Topic 2: Other Financial Statements Required

Exceptions: An acquired business that is a nonpublic entity, as that term is defined in GAAP, need not include disclosures if specifically excluded from the scope of the FASB standard. Examples include:

1. Segment information under ASC 280 [ASC 280-10-15-3],
2. Certain disclosures about employers' pensions and other postretirement benefits [ASC 715-20-50-5], and
3. Earnings per share under ASC 260 [ASC 260-10-05-1].

2005.2 Supplemental schedules (S-X Article 12) are not required to be filed.

2005.3 "Acquisition" and Equity Method Investee — Acquisition includes acquisition of an interest in a business that is accounted for under the equity method. Refer to Section 2010 regarding definition of a "business".

2005.4 "Probable" — Assessment of "probability" requires consideration of all available facts. Acquisition is probable where registrant's financial statements alone would not provide adequate financial information to make an investment decision. [FRC 506.02(c)(ii)]

2005.5 Acquiree of an Acquiree or Investee of an Acquiree — The requirements of S-X 3-05 and S-X 8-04 apply to acquisitions made by the registrant or its predecessor(s). Those rules call for financial statements of the acquiree and its predecessor(s), if applicable. Financial statements of recently acquired businesses of the acquiree or equity method investees of the acquiree need not be filed unless their omission would render the acquiree's financial statements misleading or substantially incomplete. (Last updated: 3/31/2010)

2005.6 Acquisition of a "Predecessor" — S-X 3-05 and S-X 8-04 do not apply to the acquisition of a business that is a predecessor of the registrant, as defined in Regulation C, Rule 405. Instead, look to S-X 3-01/3-02 or S-X 8-02/8-03 to determine the financial statement requirements for an acquired business that is a predecessor of the registrant.

2005.7 "Shell Company" is both Legal and Accounting Acquirer — If a shell company, other than a "Business Combination Related Shell Company" (both as defined in Exchange Act Rule 12b-2 and Regulation C, Rule 405), acquires an operating entity in a transaction in which the shell company is both the legal and accounting acquirer, the acquired entity will be a predecessor of the shell company and therefore S-X 3-05 and S-X 8-04 do not apply. If a shell company acquires an operating entity in a transaction accounted for as the acquisition of the shell company by the operating entity (i.e., shell company is the legal acquirer, but the accounting acquiree) the transaction is a reverse recapitalization of the operating entity and therefore S-X 3-05 and S-X 8-04 do not apply. See Topic 12 for further discussion of the reporting requirements for reverse recapitalizations.

2005.8 Acquisition or Disposition by a Consolidated Variable Interest Entity — An acquisition or disposition by a variable interest entity that is consolidated in the registrant’s financial statements pursuant to ASC 810 is subject to the Form 8-K and S-X reporting requirements even if the consolidated variable interest entity does not meet the S-X 1-02(n) definition of “majority-owned subsidiary.” (Last updated: 6/30/2011)

2010.2 A separate entity, subsidiary, division or possibly a separate product line — A "business" for purposes of S-X 3-05 is identified by evaluating whether there is sufficient continuity of operations so that disclosure of prior financial information is material to an understanding of future operations. There is a presumption in S-X 11-01(d) that a separate entity, subsidiary, or division is a business. A lesser component, such as a product line, also may be considered a business. In evaluating whether a lesser component is a business, S-X 11-01(d) requires registrants to consider the following:

• Will the nature of the revenue producing activity generally remain the same?
• Will the facilities, employee base, distribution system, sales force, customer base, operating rights, production techniques, or trade names remain after the acquisition?

2010.3 An investment accounted for under the equity method — The staff considers the acquisition of an investment accounted for under the equity method to be a business for reporting purposes.

2010.4 A working interest in an oil and gas property — The staff considers the acquisition of a working interest in an oil and gas property to be a business for reporting purposes. Refer to Section 2065.11 “Unique Considerations for Acquisitions of Oil and Gas Properties — General.” (Last updated: 10/20/2014)

2010.5 Bank branch acquisitions — The assumption of customer deposits at bank branches may constitute the acquisition of a business if historical revenue producing activity is reasonably traceable to the management or customer and deposit base of the acquired branches, and that activity will remain generally the same following the acquisition.

2010.6 Insurance policy acquisitions — Acquisitions of blocks of insurance policies by an insurance company or the assumption of policy liabilities in reinsurance transactions may also be deemed the acquisition of a business because the right to receive future premiums generally indicates continuity of historical revenues. The degree of continuity between historical investment income streams and the assets acquired to fund the acquired policy liabilities should also be considered.

2015.1 Registrants must measure the significance of an acquired business under S-X 3-05 and S-X 8-04 using three tests, the:

• Asset test,
• Investment test, and
• Income test.

These tests are described in further detail below.

2015.2 Financial Statements Used to Measure Significance — Generally, compare the most recent pre-acquisition annual financial statements of the acquired business to the registrant's pre-acquisition consolidated financial statements as of the end of the most recently completed audited fiscal year required to be filed with the SEC. Financial statements of both the acquired business and the registrant used to measure significance must be prepared in accordance with the comprehensive basis of accounting described in Section 2015.3, "Comprehensive Basis of Accounting Used to Measure Significance."

If a change in the reporting entity or a reorganization will occur at or after effectiveness of an initial registration statement but no later than closing of the IPO, the staff will consider requests for relief to use the combined financial statement amounts as the denominator for purposes of significance calculations in determining other financial statement requirements for the filing (e.g., S-X 3-05 and 3-09). (Last updated: 3/31/2010)

2015.3 Comprehensive Basis of Accounting Used to Measure Significance — A registrant that files its financial statements in accordance with or is required to provide reconciliation to U.S. GAAP should determine significance using amounts for both the acquired business and the registrant determined in accordance with U.S.GAAP; that is, both the numerator and denominator of the significance test would be determined in accordance with U.S. GAAP. A foreign private issuer that files its financial statements in accordance with IFRS as issued by the IASB should determine significance using amounts for both the acquired business and the registrant determined in accordance with IFRS as issued by the IASB; that is both the numerator and denominator of the significance test would be determined in accordance with IFRS as issued by the IASB. To illustrate these requirements, if a registrant that files its financial statements in accordance with U.S. GAAP acquires, both legally and for accounting purposes, a foreign private issuer or a foreign business that files its financial statements in accordance with IFRS as issued by the IASB, significance (both the numerator and denominator) must be determined in accordance with U.S. GAAP. This is true even though the acquired business did not reconcile its financial statements to U.S. GAAP.

2015.4 Asset Test — Compare registrant's share of acquired business's total assets to the registrant's consolidated total assets. Ordinary receivables and other working capital amounts not acquired should nevertheless be included as part of the assets of the acquired enterprise in tests of significance relative to the registrant's assets because that working capital is expected to be required and funded after the acquisition.

2015.5 Investment Test — Acquisition Accounting under ASC 805 and IFRS 3 as issued by the IASB — Compare the total GAAP purchase price of the acquired business, as adjusted below, to the registrant's consolidated total assets.

GAAP purchase price in this context means the "consideration transferred", as that term is used in the applicable accounting standard. It includes the acquisition-date fair value of all contingent consideration and excludes acquisition-related costs.

The adjustment — For purposes of the "investment" test, "consideration transferred" should be adjusted to exclude carrying value of assets transferred by the acquirer to the acquired business that will remain with the combined entity after the business combination.

2015.7 Investment Test — Reorganization of Entities Under Common Control — Compare the net book value of the acquired business to the registrant's consolidated assets and compare the number of shares exchanged to registrant's outstanding shares at the date the combination is initiated.

2015.8 Income Test — Compare registrant's equity in the acquired business's income from continuing operations before taxes to that of the registrant.

There are three computational notes to the income test included at S-X 1-02(w). The second computational note indicates that if the registrant's income for the most recent fiscal year is 10% or more lower than the average of the registrant's income for the last five fiscal years, then the average income of the registrant should be used for this computation. This computational note also applies if the registrant reported a loss, rather than income. If the registrant reported a loss, the registrant should compare the absolute value of its reported loss to its average income for the last five fiscal years to determine if the registrant is required to use average income. In computing the registrant’s average income for the last five fiscal years, loss years should be assigned a value of zero in computing the numerator for this average, but the denominator should be "5”. Also, the acquiree's income may not be averaged. (Last updated: 12/31/2010)

2015.9 Significance — Absolute Values — In the case of a single acquisition, if either the registrant or the acquired business reported a pretax loss and the other entity reported pretax income, use the absolute values.

2015.10 Significance — Denominator — The acquired business is not considered part of the registrant's denominator in determining significance for purposes of S-X 3-05 [S-X 1-02(w)]

2015.11 Significance — Intercompany Transactions — When measuring significance for all three S-X 1-02(w) tests, intercompany transactions between the registrant and acquiree should be eliminated in the same way that would occur if the acquiree were consolidated. See by analogy S-X 1-02(w)(2). (Last updated: 9/30/2009)

2015.12 Significance — "Related Businesses" — Acquisitions of "related businesses" must be treated as a single business acquisition. Businesses are related under S-X 3-05 if:

• they are under common control or management, or
• their acquisitions are dependent on each other or a single common event or condition.

2015.13 Significance — Rounding — Do not round the results of the significance tests.

The staff generally will not accept alternative significance tests. The tests should be performed based on the requirements of S-X 3-05, 3-09, and 4-08(g), as applicable. If after performing the required significance tests a registrant believes that the tests specify periods beyond those reasonably necessary to inform investors, the registrant may make a written request to CF-OCA to waive one or more years of financial statements. Such requests should set forth the relevant factors considered by the registrant. In making this request, registrants should consider all facts and circumstances that provide an indication of the relative size of the acquired business. (Last updated: 7/1/2019)

In some circumstances, ASC 805 and IFRS 3 require retrospective adjustment of provisional amounts recognized at the acquisition date and the recognition of additional assets or liabilities that were not recognized at the acquisition date. The pre-acquisition financial statements for the most recently completed fiscal year used to measure significance should include measurement period adjustments for acquisitions completed within the most recently completed fiscal year when new information obtained about facts and circumstances that existed at the acquisition date for those acquisitions is known: (A) prior to effectiveness of an IPO for a new registrant or (B) on or before the date the initial Item 2.01 Form 8-K reporting the acquisition must be filed for an existing registrant. (Last updated: 9/30/2009)

If a registrant increases its investment in a business relative to the prior year, base the tests of significance on the increase in the registrant's proportionate interest in assets and net income during the year, rather than the cumulative interest to date. However, step acquisitions which are part of a single plan to be completed within a twelve month period should be aggregated.

Under ASC 805 and IFRS 3 as issued by the IASB, the acquirer's previously held equity interest in the acquiree is remeasured at its acquisition-date fair value with any resulting gain or loss recognized in earnings. The remeasurement of the previously held equity interest is not included in the asset or the investment test and the resulting gain or loss from remeasurement would be excluded from the income test as it is not included in the registrant's most recently completed fiscal year.

When a registrant increases its investment in a company that is already reflected as a consolidated subsidiary in the audited financial statements of the registrant for a complete fiscal year, financial statements of the acquired investment are ordinarily not required. However, pro forma information may be required.

The staff's view that financial statements are ordinarily not required is premised on S-X 3-05(b)(4)(iii) which states that separate financial statements of the acquired business need not be presented once the operating results of the acquired business have been reflected in the audited consolidated financial statements of the registrant for a complete fiscal year unless such financial statements have not been previously filed or unless the acquired business is of major significance. Illustrative, but not all-inclusive, examples of when historical financial statements of an acquired business may be required in a step acquisition include:

• acquired business financial statements have not been previously filed for the entire period for which historical financial statements of the acquired entity would be required under S-X 3-05;
• acquired business is of major significance; or
• S-X 3-05 does not apply; such as a proxy statement or Form S-4 requirement to present the target’s financial statements for the same periods that would be required in an annual report sent to security holders, if an annual report was required.

Also, note that while S-X 11-01(c) states that pro forma effects of a business combination need not be presented if the acquired business' financial statements are not presented, we believe such pro forma financial statements are required pursuant to S-X 11-01(a)(8) when pro forma financial information giving effect to the step acquisition would be material to investors.

Registrant's assets may not be increased for purposes of the significance tests by including the pro forma effect of public offering proceeds received after the balance sheet date.

A registrant that has received an accommodation from CF-OCA to present a statement of revenue and direct expenses for the acquired business in lieu of full financial statements (See Section 2065) should not adjust the registrant's pretax income (i.e., the denominator in the income test) to exclude corporate overhead even though the target's pretax revenues less direct expenses (i.e., the numerator) excludes indirect expenses. If after performing the required significance tests using the target's pretax revenues less direct expenses and the registrant's pretax income, a registrant believes that the tests specify periods beyond those reasonably necessary to inform investors, the registrant may make a written request to CF-OCA to waive one or more years of financial statements.

S-X 3-05 requires that related businesses be treated as a single business when measuring significance. Further guidance on this requirement is included below. If S-X 3-05 significance is met, separate financial statements of each of the related businesses are required, except that financial statements of the related businesses that are under common control or management may be, but are not required to be, presented on a combined basis for any annual or interim periods specified in S-X 3-05 for which the businesses are under common control or management. If the registrant believes that application of the significance tests results in a requirement to present financial statements of one or more related businesses that are not reasonably necessary to inform investors, the registrant may make a request to CF-OCA for relief.

Both the asset test and the investment test should be performed for each related business using the guidance provided in Section 2015. If either the sum of each related business’s asset test significance or the sum of each related business’s investment test significance exceeds the S-X 3-05 significance levels (see Section 2030), separate financial statements should be provided for the periods required by S-X 3-05 for each related business, except that financial statements for the related businesses that are under common control or management may be, but are not required to be, presented on a combined basis for any annual or interim periods specified in S-X 3-05 for which the businesses are under common control or management. See the Notes at Section 2020.8 for further guidance.

