4.6 Dilution Disclosure | DART – Deloitte Accounting Research Tool

Examples of SEC Comments

We note you [disclose] that the net tangible book value per share before the offering is $[X]. Please refer to Item 506 of Regulation S-K and revise to disclose the net tangible book value per share before the distribution. Please also revise to update your dilution disclosure as of [period-end].
Please revise to clarify, if true, that your as adjusted net tangible book value . . . gives effect to other transactions in connection with the Offering, not just the sale of common stock.
We note your historical net tangible book value per share of $[X] per share as of [the period-end]. Please reconcile this with your unaudited financial statements . . . which state a historical net tangible book value of [$Y] million as of [the period-end] and [Y] shares of outstanding common stock . . . . Please note that this methodology also applies to your pro forma and pro forma as adjusted net tangible per share values.

Under Regulation S-K, Item 506, certain disclosures (including net tangible book value per share before and after a distribution) are required when “common equity securities are being registered and there is substantial disparity between the public offering price and the effective cash cost to officers, directors, promoters and affiliated persons of common equity acquired by them.”

Section 8300 of the FRM acknowledges that there is no authoritative definition of “tangible book value” but notes that the metric “is used generally as a conservative measure of net worth, approximating liquidation value.” The interpretive guidance (1) indicates what items should be excluded from tangible assets (e.g., deferred costs or goodwill) and (2) cites examples of when the SEC staff has allowed dual calculation of tangible book value (i.e., made with and without certain assets). Accordingly, the staff may question a registrant’s calculation of dilution and its related disclosures, particularly if net tangible book value reported in the dilution section of the registration statement appears to be inconsistent with the historical financial statements.