy. Refer to Section 2405.7 – 2405.11.

Registrants should consider significant asset concentrations when preparing a Securities Act registration statement, or an Exchange Act registration statement, annual report, or current report on Form 8-K filed in connection with a property acquisition. If a registrant acquires a property subject to a triple net lease and there is a rental history, the registrant should apply S-X 3-14 in situations where there is not a significant asset concentration.

A registrant may make a loan that is secured by a real estate operating property. SAB Topic1I provides that financial statements for such properties may be required where the economic substance of the loan represents an investment in real estate, such as in an “ADC arrangement” as defined in AICPA's 2/10/86 Notice to Practitioners in the CPA Letter. The characteristics of these loans are found in Exhibit I to Practice Bulletin 1. In these arrangements, a lender participates in the expected residual profit and shares in the risk and rewards of the owner.

2350.1 Asset Concentration and Required Financial Statements — If over 20% of offering proceeds (or total assets at the latest audited year-end balance sheet date, if greater) have been or will be invested in a single loan (or in several loans on related properties to the same or affiliated borrowers), financial statements of the property securing the loan are required in both 1933 and 1934 Act filings.

2350.2 “Related” Properties — Properties are related, for example, if they are subject to cross default or collateralization agreements.

The staff applies the requirements of Item 14 of Schedule 14A to the Proxy Rules to the acquisition of real estate operating properties. S-X 3-14 financial statements of the properties should be provided in lieu of S-X 3-05 financial statements. In addition, registrants should comply with all of the disclosure requirements of Item 14 of Schedule 14A in a proxy statement related to the acquisition of real estate operating properties.

2360.2 Proxy Statements — Management's Discussion and Analysis is required under Item 14(c)(2). The staff expects registrants to:

1. discuss operating trends depicted by the properties' historical financial statements and selected financial data presented; and
2. provide applicable property information that is described under Items 14 and 15 of Form S-11, to the extent that information is not provided elsewhere in the proxy statements.

2360.3 Proxy Statements — Roll-up Transactions — Proxy statements related to roll-up transactions should also comply with the applicable roll-up provisions of Regulation S-K, Items 901-915.

Item 14(c)(2) requires five years of selected financial data with respect to the properties that are the subject of the shareholder vote. The staff will consider granting relief to registrants on a case-by-case basis in circumstances where that information is unavailable or not obtainable without unreasonable cost or expense. Registrants may consult with CF-OCA to request this relief.

In addition, EGCs may present fewer than five years of selected financial data in certain circumstances. See Section 10220.2.

2405.2 “Subsidiaries not consolidated” — Separate Financial Statements — S-X 3-09 requires that if any of the conditions set forth in S-X 1-02(w) exceed 20 percent, separate annual financial statements for each subsidiary not consolidated should be provided. Since the issuance of S-X 3-09 and S-X 4-08(g), U.S. GAAP has been revised to require consolidation by a parent of a “subsidiary.” Therefore, the requirement in S-X 3-09 related to “subsidiaries not consolidated” no longer has practical application. The remaining discussion in this Section 2400 “Equity Method Investments, including Fair Value Option” relates to “50% or less-owned persons,” which are discussed in Section 2405.3.

For purposes of S-X 3-09, the investee’s separate annual financial statements should only depict the period of the fiscal year in which it was accounted for by the equity method. However, CF-OCA will, upon a written request, consider accepting the investee’s financial statements for the whole year, if the registrant demonstrates that it is an undue hardship to obtain investee’s financial statements through the date it ceases to be accounted for under the equity method.

2405.5 Change from Cost Method to Equity Method — If a registrant's financial statements are retroactively adjusted in accordance with ASC 323-10-35-33 to reflect equity method accounting for an investment previously accounted for under the cost method, S-X 3-09 financial statements, or summarized financial information required by S-X 4-08(g), S-X 8-03, or S-X 10-01(b)(1), may be required for periods in which the cost method was previously used if the significance tests are met.

2405.6 Lower Tier Investees — S-X 3-09 applies to an investee accounted for by the equity method by an investee of the registrant. To determine whether separate financial statements of an investee accounted for by the equity method by an investee of the registrant are required, the significance test should be computed based on the materiality of the lower tier investee to the registrant consolidated. [SAB Topic 6K.4.a.]

The filing date for S-X 3-09 financial statements differs depending primarily on four factors:

1. whether the registrant is a domestic issuer or a foreign private issuer;
2. the investee's fiscal year end;
3. both the investee's and the registrant's filing status (e.g., non-accelerated filer, accelerated filer or large accelerated filer), and
4. whether or not the investee is a foreign business. See definition in S-X 1-02(l).

The financial statements required by S-X 3-09 must be filed within the following number of days after the investee's fiscal year-end:

• 60 days if the investee is a large accelerated filer
• 75 days if the investee is an accelerated filer; or
• 90 days for all other investees.

However, if the number of days after the investee's fiscal year-end is before the due date of the registrant's Form 10-K, then the S-X 3-09 financial statements need not be filed prior to the due date of the registrant's Form 10-K. Also, if the investee's financial statements are due after the registrant's Form 10-K is required to be filed (e.g., registrant is an accelerated filer, but investee is non-accelerated and both have the same year end), the financial statements required by S-X 3-09 should be filed in an amendment to the registrant's Form 10-K.

Financial statements required by S-X 3-09 may be filed in an amendment to the Form 20-F within the following number of days after the investee's fiscal year end: [S-X 3-09(b)(2)]

• 60 days if the investee is a large accelerated filer
• 75 days if the investee is an accelerated filer; or
• 90 days for all other investees.

However, if the number of days after the investee's year-end noted above is before the due date of the Form 20-F, then the S-X 3-09 financial statements need not be filed prior to the due date of the Form 20-F.

S-X 3-09 financial statements of a foreign business must be filed within six months after the investee's year-end, but in no event earlier than the due date of the registrant's annual report (i.e., Form 10-K or 20-F). [S-X 3-09(b)(1) and (b)(2)] If the investee’s financial statements are due after the registrant's annual report is required to be filed, the financial statements required by S-X 3-09 should be filed in an amendment to the registrant's annual report.

If the investee is a foreign business, S-X 3-09 financial statements may not be older than 15 months. [S-X 3-12(f) references Item 8.A.4. Form 20-F] If the investee is not a foreign business, S-X 3-09 financial statements must be updated within the following number of days after the investee's fiscal year end: [S-X 3-09(b) references S-X 3-01 and S-X 3-02]

• 60 days if the investee is a large accelerated filer
• 75 days if the investee is an accelerated filer; or
• 90 days for all other investees.

2410.1 General — As noted in Section 2405.3, S-X 3-09 requires the registrant to file separate annual financial statements for each significant equity method investee for which either the income or the investment test set forth in S-X 1-02(w) exceeds 20% for any of the registrant’s fiscal years required to be presented in the filing (see Note 2 to Section 2405.3). The asset test in S-X 1-02(w) does not apply. (Last updated: 6/30/2010)

The S-X 1-02(w) income test is based on the registrant's “equity in the income from continuing operations before income taxes of the subsidiary exclusive of amounts attributable to any noncontrolling interests” (i.e., the numerator) compared to “such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year” (i.e., the denominator). Such equity in an investee's pretax earnings or loss is not required to be shown or disclosed in the registrant's financial statements, so the amount to be used as the numerator and denominator in the income test must be calculated.

The numerator is calculated based on the registrant’s proportionate share of the pre-tax income from continuing operations reflected in the separate financial statements of the investee prepared in accordance with U.S. GAAP for the period in which the registrant recognizes income or loss from the investee under the equity method adjusted for any basis differences. In determining the basis differences that should be included for this test, the registrant should consider ASC 323-10-35-34 and ASC 323-10-35-32A. While not an exclusive list, items impacting net income of the registrant that should be excluded from the test are: impairment charges at the investor level, gains/losses from stock sales by the registrant; dilution gains/losses from stock sales by the investee, preferred dividends.

See the related discussion about the effect of different fiscal year ends and one quarter (or less) lags at Section 2410.7. Foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB should use IFRS as issued by the IASB in performing this analysis. The aforementioned guidance does not apply if the registrant elected to use the fair value option. See Section 2435.

The registrant should not exclude its equity in the income or loss of the investee when determining whether the registrant qualifies for income averaging under computational note 2 to S-X 1-02(w). If a registrant qualifies to use income averaging and the tested equity method investee incurred a loss, then, pursuant to computational note 1 to S-X 1-02(w), the registrant's equity in the income or loss of the investee should be excluded from the income of the registrant when computing the registrant's average income.

Because an equity method investee is not consolidated, intercompany transactions should not be eliminated when measuring significance of an equity method investee.

The investee’s financial statements a registrant is required to file under S-X 3­09 may differ from the investee’s financial results used by the registrant to calculate the registrant’s equity in the income or loss of the investee presented in the registrant’s financial statements. This may occur when a registrant and an investee have different fiscal years or when they have the same fiscal year, but the registrant computes its equity in the income or loss of the investee on a consistent one quarter (or less) lag basis. In these circumstances, the S-X 3-09 significance tests should be determined using the investee’s financial results used by the registrant to calculate the registrant’s equity in the income or loss of the investee presented in the registrant’s financial statements, not amounts derived from the investee’s financial statements required to be filed under S-X 3-09. For example, consider a registrant with a December 31 year end and an investee with a June 30 year end. Assume the registrant consistently recognizes its equity in the income of the investee using the investee’s twelve months ended September 30. In this case, the registrant calculates the S-X 3-09 significance tests consistent with FRM 2410.2 using the investee’s results for the twelve months ended September 30. If the investee is significant, the investee’s financial statements for the twelve months ended June 30 would satisfy the requirements of S-X 3-09 because those are the annual financial statements the investee would be required to present pursuant to S-X 3-01 and 3-02 if the investee were a registrant.

If a registrant has a discontinued operation or a retrospectively applied change in accounting principle subsequent to the registrant’s filing of its Form 10-K, the staff will not object if a registrant uses its historical financial statements in its most recent Form 10-K to determine whether S-X 3-09 financial statements and S-X 4-08(g) financial information is required. In other words, the registrant need not recompute significance using the financial statements that give retrospective effect to the discontinued operation or change in accounting principle and are included or incorporated into the registration or proxy statement. In addition, the staff will not object if a registrant, when filing a subsequent Form 10-K, does not recompute S-X 3-09 and S-X 4-08(g) significance for periods earlier than the one during which a retrospectively applied change in accounting principle occurred. However, for a discontinued operation, a registrant must recompute S-X 3-09 and S-X 4-08(g) significance for all periods presented. As a result, a previously insignificant investee may become significant as a result of a discontinued operation.

S-X 3-09 financial statements and S-X 4-08(g) financial information for a disposed equity method investment will not be required in the Form 10-K for the year of disposal if (A) in the year an equity method investment is disposed, either a different event occurs after the disposal requiring a component of the registrant to be reported as a discontinued operation or a change in accounting principle is adopted by the registrant in the year of the disposal; and (B) the equity method investment is not significant for any of the registrant’s fiscal years required to be presented in the Form 10-K, including the year of disposal, based on the historical financial statements of the registrant that have not been retrospectively adjusted to give effect to the discontinued operation or change in accounting principle.

For further discussion about multiple series registrants, see the Division of Corporation Finance’s C&DIs for Securities Act Sections, Question 104.01.

The requirements to present summarized financial data of the registrant's equity method investees in a footnote to the registrant's financial statements apply to all registrants. The significance tests and thresholds used to determine whether such disclosure is required as well as the level of disclosure may differ depending on whether:

1. The registrant is a smaller reporting company and
2. The registrant's financial statements are for an annual or interim period.

The following table includes an overview of the sources of these requirements as well as the number of significance tests that must be computed and the significance thresholds. See the Sections noted in the chart for further detail.

2420.2 Definitions — The summarized financial data requirements apply to “Subsidiaries Not Consolidated” and “50% or Less-owned Persons.” See Sections 2405.2 and 2405.3 for definitions of these terms.

Determine significance of each investee for each of the registrant’s fiscal years required to be presented in the filing using all 3 tests in S-X 1-02(w) (investment, asset and income tests). Present summarized financial data described in Section 2420.4 in the registrant's financial statement footnotes for all investees (not just the investee that is significant) if significance of any individual or any combination of investee(s) exceeds 10%. See exception below at Section 2420.5 Interaction of S-X 4-08(g) With S-X 3-09.

If S-X 4-08(g) significance is met in any fiscal year presented, the registrant’s financial statement footnotes for each of the registrant’s fiscal years presented should include, at a minimum, the following summarized financial data for all investees (not just the investees that are significant): current and noncurrent assets and liabilities; redeemable stock and noncontrolling interests; revenues; gross profit; income from continuing operations; and net income. The summarized annual financial data for each investee may be aggregated, but it should not be labeled “unaudited.”