S-X 3-05 indicates that related businesses should be treated as if they are a single business combination. Therefore, calculate the income test significance using the combined income or loss from continuing operations before income taxes of all of the related businesses. The combined income or loss should be used to measure income test significance irrespective of whether any of the related businesses are under common control or management. If the income test significance exceeds the S-X 3-05 significance levels (see Section 2030), separate financial statements should be provided for the periods required by S-X 3-05 for each related business, except that financial statements of the related businesses that are under common control or management may be, but are not required to be, presented on a combined basis for any annual or interim periods specified in S-X 3-05 for which the businesses are under common control or management. See the Notes at Section 2020.8 for further guidance.

Subsequent to filing its Form 10-K, a registrant may be required to include (or incorporate by reference) into a registration statement its audited annual financial statements giving retrospective effect to a discontinued operation or a change in accounting principle that was appropriately not reflected in the audited financial statements for the most recently completed fiscal year included in its Form 10-K. See Topic 13 for a discussion of this requirement. In these circumstances, we have interpreted the guidance in S-X 3-05 to require registrants to perform significance tests based on the registrant's financial statements that reflect retrospective application for the most recently completed fiscal year for:

• Individual businesses acquired after the date the retrospectively adjusted financial statements are filed;
• Probable acquisitions; and
• Aggregate impact of all individually insignificant businesses that have occurred since the end of the most recently completed fiscal year.

Generally, a registrant measures significance using its pre-acquisition consolidated financial statements as of the end of the most recently completed audited fiscal year required to be filed with the SEC. If the acquisition is made after the registrant's most recent fiscal year end and the registrant files its Form 10-K for the most recent fiscal year before the date financial statements of the acquired business would be required to be filed under Item 9.01 of Form 8-K, the registrant may evaluate significance using the registrant's financial statements for most recent fiscal year reported in its Form 10-K. Alternatively, the registrant may choose to evaluate significance using the registrant's financial statements for the most recently completed audited fiscal year required to be on file with the SEC as of the consummation date.

If the acquisition is made after reporting a previous significant acquisition or disposition on Form 8-K or non-IPO registration statement that includes all information required by Form 8-K, the registrant may evaluate significance using registrant's pro forma financial information rather than historical pre-acquisition financial statements. For purposes of evaluating significance in this situation:

• Income Test — Compare income from continuing operations before income taxes for the acquired entity's latest fiscal year to the pro forma statement of comprehensive income for the latest audited annual period provided in the Form 8-K or registration statement.
• Investment and Asset Tests — Compare the registrant's investment in the acquired entity and the assets of the acquired entity for the latest fiscal year to the pro forma balance sheet comprising the latest audited balance sheet of the registrant. That pro forma balance sheet may or may not have been included in the Form 8-K or registration statement, depending on when the Form 8-K or registration statement was filed.
  For example: If a calendar year-end registrant filed a registration statement containing a pro forma balance sheet as of June 30, 2007 giving effect to an acquisition consummated on September 14, 2007 and then made an acquisition on November 30, 2007, the asset and investment test would be based on a pro forma balance sheet as of December 31, 2006 (the last audited balance sheet on file with the SEC).

If the transaction is an exchange transaction in which the registrant and another party each contribute businesses to a joint venture (or the "Newco") in exchange for an equity interest in the Newco measure the significance of the disposition (registrant's contributed business) and the acquisition (other party's contributed business) separately to determine whether pro forma information about the disposition and receipt of an equity investment is required, and whether audited financial statements of the business contributed by the other party are required.

Significance of the acquisition should be based on the acquired percentage of the other party's business compared to the registrant's historical financial statements (without adjustment for the related disposition of the business contributed by the registrant to the joint venture). Whether or not the transaction is accounted for at fair value, the investment test should be based on the fair value of the consideration given up or the consideration received, whichever is more reliably determinable.

If reporting of both the disposition and the acquisition are required by Form 8- K, a registrant may be unable to present a pro forma statement of comprehensive income depicting the joint venture formation because financial statements of the business contributed by the other party are not available. Those financial statements and related pro forma financial statements need not be filed until 71 calendar days after the date that the initial report reporting the transactions on Form 8-K must be filed (that is, the sum of 4 business days after the transaction is consummated plus 71 calendar days). Pro forma financial statements depicting a significant disposition are ordinarily required to be filed within 4 business days of the disposition. In these circumstances, the initial Form 8-K reporting the transaction should include a narrative description of the effects of the disposition, quantified to the extent practicable, and complete pro forma information depicting the effects of the exchange of interests should be filed at the time that the audited financial statements of the acquired business are filed.

If the registrant and/or the acquiree has been in existence for less than one year, do not annualize the historical statement of comprehensive income; measure significance using the audited historical statement of comprehensive income that complies with the age of financial statement requirements (see Section 2045 for the acquiree and Section 1200 for the registrant), regardless of the number of months it includes. If the registrant or the acquiree has been in existence for more than one year, measure significance using income for full 12 months; do not adjust the audited statement of comprehensive income to equal the same number of months as acquiree or registrant that has been in existence for less than one year.

If a registrant or acquiree has changed its fiscal year and the transition period (See definition at Section 1360.1) is less than 9 months, measure significance using either (A) the most recently completed audited fiscal year prior to the change or (B) audited financial statements for the 12 months ending on the last day of the transition period. If both the registrant and the acquiree have changed their fiscal years, registrants should measure significance using a consistent approach [either (A) or (B)] for both the registrant and the acquiree [not (A) for one and (B) for the other]. If the transition period is greater than 9 months, use the audited financial statements for that period.

If an acquisition is made after a transaction accounted for as a reverse acquisition of the registrant but before the registrant's audited financial statements for the fiscal year in which the reverse acquisition occurred are filed and the audited financial statements for the accounting acquirer have been filed with the SEC then measure significance against the accounting acquirer's financial statements.

If an acquisition occurs after a reverse recapitalization of the legal target (see Topic 12) but before the registrant's audited financial statements for the fiscal year in which the reverse recapitalization occurred are filed and the audited financial statements for the legal target have been filed with the SEC then measure significance against the legal target's financial statements.

If an acquisition is made subsequent to the acquisition by a shell company, as defined in Exchange Act Rule 12b-2, of an entity deemed the registrant's predecessor (but not accounted for as a reverse acquisition or reverse recapitalization), then measure significance against the historical financial statements of the registrant.

In certain cases, a registrant that is a successor to a predecessor company may not have a full year of statement of comprehensive income information available to use as the denominator in the calculation of the income test. In these cases, the significant subsidiary income test should be calculated using only the results of operations of the successor company in the denominator.

If the results are anomalous, CF-OCA will consider a request by the registrant to perform the significance test using pro forma amounts determined in accordance with S-X Article 11 as if the predecessor had been acquired at the beginning of the fiscal year being measured. The staff generally believes that combining the historical results of the successor and predecessor without S-X Article 11 pro forma adjustments is not an appropriate surrogate for the significance test. (Last updated: 3/31/2010)

For the acquisition of a business that is the successor to a predecessor company (not the registrant), or when an acquiree’s historical financial statements include predecessor and successor periods, the measurement of significance under the income test will depend on the particular facts and circumstances.

If audited successor financial statements of the acquiree include twelve months of successor results, the income test should be applied in the normal fashion.

If audited successor financial statements of the acquiree include less than twelve months of successor results, it will generally be necessary to use pro forma amounts of the successor for the year determined in accordance with S-X Article 11. The objective of this process is to determine a surrogate for the annual historical statement of comprehensive income of the acquired business. Thus, the pro forma amounts would be determined using the basis of the acquired successor business – not the registrant’s subsequent new basis. The staff generally believes that combining the historical results of the successor and predecessor without S-X Article 11 pro forma adjustments is not an appropriate surrogate for the significance test. The convention of “9 months equals 12 months” in S-X 3-06 is not applicable in this situation. In these situations, CF-OCA should be consulted prior to filing.

If the most recent audited financial statements of the acquiree include only predecessor results, use the historical predecessor period statement of comprehensive income information as the numerator for calculating the income test. Pro forma information should not be used. (Last updated: 3/31/2010)

In transactions in which more than two entities combine concurrent with an IPO, measure significance against the accounting acquirer (regardless of whether or not the accounting acquirer is a Newco). All of the acquired businesses are considered related under S-X 3-05(a)(3) and S-X 8-04(a)(2) and therefore must be grouped and assessed for significance against the accounting acquirer as a single acquisition. See Section 2015.12. Because related businesses must be treated as a single business acquisition under S-X 3-05 and S-X 8-04, SAB 80 may not be applied to SAB 97 "put together" transactions. Upon written request, the staff will consider whether relief from the literal application of S-X 3-05 is appropriate.

If a new acquisition takes place after an IPO but before the filing of the registrant's first Form 10-K, measure significance against the audited financial statements of the accounting acquirer for the most recent fiscal year that was included in the IPO registration statement. If a new acquisition takes place after the filing of the registrant's first Form 10-K, measure significance against the audited financial statements of the registrant for the most recent fiscal year in the Form 10-K. In some cases, such as when the IPO occurs close to the registrant's year end, the registrant's financial statements presented in Form 10-K may only include operations for a very short period of time. Upon written request, and depending on the proximity of the SAB 97 transaction to the balance sheet date, the staff will consider whether relief from the literal application of S-X 3-05 is appropriate.

2030.2 Omitting Acquiree Balance Sheet — Balance sheet of the acquired company is not required when the audited annual balance sheet of registrant is as of a date after consummation of the acquisition.

2030.3 [Reserved] (Last updated: 7/1/2019)

2030.4 Initial Registration Statements — Using Pre-Acquisition and Post-Acquisition Audited Results — Registrants filing initial registration statements may apply the period of time in which the operations of an acquired business are included in the audited statement of comprehensive income of the acquirer to reduce the number of periods for which pre-acquisition statements of comprehensive income are required. However, registrants applying such an approach can have no gap between the audited pre-acquisition and audited post-acquisition periods. For example, if an acquisition is consummated on April 15, 2007 and the acquiree's highest level of significance was 45%, S-X 3-05 would require the acquiree's audited annual financial statements to be filed for the two years ended December 31, 2006 (assuming both registrant and acquiree have calendar year-ends). In lieu of financial statements for those periods, the staff will accept audited financial statements of the acquiree for the year ended December 31, 2006 and the period from January 1, 2007 through April 14, 2007 provided that audited financial statements of the registrant for the year ended December 31, 2007 have been filed.

2030.5 Financial Statements in a Registration Statement of a Non-reporting Business Acquired, or to be Acquired, when One of the Combining Entities Meets the Smaller Reporting Company Criteria and the Other Does Not — If the registrant/acquirer is subject to S-X 3-05, the non-reporting business' financial statements must comply with S-X reporting requirements applicable to entities that are not smaller reporting companies. If the registrant/acquirer is subject to S-X Rule 8-04, the non-reporting business' financial statements may comply with scaled reporting requirements for a smaller reporting company. These are the same requirements for filing financial statements of an acquired non-reporting business in a Form 8-K (see Section 2200.2), except for reverse acquisitions. There are different requirements for filing financial statements of a non-reporting target in an S-4 registration statement (see Section 2200.2). (Last updated: 12/31/2011)

2035.2 Definition — The reference in S-X 3-05 to individually insignificant acquisitions includes:

1. any consummated acquisitions whose significance does not exceed 20% that were consummated after the balance sheet date of the most recent annual audited financial statements included in the registration or proxy statement through the effective date of the registration statement or the date the proxy statement is mailed;
2. any probable acquisitions whose significance does not exceed 50%; and
3. any consummated acquisitions whose significance exceeds 20%, but does not exceed 50%, for which financial statements are not yet required because of the 75-day rule in S-X 3-05(b)(4).

(Last updated: 10/20/2014)

2035.3 Financial Statements Required — Mathematical Majority — If the aggregate of either the asset, investment or income significance test of all insignificant acquisitions (i.e., (A), (B) and (C) above) exceeds 50%, provide financial statements for the mathematical majority (combined if appropriate) for the most recent fiscal year and the latest interim period preceding the acquisition. For purposes of determining the mathematical majority, audited financial statements should be provided for those probable and acquired entities that constitute more than 50% of the aggregate asset, income, or investment test determined to be the most significant. Consider the following example.

2035.4 Significance — Financial Statements Used to Measure Significance

The aggregate significance of the individually insignificant acquisitions described in Section 2035.3 should be measured for each acquisition using the financial statements described in Section 2015.2 at the registration statement effective date. Measuring significance using the financial statements described in Section 2015.2 at the registration statement effective date may require the use of either financial statements for a more recent fiscal year than the annual financial statements used to measure significance at the acquisition date, or financial statements for the same fiscal year that have been retrospectively adjusted after the acquisition date for a change in accounting principle or a discontinued operation (see Section 2025.1). Therefore, the significance of an individually insignificant acquisition measured using the annual financial statements described in Section 2015.2 at the registration statement effective date may differ from the significance of that individually insignificant acquisition measured using the annual financial statements described in Section 2015.2 at the acquisition date. (Last updated: 3/31/2010)

2035.5 Significance — Income Test — Entities with Pre-Tax Loss versus Entities with Pre-Tax Income — For purposes of the income test, S-X 1-02(w) Computational Note 3 indicates that entities reporting losses should not be aggregated with entities reporting income. Therefore, significance must be determined separately for both the group of individually insignificant acquisitions with income and the group of individually insignificant acquisitions with losses. The absolute values of the results of operations of the two groups should not be aggregated for purposes of determining significance. If the income test significance of either the group of individually insignificant acquisitions with income or the group of individually insignificant acquisitions with losses is higher than the significance computed under either the investment or asset tests in S-X 1-02(w), the absolute values of the income test significance of the two groups would be aggregated for purposes of selecting the mathematical majority.

2035.6 Significance — Using Pro Forma Financial Statements — S-X 3-05 permits a registrant to evaluate significance of acquirees using the pro forma financial information filed on Form 8-K in connection with a previous significant acquisition. However, a registrant may not circumvent the requirement to file audited data of a majority of individually insignificant acquirees by filing a Form 8-K containing financial statements of one or more insignificant acquirees and testing significance of the remaining unaudited acquirees, against either the historical or resulting pro forma financial statements. If a registrant has filed a Form 8-K for a previous significant acquisition, the 50% aggregation test may be applied against the pro forma financial statements included in that Form 8-K.

