Financial Statement Requirements in US Securities Offerings

Financial Statement Requirements in

US Securities Oerings

What You Need to Know

2024 Edition

Financial Statement Requirements in US Securities Oerings:

What You Need to Know

2024 Edition

Michele M. Anderson

Alexander F. Cohen

Paul M. Dudek

Joel H. Trotter

Latham & Watkins LLP

Timothy D. Brown

Erin L. McCloskey

KPMG LLP

January 2024

Michele M. Anderson, Alexander F. Cohen, Paul M. Dudek, and Joel H. Trotter are partners in the Washington,

D.C. oce of Latham & Watkins LLP. Timothy D. Brown and Erin L. McCloskey are partners in the Department of

Professional Practice of KPMG LLP in the New York City oce. Any errors or omissions are, of course, solely the

responsibility of the authors. The views and opinions are those of the authors and do not necessarily represent

the views and opinions of Latham & Watkins LLP or KPMG LLP.

Latham & Watkins operates worldwide as a limited liability partnership organized under the laws of the State of Delaware (USA) with aliated

limited liability partnerships conducting the practice in France, Hong Kong, Italy, Singapore, and the United Kingdom and as an aliated

partnership conducting the practice in Japan. Latham & Watkins operates in Israel through a limited liability company, in South Korea as a

Foreign Legal Consultant Oce, and in Saudi Arabia through a limited liability company. Under New York’s Code of Professional Responsibility,

portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a

variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York’s Disciplinary Rules to

Latham & Watkins LLP, 1271 Avenue of the Americas, New York, NY 10020, Phone: +1.212.906.1200.

are the sole property of KPMG International Cooperative. The KPMG name and logo are trademarks used under license by the independent

member rms of the KPMG global organization. The information contained herein is of a general nature and is not intended to address

the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act

upon such information without appropriate professional advice after a thorough examination of the particular situation. KPMG LLP does not

provide legal services.

Table of Contents

Introduction ...........................................................................................................................................................................................................................................................................................................................1

The Basics...............................................................................................................................................................................................................................................................................................................................1

Background to Financial Statement Requirements ............................................................................................................................................................................ 1

What Financial Statements Must Be Included in Public Oerings? ........................................................................................................................... 1

What Financial Statements Must Be Included to Begin SEC Review? ................................................................................................................3

When Does Financial Information Go “Stale”? .........................................................................................................................................................................................3

Staleness of Financial Statements .............................................................................................................................................................................................................................. 4

When Do Financial Statements Go Stale in 2024? ............................................................................................................................................................................ 6

MD&A ................................................................................................................................................................................................................................................................................................................. 6

Additional Financial Information for Certain Specic Situations .............................................................................................................................................. 7

Recent and Probable Acquisitions ...............................................................................................................................................................................................................................7

Financial Statements Required in Connection With Acquisitions .................................................................................................................................. 8

Pro Forma Financial Information ................................................................................................................................................................................................................................ 10

Discontinued Operations and Other GAAP Retrospective Revisions ................................................................................................................. 12

Guarantor Financial Statements .................................................................................................................................................................................................................................13

Secured Oerings ............................................................................................................................................................................................................................................................................. 15

Investments Accounted for Under the Equity Method ................................................................................................................................................................15

Segment Reporting ......................................................................................................................................................................................................................................................................... 16

Supplemental Schedules for Certain Transactions .........................................................................................................................................................................17

Industry Guides ....................................................................................................................................................................................................................................................................................18

Quantitative and Qualitative Disclosure About Market Risk ..............................................................................................................................................19

Some Related Issues.........................................................................................................................................................................................................................................................................................19

Additional Financial Information That Is Typically Included ................................................................................................................................................ 19

Non‑GAAP Financial Measures ...................................................................................................................................................................................................................................19

Form 8‑K Filing Requirements in Connection With Signicant Acquisitions or Dispositions ............................................ 21

Internal Control Over Financial Reporting .................................................................................................................................................................................................... 21

Interactive Data ....................................................................................................................................................................................................................................................................................22

Special Considerations in Rule 144A Transactions and for Foreign Private Issuers .......................................................................... 22

Rule 144A Transactions ...........................................................................................................................................................................................................................................................22

Special Rules Applicable to Foreign Private Issuers and Acquired Foreign Businesses.......................................................23

Conclusion .........................................................................................................................................................................................................................................................................................................................24

Endnotes ................................................................................................................................................................................................................................................................................................................................25

Financial Statement Requirements in US Securities Oerings:

What You Need to Know

2024 Edition

Introduction

The most frequently asked question at all‑hands meetings for a securities oering is “What nancial statements will be

needed?” The question seems simple enough. But the answer is rarely straightforward.

