Topic 3: Pro Forma Financial Information — Regulation S-X Article 11
This Topic describes the circumstances in which pro forma financial information
should be presented, the form of their presentation, and guidance to be considered
in their preparation. S-X 8-05, which applies to Smaller Reporting Companies and
certain forms such as Reg. A Offering Statements, requires application of S-X
Article 11.
(Last Updated: June 30, 2025)
3100 Circumstances Requiring Pro Forma Financial Information
3110 Significant Business Acquisition [S-X 11-01(a)(1) through (3)]
3110.1 S-X Article 11 pro forma financial
information is required if a significant business acquisition (including
real estate operations) has occurred in the latest fiscal year or subsequent
interim period or is probable (see Section
2905.4). See Topic 2 fordefinition of a business
(including the definition of a real estate operation) and tests of
significance. Pro forma presentation is not required if the transaction is
already fully reflected in historical statements for the entire period for
which pro forma financial information is required.
3110.2 Acquisition of a business encompasses the
acquisition of an interest in a business accounted for by the registrant
under the equity method or, in lieu of the equity method, the fair value
option. [S-X3-05(a)(2)(ii)] Therefore, S-X Article 11 pro forma requirements
apply to the acquisition of such interests if significant.
3110.3 Additional S-X Article 11 pro forma financial information may
be necessary if an acquiree of the registrant consummated a significant
business acquisition of its own during the year, if that information would
be material to an understanding of the registrant or a vote on a
transaction.
3110.4 S-X Article 11 pro forma financial information is not required
for business acquisitions that are not individually significant unless they
are significant in the aggregate at over the 50% level as determined in S-X
3-05(b)(2)(iv) or S-X 3-14(b)(2)(i)(C). In this circumstance, these rules
require presentation of S-X Article 11 pro forma financial information that
depicts the aggregate impact of the acquired or to be acquired businesses,
including real estate operations, that are included in the aggregate test in
all material respects.
3110.5 S-X Article 11 pro forma financial information should be filed
at the same time the audited financial statements of the acquired business
are filed. Presentation of the acquiree’s financial statements without
accompanying pro forma financial information can be misleading.
3110.6 Pro-forma financial
information may be required to be presented in a Form 8-K for a significant
acquisition made after a previously reported significant acquisition. When
such pro-forma financial information is included in a 1933 Act filing (e.g.,
Registration Statement) pursuant to S-X Article 11 and S-X 8-05, it is
required to include the effects of both acquisitions. However, Form 8-K
relates to current reporting of significant transactions outside the
ordinary course of business; therefore, it does not explicitly contemplate
previously reported transactions. For example, Form 8-K Item 9.01(b)(1)
requires for any transaction required to be described in response to Item
2.01 of Form 8-K that the registrant file any pro forma financial
information that would be required pursuant to S-X Article 11 or S-X 8-05.
The staff encourages registrants to present both acquisitions in the pro
forma financial information included in the Form 8-K because it results in
more comprehensive disclosure and the pro forma financial information could
be misleading without them. Companies with questions about individual fact
patterns may contact CF-OCA.
3120 Disposition of a Significant Portion of a Business [S-X 11-01(a)(4)]
3120.1 S-X Article 11 pro forma financial
information is required if a disposition either by sale, abandonment or
distribution to shareholders has occurred or is probable and is not fully
reflected in the historical financial statements. The requirement to provide
S-X Article 11 pro forma financial information is not dependent on the
disposition meeting the ASC 205-20 criteria of a
discontinued operation.
3120.2 Audited financial statements of the disposed
business generally are not required in the Form 8-K reporting the
disposition, however Form 8-K General Instruction B.1 requires S-X Article
11 pro forma financial information to be filed under Item 9.01(b) within 4
business days after the disposition. The 71-day extension set forth in Item
9.01(a)(3) for filing financial statements and S-X Article 11 pro forma
financial information for acquisitions is not available for dispositions
except for the exchange transactions described in Section 2930.8.
See the Division of Corporation Finance’s C&DIs for Exchange Act Form
8-K, Question 129.01. See also further discussion about when financial
statements of the disposed business are required in Section
2120.
3130 [Reserved]
3140 Roll-Up Transaction [S-K 914 and S-X 11-01(a)(6)]
3140.1 In connection with a transaction subject to
S-K 914, S-X Article 11 pro forma financial information should be presented
showing the effect on the successor entity assuming (1) that all combining
entities participate and (2) participation is limited to those having the
lowest combined net cash provided by operating activities for the last
fiscal year of such entities. Consideration should be given to the need to
present other variations of participation that are permitted by the terms of
the roll-up. The following pro forma financial information should be
presented:
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Balance sheet as of the later of the end of the most recent fiscal year or latest interim period;
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Statements of income with separate line items to reflect income (loss) excluding and including roll-up expenses and payments, earnings per share amounts, and ratio of earnings to fixed charges for the most recent fiscal year and the latest interim period;
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Statements of cash flows for the most recent fiscal year and the latest interim period;
-
Book value per share as of the later of the end of the most recent fiscal year or the latest interim period; and
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Pro forma oil and gas reserve data, if applicable.
3150 Registrant Previously Was Part of Another Entity [S-X 11-01(a)(7)]
3150.1 S-X Article 11 pro forma financial information is
required if the registrant previously was a part of another entity, and such
presentation is necessary to reflect operations and financial position of
the registrant as an autonomous entity. See Section
3246.
3160 Other [S-X 11-01(a)(8)]
3160.1 S-X Article 11 pro forma financial information is
required if transactions have occurred or are probable for which disclosure
of pro forma financial information would be material to investors. Possible
examples might include, but are not limited to, the following :
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Termination orrevision of tax or other cost sharing agreements in a spin-off. See Section 3246.2.
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Declaration of dividends by a subsidiary subsequent after the balance sheet date. [SAB Topic 1B.3]
-
Changes in capitalization at the effectiveness or the close of an IPO.
-
Receipt or application of offering proceeds under certain circumstances. See Sections 3241 and 3304 for further discussion.
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Issuance of new debt to fund a significant business acquisition for which pro forma financial information is required.
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Repayment of debt.
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Emerging from bankruptcy and registering securities under the 1934 Act coupled with fresh start accounting, reorganization, changes in capital structure, or other transactions.
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In a de-SPAC transaction, all material transactions, including the merger agreement, PIPE issuance, new financing arrangement, forward purchase agreement or subscription agreement (if applicable), other significant acquisitions/dispositions, and redemption scenarios.
3160.2 The reference to “other transactions” in S-X 11-01(a)(8)
encompasses other “events.” [See Release No. 33-10786 (May 20, 2020) at FN
313]
3160.3 Acquiring an Additional
Interest in a Consolidated Entity – A registrant may increase its investment
in an entity that is already reflected as a consolidated subsidiary. In this
circumstance, notwithstanding S-X 11-01(c), which states that pro forma
financial information giving effect to a business acquisition need not be
presented if the acquired business’ financial statements are not presented,
pro forma financial information giving effect to the additional investment
in the entity would be required pursuant to S-X 11-01(a)(8) if it would be
material to the registrant’s investors.
3200 Preparation Requirements — Form and Content
3210 General
3210.1 S-X Article 11 pro forma financial
information depicts the effect of consummated or probable (see Section 2905.4) transaction(s) on the
registrant’s historical financial statements.
3210.2 Domestic registrants should prepare their pro
forma financial information in accordance with U.S. GAAP. Foreign private
issuers should prepare their pro forma financial information in accordance
with U.S. GAAP, IFRS as issued by the IASB, or home-country GAAP reconciled
to U.S. GAAP depending on the comprehensive basis of accounting in the
primary financial statements. See Topic 6.