2040.2 "Major Significance" and Previously Filed Acquiree Financial Statements

Generally, previously filed financial statements of an acquired business need not be presented once the acquired operations are included in at least nine months of post-acquisition audited results unless the acquisition is of major significance [S-X 3-05(b)(4)(iii)]. Although the acquisition may be of major significance at lower thresholds due to factors specific to the registrant, the staff presumes that the acquisition is of such major significance that investors need previously filed financial statements of the acquired company in a registration or proxy statement if:

• the acquired business is included in audited results of the registrant for less than 21 months and its significance was equal to or greater than 70% and less than 80%; or
• the acquired business is included in audited results of the registrant for less than 33 months and was significant at the 80% or greater level.

If the acquired business is of major significance, the financial statements of the acquired business should continue to be presented in a registration or proxy statement for the number of periods prior to the acquisition such that the combination of pre- and post-acquisition periods presented cover the equivalent number of periods specified in S-X 3-02. [S-X 3-05(b)(4)(iii)]. The requirement to present the equivalent number of periods specified in S-X 3-02 does not mean that the audited periods presented must be continuous. Also, registrants should include the complete financial statements of the acquired business notwithstanding the reference to the statement of comprehensive income in the example provided in S-X 3-05(b)(4)(iii); however the balance sheets of the acquired business may be excluded by the registrant if the audited balance sheet of the registrant is as of a date after consummation of the acquisition.

See Section 2050 for a discussion of "Age of Financial Statements — Interaction of S-X 3-05(b)(4) and Instruction to Item 9.01 of Form 8-K"

The registrant should comply with age-of-financial-statement rules with respect to itself and all completed and probable acquirees at the effective date. Any updated financial statements required to be included or incorporated by reference as appropriate in the registration statement but which were not required to be filed previously in a specific Exchange Act report may be filed under cover of Form 8-K pursuant to Item 8.01.

After effectiveness, a domestic registrant has no specific obligation to update the prospectus except as stipulated by 1933 Act Section 10(a)(3) and S-K 512(a) with respect to any fundamental change. If an acquisition would be significant under S-X 3-05, management should consider whether the probability of consummation of the transaction would represent a fundamental change. It is the responsibility of management to determine what constitutes a fundamental change. The registrant should also consider whether individually insignificant acquisitions occurring subsequent to effectiveness, when combined with individually insignificant acquisitions that occurred after the most recent audited balance sheet in the registration statement but prior to effectiveness, may be of such significance in the aggregate that an amendment is necessary. Notwithstanding the guidance in Section 2045.3, offerings pursuant to effective registration statements cannot proceed if the significance of an acquisition exceeds 50% and financial statements have not been filed. See Section 2050.3.

2045.4 1933 Act Registration Statement — Age of Financial Statements — Well-Known Seasoned Issuers — "Well-known seasoned issuer" is defined in Regulation C, Rule 405. Automatic shelf registration statements and post-effective amendments of well-known seasoned issuers become effective immediately upon filing [Regulation C, Rule 462(e) and (f)]. Immediate effectiveness does not exempt a well-known seasoned issuer from the requirement to comply with the age of financial statement requirements with respect to itself and all completed and probable acquirees at the time of effectiveness. Consider the following examples.

Financial statements of the acquired or to be acquired businesses for the periods specified by S-X 3-05 must be included or incorporated in the automatic shelf registration statement prior to filing the automatic shelf registration statement or post effective amendment, even if such financial statements are not yet required to be filed on Form 8-K.

Financial statements of an acquired or to be acquired business that is significant in excess of 20% but not in excess of 50% need not be filed prior to the effective date (i.e., the filing date) of an automatic shelf registration statement or post-effective amendment filed by a well-known seasoned issuer if the effective date occurs during the 4 business days plus 71 calendar day period subsequent to consummation.

2045.6 1933 Act Registration Statement Age of Financial Statements — Requirement to File Acquiree's ANNUAL Financial Statements That Are More Recent than Registrant's Financial Statements — In limited circumstances involving a registrant that would be required to update after the 45th day, applying this rule results in a requirement to file audited financial statements of the acquiree as of a date more recent than is required for the registrant. If the registrant believes providing updated audited financial statements would impose an unreasonable burden under the circumstances, the registrant may request CF-OCA to consider granting relief if the acquiree's financial statements are updated on an unaudited basis through either the registrant's latest balance sheet date or the acquiree's year-end. Requests for relief should be made in writing prior to filing.

2045.7 1933 Act Registration Statement — Age of INTERIM Financial Statements — For interim period financial statements in a 1933 Act registration statement, age requirements are the same as if the acquiree were the registrant (see Section 1200), however the requirement to audit interim period information depends on whether the acquired business is a predecessor and, if not a predecessor, whether the registrant applied S-X 3-05 or SAB 80, which is discussed at Section 2070.

2045.8 1933 Act Registration Statement Age of INTERIM Financial Statements — Predecessor — If the acquired business is a "predecessor" of the registrant (See Section 1170), and the acquisition date is on or before the registrant's most recent audited balance sheet required to be included in the registration statement, then interim financial statements of the predecessor should be presented and audited through the date of acquisition. If the acquired business is a "predecessor" of the registrant and the acquisition date is after the registrant's most recent audited balance sheet required to be included in the registration statement, then interim financial statements of the predecessor should be presented for the same periods as if the predecessor were the registrant and may be unaudited. In this circumstance, the predecessor period between registrant's latest balance sheet and acquisition date would need to be audited in registrant's next Form 10-K.

2045.9 1933 Act Registration Statement Age of INTERIM Financial Statements — S-X 3-05 Acquiree — If significance is measured using S-X 3-05, interim financial statements of an acquired business need not be audited. Age requirements are the same as if the acquiree were the registrant. See Section 1200. Consequently, financial statements of an acquired business need not be updated if the omitted period is less than a complete quarter. However, disclosure of significant events occurring during the omitted interim period may be necessary.

2045.10 1933 Act Registration Statement Age of INTERIM Financial Statements — S-X 3-05 Acquiree and Updating Form 8-K — In some cases, the financial statements provided in Form 8-K may need to be updated in a registration statement to comply with the 135-day rule (for an acquired business that is neither an accelerated filer nor a large accelerated filer) or the 130 day rule (for an acquired business that is either an accelerated filer or a large accelerated filer). See Section 1200.

2045.11 1933 Act Registration Statement Age of INTERIM Financial Statements — SAB 80 Acquiree — If significance is measured using SAB 80, see Section 2070, "SAB 80: Application of S-X 3-05 in Initial Registration Statements," and the discussion in Section 2070.9, "Interim Financial Statements."

2045.12 Proxy Statements — Age of Financial Statements — For purposes of proxy statements, the staff interprets the updating requirements in the same manner as under the 1933 Act.

2045.13 Form 8-K — Age of Financial Statements — General — The staff believes that the age of financial statements in a Form 8-K should be determined by reference to the filing date of the Form 8-K initially reporting consummation of the acquisition. If no filing is made timely (on or prior to the 4th business day following the acquisition date), the age of financial statements required to be filed should be determined by reference to the 4th business day after the consummation of the acquisition. See Section 2045.17 for an exception to this position.

2045.14 Form 8-K — Age of ANNUAL Financial Statements —

• Acquired company is NOT an Accelerated Filer or Large Accelerated Filer: For purposes of Form 8-K, the staff would not require audited statements of the acquiree's most recently completed year unless the Form 8-K reporting the acquisition was filed 90 days or more after the acquired company's fiscal year-end.
• Acquired company is an Accelerated Filer: For purposes of Form 8-K, the staff would not require audited statements of the acquiree's most recently completed year unless the Form 8-K reporting the acquisition was filed 75 days or more after the acquired company's fiscal year-end.
• Acquired Company is a Large Accelerated Filer: For purposes of Form 8-K, the staff would not require audited statements of the acquiree's most recently completed year unless the Form 8-K reporting the acquisition was filed 60 days or more after the acquired company's fiscal year-end.
• Acquired Company is a Foreign Private Issuer or a Foreign Business: For purposes of Form 8-K, the staff would not require audited statements of the acquiree's most recently completed year unless the Form 8-K reporting the acquisition was filed more than three months after the acquired company's fiscal year-end. [S-X 3-01(h), S-X 3-02(d), Item 8.A.4 of Form 20-F] (Last updated: 12/31/2010)

2045.15 Form 8-K — Age of INTERIM Financial Statements

• Acquired company is NOT an Accelerated Filer or Large Accelerated Filer: For purposes of Form 8-K, interim financial statements must be within 135 days of the date that the initial Form 8-K reporting the acquisition is filed, except that a filing with the acquired business’s year-to-date interim financial statements that include its third quarter is timely through the 90th day after the acquired business’s most recently completed fiscal year end.
• Acquired company is an Accelerated Filer or a Large Accelerated Filer: For purposes of Form 8-K, interim financial statements must be within 130 days of the date that the initial Form 8-K reporting the acquisition is filed, except that a filing with the acquired business’s year­to-date financial statements that include its third quarter is timely for an acquired business that is an accelerated filer through the 75th day after its most recently completed fiscal year end and for an acquired business that is a large accelerated filer through the 60th day after its most recently completed fiscal year end.
• Acquired Company is a Foreign Private Issuer or a Foreign Business: For purposes of Form 8-K, interim financial statements must be filed if the date that the initial Form 8-K reporting the acquisition is filed is more than nine months after the end of the acquired company’s most recently completed year. The interim financial statements must cover at least the first six months of the year. [S-X 3-01(h), S-X 3-02(d), Item 8.A.5 of Form 20-F] (Last updated: 6/30/2013)

2045.16 Form 8-K Age of Financial Statements — Effect of Previously Filed Financial Statements — General Instruction B.3. to Form 8-K states in part: "If the registrant previously has reported substantially the same information as required by this form, the registrant need not make an additional report of the information on this form." Financial statements of an acquiree are not required in Form 8-K if they were previously filed by the registrant. Examples of when previously filed acquiree financial statements will not be deemed "substantially the same" pursuant to this instruction include:

• the previously filed acquiree financial statements would not satisfy the required age of financial statements in the Form 8-K because operating results for two or more interim quarters are omitted. See Example 1 below.
• the previously filed acquiree financial statements are interim financial statements and the Form 8-K requires filing of updated audited annual financial statements of the acquiree. See Example 2 below.
• the previously filed acquiree financial statements were prepared in accordance with the requirements for smaller reporting companies in S-X Article 8, but the registrant is not a smaller reporting company. See Example 3 below.

Example 1: Form S-4 included unaudited financial statements for the three months ended March 31 for a business to be acquired. The business combination was consummated on October 1, and a Form 8-K reporting the acquisition was timely filed. No financial statements are required in the Form 8-K, unless there were significant subsequent events that would materially affect an investor's understanding of the target company. However, if the business combination had been consummated on November 20, the financial statements would have had to be updated through September 30.

Example 2: Form S-4 contained unaudited financial statements of the entity to be acquired for the nine months ended September 30. Updated audited financial statements of the acquired entity are required in a Form 8-K if the business combination is consummated, and the Form 8-K is filed after the 89th day subsequent to December 31. Note that in a registration statement, updated audited financial statements of the acquired entity may be required before the 90th day, if either the acquired business is an accelerated filer or a large accelerated filer or the registrant does not meet the requirements under S-X 3-01(c). Refer to Section 2045.5, "1933 Act Registration Statement — Age of ANNUAL Financial Statements" regarding the requirements to provide audited financial statements of an acquired entity.

Example 3: If a registrant included financial statements of a previously nonpublic smaller reporting company-eligible target in a Form S-4 and those financial statements complied with smaller reporting company reporting requirements instead of S-X reporting requirements for companies other than smaller reporting companies (see Section 2200.2), those financial statements would not be deemed "substantially the same" pursuant to Form 8-K; Gen. Instruction B.3. Financial statements that comply with S-X would need to be filed in a Form 8-K if the S-X 3-05 significance threshold is met.

When the effective date of a registration statement occurs subsequent to filing the initial Form 8-K reporting the acquisition, but within the 71 calendar day extension to file the acquired business financial statements and the acquired business is significant in excess of 20% but less than 50%, the age of the acquired business financial statements presented in the Form 8-K should be based on the effective date of the registration statement, not the Form 8-K filing date. This is true even though S-X 3-05(b)(4) and S-X 8-04(c)(4) permit a registrant to exclude from its registration statement financial statements of an acquired business if its significance does not exceed 50% and the registration statement is declared effective (or immediately effective for well-known seasoned issuers) not more than 74 days after consummation of the acquisition. S-X 3-05(b)(4) and S-X 8-04(c)(4) were not intended to change the age of financial statements, simply the timing of filing them. Consider the following example.

Item 9.01 of Form 8-K requires a registrant to provide financial statements required by S-X 3-05 for any business acquisition required to be described in answer to Item 2.01 of Form 8-K. These financial statements may be provided in the initial Form 8-K or by amendment not later than 71 calendar days after the date that the initial Form 8-K is required. We refer to this as the “grace period.”

Item 9.01 of Form 8-K permits certain offerings and sales of securities to occur during the grace period even if the acquiree’s financial statements have not been filed. See Sections 2050.2 through 2050.5 for a discussion of the implications of the grace period on securities offerings and Securities Act registration statements.

While Rule 3-13 of Regulation S-X provides for the potential omission of certain financial statements or filing of substitution statements, it does not provide the staff the ability to waive the timely filing requirement of Form 8-K. If the financial statements and pro forma financial information required by Form 8-K are not filed within the grace period, then the filing will be considered deficient and, therefore, not filed in a timely manner for purposes of Form S-3 eligibility. Once the registrant has filed its audited financial statements that include the post-acquisition results of operations of the acquired entity for at least one year, CF-OCA, at the request of the registrant, will consider a request to accept audited financial statements for the acquired entity for a period of time less than that required by S-X 3-05/S-X 8-04. At a minimum, CF-OCA would expect audited pre- and post-acquisition financial statements to equal the periods required under S-X 3-05/S-X -8-04 and to have no break between the pre-acquisition and post-acquisition audited results.

A registrant may be unable to provide the financial statements required by Item 9.01 of Form 8-K. Sections 2050.6 and 2050.7 discuss some of the implications of failing to file the required financial statements during the grace period on securities offerings and Securities Act registration statements.

