Chapter 4 — Pro Forma Financial Information

4.3 Periods to Be Presented in Pro Forma Financial Information

Article 11 specifies the periods to be presented in the pro forma balance sheet and the pro forma income statements. The registrant should use its fiscal year when presenting pro forma financial information.

4.3.1 Pro Forma Balance Sheet

Rule 11-02(c)(1) indicates that a pro forma balance sheet should be presented “as of the end of the most recent period for which a consolidated balance sheet of the registrant is required by [Rule 3-01] unless the transaction is already reflected in such balance sheet.”

Therefore, a pro forma balance sheet should be presented for only the most recent balance sheet included in or incorporated by reference into the SEC filing (i.e., one pro forma balance sheet as of the end of the most recent fiscal year or the end of the subsequent interim period, whichever is later). A pro forma balance sheet is not required, however, if the registrant’s most recent historical balance sheet included in the filing already reflects the consummated transaction (e.g., the transaction occurred before the balance sheet date).

In determining the pro forma balance sheet to present in a Form 8-K, the registrant should consider the requirements in Rule 3-01 related to the consolidated balance sheet as of the date of the initial filing of the Form 8-K, not as of the filing date of the amendment, which may be filed within 71 calendar days. However, a registrant that files a more recent Form 10-K or Form 10-Q between the date of the initial filing of the Form 8-K and the subsequent amendment may elect, but is not required, to use the more recent historical balance sheet included in the recently filed Form 10-K or Form 10-Q.

4.3.2 Pro Forma Income Statements

Rule 11-02(c)(2)(i) indicates that pro forma income statements should be presented for “only the most recent fiscal year. . . and for the period from the most recent fiscal year end to the most recent interim date for which a balance sheet is required” by Rule 3-01 (except as noted below). Rule 11-02(c)(2)(i) also permits, but does not require, a pro forma income statement for the comparative interim period of the previous fiscal year. Generally, for an acquired business, the periods included in the pro forma income statement would reflect the same number of months as those of the registrant unless the acquisition is already reflected in the historical results of the registrant for part, but not all, of a required period. However, as clarified in paragraph 3230.1 of the FRM, a pro forma income statement is not required when the historical income statement already reflects the transaction for the entire period. Therefore, pro forma income statements should be based on the registrant’s latest fiscal year and subsequent interim period unless the transaction is already reflected in the registrant’s audited historical statements for the most recent full fiscal year.

In addition, Rule 11-02(c)(4) indicates that a registrant may supplementally present an additional pro forma income statement for the most recent 12-month period whenever unusual events occur during the most recent fiscal year.

In limited circumstances, pro forma income statements are required for all periods presented. Rule 11-02(c)(2)(ii) states, in part:

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 statements of comprehensive income must be filed for all periods for which historical financial statements of the registrant are required.

When a pro forma income statement is required for all periods presented, the annual pro forma income statements must match the annual periods presented by the registrant in its historical financial statements (i.e., two or three annual periods). For a transaction that is required to be accounted for as a combination of entities under common control, the pro forma income statements are required for the annual periods and, if needed, any interim period (1) presented by the registrant and (2) in which the entities were under common control.

When pro forma financial information reflects the accounting for a common-control transaction or a discontinued operation, it may also reflect additional transactions such as a debt refinancing or an unrelated significant business acquisition or disposition. These additional transactions should be presented in the pro forma income statements for only the most recent fiscal year and subsequent interim period. The pro forma income statements for the earliest two annual periods (or earliest annual period for an SRC) should not include adjustments for the accounting for these additional transactions and should only reflect the accounting for the common-control transaction or the discontinued operation. The results reflected in the pro forma income statements for the earliest two annual periods (or earliest annual period for an SRC), excluding the effects of any transaction accounting adjustments related to the additional transactions, should be consistent with the registrant’s retrospectively revised annual income statements when they are required to be presented in a subsequent SEC filing (e.g., in a Form 8-K or in the registrant’s subsequent Form 10-K).

Example 4-5

Registrant A, a large accelerated filer, acquired Company B on September 1, 20X3. On the basis of the significance of this business acquisition, A determines that B’s separate preacquisition financial statements and pro forma financial information must be filed on a Form 8-K.

