Pro forma financial information - EY

1 SEC financial Reporting Series Pro forma financial information A guide for applying Article 11 of Regulation S-X September 2015 Pro forma financial information | i Contents 1 Overview .. 1 Section highlights .. 1 EY publications and checklists .. 2 Other considerations .. 2 ASC 805 pro forma requirements .. 3 Pro forma financial information in non-SEC offering documents .. 3 2 Events requiring pro forma financial information .. 4 Overview .. 4 Types of events requiring Article 11 pro forma financial information .. 5 Significant business combination and disposition .. 5 Determination of what constitutes a business.

2 6 Determining significance .. 7 Related businesses .. 9 Individually insignificant acquisitions .. 9 Disposition or probable disposition of a significant business .. 9 Acquisition of significant real estate operations .. 10 Acquisition of individually insignificant real estate operations .. 10 Spin off or split off of a portion of an entity .. 10 Other circumstances requiring pro forma information .. 11 3 Forms requiring pro forma financial information .. 12 Form 8-K .. 12 Registration statements and proxy statements .. 13 Foreign private issuer forms .. 14 4 Format of pro forma financial information .. 15 General form and 15 Introductory paragraph.

3 16 Presentation in columns .. 16 Condensed format .. 18 Pro forma condensed income statement .. 18 Narrative disclosure only .. 18 Pro forma adjustments and explanatory notes .. 19 Specific or unique circumstances .. 21 Pro forma financial information involving multiple transactions .. 21 Transactions with range of possible results .. 23 Pro forma financial information presented on the face of the historical financial statements .. 25 5 Periods to be presented .. 26 Overview .. 26 Pro forma condensed balance sheet .. 27 Pro forma condensed income statement .. 27 Contents Pro forma financial information | ii Pro forma income statement required for all periods presented.

4 27 Pro forma information reflects other transactions .. 28 Historical results include unusual events .. 28 Combining entities with different fiscal years .. 29 Changes in fiscal year end .. 29 Proxy and registration statements .. 31 Updating pro forma information .. 31 Cross-border business combinations .. 32 6 Pro forma adjustments .. 33 Criteria for making pro forma adjustments .. 33 Directly attributable .. 33 Continuing impact on the registrant .. 34 Factually supportable .. 34 Pro forma adjustment illustrations .. 35 Business combinations .. 35 Calculation of purchase price .. 35 Contingent consideration.

5 36 Using preliminary purchase price allocation to reflect purchase 37 Debt financing .. 38 Intangible assets .. 42 Long-lived tangible assets .. 44 Transaction 44 Gains and losses attributable to the acquisition .. 46 Impairment charges in historical financial statements .. 47 Inventory valuation .. 48 Deferred revenue .. 49 Research and development expenses .. 50 Deferred tax asset valuation allowances .. 50 Disposal in connection with business combination .. 53 Compensation arrangements .. 53 Restructuring activities .. 56 Accounting policy conformity changes .. 57 Foreign acquisition considerations.

6 60 Dispositions .. 62 Reorganization of entities under common control .. 64 Acquisition of equity method investees .. 65 Exchange transactions .. 66 Emergence from bankruptcy .. 66 New or modified contractual arrangements .. 69 Other pro forma adjustments .. 69 Income tax effects .. 69 Costs of being a public company .. 69 Pro forma effects on measures of performance or liquidity .. 70 Use of proceeds .. 70 Contents Pro forma financial information | iii 7 Other pro forma considerations .. 72 IPO considerations .. 72 Planned distributions not reflected in the historical balance sheet .. 72 Distributions in excess of earnings.

7 73 Changes in tax status .. 74 Other changes in capitalization .. 75 Example Disclosure of pro forma financial information in an IPO .. 75 Pro forma EPS presentation in SEC filings after IPO .. 77 financial forecasts .. 78 Presentation and disclosure requirements .. 79 Rollup transactions .. 79 Additional Form S-4 and proxy statement pro forma requirements .. 81 Tender 83 Pro forma ratio of earnings to fixed charges .. 84 Pro forma adjustments .. 84 Other pro forma ratios .. 85 Pro forma MD&A .. 86 8 Auditor involvement .. 87 Comfort letters .. 87 Reporting on pro forma financial information .. 87 Appendix: Pro forma financial information example.

8 91 Pro forma financial information | 1 1 Overview We are pleased to present the first edition of our publication, Pro forma financial information A guide for applying Article 11 of Regulation S-X. Pro forma financial information (pro forma financial statements or pro formas) presents historical balance sheet and income statement information adjusted as if a transaction had occurred at an earlier time. This information is intended to help investors understand the impact of a significant transaction, such as a business combination or disposition, by showing how it might have affected the historical financial statements. Article 11 of Regulation S-X , Pro forma financial information (Article 11 or S- X Article 11) describes the requirements of the Securities and Exchange Commission (SEC) for registrants to provide pro forma financial information .

9 In addition, Article 8-05 of Regulation S-X provides the SEC s pro forma requirements for smaller reporting companies (SRCs) that have significant business While our publication focuses on the requirements of Article 11, the principles we discuss could also be applicable to SRCs when they prepare pro forma financial information under Article 8 of S-X. Section highlights The following is an overview of the sections in this publication: Section 2 describes the events and circumstances that would require registrants to present Article 11 pro forma financial information in SEC filings. Section 3 discusses which SEC forms require Article 11 pro forma financial information .

10 Section 4 walks through the general form and content requirements for pro forma financial information . Section 5 covers the pro forma financial statement periods that registrants must provide. Section 6 focuses on pro forma adjustments and illustrates through examples how registrants may apply the adjustment criteria. Section 7 highlights other considerations, including certain pro forma metrics ( , earnings per share), Form S-4 pro forma requirements and pro forma management s discussion and analysis (MD&A). Section 8 covers auditors responsibilities and their involvement with respect to pro forma financial information .