4.4 Distributions to Owners
Example of an SEC Comment
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.