This User’s Guide is designed to provide a roadmap to help navigate the nancial statement requirements of the

federal securities laws. We focus principally on the requirements for new registration statements in public oerings,

including initial public oerings by emerging growth companies (EGCs) under the JOBS Act.

We also summarize briey

the practices in the Rule 144A market, as well as the special rules applicable to “foreign private issuers.”

To make the discussion below easier to follow, we have provided examples using actual dates. These dates are based

on a company with a December 31 scal year end.

The Basics

Background to Financial Statement Requirements

Public securities oerings registered with the US Securities and Exchange Commission (the SEC) under the US

Securities Act of 1933 (the Securities Act) require the ling of a registration statement with the SEC and the distribution

of a prospectus in connection with the oering. The registration statement and prospectus must contain certain nancial

statements and other nancial information regarding the issuer’s nancial condition and results of operations.

The Securities Act and the related rules and regulations detail the disclosure requirements through the use of

standard “forms” (e.g., Forms S‑1 and S‑3). These forms, in turn, specify the information that must be disclosed under

Regulation S‑K (S‑K) and Regulation S‑X (S‑X). To simplify, S‑K largely deals with textual disclosure and S‑X with

nancial statement form and content.

What Financial Statements Must Be Included in Public Oerings?

The following tables summarize the scope of the basic nancial statement requirements for all registered oerings.

Note

that much of the basic information can be incorporated by reference for issuers eligible to use Form S‑3

and for certain

issuers ling a registration statement on Form S‑1

or Form S‑11. Issuers who are eligible for incorporation by reference

will want to consult their underwriters before electing to incorporate all required nancial information by reference. For

marketing purposes, it is often desirable to include the nancial information directly in the printed oering document.

The Basic Requirements for Public Oerings

Annual Audited Financial

Statements

• Balance sheets:

• audited balance sheets as of the end of the two most recent scal years.

• if the issuer has been in existence less than one year, an audited balance sheet

as of a date within 135 days of the date of ling the registration statement.

• Statements of comprehensive income, cash ows, and changes in stockholders’ equity:

• audited statements of comprehensive income, cash ows, and changes in

stockholders’ equity covering each of the three most recent scal years, or for the

life of the issuer (and its predecessors), if shorter.

• Under certain circumstances, audited nancial statements may cover nine, 10, or

11 months rather than a full scal year for one of the required years.

• Audited nancial statements for an issuer must be accompanied by an audit report

issued by independent public accountants. The accountants must be registered with

the Public Company Accounting Oversight Board (the PCAOB) under standards

promulgated by the PCAOB.

Interim Unaudited

Financial Statements

• Balance sheet:

• an interim unaudited balance sheet as of the end of the most recent three‑, six‑, or

nine‑month period following the most recent audited balance sheet.

• Statements of comprehensive income, cash ows, and changes in stockholders’ equity:

• interim unaudited statements of comprehensive income, cash ows, and changes

in stockholders’ equity for any stub period covered by an interim balance sheet,

together with statements of comprehensive income, cash ows, and changes in

stockholders’ equity for the corresponding three‑, six‑, or nine‑month stub period

of the prior year.

Acquired Business

Financial Information

and Pro Forma

Financial Information –

S‑X Rule 3‑05,

S‑X Rule 3‑14, and

S‑X Article 11

• Depending on the size of the acquisition and its signicance to the issuer (which is

measured in various ways – not all of them intuitive), audited nancial statements for

the most recent one or two scal years of the acquired business must be included,

plus appropriate unaudited interim nancial statements. These requirements are

found in S‑X Rule 3‑05 and S‑X Rule 3‑14 (which applies to acquisitions of real estate

operations). We discuss S‑X Rule 3‑05 and S‑X Rule 3‑14 in more detail below.

• Under S‑X Article 11, when acquired business nancial statements are included in a

registration statement (and in certain other instances), pro forma nancial information

must also be included, covering the most recently completed scal year and the most

recent interim period. We discuss S‑X Article 11 in more detail below.

EGC Oerings • In order to qualify as an EGC a company must have annual revenue for its most

recently completed scal year of less than $1.235 billion.

