4.4 Distributions to Owners | DART – Deloitte Accounting Research Tool

Examples of SEC Comments

We note from the Dividend Policy section . . . that . . . you paid special cash dividends of $[X] million and $[Y] million to [the parent company], and that you expect to pay a special cash dividend to [the parent company] in connection with the separation and distribution. Please revise the pro forma balance sheet to give pro forma effect to these distributions. Refer to SAB Topic 1.B.3. The comment also applies to your capitalization table.
Please revise to separately disclose the pro forma earnings per share reflective of the number of shares whose proceeds will be used to pay the dividend as required by SAB Topic 1.B.3, on the face of the pro forma statement of income.

It is common for registrants to plan dividends or distributions to owners as of, or immediately before, the closing of an IPO. The SEC staff often comments on the need for pro forma information related to such distributions.

SAB Topic 1.B.3 expresses the SEC staff’s view that if a planned distribution is not reflected in the latest historical balance sheet but would be significant in relation to reported equity, the distribution should be presented in a pro forma balance sheet regardless of whether it has been declared or will be paid from the proceeds of the offering. The pro forma balance sheet should reflect the distribution but not give effect to the offering proceeds.

In addition, SAB Topic 1.B.3 further discusses the presentation of pro forma per-share data (pro forma EPS) for distributions to be paid to owners out of proceeds of the offering rather than from the current year’s earnings. The SEC staff considers dividends declared in the year before the IPO to be in contemplation of the IPO; therefore, it expects such dividends to be paid out of offering proceeds if they exceed earnings during the preceding 12 months. A registrant should calculate pro forma EPS for the latest fiscal year and interim period by including an incremental number of shares (not to exceed the number of shares being offered in the IPO) that, on the basis of the offering price, would be needed to pay the portion of the dividend that exceeds earnings for the previous year.