3210.3 S-X Article 11 pro forma
financial information should follow the age of financial statement
requirements for the registrant. There may be unique circumstances relating
to pro forma presentations (e.g., reverse acquisitions) in which the legal
and accounting acquirer are subject to different reporting requirements or
have different fiscal year ends. In these cases, registrants are encouraged
to consult the staff.
3220 Pro Forma Condensed Balance Sheet
3220.1 Pro forma presentation should be based on the
latest balance sheet included in the filing. A pro forma condensed balance
sheet is not required if the acquisition or disposal is already reflected in
a historical balance sheet.
3220.2 Pro forma condensed balance sheet adjustments
should be computed assuming the transaction was consummated on the date of
the latest balance sheet included in the filing.
3230 Pro Forma Condensed Statement of Comprehensive Income
3230.1 Periods to Present Pro forma condensed
statements of comprehensive income must be filed for only the most recent fiscal year, except as noted in Section 3230.2, and for
the period from the most recent fiscal year end to the most recent interim
date for which a balance sheet is required. A pro forma condensed statement
of comprehensive income may be filed for the corresponding interim period of
the preceding fiscal year. A pro forma condensed statement of comprehensive
income must not be filed when the historical statement of comprehensive
income reflects the transaction for the entire period. [S-X 11-02(c)].
NOTE: After a registrant’s change in fiscal year end in
which the transition report has been filed on Form
10-K, the registrant may present pro forma financial
information for the transition period and
most recent fiscal year (and interim period).
Alternatively, the registrant may present a pro
forma condensed statement of comprehensive income
for the most recent annual period (9 to 12 months
under S-X 3-06). In either case, the length of the
period used for the acquired or to be acquired
business should be identical to the period of the
registrant. |
3230.2 Periods to Present — For transactions
required to be accounted for under U.S. GAAP or, as applicable, IFRS–IASB by
retrospectively revising the historical statements of comprehensive income
(e.g., combination of entities under common control and discontinued
operations), pro forma condensed statements of comprehensive income must be
filed for all periods for which historical financial statements of the
registrant are required. [S-X 11-02(c)(2)(ii)]
Example 1: A registrant files a registration
or proxy statement that includes financial statements that do not
yet reflect a combination to be accounted for as a reorganization of
entities under common control. Pro forma condensed statements of
comprehensive income are required for each fiscal year for which the
registrant’s historical financial statements are provided and the
registrant’s subsequent interim period between its latest audited
balance sheet and the date of its most recent interim balance sheet
being filed.
Example 2: A non-SRC non-EGC registrant
files a Form 8-K to report a significant disposition that has
occurred, but has not yet been reflected in the registrant’s
historical statements as a discontinued operation under ASC 205-20
for the three years presented in the registrant’s most recent Form
10-K. Pro forma condensed statements of comprehensive income are
required for the three most recent fiscal years required to be filed
and the subsequent year-to-date interim period.
3230.3 Registrant’s Fiscal Year — Pro forma
condensed statements of comprehensive income must be presented using the
registrant's fiscal year end. [S-X 11-02(c)(3)]
3230.4 Length of Periods — The length of the
historical period for any business included in pro forma financial
information should generally be identical to the historical period of the
registrant’s financial statements used to present the pro forma period
depicted (or in a reverse acquisition the length of the accounting
acquirer’s financial statements).
3230.5 Nonrecurring Items — All
revenues, expenses, gains and losses and their tax effects must be included
in the pro forma condensed statement of comprehensive income. Any such items
that will not recur in the income of the registrant beyond 12 months after
the transaction must also be disclosed in the explanatory notes of the pro
forma financial information. [S-X 11-02(a)(11)(i)] An example of a
nonrecurring expense is a transaction expense in a business acquisition. See
Section 3250.
3240 Form
3240.1 Financial Statements — S-X Article 11 pro
forma financial information must consist of a pro forma condensed balance
sheet, pro forma condensed statements of comprehensive income, and
accompanying explanatory notes. In certain circumstances (i.e., where a
limited number of pro forma adjustments are required and those adjustments
are easily understood), a narrative description of the pro forma effects of
the transaction may be disclosed in lieu of the statements described herein.
[S-X 11-02(a)(1)]
3240.2 Introductory Paragraph — S-X Article 11 pro
forma financial informationshould be preceded by an introductory paragraph
which briefly describes: [S-X 11-02(a)(2)]
-
each transaction for which pro forma effectis being given;
-
the entities involved;
-
the periods for which the pro forma financial information is presented; and
-
an explanation of what the pro forma presentation shows.
3240.3 Condensed Form — Pro forma financial
information need only include major captions (i.e., the numbered captions)
prescribed by the applicable sections of Regulation S-X. Any balance sheet
caption less than 10% of total assets may be combined with others; any
statement of comprehensive income caption less than 15% of average net
income attributable to the registrant for the most recent three fiscal years
(excluding loss years unless losses were incurred in each of the most recent
three years, in which case the average loss must be used) may be combined
with others. Notwithstanding these tests, de minimis amounts need not be
shown separately. [S-X 11-02(a)(3)]
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Note: The
thresholds in S-X 11-02(a)(3) used to present
condensed pro forma financial informationdiffer from
the thresholds in S-X 10-01(a)(3) used to present
condensed interim financial statements.
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3240.4 Columnar Form — Pro forma statementsshould be
presented in columnar form showing condensed historical statements, pro
forma adjustments, and the pro forma results. [S-X 11-02(a)(4)]
3240.5 Continuing Operations — The historical
statement of comprehensive income used in the pro forma financial
information must only be presented through income from continuing operations
(or the appropriate modification thereof). [S-X 11-02(b)(1)]
3240.6 Income Attributable to the Controlling
Interest — The pro forma condensed statement of comprehensive income
must disclose income (loss) from continuing operations and income or loss
from continuing operations attributable to the controlling interest [S-X
11-02(a)(5)] because these amounts are used to calculate earnings per
share.
3240.7 Range of Possible Results — If the
transaction is structured in such a manner that significantly different
results may occur, additional pro forma presentations should be made that
give effect to the range of possible results. [S-X 11-02(a)(10)] The
introductory paragraph should clearly outline the range of possible results
depicted in the pro forma financial information, including transparent
disclosure about the possible scenarios and the requirements that must be
met for the transaction to consummate.
3240.8 Range of Possible Results — Both the form and the
appropriate prominence of the additional pro forma presentations necessary to
depict the range of possible results depends on the facts and circumstances. For
example, presenting pro forma financial information depicting minimum required
issuances of securities or acceptance of tender offers along with pro forma
financial information depicting the maximum issuance or acceptance may be
sufficient to depict the possible results of the transaction for which pro forma
effect is being given. Further, if the outcome of minimum or maximum
participation does not have a pervasive impact on the financial statements, it
may be acceptable to discuss possible outcomes and their impacts in an
explanatory note to the pro forma financial information. As another example, if
the minimum or maximum outcome will only affect the balance sheet, it may be
acceptable for the registrant to only present an additional pro forma condensed
balance sheet.
3240.9 Range of Possible Results — If
the number of tender offer acceptances or other factors in a proposed business
acquisition may determine the accounting to be applied to the transaction, pro
forma financial information should generally be presented depicting each
accounting method. For example, if the minimum number of acceptances would
result in application of the equity method of accounting while the maximum
number of acceptances would result in consolidation, pro forma financial
information should be presented depicting each accounting method.
3240.10 Range of Possible Results —
Providing pro forma presentations that only show minimum and maximum scenarios
may not be appropriate to comply with the pro forma requirement to show the
range of possible results if other materially different outcomes are possible.
