4.2 Form and Content of Pro Forma Financial Information

Pro forma income statements may be presented in condensed form in a manner similar to the presentation of interim financial statements required in Form 10-Q under Article 10. Captions in the pro forma income statements should reflect the major (i.e., numbered) captions in Regulation S-X, Rules 5-03, 6-07, 7-04, and 9-04. Rule 11-02(a)(3) states, in part:

Rule 11-02(a)(5) requires registrants to present, in the pro forma income statement, income from (1) continuing operations and (2) continuing operations attributable to controlling interests. Discontinued operations should not be reflected in the pro forma financial information (i.e., the “bottom line” in the historical and pro forma columns should be income from continuing operations). Historical and pro forma earnings per share should be presented on the basis of income from continuing operations (or net income if the registrant does not report discontinued operations), and the number of shares used to compute such amounts should be disclosed.

If only one variable may change in the transaction, a registrant may consider disclosing just a sensitivity analysis rather than multiple sets of pro forma financial information. The sensitivity analysis presented should give an indication of the potential impact on the pro forma financial information for an appropriate incremental fluctuation in the variable that may change. For example, in a business acquisition, the final consideration transferred may not be known at the time the pro forma information is prepared. However, the ultimate resolution of the consideration may only affect cash and goodwill, in which case the sensitivity analysis could be disclosed in narrative form in lieu of separate pro forma presentations.

If a transaction is structured in such a way that significantly different outcomes could occur, a registrant should carefully analyze the facts and circumstances when determining how to present pro forma financial information and whether additional pro forma presentations are necessary.

At the 2022 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC staff noted that Rule 11-02(a)(10) is commonly applied to merger transactions that involve a SPAC but that it may be broadly applicable to other types of transactions. The staff also indicated that if there is a range of possible results for which pro forma information must be presented, the introductory paragraph required under Rule 11-02(a)(2) should be consistent and include the relevant facts and circumstances for each possible outcome as well as highlight the purpose of the presentations for investors.

This adjustment is generally accomplished by adding subsequent interim-period results to the acquiree’s most recent fiscal-year-end information and deducting the comparable preceding year interim-period results to create a 12-month period ending within one quarter of the registrant’s most recent fiscal year-end. The number of months included for the acquiree’s historical operations should generally match the number of months included for the registrant’s historical operations. It is usually not appropriate, for example, to include 11 months of historical preacquisition operations for the acquiree if 12 months of the registrant’s preacquisition operations are included in the pro forma income statement. Since the acquiree’s historical income statements will typically include the same number of months as the registrant’s income statements, there may be an overlapping period in the acquiree’s historical income statement for both the fiscal year and interim period, or an omitted period will be excluded from both. For example, the historical financial information of the acquiree for a specific quarter might be included in both the annual and interim pro forma information, or excluded from both. See Example 4-1.

Under Rule 11-02(c)(3), the notes to the pro forma financial information should disclose (1) the periods combined and (2) the sales or revenues and income for any periods that were excluded or included more than once (e.g., an interim period that is included both as part of the fiscal year information and the subsequent interim period). Note that in circumstances in which different fiscal year-ends exist and the acquiree is a foreign business, a domestic registrant may be required to include a historical period for the foreign business acquiree that would be more current than the periods included in the required historical financial statements of the foreign business acquiree.