SAB Topic 6K.4.b. notes that if a registrant includes separate financial statements (i.e., S-X 3-09 financial statements) for an investee in its annual report, then it need not include the summarized financial information required by S-X 4-08(g) for that investee. [S-X 4-08(g) and SAB Topic 6K.4.b.] The reason for this conclusion is that separate financial statements of an investee would include the minimum information required by S-X 4-08(g) and therefore such information need not be repeated in the registrant's financial statement footnotes. As noted in Section 2405, in certain circumstances S-X 3-09 financial statements may be filed after the original due date of the registrant's Form 10-K. If S-X 3-09 financial statements are not filed at the same time as the Form 10-K, the registrant must include S-X 4-08(g) summarized financial information in its audited financial statements included in the Form 10-K.

Present summarized statement of comprehensive income information for each investee for which both:

1. Investee is significant, measured using either the income or investment tests described in S-X 1-02(w) substituting 20% for 10%; and
2. Form 10-Q financial information (i.e., Part 1 of Form 10-Q) would be required if investee was a registrant. Examples of registrants that do not need to file Form 10-Q Part 1 include foreign private issuers, asset-backed issuers, mutual life insurance companies and certain mining companies. See Exchange Act Rule 13a-13 and Exchange Act Rule 15d-13 for a complete list and explanation.

When interim summarized statement of comprehensive income information is required, it need only be provided for investees that are significant. Minimum disclosure for each significant investee, which may be aggregated with such minimum disclosure for other significant investees, must include: revenues; gross profit; income from continuing operations; and net income. If S-X 10-01(b)(1) significance is met for any year-to-date (cumulative) interim period included in a quarterly report (See Sections 2420.6 and 2420.7), then the registrant should present the minimum disclosure for both the current and prior year comparative year-to-date periods included in that quarterly report.

Determine significance of each investee for any of the registrant’s fiscal years required to be presented in the filing using all 3 tests in S-X 1-02(w) (investment, asset and income tests), substituting 20% for 10%. If significance of any individual or any combination of investee(s) exceeds 20%, include in the registrant’s financial statement footnotes summarized financial data for all investees for each period presented. Summarized annual financial data should not be labeled “unaudited.” Interim financial statements need only include summarized financial data for each investee that is significant. Summarized financial data should quantify at a minimum the investee’s: revenues; gross profit; income from continuing operations; and net income.

2420.10 Change From Cost Method to Equity Method — If a registrant's financial statements are retroactively adjusted in accordance with ASC 323-10-35-33 to reflect equity method accounting for an investment previously accounted for under the cost method, S-X 3-09 financial statements, or summarized financial information required by S-X 4-08(g), S-X 8-03, or S-X 10-01(b)(1), may be required for periods in which the cost method was previously used if the significance tests are met.

2420.11 Multiple Series Registrants — Information required by S-X 4-08(g) must be provided on an individual series level. See Section 2410.9 for more information. (Last updated: 9/30/2009)

2435.2 ASC 825 Fair Value Option — Presumptive Disclosure Thresholds for Summarized Financial Information and Separate Financial Statements of Investees — The staff believes that the significance tests in S-X 3-09 and S-X 4-08(g), as modified below, provide analogous guidance for the ASC 825 requirement to comply with the disclosure requirements in ASC 323-10-50-3c. In applying the S-X 3-09 and S-X 4-08(g) disclosure thresholds to investments that would have been accounted for under the equity method had the fair value option not been elected by the registrant, the staff believes that the income test should be computed using as the numerator the change in the fair value reflected in the registrant's statement of comprehensive income rather than the registrant's equity in the earnings of the investee computed as if the equity method had been applied. If a registrant believes that applying the guidance in S-X 3-09 and S-X 4-08(g) by analogy as described above results in a requirement to provide more information than is reasonably necessary to inform investors, the registrant may request relief.

2435.3 ASC 825 Fair Value Option — MD&A Disclosure of Methods and Assumptions Used to Determine Fair Value — The staff also cautions registrants that investees accounted for using the fair value option may be material at levels below the disclosure thresholds in S-X 3-09 and S-X 4-08(g). When investees accounted for using the fair value option are material to an understanding of results of operations, financial position, or cash flows, registrants should consider whether qualitative and quantitative analysis in MD&A is required by S-K 303, whether or not the investee's separate financial statements are provided and/or the registrant's financial statement footnotes include the investee's summarized financial information. Specifically, registrants should consider describing in MD&A the methods and underlying assumptions used in determining fair value, and analyzing the effects of any changes therein from the previous period(s). Registrants should be mindful that such an analysis may be necessary even when material changes in significant assumptions have offsetting effects.

S-X 3-10(a) permits the omission of separate financial statements of subsidiary issuers and guarantors of guaranteed “debt or debt-like”, as defined in S-X 3-10(b)(2), securities when certain conditions are met, including that the “parent company”, as defined in S-X 3-10(b)(1), provides supplemental financial and non-financial disclosures about the subsidiary issuers and/or guarantors and the guarantees. S-X 3-10 specifies the conditions that must be met in order to omit separate subsidiary issuer or guarantor financial statements, these are summarized in Section 2515.2. S-X 13‑01 specifies the accompanying financial and non-financial disclosure requirements, as summarized in Section 2515.3. If any of the conditions in S-X 3-10 are not met, or the disclosures in S-X 13-01 are not provided by the parent company, separate financial statements of each subsidiary issuer and guarantor may not be omitted. The requirements of S-X 3-10 and 3-16 were amended on March 2, 2020 in SEC Release No. 33-10762 (the “March 2020 Amendments”), which includes an appendix that summarizes the main features of these rules, including the eligibility conditions and required disclosures.

2515.2 Eligibility Conditions — The following table summarizes the eligibility conditions in S-X 3-10 that, if all have been satisfied, permit the omission of the separate financial statements of a subsidiary issuer or guarantor:

2515.3 Non-Financial and Financial Disclosures — The following tables summarize the supplemental non-financial and financial disclosures that, to the extent material, must be provided by the parent company. Refer to Section 2520 below for additional information on the application of these requirements.

The parent company may provide the disclosures in its consolidated financial statements and related footnotes or, alternatively, in MD&A. If a parent company elects to provide the disclosures in its audited financial statements, the disclosures must be audited. If not otherwise included in the consolidated financial statements or in MD&A, the parent company must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Item 105 of Regulation S-K [S-X 13-01(b)].

2515.4 Eligible Issuer and Guarantor Structures Condition — Parent Company Obligation is Full and Unconditional — The ability to provide supplemental financial and non-financial disclosures in lieu of separate subsidiary issuer and guarantor financial statements is only available when the parent company’s obligation is full and unconditional. The parent company’s role as issuer, co-issuer, or full and unconditional guarantor with respect to the guaranteed security determines whether the issuer and guarantor structure is eligible. See eligible structures at S-X 3-10(a)(1)(i) and (ii).

A guarantee is “full and unconditional,” if, when an issuer of a guaranteed security has failed to make a scheduled payment, the guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the guaranteed security may immediately bring suit directly against the guarantor for payment of all amounts due and payable. [S-X 3-10(b)(3)].

2515.5 Subsidiary Guarantors — The categories of eligible issuer and guarantor structures at S-X 3-10(a)(1)(i) and (ii) do not refer to subsidiary guarantors. Although one or more other subsidiaries of the parent company may guarantee the security, the eligibility of an issuer and guarantor structure depends on the role of the parent company as issuer, co-issuer, or full and unconditional guarantor with respect to the guaranteed security. Separate financial statements of consolidated subsidiary guarantors may be omitted for each issuer and guarantor structure that is eligible if the other conditions of S-X 3-10 are met.

Despite not affecting whether the issuer and guarantor structure is eligible, the role of subsidiary guarantors and nature of their guarantees affect what disclosure is required. For example, subsidiary guarantors are required to be identified pursuant to S-X 13-01(a)(1), and disclosure of the terms and conditions of the guarantees is required by S-X 13-01(a)(2), which includes but is not limited to any limitations and conditions of a subsidiary’s guarantee, whether the guarantee is joint and several with other guarantees, and any guarantee release provisions. Further, separate disclosure of summarized financial information applicable to subsidiary guarantors to which such disclosures apply is required by S-X 13-01(a)(4)(iv).

While a given security may have guarantees as well as pledges of collateral, the requirements of S-X 13-02 are separate from financial statement and disclosure requirements related to guarantees. S-X 3-10 and S-X 13-01 apply to guaranteed securities (see Section 2500) and do not apply to pledges of affiliate securities as collateral — the concepts of full, unconditional, and joint and several obligation do not apply to collateralizations.

2610.2 Summarized Disclosure Requirements — Set forth below are tables summarizing the non-financial and financial disclosures specified in S-X 13‑02 that must be provided, to the extent material. These tables are only a summary of certain requirements contained in the rules and regulations; they are not a substitute for the rules and regulations. Refer to the rules for the full requirements and to the description of those requirements the March 2020 Amendments. Section 2620 includes additional information on the application of these requirements.

The registrant may provide the disclosures in its consolidated financial statements and related footnotes or, alternatively, in MD&A. If a registrant elects to provide the disclosures in its audited financial statements, the disclosures must be audited. If not otherwise included in the consolidated financial statements or in MD&A, the registrant must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Item 105 of Regulation S-K [S-X 13-02(b)].

2620.2 Guaranteed & Collateralized Securities — A registrant may register the offer and sale of its debt securities that are: (1) guaranteed by one or more of its subsidiaries; and (2) collateralized by the securities of the same guarantor subsidiaries. In these circumstances, each are separate credit enhancements for which separate and different financial and non-financial disclosures are required by each of S-X 13-01 (see Section 2500) and 13-02. In this regard, under S-X 13-01, the summarized financial information of the registrant, as the “parent company,” is required to be disclosed under S-X 13-01(a)(4). Dissimilarly, that same parent company’s summarized financial information is not required to be disclosed under S-X 13-02(a)(4), because it is not an affiliate whose securities collaterize securities registered or being registered. Disclosures provided pursuant to each of these rules in a registrant’s filing should be clearly distinguished from one another.

2620.3 Unconsolidated Pledged Affiliates — In the rare circumstances where the securities of an affiliate that is not a consolidated subsidiary of a registrant collateralize the registered securities of that registrant, S-X 13-02(a)(6) and (7) require the registrant to provide any financial and narrative information about each such affiliate if the information would be material for investors to evaluate the pledge of the affiliate’s securities as collateral and sufficient information so as to make the financial and non-financial information presented not misleading. Because the unconsolidated affiliate’s financial information is not included in the registrant’s consolidated financial statements, disclosure beyond what is specified in S-X 13-02(a)(1) through (4) may be necessary. In this regard, separate financial statements of the unconsolidated affiliate may be necessary to satisfy the requirements of S-X 13-02(a)(6) and (7).

2620.4 Less than 100% of Affiliate Shares Pledged as Collateral — Generally, a pledge of an affiliate’s securities as collateral includes all of the outstanding ownership interests in that affiliate, which are held directly or indirectly by the entity issuing the debt securities. There may be circumstances where either the pledge of collateral does not include all of the outstanding ownership interests in the affiliate held by the issuing entity, or certain ownership interests in the affiliate are held by a third party and therefore unpledged. In such cases, disclosure of these facts and circumstances are required by S-X 13-02(a)(6) and (7) if material for investors to evaluate the pledge of the affiliate’s securities as collateral, or so as to make the financial and non-financial information presented not misleading. If such circumstances are applicable to one or more, but not all, affiliates, S-X 13-02(a)(4)(iv) requires separate disclosure of Summarized Financial Information for the affiliates to which it is applicable.

The requirements of S-X 13-02(a)(5) are similar to the requirement to provide pre-acquisition summarized financial information of recently-acquired subsidiary issuers and guarantors specified in S-X 13-01(a)(5). See related guidance at Section 2530.2 — Significance Test and Section 2530.4 — Timing Considerations.

2630.2 Form and Content — The pre-acquisition summarized financial information follows the form and content prescribed in S-X 13-02(a)(4) required for existing affiliates whose securities are pledged as collateral. Not all entities that compose an acquired business may be affiliates whose securities collateralize securities registered or being registered. Accordingly, the required summarized financial information is only for those entities acquired that are pledged affiliates.

2640.2 Shelf RegistrationStatements — An issuer of registered debt may determine whetherfinancial and non-financial disclosures are required under S-X 13-02 at the time a takedown is contemplated, rather than when the original registration statement is filed. Any financial and non-financial disclosures required by S-X 13-02 at the time of takedown must follow the S-X disclosure location requirements specified in 13-02(b).

2640.3 Periodic Reporting — S-X 13-02 financial and non-financial disclosures are required in its annual reports on Form 10-K, and quarterly reports on Form 10-Q for so long as the registrant has a Section 15(d) reporting obligation with respect to the collateralized securities offered and sold on a registered basis.