On September 4, 20X3, A filed an initial Form 8-K within four business days, as required, and must amend the Form 8-K within 71 calendar days (amended Form 8-K) to include B’s separate preacquisition financial statements and pro forma financial information.

Under Rule 11-02(c)(1), a pro forma balance sheet must be included as of the end of the most recent period required for the registrant at the time of the initial Form 8-K filing (i.e., June 30, 20X3). Rule 11-02(c)(2)(i) requires registrants to provide pro forma income statements for their most recent fiscal year and interim period.

Registrant A therefore has two options for presenting the pro forma financial information:

On the basis of its June 30 interim financial statements — Registrant A would provide a pro forma balance sheet as of June 30, 20X3, and pro forma income statements for the six-month period ended June 30, 20X3, and the year ended December 31, 20X2. Because the pro forma financial information would only reflect periods before the transaction, a separate column for B would be shown for all periods.
On the basis of its September 30 interim financial statements — Registrant A would have the option, but would not be required, to base the pro forma financial information on the September 30, 20X3, financial information provided that it files its Form 10-Q for the quarter ended September 30, 20X3, before filing its amended Form 8-K to include the pro forma financial information. If A elects this option, it is not required to include a pro forma balance sheet in its amended Form 8-K because its historical September 30, 20X3, balance sheet already reflects the accounting for the acquisition of B. However, A must provide pro forma income statements for the nine months ended September 30, 20X3, and the year ended December 31, 20X2. The pro forma income statement for the year ended December 31, 20X2, would include a separate column for B’s results for the entire period. The pro forma income statement for the interim period would include a separate column for B’s results for the period from January 1, 20X3, to September 1, 20X3 (the acquisition date), since B’s results are already included in A’s financial information from September 1, 20X3, onward.

Example 4-6

Assume the same facts as in the previous example, except that Registrant A acquired Company B on October 5, 20X3, and has elected to include a pro forma balance sheet as of September 30, 20X3, in the amended Form 8-K to reflect the accounting for the acquisition of B. A pro forma balance sheet is required because A’s historical September 30, 20X3, balance sheet does not reflect the accounting for the acquisition of B.

Registrant A would need to include pro forma income statements for the year ended December 31, 20X2, and the nine-month period ended September 30, 20X3, including a separate column for B’s results for the entire nine-month period.

Example 4-7

Assume the same facts as in Example 4-6, except that the acquisition of Company B is considered a reorganization of entities under common control, and common control existed for all periods presented.

In this scenario, A has elected to include a pro forma balance sheet as of September 30, 20X3, in the amended Form 8-K to reflect the accounting for the acquisition of B. A pro forma balance sheet is required because A’s historical September 30, 20X3, balance sheet does not reflect the accounting for the reorganization.

Registrant A would need to include pro forma income statements for each of the three years in the period ended December 31, 20X2, and for the nine-month period ended September 30, 20X3, including a separate column for B’s results for the entire period.

4.3.3 Updating Pro Forma Financial Information in a Registration Statement or Proxy Statement

A registrant may need to update pro forma financial information if it subsequently files (or amends) a registration or proxy statement. This is the case even if the acquiree’s separate preacquisition financial statements do not need to be updated.

4.3.3.1 Pro Forma Balance Sheet

A pro forma balance sheet should be presented as of the registrant’s most recent balance sheet date included or incorporated by reference in the registration statement (unless the transaction is already reflected in the historical balance sheet) or in the proxy statement.

4.3.3.2 Pro Forma Income Statement

Pro forma income statements should generally be presented for the registrant’s most recent fiscal year and interim period included or incorporated by reference in the registration statement (unless the business acquisition has already been included for the entire period of the audited historical income statement for the most recent full fiscal year and the entire subsequent interim period) or in the proxy statement. If required, the updated pro forma income statement in the registration or proxy statement should include, as applicable, historical financial information for the acquiree up to the date of acquisition or the most recent historical financial information included or incorporated by reference if the business acquisition has not yet been consummated.

The pro forma income statement should be updated in certain cases to reflect the results of the acquiree for the entire period presented (annual and interim if applicable) as illustrated in Example 4-8.