If significance does not exceed 50% and the financial statements of the acquired business have not been filed, S-X 3-05(b)(4)(i) permits use of effective registration statements during the grace period provided that the offering is not made by a blank check company pursuant to Regulation C, Rule 419.

If significance exceeds 50% and the financial statements of the acquired business have not been filed, registrants should not make offerings pursuant to effective registration statements, or pursuant to Rules 505 and 506 of Regulation D if any purchasers are not accredited investors under Rule 501(a) of that Regulation, until the required audited financial statements are filed; provided however, that the following offerings and sales of securities may proceed during the grace period notwithstanding that the financial statements of the acquired business have not been filed:

1. offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights;
2. dividend or interest reinvestment plans;
3. employee benefit plans;
4. transactions involving secondary offerings; and
5. sales of securities pursuant to Rule 144.

If significance does not exceed 50% and the financial statements of the acquired business have not been filed, then S-X 3-05(b)(4)(i) permits registration statements and post-effective amendments to registration statements, which do not relate to offerings by blank check companies pursuant to Regulation C, Rule 419, to become effective without financial statements of the acquired business.

If significance exceeds 50% and the financial statements of the acquired business have not been filed, registration statements and post-effective amendments to registration statements will not be declared effective. WKSIs should also not make offerings pursuant to registration statements that became effective during the grace period. See Section 2045.4 which describes a WKSI's obligation to comply with the requirements of S-X 3-05 at the time of filing of an S-3ASR.

Securities Act registration statements and post-effective amendments should include audited financial statements reporting on the operations of the acquired business for a time span equal to the periods for which audited financial statements are required by S-X 3-05 and pro forma financial information is required by S-X Article 11 at the effective date. WKSIs should also not make offerings pursuant to registration statements that became effective during the grace period. See Section 2045.4 which describes a WKSI's obligation to comply with the requirements of S-X 3-05 at the time of filing of an S-3ASR.

After the grace period, registrants should not make offerings pursuant to effective registration statements, or pursuant to Rules 505 and 506 of Regulation D if any purchasers are not accredited investors under Rule 501(a) of that Regulation, until the required audited financial statements are filed; provided, however, that the following offerings and sales of securities made pursuant to registration statements that were effective prior to the acquisition may proceed notwithstanding that the financial statements of the acquired business have not been filed:

1. offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights;
2. dividend or interest reinvestment plans;
3. employee benefit plans;
4. transactions involving secondary offerings by parties unrelated to the acquired business for which financial statements are not provided; and
5. sales of securities pursuant to Rule 144.

2055.2 Hostile Tender Offers — Modified registration statement requirements may apply to some registration statements covering hostile tender offers to shareholders of a company that will not provide its financial statements. However, if the target of the tender offer is a public company, financial statements of the target that are filed with the SEC may be incorporated by reference. A consent of the auditor may be required. Registrants intending to rely on Regulation C, Rule 409 should consider the guidance in SAB Topic 1A. and consult with CF-OMA and CF-OCA as to whether such reliance is appropriate in the circumstances.

2055.3 Troubled Financial Institutions — If a financial institution is acquired in a federally assisted transaction and constitutes a significant business having material continuity of operations, the staff will likely not object to the omission of audited historical financial statements required by S-X 3-05 if the statements are not reasonably available. Requests for waivers should be directed to CF-OCA. If a waiver is granted, an audited statement of assets acquired and liabilities assumed reflecting the purchase basis of accounting as of the acquisition date will be required, as well as Industry Guide 3 data and various additional disclosures. [SAB Topic 1K] (Last updated: 9/30/2010)

2065.1 Acquire Substantially All of an Entity — If the registrant acquires or succeeds to substantially all of the entity's key operating assets, full audited financial statements of the entity are presumed to be necessary in order to provide investors with the complete and comprehensive financial history of the acquired business. In these circumstances, elimination of specified assets and liabilities not acquired or assumed by the registrant is depicted in pro forma financial statements presenting the effects of the acquisition.

2065.2 Acquire Less than Substantially All of an Entity — In some circumstances, a registrant does not acquire or succeed to substantially all of the assets and liabilities of another entity. For example, the selling entity may retain significant operating assets, or significant operating assets that comprised the seller may be operated by an entity other than the registrant. In these circumstances, financial statements of the larger entity of which the acquired business was a part may not be informative. In that case, audited financial statements usually should be presented for the acquired component business, excluding the continuing operations retained by the larger entity. Registrants should evaluate their facts and circumstances to determine whether to apply the guidance in Section 2065.3 (carve-out financial statements) or in Sections 2065.4 through Section 2065.12 (abbreviated financial statements).

2065.3 Carve-out Financial Statements — Applicability — The staff will accept carve-out financial statements if it is impracticable to prepare the full financial statements required by Regulation S-X, and explanation of that impracticability is included in the filing. Carve-out financial statements may be appropriate when the acquired business represents a discrete activity of the selling entity for which assets and liabilities are specifically identifiable and a reasonable basis exists to allocate items that are not specifically identifiable to the acquired business, such as debt and indirect expenses not directly involved in the revenue producing activity. Carve-out financial statements should reflect all assets and liabilities of the acquired business even if they are not acquired/assumed as part of the acquisition. The staff would expect carve-out financial statements to comply with the guidance in SAB Topic 1B.1.

2065.4 Abbreviated Financial Statements — Statements of Assets Acquired and Liabilities Assumed and Statements of Revenues and Direct Expenses — Applicability — The staff may allow audited statements of assets acquired and liabilities assumed and statements of revenues and direct expenses (abbreviated financial statements) if it is impracticable to prepare the full financial statements required by Regulation S-X. For example, it may be impracticable to prepare full financial statements in an acquisition of a product line where the acquired product line is not a stand-alone entity; separate, audited financial statements of the product line have never been prepared; and the seller has not maintained the distinct and separate accounts necessary to present the full financial statements of the product line. Except for acquisitions of certain oil and gas properties discussed in Section 2065.11, requests to substitute abbreviated financial statements in lieu of full financial statements or carve-out financial statements should be directed to CF-OCA prior to filing.

2065.5 Abbreviated Financial Statements — Statements of Assets Acquired and Liabilities Assumed — General Requirements — Present a statement of assets acquired and liabilities assumed as of the end of each period required to be provided under S-X 3-05, not just as of the end of the most recent period, on the basis of seller's historical GAAP carrying value. If the registrant is unable to obtain statements of assets acquired and liabilities assumed prepared on the basis of seller's historical GAAP carrying value for each of the reporting dates required by S-X 3-05 (or, if applicable, S-X 8-04), CF-OCA will consider a registrant's request to present a statement of assets acquired and liabilities assumed prepared on the basis of the allocation of the registrant's purchase price as of the acquisition date. Registrants would still need to present the statement of revenues and direct expenses for the periods indicated by S-X 3-05 and S-X 8-04, as applicable.

2065.6 Abbreviated Financial Statements — Statement of Revenues and Direct Expenses — General Requirements — The staff would expect the statement of revenues and direct expenses to exclude only those costs not directly involved in the revenue producing activity, such as corporate overhead, interest and taxes. All costs directly associated with producing revenues reflected in the statement, including, but not limited to all related costs of sales and other selling, general and administrative, distribution, marketing, and research and development costs, must be included in the statement. The statement should include a reasonable allocation of expenses incurred by the seller on behalf of the business sold. The reasons for omitting any historical corporate overhead, interest, or tax expense should be explained in a note to the statements. If the type and historical amounts of these omitted expenses are known or reasonably available on an unaudited basis, they should be disclosed in an unaudited footnote. An explanation of the impracticability of preparing the full financial statements required by Regulation S-X should be provided. Also, the notes should describe how the financial statements presented are not indicative of the financial condition or results of operations of the acquired business going forward because of the omission of various operating expenses.

2065.7 [Reserved]

2065.8 Cash Flows — When abbreviated financial statements are presented, preparation of full statements of cash flows may not be practicable. However, registrants are required to provide information about the business’s operating, investing and financing cash flows, to the extent available, in the notes to the financial statements or in unaudited supplemental disclosures.

2065.9 Abbreviated Financial Statements — Statements of Assets Acquired and Liabilities Assumed and Statements of Revenues and Direct Expenses — Calculating Significance — Registrants should compute all three S-X 3-05 significance tests as written. For the asset test, this will require comparing the book value of the assets acquired to the registrant's total assets. For the income test this will require comparing the excess/deficiency of revenue over direct expenses to the registrant's pre-tax earnings. Historically, some registrants have requested to adjust the S-X 1-02(w) income test denominator (i.e., the registrant's pre-tax earnings) to exclude costs not directly involved in the registrant's revenue producing activity, such as corporate overhead, interest and taxes, when those costs are excluded from the numerator used to calculate income test significance. While such a calculation may help facilitate a registrant's analysis of whether the application of the S-X 3-05 income test produces anomalous results, such a calculation should not be done in lieu of the income test specified in S-X 3-05. If a registrant's management believes the application of the S-X 3-05 tests as written produces anomalous results, CF-OCA will, upon receipt of the registrant's written request and supporting analysis, consider a registrant's request to waive one or more of the periods specified by S-X 3-05. In making this request, registrants should evaluate all relevant facts and circumstances in determining what number of periods are necessary for an investor's understanding of the acquired business. Generally, CF-OCA will not waive all audited periods required by S-X 3-05.

2065.10 Pro Forma Financial Statements and Forward-Looking Disclosures — S-X Article 11 applies to the acquisition of selected parts of an entity.

Pro Forma Condensed Balance Sheet Guidance — If the historical financial statements of the acquired business are full financial statements (see Section 2065.1), the pro forma balance sheet should include adjustments to remove assets and liabilities that were not acquired or assumed provided the criteria described in Section 3220.3 are met.

Pro Forma Condensed Statement of Comprehensive Income Guidance — The pro forma condensed statement of comprehensive income should comply with the criteria at Section 3230.4 and should not include forward-looking information. If the historical financial statements of the acquired business are abbreviated financial statements, the pro forma footnotes should explain how the pro forma condensed statements of comprehensive income are not indicative of the acquired business’s operations going forward because of the changes in the business and the omission of various operating expenses.

Forward-Looking Information — If the registrant includes forward-looking information, it should clearly be identified as forward-looking rather than as pro forma. If the forward-looking information is in the form of an S-X 11-03 forecast, the pro forma condensed statements of comprehensive income may be omitted (see Section 3510). If the forward-looking information provided is not in the form of an S-X 11-03 forecast, it should nonetheless disclose how revenues and operating efficiencies may vary given the assumptions underlying the forward-looking information as if the business had been acquired at the beginning of the periods presented.

2065.11 Unique Considerations for Acquisitions of Oil and Gas Properties — General — An acquisition of an interest in a producing oil or natural gas property is considered by the staff to be the acquisition of a business pursuant to S-X 11-01(d) for which pre-acquisition financial statements are required if significant. If the property acquired represents substantially all of the selling entity’s key operating assets, see Section 2065.1. If the property acquired represents less than substantially all of the selling entity’s key operating assets, the registrant should provide the carve-out financial statements described in Section 2065.3, except that the staff will accept (i.e. pre-clearance with CF-OCA is not required) the abbreviated financial statements described in Sections 2065.4 through 2065.8 and in Section 2065.12 if the following three circumstances exist:

• The interest in the acquired oil or natural gas property constitutes only a portion of the assets of the seller and is not a segment or division of an entity or contained in a separate legal entity.
• Separate financial statements for the acquired business have not previously been prepared, and the seller has not maintained the distinct and separate accounts necessary to present the full financial statements or full carve-out financial statements of the property.
• It is impracticable to prepare the full financial statements required by Regulation S-X.

If abbreviated financial statements are provided, significance should be calculated in accordance with Section 2065.9.

2070.2 Conditions Precedent to Applying SAB 80 — A registrant must meet the following conditions in order to apply SAB 80:

• Condition 1: The acquired and likely to be acquired businesses must be discrete and substantially intact after the acquisition. Footnote 2 of SAB 80, which is partially reproduced in the notes below, provides an example to clarify. This condition exists because SAB 80 measures significance using the acquired businesses' post-acquisition assets and post-acquisition pretax income.
• Condition 2: SAB 80 can only be applied by a first-time registrant in its initial registration statement, irrespective of whether that initial registration statement involves a public offering.

2070.3 Significance under SAB 80 — Basics — SAB 80 permits first-time registrants to consider the significance of each acquired and likely to be acquired business based on pro forma financial statements for the registrant's most recently completed fiscal year. The registrant's pro forma financial statements used for purposes of measuring significance under SAB 80 should give effect to all acquisitions that were probable or completed as of the effective date of the registration statement as if they had been acquired at the beginning of the registrant's most recently completed fiscal year for the income test and at the end of the registrant's most recently completed fiscal year for the asset and investment tests.

2070.4 Significance under SAB 80 — Asset Test — As described in Section 2015, the S-X 3-05 and 1-02(w) asset test requires calculation of the ratio of (A) the registrant's and its other subsidiaries' proportionate interest in the total assets of the acquired or likely to be acquired business to (B) the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year. As described in Section 2070.3, under SAB 80 this ratio is calculated separately for each acquired or likely to be acquired business using the registrant's pro forma financial statements.

1. Numerator for the Asset test: Use the pro forma balance sheet for the acquired or likely to be acquired business as of the end of its most recently completed fiscal year that gives effect to any new cost basis arising from acquisition accounting irrespective of whether pushdown accounting is applied. If the fiscal year-end of the acquired or likely to be acquired business differs from the registrant's fiscal year-end by more than 93 days, the acquired or likely to be acquired business's fiscal year-end should be brought up to within 93 days of the registrant's most recent fiscal year-end. [S-X 11-02(c)(3)] (Last updated: 1/12/2015)
2. Denominator for the Asset test: Use the registrant's pro forma balance sheet as of the end of the most recently completed fiscal year included in the registration statement. The registrant's pro forma balance sheet should give effect to (A) acquisitions completed after the most recent year end and (B) probable acquisitions.