• An EGC may conduct its initial public equity oering using two years, rather than three

years, of audited nancial statements.

• After its IPO, an EGC phases into full compliance by adding one additional year of

nancial statements in each future year until it presents the traditional three years of

audited nancial statements.

The required MD&A would cover only the years for which

audited nancial statements are provided.

The Basic Requirements for Public Oerings

Supplementary Financial

Information – S‑K Item 302

• For issuers that have registered securities under Section 12(b) or 12(g) of the

US Securities Exchange Act of 1934 (the Exchange Act) – generally, equity securities

listed on the NYSE or Nasdaq – and when there are one or more retrospective material

changes (whether material individually or in the aggregate) to the statements of

comprehensive income for any of the quarters within the two most recent scal years or

any subsequent interim period, the issuer must (i) provide an explanation of the reasons

for the material changes and (ii) disclose, for each aected quarterly period and the

fourth quarter in the aected year, summarized nancial information and earnings per

share reecting such changes.

• This information is not required for IPO prospectuses.

What Financial Statements Must Be Included to Begin SEC Review?

Normally, a registration statement must include – as of the date of ling – all of the nancial statements listed in

the tables above. However, issuers that are EGCs and registering with the SEC for the rst time may submit draft

registration statements for condential review, which is protected from disclosure under the Freedom of Information Act

(FOIA).

Issuers that are not EGCs may also submit draft registration statements for nonpublic review, which aords

more limited protection from FOIA.

During this review process, nancial statements may become “stale” (i.e., are too old and must be updated, as

described below). Consequently, an issuer that is an EGC may omit from its condential submissions (and, though

less common in practice, from its public lings) annual and interim nancial data that it reasonably believes will not be

required at the time of the oering.

An issuer that is not an EGC may also omit from its nonpublic submissions the annual and interim nancial data it

reasonably believes will not be required at the time the issuer les publicly.

In addition, an EGC or a non‑EGC may omit from its condential or nonpublic submissions the nancial statements

of an acquired business required by S‑X Rule 3‑05 or S‑X Rule 3‑14 that the issuer reasonably believes will not be

required at the time of the oering.

When Does Financial Information Go “Stale”?

Understanding the timing requirements for the provision of nancial statements is almost as critical as understanding

the scope of the nancial information required. The determination of when nancial statements go stale is sure to come

up at the all‑hands meeting, and planning to have the necessary nancial information prepared on time is an essential

part of the oering process. Among other considerations, the SEC Sta has a policy against commencing review of a

ling if the nancial statements are stale on the ling date.

These rules vary for dierent categories of issuers. In particular, the rules distinguish between large accelerated lers,

accelerated lers, initial lers, loss corporations, and delinquent lers.

For these purposes:

• A large accelerated ler is an issuer that, as of the end of its scal year:

• has an aggregate worldwide market value of voting and non‑voting common equity held by non‑aliates

(public oat) of $700 million or more (measured as of the last business day of its most recently completed

second scal quarter);

• has been subject to SEC reporting under the Exchange Act for a period of at least 12 calendar months;

• has led at least one annual report under the Exchange Act with the SEC; and

• is not eligible to be a “smaller reporting company” and had annual revenues of less than $100 million in the

most recent scal year for which nancial statements are available.

• An accelerated ler is an issuer meeting the same conditions, except that it has a public oat of $75 million or

more, but less than $700 million (measured as of the last business day of its most recently completed second scal

quarter).

• An initial ler is generally a company that was not subject to the SEC’s reporting requirements prior to ling the

registration statement (i.e., a rst‑time ler, an IPO ler, or a voluntary ler), and is not an “all other ler” as indicated

in the charts below.

• A loss corporation is a company that does not expect to report positive income after taxes for the most recently

ended scal year and for at least one of the two prior scal years.

• A delinquent ler is a company that is subject to the SEC’s reporting requirements, but has not led all reports that

are due.

The following tables summarize nancial statement staleness requirements, measured by the number of days between

the eective date of the registration statement (or, by analogy, the pricing date of a Rule 144A oering if the transaction

is intended to mirror SEC requirements) and the date of the nancial statements in the ling.

For any of the time

frames noted below, if the last day before the nancial statements go stale is a Saturday, Sunday, or US federal holiday,

Securities Act Rule 417 allows the ling to be made on the next business day, thereby eectively postponing the

staleness date.

