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Chapter 1 — Key Concepts Related to Carve-Out Financial Statements

1.1 Introduction

1.1 Introduction

Carve-out financial statements are prepared to reflect a portion of a parent entity’s balances and activities. Examples of transactions in which carve-out financial statements may be requested or required include, but are not limited to, the following:
  • Potential sale — An entity wishing to dispose of a portion of its assets and operations may prepare carve-out financial statements to help potential acquirers evaluate a prospective transaction.
  • Completed sale — A public entity acquires, or it is probable that it will acquire, a portion of an entity’s business, and the acquisition is deemed “significant” to the acquirer under SEC Regulation S-X, Rule 3-05. Consequently, the acquiring entity may request (or need to have prepared) audited carve-out financial statements of the business acquired for inclusion in a Form 8-K filing, registration statement, or proxy statement of the acquirer.
  • Spin-off — A public entity plans to distribute a portion of its assets that constitute a business by spinning the business off to its shareholders as a separate public company. Therefore, carve-out financial statements of the spinnee (i.e., the new legal spun-off entity) must be included in the SEC registration statement in connection with the spin-off.
  • Split-off — A public entity plans to offer to its existing shareholders, in exchange for some or all of the existing shareholders' shares in the public entity, shares in a newly formed entity that represents a portion of its assets that constitute a business (the “splitee”). Therefore, carve-out financial statements of the new legal entity to be split off must be included in the SEC registration statement in connection with the exchange transaction.
  • IPO and SPAC transactions — An entity wishes to segregate a portion of itself to effect an IPO of a newly created subsidiary or to enter into a transaction with a SPAC. Therefore, carve-out financial statements of the operations to be segregated and transferred to the newly created subsidiary or to a SPAC must be included in the SEC registration statement in connection with the transaction.