3.1 Introduction

Separate preacquisition financial information is required by Regulation S-X only if the acquiree (1) meets the definition of a business (for acquisitions within the scope of Rule 3-05) or (2) is a real estate operation (for acquisitions within the scope of Rule 3-14) for SEC reporting purposes. Therefore, a registrant must carefully evaluate one of the following:

• The requirements in Regulation S-X, Rule 11-01(d), to determine whether an acquisition represents a business for SEC reporting purposes.
• The requirements in Regulation S-X, Rule 3-14(a)(2), to determine whether the acquired business represents a real estate operation for SEC reporting purposes.

SRCs apply Regulation S-X, Rule 8-04, instead of Rule 3-05 (for the acquisition of a business, other than real estate operation) and Regulation S-X, Rule 8-06, instead of Rule 3-14 (for the acquisition of a real estate operation). Rules 8-04 and 8-06 have the same requirements as Rules 3-05 and 3-14, respectively, except that references to Regulation S-X, Rules 3-01 and 3-02, are replaced by references to Regulation S-X, Rules 8-02 and 8-03, for SRCs.

Rule 3-05 generally requires a registrant to provide full1 financial statements for significant acquired or to be acquired businesses. However, for significant real estate operations that are acquired or to be acquired, Rule 3-14 permits a registrant to file only statements of revenues and expenses (known also as “abbreviated income statements” or “abbreviated financial information”). Rule 3-14(c)(1) states that such statements may exclude “expenses not comparable to the proposed future operations such as mortgage interest, leasehold rental, depreciation, amortization, corporate overhead and income taxes.” In addition to the statements of revenues and expenses, pro forma financial information is also required.

Given the differences between the form and content requirements of Rules 3-05 and 3-14, including the nature of the significance tests, it is important for a registrant to determine whether it has or will acquire a real estate operation that is within the scope of Rule 3-14 or a business that is within the scope of Rule 3-05. See Section 3.6 for a summary of key differences between Rules 3-05 and 3-14.