Example 4-8

On December 2, 20X3, Registrant R, a calendar-year-end company, files a registration statement on Form S-3. The registration statement includes or incorporates by reference R’s (1) historical audited financial statements as of December 31, 20X2 and 20X1, and for each of the three years in the period ended December 31, 20X2, and (2) unaudited interim financial statements as of September 30, 20X3, and for the nine-month periods ended September 30, 20X3 and 20X2.

On March 15, 20X3, R acquires Company B, a calendar-year-end accelerated filer. The transaction is a significant business acquisition (at the 30 percent level) for R. On March 19, 20X3, R files an initial Form 8-K announcing the acquisition of B.

On May 28, 20X3, on the basis of the significance of this business acquisition, R files an amended Form 8-K with the required audited separate preacquisition financial statements of B as of and for the year ended December 31, 20X2, and pro forma financial information as of and for the year ended December 31, 20X2.

In the registration statement filed on December 2, 20X3, R would incorporate by reference the initial Form 8-K filed on March 19, 20X3, and the amended Form 8-K filed on May 28, 20X3. It must also incorporate its most recent historical financial statements included in its Form 10-Q for the quarter ended September 30, 20X3, in the registration statement in accordance with Rule 3-12. However, R is not required to update the separate preacquisition financial statements of B because (1) the acquisition was consummated on March 15, 20X3, and (2) the intervening period between December 31, 20X2 (the end of R’s most recent fiscal year completed before the acquisition), and March 15, 20X3 (the acquisition date), is not a complete quarter.

To comply with Rule 11-02(c) in the registration statement, R must update the pro forma financial information previously included in the amended Form 8-K. Since the business acquisition is already reflected in R’s historical balance sheet as of September 30, 20X3, a pro forma balance sheet is not required. However, R must provide an updated pro forma income statement for the nine-month period ended September 30, 20X3, because the transaction is only reflected in R’s historical income statement from March 15, 20X3, to September 30, 20X3. As a result, R’s income statement for the nine-month period ended September 30, 20X3, would be combined with B’s income statement from January 1, 20X3, through the acquisition date (March 15, 20X3).

4.3.3.3 Updating Adjustments

In general, each time a registrant presents pro forma financial information, it should ensure that any adjustments reflect the best information available at the time. For example, a registrant may file pro forma financial information before the close of a transaction (e.g., in a Form S-4 related to a probable acquisition). When the transaction subsequently closes, if the Form S-4 does not include substantially the same information as that required in the Form 8-K reporting the consummation of the transaction, the registrant must provide updated pro forma financial information. The registrant would need to consider updating the adjustments reflected not only for a change in the periods presented but also for additional information that may now be available (e.g., a more complete allocation of the consideration transferred).

A registrant may use a prospectus supplement for currently effective registration statements (e.g., an existing Form S-3) upon which it wishes to draw down or issue securities. A domestic registrant is not obligated to amend the prospectus other than as specified by Section 10(a)(3) of the Securities Act and Regulation S-K, Rule 512(a), both of which require an update for any “fundamental change in the information set forth in the registration statement” (emphasis added). Thus, a registrant is not required to update the pro forma financial information that was previously included in the existing registration statement on Form S-3 unless there has been a fundamental change. It is the responsibility of management, in consultation with SEC legal counsel, to determine what constitutes a fundamental change.

If presented, management’s adjustments (as described in Section 4.4.4), included or incorporated by reference in a registration or proxy statement, must be updated.

4.3.4 Updating Pro Forma Financial Information in a Form 8-K for a Significant Business Acquisition Previously Included in a Registration or Proxy Statement

A registrant may have previously filed a registration or proxy statement that included (1) separate preacquisition financial statements of an acquiree in a probable acquisition and (2) pro forma financial information related to the transaction. Upon consummation of the business acquisition, the registrant must comply with the applicable Form 8-K filing requirements to report the significant business acquisition. As discussed in Section 2.5.3.1, if the information reported in a registration or proxy statement is “substantially the same” as that required in the Form 8-K, such information may be omitted from the Form 8-K.