2070.5 Significance under SAB 80-Investment Test — As described in Section 2015, the S-X 3-05 and 1-02(w) investment test requires calculation of the ratio of (A) the registrant's and its other subsidiaries' investments in and advances to the recently acquired or to be acquired businesses to (B) the total assets of the registrant and its subsidiaries consolidated as of the end of the most recently completed fiscal year. As described in Section 2070.3, under SAB 80 this ratio is calculated separately for each acquired or likely to be acquired business using the registrant's pro forma financial statements.

1. Numerator for the Investment test: Use same amount as S-X 3-05 investment test.
2. Denominator for the Investment test: Use the registrant's pro forma balance sheet as of the end of the most recently completed fiscal year included in the registration statement. The registrant's pro forma balance sheet should give effect to (A) acquisitions completed after the most recent year end and (B) probable acquisitions.

2070.6 Significance under SAB 80-Income Test — As described in Section 2015, the S-X 3-05 and 1-02(w) income test requires calculation of the ratio of (A) the registrant's and its other subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of accounting changes of the recently acquired or to be acquired businesses to (B) such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year. As described in Section 2070.3, under SAB 80 this ratio is calculated separately for each acquired or likely to be acquired business using the registrant's pro forma financial statements.

1. Numerator for the Income test: Use the pro forma statement of comprehensive income for the acquired or likely to be acquired business for its most recently completed fiscal year that gives effect to any new cost basis arising from acquisition accounting irrespective of whether pushdown accounting is applied. If the fiscal year-end of the acquired or likely to be acquired business differs from the registrant's fiscal year-end by more than 93 days, the acquired business's fiscal year-end should be brought up to within 93 days of the registrant's most recent fiscal year-end. See S-X 11-02(c)(3). (Last updated: 1/12/2015)
2. Denominator for the Income test: Use the registrant's pro forma statement of comprehensive income for the most recent fiscal year included in the registration statement. The registrant's pro forma statement of comprehensive income should give effect to (A) acquisitions completed both during and after the most recent year end and (B) probable acquisitions.

2070.7 Financial Statement Requirements — Initial Registration Statement — SAB 80 is intended to ensure that the registration statement includes:

• at least 33 months of audited financial statements of at least 60% of the constituent businesses that will comprise the registrant on an ongoing basis, and
• at least 21 months of audited financial statements of at least 80% of the constituent businesses that will comprise the registrant on an ongoing basis, and
• at least 9 months of audited financial statements of at least 90% of the constituent businesses that will comprise the registrant on an ongoing basis.

2070.8 Requirement for Continuous Audited Period — SAB 80 uses a combination of pre-acquisition audited results of the acquired or likely to be acquired business and post-acquisition audited results of the registrant to satisfy the minimum financial statement requirements. Audited financial statements required to be filed to satisfy the requirements of SAB 80 should be for continuous periods, with no gap or overlap between pre-acquisition and post-acquisition audited periods.

2070.9 Interim Financial Statements — Whether interim financial statements of an acquired or to be acquired business measured using SAB 80 need to be audited depends on the acquisition date. If the acquisition date is on or before the registrant's most recent audited balance sheet required to be included in the registration statement, the interim financial statements of the acquired or to be acquired business should be presented and audited through the date of acquisition. If the acquisition date is after registrant's most recent audited balance sheet required to be included in the registration statement, then the interim financial statements of the acquired or to be acquired business should be presented for the same periods as if the acquiree were the registrant and may be unaudited.

2070.10 Determining Number of Pre-Acquisition Historical Financial Statement Periods Required for Completed and Probable Acquisitions:

1. Identify for each completed and probable acquisition the highest level of significance resulting from the asset, investment and income test.
2. Identify for which completed and probable acquisitions financial statements are required and for what number of months by reference to the chart in Section 2070.11 entitled "Minimum Financial Statement Requirement" and the highest level of significance for each acquisition identified in (A) above.
3. As noted in Section 2070.8, SAB 80 uses a combination of pre-acquisition audited results of the acquired or likely to be acquired business and post-acquisition audited results of the registrant to satisfy the minimum financial statement requirements. Determine the number of months of pre-acquisition financial statements needed for each completed and probable acquisition identified in (B) above by subtracting (1) the number of months the acquisition is included in the registrant's post-acquisition audited financial statements from (2) the Minimum Financial Statement Requirement described in Section 2070.11.
4. File pre-acquisition audited financial statements for each completed and probable acquisition for at least the number of months that the acquisition is not included in the registrant's audited financial statements with no gap or overlap between pre-acquisition and post-acquisition audited periods.

2070.12 Age of Financial Statements — Subsequent registration statements — The updating requirements of S-X 3-05 (and S-X 8-04 for a smaller reporting company) should be followed in subsequent registration statements. No updating is required for 1934 Act periodic reporting. Consider the following example.

Example Facts — A calendar year-end registrant has an IPO Form S-1 registration statement which will be effective February 1, 2008 that includes the registrant's audited financial statements for the three years ended December 31, 2006 and the registrant's unaudited interim financial statements for the nine months ended September 30, 2007 and September 30, 2006. The registrant acquired the businesses identified in the chart below during 2006 and 2007. Registrant chose to evaluate the need to include historical financial statements for the businesses it acquired using SAB 80 and appropriately concluded that the following annual and interim period financial statements of the acquired businesses must be included in the IPO Form S-1 at the February 1, 2008 effective date:

Example Analysis — In a subsequent registration statement declared effective June 16, 2008, the following financial statements related to the same entities would be required for the most recent fiscal year and interim period:

2070.13 Tests of Significance After an Initial Registration Statement in which SAB 80 was Applied — SAB 80 can only be used in an initial registration statement of a first-time registrant. It is not used to evaluate significance for acquisitions that occur after the effective date of the initial registration statement. However, if the provisions of SAB 80 were used in an initial registration statement to obtain relief from the reporting requirements of S-X 3-05, the staff would allow that registrant to separately evaluate the significance of each acquisition that occurs after the effective date of the initial registration statement using the pro forma financial statements that were used to evaluate significance under SAB 80 in the initial registration statement. However, those pro forma financial statements should be adjusted to eliminate:

• pro forma effects of acquisitions for which no audited financial statements are presented in the initial registration statement,
• the pro forma effects of acquisitions that were probable at the time the initial registration statement was declared effective but which have yet to be consummated, and
• pro forma adjustments not directly attributable to the acquisitions.

Once the registrant files audited annual financial statements (either in a Securities Act or Exchange Act filing) for the fiscal year following the audited fiscal year presented in the initial registration statement on which pro forma financial statements were based, the registrant should measure significance of acquisitions using the audited financial statements of the registrant as required by S-X 3-05. Upon written request, the staff will consider whether relief from the literal application of S-X 3-05 is appropriate.

Financial statements of an individually insignificant business acquired subsequent to the effective date of an initial registration statement (but prior to filing audited annual financial statements for the fiscal year following the audited fiscal year presented in the initial registration statement) may also be required in a subsequent registration statement if the significance of that acquisition, plus other acquisitions for which no audited financial statements were provided in the initial registration statements, aggregate 50% or more of adjusted pro forma financial statements described above. See Section 2035 which describes how to measure aggregate significance for individually insignificant businesses.

2110.2 “Business” — See S-X 11-01(d) for the definition of a “business.”

2120.2 Proxy and Information Statements — If authorization is sought from shareholders for disposition of a significant business (including spin-offs), unaudited financial statements of that business should be provided in the proxy statements for the same periods as are required for the registrant (along with pro forma information); however, audited financial statements for each of the 2 most recent fiscal years of that business should be provided if they are available. See the Division of Corporation Finance's July 2001 Interim Supplement to Publicly Available Telephone Interpretations, Section H6. Also, see related discussion in Section 1140.6.

The same financial statement content described above for proxy statements also applies to Schedule 14C Information Statements. (Last updated: 6/30/2012)

2120.3 Registering Shares of Disposed Business — If disposition of a business is being accomplished through the registrant's distribution to shareholders of its ownership interests in that business, audited financial statements of the separate legal "spinee" (which may not be the spinee for accounting purposes) for the same periods required for the registrant are required in a Form 10 or 1933 Act registration statement filed in connection with the spin-off.

2130.1 General — Measure significance of a disposed business using the three significance tests in S-X 1-02(w). If any of the three tests exceeds 10%, the business is significant. [Instruction 4(ii) Item 2.01, Form 8-K and S-X 11-01(b)(2)]

Asset Test — The numerator of the asset test should be the total assets of the disposed business as of the end of its most recently completed fiscal year prior to disposal. The denominator of the asset test should be the registrant’s total assets as of the end of its most recently completed fiscal year prior to disposal. A registrant’s total assets as of the end of its most recently completed fiscal year will include assets related to both its continuing operations and its discontinued operations.

Income Test — The numerator of the income test should be the pre-tax income or loss from continuing operations of the disposed business for its most recently completed fiscal year prior to disposal. The denominator of the income test should be the historical pre-tax income or loss from continuing operations of the registrant for its most recently completed fiscal year prior to disposal. Because S-X 1-02(w) specifies that the denominator equals the registrant’s pre-tax income or loss from continuing operations, the denominator will not include the results of a disposed business which was previously appropriately reported as a discontinued operation.

Because the asset test and the income test include only amounts reflected in both the disposed business’s and the registrant’s consolidated financial statements for their most recently completed fiscal year prior to the disposal date, the accounting in the period of disposal does not affect either the asset test or the income test.

2305.1 Applicability of S-X 3-14 — Application of S-X 3-14 is limited to the acquisition or probable acquisition of real estate operations.

S-X 3-14, which is premised on the continuity and predictability of cash flows ordinarily associated with leasing real property, applies to the acquisition or probable acquisition of real estate operations. For purposes of S-X 3-14, the term “real estate operations” refers to properties that generate revenues solely through leasing. Examples include office, apartment and industrial buildings as well as shopping centers and malls. “Real estate operations” excludes the acquisition of properties that generate revenues from operations other than leasing real property, such as nursing homes, hotels, motels, golf courses, auto dealerships, and equipment rental operations, which are more susceptible to variations in costs and revenues over shorter periods due to market and managerial factors. S-X 3-05 rather than S-X 3-14 is applicable to the acquisition of these types of businesses. Acquired properties subject to triple net leases, whether involving leasing or other activities, should be evaluated under Section 2340.

When a registrant acquires an equity interest in a pre-existing legal entity (such as a partnership, LLC or corporation) that only holds real estate under lease and related debt, financial statements of the underlying property meeting the requirements of S-X 3-14 should be provided instead of S-X 3-05 financial statements, if the acquisition is significant. When a registrant acquires an equity interest in a pre-existing legal entity that engages in other activities, such as property management or development, financial statements of that entity meeting the requirements of S-X 3-05 generally are required if the acquisition is significant. A registrant should consult with CF-OCA to the extent it believes S-X 3-14 financial statements are more appropriate than S-X 3-05 financial statements due to the limited degree of operations other than leasing real estate. If S-X 3-14 financial statements are more appropriate due to the limited degree of operations other than leasing real estate, financial statements are required if the 10% or more significance level applicable to S-X 3-14 financial statements is met. (Last updated: 10/20/2014)

For purposes of applying S-X 3-14, the staff views an investment in a newly formed partnership or corporation (either consolidated or accounted for using the equity method) that will acquire properties under lease simultaneous with or soon after its formation as, in substance, the acquisition of properties by the registrant. In these circumstances, the staff will require S-X 3-14 financial statements of the underlying property being acquired instead of S-X 3-05 financial statements of the newly formed entity. This assumes that the new entity has no other activities besides leasing real property.

The following table summarizes general financial statement requirements in 1933 Act registration statements with respect to the acquisition of real estate operations. Refer to the sections below the summary for details in applying these requirements:

Sections 2310-2320 do not apply to “blind pool” offerings subject to Industry Guide 5, Item 20.D Undertakings. See Section 2325 for guidance related to “blind pool” offerings.

Financial statements of each operating real estate property (or group of related properties) acquired or probable of acquisition that is significant individually or in the aggregate at the 10% level or higher are required to be filed in all transactional filings (i.e., proxy statements requiring financial information, 1934 Act registration statements, 1933 Act registration statements (except registration statements filed under Rule 462(b)) and post-effective amendments filed to reflect a fundamental change). The filing of a Rule 424 prospectus is not a transactional filing. S-X 3-14 financial statements must be provided for:

1. each completed purchase of an individually significant property made during each year presented and subsequent to the end of the most recently completed fiscal year for which the registrant’s financial statements have been filed, or
2. any probable acquisition of an individually significant property, or
3. completed and probable acquisitions of individually insignificant properties that are significant in the aggregate, made or to be made subsequent to the end of the most recently completed fiscal year for which the registrant’s financial statements have been filed.

For registration and proxy statements, the 74-day rule in S-X 3-05(b)(4) does not apply to S-X 3-14 financial statements. However, see Section 2325.2 for special provisions applicable to “blind pool” registration statements during the distribution period.

Financial statements of each operating real estate property (or group of related properties) acquired that is individually significant at the 10% level or higher are required to be filed in a Form 8-K.

Compare the registrant's investment in the property to the registrant's total assets at the latest audited fiscal year end filed with the SEC (except as noted in Section 2320 for individually insignificant acquisitions and Section 2335 for REIT formation transactions). The investment includes any debt secured by the property that is assumed by the purchaser.

If the company has not completed its first fiscal year, use the most recent audited balance sheet filed with the SEC.

If the acquisition was made after the most recent fiscal year and the registrant files its Form 10-K for that year before the due date of the Form 8-K (including the 71 calendar day extension), the staff has not objected if significance is evaluated relative to the most recently completed fiscal year.

If the acquisition was made after reporting an individually significant acquisition in an Item 2.01 Form 8-K that included historical audited S-X 3-14 financial statements, the registrant may evaluate significance using the registrant’s pro forma financial information included in that Form 8-K for the acquisition rather than historical pre-acquisition financial statements. The pro forma effects of any other transaction should be excluded. If the registrant chooses to compute significance using pro forma information, the staff would expect the registrant to consistently apply that methodology for evaluating all subsequent acquisitions for the remainder of the fiscal year.