Staleness of Financial Statements

For annual, rst quarter, and second quarter nancial statements, “staleness” means the point in the year when the

nancial statements become so old that the issuer needs to include the subsequent quarter’s nancial statements. By

contrast, for third quarter nancial statements, “staleness” means the point in the year when the third quarter nancial

statements become so old that the issuer needs to include annual audited nancial statements.

The dates below are based on a December 31 scal year end in a year that is not a leap year, and do not reect

a permitted extension to the next business day where staleness days would otherwise fall on a weekend or US

federal holidtay.

Staleness of Financial Statements

When Do 1st

Quarter Financial

Statements Go

Stale?

• Large Accelerated Filers and Accelerated Filers: First quarter nancial statements go stale at

the close of business on August 7 (the gap between the date of eectiveness of the registration

statement and the date of the rst quarter nancial statements in the ling may not be more than

129 days).

In other words, the registration statement cannot be declared eective after August 7

unless it includes second quarter nancial statements.

• All Other Filers: First quarter nancial statements go stale at the close of business on August 12

(the gap between the date of eectiveness of the registration statement and the date of the

nancial statements in the ling may not be more than 134 days).

• Whenever updated interim nancial statements are included, interim statements of

comprehensive income, cash ows, and changes in stockholders’ equity must be included for the

corresponding period of the prior year.

Staleness of Financial Statements

When Do 2nd

Quarter Financial

Statements Go

Stale?

• Large Accelerated Filers and Accelerated Filers: Second quarter interim nancial statements go

stale at the close of business on November 6 (the gap between the date of eectiveness of the

registration statement and the date of the second quarter nancial statements in the ling may

not be more than 129 days).

• All Other Filers: Second quarter interim nancial statements go stale at the close of business on

November 11 (the gap between the date of eectiveness of the registration statement and the

date of the second quarter nancial statements in the ling may not be more than 134 days).

• Whenever updated interim nancial statements are included, interim statements of

comprehensive income, cash ows, and changes in stockholders’ equity must be included for the

corresponding period of the prior year.

When Do 3rd

Quarter Financial

Statements Go

Stale?

• Initial Filers, Loss Corporations, and Delinquent Filers:

Third quarter interim nancial statements

go stale at the close of business on February 14 (updated annual audited nancial statements

must be included when the gap between the date of eectiveness of the registration statement

and the date of the prior year’s audited nancial statements is more than one year and 45 days).

In other words, it is not possible for an IPO registration statement to become eective after

February 14 of a year until audited nancial statements have been provided for the just ended

scal year. Note that a large accelerated ler or an accelerated ler that is a loss corporation or

a delinquent ler would be subject to the February 14 deadline (and not the March 1/March 16

deadlines mentioned below).

• Large Accelerated Filers: Third quarter interim nancial statements go stale at the close of

business on March 1* (updated annual audited nancial statements must be included when the

gap between the date of eectiveness of the registration statement and the date of the scal year

end is more than 60 days).

• Accelerated Filers: Third quarter interim nancial statements go stale at the close of business on

March 16* (updated annual audited nancial statements must be included when the gap between

the date of eectiveness of the registration statement and the date of the scal year end is more

than 75 days).

• All Other Filers: Third quarter interim nancial statements go stale at the close of business on

March 31* (updated annual audited nancial statements must be included when the gap between

the date of eectiveness of the registration statement and the date of the scal year end is more

than 90 days).

• *In leap years, these deadlines occur one day prior to these dates (i.e., February 29, March 15,

and March 30, respectively).

When Do Year‑

End Financial

Statements Go

Stale?

• Large Accelerated Filers and Accelerated Filers: Year‑end audited nancial statements go stale

at the close of business on May 9* (the gap between the date of eectiveness of the registration

statement and the date of the year‑end nancial statements in the ling may not be more than

129 days).

In other words, the registration statement cannot be declared eective after May 9

unless it includes rst quarter nancial statements.

• All Other Filers: Year‑end audited nancial statements go stale at the close of business on

May 14* (the gap between the date of eectiveness of the registration statement and the date of

the year‑end nancial statements in the ling may not be more than 134 days).

*In leap years, these deadlines occur one day prior to these dates (i.e., May 8 and May 13,

respectively).

When Do Financial Statements Go Stale in 2024?