2640.4 Suspension of Reporting Obligation — A registrant that properly suspends its reporting obligation with respect to registered collateralized securities under Section 15(d) of the Exchange Act is no longer required to provide disclosures specified in S-X 13-02.

2640.5 Termination of Collateral Arrangement — If the pledged securities cease to be pledged as collateral (either by operation of the underlying indenture or by consent of the debt holders) prior to the end of the most recent annual or interim period for which S-X 13-02 disclosures would be required, S-X 13-02 disclosures are not required.

Accordingly, S-X 13-02 applies to collateralized debt securities issued on or after January 4, 2021, and to each security offered and sold on a registered basis issued and outstanding before January 4, 2021 for which the registrant has previously been required to provide the financial statements required by prior S-X 3-16. S-X 3-16, and not S-X 13-02, applies to each security offered and sold on a registered basis issued and outstanding before January 4, 2021 for which the registrant has not previously been required to provide financial statements pursuant to S-X 3-16.

Regulation AB requires certain third party financial information for:

1. “Significant Obligors” (defined at S-K 1101(k)) of Pool of Assets [S-K 1112(b)]
2. Credit enhancement and other support, except for certain derivative instruments [S-K 1114(b)(2)]
3. Certain Derivative Instruments [S-K 1115(b)]

2705.3 Regulation AB — Certain Third Party Financial Information for “Significant Obligors” (defined at S-K 1101(k)) of Pool of Assets [S-K 1112(b)]

• If pool assets relating to a significant obligor represent 10% or more, but less than 20% of the asset pool, then depending on type of significant obligor, provide either selected financial data required by S-K 301 or net operating income only for the most recent fiscal year and interim period. See S-K 1112(b).
• If pool assets relating to a significant obligor represent 20% or more of the asset pool, provide financial statements of the significant obligor meeting the requirements of Regulation S-X (S-X 1–01 through S-X 12–29), except S-X 3–05 and S-X Article 11. Financial statements of such obligor and its subsidiaries consolidated [as required by Proxy Rules 14a–3(b)] shall be filed. See details and exceptions at S-K 1112(b).

2705.4 Regulation AB — Certain Third Party Financial Information for Credit Enhancement and Other Support, except for certain derivative instruments [S-K 1114(b)(2)]

• If any entity or group of affiliated entities providing enhancement or other support described in S-K 1114(a) is liable or contingently liable to provide payments representing 10% or more, but less than 20%, of the cash flow supporting any offered class of the asset-backed securities, provide financial data required by Item 301 of Regulation S-K for each such entity or group of affiliated entities.
• If any entity or group of affiliated entities providing enhancement or other support described in S-K 1114(a) of this section is liable or contingently liable to provide payments representing 20% or more of the cash flow supporting any offered class of the asset-backed securities, provide financial statements meeting the requirements of Regulation S-X (S-X 1–01 through S-X 12–29), except S-X 3–05 and S-X Article 11, of such entity or group of affiliated entities. Financial statements of such enhancement provider and its subsidiaries consolidated (as required by Proxy Rules 14a–3(b)) shall be filed under this item. See details and exceptions at S-K 1114(b)(2).

2710.2 The staff considers the following factors in assessing the sufficiency of the disclosure in this area:

1. the amount of the credit enhancement in relation to the issuer's income and cash flows;
2. the duration of the credit enhancement;
3. conditions precedent to the application of the credit enhancement; and
4. other factors that indicate a material relationship between the credit enhancer and the purchaser's anticipated return.

2710.3 Financial information of a third party credit enhancement may also be required if an investor is reasonably likely to rely on a material credit enhancement in place for other debt (including nonpublic debt), even though the credit enhancement does not run directly to the debt being registered.

Historically, in certain situations the structure and relationship between the general partner and limited partnership resulted in the staff requesting under S-X 3-13 a balance sheet of the general partner to be filed. SAB Topic 12.A.3.d, which indicated that the staff required that a registration statement relating to an offering of limited partnership interests include the most recent year-end balance sheet of the general partner, was removed by SAB 113, Interpretations of Accounting Rules on Oil and Gas Producing Activities. The following is a summary of the staff’s views with respect to providing a balance sheet of the general partner.

S-X 8-07 requires the balance sheet of the general partner under certain circumstances. SAB 113 did not change S-X 8-07. Registrants should comply with this rule or, if they believe that there is a basis, request relief in writing from CF-OCA.

GAAP requires parent-only financial statements as a supplement to the consolidated financial statements where material. [ASC 810-10-45-11] S-X 5-04, 7-05 and 9-06 require parent-only financial statements when the restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets at the most recent fiscal year-end. In these instances, registrants should present the information required by S-X 12-04 as an S-X schedule, except bank holding companies, which must present the S-X 12-04 information in the financial statement footnotes. Because bank holding companies must include the S-X 12-04 information in their financial statement footnotes, they do not have the additional 30 days provided by Form 10-K General Instruction A(4) to file this information.

S-X 12-04 indicates the required condensed financial information need not be presented in greater detail than is required for condensed statements by S-X 10-01(a)(2), (3), and (4). The condensed financial information presented should include a total for comprehensive income presented in either a single continuous statement or in two separate but consecutive statements.

Restricted net assets is the amount of the registrant's proportionate share of consolidated subsidiaries' net assets, after intercompany eliminations, (assets less the sum of liabilities, redeemable preferred stock, noncontrolling interests) that may not be transferred to the parent by subsidiaries in the form of loans, dividends, etc., without a third party's consent. [S-X 1-02(dd) and SAB Topic 6K.2] Also, in certain circumstances, registrants must compute “subsidiary adjusted net assets”. See SAB Topic 6K.2 for further discussion.

S-X 4-08(e)(3) requires footnote disclosure in the consolidated financial statements about the nature and amount of significant restrictions on the ability of subsidiaries to transfer funds to the parent through intercompany loans, advances or cash dividends, when material. When considering materiality, a registrant should consider its proportionate share of the net assets of its consolidated and unconsolidated subsidiaries and its equity in the undistributed earnings since the date of acquisition of the 50% or less owned persons accounted for by the equity method (i.e. the same amount required to be disclosed pursuant to S-X 4-08(e)(2)) as of the end of the most recent fiscal year which are restricted as to transfer to the parent company because the consent of a third party (a lender, regulatory agency, foreign government, etc.) is required.

A registrant with a consolidated shareholders’ deficit is considered to have a net asset base of zero for the purpose of computing its proportionate share of the restricted net assets of consolidated subsidiaries. As a result, any restrictions placed on the net assets of subsidiaries with positive equity would result in the 25% threshold being met and a corresponding requirement to provide parent company financial information. This is viewed by the staff as consistent with the guidance in SAB Topic 6K2.b (Question 3), which states that a subsidiary with an excess of liabilities over assets has no restricted assets. Anomalous results can be discussed with CF-OCA.

2815.2 In addition, registrants should also consider whether financial or other information about the significant customer is necessary under other disclosure requirements. Generally, known trends, demands, commitments, events and uncertainties related to customers, whether affiliated or unaffiliated, that are reasonably likely to have a material effect on the registrant should be identified, quantified and analyzed by the registrant's management in its MD&A in accordance with Item 303 of Regulation S-K. Also, ASC 280-10-50-42 requires certain financial statement footnote disclosures about major customers and ASC 275-10-50-18, Risks and Uncertainties, requires certain financial statement footnote disclosures about current vulnerabilities due to concentrations in the volume of business transacted with a particular customer. For affiliated customers/related party transactions, ASC 850-10-50 and S-X 4-08(k) provide additional disclosure requirements.

Overview — This Section reflects amendments to the S-X Acquisition Rules in SEC Release No. 33-10786, which were effective January 1, 2021.

In general, the S-X Acquisition Rules require the filing of separate pre-acquisition financial statements when the acquisition of a significant business has occurred or is probable. In addition, pro forma information required by S-X Article 11 should be filed at the same time the pre-acquisition financial statements of the acquired or to-be-acquired business are filed. See Sections 2930.5 and 3110.4 for additional information.

S-X 8-04 and S-X 8-06 apply only to SRCs, but have the same requirements as S-X 3-05 and S-X 3-14, respectively, except that references to S-X 3-01 and S-X 3-02 in S-X 3-05 and S-X 3-14 are replaced by S-X 8-02 and S-X 8-03 when applied to an SRC.

2905.2 Scope — Acquisition and Acquirer — The S-X Acquisition Rules apply to an acquisition of a business by the registrant, its predecessor(s), its consolidated subsidiaries, or entities that are consolidated for accounting purposes such as voting interest entities or variable interest entities.

2905.3 Acquisition of a Business and Post-Acquisition Accounting — An acquisition of a business includes an acquisition of an interest in a business that will be:

• consolidated;
• accounted for under the equity method; or
• in lieu of the equity method, accounted for using the fair value option.

An acquisition of a business also includes the acquisition of an asset or net assets that meets the definition of a business under S-X 11-01(d), even if the acquisition will be accounted for as an asset acquisition under U.S. GAAP or IFRS as issued by the IASB.

See Section 2910 regarding the definition of a “business”.

2905.4 Probable — An assessment of “probability” requires consideration of all available facts and circumstances. Consummation of an acquisition is considered probable whenever a registrant's financial statements alone would not provide investors with adequate financial information with which to make an investment decision. [Release No. 33-6413 (June 24, 1982); Release No. 33-6395 (May 17, 1982)]

2905.5 Acquiree of an Acquiree or Investee of an Acquiree — A previously acquired or to-be-acquired business of an acquiree is not in the scope of the S-X Acquisition Rules; however, registrants should consider whether omission of financial statements of that business would render the acquiree's financial statements that are filed pursuant to the S-X Acquisition Rules misleading or substantially incomplete.

Similarly, an equity method investment (including an investment accounted for under the fair value option) of an acquiree is not in the scope of S-X 3-09, S-X 4-08(g), S-X 8-03, S-X 10-01(b)(1) and SAB Topic 6K.4.b; however, registrants should consider whether omission of financial statements of the investee of the acquiree would render the acquiree’s financial statements that are filed pursuant to the S-X Acquisition Rules misleading or substantially incomplete.

2905.6 Acquisition of a Predecessor — The S-X Acquisition Rules do not apply to the acquisition of a business that is a predecessor of the registrant, as defined in Regulation C, Rule 405. Instead, look to S-X 3-01/3-02 or S-X 8-02/8-03 to determine the financial statement requirements for an acquired business that is a predecessor of the registrant. See Section 1170 for a discussion of predecessor financial statements.

2905.7 Shell Company is Legal Acquirer — If a “shell company,” other than a “business combination related shell company” (both as defined in Exchange Act Rule 12b-2 and Regulation C, Rule 405), acquires an operating entity in a transaction in which the shell company is both the legal and accounting acquirer, the acquired entity will be a predecessor of the shell company and therefore the S-X Acquisition Rules do not apply to the acquisition of that acquired entity. See Section 2905.6. If a shell company acquires an operating entity in a transaction accounted for as a reverse recapitalization of the operating entity (i.e., the shell company is the legal acquirer), the S-X Acquisition Rules do not apply. See Topic 12 for further discussion of the reporting requirements for reverse recapitalizations.

2905.8 Target Company in Form S-4, Form F-4 and/or Proxy Statement — When a to-be-acquired business is a target company in a Form S-4, Form F-4, or proxy statement, apply the requirements set forth in those forms instead of the S-X Acquisition Rules [S-X 3-05(b)(1)]. See Section 2200 “Financial Statements of Target Companies in Form S-4.”

2905.9 Acquisition of a “Real Estate Operation” — General — If the acquired or to-be-acquired business is a real estate operation, S-X 3-14 or S-X 8-06 apply instead of S-X 3-05 or S-X 8-04. A real estate operation is a business (as set forth in S-X 11-01(d)) that generates substantially all of its revenues through the leasing of real property [S-X 3-14(a)(2)(i)].

S-X 3-14 and S-X 8-06 are premised on the continuity and predictability of cash flows ordinarily associated with leasing real property. Examples include office, apartment and industrial buildings as well as shopping centers. Real estate operations exclude the following:

• Businesses that generate revenues from operations other than leasing real property, such as nursing homes, hotels, motels, golf courses, auto dealerships, and equipment rental operations, which are more susceptible to variations in costs and revenues over shorter periods due to market and managerial factors, and
• Businesses that generate revenues from leasing real property and other activities, such as property management or development, when less than substantially all of the business’s revenues are from leasing.

S-X 3-05 and S-X 8-04, rather than S-X 3-14 and S-X 8-06, are applicable in the two circumstances discussed above, where the acquired or to-be-acquired business is not a real estate operation.

2910.2 General — A “business” is identified by evaluating whether there is sufficient continuity of the acquired entity’s operations prior to and after the acquisition so that disclosure of prior financial information is material to an understanding of future operations. There is a presumption in S-X 11-01(d) that a separate entity, subsidiary, or division is a business. It is generally difficult to overcome this presumption. A lesser component of an entity, such as a product line or an operating real estate property, also may be considered a business. In evaluating whether a lesser component is a business, S-X 11-01(d) requires registrants to consider the following:

• Will the nature of the revenue producing activity generally remain the same after the acquisition?
• Will the physical facilities, employee base, market distribution system, sales force, customer base, operating rights, production techniques, or trade names remain with the acquired component after the acquisition?