Individually Insignificant Acquisitions -Applicability The requirement under S-X 3-14 to file financial statements of individually insignificant properties that are significant in the aggregate is applicable only to registration and proxy statements. Form 8-K does not require audited financial statements of insignificant properties unless they are "related properties" and significant on a combined basis. See Note 2 to Section 2310.1.

To compute significance, combine individually insignificant properties acquired subsequent to the end of the most recently completed fiscal year for which the registrant’s financial statements have been filed and probable acquisitions. Property acquisitions which would not require S-X 3-14 financial statements even if individually significant, such as triple net leased properties covered by Section 2340 and newly constructed properties covered by Section 2330.10, should be excluded from this calculation. Compute significance based on the registrant’s total assets as of the latest audited fiscal year balance sheet date preceding the acquisition except when Section 2315.4 is applicable.

If the aggregate of all insignificant real estate properties described in Section 2320.2 exceeds 10% of the registrant’s total assets, financial statements are required for certain of these properties. Determine what financial statements to provide as follows:

1. The registrant should provide S-X 3-14 financial statements for each property acquisition that is 5% or more significant.
2. Then it should assess whether it has provided financial statements for the majority (> 50%) of the aggregated property acquisitions based on the purchase price. If it has provided over 50% of the aggregate purchase price, it need not provide additional financial statements. If it has not provided financial statements for over 50% of the aggregate purchase price, it should provide the S-X 3-14 financial statements of other acquired properties below the 5% level in order to provide financial statements for over 50% of the aggregate purchase price.
3. If the registrant is unable to obtain audited financial statements of a property that is 5% or more significant or of properties sufficient to provide financial statements for over 50% of the aggregate purchase price, it should request relief from CF-OCA in writing.

"Blind Pool" offerings subject to Industry Guide 5 have different 1933 and 1934 Act reporting requirements with respect to real estate acquisitions both during and after the distribution period.

Registration statements for "blind pool" offerings by real estate companies subject to Industry Guide 5 are required to include undertakings to:

1. file a sticker supplement during the distribution period describing each significant property that has not been identified in the prospectus whenever a reasonable probability arises that a property will be acquired (the disclosure should include the information required for significant properties in Items 14 and 15 of Form S-11), and
2. consolidate all stickers in a post-effective amendment filed at least once every 3 months during the distribution period. The post-effective amendment must include or incorporate by reference audited financial statements in the format described in S-X 3-14 that have been filed or should have been filed on Form 8-K for all significant property acquisitions that have been consummated. Pro forma information is also required. [Guide 5, Item 20.D. Undertakings]

A post-effective amendment filed to consolidate stickers or to update the financial statements under Section 10(a)(3) of the Exchange Act does not need to include financial statements for significant property acquisitions during the 71-day extension period allowed by Item 9.01 of Form 8-K. (Last updated: 6/30/2010)

A post-effective amendment filed for a fundamental change, pursuant to the registrant’s undertakings under Item 512(a)(1) of Regulation S-K, should include financial statements for all significant acquisitions, including any financial statements not yet filed during the 71-day extension period provided by Item 9.01 of Form 8-K. (Last updated: 6/30/2010)

Post-effective amendments that consolidate supplements are not considered new filings for purposes of updating the registrant’s financial statements if the duty to file a post-effective amendment is triggered solely by the Item 20.D undertakings.

The prospectus updating regime in the Item 20.D undertakings is intended solely for real estate companies and not for other types of companies that may be subject to other parts of Industry Guide 5. If a real estate company subject to the Item 20.D undertakings acquires a significant property that generates revenues from operations other than leasing rental property, such as a hotel, motel, nursing home or medical office facility, the company should follow the Item 20.D updating regime discussed in Section 2325, except that the significance tests and required financial statements should be those specified in S-X 3-05. If a real estate company subject to the Item 20.D undertakings acquires a triple net leased property, the company should follow the Item 20.D updating regime discussed in this Section 2325, except that the significance threshold applied and financial information provided should be those as described in Section 2340. (Last updated: 3/31/2013)

(Last updated: 3/31/2013)

An individual property is significant if it:

1. exceeds the 10% significance level, or
2. is one of a group of properties that together aggregate more than 10% and are either:

   • acquired from a single seller, or
   • are related.

See Note 2 to Section 2310.1 regarding related properties.

Significance for purposes of the Guide 5 distribution period is computed by comparing the registrant's investment in the property to the registrant's total assets as of the date of the acquisition plus the proceeds (net of commissions) in good faith expected to be raised in the registered offering over the next 12 months. The investment includes any debt secured by the property that is assumed by the purchaser. In estimating the offering proceeds, the registrant should consider the pace of fundraising as of the measurement date, the sponsor or dealer-manager’s prior public fundraising experience and offerings by similar companies. This alternative measurement is only available during the distribution period.

Registrants are required to file a current report on Form 8-K that includes S-X 3-14 financial statements and the related pro forma information for each property acquired during the distribution period that exceeds the 10% significance level as measured in Section 2325.3.

While companies do not undertake to file sticker supplements after the distribution period is completed, they undertake to file on Form 8-K audited financial statements of properties, in the format described in S-X 3-14, after this period is completed. Until a company files its first annual report after the distribution period ends, the company should file a Form 8-K with the required S-X 3-14 financial statements for every significant property it purchases that represents 10% or more of the company’s total assets as of the acquisition date. The staff has not objected to the view that the undertaking to provide audited financial statements is not applicable to individually insignificant properties. S­X 3-14 financial statements may be omitted for individually insignificant properties.

A registrant may continue to use this modified method of measuring significance until it files its first annual report after the distribution period ends. After that, it would measure significance in the normal manner described in Section 2315.

S-X 3-14 financial statements may exclude items (such as historical mortgage interest and depreciation) which are not comparable to the proposed future operations of the property. (Where items are excluded, auditors ordinarily will issue a report such as that at AU 623.15 and 623.18). Registrants may request relief from the audit requirement for financial statements of properties with a rental history of less than one year.

Audited three years (two years for acquisitions by certain issuers, such as smaller reporting companies), plus the latest unaudited interim period based on the property's fiscal periods are required for properties acquired from a related party. For properties held by the related party for less than three years, financial statements are required for the greater of the period held by the related party or one year. See Section 2330.4 "Periods to be Presented Implementation — Pre-Acquisition Using Fiscal Year-End." (Last updated: 6/30/2013)

Only the most recent year and most recent interim period are required if the property was acquired from a third party. See Section 2330.4 "Periods to be Presented Implementation — Pre-Acquisition Using Fiscal Year-End."

It is not appropriate to provide audited financial statements for a rolling 12-month period prior to the acquisition in lieu of audited financial statements for the latest fiscal year end of the property. Also, pre- and post-acquisition periods should not be combined to produce a year's financial statements. Only pre-acquisition financial statements satisfy S-X 3-14.

S-X 3-06(b) does not apply to financial statements of real estate properties. (Last updated: 10/20/2014)

The same rules for updating S-X 3-05 financial statements apply to S-X 3-14 financial statements. See Section 2045.

The registrant should describe any material factors which would cause the reported financial information not to be indicative of future operating results, such as a change in how the property will be used, an expected material modification to the property, or a material change in property tax assessment.

If a registrant acquires an operating property with a rental history of more than three months but less than nine months, the financial statements may be presented on an unaudited basis.

If a registrant acquires an operating property which it will demolish and build a new rental property, the staff would not object to the omission of the S-X 3-14 financial statements of the acquired property if the prior rental revenues and operating costs of the property are not representative of the new property to be built. The registrant should explain the basis for omission of the financial statements in the filing. In other cases where the registrant believes the leasing history is not representative, it may request relief from CF-OCA in writing.

Where a registrant acquires a property that does not have a leasing history, such as a previously owner-occupied or newly constructed property, financial statements of the property are not required. Where the leasing history is less than three months, financial statements of the property are not required. See Section 2340 with respect to triple net leased properties.

A newly-formed REIT having no significant operations may acquire operating properties immediately prior to filing an IPO, or may identify properties to be acquired upon closing the IPO. In addition, the REIT may identify properties that it will probably acquire soon after the IPO. The staff recognizes in these circumstances that the literal application of S-X 3-14 could result in the registrant providing financial statements of properties that are clearly insignificant to investors. In identifying the financial statements required to be included in the initial registration statement, the staff has allowed registrants to compute significance using a denominator equal to the total cost of the properties acquired immediately prior to filing an initial registration statement, properties to be acquired upon closing the IPO, and properties identified as probable future acquisitions.

In computing significance of any future property acquisition until the time the registrant files its Form 10-K covering the year the IPO is consummated, the registrant can use the same base as was used in the initial registration statement. However, that base should be reduced for any property not acquired or no longer probable. That base should not be reduced for probable acquisitions for which audited financial statements were included in the registration statement and the acquisition remains probable.

A triple net lease typically requires the lessee to pay costs normally associated with ownership of the property such as property taxes, insurance, utilities and maintenance costs. Based on these attributes, the leasing arrangement is similar to a financing arrangement for the lessee. When a registrant has triple net leased one or more real estate properties to a single lessee/tenant (including in the capacity as co-lessee or guarantor), and such properties represent a “significant” portion of the registrant’s assets, an investor may need to consider the lessee’s financial statements or other financial information in order to evaluate the risk to the registrant from this asset concentration. An asset concentration is generally considered “significant” if it exceeds 20% of the registrant’s assets as of its most recent balance sheet.

In circumstances where a registrant acquires a property resulting in a significant asset concentration, the registrant should generally provide full audited financial statements of the lessee or guarantor for the periods required by S-X 3-01 and 3­02 / S-X 8-02 and 8-03. If the lessee is a public company subject to the periodic reporting obligations of the Exchange Act, the registrant may instead include in the filing a statement referring investors to a publicly-available website with the lessee’s SEC filed financial information. If a registrant with an asset concentration related to a lessee believes that less detailed financial information is appropriate based on the registrant’s particular facts and circumstances or the lessee financial statements are not available, the registrant should consult with CF-OCA on a pre-filing basis.

In an annual report, registrants may provide the lessee financial statements based on the due dates for financial statements of a significant equity method investee under S-X 3-09 by analogy. Refer to Section 2405.7 – 2405.11.

Registrants should consider significant asset concentrations when preparing a Securities Act registration statement, or an Exchange Act registration statement, annual report, or current report on Form 8-K filed in connection with a property acquisition. If a registrant acquires a property subject to a triple net lease and there is a rental history, the registrant should apply S-X 3-14 in situations where there is not a significant asset concentration.

A registrant may make a loan that is secured by a real estate operating property. SAB Topic1I provides that financial statements for such properties may be required where the economic substance of the loan represents an investment in real estate, such as in an "ADC arrangement" as defined in AICPA's 2/10/86 Notice to Practitioners in the CPA Letter. The characteristics of these loans are found in Exhibit I to Practice Bulletin 1. In these arrangements, a lender participates in the expected residual profit and shares in the risk and rewards of the owner.

2350.2 "Related" Properties — Properties are related, for example, if they are subject to cross default or collateralization agreements.

The staff applies the requirements of Item 14 of Schedule 14A to the Proxy Rules to the acquisition of real estate operating properties. S-X 3-14 financial statements of the properties should be provided in lieu of S-X 3-05 financial statements. In addition, registrants should comply with all of the disclosure requirements of Item 14 of Schedule 14A in a proxy statement related to the acquisition of real estate operating properties.

2360.2 Proxy Statements — Management's Discussion and Analysis is required under Item 14(c)(2). The staff expects registrants to:

1. discuss operating trends depicted by the properties' historical financial statements and selected financial data presented; and
2. provide applicable property information that is described under Items 14 and 15 of Form S-11, to the extent that information is not provided elsewhere in the proxy statements.

2360.3 Proxy Statements — Roll-up Transactions — Proxy statements related to roll-up transactions should also comply with the applicable roll-up provisions of Regulation S-K, Items 901-915.

Item 14(c)(2) requires five years of selected financial data with respect to the properties that are the subject of the shareholder vote. The staff will consider granting relief to registrants on a case-by-case basis in circumstances where that information is unavailable or not obtainable without unreasonable cost or expense. Registrants may consult with CF-OCA to request this relief.

In addition, EGCs may present fewer than five years of selected financial data in certain circumstances. See Section 10220.2. (Last updated: 6/30/2013)

2405.2 "Subsidiaries not consolidated" — Separate Financial Statements S-X 3-09 requires that if any of the conditions set forth in S-X 1-02(w) exceed 20 percent, separate annual financial statements for each subsidiary not consolidated should be provided. Since the issuance of S-X 3-09 and S-X 4-08(g), U.S. GAAP has been revised to require consolidation by a parent of a "subsidiary." Therefore, the requirement in S-X 3-09 related to "subsidiaries not consolidated" no longer has practical application. The remaining discussion in this Section 2400 "Equity Method Investments, including Fair Value Option" relates to "50% or less-owned persons," which are discussed in Section 2405.3.

For purposes of S-X 3-09, the investee’s separate annual financial statements should only depict the period of the fiscal year in which it was accounted for by the equity method. However, CF-OCA will, upon a written request, consider accepting the investee’s financial statements for the whole year, if the registrant demonstrates that it is an undue hardship to obtain investee’s financial statements through the date it ceases to be accounted for under the equity method.

2405.5 Change from Cost Method to Equity Method — If a registrant's financial statements are retroactively adjusted in accordance with ASC 323-10-35-33 to reflect equity method accounting for an investment previously accounted for under the cost method, S-X 3-09 financial statements, or summarized financial information required by S-X 4-08(g), S-X 8-03, or S-X 10-01(b)(1), may be required for periods in which the cost method was previously used if the significance tests are met.

2405.6 Lower Tier Investees — S-X 3-09 applies to an investee accounted for by the equity method by an investee of the registrant. To determine whether separate financial statements of an investee accounted for by the equity method by an investee of the registrant are required, the significance test should be computed based on the materiality of the lower tier investee to the registrant consolidated. [SAB Topic 6K.4.a.]

The filing date for S-X 3-09 financial statements differs depending primarily on four factors:

1. whether the registrant is a domestic issuer or a foreign private issuer;
2. the investee's fiscal year end;
3. both the investee's and the registrant's filing status (e.g., non-accelerated filer, accelerated filer or large accelerated filer), and
4. whether or not the investee is a foreign business. See definition in S-X 1-02(l).

