4.3 Periods to Be Presented in Pro Forma Financial Statements
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 statements.
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 the filing (i.e., one pro forma
balance sheet as of the end of the fiscal year or 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 the date of the amendment, which may be filed within
71 calendar days. However, a registrant that files a more recent Form 10-Q or
Form 10-K 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 balance sheet included in the recently filed Form 10-Q or Form
10-K.
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 presentation for
the comparative interim period of the previous fiscal year. A pro forma income
statement does not, however, need to be presented “when the historical statement
of comprehensive income reflects the transaction for the entire period.” Rather,
the 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 and subsequent interim period.
In addition, Rule
11-02(c)(4) indicates that a registrant may supplementally
present an additional pro forma condensed 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 a combination of entities under
common control, the pro forma income statements are required for the annual
periods (1) presented by the registrant and (2) in which the entities were under
common control.
When pro forma financial statements give effect to a common-control transaction
or a discontinued operation, they may also give effect to additional
transactions such as a debt refinancing or an unrelated significant 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 these additional transactions and should only give effect to the
common-control transaction or the discontinued operation. The results of the pro
forma income statements for the earliest two annual periods (or earliest annual
period for an SRC) should be consistent with the registrant’s retrospectively
revised annual income statements when they are required to be presented in a
subsequent filing (e.g., in a Form 8-K or in the registrant’s subsequent Form
10-K).
Example 4-5
Registrant A acquired Company B on
September 1, 20X3. On the basis of the significance of
this acquisition, A determines that B’s separate
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 to
include the historical 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)
unless the balance sheet already reflects the
transaction. Rule 11-02(c)(2)(i) requires registrants to
provide a pro forma income statement for their most
recent fiscal year and interim period unless the
transaction has been reflected in the historical income
statement for the entire 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 months 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 not the obligation, to base the pro forma financial information on the September 30, 20X3, financial information provided that its Form 10-Q is filed before the Form 8-K is amended to include pro forma financial information. If A elects this option, it is not required to include a pro forma balance sheet in its Form 8-K because its historical September 30, 20X3, balance sheet already reflects 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 date of acquisition. Company B’s results are 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 Form 8-K to reflect the
acquisition of B. A pro forma balance sheet is required
because A’s historical September 30, 20X3, balance sheet
does not reflect 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 period.
Example 4-7
Assume the same facts as in the previous example, except
that the acquisition of Company B is considered a
reorganization of entities under common control for all
periods presented.
In this scenario, A has elected to include a pro forma
balance sheet as of September 30, 20X3, in the Form 8-K
to reflect the acquisition of B. The pro forma balance
sheet is required because A’s historical September 30,
20X3, balance sheet does not reflect the
reorganization.
Registrant A would need to include pro forma income
statements for the years ended December 31, 20X2, 20X1,
and 20X0, 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 historical financial statements do not need to
be updated under Rule 3-05.
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 in the registration or proxy statement
unless the transaction is already reflected in the historical balance
sheet.
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 in
the registration or proxy statement unless the business acquisition is
already reflected in the historical income statement for the entire period
(i.e., in the audited historical income statement for the most recent full
fiscal year and subsequent interim period). The updated pro forma income
statement information in the registration or proxy statement should include
historical financial information for the acquiree up to the date of
acquisition. The pro forma income statement should be updated to reflect the
results of the acquiree for the entire period presented (annual and interim
if applicable).
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 R’s (1) historical audited financial
statements as of December 31, 20X2 and 20X1, and for
the three years 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 acquisition for R. On March 19,
20X3, R files an initial Form 8-K announcing the
acquisition of B.
On May 28, 20X3, R files a Form 8-K/A with the
required audited separate financial statements of B
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 Form 8-K filed on March 19, 20X3, and
Form 8-K/A filed on May 28, 20X3. It must also
incorporate its most recent historical financial
statements filed on Form 10-Q in the registration
statement in accordance with Rule
3-12. However, R is not required to
update the separate financial statements of B
because the acquisition occurred on March 15,
20X3.
To comply with Rules 3-12 and
11-02(c) in
the registration statement, R must update the pro
forma financial information previously filed in the
Form 8-K. Since the business acquisition is already
reflected in R’s historical balance sheet as of
September 30, 20X3, an updated 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 not reflected in the historical
income statement for the entire period. As a result,
R’s income statement for the nine-month period ended
September 30, 20X3, would be combined with B’s
income statement results 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, the registrant must provided
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 purchase price allocation).
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 revise the pro forma financial
information that was previously filed 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
4.4.3), 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 Filed in a Registration or Proxy Statement
A registrant may have previously filed a registration or proxy
statement that included (1) separate historical financial statements of a
probable acquisition, as required under Rule 3-05, and (2) the pro forma financial
information required under Article 11. 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 whether the
“substantially the same” criteria related to the pro forma financial statements
are met in a manner consistent with their evaluation of the criteria for the
acquiree 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) that would cause the
previously filed pro forma financial statements to be materially incorrect or
potentially misleading. In addition, the registrant may choose to file that
information in a Form 8-K so that it can be incorporated by reference into an
effective shelf registration statement or 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 the three years 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 information through June 30, 20X3, in the Form
8-K. However, if such information was previously filed
in the registration statement, it may be deemed
substantially the same information 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 updated interim financial information would
not be required in the Form 8-K. Accordingly, 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 B’s updated interim financial information as of
and for the nine months ended September 30, 20X3, and
the related pro forma financial information in the Form
8-K (or in an amendment thereto) to satisfy the
requirements related to the age of the financial
statements. Otherwise, operating results for two or more
interim quarters would be omitted (i.e., June 30, 20X3,
and September 30, 20X3) and the information in the
previously filed financial statements of B in the Form
S-4 will therefore not be deemed substantially the same
as the information needed for the Form 8-K filing.
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 the three years 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 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 fiscal year would be omitted and, therefore,
the previously filed pro forma financial information in
the Form S-4 would not be deemed to be substantially the
same as the information needed for the Form 8-K filing.
See Section 2.5.3.1.