Similarly, providing pro forma presentations of scenarios that do not meet the
conditions of the transaction for which pro forma effect is being given would
not be appropriate as those scenarios are not possible results.
For example, in some fact patterns there may be
both cash redemption requirements (e.g., like those that can exist in
de-SPAC transactions) and concurrent business acquisitions that are
conditioned on the registrant having a minimum amount of
post-acquisition cash. In such circumstances, additional pro forma
presentation should be shown to depict the maximum amount of cash that
can be redeemed pursuant to the cash redemption requirements that meets
the post-acquisition cash minimum requirement of the concurrent business
acquisition. If a transaction provides the possibility that the minimum
post-acquisition cash requirement may be waived, additional pro forma
presentation should be shown to reflect the impact of the possible
waiver.
Similarly, if a transaction requires that the net tangible assets of
the post-merger entity exceed a minimum amount, pro forma presentations
generally should not be given to scenarios that do not meet the
conditions necessary to consummate the transaction. However, if
shareholders are also being asked to vote on proposals that would
eliminate the minimum net tangible asset requirement, additional pro
forma presentations should give effect to the elimination of the net
tangible asset requirement to appropriately reflect the range of
possible results.
3240.11 Range of Possible Results — The
total column of the pro forma financial information should not show negative
cash. Similarly, reclassifying negative cash to a liability would not be
appropriate if the terms of the transaction for which pro forma effect is being
given do not provide for such a liability as such a scenario would not be a
possible result.
3240.12 Range of Possible Results — When
the terms of the transaction for which pro forma effect is being given include
one or more variables, additional pro forma presentation may be necessary to
depict the range of possible results.
Example 1: A registrant issues variable rate
debt. See Section 3260.
Example 2: A registrant files a proxy statement
requesting shareholder approval of an acquisition. The number of common
shares the registrant will issue in the acquisition will be determined
by a formula such that the total dollar amount of the acquisition is
subject to change. The registrant may present the pro forma effects of
the acquisition using an acquisition price calculated as if the
acquisition was consummated at the date of filing (by using the most
current trading price of the common shares). If the range of possible
outcomes may have a material impact on the amount of goodwill to be
recorded in the financial statements, the registrant should disclose the
impact on the balance sheet of increases or decreases in the common
share trading price.
3240.13 Multiple Transactions — When a
business acquisition occurs other transactions may also be consummated. For
example, debt may be issued to finance the business acquisition. In these
circumstances, registrants must look to S-X 11-01(a) to identify each
transaction for which pro forma effect is required to be given. S-X 11-01(a)(8)
indicates that pro forma financial information must be disclosed for a
transaction when that information would be material to investors.
3240.14 Multiple Transactions — When
consummation of more than one transaction has occurred, or is probable, the pro
forma financial information must present in separate columns each transaction
for which pro forma presentation is required. [S-X 11-02(b)(4)(i)] However,
there may be narrow circumstances when transactions are both entered into at the
same time and executed in contemplation of each other where the staff would not
object to a singular column presentation that retains the transparency and ease
of understanding objectives otherwise provided through a separate column
requirement. For example, when one of the transactions can be reflected through
a single, easily understood journal entry such as an adjustment giving effect to
debt issued to finance a significant business acquisition for which pro forma
financial information is also required.
3240.15 Multiple Transactions — If the
pro forma financial information is presented in a proxy or information statement
for purposes of obtaining shareholder approval of one of the transactions, the
effects of that transaction must be clearly set forth. [S-X 11-02(b)(4)(ii)]
3240.16 Audit Report — An auditor’s
report on pro forma financial information is not required. However, any
auditor’s report provided on pro forma financial information must comply with
AICPA’s guidelines as set forth in the Statement on Standards for Attestation
Engagements; Reporting on Pro Forma Financial Information (as adopted by the
PCAOB pursuant to Rule 3300T as Interim Attestation Standards). See AT Section
401.
3241 Pro Forma Earnings Per Share
3241.1 Historical and pro forma
basic and diluted per share amounts based on continuing operations
attributable to the controlling interests and the number of shares used to
calculate such per share amounts must be presented on the face of the pro
forma condensed statement of comprehensive income and only give effect to
Transaction Accounting Adjustments and Autonomous Entity Adjustments. [S-X
11-02(a)(9)]
3241.2 The number of shares used in
the calculation of the pro forma per share amounts must be based on the
weighted average number of shares outstanding during the period adjusted to
give effect to the number of shares issued or to be issued to consummate the
transaction, or if applicable whose proceeds will be used to consummate the
transaction as if the shares were outstanding as of the beginning of the
period presented. [S-X 11-02(a)(9)]
3241.3 Calculate the pro forma
effect of potential common stock being issued in the transaction (e.g., a
convertible security), or the proceeds of which will be used to consummate
the transaction, on pro forma earnings per share in accordance with U.S.
GAAP or IFRS–IASB, as applicable, as if the potential common stock were
outstanding as of the beginning of the period presented. [S-X 11-02(a)(9)]
See Section 3308.3 for guidance if the
conversion of outstanding securities will occur after the latest balance
sheet date.
3241.4 If a registrant meets the
requirements in Section 3304 to give effect to
the receipt of offering proceeds in the pro forma financial information
presented, it may depict the pro forma effects on the EPS denominator of
those shares whose proceeds are indicated for general corporate purposes
(i.e., incremental to the number of shares whose proceeds will be used for
the material transaction for which such pro forma financial information is
required) provided such pro forma effect is depicted separately from the
material transactions for which proceeds will be used. For example, a
company may present “additional” EPS data reflecting the issuance of all
shares offered if it considers this information meaningful. If this
additional EPS data is shown on the face of the pro forma condensed
statement of comprehensive income, it should be labeled appropriately.
3241.5 The explanatory notes of the pro forma financial information
should make the computation(s) of pro forma EPS transparent to
investors.
3242 Prohibitions
3242.1 A registrant must not present pro forma financial information
on the face of the registrant's historical financial statements or in the
accompanying notes, except where such presentation is required by U.S. GAAP
or IFRS–IASB, as applicable [S-X 11-02(a)(12)]. IPO-triggered transactions,
such as convertible securities that automatically convert to common stock
upon an IPO, do not meet the exception (i.e., they are not subsequent events
as defined in ASC 855). The IPO-triggered transactions would be depicted in
S-X Article 11 pro forma financial statements, but they would not be
presented in a separate column presented on the face of the registrant’s
historical financial statements.
3242.2 A registrant must not present
pro forma financial information, or summaries of such information, elsewhere
in a filing that excludes material transactions for which pro forma effect
is required to be given [S-X 11-02(a)(12)]. As a result, amounts depicted in
a filing that are labeled as pro forma should give effect to all material
transactions for which pro forma effect is required to be given pursuant to
S-X 11-01(a). For example, an amount labeled as pro forma EPS should include
all material transactions for which pro forma effect is required to be given
in each place it is presented in a filing.
3242.3 A registrant must not present
pro forma amounts depicting Management’s Adjustments (see Section 3248) elsewhere
in a filing without also presenting with equal or greater prominence the pro
forma amounts to which they are required to be reconciled and a
cross-reference to that reconciliation. [S-X 11-02(a)(12)] For example, if a
registrant presents pro forma net income attributable to the controlling
interests after management’s adjustments outside of the pro forma financial
information explanatory notes, it must also present, with equal or greater
prominence, pro forma net income attributable to the controlling interests
before Management’s Adjustment and a cross-reference to the reconciliation
of those two amounts included in the explanatory notes of the pro forma
financial information.
3242.4 A registrant must not give pro forma effect to the registrant's
adoption of an accounting standard in pro forma financial information
required by S-X
11–01 through 11–03 [S-X 11-02(a)(12)]. Instead, a registrant should
describe the potential effects of its adoption of an accounting standard in
accordance with the disclosure requirements discussed in SAB 11:M.