2910.3 Acquisition of non-revenue-generating operations — Generating revenue is not a requirement to be a business under S-X 11-01(d) (e.g., biotech or technology companies with little to no revenue may constitute a business under S-X 11-01(d)).

2910.4 Real estate acquisitions — A registrant may acquire real property that is not generating leasing revenues at the acquisition date, even though such real property was historically leased and is intended to be leased again by the registrant in the near future. In that circumstance, the registrant should determine whether the lack of leasing revenues at the time of acquisition is substantive to the analysis under S-X 11-01(d) in light of the existence of a leasing history and the expected continuation of the leasing operation. If this fact is not substantive to the analysis under S-X 11-01(d), the registrant should conclude that the acquisition is a business that generates substantially all of its revenues through the leasing of real property and apply S-X 3-14 or S-X 8-06.

Assume the same facts as above except that upon acquisition, the property will be demolished and a new rental property will be built. In that circumstance, the acquired property is generally not considered to be a business. This interpretation does not apply to properties that will only be renovated upon acquisition.

Further, the following real estate acquisitions are generally not considered to be acquisitions of businesses:

• Newly constructed properties, and
• Previously owner-occupied and owner-operated properties. The registrant is not acquiring the previous owner’s business; rather, the registrant intends to start a different revenue stream from leasing the real estate property to either the previous owner or a new lessee upon acquisition.

2910.5 An interest in an oil and gas property — The acquisition of an interest in a producing oil and gas property is generally a business for reporting purposes. See Section 2935 for financial statement presentation considerations specific to oil and gas producing activities.

2910.6 Bank branch acquisitions — The assumption of customer deposits at bank branches may constitute the acquisition of a business if historical revenue producing activity is reasonably traceable to the management or customer and deposit base of the acquired branches, and that activity will remain generally the same following the acquisition.

2910.7 Insurance policy acquisitions — Acquisitions of blocks of insurance policies by an insurance company or the assumption of policy liabilities in reinsurance transactions may also be deemed the acquisition of a business because the right to receive future premiums generally indicates continuity of historical revenues. The degree of continuity between historical investment income streams and the assets acquired to fund the acquired policy liabilities should also be considered.

Financial statements used for purposes of determining significance are not required to be audited. However, they must comply with U.S. GAAP or IFRS as issued by the IASB. See also Section 2915.13.

2915.2 Age of Financial Statements Used to Measure Significance — Initial Registration Statements — The registrant’s most recent annual consolidated financial statements “required to be filed” at or prior to the date of acquisition means the annual consolidated financial statements of the registrant for the most recent annual period at or prior to the date of acquisition that are required to be filed in the initial registration statement.

If a registrant files its Form 10-K for the most recent fiscal year ended prior to an acquisition after the date of acquisition, but prior to the date financial statements for the acquisition would be required to be filed on Form 8-K, the registrant may elect to use the registrant’s annual consolidated financial statements included in that more recent Form 10-K for significance testing (in lieu of the annual financial statements that were filed at the time of the acquisition). [S-X 11-01(b)(3)(i)(C)] Similarly, if the financial statements for the most recent fiscal year ended prior to the acquisition are filed in a registration statement after the date of acquisition but prior to when those financial statements were required to be updated under Regulation S-X, the registrant may elect to use the more recent annual consolidated financial statements included in that registration statement for significance testing.

If an existing registrant completes an acquisition and appropriately calculates significance to determine Form 8-K requirements prior to filing financial statements for the most recent fiscal year ended prior to acquisition (either in a registration statement or a Form 10-K), the registrant would not be required to reassess individual significance, when filing a registration statement (e.g., Form S-1) later in the year, using the updated financial statements, (i.e., the financial statements for the most recent fiscal year at the time of the filing of the registration statement). However, the company is required to consider the acquisition in their aggregate significance test. See Section 2945.3.

2915.4 Age of Financial Statements Used to Measure Significance — Form 10-K or Registration Statement Filed Prior to Acquisition and filing “due date” — If the registrant’s most recent annual consolidated financial statements were filed on a Form 10-K prior to or on the date of acquisition and the filing date was prior to the “due date” of the Form 10-K, the registrant may elect to use those financial statements for significance testing, instead of the annual consolidated financial statements for the prior year. Similarly, if the financial statements for the most recent fiscal year ended prior to the acquisition are filed in a registration statement prior to or on the date of acquisition and prior to when those financial statements were required to be updated under Regulation S-X, the registrant may elect to use those more recent annual consolidated financial statements included in that registration statement for significance testing.

2915.5 Age of Financial Statements Used to Measure Significance — Numerator — If the registrant elects to use more recent financial statements described in Sections 2915.3 and 2915.4, the financial statements of the acquired or to-be-acquired business used in the numerator may also be updated to the more recent period at the option of the registrant.

2915.6 Age of Financial Statements Used to Measure Significance — Different Fiscal Years — If the fiscal years of the registrant and the acquired or to-be-acquired business differ, use the acquired or to-be-acquired business’s most recent fiscal year that would be required if that business had the same filer status as the registrant on the acquisition date. [S-X 11-01(b)(3)(i)]

The registrant may evaluate significance for a new acquisition (consummated after the registrant’s fiscal year end) using the registrant’s pro forma financial information reflecting previous significant acquisition(s) or disposition(s) (also consummated after the registrant’s fiscal year end), rather than historical pre-acquisition financial statements, provided that all of the following conditions are met:

1. The registrant has filed (either in a Form 8-K or a publicly filed registration or proxy statement) audited financial statements for the periods required by the S-X Acquisition Rules and pro forma financial information required by S-X Article 11 or S-X 8-05 for the previous significant acquisition(s) or disposition(s) consummated after the registrant’s latest fiscal year;
2. The registrant continues to use pro forma amounts to determine significance of all subsequent acquisitions and dispositions through the filing date of the registrant’s next annual report on Form 10-K or Form 20-F;
3. Pro forma amounts are used in all of the required significance tests, except the Investment Test when it is based on aggregate worldwide market value (See Section 2920 for guidance on significance tests); and
4. Pro forma amounts used for the significance test only depict the previous significant acquisition(s) or disposition(s) for which the required financial statements and information was filed AND only include the related Transaction Accounting Adjustments [S-X 11-02(a)(6)(i)]. If the pro forma financial statements filed for the previous acquisition(s) and disposition(s) were required to include other transactions that were entered into with the acquisition(s) or disposition(s), then the Transaction Accounting Adjustments for those other transactions should also be included in the pro forma amounts used for significance testing.

If the financial statements and information described in (a) above are only included in a Draft Registration Statement and not a public filing, such as a Form 8-K or publicly filed registration statement, then the pro forma financial information may not be used to measure significance.

If another acquisition is made after a transaction accounted for as a reverse acquisition of the registrant is consummated but before the registrant’s audited financial statements for the fiscal year in which the reverse acquisition occurred; and the audited financial statements for the accounting acquirer (in the reverse acquisition) are included in a filing with the SEC, then measure significance against the accounting acquirer’s financial statements.

If an acquisition is made after a reverse recapitalization of the legal acquiree (see Topic 12) but before the registrant’s audited financial statements for the fiscal year in which the reverse recapitalization occurred and the audited financial statements for the legal acquiree (in the reverse recapitalization) are included in a filing with the SEC, then measure significance against the legal acquiree’s financial statements.

In certain cases, a registrant that is a successor to a predecessor company may not have a full year of statement of comprehensive income information available to use as the denominator in the calculation of the income test. In these cases, both components of the income test should be calculated using only the results of operations of the successor company in the denominator. See Section 2920.9 for determining whether the revenue component of the income test is applicable.

If the results are anomalous, a registrant may request relief (See Note 1 to Topic 2). Registrants may include additional data in their request based upon pro forma amounts determined in accordance with S-X Article 11 as if the predecessor had been acquired at the beginning of the fiscal year being measured. The staff generally believes that combining the historical results of the successor and predecessor without S-X Article 11 pro forma adjustments is not an appropriate data point.

When the financial statements of an acquired or to-be-acquired business that are used to test significance include some combination of predecessor and successor periods, the statement of comprehensive income used to measure both components of the income test will depend on the particular facts and circumstances.

If the financial statements of the acquired or to-be-acquired business include twelve months of successor results, the statement of comprehensive income should be used in the normal fashion.

If the financial statements of the acquired or to-be-acquired business include less than twelve months of successor results, it will generally be necessary to use pro forma amounts of the successor for the year determined in accordance with S-X Article 11. The objective of this process is to determine a surrogate for the annual historical statement of comprehensive income of the acquired or to-be-acquired business. Thus, the pro forma amounts are based upon the acquired or to-be-acquired business’s historical financial statements — not the new basis in the registrant’s financial statements. The staff generally believes that combining the historical results of the successor and predecessor without S-X Article 11 pro forma adjustments is not an appropriate surrogate for the significance test. The convention of “9 months equals 12 months” in S-X 3-06 is not applicable in this situation.

If the financial statements of the acquired or to-be-acquired business include only predecessor results, use the historical predecessor statement of comprehensive income. Pro forma information should not be used.

See Section 2920.9 for determining whether the revenue component of the income test is applicable.

2915.12 Change in Reporting Entity or Reorganization of the Registrant in Initial Registration Statement — If a change in the reporting entity or a reorganization will occur at or after effectiveness of an initial (IPO) registration statement but no later than closing of the IPO, the staff will consider requests for relief to use the combined financial statement amounts as the denominator for purposes of significance calculations.

2915.13 U.S. GAAP/IFRS Consistency — A registrant that files its financial statements in accordance with U.S. GAAP or is required to provide reconciliation to U.S. GAAP must determine significance using amounts in accordance with U.S. GAAP for both the acquired or to-be-acquired business (in the numerator) and the registrant (in the denominator). An FPI that files its financial statements in accordance with IFRS as issued by the IASB must determine significance using amounts in accordance with IFRS as issued by the IASB for the acquired or to-be-acquired business (in the numerator) and the registrant (in the denominator).

For example: If a registrant that files its financial statements in accordance with U.S. GAAP acquires, both legally and for accounting purposes, an FPI or a foreign business that files its financial statements in accordance with IFRS as issued by the IASB, significance (both the numerator and denominator) must be determined in accordance with U.S. GAAP. This is true even if the acquired business did not reconcile its financial statements to U.S. GAAP.

Subsequent to filing its Form 10-K, a registrant may be required to include in (or incorporate by reference into) a registration statement its audited annual financial statements giving retrospective effect to a discontinued operation or a 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. See Topic 13 for a discussion of this requirement. In these circumstances, the S-X Acquisition Rules require registrants to perform significance tests based on the registrant’s financial statements that reflect retrospective application for the most recently completed fiscal year for:

• Individual businesses acquired after the date the retrospectively adjusted financial statements are filed;
• Probable acquisitions; and
• Businesses acquired and to-be-acquired since the date of the most recent audited balance sheet that are required to be assessed in the aggregate by S-X 3-05(b)(2)(iv) and S-X 3-14(b)(2)(i)(C). (See Section 2945 for Aggregate Significance).

If a registrant or an acquired/to-be-acquired business has changed its fiscal year and the transition period (see definition at Section 1360.1) is less than 9 months, measure significance using either (A) the most recently completed fiscal year prior to the change or (B) financial statements for the 12 months ending on the last day of the transition period. If both the registrant and the acquired or to-be-acquired business have changed their fiscal years, registrants should measure significance using a consistent approach [either (A) or (B)] for both the registrant and the acquired or to-be-acquired business [not (A) for one and (B) for the other]. If the transition period is 9 months or greater, use the financial statements for that period.

When acquisitions meet certain qualifying conditions in S-X 3-05(e) or S-X 3-05(f), abbreviated financial statements of the acquired or to-be-acquired business may be provided. See Section 2935 for guidance. Those abbreviated financial statements may also be used in the numerator to measure significance in those circumstances. [S-X 11-01(b)(3)(i)(A)]

Registrants conducting continuous offerings over an extended period of time who also apply the Item 20.D. Undertakings of Industry Guide 5 (i.e., blind pool offerings) must calculate significance using the amounts detailed in Section 2920.26.

See Section 2925 for the financial statement periods required based upon the measured significance.

These tests are described in further detail in the sections below. All three tests apply, except in the following situations:

• Only the investment test is required if the acquired or to-be-acquired business is a real estate operation under S-X 3-14 or 8-06 [S-X 3-14(b)(2) and S-X 8-06]. See Section 2920.5 for a required adjustment to the numerator in the test.
• The income test does not apply if the registrant, including a REIT, is conducting a continuous offering over an extended period of time and applies the Item 20.D. Undertakings of Industry Guide 5 [S-X 11-01(b)(4)]. See Section 2920.26 for required adjustments to the denominators of the asset and investment tests.

