4.1 Pro Forma Financial Information Required in SEC Filings

To allow investors to understand and evaluate the impact of a transaction (or group of transactions), pro forma financial information depicts the accounting treatment for such transaction to show how it might have affected the registrant’s historical financial position and results of operations. Under Regulation S-X, Article 11, a registrant may be required to provide pro forma financial information in several circumstances, including those in which:

• “[A] significant business acquisition has occurred” or is probable (see Section 2.1 for discussion of what constitutes a business acquisition and Section 2.2 for discussion of identifying a probable business acquisition).
• “The disposition of a significant portion of a business . . . has occurred or is probable.”
• “The registrant previously was a part of another entity and [presentation of pro forma financial information] is necessary to reflect operations and financial position of the registrant as an autonomous entity.”

Similarly, pro forma financial information is required for consummated or probable acquisitions and dispositions of real estate operations (see Chapter 3 for more information). However, as indicated in paragraph 3309.1 of the FRM, “[p]ro forma presentations should not include the effects of real estate operations for periods prior to actual construction of the real property.”

In addition, as described in paragraph 3160.3 of the FRM, pro forma financial information is required when a “registrant [increases] its investment in an entity that is already reflected as a consolidated subsidiary.” That paragraph further notes that although Rule 11-01(c) does not require pro forma financial information for a business acquisition if the financial statements of the acquired business are not presented, “pro forma financial information giving effect to the additional investment in the entity would be required pursuant to [Rule] 11-01(a)(8) if it would be material to the registrant’s investors.”

Beyond the acquisition or disposition transaction itself, Article 11 addresses other transactions for which pro forma financial information would be material to an investor. For example, a registrant may issue new debt or equity securities before an acquisition to fund the purchase. While such a financing transaction would not be accounted for specifically as part of the acquisition, it would generally be material to an investor within the context of the acquisition transaction and thus included in the pro forma financial information.

In certain circumstances, pro forma financial information may need to reflect multiple outcomes or transactions, such as a probable business acquisition along with the acquisition of another business during the fiscal year or subsequent interim period. Registrants must consider their specific facts and circumstances to determine whether pro forma financial information is meaningful to an investor and, if so, the appropriate manner of presenting it.

While the guidance in this chapter primarily addresses pro forma financial information for a consummated or probable business acquisition, much of it also applies to other transactions, such as the disposition of a significant portion of a business. However, when preparing pro forma financial information for transactions other than consummated or probable business acquisitions, registrants should also consult other relevant guidance (e.g., Section 8.5 of Deloitte’s Roadmap Impairments and Disposals of Long-Lived Assets and Discontinued Operations for considerations related to presenting pro forma financial information for significant consummated or probable business dispositions).

The types of SEC filings in which a registrant may be required to present pro forma financial information for a significant consummated or probable business acquisition include:

• Forms 8-K.
• Registration statements.
• Proxy statements.
• Prospectus supplements.

It is important to remember that neither Form 10-K nor Form 10-Q require pro forma financial information under Article 11. However, a registrant’s notes to the financial statements must include revenue and earnings of the combined entity as though the business combination had occurred as of the beginning of the comparable prior annual reporting period (i.e., supplemental pro forma data) as required by U.S. GAAP under ASC 805. Note further that this Roadmap does not provide guidance on U.S. GAAP requirements for supplemental pro forma data; for that guidance, readers should refer to ASC 805 and Section 7.9 of Deloitte’s Roadmap Business Combinations.

The form and content of pro forma financial information is discussed in Section 4.2, and the periods to be presented are discussed in Section 4.3. The guidance in Section 4.4 addresses pro forma adjustments, which may fall into three categories: transaction accounting adjustments, autonomous entity adjustments, and management’s adjustments. See also Appendix A for examples of the pro forma financial information a registrant may be required to disclose under Regulation S-X for a significant consummated business acquisition.

Pro forma financial information for a consummated or probable business acquisition is generally required whenever the separate preacquisition financial statements of a significant acquiree must be provided. Thus, as stated in paragraph 3110.5 of the FRM, the “pro forma financial information should be filed at the same time the audited financial statements of the acquired business are filed” because the acquiree’s preacquisition financial statements can be misleading without the accompanying pro forma financial information. However, in certain circumstances (see Section 4.5), pro forma financial information may be required even when separate preacquisition financial statements are not necessary. See Section 2.4 for further discussion of whether and, if so, in which filings separate preacquisition financial statements of a significant acquiree are required.