3242.5 A registrant must not present
non-GAAP financial measures on the face of any pro forma financial
information required to be disclosed by S-X Article 11. [S-K
10(e)(1)(ii)(D)] Alternative measures of performance or liquidity and the
effect of pro forma adjustments thereon may be disclosed in the explanatory
notes of S-X Article 11 pro forma financial information provided the
requirements of S-K 10(e) are met.
3243 Pro Forma Adjustments
3243.1 If pro forma effect of a
transaction is required by S-X 11-01(a), such effect is given through
Transaction Accounting Adjustments, unless the transaction meets the
autonomous entity condition in S-X 11-01(a)(7) in which case effect is given
through Autonomous Entity Adjustments. Management’s Adjustments may also be
presented if the conditions for their presentation are met. See S-X
11-02(a)(6) and (a)(7).
3243.2 Pro forma adjustments should
be referenced to explanatory notes which clearly explain the assumptions
involved. [S-X 11-02(a)(8)]
3243.3 Generally, pro forma
adjustments should be presented gross on the face of the pro forma financial
information. Alternatively, a more detailed explanation of the components of
the adjustments may be presented in the explanatory notes of the pro forma
financial information.
3244 Transaction Accounting Adjustments
3244.1 Transaction Accounting
Adjustments are the most common type of pro forma adjustments. They are
presented on the face of the pro forma financial information and give effect
to all the transactions for which pro forma financial information is
required with the exception of the autonomous entity condition described in
S-X 11-01(a)(7) and Section 3246.
3244.2 Transaction Accounting
Adjustments to the pro forma condensed balance sheet depict the accounting
required by U.S. GAAP or, as applicable, IFRS-IASB for the transactions that
the pro forma financial information give effect.
3244.3 Calculate pro forma adjustments using the measurement date and
method prescribed by the applicable accounting standards. For a probable
transaction, calculate and disclose pro forma adjustments using the most
recent practicable date prior to the effective date (for registration
statements), qualification date (for offering statements under SAR 251 to
263 (Regulation A)), or the mail date (for proxy statements).
[S-X11-02(a)(6)(i)(A)]
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Note: What
constitutes the “most recent practicable date” is a
facts and circumstances determination. In addition
to disclosing the most recent practicable date, when
the acquisition consideration includes issuance of
the registrant’s stock, the explanatory notes of the
pro forma financial information should include a
sensitivity analysis for the range of possible
outcomes based upon percentage increases and
decreases in the recent stock price. The appropriate
percentages should be reasonable in light of the
acquirer’s stock price volatility.
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3244.4 Transaction Accounting
Adjustments to the pro forma condensed statements of comprehensive income
depict the effects of the pro forma condensed balance sheet Transaction
Accounting Adjustments assuming those adjustments were made as of the
beginning of the fiscal year presented, not the interim period presented.
Such adjustments must be made whether or not the pro forma condensed balance
sheet is presented (see Section 3220.1). If
the transaction does not have a balance sheet effect, then depict the
accounting for the transaction required by U.S. GAAP or IFRS–IASB, as
applicable. [S-X 11-02(a)(6)(i)(B)]
For example, if the business acquired is required to be accounted
for as a business combination under U.S. GAAP, then the Transaction
Accounting Adjustments on the pro forma condensed balance sheet
reflect the recognition of the identifiable assets acquired and
liabilities assumed (i.e., acquisition accounting) as prescribed by
U.S. GAAP. The Transaction Accounting Adjustments on the pro forma
condensed statement of comprehensive income reflect the effects of
acquisition accounting on the registrant’s statement of
comprehensive income as if the acquisition were consummated on the
first day of the fiscal year presented. A common transaction
accounting adjustment to the pro forma condensed statement of
comprehensive income will be depreciation and amortization.
3244.5 Disposition — Transaction
Accounting Adjustments giving effect to the disposition of a business must
not decrease historically incurred compensation expense for employees who
were not, or will not be, transferred or terminated as of the disposition
date. [S-X 11-02(b)(3)] Such terminations might be depicted as Management’s
Adjustments if they meet the requirement for presenting such
adjustments.
3244.6 Disclosure — The explanatory
notes that accompany pro forma financial information must disclose the
following for Transaction Accounting Adjustments [S-X 11-02(a)(11)(ii) and
11-02(a)(6)(i)(A)]:
- A table showing the total consideration transferred or received including its components and how they were measured.
- A description of the contingent consideration arrangement(s), if any, and the basis for determining the amount of payment(s) or receipt(s). Include an estimate of the range of outcomes (undiscounted) for the contingent consideration arrangements or, if a range cannot be estimated, that fact and the reasons why.
- For probable transactions, the most recent practicable date used to calculate pro forma adjustments. See Section 3244.3.
- For transactions when the accounting is
incomplete:
- A prominent statement to this effect;
- The incomplete items;
- A description of the information that the registrant requires, including, if material, the uncertainties affecting the pro forma financial information and the possible consequences of their resolution;
- An indication of when the accounting is expected to be finalized; and
- Other available information that will enable a reader to understand the magnitude of any potential adjustments to the measurements depicted.
3244.7 Examples — The following
transactions that often occur upon an IPO would be depicted using
Transaction Accounting Adjustments:
- Conversions of outstanding equity instruments into common stock.
- Vesting of share-based payment awards (e.g., performance condition is satisfied upon IPO).
- Change in tax status.
3245 Transaction Accounting Adjustments – Application
3245.1 Terminating Employees — The
termination of employees made redundant by a business acquisition is an
example of a cost synergy. Synergies from acquisitions and dispositions are
Management’s Adjustments rather than Transaction Accounting Adjustments. See
Section 3248.1.
3245.2 Acceleration of Stock-based
Compensation Vesting — Some share-based payment awards fully vest
upon successful completion of an IPO. Successful completion of an IPO is a
performance condition under ASC 718 that is not recognized until probable,
which often may be when the IPO occurs. Under S-X Article 11, pro forma
adjustments are required to give effect to material transactions triggered
by the IPO. The adjustment to record additional compensation expense in this
example would be a Transaction Accounting Adjustment.
3245.3 Goodwill Impairment — An
accounting acquirer or an accounting acquiree may have a goodwill impairment
in the historical periods presented in the pro forma financial statements.
Goodwill impairments related to an accounting acquirer should not be
eliminated. However, goodwill impairment of an accounting acquiree should be
eliminated through a Transaction Accounting Adjustment. Because the pro
forma condensed balance sheet gives effect to the accounting required by
U.S. GAAP and U.S. GAAP requires the elimination of an accounting acquiree’s
goodwill, the pro forma condensed statement of comprehensive income should
also include a Transaction Accounting Adjustment to eliminate an acquiree’s
historical goodwill impairment. For clarity, this only applies to goodwill
impairment of an accounting acquiree because U.S. GAAP requires elimination
of that goodwill. It does not apply to impairments of any other finite-life
or indefinite-lived assets or of financial assets.
3245.4 Costs of being a Public
Company — The costs of being a public company are future period
expenses that will be incurred for compliance with SEC rules and
regulations. They do not represent a transaction and therefore do not
qualify under S-X 11-01(a) for pro forma effect.
3245.5 Non-GAAP Performance Measure
— Question 101.05 of the C&DIs on non-GAAP measures indicates that if
reconciliation of a non-GAAP financial measure is required and the most
directly comparable measure is a “pro forma” measure prepared and presented
in accordance with S-X Article 11, companies may use that measure for
reconciliation purposes, in lieu of a U.S. GAAP financial measure. If pro
forma financial information includes both Transaction Accounting Adjustments
and Autonomous Entity Adjustments, reconcile to the pro-forma measure that
includes both types of adjustments. If pro forma financial information only
includes Transaction Accounting Adjustments, registrants should reconcile to
that total. Non-GAAP measures should not be reconciled to a total that
includes Management’s Adjustments.