The tests should be performed based on the requirements of S-X 1-02(w) and the S-X Acquisition Rules and should not be modified. See Note 1 to Topic 2 if, after performing the required significance tests, a registrant believes that the tests require financial statement periods beyond those that are necessary for the protection of investors.

2920.3 Asset Test — Compare registrant’s proportionate share of the acquired or to-be-acquired business’s consolidated total assets (after intercompany eliminations) to the registrant’s consolidated total assets (after intercompany eliminations) as of the end of the most recently completed fiscal year. [S-X 1-02(w)(1)(ii)] Ordinary receivables and other working capital amounts not acquired should nevertheless be included as part of the total assets of the acquired or to-be-acquired business in the asset test because that working capital is expected to be required and funded after the acquisition.

Compare the investments in and advances to the acquired or to-be-acquired business, to the aggregate worldwide market value of the registrant’s voting and non-voting common equity. However, if the registrant does not have such aggregate worldwide market value, then compare investments in and advances to the acquired or to-be-acquired business to the registrant’s consolidated total assets as of the end of the most recently completed fiscal year. Aggregate worldwide market value must be used if it exists.

“Investments in” in the context of the investment test means the “consideration transferred” measured as of the acquisition date; or for probable acquisitions on the effective date (for registration statements) or on the mail date (for proxy statements).

Consideration transferred includes:

• 100% of the consideration transferred to acquire the business (even if the consideration was transferred from a less-than wholly owned consolidated subsidiary of the registrant. See Section 2920.23 for example.)
• the fair value of all contingent consideration if required to be recognized at fair value under U.S. GAAP or IFRS-IASB. However, if recognition of contingent consideration at fair value is not required, the consideration transferred must include all contingent consideration unless likelihood of payment is remote.
• acquisition-related costs, if U.S. GAAP or IFRS-IASB requires capitalization of such costs (e.g. related to an acquisition accounted for as an asset acquisition under U.S. GAAP or IFRS-IASB or the purchase of an equity method investment).

Consideration transferred excludes:

• acquisition-related costs, if U.S. GAAP or IFRS-IASB requires expensing such costs.
• the carrying value of assets transferred by the registrant to the acquired or to-be-acquired business that will remain with the combined entity after the acquisition.

2920.5 Investment Test — Numerator — Real Estate Operations — When this test is based on the total assets of the registrant (because the registrant does not have an aggregate worldwide market value), include any assumed debt secured by the real properties in the “investments in” determination for the tested real estate operation. For example, if the registrant paid $100 million in cash and assumed $40 million of debt secured by the acquired properties, the “investments in” the acquired real estate operation for the numerator would be $140 million.

2920.6 Investment Test — Denominator — “Aggregate Worldwide Market Value” — Determined using the average aggregate worldwide market value calculated for the last five trading days of the registrant’s most recently completed calendar month prior to the earlier of the registrant’s announcement date of the transaction or the date of the acquisition agreement. Alternative dates are not permitted. Use the market value from the public market, including a foreign market if that is the market where the equity is traded.

Include the market value of voting and non-voting common equity and include common equity held by affiliates. However, only the value of outstanding common equity with a market value can be included in aggregate worldwide market value. Examples of equity that cannot be included in aggregate worldwide market value include:

• preferred stock even if it is convertible into a class of common equity that is traded on a public market and
• common stock that is not traded on a public market but is exchangeable for a share of common stock that is traded on a public market.

Alternative valuations (e.g., valuations in anticipation of an IPO; Net Asset Value) are not permitted as a substitute for aggregate worldwide market value.

2920.7 Investment Test — Reorganization of Entities Under Common Control — Compare the net book value of the acquired or to-be-acquired business to the registrant’s consolidated total assets and compare the number of common shares exchanged or to-be-exchanged to registrant's total common shares outstanding at the date the combination is initiated. Significance is met when either amount exceeds the significance thresholds. [S-X 1-02(w)(1)(i)(B)]

2920.8 Income Test — Compare:

• the absolute value of the registrant’s equity in the acquired or to-be-acquired business’s pre-tax income or loss9 to that of the registrant for the most recently completed fiscal year (“the income component”) [SX 1-02(w)(1)(iii)(A)(1)]; and
• the registrant’s proportionate share of the acquired or to-be-acquired business’s consolidated total revenue from continuing operations (after intercompany eliminations) to that of the registrant for the most recently completed fiscal year (“the revenue component). [S-X 1-02(w)(1)(iii)(A)(2)] The revenue component applies to all acquisitions (including acquisitions of equity method investments and investments accounted for using the fair value option, in lieu of the equity method) if the screen in Section 2920.9 is met.

2920.9 Income Test — Screen for Revenue Component — The revenue component does not apply if either the registrant or the acquired/to-be-acquired business did not have material revenue in each of the two most recently completed fiscal years. This determination should be made separately for the registrant and the acquired or to-be-acquired business (e.g., determining material revenue of an acquired/to-be-acquired business should be in the context of that business’s specific facts and circumstances and not as compared with the registrant. It is reasonable to consider quantitative and qualitative factors when making this determination; however, a full SAB 99 analysis is not required.

If either or both the registrant and the acquired/to-be-acquired business are a successor to a predecessor company, the registrant should consider the activity without regard to the separation of predecessor and successor periods in determining whether there is material revenue in each of the two most recently completed fiscal years.

In addition, intercompany eliminations should be considered when determining whether either the registrant or the acquired/to-be-acquired business has material revenue in each of the two most recently completed fiscal years. For example, if 100% of the acquired business’s revenues are generated from the registrant and therefore would be eliminated if consolidated, the revenue component would not apply. See Section 2920.12 for discussion of intercompany transactions.

2920.10 Income Test — Income Component — Averaging in the Denominator — If the revenue component does not apply (see Section 2920.9) and the absolute value of the registrant's pre-tax income or loss9 for the most recent fiscal year is at least 10% lower than the average of the absolute value of the registrant’s pre-tax income or loss for the last five fiscal years, then the average of the absolute value of the registrant’s pre-tax income or loss for the last five years should be used for this computation. [S-X 1-02(w)(1)(iii)(B)(2)]. The acquiree's income may not be averaged.

2920.11 Denominator — The acquired or to-be-acquired business is not considered part of the registrant's denominator in determining significance for purposes of the S-X Acquisition Rules. [S-X 1-02(w)]

2920.12 Intercompany Transactions — When measuring significance using the asset test and both components of the income test, intercompany transactions between the registrant and acquired or to-be-acquired business should be eliminated in the same way that would occur if the acquired or to-be-acquired business were consolidated.

2920.13 Numerator — Less than 100% of Business Acquired or to-be-Acquired — If less than 100% of a business is acquired or is to-be-acquired, the amounts from the acquired or to-be-acquired business’s financial statements that are used in the significance tests should reflect the percentage of the business that was or is expected to be acquired. For example, if a registrant acquires 60% of a business, 60% of that business’s consolidated total assets (after intercompany eliminations), should be used in the numerator of the asset test.

2920.14 Numerator — Non-controlling Interest within Acquired or to-be-Acquired Business — If 100% of a business is acquired or is to-be-acquired; however, that acquired or to-be-acquired business consolidates less-than wholly owned subsidiaries, such that there is non-controlling interest reflected in the acquired or to-be-acquired business’s financial statements, use 100% of the acquired or to-be-acquired business’s total assets and total revenues in the numerator to determine significance.

2920.15 Rounding — Do not round the results of the significance tests.

In some circumstances, ASC 805 and IFRS 3 require adjustment of provisional amounts recognized at the acquisition date and/or the recognition of additional assets or liabilities that were not recognized at the acquisition date (“measurement period adjustments”). Registrants should reflect measurement period adjustments for completed acquisitions when determining significance for any separate subsequent acquisitions. Registrants should use their pre-acquisition financial statements for the most recently completed fiscal year and include measurement period adjustments for any prior acquisitions completed within the most recently completed fiscal year when new information obtained about facts and circumstances that existed at the acquisition date for those acquisitions is known: (A) prior to effectiveness of a registration statement or (B) on or before the date the initial Item 2.01 Form 8-K reporting the acquisition must be filed for an existing registrant.

If a registrant increases its investment in a business relative to the prior year, base the tests of significance on the increase in the registrant's proportionate interest in assets, pre-tax income or loss9 and revenue during the year, rather than the cumulative interest to date. Note: this does not apply to target companies in Form S-4 or F-4. See Section 2200.

Step acquisitions which are part of a single plan to be completed within a twelve month period should be aggregated.

Under ASC 805 and IFRS 3, the acquirer’s previously held equity interest in the acquired or to-be acquired business is remeasured at its acquisition-date fair value with any resulting gain or loss recognized in earnings. The remeasurement of the previously held equity interest is not included in the asset or the investment test and the resulting gain or loss from remeasurement is excluded from the income component as it is not included in the registrant’s most recently completed fiscal year.

A registrant's assets may not be increased for purposes of the significance tests by including the pro forma effect of public offering proceeds received after the balance sheet date.

A registrant that may present abbreviated financial statements for the acquired or to-be-acquired business in lieu of full financial statements pursuant to S-X 3-05(e) or S-X 3-05(f) should not adjust the registrant’s pre-tax income or loss9 (i.e., the denominator in the income component) to exclude expenses (e.g., corporate overhead) even though the registrant may use the acquired or to-be-acquired business’s abbreviated statement of comprehensive income for the numerator which excludes certain expenses.

If the transaction is an exchange transaction in which the registrant and another party each contribute businesses to a joint venture (the “Newco”) in exchange for an equity interest in the Newco; measure the disposition (registrant’s contributed business) and the acquisition (other party’s contributed business) separately to determine significance.

Significance of the acquisition should be based on the acquired percentage of the other party’s business compared to the registrant’s historical financial statements (without adjustment for the related disposition of the business contributed by the registrant to the joint venture) or aggregate worldwide market value, as applicable. Whether or not the transaction is accounted for at fair value, the investment test should be based on the fair value of the consideration given up or the consideration received, whichever is more reliably determinable.

See also Section 2930.8 for timing considerations associated with filing financial statements and pro forma information associated with an exchange transaction scenario.

This Section could apply to other exchange transactions where a registrant acquires a business and disposes of another business in the same transaction (e.g., the consideration to acquire a business includes the transfer of another business owned by the buyer/registrant to the seller).

If the registrant and/or the acquired/to-be-acquired business has been in existence for less than one year, do not annualize the historical statement of comprehensive income. Measure significance using the audited historical statement of comprehensive income that complies with the age of financial statement requirements (see Section 2940 for the acquired or to-be-acquired business and Section 1200 for the registrant), regardless of the number of months it includes. Similarly, if the registrant or the acquired/to-be-acquired business has been in existence for more than one year, measure significance using income for a full 12 months; do not adjust the audited statement of comprehensive income to equal the same number of months as an acquired/to-be-acquired business or registrant that has been in existence for less than one year.

Under certain corporate structures, the acquisition of a business (“Acquiree”), may be made by a less-than wholly owned consolidated subsidiary (“the Subsidiary”) of the registrant.

Under this scenario, the denominator of the income component is required to reflect the registrant’s income/loss from continuing operations, before income taxes, attributable to controlling interest based upon amounts recorded on the income statement. Similarly, the numerator of the income component should exclude an amount attributable to non-controlling interest in the Subsidiary. However, a non-controlling interest in the Subsidiary should not impact the amounts used in the numerator or denominator of the asset test, the investment test or the revenue component.

For example, assume that the registrant consolidates a 60%-owned Subsidiary and the Subsidiary acquires 100% of Acquiree (See Section 2920.13 for discussion if less than 100% of a business is acquired). Significance testing should be based upon the following:

In transactions in which more than two entities combine concurrent with an IPO, measure significance against the accounting acquirer (regardless of whether or not the accounting acquirer is a Newco). All of the acquired businesses are considered related under S-X 3-05(a)(3) and therefore must be grouped and assessed for significance against the accounting acquirer as a single acquisition. See Section 2920.27.

If a new acquisition takes place after an IPO but before the filing of the registrant’s first Form 10-K, measure significance against the audited financial statements of the accounting acquirer for the most recent fiscal year that was included in the IPO registration statement. If a new acquisition takes place after the filing of the registrant’s first Form 10-K, measure significance against the audited financial statements of the registrant for the most recent fiscal year in the Form 10-K.

Registrants conducting a continuous offering over an extended period of time who also apply the Item 20.D. Undertakings of Industry Guide 5 might acquire real estate operations within the scope of S-X 3-14 or S-X 8-06, businesses within the scope of S-X 3-05 or S-X 8-04, or both.

For acquisitions of real estate operations within the scope of S-X 3-14 or S-X 8-06 by these registrants, see the bullets below to determine the denominator of the investment test when it is based on total assets of the registrant (i.e., when the registrant does not have an aggregate worldwide market value).