The financial statements required by S-X 3-09 must be filed within the following number of days after the investee's fiscal year-end:

• 60 days if the investee is a large accelerated filer
• 75 days if the investee is an accelerated filer; or
• 90 days for all other investees.

However, if the number of days after the investee's fiscal year-end is before the due date of the registrant's Form 10-K, then the S-X 3-09 financial statements need not be filed prior to the due date of the registrant's Form 10-K. Also, if the investee's financial statements are due after the registrant's Form 10-K is required to be filed (e.g., registrant is an accelerated filer, but investee is non-accelerated and both have the same year end), the financial statements required by S-X 3-09 should be filed in an amendment to the registrant's Form 10-K.

Financial statements required by S-X 3-09 may be filed in an amendment to the Form 20-F within the following number of days after the investee's fiscal year end: [S-X 3-09(b)(2)]

• 60 days if the investee is a large accelerated filer
• 75 days if the investee is an accelerated filer; or
• 90 days for all other investees.

However, if the number of days after the investee's year-end noted above is before the due date of the Form 20-F, then the S-X 3-09 financial statements need not be filed prior to the due date of the Form 20-F.

S-X 3-09 financial statements of a foreign business must be filed within six months after the investee's year-end, but in no event earlier than the due date of the registrant's annual report (i.e., Form 10-K or 20-F). [S-X 3-09(b)(1) and (b)(2)] If the investee’s financial statements are due after the registrant's annual report is required to be filed, the financial statements required by S-X 3-09 should be filed in an amendment to the registrant's annual report.

If the investee is a foreign business, S-X 3-09 financial statements may not be older than 15 months. [S-X 3-12(f) references Item 8.A.4. Form 20-F] If the investee is not a foreign business, S-X 3-09 financial statements must be updated within the following number of days after the investee's fiscal year end: [S-X 3-09(b) references S-X 3-01 and S-X 3-02]

• 60 days if the investee is a large accelerated filer
• 75 days if the investee is an accelerated filer; or
• 90 days for all other investees.

2410.1 General — As noted in Section 2405.3, S-X 3-09 requires the registrant to file separate annual financial statements for each significant equity method investee for which either the income or the investment test set forth in S-X 1-02(w) exceeds 20% for any of the registrant’s fiscal years required to be presented in the filing (see Note 2 to Section 2405.3). The asset test in S-X 1-02(w) does not apply. (Last updated: 6/30/2010)

2410.2 Amounts Used to Measure Significance Under S-X 3-09

The S-X 1-02(w) income test is based on the registrant's “equity in the income from continuing operations before income taxes of the subsidiary exclusive of amounts attributable to any noncontrolling interests” (i.e., the numerator) compared to "such income of the registrant and its subsidiaries consolidated for the most recently completed fiscal year" (i.e., the denominator). Such equity in an investee's pretax earnings or loss is not required to be shown or disclosed in the registrant's financial statements, so the amount to be used as the numerator and denominator in the income test must be calculated.

The numerator is calculated based on the registrant’s proportionate share of the pre-tax income from continuing operations reflected in the separate financial statements of the investee prepared in accordance with U.S. GAAP for the period in which the registrant recognizes income or loss from the investee under the equity method adjusted for any basis differences. In determining the basis differences that should be included for this test, the registrant should consider ASC 323-10-35-34 and ASC 323-10-35-32A. While not an exclusive list, items impacting net income of the registrant that should be excluded from the test are: impairment charges at the investor level, gains/losses from stock sales by the registrant; dilution gains/losses from stock sales by the investee, preferred dividends.

See the related discussion about the effect of different fiscal year ends and one quarter (or less) lags at Section 2410.7. Foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB should use IFRS as issued by the IASB in performing this analysis. The aforementioned guidance does not apply if the registrant elected to use the fair value option. See Section 2435.

The registrant should not exclude its equity in the income or loss of the investee when determining whether the registrant qualifies for income averaging under computational note 2 to S-X 1-02(w). If a registrant qualifies to use income averaging and the tested equity method investee incurred a loss, then, pursuant to computational note 1 to S-X 1-02(w), the registrant's equity in the income or loss of the investee should be excluded from the income of the registrant when computing the registrant's average income.

Because an equity method investee is not consolidated, intercompany transactions should not be eliminated when measuring significance of an equity method investee.

The investee’s financial statements a registrant is required to file under S-X 3­09 may differ from the investee’s financial results used by the registrant to calculate the registrant’s equity in the income or loss of the investee presented in the registrant’s financial statements. This may occur when a registrant and an investee have different fiscal years or when they have the same fiscal year, but the registrant computes its equity in the income or loss of the investee on a consistent one quarter (or less) lag basis. In these circumstances, the S-X 3-09 significance tests should be determined using the investee’s financial results used by the registrant to calculate the registrant’s equity in the income or loss of the investee presented in the registrant’s financial statements, not amounts derived from the investee’s financial statements required to be filed under S-X 3-09. For example, consider a registrant with a December 31 year end and an investee with a June 30 year end. Assume the registrant consistently recognizes its equity in the income of the investee using the investee’s twelve months ended September 30. In this case, the registrant calculates the S-X 3-09 significance tests consistent with FRM 2410.2 using the investee’s results for the twelve months ended September 30. If the investee is significant, the investee’s financial statements for the twelve months ended June 30 would satisfy the requirements of S-X 3-09 because those are the annual financial statements the investee would be required to present pursuant to S-X 3-01 and 3-02 if the investee were a registrant.

If a registrant has a discontinued operation or a retrospectively applied change in accounting principle subsequent to the registrant’s filing of its Form 10-K, the staff will not object if a registrant uses its historical financial statements in its most recent Form 10-K to determine whether S-X 3-09 financial statements and S-X 4-08(g) financial information is required. In other words, the registrant need not recompute significance using the financial statements that give retrospective effect to the discontinued operation or change in accounting principle and are included or incorporated into the registration or proxy statement. In addition, the staff will not object if a registrant, when filing a subsequent Form 10-K, does not recompute S-X 3-09 and S-X 4-08(g) significance for periods earlier than the one during which a retrospectively applied change in accounting principle occurred. However, for a discontinued operation, a registrant must recompute S-X 3-09 and S-X 4-08(g) significance for all periods presented. As a result, a previously insignificant investee may become significant as a result of a discontinued operation.

S-X 3-09 financial statements and S-X 4-08(g) financial information for a disposed equity method investment will not be required in the Form 10-K for the year of disposal if (A) in the year an equity method investment is disposed, either a different event occurs after the disposal requiring a component of the registrant to be reported as a discontinued operation or a change in accounting principle is adopted by the registrant in the year of the disposal; and (B) the equity method investment is not significant for any of the registrant’s fiscal years required to be presented in the Form 10-K, including the year of disposal, based on the historical financial statements of the registrant that have not been retrospectively adjusted to give effect to the discontinued operation or change in accounting principle.

For further discussion about multiple series registrants, see the Division of Corporation Finance’s C&DIs for Securities Act Sections, Question 104.01.

The requirements to present summarized financial data of the registrant's equity method investees in a footnote to the registrant's financial statements apply to all registrants. The significance tests and thresholds used to determine whether such disclosure is required as well as the level of disclosure may differ depending on whether:

1. The registrant is a smaller reporting company and
2. The registrant's financial statements are for an annual or interim period.

The following table includes an overview of the sources of these requirements as well as the number of significance tests that must be computed and the significance thresholds. See the Sections noted in the chart for further detail.

2420.2 Definitions — The summarized financial data requirements apply to "Subsidiaries Not Consolidated" and "50% or Less-owned Persons." See Sections 2405.2 and 2405.3 for definitions of these terms.

Determine significance of each investee for each of the registrant’s fiscal years required to be presented in the filing using all 3 tests in S-X 1-02(w) (investment, asset and income tests). Present summarized financial data described in Section 2420.4 in the registrant's financial statement footnotes for all investees (not just the investee that is significant) if significance of any individual or any combination of investee(s) exceeds 10%. See exception below at Section 2420.5 Interaction of S-X 4-08(g) With S-X 3-09.

If S-X 4-08(g) significance is met in any fiscal year presented, the registrant’s financial statement footnotes for each of the registrant’s fiscal years presented should include, at a minimum, the following summarized financial data for all investees (not just the investees that are significant): current and noncurrent assets and liabilities; redeemable stock and noncontrolling interests; revenues; gross profit; income from continuing operations; and net income. The summarized annual financial data for each investee may be aggregated, but it should not be labeled “unaudited.”

SAB Topic 6K.4.b. notes that if a registrant includes separate financial statements (i.e., S-X 3-09 financial statements) for an investee in its annual report, then it need not include the summarized financial information required by S-X 4-08(g) for that investee. [S-X 4-08(g) and SAB Topic 6K.4.b.] The reason for this conclusion is that separate financial statements of an investee would include the minimum information required by S-X 4-08(g) and therefore such information need not be repeated in the registrant's financial statement footnotes. As noted in Section 2405, in certain circumstances S-X 3-09 financial statements may be filed after the original due date of the registrant's Form 10-K. If S-X 3-09 financial statements are not filed at the same time as the Form 10-K, the registrant must include S-X 4-08(g) summarized financial information in its audited financial statements included in the Form 10-K.

Present summarized statement of comprehensive income information for each investee for which both:

1. Investee is significant, measured using either the income or investment tests described in S-X 1-02(w) substituting 20% for 10%; and
2. Form 10-Q financial information (i.e., Part 1 of Form 10-Q) would be required if investee was a registrant. Examples of registrants that do not need to file Form 10-Q Part 1 include foreign private issuers, asset-backed issuers, mutual life insurance companies and certain mining companies. See Exchange Act Rule 13a-13 and Exchange Act Rule 15d-13 for a complete list and explanation.

When interim summarized statement of comprehensive income information is required, it need only be provided for investees that are significant. Minimum disclosure for each significant investee, which may be aggregated with such minimum disclosure for other significant investees, must include: revenues; gross profit; income from continuing operations; and net income. If S-X 10-01(b)(1) significance is met for any year-to-date (cumulative) interim period included in a quarterly report (See Sections 2420.6 and 2420.7), then the registrant should present the minimum disclosure for both the current and prior year comparative year-to-date periods included in that quarterly report.

Determine significance of each investee for any of the registrant’s fiscal years required to be presented in the filing using all 3 tests in S-X 1-02(w) (investment, asset and income tests), substituting 20% for 10%. If significance of any individual or any combination of investee(s) exceeds 20%, include in the registrant’s financial statement footnotes summarized financial data for all investees for each period presented. Summarized annual financial data should not be labeled "unaudited." Interim financial statements need only include summarized financial data for each investee that is significant. Summarized financial data should quantify at a minimum the investee’s: revenues; gross profit; income from continuing operations; and net income.

2420.10 Change From Cost Method to Equity Method — If a registrant's financial statements are retroactively adjusted in accordance with ASC 323-10-35-33 to reflect equity method accounting for an investment previously accounted for under the cost method, S-X 3-09 financial statements, or summarized financial information required by S-X 4-08(g), S-X 8-03, or S-X 10-01(b)(1), may be required for periods in which the cost method was previously used if the significance tests are met.

2420.11 Multiple Series Registrants — Information required by S-X 4-08(g) must be provided on an individual series level. See Section 2410.9 for more information. (Last updated: 9/30/2009)

2435.2 ASC 825 Fair Value Option — Presumptive Disclosure Thresholds for Summarized Financial Information and Separate Financial Statements of Investees — The staff believes that the significance tests in S-X 3-09 and S-X 4-08(g), as modified below, provide analogous guidance for the ASC 825 requirement to comply with the disclosure requirements in ASC 323-10-50-3c. In applying the S-X 3-09 and S-X 4-08(g) disclosure thresholds to investments that would have been accounted for under the equity method had the fair value option not been elected by the registrant, the staff believes that the income test should be computed using as the numerator the change in the fair value reflected in the registrant's statement of comprehensive income rather than the registrant's equity in the earnings of the investee computed as if the equity method had been applied. If a registrant believes that applying the guidance in S-X 3-09 and S-X 4-08(g) by analogy as described above results in a requirement to provide more information than is reasonably necessary to inform investors, the registrant may request relief.

2435.3 ASC 825 Fair Value Option — MD&A Disclosure of Methods and Assumptions Used to Determine Fair Value — The staff also cautions registrants that investees accounted for using the fair value option may be material at levels below the disclosure thresholds in S-X 3-09 and S-X 4-08(g). When investees accounted for using the fair value option are material to an understanding of results of operations, financial position, or cash flows, registrants should consider whether qualitative and quantitative analysis in MD&A is required by S-K 303, whether or not the investee's separate financial statements are provided and/or the registrant's financial statement footnotes include the investee's summarized financial information. Specifically, registrants should consider describing in MD&A the methods and underlying assumptions used in determining fair value, and analyzing the effects of any changes therein from the previous period(s). Registrants should be mindful that such an analysis may be necessary even when material changes in significant assumptions have offsetting effects.

S-X 3-10(a) permits the omission of separate financial statements of subsidiary issuers and guarantors of guaranteed “debt or debt-like”, as defined in S-X 3- 10(b)(2), securities when certain conditions are met, including that the “parent company”, as defined in S-X 3-10(b)(1), provides supplemental financial and non-financial disclosures about the subsidiary issuers and/or guarantors and the guarantees. S-X 3-10 specifies the conditions that must be met in order to omit separate subsidiary issuer or guarantor financial statements, these are summarized in Section 2515.2. S-X 13‑01 specifies the accompanying financial and non-financial disclosure requirements, as summarized in Section 2515.3. If any of the conditions in S-X 3-10 are not met, or the disclosures in S-X 13-01 are not provided by the parent company, separate financial statements of each subsidiary issuer and guarantor may not be omitted. The requirements of S-X 3-10 and 3-16 were amended on March 2, 2020 in SEC Release No. 33-10762 (the “March 2020 Amendments”), which includes an appendix that summarizes the main features of these rules, including the eligibility conditions and required disclosures.