3246 Autonomous Entity Adjustments
3246.1 Autonomous Entity Adjustments
are required if the registrant previously was a part of another entity, and
such presentation is necessary to reflect operations and financial position
of the registrant as an autonomous entity. [S-X 11-01(a)(7) and
11-02(a)(6)(ii)] Autonomous Entity Adjustments apply where the registrant is
being spun-off from its parent and is filing an initial registration
statement.
3246.2 Autonomous Entity Adjustments
are distinguished from Management’s Adjustments in that they give effect to
changes in the spinee’s costs resulting from agreements in place, such as
new lease arrangements or transition services agreements with its
spinor/parent. Changes in costs that are not evidenced by agreements in
place ordinarily would not be Autonomous Entity Adjustments but may be
synergies and dis-synergies of the spin-off that may, in the registrant’s
discretion, be presented as Management’s Adjustments if the applicable
conditions in S-X11-02(a)(7) are met.
3246.3 Autonomous Entity Adjustments must be presented on the face of
the pro forma financial information in a separate column from Transaction
Accounting Adjustments. [11-02(a)(6)(ii)]]
3246.4 Disclosure — The following
disclosure must be made for each Autonomous Entity Adjustment [S-X
11-02(a)(11)(iii)]
- A description of each Autonomous Entity Adjustment (including the material uncertainties),
- The material assumptions,
- The calculation of each Autonomous Entity Adjustment, and
- Additional qualitative information about the Autonomous Entity Adjustment, if any, necessary to give a fair and balanced presentation of the pro forma financial information.
3247 Autonomous Entity Adjustments — Application
3247.1 To illustrate application of Autonomous Entity Adjustments:
- The registrant is the business being spun-off and is filing a registration statement.
- The separate historical financial statements of the business being spun-off must include all costs of doing business. See Staff Accounting Bulletin 1:B.
- Those historical costs typically include allocations of the parent’s historical expenses.
- In spin-offs, the parent and the business being spun off often have an agreement in place that sets forth the terms of administrative and other services that the parent will continue to provide to the new registrant.
- Because the costs to be incurred in the agreement differ from the historical allocations of parent’s expenses to the business, an Autonomous Entity Adjustment is necessary to depict the registrant as an autonomous entity. That adjustment reflects the difference in cost between the agreement and the historical allocation.
- Importantly, the pro forma effect of the formal agreement would not qualify as a Transaction Accounting Adjustment; it must be shown in a separate column as an Autonomous Entity Adjustment.
3247.2 Disclosure — The requirement
to disclose additional qualitative information recognizes that there is
often a relationship between the transactions depicted in Autonomous Entity
Adjustments and the synergies and dis-synergies of a transaction. When a
registrant chooses not to disclose Management’s Adjustments depicting those
synergies and dis-synergies, additional qualitative information may be
necessary to give a fair and balanced presentation of the pro forma
financial information.
For example, a spinee will typically expect
to incur incremental costs in its corporate support functions (e.g.,
finance, accounting, tax, treasury, information technology, human
resources, legal). Some of those functions may be provided by the
former parent through a transition services agreement. To fulfill
the rest of those functions, the registrant may anticipate hiring
new employees. The transaction services agreement would be captured
by an Autonomous Entity Adjustment. The anticipated hiring would
represent a dis-synergy that could be disclosed as a Management’s
Adjustment if the applicable conditions in S-X11-02(a)(7) are met.
If the registrant chooses not to depict, or does not meet the
applicable conditions to depict, a Management Adjustment showing the
dis-synergy, the registrant’s required disclosure of additional
qualitative information about the Autonomous Entity Adjustment would
include, among other considerations, the need to hire additional
employees and clarification that those hirings are not depicted in
the pro forma financial information. Further, discussion and
analysis may be required in Management’s Discussion and Analysis
under its known uncertainty and other requirements. See Topic 9.
3248 Management’s Adjustments
3248.1 Management's Adjustments
depict synergies and dis-synergies of the acquisitions and dispositions for
which pro forma effect is being given. They may not be disclosed for other
transactions for which pro forma effect is being given, except that the
staff also permits disclosure of Management’s Adjustments for the autonomous
entity condition described in S-X 11-01(a)(7) provided that the conditions
for disclosure of Management’s Adjustments are met.
3248.2 Management’s Adjustments are
not mandatory but may be presented in the registrant’s discretion if: (A) in
its management's opinion, such adjustments would enhance an understanding of
the pro forma effects of the transaction and (B) the additional conditions
as to the Basis for Management's Adjustments and the Form of Presentation
described in S-X 11-02(a)(7) are met.
3248.3 Basis for Management’s
Adjustments – Reasonable Basis — The registrant must have a
reasonable basis for each Management’s Adjustment. Whether there is a
reasonable basis for a given Management’s Adjustment will require careful
consideration of the facts and circumstances of the specific company and
adjustment.
3248.4 Basis for Management’s
Adjustments – Limit Effect to Historical Amounts — Management’s
Adjustments are limited to the effect of such synergies and dis-synergies on
the historical financial statements that form the basis for the pro forma
condensed statement of comprehensive income as if the synergies and
dis-synergies existed as of the beginning of the fiscal year presented. If
such adjustments reduce expenses, the reduction must not exceed the amount
of the related expense historically incurred during the pro forma period
presented.
3248.5 Basis for Management’s
Adjustments – Fair Presentation — The pro forma financial
information must reflect all Management's Adjustments that are, in the
opinion of management, necessary to a fair statement of the pro forma
financial information presented, and a statement to that effect must be
disclosed.
3248.6 Basis for Management’s
Adjustments – Dis-synergies — If synergies are presented, any
dis-synergies must be separately presented; they should not be netted
against the synergies.
3248.7 Form of Presentation —
Reconciliation located in Explanatory Notes — Management’s
Adjustments are not permitted on the face of the pro forma financial
information. Instead, they must be shown separately in the explanatory notes
of the pro forma financial information in the form of two reconciliations:
(1) pro forma net income from continuing operations attributable to the
controlling interest and (2) the related pro forma earnings per share data
specified in S-X 11-02(a)(9) to each of the respective amounts after giving
effect to Management's Adjustments.
3248.8 Form of Presentation — Updating
to Most Recent Practicable Date — Management's Adjustments included
or incorporated by reference into a registration statement, proxy statement,
Regulation A offering statement, or Form 8–K should be as of the most recent
practicable date prior to the effective date, mail date, qualification date,
or filing date as applicable, which may require that they be updated if
previously provided in a Form 8–K that is appropriately incorporated by
reference. [See S-X 11-02(a)(7)(ii)(B) and Section
3244.3]
3248.9 Form of Presentation — EPS
Effect — If Management's Adjustments will change the number of
shares or potential common shares, reflect the change within Management’s
Adjustments in accordance with U.S. GAAP or IFRS– IASB, as applicable, as if
the common stock or potential common stock were outstanding as of the
beginning of the period presented.
3248.10 Form of Presentation —
Disclosure — The explanatory notes must also include disclosure of
the basis for and material limitations of each of Management's Adjustments,
including any material assumptions or uncertainties of such adjustment, an
explanation of the method of the calculation of the adjustment, if material,
and the estimated time frame for achieving the synergies and dis-synergies
of such adjustment. [S-X 11-02(a)(7)(ii)(D)]
3249 Management’s Adjustments — Application
3249.1 Non-recurring Costs to Achieve
Synergies — Such costs would be “dis-synergies” and should be
included in the pro-forma financial information as a Management’s
Adjustment. (See e.g., Release No. 33-10786 (May 20, 2020) at page 111.)