For acquisition within the scope of S-X 3-05 and S-X 8-04, see the bullets below to determine the denominator of (i) the investment test when it is based on total assets of the registrant (i.e., when the registrant does not have an aggregate worldwide market value) and (ii) the asset test.

• During the distribution period, total assets as of the acquisition date plus the proceeds (net of commissions) in good faith expected to be raised in the registered offering over the next 12 months, except that total assets must exclude the acquired business; and
• After the distribution period ends and until the next Form 10-K is filed, total assets as of the date of acquisition, except that total assets must exclude the acquired business.

Further, for acquisitions within the scope of S-X 3-05 or S-X 8-04 by these registrants, the income test (both the income and revenue components) does not apply.

After the next Form 10-K is filed, this Section 2920.26 no longer applies to these registrants’ acquisitions, and significance must be determined as otherwise applicable.

2920.27 Related Businesses — Definition [S-X 3-05(a)(3)] — Businesses are related under the S-X Acquisition Rules if:

• they are under common control or management, or
• the acquisitions are conditioned on each other or a single common event.

The S-X Acquisition Rules require that acquisitions 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) be treated as the acquisition of a single business when measuring significance. [S-X 3-05(a)(3)]

If related businesses have different fiscal year ends, a registrant should not conform the fiscal year-ends of the related businesses for purposes of the significance tests.

See Section 2935.17 for financial statement presentation of related businesses.

The asset test and the investment test should first be performed for each related business on an individual basis. Significance under the asset test and investment test for the related business group is then determined as the sum of each related business’s asset test and the sum of each related business’s investment test, respectively. The aggregate worldwide market value (when applicable) is calculated separately for each related business. There may be circumstances when the aggregate worldwide market value would be the same for each of the related business in the group (e.g., if the acquisitions have the same announcement date) and circumstances where it will be different.

The income test is a single calculation combining the amount used in the numerator for all of the related businesses compared with the registrant’s results. The numerator of the income component is calculated by combining the pre-tax income or loss9 for each related business. The numerator of the revenue component (including the revenue screen described in Section 2920.9) is calculated by combining revenue for each related business. The combined pre-tax income or loss and revenue should be used to measure income test significance irrespective of whether some of the related businesses have losses while others have income and whether any of the related businesses are under common control or management.

See also Section 1140.8 for discussion of S-X 3-06 which permits, in certain circumstances, filing financial statements covering a period of 9 to 12 months to satisfy a requirement for filing financial statements for a period of 1 year.

2925.2 Acquired or to-be-Acquired Business recently formed and/or has a Predecessor — If the business has been in existence for fewer than the periods detailed in Section 2925.1 and the business does not have a predecessor, provide the financial statements starting at inception date. If the business has a predecessor, provide the business and predecessor financial statements to cover the periods in Section 2925.1.

2930.2 Item 9.01 Form 8-K (excluding a shell company registrant) — If the financial statements of the acquired business and related pro forma financial information required by Item 9.01 of Form 8-K are not filed with the initial Form 8-K, they must be filed by amendment within 71 calendar days after the date that the initial Form 8-K must be filed (the “grace period”).

If the financial statements and pro forma financial information required by Item 9.01 of Form 8-K are not filed within the grace period for a non-shell company registrant, the Form 8-K will be considered materially deficient and, therefore, not filed in a timely manner for purposes of Form S-3 eligibility.

2930.3 Item 9.01 Form 8-K — Financial Statements — Shell Company Registrant — A registrant that was a shell company, other than a business combination related shell company (both as defined in Exchange Act Rule 12b-2 and Regulation C, Rule 405), immediately before it acquires a business, as defined in S-X 11-01(d), must file the financial statements and related S-X Article 11 pro forma information required by Item 2.01(f) and Item 9.01(c) of Form 8-K with the initial Form 8-K reporting the acquisition. The 71 calendar day extension (the grace period described in Section 2930.2) is not available.

If the financial statements and pro forma financial information required by Form 8-K are not filed within 4 business days for a shell company registrant, the Form 8-K will be considered materially deficient and, therefore, not filed in a timely manner for purposes of Form S-3 eligibility.

2930.4 Registration or Proxy Statement — The financial statements of acquired and to-be-acquired businesses required by the S-X Acquisition Rules must be included in the registration or proxy statement either directly or, if permitted by the form, incorporated by reference into the registration or proxy statement. See Section 2930.10 for additional registration and proxy statement considerations.

2930.5 S-X Article 11 Pro Forma Information — The financial statements required by the S-X Acquisition Rules should not be filed separately from the related pro forma information required by S-X Article 11 because presentation of those financial statements without the accompanying pro forma information can be misleading. See Topic 3 for additional information.

2930.6 Omitting Acquired Business Balance Sheet — A balance sheet of the acquired business is not required when the audited annual balance sheet of the registrant is as of a date after consummation of the acquisition. [S-X 3-05(b)(4)(iv)]

2930.7 Omitting Financial Statements When Acquiring an Additional Interest in a Consolidated Entity — When a registrant increases its investment in a company that is already reflected as a consolidated subsidiary in the financial statements of the registrant, historical financial statements of the acquired or to-be-acquired investment are not required if the subsidiary is consolidated for the periods specified in S-X 3-05(b)(4)(iii). See Section 2930.9.

While S-X 11-01(c) states that pro forma effects of a business combination need not be presented if the acquired business’s financial statements are not presented, we believe such pro forma financial statements are required pursuant to S-X 11-01(a)(8) when pro forma financial information giving effect to the step acquisition would be material to investors.

Note: this Section 2930.7 does not apply to the acquisition of an additional interest in an unconsolidated entity.

2930.8 Exchange Transaction (Acquisition and Disposition) — Section 2920.21 discusses scenarios where a registrant acquires a business and disposes of another business in the same transaction (e.g., the registrant and another party each contribute businesses to a joint venture or the consideration transferred by the registrant for the acquisition of a business includes the transfer of another business).

If reporting of both the disposition and the acquisition are required by Form 8-K, pro forma financial statements depicting a significant disposition are ordinarily required to be filed within 4 business days of the disposition while financial statements and pro forma information related to the acquisition may be filed during the grace period (see Section 2930.2). A registrant may be unable to present a pro forma statement of comprehensive income depicting both the disposition and acquisition within 4 business days because financial statements of the business acquired from the other party may not be available until later in the grace period. In these circumstances, we would not object to filing the complete pro forma information depicting the effects of the exchange of interests (both the disposition and acquisition) at the time that the audited financial statements of the acquired business are filed. However, the initial Form 8-K reporting the transaction should include a narrative description of the effects of the disposition, quantified to the extent practicable.

2930.9 Omitting Financial Statements — Post-Acquisition Periods — Separate financial statements of an acquired business (that is not a real estate operation in the scope of S-X 3-14) are not required once the operating results of the acquired business have been reflected in the audited annual consolidated financial statements of the registrant for at least:

• nine months if the significance of the acquired business is 40% or less; or
• a complete fiscal year if the significance of the acquired business is greater than 40%.
  [S-X 3-05(b)(4)(iii)]

For an acquired real estate operation, separate financial statements are not required once the operating results of the acquired real estate operation have been reflected in the audited annual consolidated financial statements of the registrant for at least nine months (regardless of significance). [S-X 3-14(b)(3)(iii)]

Financial statements of a significant acquired business, that have not previously been filed, may be omitted from registration statements not subject to the provisions of Securities Act Rule 419 and from proxy statements if:

• significance is less than or equal to 50% (evaluated both individually and in the aggregate11, if applicable); and
• either of the following, as applicable, is no more than 74 days after the acquisition is consummated:
  • the date of the final prospectus or prospectus supplement relating to an offering as filed pursuant to Securities Act Rule 424(b); or
  • the date proxy statement is mailed

After the 74th day following the acquisition, financial statements of a significant acquired business must be included in the registration or proxy statement.

Financial statements of a to-be-acquired business may be omitted from registration and proxy statements if significance is less than or equal to 50% (evaluated both individually and in the aggregate11 if applicable).

“Blank check companies,” as defined in Securities Act Rule 419, are not permitted to omit financial statements in these circumstances.

If financial statements of a significant acquired or to-be-acquired business are omitted from a registration or proxy statement based upon these provisions, the registrant must subsequently file those financial statements and related pro forma information in a Form 8-K no later than 75 days after the consummation of the acquisition. However, note that FPIs who file on foreign forms use Form 6-K rather than Form 8-K. Form 6-K does not include a requirement to file financial statements required by the S-X Acquisition Rules. Therefore, such FPIs are not required to subsequently file the omitted financial statements of the acquired or to-be-acquired business in order to rely on this provision.

If significance exceeds 50% (individually or in the aggregate), financial statements required by the S-X Acquisition Rules of an acquired or to-be-acquired business must be included in a registration or proxy statement at the effective date (or proxy statement mailing date).

2930.11 1933 Act Registration Statement — Well-Known Seasoned Issuers — “Well-known seasoned issuer” is defined in Regulation C, Rule 405. Automatic shelf registration statements and post-effective amendments of well-known seasoned issuers become effective immediately upon filing [Regulation C, Rule 462(e) and (f)]. Immediate effectiveness does not exempt a well-known seasoned issuer from including financial statements required by the S-X Acquisition Rules upon effectiveness.

2930.12 Continuous and Delayed Offerings — Acquisitions after the Effective Date — After effectiveness, a registrant undertakes to file a post-effective amendment to update the disclosure in the registration statement if there is a “fundamental change” to the registrant’s business or operations [Item 512(a)(1)(ii) of Regulation S-K]. It is the responsibility of management to determine whether an acquisition of an individual or group of acquired and/or to-be-acquired businesses constitutes a fundamental change. Additionally, as noted in Sections 2930.15 and 2930.16, even if a post-effective amendment is not required to be filed, the consummation of certain acquisitions may require registrants to file the financial statements required by the S-X Acquisition Rules earlier than otherwise required in order to make offerings on effective registration statements.

2930.13 Continuous and Delayed Offerings — Acquisitions after the effective date — Post-effective amendment filed — Post-effective amendments are generally considered to be new filings and must include the financial statements required by the S-X Acquisition Rules in that post-effective amendment (or in a Form 8-K, if applicable). However, an amendment to a registration statement to provide an exhibit does not amend the prospectus. Additionally, post-effective amendments that consolidate supplements are not considered new filings for purposes of updating the registrant’s financial statements if the duty to file the post-effective amendment is triggered solely by Undertaking 20.D. of Industry Guide 5. See Sections 1220.10 and 1220.11.

If significance does not exceed 50% and the financial statements of the acquired business have not been filed, Item 9.01 of Form 8-K and S-X 3-05(b)(4)(i)/3-14(b)(3) permit use of effective registration statements during the grace period provided that the offering is not made by a blank check company pursuant to Regulation C, Rule 419.

If significance of a completed acquisition (or a group of related completed acquisitions — see Section 2920.27) exceeds 50% and the financial statements of the acquired business have not been filed, registrants cannot make offerings pursuant to effective registration statements, or pursuant to Rule 506 of Regulation D if any purchasers are not accredited investors under Rule 501(a) of that Regulation, until the financial statements required by the S-X Acquisition Rules (and related pro forma financial information) are filed; provided however, that the following offerings and sales of securities may proceed during the grace period notwithstanding that the financial statements of the acquired business have not been filed:

1. offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights;
2. dividend or interest reinvestment plans;
3. employee benefit plans;
4. transactions involving secondary offerings; and
5. sales of securities pursuant to Rule 144.

After the grace period, registrants should not make offerings pursuant to effective registration statements, or pursuant to Rule 506 of Regulation D if any purchasers are not accredited investors under Rule 501(a) of that Regulation, until the financial statements required by the S-X Acquisition Rules (including pro forma financial information, if applicable) are filed or the registrant has filed its audited financial statements that include the post-acquisition results of operations of the acquired business for the periods described in Section 2930.9; provided, however, that the following offerings and sales of securities made pursuant to registration statements that were effective prior to the acquisition may proceed notwithstanding that the financial statements of the acquired business have not been filed:

1. offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights;
2. dividend or interest reinvestment plans;
3. employee benefit plans;
4. transactions involving secondary offerings by non-affiliates of the acquired business for which financial statements are not provided; and
5. sales of securities pursuant to Rule 144.

2930.17 Reorganization of Entities Under Common Control — If the accounting for the acquisition is a reorganization of entities under common control and the registrant’s financial statements have already been restated to reflect the reorganization, then the acquired business’s financial statements are not required to be filed.

2935.2 Supplemental schedules (S-X Article 12) are not required to be filed.

2935.3 Audit requirements — General — See Section 4110.5 for audit requirements of annual financial statements filed under the S-X Acquisition Rules. Interim financial statements filed under the S-X Acquisition Rules are not required to be audited or reviewed.