At the close of business on the following dates (for issuers with a scal year ended December 31, 2023):

* These dates reect a permitted extension to the next business day where dates would have otherwise occurred on a

weekend or US federal holiday.

Special accommodation for timely lers: The staleness dates, which run from the end of the preceding quarter, may not

align exactly with the Form 10-Q ling deadlines, which run from the end of the most recently ended quarter. However,

the SEC Sta generally provides an accommodation for repeat issuers who have been timely lers for the past

12 months. This accommodation allows their registration statements to become eective during the gap period between

the staleness dates shown above and the nearest 10-Q ling deadline, unless there are exceptional circumstances.

Consequently, for most repeat issuers, the eective staleness date coincides with the 10-Q ling deadline.

Note that the most recent interim nancial information led with the SEC must always be included in a registration

statement.

MD&A

Registration statements must contain or incorporate by reference a “management’s discussion and analysis” section

(the MD&A).

The requirements for the MD&A are set out in S‑K Item 303.

The purpose of the MD&A is to provide investors with management’s explanation of factors that have materially

aected the issuer’s historical nancial condition and results of operations, and an assessment of known trends and

uncertainties that management anticipates will have a material eect in the future. A well‑written MD&A will allow

investors to view the issuer from management’s perspective. It will identify and discuss the key metrics and any other

statistical data that management uses to evaluate the business’ performance and nancial health, or that management

believes will enhance an investor’s understanding of its nancial condition, cash ows, and results of operations. The

analysis should cover all separate segments and other subdivisions, such as product lines and geographic regions of

the issuer.

Feb 14 Feb 29 Mar 15 Apr 1* May 8 May 13 Aug 7 Aug 12 Nov 6 Nov 12*

Q3 nancial

statements

for IPOs, Loss

Corporations, and

delinquent lers

Q3 nancial

statements of

Accelerated Filers

(same date 2023

10-K is due)

Year‑end nancial

statements of

Large Accelerated

Filers and

Accelerated Filers

(Q1 10-Q is due

May 10)

Q1 nancial

statements of

Large Accelerated

Filers and

Accelerated Filers

(Q2 10-Q is due

Aug 9)

Q2 nancial

statements of

Large Accelerated

Filers and

Accelerated Filers

(Q3 10-Q is due

Nov 12*)

Q3 nancial

statements of Large

Accelerated Filers

(same date 2023

10-K is due)

Q3 nancial

statements of all

other lers

(same date 2023

10-K is due)

Year‑end nancial

statements of all

other lers

(Q1 10-Q is due

May 15)

Q1 nancial

statements of all

other lers

(Q2 10-Q is due

Aug 14)

Q2 nancial

statements of all

other lers

(Q3 10-Q is due

Nov 14)

2024

For full scal years the issuer must provide the information summarized below, together with such information that it

believes necessary to understand its nancial condition, changes in nancial condition, and operating results:

Liquidity and capital resources. A comprehensive discussion of the issuer’s ability to generate and obtain adequate

amounts of cash to meet its requirements and its plans for cash in both the next 12 months and a separate discussion

of its long‑term needs.

Results of operations. A discussion of signicant factors materially aecting the issuer’s income from continuing

operations, including material changes in net sales or revenue and reason for the changes.

The issuer must also

identify known trends or uncertainties that are reasonably likely to have a material eect on its net sales or revenues or

income from continuing operations.

Critical accounting estimates. Issuers must provide information about accounting estimates or assumptions that

are uncertain and reasonably likely to have a material impact on nancial condition or operating performance. The

discussion should include qualitative and quantitative information necessary to understand the estimation uncertainty

and the impact the critical accounting estimate has had or is reasonably likely to have to the extent the information is

material and reasonably available.

In addition, MD&A sections often incorporate a comprehensive analysis of the issuer's future prospects, typically

presented under a subheading such as “Outlook.” Some issuers even provide specic guidance for upcoming quarters

or the current/following scal year. Drafting the MD&A section requires close collaboration among the issuer’s nancial

team, its accountants, and legal counsel and can be a time‑consuming process.

The SEC has published several interpretive releases with guidance on preparing the MD&A, most recently in 2020,

when it streamlined the rules and moved toward a more principles‑based approach.

Additional Financial Information for Certain Specic Situations

Recent and Probable Acquisitions

In addition to nancial statements of the issuer, registration statements generally require inclusion of audited nancial

statements for a signicant acquisition of a “business” that has taken place 75 days or more before the oering.

the case of an acquisition that exceeds 50% on any of the signicance tests discussed below, the audited nancial

statements must be included in the registration statement as soon as the acquisition becomes “probable.”