3249.2 Reconciliation — The form of
the reconciliation requirement discussed in Section
3248.7 precludes presenting the reconciliation in the form of a
statement of comprehensive income. For each synergy and dis-synergy
quantified, it is permissible to identify to which financial statement line
item each relates. Similarly, the amounts that give effect to Management’s
Adjustments require an appropriate label to clarify they are Management’s
Adjusted Pro Forma amounts, thereby distinguishing them from the Pro Forma
amounts from which they are derived.
3249.3 Presentation in Other Parts of
Filing — It is permissible for a registrant to present in other
parts of the filing both Management’s Adjusted pro forma net income from
continuing operations attributable to the controlling interest and
Management’s Adjusted pro forma earnings per share provided that the
registrant also presents with equal or greater prominence pro forma net
income from continuing operations attributable to the controlling interest
and pro forma earnings per share.
3249.4 Estimated Range — Management
may have different levels of confidence about different types of synergies
and dis-synergies and their transaction effects. If an estimated range is
necessary to understand the potential effects of one or more synergies or
dis-synergies, a range should be provided. Such disclosure is consistent
with the requirement in SX 11-02(a)(7)(i)(C) to reflect all Management’s
Adjustments that are, in the opinion of management, necessary to a fair
statement of the pro forma financial information presented. If a range is
disclosed, then at a minimum both ends of the range should be reconciled to
pro forma income from continuing operations attributable to the controlling
interests and to related per share data. Whether additional points within
the range require reconciliation will depend on the facts and
circumstances.
3249.5 Disclosure When Management’s
Adjustments are Not Presented — Termination of employees and closing
facilities are actions that may be taken in connection with business
acquisitions to eliminate costs perceived by management as redundant. When
Management’s Adjustments depicting such synergies and dis-synergies are not
presented, consideration should be given to whether the explanatory notes of
the pro forma financial information nonetheless should reflect narrative
discussion about such actions in order to make the pro forma financial
information not misleading. Similarly, consideration should be given to
whether other requirements, such as MD&A, require discussion and
analysis of how these actions (and other business integration activities not
specifically associated with the acquisition of a business) are expected to
impact the operations and liquidity of the newly combined companies going
forward.
3250 In Business Acquisitions
3250.1 The most common transaction for which pro
forma financial information is required is the acquisition of a business, as
defined in S-X 11-01(d) [S-X 3-05(a)(2), S-X 3-14(a)(2)]. Such acquisitions
are given pro forma effect through Transaction Accounting Adjustments, which
depict the accounting for the transaction required by U.S. GAAP or, as
applicable, IFRS-IASB, and in the registrant’s discretion, subject to
certain conditions, Management’s Adjustments.
3250.2 Conforming Accounting Policies of Acquiree — The
pro forma financial information should include Transaction Accounting
Adjustments to conform the accounting policies of the acquired business to
the policies of the registrant if the registrant would be required to
conform the accounting policies of the acquiree in the registrant's
consolidated financial statements after the business acquisition.
3250.3 Conforming Accounting Policies of
Acquiree — If a registrant adopts a new accounting standard as of a
different date and/or under a different transition method than a significant
acquired business, the registrant must conform the date and method of
adoption of the acquired business to its own in its pro forma financial
information. The staff will consider requests for relief from this
requirement.
3250.4 Transaction Expenses — The
Transaction Accounting Adjustment requirement to reflect pro forma
adjustments “assuming those adjustments were made as of the beginning of the
fiscal year presented” [S-X 11-02(a)(6)(i)(B)] depends on two factors:
- Whether transaction expenses are reflected in either the historical annual or interim periods used to depict the pro forma financial information or whether they are incurred after those periods; and
- Whether the transaction expense is incurred by the registrant or the acquiree.
3250.5 Transaction Expenses —
Registrant transaction expenses:
- If a registrant incurred transaction expenses in a historical period used to depict the pro forma financial information, then no pro forma adjustment to remove them or move them from the interim period to the annual period or from the annual period to the interim period should be made.
- If a registrant incurred transaction expenses after the annual (and when applicable, interim) historical periods used to depict the pro forma financial information, include a Transaction Accounting Adjustment to include them in the pro forma financial information for the annual period.
3250.6 Transaction Expenses —
Acquiree transaction expenses:
- If an acquiree incurred transaction expenses in a historical period used to depict the pro forma financial information, then no pro forma adjustment to remove them or move them from the interim period to the annual period or from the annual period to the interim period should be made.
- If an acquiree incurred transaction expenses after the historical periods used to depict the pro forma financial information, do not make a pro forma adjustment to include those expenses. The pro forma financial information gives effect to the registrant’s accounting for the transaction and the transaction expenses of the acquiree are not part of the registrant’s accounting.
3250.7 Significant Discounts Relative to
Historical Cost — In some transactions, such as in financial
institution acquisitions, measuring the acquired assets at their acquisition
date fair value may result in significant discounts relative to the acquired
business's historical cost of the acquired assets. When such discounts can
result in a significant effect on earnings (losses) in periods immediately
subsequent to the acquisition that will be progressively eliminated over a
relatively short period, the effect of the discounts on reported results of
operations for each of the next five years must be disclosed in a note. [S-X
11-02(b)(2)]
3250.8 Acquisition of an Investment
Accounted for Using the Equity Method — Because Transaction
Accounting Adjustments depict the accounting required by U.S. GAAP (or if
applicable, IFRS-IASB), the face of the pro forma financial information
giving effect to the acquisition of an investment accounted for using the
equity method should depict the registrant’s historical column, a pro forma
adjustment column, and a pro forma total column. The pro forma adjustment
column should depict the acquisition of the investment on the face of the
pro forma condensed balance sheet and the equity pickup on the face of the
pro forma condensed statement of comprehensive income.
Additional disclosure may be necessary in more complex
transactions. For example, when a subsidiary is spun-off and a percentage of
its shares contributed to a new registrant that will account for those
shares using the equity method, pro forma adjustment to the investee’s
historical financial statements may be needed (e.g., to give effect to new
transition services agreements stemming from the spinoff) in order to
determine the pro forma adjustment to the registrant’s statement of
comprehensive income to depict its equity pickup in the investee. When such
adjustments are needed, they should be depicted in an explanatory note,
rather than on the face, of the pro forma financial information, and they
may need to take the form of a columnar pro forma of the investee.
3250.9 Acquisition of an Equity Method
Investment Accounted for Using Fair Value Option — Where a limited
number of pro forma adjustments are required and those adjustments are
easily understood, S-X 11-02(a) permits a narrative description of the pro
forma effects of the transaction in lieu of the columnar presentation of pro
forma financial information. Such a narrative discussion, when the
registrant will elect the ASC 825 fair value option in lieu of applying the
equity method for an acquired investment described in Section 3250.10, should explain how the application of ASC 825
for the investment will impact the results of operations and balance sheet
in future periods.
3250.10 Useful lives — The expected
useful lives or amortization periods of significant assets acquired in a
business acquisition, including identified intangibles, should be disclosed
in a note to the pro forma financial statements. If amortization is not
straightline, the effect on operating results for the five years following
the acquisition should be disclosed in a pro forma financial information
explanatory note, if material.