2935.4 Audit requirements — Independence standards — Audits should comply with independence standards in Rule 2-01 of Regulation S-X or, alternatively if the acquired or to-be-acquired business is not a registrant, the applicable independence standards.

2935.5 Acquire Substantially All of an Entity — If the registrant acquires substantially all of an entity's key operating assets, the staff would not object to the registrant filing full audited financial statements of the entity. In these circumstances, elimination of specified assets and liabilities not acquired or assumed by the registrant are reflected as Transaction Accounting Adjustments in pro forma financial statements [S-X 11-02(a)(6)(i)]. For acquisitions of real estate operations, see Sections 2935.13 through 2935.15.

2935.6 Acquire Less than Substantially All of an Entity — Carve-out Financial Statements — In some circumstances, a registrant does not acquire substantially all of the assets and liabilities of another entity. For example, the selling entity may retain significant operating assets; or significant operating assets that comprised the seller may now be owned by an entity other than the registrant.

In that case, audited carve-out financial statements usually should be presented for the acquired or to-be-acquired business. Carve-out financial statements should generally reflect all assets, liabilities, revenues and expenses of the acquired and to-be-acquired business and exclude the operations not acquired or not to-be-acquired by the registrant. See Section 2935.16 for applicability of SAB Topic 1B.1.

In some cases, if certain conditions are met, abbreviated financial statements may be provided. See Sections 2935.7 through 2935.12.

For acquisitions of real estate operations, see Sections 2935.13 through 2935.15.

2935.7 Acquire Less than Substantially All of an Entity — Abbreviated Financial Statements — Applicability — A registrant may provide abbreviated financial statements to satisfy the requirements in the S-X Acquisition Rules for an acquisition of net assets (that constitutes a business under S-X 11-01(d)), if they meet all of the following qualifying conditions [S-X 3-05(e)(1)].

• The total assets and total revenues (both after intercompany eliminations) of the acquired or to-be-acquired business are 20% or less of the corresponding amounts of the seller and its subsidiaries as of and for the most recently completed fiscal year;
• Separate financial statements of the acquired or to-be-acquired business have never been prepared;
• The acquired or to-be-acquired business was not a separate entity, subsidiary, operating segment or division during the periods for which the acquired or to-be-acquired business financial statements would be required;
• The seller has not maintained the distinct and separate accounts necessary to present financial statements of the acquired or to-be-acquired business and it is impracticable to prepare such financial statements.

Sections 2935.8 through 2935.10 provide details about the abbreviated financial statements that may be provided if the conditions above are met.

2935.8 Abbreviated Financial Statements — Statements of Assets Acquired and Liabilities Assumed — If the conditions in Section 2935.7 are met, the balance sheet may be a statement of assets acquired and liabilities assumed (“Abbreviated Balance Sheet”) that is presented on the basis ofseller’s historical GAAP carrying value.

2935.9 Abbreviated FinancialStatements — AbbreviatedStatement of Comprehensive Income — If the conditions in Section 2935.7 are met, the abbreviated statement ofcomprehensive income may exclude corporate overhead expense, interest expense for debt that will not be assumed and income tax expense. All expenses incurred by or on behalf of the acquired or to-be-acquired business during the pre-acquisition financial statement periods to be presented must be reflected in the statement, including but not limited to all related costs of sales or services, selling, distribution, marketing, general and administrative, depreciation and amortization, and research and development. The title of the statement must be appropriately modified to indicate that it omits certain expenses.

2935.10 Abbreviated Financial Statements — Disclosures — Include the following in the notes to the abbreviated financial statements [S-X 3-05(e)(2)(iii)]:

• A description of the type of omitted expenses and the reason(s) why they were omitted.
• An explanation of the impracticability of preparing financial statements that include the omitted expenses.
• A description of how the financial statements presented are not indicative of the financial condition or results of operations of the acquired or to-be-acquired business going forward because of the omission of various expenses.
• Information about the operating, investing and financing cash flows, to the extent available.

2935.11 Financial Statements of a Business that includes Oil and Gas Producing Activities — The financial statements required by the S-X Acquisition Rules may consist of only statements of revenues and expenses that exclude expenses not comparable to the proposed future operations (e.g., depreciation, depletion and amortization, corporate overhead, income taxes and interest for debt not assumed by the registrant) if the following conditions are met:

• The acquired or to-be-acquired business generates substantially all of its revenues from oil and gas producing activities (defined in S-X 4-10(a)(16)).
• The conditions described in Section 2935.7 are met.

Companies meeting these criteria may omit a historical balance sheet but are required to include the disclosures described in Section 2935.10 and 2935.12.

2935.12 Financial Statements of a Business that includes Oil and Gas Producing Activities — Additional Disclosures — Disclosures about oil and gas producing activities must be provided for each full year of operations presented for an acquired or to-be-acquired business that includes significant oil and gas producing activities. These disclosures are required regardless of whether the business meets the conditions in Section 2935.11 as long as the business includes “significant oil and gas producing activities” (even if the business is not a publicly-traded company). Include the supplementary disclosures described in ASC 932-235-50-3 through 50-11 and ASC 932-235-50-29 through 50-36 which may be unaudited. If prior year reserve studies were not made, they may be computed using only production and new discovery quantities and valuation, in which case there will be no “revision of prior estimates” amounts. Registrants may develop these disclosures based on a reserve study for the most recent year, computing the changes backward. If disclosures are developed in this manner, the method of computation must be disclosed in a footnote. [S-X 3-05(f)]

2935.13 Financial Statements of a Real Estate Operation (as defined in S-X 3-14(a)(2)) — The financial statements may be only statements of revenues and expenses excluding expenses not comparable to the proposed future operations such as mortgage interest, leasehold rental, depreciation, amortization, corporate overhead and income taxes.

2935.14 Financial Statements of a Real Estate Operation (as defined in S-X 3-14(a)(2)) — Disclosures — If the financial statements in Section 2935.13 are presented, include the following in the notes to the financial statements [S-X 3-14(c)(2)]:

• The type of omitted expenses and the reason(s) why they are excluded from the financial statements;
• A description of how the financial statements presented are not indicative of the results of operations of the acquired or to-be-acquired real estate operation going forward because of the omitted expenses; and
• Information about the real estate operation's operating, investing and financing cash flows, to the extent available.

2935.15 Financial Statements of a Real Estate Operation (as defined in S-X 3-14(a)(2)) — Supplemental Information — The material factors considered by the registrant in assessing the real estate operation must be described with specificity in the filing. Such factors include sources of revenue (including, but not limited to, competition in the rental market, comparative rents, and occupancy rates) and expense (including, but not limited to, utility rates, property tax rates, maintenance expenses, and capital improvements anticipated). The disclosure must also indicate that the registrant is not aware of any other material factors relating to the specific real estate operation that would cause the reported financial statements not to be indicative of future operating results. When the financial statements are presented in Form S-11, the discussion of material factors considered should supplement the disclosures required by Item 15 of Form S-11.

2935.16 Expenses, assets and liabilities not specifically identifiable — If certain expenses are not specifically identifiable to the acquired or to-be-acquired business, such as indirect expenses not directly involved in the revenue producing activity, the allocation of those expenses in the required financial statements should comply with the guidance in SAB Topic 1B.1. Similarly, if certain assets and/or liabilities are not specifically identifiable to the acquired or to-be-acquired business, such as debt, it still may be appropriate to include those assets and/or liabilities in the required financial statements of the acquired business, if there is a reasonable basis.

2935.17 Related Business Considerations — If significance is met for a related business group (see Section 2920.28 through 2920.30), separate financial statements of each of the related businesses are required, except that financial statements of the related businesses that are under common control or management may be, but are not required to be, presented on a combined basis for any annual or interim periods specified in the S-X Acquisition Rules for which the businesses are under common control or management.

2935.18 Accounting Standards — General — Financial statements of the acquired or to-be-acquired business must be prepared in accordance with U.S. GAAP (applicable to public business entities) unless the business is an FPI (financial statements should be consistent with those already filed as an FPI), a foreign business (see Section 2935.21) or would be an FPI if it were a registrant (see Section 2935.22).

2935.19 Accounting Standards — Nonpublic Entity — An acquired or to-be-acquired business that is a nonpublic entity, as that term is defined in U.S. GAAP, need not include disclosures if specifically excluded from the scope of a FASB standard. Examples include:

1. Segment information under ASC 280 [ASC 280-10-15-3],
2. Certain disclosures about employers’ pensions and other postretirement benefits [ASC 715-20-50-5]
3. Earnings per share under ASC 260 [ASC 260-10-05-1]

See Section 6410.6(d) for foreign business considerations relative to the use of IFRS for Small and Medium-sized Entities.

2935.20 Financial Statements of a Non-reporting Acquired or to-be-Acquired Business — SRC Requirements — If the registrant/acquirer is subject to S-X 3-05, the non-reporting acquired or to-be-acquired business’s financial statements must comply with S-X reporting requirements applicable to entities that are not SRCs. If the registrant/acquirer is subject to S-X 8-04, the non-reporting acquired or to-be-acquired business’s financial statements may comply with scaled reporting requirements in Article 8 of Regulation S-X for a SRC. These requirements apply to registration statements and Form 8-K reporting, except for reverse acquisitions. There are different requirements for filing financial statements of a non-reporting target in an S-4 registration statement (see Section 2200.2).

2935.21 Acquired or to-be-Acquired Business is a Foreign Business — The financial statements of an acquired or to-be-acquired foreign business [as defined in S-X 1-02(l)] meeting the requirements of Item 17 of Form 20-F comply with the S-X Acquisition Rules.

If the financial statements of a foreign business are prepared in accordance with IFRS-IASB, they need not be reconciled to U.S. GAAP (regardless of the significance of the business acquired or to-be-acquired). However, compliance with IFRS-IASB must be unreservedly and explicitly stated in the notes to the financial statements and the auditor’s report must include an opinion on whether the financial statements comply with IFRS-IASB.

The financial statements of a foreign business may be prepared on a comprehensive basis other than U.S. GAAP or IFRS-IASB (e.g., home country GAAP). If significance is less than 30%, financial statements of an acquired or to-be-acquired foreign business prepared on a comprehensive basis other than U.S. GAAP or IFRS-IASB may omit a reconciliation to U.S. GAAP. If significance is greater than 30%, note the following:

• If the registrant is a domestic issuer or an FPI that prepares its financial statements in accordance with U.S. GAAP, financial statements of an acquired or to-be-acquired foreign business that are prepared using home country GAAP must be reconciled to U.S. GAAP.
• If the registrant is an FPI that prepares its financial statements in accordance with IFRS-IASB, financial statements of an acquired or to-be-acquired foreign business that are prepared using home country GAAP may be reconciled to IFRS-IASB (in lieu of U.S. GAAP). The reconciliation must generally follow Item 17(c) of Form 20-F; however, accommodations in Item 17(c)(2) of Form 20-F that would be inconsistent with IFRS-IASB (e.g., removing the effects of inflation accounting when conditions of IAS 29 are not met or to not reconcile the effects of proportionate consolidation in joint ventures) may not be applied. Additionally, IFRS 1 will be applicable.

Reconciliation and Form 20-F updating requirements are described in Topic 6.

2935.22 Acquired or to-be-Acquired Business is not a Foreign Business, but would be an FPI (see Section 6110.2) — The financial statements of an acquired or to-be-acquired business that is not a foreign business but would be an FPI if it were a registrant (“a would-be FPI”) presented to comply with the S-X Acquisition Rules may be prepared as follows:

• If financial statements of a would-be FPI are prepared in accordance with IFRS-IASB they need not be reconciled to U.S. GAAP. However, compliance with IFRS-IASB must be unreservedly and explicitly stated in the notes to the financial statements and the auditor’s report must include an opinion on whether the financial statements comply with IFRS-IASB.
• If the registrant is a domestic issuer or an FPI that prepares its financial statements in accordance with U.S. GAAP, financial statements of a would-be FPI that are prepared using home country GAAP must be reconciled to U.S. GAAP and must follow the form and content requirements in Item 18 of Form 20-F.
• If the registrant is an FPI that prepares its financial statements in accordance with IFRS-IASB, financial statements of a would-be FPI that are prepared using home country GAAP may be reconciled to IFRS-IASB (in lieu of U.S. GAAP). The reconciliation must generally follow Item 17(c) of Form 20-F; however, accommodations in Item 17(c)(2) of Form 20-F that would be inconsistent with IFRS-IASB (e.g., not remove the effects of inflation accounting when conditions of IAS 29 are not met or to not reconcile the effects of proportionate consolidation in joint ventures) may not be applied. Additionally, IFRS 1 will be applicable.

Reconciliation requirements are described at Topic 6.

2935.23 Acquired or to-be-Acquired Business is a Foreign Business and a would-be FPI — If the acquired or to-be-acquired business meets the definition of a foreign business but would also be an FPI if it were a registrant, the requirements for financial statements of a foreign business in S-X 3-05(c) must be applied (see Section 2935.21).