2515.2 Eligibility Conditions — The following table summarizes the eligibility conditions in S-X 3-10 that, if all have been satisfied, permit the omission of the separate financial statements of a subsidiary issuer or guarantor:

2515.3 Non-Financial and Financial Disclosures — The following tables summarize the supplemental non-financial and financial disclosures that, to the extent material, must be provided by the parent company. Refer to Section 2520 below for additional information on the application of these requirements.

The parent company may provide the disclosures in its consolidated financial statements and related footnotes or, alternatively, in MD&A. If a parent company elects to provide the disclosures in its audited financial statements, the disclosures must be audited. If not otherwise included in the consolidated financial statements or in MD&A, the parent company must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Item 105 of Regulation S-K [S-X 13-01(b)].

2515.4 Eligible Issuer and Guarantor Structures Condition — Parent Company Obligation is Full and Unconditional — The ability to provide supplemental financial and non-financial disclosures in lieu of separate subsidiary issuer and guarantor financial statements is only available when the parent company’s obligation is full and unconditional. The parent company’s role as issuer, co-issuer, or full and unconditional guarantor with respect to the guaranteed security determines whether the issuer and guarantor structure is eligible. See eligible structures at S-X 3-10(a)(1)(i) and (ii).

A guarantee is “full and unconditional,” if, when an issuer of a guaranteed security has failed to make a scheduled payment, the guarantor is obligated to make the scheduled payment immediately and, if it does not, any holder of the guaranteed security may immediately bring suit directly against the guarantor for payment of all amounts due and payable. [S-X 3-10(b)(3)].

2515.5 Subsidiary Guarantors — The categories of eligible issuer and guarantor structures at S-X 3-10(a)(1)(i) and (ii) do not refer to subsidiary guarantors. Although one or more other subsidiaries of the parent company may guarantee the security, the eligibility of an issuer and guarantor structure depends on the role of the parent company as issuer, co-issuer, or full and unconditional guarantor with respect to the guaranteed security. Separate financial statements of consolidated subsidiary guarantors may be omitted for each issuer and guarantor structure that is eligible if the other conditions of S-X 3-10 are met.

Despite not affecting whether the issuer and guarantor structure is eligible, the role of subsidiary guarantors and nature of their guarantees affect what disclosure is required. For example, subsidiary guarantors are required to be identified pursuant to S-X 13-01(a)(1), and disclosure of the terms and conditions of the guarantees is required by S-X 13-01(a)(2), which includes but is not limited to any limitations and conditions of a subsidiary’s guarantee, whether the guarantee is joint and several with other guarantees, and any guarantee release provisions. Further, separate disclosure of summarized financial information applicable to subsidiary guarantors to which such disclosures apply is required by S-X 13-01(a)(4)(iv).

While a given security may have guarantees as well as pledges of collateral, the requirements of S-X 13-02 are separate from financial statement and disclosure requirements related to guarantees. S-X 3-10 and S-X 13-01 apply to guaranteed securities (see Section 2500) and do not apply to pledges of affiliate securities as collateral - the concepts of full, unconditional, and joint and several obligation do not apply to collateralizations.

2610.2 Summarized Disclosure Requirements — Set forth below are tables summarizing the non-financial and financial disclosures specified in S-X 13‑02 that must be provided, to the extent material. These tables are only a summary of certain requirements contained in the rules and regulations; they are not a substitute for the rules and regulations. Refer to the rules for the full requirements and to the description of those requirements the March 2020 Amendments. Section 2620 includes additional information on the application of these requirements.

The registrant may provide the disclosures in its consolidated financial statements and related footnotes or, alternatively, in MD&A. If a registrant elects to provide the disclosures in its audited financial statements, the disclosures must be audited. If not otherwise included in the consolidated financial statements or in MD&A, the registrant must include the disclosures in its prospectus immediately following “Risk Factors,” if any, or otherwise, immediately following pricing information described in Item 105 of Regulation S-K [S-X 13-02(b)].

2620.2 Guaranteed & Collateralized Securities — A registrant may register the offer and sale of its debt securities that are: (1) guaranteed by one or more of its subsidiaries; and (2) collateralized by the securities of the same guarantor subsidiaries. In these circumstances, each are separate credit enhancements for which separate and different financial and non-financial disclosures are required by each of S-X 13-01 (see Section 2500) and 13-02. In this regard, under S-X 13-01, the summarized financial information of the registrant, as the “parent company,” is required to be disclosed under S-X 13-01(a)(4). Dissimilarly, that same parent company’s summarized financial information is not required to be disclosed under S-X 13-02(a)(4), because it is not an affiliate whose securities collaterize securities registered or being registered. Disclosures provided pursuant to each of these rules in a registrant’s filing should be clearly distinguished from one another.

2620.3 Unconsolidated Pledged Affiliates — In the rare circumstances where the securities of an affiliate that is not a consolidated subsidiary of a registrant collateralize the registered securities of that registrant, S-X 13-02(a)(6) and (7) require the registrant to provide any financial and narrative information about each such affiliate if the information would be material for investors to evaluate the pledge of the affiliate’s securities as collateral and sufficient information so as to make the financial and non-financial information presented not misleading. Because the unconsolidated affiliate’s financial information is not included in the registrant’s consolidated financial statements, disclosure beyond what is specified in S-X 13-02(a)(1) through (4) may be necessary. In this regard, separate financial statements of the unconsolidated affiliate may be necessary to satisfy the requirements of S-X 13-02(a)(6) and (7).

2620.4 Less than 100% of Affiliate Shares Pledged as Collateral — Generally, a pledge of an affiliate’s securities as collateral includes all of the outstanding ownership interests in that affiliate, which are held directly or indirectly by the entity issuing the debt securities. There may be circumstances where either the pledge of collateral does not include all of the outstanding ownership interests in the affiliate held by the issuing entity, or certain ownership interests in the affiliate are held by a third party and therefore unpledged. In such cases, disclosure of these facts and circumstances are required by S-X 13-02(a)(6) and (7) if material for investors to evaluate the pledge of the affiliate’s securities as collateral, or so as to make the financial and non-financial information presented not misleading. If such circumstances are applicable to one or more, but not all, affiliates, S-X 13-02(a)(4)(iv) requires separate disclosure of Summarized Financial Information for the affiliates to which it is applicable.

The requirements of S-X 13-02(a)(5) are similar to the requirement to provide pre-acquisition summarized financial information of recently-acquired subsidiary issuers and guarantors specified in S-X 13-01(a)(5). See related guidance at Section 2530.2 — Significance Test and Section 2530.4 — Timing Considerations.

2630.2 Form and Content — The pre-acquisition summarized financial information follows the form and content prescribed in S-X 13-02(a)(4) required for existing affiliates whose securities are pledged as collateral. Not all entities that compose an acquired business may be affiliates whose securities collateralize securities registered or being registered. Accordingly, the required summarized financial information is only for those entities acquired that are pledged affiliates.

2640.2 [Reserved]

2640.3 Periodic Reporting — S-X 13-02 financial and non-financial disclosures are required in its annual reports on Form 10-K, and quarterly reports on Form 10- Q for so long as the registrant has a Section 15(d) reporting obligation with respect to the collateralized securities offered and sold on a registered basis.

Accordingly, S-X 13-02 applies to collateralized debt securities issued on or after January 4, 2021, and to each security offered and sold on a registered basis issued and outstanding before January 4, 2021 for which the registrant has previously been required to provide the financial statements required by prior S-X 3-16. S-X 3-16, and not S-X 13-02, applies to each security offered and sold on a registered basis issued and outstanding before January 4, 2021 for which the registrant has not previously been required to provide financial statements pursuant to S-X 3-16.

Regulation AB requires certain third party financial information for:

1. "Significant Obligors" (defined at S-K 1101(k)) of Pool of Assets [S-K 1112(b)]
2. Credit enhancement and other support, except for certain derivative instruments [S-K 1114(b)(2)]
3. Certain Derivative Instruments [S-K 1115(b)]

2705.3 Regulation AB — Certain Third Party Financial Information for "Significant Obligors" (defined at S-K 1101(k)) of Pool of Assets [S-K 1112(b)]

• If pool assets relating to a significant obligor represent 10% or more, but less than 20% of the asset pool, then depending on type of significant obligor, provide either selected financial data required by S-K 301 or net operating income only for the most recent fiscal year and interim period. See S-K 1112(b).
• If pool assets relating to a significant obligor represent 20% or more of the asset pool, provide financial statements of the significant obligor meeting the requirements of Regulation S-X (S-X 1–01 through S-X 12–29), except S-X 3–05 and S-X Article 11. Financial statements of such obligor and its subsidiaries consolidated [as required by Proxy Rules 14a–3(b)] shall be filed. See details and exceptions at S-K 1112(b).

2705.4 Regulation AB — Certain Third Party Financial Information for Credit Enhancement and Other Support, except for certain derivative instruments [S-K 1114(b)(2)]

• If any entity or group of affiliated entities providing enhancement or other support described in S-K 1114(a) is liable or contingently liable to provide payments representing 10% or more, but less than 20%, of the cash flow supporting any offered class of the asset-backed securities, provide financial data required by Item 301 of Regulation S-K for each such entity or group of affiliated entities.
• If any entity or group of affiliated entities providing enhancement or other support described in S-K 1114(a) of this section is liable or contingently liable to provide payments representing 20% or more of the cash flow supporting any offered class of the asset-backed securities, provide financial statements meeting the requirements of Regulation S-X (S-X 1–01 through S-X 12–29), except S-X 3–05 and S-X Article 11, of such entity or group of affiliated entities. Financial statements of such enhancement provider and its subsidiaries consolidated (as required by Proxy Rules 14a–3(b)) shall be filed under this item. See details and exceptions at S-K 1114(b)(2).

2710.2 The staff considers the following factors in assessing the sufficiency of the disclosure in this area:

1. the amount of the credit enhancement in relation to the issuer's income and cash flows;
2. the duration of the credit enhancement;
3. conditions precedent to the application of the credit enhancement; and
4. other factors that indicate a material relationship between the credit enhancer and the purchaser's anticipated return.

2710.3 Financial information of a third party credit enhancement may also be required if an investor is reasonably likely to rely on a material credit enhancement in place for other debt (including nonpublic debt), even though the credit enhancement does not run directly to the debt being registered.

Historically, in certain situations the structure and relationship between the general partner and limited partnership resulted in the staff requesting under S-X 3-13 a balance sheet of the general partner to be filed. SAB Topic 12.A.3.d, which indicated that the staff required that a registration statement relating to an offering of limited partnership interests include the most recent year-end balance sheet of the general partner, was removed by SAB 113, Interpretations of Accounting Rules on Oil and Gas Producing Activities. The following is a summary of the staff’s views with respect to providing a balance sheet of the general partner.

Smaller Reporting Companies:

S-X 8-07 requires the balance sheet of the general partner under certain circumstances. SAB 113 did not change S-X 8-07. Registrants should comply with this rule or, if they believe that there is a basis, request relief in writing from CF-OCA.

GAAP requires parent-only financial statements as a supplement to the consolidated financial statements where material. [ASC 810-10-45-11] S-X 5-04, 7-05 and 9-06 require parent-only financial statements when the restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets at the most recent fiscal year-end. In these instances, registrants should present the information required by S-X 12-04 as an S-X schedule, except bank holding companies, which must present the S-X 12-04 information in the financial statement footnotes. Because bank holding companies must include the S-X 12-04 information in their financial statement footnotes, they do not have the additional 30 days provided by Form 10-K General Instruction A(4) to file this information.

S-X 12-04 indicates the required condensed financial information need not be presented in greater detail than is required for condensed statements by S-X 10-01(a)(2), (3), and (4). The condensed financial information presented should include a total for comprehensive income presented in either a single continuous statement or in two separate but consecutive statements.

Restricted net assets is the amount of the registrant's proportionate share of consolidated subsidiaries' net assets, after intercompany eliminations, (assets less the sum of liabilities, redeemable preferred stock, noncontrolling interests) that may not be transferred to the parent by subsidiaries in the form of loans, dividends, etc., without a third party's consent. [S-X 1-02(dd) and SAB Topic 6K.2] Also, in certain circumstances, registrants must compute "subsidiary adjusted net assets". See SAB Topic 6K.2 for further discussion.

S-X 4-08(e)(3) requires footnote disclosure in the consolidated financial statements about the nature and amount of significant restrictions on the ability of subsidiaries to transfer funds to the parent through intercompany loans, advances or cash dividends, when material. When considering materiality, a registrant should consider its proportionate share of the net assets of its consolidated and unconsolidated subsidiaries and its equity in the undistributed earnings since the date of acquisition of the 50% or less owned persons accounted for by the equity method (i.e. the same amount required to be disclosed pursuant to S-X 4-08(e)(2)) as of the end of the most recent fiscal year which are restricted as to transfer to the parent company because the consent of a third party (a lender, regulatory agency, foreign government, etc.) is required.

2810.4 Parent Company Financial Information when the Registrant has a Consolidated Shareholders’ Deficit (Last updated: 6/30/2010)

A registrant with a consolidated shareholders’ deficit is considered to have a net asset base of zero for the purpose of computing its proportionate share of the restricted net assets of consolidated subsidiaries. As a result, any restrictions placed on the net assets of subsidiaries with positive equity would result in the 25% threshold being met and a corresponding requirement to provide parent company financial information. This is viewed by the staff as consistent with the guidance in SAB Topic 6K2.b (Question 3), which states that a subsidiary with an excess of liabilities over assets has no restricted assets. Anomalous results can be discussed with CF-OCA.

2815.2 In addition, registrants should also consider whether financial or other information about the significant customer is necessary under other disclosure requirements. Generally, known trends, demands, commitments, events and uncertainties related to customers, whether affiliated or unaffiliated, that are reasonably likely to have a material effect on the registrant should be identified, quantified and analyzed by the registrant's management in its MD&A in accordance with Item 303 of Regulation S-K. Also, ASC 280-10-50-42 requires certain financial statement footnote disclosures about major customers and ASC 275-10-50-18, Risks and Uncertainties, requires certain financial statement footnote disclosures about current vulnerabilities due to concentrations in the volume of business transacted with a particular customer. For affiliated customers/related party transactions, ASC 850-10-50 and S-X 4-08(k) provide additional disclosure requirements.