3250.11 Disposal Required by Regulatory
Body — Either the registrant or its target may expect to dispose of
certain operations for a merger to gain the approval of one or more
regulatory agencies. The introductory paragraph and explanatory notes of the
pro forma financial information giving effect to the merger should, at a
minimum, disclose with appropriate prominence the circumstances surrounding
such expectations, any contingencies, and the reasonably possible impact on
the financial statements. The pro forma financial information depicting the
merger must depict in a separate column any disposal that is probable if the
operations are a business that is significant (see S-X 11-01(a)(4)) or not a
business but are material (see S-X 11-01(a)(8)). Pro forma financial
information giving effect to consummated disposals should be filed by
domestic registrants on Form 8-K if the disposition is significant under
Item 2.01 of Form 8-K.
3250.12 Contingent Consideration in
Updated Pro Forma Financial Information — When contingent
consideration classified as an asset or liability is remeasured to fair
value at each reporting date until the contingency is resolved, with changes
in fair value recognized in earnings, updated pro forma condensed statements
of comprehensive income filed with a new or amended registration statement
should not reflect any pro forma adjustments to give effect to changes in
the fair value of contingent consideration in periods different than those
in which such changes were recognized in the acquirer’s post-acquisition
financial statements. Pro forma financial information should include
transparent disclosure about the contingent consideration arrangement and
known changes in fair value.
3260 Pro Forma Presentations Reflecting Debt Financing
3260.1 Pro forma adjustments to reflect debt
financing are Transaction Accounting Adjustments that generally should be
based on either the current interest rate or the interest rate for which the
registrant has a commitment. If actual interest rates in the transaction can
vary from those depicted, disclosures of the effect on income of a 1/8
percent variance in interest rates should be disclosed.
3260.2 Although use of current or committed interest
rates is appropriate in most cases, careful consideration should be given to
the facts and circumstances specific to each presentation to determine
whether the interest rate used is reasonable. Certain limited circumstances
may warrant the use of an interest rate other than the current or committed
rate. In some instances, the staff believes that the registrant should use
the interest rates that were prevailing during the period covered by the pro
forma financial information.
For example: If a registrant purchases a business
whose assets comprise variable rate interest earning assets financed by
variable rate debt, it may be inappropriate to use current interest rates
for purposes of computing pro forma interest expense if historical income
amounts related to interest earning assets are reflected using interest
rates significantly different from current or committed rates.
When a rate other than the current or committed rate is used, prominent
disclosure of the basis of presentation and the anticipated effects of the
current interest rate environment should appear in the introductory
paragraph to the pro forma financial information and wherever pro forma
financial information is provided.
3270 Tax Effects
3270.1 Tax effects, if any, of pro forma adjustments
normally should be calculated at the statutory rate in effect during the
periods for which the pro forma condensed statements of comprehensive income
are presented and should be presented as a separate pro forma adjustment.
[S-X 11-02(b)(5)(i)] Companies are not prohibited from using different rates
if they are supportable. However, if taxes are not calculated on the basis
described in S-X 11-02(b)(5)(i), or if unusual effects of loss carryforwards
or other aspects of tax accounting are depicted, an explanation should be
provided in an explanatory note of the pro forma financial information.
3270.2 When the registrant’s historical statements of comprehensive income
do not reflect the tax provision on the separate return basis, pro forma
condensed statements of comprehensive income adjustments must reflect a tax
provision calculated on the separate return basis. [S-X11-02(b)(5)(ii)]
3280 Abbreviated Financial Statements [S-X 3-05(e)] and Financial Statements of a Business that Includes Oil and Gas Producing Activities [S-X 3-05(f)]
3280.1 Transaction Accounting
Adjustments or Autonomous Entity Adjustments should not include forward
looking information in a pro forma condensed statement of comprehensive
income presented (i) to give effect to the acquisition of either net assets
that constitute a business for which abbreviated historical financial
statements are permitted and presented pursuant to S-X 3-05(e) or (ii) for a
business that includes oil and gas producing activities pursuant to S-X
3-05(f). However, Management’s Adjustments may include forward-looking
information when the requirements of S-X 11-02(a)(7) are met. Limitations of
such pro forma condensed statements of comprehensive income should be
explained, including prominent disclosure that it is not indicative of
operations going forward because it necessarily excludes various operating
expenses. See Section 2935 for guidance about
form and content of abbreviated financial statements.
3300 Special Applications
3301 Combining Entities with Different Fiscal Years
3301.1 An acquired entity’s statement
of comprehensive income should be brought up to within one fiscal quarter of
the registrant’s fiscal year, if practicable. This could be accomplished by
adding subsequent interim results to the fiscal year’s data and deducting
the comparable preceding year’s interim results, with certain disclosure.
[S-X 11-02(c)(3)]
3301.2 If a domestic registrant
files a Form 8-K or registration statement for a business acquisition
transaction and the target company is a foreign private issuer or a foreign
business, the age of the pro forma financial information must be determined
by reference to S-X 3-12. Depending on the fiscal year ends of the domestic
registrant and the foreign target company, application of the age of
financial statement rules may require the foreign target company to include
a period in the pro forma financial information that would be more current
than its separate historical financial statements [Instruction 1 to S-X
11-02(c)(3)]. S-X Article 11 permits the ending date of the periods included
for the target company to differ from those of the registrant by one fiscal
quarter, which may provide sufficient relief. The staff also may permit
combinations of periods that involve overlaps or gaps in the information of
the target company of up to one fiscal quarter, provided that the resulting
annual and interim periods are of the same length required for the
registrant, and there are no overlaps or gaps in the registrant’s
information. However, the staff would not permit a registrant to omit an
interim pro forma presentation because of different fiscal periods.
3302 Historical Results Include Unusual Events [S-X 11-02(c)(4)]
3302.1 If unusual events enter the determination of
operating results presented for the most recently completed fiscal year, the
effect of such unusual events should be disclosed, and the registrant should
consider presenting an additional pro forma condensed statement of
comprehensive income for the most recent twelvemonth period if the most
recent twelve-month period is more representative of normal operations. The
effects of the unusual events ordinarily should not be eliminated from pro
forma data. The registrant may also consider filing a forecast in lieu of
pro forma condensed statements of comprehensive income [See S-X 11-03].
3303 Registrant’s Retrospective Adoption of an Accounting Policy [S-X 11-02(c)(2)(ii)]
3303.1 The registrant’s
retrospective application of a new accounting standard is not reflected in a
pro forma financial information period until such application has been
reflected in the historical financial statements for that period. However,
if the effect of the new standard on that prior fiscal year historical
information will be material, the registrant should make appropriate
disclosure to that effect in the explanatory notes of the pro forma
financial information.
For example, a calendar year-end
registrant adopts a new accounting standard on January 1 of the current
fiscal year that requires retrospective application. The new accounting
standard is reflected in the registrant’s historical financial statements
for the six months ending June 30 of the current fiscal year, but the
registrant has not yet reissued financial statements for the prior fiscal
year, thus those financial statements do not reflect the accounting change.
Nine months after January 1 of the current fiscal year the registrant makes
a significant acquisition. The required Form 8-K filing for the significant
acquisition includes pro forma financial information for the prior fiscal
year and the six months ending June 30 of the current fiscal year. The pro
forma financial information for the prior fiscal year would not reflect the
new accounting standard because it has not been reflected in the
registrant’s historical financial statement for that period. As such, only
the June 30 interim period for the current fiscal year pro forma financial
information would reflect the adoption of the new standard. If the effect of
the new standard on that prior fiscal year historical information will be
material, the registrant should make appropriate disclosure to that effect
in the explanatory notes of the pro forma financial information.