2935.24 Troubled Financial Institutions — If a financial institution is acquired in a federally assisted transaction and constitutes a significant business having material continuity of operations, the staff will likely not object to the omission of audited historical financial statements required by S-X 3-05 if the statements are not reasonably available. Requests for waivers should be directed to CF-OCA. If a waiver is granted, an audited statement of assets acquired and liabilities assumed reflecting the purchase basis of accounting as of the acquisition date will be required, as well as Item 1400 of Regulation S-K and various additional disclosures outlined in Question 3 of SAB 1:K, where reasonably available. [SAB Topic 1K]

The registrant should comply with the financial statement age requirements for all acquired or to-be-acquired businesses at the effective date. Any updated financial statements required to be included or incorporated by reference, as appropriate, in the registration statement but which were not required to be filed previously in a specific Exchange Act report may be filed under cover of Form 8-K pursuant to Item 8.01.

2940.2 Registration Statement — Well-Known Seasoned Issuers — “Well-known seasoned issuer” is defined in Regulation C, Rule 405. Automatic shelf registration statements and post-effective amendments of well-known seasoned issuers become effective immediately upon filing [Regulation C, Rule 462(e) and (f)]. Immediate effectiveness does not exempt a well-known seasoned issuer from the requirement to comply with the financial statement age requirements with respect to all acquired and to-be-acquired businesses at the time of effectiveness.

2940.4 Registration Statement — Requirement to File Acquired or to-be-Acquired Business’s Annual Financial Statements that are More Recent than Registrant’s Financial Statements — In limited circumstances a registrant required to update the acquired or to-be-acquired business’s annual financial statements after the 45th day after that business’s fiscal year end may be required to file audited financial statements of that business as of a date more recent than is required for the registrant, particularly if the acquired or to-be-acquired business has a different fiscal year end.

2940.5 Registration Statement — Age of Interim Financial Statements — Acquired or to-be-Acquired Business is not a Foreign Business or FPI — Similar to the age requirements included in Section 2940.3 for annual financial statements, interim financial statement age requirements are, in part, based upon the acquired or to-be-acquired business’s filer status (See Note 1 to Section 2940.3).

Financial statements of an acquired or to-be-acquired business need not be updated if the omitted period is less than a complete quarter. However, disclosure of significant events occurring during the omitted interim period may be necessary.

2940.6 Registration Statement — Age of Interim Financial Statements — Acquired or to-be-Acquired Business is a Foreign Business or FPI — If an acquisition is completed in the first half of the fiscal year (i.e., the omitted period would be less than 6 months), interim financial statements generally are not required unless the registrant has published interim information of the acquired or to-be-acquired business that covers a more current period (e.g., the first quarter).

If an acquisition is completed in the second half of the fiscal year, interim financial statements (covering at least the first six months of the year) are required if the registration statement is declared effective more than nine months after the end of the last audited fiscal year. For a calendar year-end entity, this means that if a registration statement were to become effective prior to October 1 financial statements for any interim period would not be required under the S-X Acquisition Rules for a foreign business or FPI.

2940.7 Registration Statement — Age of Interim Financial Statements — Updating Form 8-K — In some cases, the financial statements of the acquired or to-be-acquired business initially provided in Form 8-K may need to be updated in a registration statement to comply with the 135-day rule (for an acquired business that is neither an accelerated filer nor a large accelerated filer) or the 130 day rule (for an acquired business that is either an accelerated filer or a large accelerated filer). See Section 1200.

2940.8 Proxy Statements — General — For purposes of proxy statements, the staff interprets the updating requirements for financial statements required by the S-X Acquisition Rules similar to the updating requirements for registration statements except to substitute proxy statement mailing date for effective date. [S-X 3-12].

2940.9 Form 8-K — General — The staff believes that the age of financial statements in a Form 8-K should be determined by reference to the filing date of the Form 8-K initially reporting consummation of the acquisition. If no filing is made timely (on or prior to the 4th business day following the acquisition date), the age of financial statements required to be filed should be determined by reference to the 4th business day after the consummation of the acquisition.

2940.12 Form 8-K — Effect of Previously Filed Financial Statements — General Instruction B.3. to Form 8-K states in part: “If the registrant previously has reported substantially the same information as required by this Form, the registrant need not make an additional report of the information on this Form.” Financial statements of an acquired business are not required in Form 8-K if they were previously filed by the registrant. Examples of when the staff will not consider the previously filed financial statements of the acquired business to be "substantially the same" pursuant to this instruction include:

• the previously filed financial statements of the acquired business would not satisfy the required age of financial statements in the Form 8-K because operating results for two or more interim quarters are omitted. See Example 1 below.
• the previously filed financial statements of the acquired business are interim financial statements and the Form 8-K requires filing of updated audited annual financial statements of the acquired business. See Example 2 below.
• the previously filed financial statements of the acquired business were prepared in accordance with the requirements for SRCs in S-X Article 8 but the registrant is not an SRC. See Example 3 below.

Example 1: Form S-4 included unaudited financial statements for the three months ended March 31 for a to-be-acquired business. The acquisition of the business was consummated on October 1, and a Form 8-K reporting the acquisition was timely filed. No financial statements are required in the Form 8-K, unless there were significant subsequent events that would materially affect an investor's understanding of the acquired business. However, if the acquisition of the business had been consummated on November 20, the financial statements would have had to be updated through September 30.

Example 2: Form S-4 contained unaudited financial statements of the to-be-acquired business for the nine months ended September 30. Updated audited financial statements of the acquired business are required in a Form 8-K if the acquisition of the business is consummated and the Form 8-K is filed after the 89th day subsequent to December 31. Note that in a registration statement, updated audited financial statements of the acquired business may be required before the 90th day, if either the acquired business is an accelerated filer or a large accelerated filer or the registrant does not meet the requirements under S-X 3-01(c). See Section 2940.3 regarding the requirements to provide audited financial statements of an acquired entity.

Example 3: If a non-SRC registrant included financial statements of a previously nonpublic SRC-eligible acquired business in a Form S-4 and those financial statements complied with SRC reporting requirements instead of S-X reporting requirements for companies other than SRCs (see Section 2200.2), those financial statements would not be deemed “substantially the same” pursuant to Gen. Instruction B.3 to Form 8-K. Financial statements of the acquired business that comply with S-X for non-SRCs would need to be filed in a Form 8-K if the S-X Acquisition Rules significance threshold is met.

2945.1 Scope — The S-X Acquisition Rules require aggregating the significance of the following acquisitions (“aggregate significance”) which did not require historical financial statements described in Sections in 2925 and 2930 based upon individual significance but may require the disclosures in Section 2945.9 if aggregate significance exceeds 50%:

1. any consummated acquisitions whose significance does not exceed 20% (determined as of the acquisition date) that were consummated after the balance sheet date of the most recent annual audited financial statements included in the registration or proxy statement through the effective date of the registration statement or the date the proxy statement is mailed;
2. any probable acquisitions whose significance does not exceed 50%; and
3. any consummated acquisitions whose significance exceeds 20% (determined as of the acquisition date), but does not exceed 50%, for which financial statements are:

   (1) not yet required because of the 74 day rule in S-X 3-05(b)(4) and/or S-X 3-14(b)(3)(i) and

   (2) not yet filed.

If a group of businesses meets the definition of related businesses described in Section 2920.27 and financial statements are not required by the S-X Acquisition Rules when treated and tested as a single acquisition, that related business group of acquisitions should also be included in the Aggregate Significance assessment.

2945.2 Applicability — The requirement to file financial statements due to aggregate significance is applicable only to registration statements and proxy statements.

2945.3 Financial Statements Used to Measure Aggregate Significance — The financial statements described in Section 2915 at the registration statement effective date (or proxy statement mailing date) should be used to determine aggregate significance for acquisitions that fall within the scope of Section 2945.1. Measuring significance using the financial statements described in Section 2915 at the registration statement effective date (or proxy statement mailing date) may require the use of either financial statements for a more recent fiscal year than the annual financial statements used to measure significance at the acquisition date, or financial statements for the same fiscal year that have subsequently been retrospectively adjusted after the acquisition date for a change in accounting principle or a discontinued operation (see Section 2915.14).

2945.4 Applicable Aggregate Significance Tests — Registrants are required to provide the disclosures described in Section 2945.9 if any of the applicable S-X 1-02(w) significance tests exceed 50%. Depending on the type of acquired or to-be-acquired businesses (i.e., real estate operations or non-real estate operations) included in the assessment, apply the asset, investment and income (including the revenue and income components) tests as follows:

2945.5 Asset and Investment Test — Add the significance results for each individual business required to be included based on Sections 2945.1 and 2945.4 to determine whether either the asset test or the investment test exceeds 50%.

Regarding the investment test (when the registrant has an aggregate worldwide market value), the aggregate worldwide market value (see Section 2920.6) used in the aggregate significance test will likely be different for each individual business acquired as the aggregate worldwide market value determination depends upon the timing of each of the acquisitions.

2945.6 Income Test — General — Add the revenue of each individual business required to be included in the aggregate significance determination based upon Sections 2945.1, 2945.4 and 2945.7 to determine whether there is material revenue for the revenue screen (see Section 2920.9).

Add the significance results (separately for each income test component) for each individual business required to be included based on Sections 2945.1, 2945.4 and 2945.7 to determine whether the revenue component (if applicable based on the revenue screen) or the income component of the income test exceeds 50%. The revenue component includes revenue from each of the aggregated businesses, including businesses with immaterial individual revenue. The lower of the two aggregated components is the aggregate significance of the income test.

2945.7 Income Test — Acquired and to-be-acquired Businesses with Pre-Tax Loss14 versus Pre-Tax Income — For purposes of both the revenue component and the income component of the income test, acquired and to-be-acquired businesses reporting losses should not be aggregated with acquired and to-be-acquired businesses reporting income. Therefore, significance under both components must be determined separately for the group of businesses with income and the group of businesses with losses. The revenue screen discussed in Section 2920.9 should be applied to each group separately (e.g., businesses reporting losses might not have material revenue after aggregating the revenue reported for each business reporting a loss and therefore that group would not be able to utilize the revenue component).

If the income test significance (considering both the income and revenue components) of either the aggregated businesses reporting losses or the aggregated businesses reporting income exceeds 50%, the disclosures in Section 2945.9 will be required for all of the businesses in Section 2945.1 (i.e., the disclosure requirements are not limited to just the businesses reporting losses or those reporting income).

Assume the registrant concluded that they passed the revenue screen and therefore they assessed significance using both components of the income test as follows:

Because some acquired or to-be acquired businesses have income and some have losses, significance must be determined separately for the group of acquired or to-be acquired businesses with income and the group with losses. In this example because the aggregate significance of both the income and revenue components for the acquired or to-be acquired businesses with income is greater than 50%, the applicable disclosures in Section 2945.9 must be provided for all Businesses (A through G); including historical S-X 3-05 financial statements for Business G.

2945.8 Using Pro Forma Financial Statements — The S-X Acquisition Rules [S-X 3-05(b)(3) and S-X 11-01(b)(3)(i)(B)] permit a registrant to evaluate significance of acquirees using the registrant’s pro forma financial information reflecting previous significant acquisition(s) or disposition(s) consummated after the registrant’s fiscal year end when certain criteria are met (See Section 2915.7). Using pro forma financial statements does not impact the Investment test if it is based upon the registrant’s aggregate worldwide market value. If a registrant has filed financial statements required by the S-X Acquisition Rules and pro forma financial information for a previous significant acquisition (consummated after their fiscal year end), the aggregate significance test may be applied against the pro forma information filed consistent with Section 2915.7.

This example assumes that audited financial statements and pro forma financial information were filed for Business A on 6/17/2024. Significance percentages for the “Insignificant acquisitions” are based on the registrant’s election to measure significance using pro forma financial information giving effect to the acquisition of Business A. Assume the pro forma financial information as of and for the year ended December 31, 2023 reflects Transaction Accounting Adjustments as follows:

In this example, the income test yields the highest aggregate significance test (52%). The registration statement must include the disclosures described in Section 2945.9 to meet the S-X 3-05 requirement. Had the aggregate significance under each test been less than 50% using pro forma information, the financial disclosures described in Section 2945.9 would not be required in the registration statement for any of the individual acquired or to-be-acquired businesses.

2945.9 Required Disclosures — If the aggregate significance (based on the applicable significance tests as described in Section 2945.4) of the acquisitions described in Section 2945.1 (including the Note to Section 2945.1) exceeds 50%, the following disclosures must be provided:

• S-X 11-01 and 11-02 pro forma financial information that shows the aggregate impact of the acquisitions described in Section 2945.1, in all material respects; and
• Financial statements covering at least the most recent fiscal year and most recent interim period for any acquisition described in Section 2945.1(b) that is significant at more than 20% or any acquisition described in Section 2945.1(c).