While there is no separate SEC interpretive guidance on making this determination, we believe that registrants should evaluate the “substantially the same” criteria with respect to the pro forma financial information in a manner consistent with their evaluation of the criteria for the acquiree preacquisition financial statements. When performing this evaluation, registrants should also consider whether there was a material change in the underlying assumptions used (e.g., a material change to the consideration transferred), including management’s adjustments (if applicable) (as described in Section 4.4.4) that would cause the previously filed pro forma financial information to be materially incorrect or potentially misleading.

In addition, a registrant may choose to file updated pro forma financial information in a Form 8-K so that it can be incorporated by reference into an effective shelf registration statement or a new registration statement.

Example 4-9

Registrant R, a calendar-year-end company, entered into an agreement to purchase Company B, also a calendar-year-end company. On June 1, 20X3, R filed a registration statement on Form S-4 to register the securities being offered to the shareholders of B.

The financial statement requirements for the Form S-4 were determined to be both R’s and B’s (1) separate historical audited financial statements as of December 31, 20X2 and 20X1, and for each of the three years in the period ended December 31, 20X2, and (2) unaudited interim financial statements as of March 31, 20X3, and for the three-month periods ended March 31, 20X3 and 20X2.

The Form S-4 also included a pro forma balance sheet as of March 31, 20X3, and pro forma income statements for the year ended December 31, 20X2, and the three-month period ended March 31, 20X3. The transaction was consummated on October 1, 20X3, and a Form 8-K reporting the acquisition was filed in a timely manner.

Because of the requirements related to the age of the financial statements and the fact that the transaction was consummated on October 1, 20X3, R would normally need to provide B’s separate interim financial statements through June 30, 20X3, in the Form 8-K. However, since B’s unaudited interim financial statements as of March 31, 20X3, and for the three-month periods ended March 31, 20X3, and 20X2, were previously included in a registration statement (filed on June 1, 20X3), the information may be deemed substantially the same as that required in the Form 8-K because the omitted period of B (i.e., April 1, 20X3, through June 30, 20X3) is less than two quarters (see Section 2.5.3.1). In the absence of significant events, B’s interim financial statements as of and for the six-month period ended June 30, 20X3, may be omitted from the Form 8-K. In the same manner, R does not have to provide pro forma financial information for the business acquisition in the Form 8-K or in an amendment thereto.

Note, however, that if the acquisition was consummated on December 1, 20X3, R would have to provide (1) B’s updated interim financial statements as of and for the nine-month period ended September 30, 20X3, to satisfy the requirements related to the age of the financial statements and (2) the related pro forma financial information in the Form 8-K (or in an amendment thereto). Otherwise, operating results for two or more interim quarters would be omitted (i.e., the quarters ended on June 30, 20X3, and September 30, 20X3) and the previously filed financial statements of B and pro forma financial information included in the Form S-4 on June 1, 20X3, would therefore not be deemed substantially the same as the information needed in the Form 8-K reporting the completion of the acquisition.

Example 4-10

Registrant R, a calendar-year-end company, enters into an agreement to acquire Company B, also a calendar-year-end company. On December 15, 20X3, R files a registration statement on Form S-4 to register the securities being offered to B’s shareholders.

The financial statement requirements for the Form S-4 were determined to be both R’s and B’s (1) separate historical audited financial statements as of December 31, 20X2 and 20X1, and for each of the three years in the period ended December 31, 20X2, and (2) unaudited interim financial statements as of September 30, 20X3, and for the nine-month periods ended September 30, 20X3 and 20X2.

The Form S-4 also included a pro forma balance sheet as of September 30, 20X3, and pro forma income statements for the year ended December 31, 20X2, and the nine-month period ended September 30, 20X3. The transaction was consummated on April 1, 20X4, and a Form 8-K reporting the completion of the acquisition was filed in a timely manner.

Registrant R must amend the Form 8-K within 71 calendar days to include (1) B’s updated audited financial statements for the year ended December 31, 20X3, and (2) updated pro forma financial information as of and for the year ended December 31, 20X3. Otherwise, pro forma financial information for the most recent annual period would be omitted and, therefore, the pro forma financial information previously included in the Form S-4 would not be deemed to be substantially the same as the information needed in the Form 8-K. See Section 2.5.3.1.

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