3304 Prohibition on Assuming Offering Proceeds
3304.1 Securities Act Rule 170
prohibits giving pro forma effect to the receipt or application of offering
proceeds unless certain conditions are met. See Sections 3304.2 and 3304.3. Section 3241 discusses pro forma EPS when
the requirements discussed below are met for giving pro forma effect to the
receipt of proceeds. If the registrant meets the requirements discussed
below to present pro forma financial information for the receipt of
proceeds, a registrant may only depict the use of proceeds if such a use is
a condition described in S-X 11-01(a). Because use for general corporate
purposes would not meet a condition in S-X 11-01(a), it would not be
appropriate to reflect use of proceeds indicated for general corporate
purposes or for similar activities that involve significant discretion or
uncertainty.
3304.2 Pro forma financial information may not reflect the receipt or
application of offering proceeds, except as follows:
- To the extent of a firm commitment from underwriter;
- To the extent of the minimum in a best-efforts minimum/maximum offering;
- In a best effort all or none offering; and
- Certain exceptions for savings and loan conversions.
3304.3 A similar prohibition applies to pro forma capitalization
tables, although the staff has allowed the following:
- In a minimum/maximum offering, presentation of both minimum and maximum; and
- In a rights offering or offerings of securities upon the exercise of outstanding warrants, may reflect proceeds to the extent exercise is likely in view of the current market price.
3305 Interest Income
3305.1 Interest income from the use
of proceeds from an offering or asset sale generally is not appropriate in
pro forma financial information.
3306 Sub-Chapter S Corporations and Partnerships
3306.1 If the issuer was formerly a Sub-Chapter S corporation
(“SubS”), partnership or similar tax-exempt enterprise, Article 11 pro forma
financial information should give effect to taxes in accordance with S-X
11-02(b)(5) and should be presented for the periods identified below:
- If Transaction Accounting Adjustments include more than adjustments for taxes, limit pro forma presentation to latest fiscal year and interim period
- If Transaction Accounting Adjustments include only taxes, pro forma presentation for all periods presented is encouraged, but not required.
3306.2 In filings for periods after
becoming taxable, pro forma presentations reflecting tax expense for earlier
comparable periods should continue to be presented for periods prior to
becoming taxable and for the period of change if the registrant elects to
present pro forma financial information for all periods pursuant to
3306.1(b). Such pro forma presentations should continue to calculate the pro
forma tax expense based on statutory rates in effect for the earlier
period.
3306.3 Undistributed earnings or
losses of a Sub-S registrant should be reclassified to paid-in capital in
the pro forma financial information. [SAB Topic 4B] Similarly, undistributed
earnings or losses of partnerships should be reclassified to paid-in capital
in the pro forma financial information. That presentation assumes a
constructive distribution to the owners followed by a contribution to the
capital of the corporate entity.
3306.4 Sub-S registrants or
partnerships that pay distributions to promoter-owners at the close or
effectiveness with proceeds of the offering (rather than out of retained
earnings) should consider the pro forma presentations specified in Section 3307.2.
3307 Distributions to Promoters/Owners at or Prior to Closing of an IPO [SAB Topic 1B.3]
3307.1 If a planned distribution to
owners, regardless of whether it has been declared or whether it will be
paid from proceeds, is not reflected in the latest historical balance sheet
but would be significant relative to reported equity, separate S-X Article
11 pro forma financial information reflecting the distribution accrual (but
not giving effect to the offering proceeds) should be presented unless such
pro forma effect of the distribution is required to be disclosed in
accordance with ASC 855. However, if there are other transactions for which
S-X Article 11 pro forma financial information is required, the pro forma
effects of such distribution must be presented in the S-X Article 11 pro
forma financial information.
3307.2 If a distribution to owners, regardless of
whether it is declared or whether it is reflected already in the balance
sheet, is to be paid out of proceeds of the offering rather than from the
current year's earnings, pro forma per share data should be presented (for
the latest year and interim period only) giving effect to the number of
shares whose proceeds would be necessary to pay the dividend (but only the
amount that exceeds current year's earnings) in addition to historical EPS.
The number of shares to be added to the denominator for purposes of pro
forma per share data should not exceed the total number of shares to be
issued in the offering. For purposes of this interpretation, a dividend
declared in the latest year would be deemed to be in contemplation of the
offering with the intention of repayment out of offering proceeds to the
extent that the dividend exceeded earnings during the previous twelve
months.
3308 Other Changes in Capitalization At or Prior to Closing of an IPO
3308.1 The historical balance sheet
and statement of comprehensive income (including EPS) should not be revised
to reflect modifications of the terms of outstanding securities that become
effective after the latest balance sheet date, although S-X Article 11 pro
forma financial information may be necessary.
3308.2 If terms of outstanding equity
securities will change subsequent to the date of the latest balance sheet
and the new terms result in a material change in equity or, if redemption of
a material amount of equity securities will occur in conjunction with the
offering, S-X Article 11 pro forma financial information giving effect to
the change in capitalization (excluding effects of offering proceeds) should
be presented.
3308.3 If the conversion of
outstanding securities will occur subsequent to the latest balance sheet
date and the conversion will result in a material change in earnings per
share (excluding effects of offering), S-X Article 11 pro forma EPS for the
latest year and interim period should give effect to the conversion (but not
the offering). The number of shares used to compute pro forma EPS should
include the number of common shares into which the securities will convert
as if they were outstanding as of the beginning of the most recently
completed fiscal year presented in the Article 11 pro forma financial
information, irrespective of when the convertible instrument was issued. See
Section 3620 for additional guidance
related to financial statements issued after an IPO.
3309 Pro Forma Requirements for Real Estate Operations
3309.1 Pro forma presentations should not include the
effects of real estate operations for periods prior to actual construction
of the real property.
3400 [Reserved]
3500 Financial Forecasts In Lieu of Certain Pro Forma Financial Information [S-X 11-03]
3510 Alternative to S-X Article 11 Pro Forma Condensed Statements of Comprehensive Income
3510.1 Financial forecasts may be
presented in lieu of pro forma condensed statements of comprehensive income
required by S-X Article 11. They may not be presented in lieu of pro forma
financial information required by U.S. GAAP or IFRS–IASB. See Section 3610.
3510.2 All forecasts presented in
lieu of pro forma condensed statements of comprehensive income must comply
with the requirements of S-X 11-03 and the requirements for projections in
S-K 10(b). They must also be presented in accordance with the guidelines
established by the American Institute of Certified Public Accountants.
3510.3 S-K 10(b) requires that management have a reasonable basis for
the assumptions underlying their prospective financial statements and that
such information is presented in an appropriate format. Similarly, the
AICPA’s guide, “Prospective Financial Information,” requires these
assumptions to be reasonable and suitably supported. The level of support
should be persuasive. [See section 6.36 of the AICPA’s guide, July 15, 2021
edition.] Support for assumptions might include market surveys; general
economic indicators; trends and patterns developed from the entity’s
operating history, such as historical sales trends; and internal data and
analyses, such as obligations under union contracts for labor rates. An
absence of adequate support may preclude a registrant from including
prospective financial statements in the filing. The period that
appropriately may be covered by a projection depends to a large extent on
the particular circumstances of the company involved. For certain companies
in certain industries, a projection covering a two- or three-year period may
be reasonable. Other companies may not have a reasonable basis for
projections beyond the current year. Accordingly, management should select
the period most appropriate in the circumstance.
3600 Other
3610 Pro Forma Disclosures Required by GAAP
3610.1Certain pro forma disclosures are required by GAAP (e.g.,
ASC
805) and should be provided where applicable. Those
presentations may differ in style and content from the requirements of S-X
Article 11.
3620 Filings Subsequent to an IPO
3620.1 Pro forma basic EPS reflecting the
conversion of preferred stock into common stock at the IPO date (see Section 3308.3) should not be presented in
historical financial statements for pre-IPO periods issued after the IPO. If
the required historical financial statements in a filing to which S-X
Article 11 applies do not yet depict the completed IPO, S-X Article 11 pro
forma financial information may be required.