These

requirements can be found in S‑X Rule 3‑05 and S‑X Rule 3‑14 (which applies only to acquisitions of real estate

operations). In addition, where a material acquisition has occurred, or is probable, pro forma nancial information

complying with S‑X Article 11 for the most recent scal year and the most recent interim period will generally also be

required in the registration statement.

What Is a “Business”?

The SEC denes the term “business” to include an operating entity or business unit, but excludes machinery and other

assets that do not generate a distinct prot or loss stream.

It is important to note that the denition of a business under

US Generally Accepted Accounting Principles (US GAAP) (and potentially other GAAPs) diers from the SEC’s denition.

Accordingly, an acquisition that is a business under US GAAP may not be one for SEC purposes, and vice versa.

What Is “Probable”?

Evaluating whether a given transaction is probable involves looking at the facts and circumstances. The SEC Sta has

taken the general view that an acquisition becomes probable at least upon the signing of a letter of intent,

and has

also stated that an acquisition is probable “where registrant’s nancial statements alone would not provide adequate

nancial information to make an investment decision.”

In practice, unless there were signicant conditions relating

to a proposed acquisition, an issuer would not want to be in the position of arguing and disclosing that an important

acquisition is not probable.

Signicance Tests

Whether nancial statements for recent and probable acquisitions must be included in the ling also depends upon

the “signicance” of the acquisition. Signicance of an acquired business is evaluated under S‑X Rule 3‑05 or S‑X

Rule 3‑14 based upon three tests (which in turn are derived from S‑X Rule 1‑02(w)):

• Investment Test – the amount of the issuer’s investment in the acquired business (generally, the aggregate value

of the acquisition) compared to:

• the aggregate worldwide market value of the issuer’s voting and non‑voting common equity, or

• the issuer’s total assets if it does not have publicly traded equity securities.

• Asset Test – the issuer’s share of the consolidated total assets of the acquired business compared to the issuer’s

consolidated total assets, in each case after intercompany eliminations.

• Income Test – includes two components, both of which must be tested where applicable:

• Net income component – the issuer’s share of “pre‑tax income”

from continuing operations of the acquired

business compared to the issuer’s pre‑tax income from continuing operations.

• Revenue component – where the issuer and the acquired business have material annual revenue for the

last two scal years, the issuer’s (and its other subsidiaries’) share of the consolidated total revenues of the

acquired business compared to the issuer’s consolidated total revenues for its most recent scal year, in each

case after intercompany eliminations.

• Note: When testing signicance, both components of the test must exceed the applicable threshold. When

determining the number of periods for which nancial statements must be presented, the issuer uses the lower

of the two components.

Each of these tests should compare the issuer’s and the acquired business’ most recent annual nancial statements

(which need only be audited for the issuer).

Worldwide market value should be determined using the average of the

last ve trading days of the month before the acquisition was agreed or announced (whichever is earlier).

In addition,

any issuer – including an IPO issuer – may use pro forma nancial information to measure signicance for acquisitions

consummated in the most recent scal year, so long as it has led the required S‑X Rule 3‑05 nancial statements and

S‑X Article 11 pro forma nancial information for the acquired businesses.

(In the case of an IPO issuer, the relevant

disclosure would be made in its IPO registration statement.) Once an issuer uses pro forma nancial information to

measure signicance, it will need to continue to use pro forma nancials until the next Form 10‑K annual report.

This

approach can be useful where the pro forma information produces a larger “denominator” for testing signicance.

Acquisitions of related businesses are treated as a single acquisition for purposes of the signicance tests. Businesses

are considered “related” if they are owned by a common seller or under common management, or where the acquisition

of one business is conditioned upon the acquisition of each other business or a single common event.

Generally:

• If the acquired business exceeds 20% of any of the three signicance tests, then one year of audited nancial

statements is required, as well as the most recently completed interim period that would be required under S‑X

Rules 3‑01 and 3‑02.

• If the acquired business exceeds 40% of any of the three tests, then two years of audited nancial statements and

the appropriate interim periods are required.

Financial Statements Required in Connection With Acquisitions

The following table summarizes the general rules for an acquisition that occurred more than 75 days before the

oering. The issuer must, when both the net income and revenue components of the Income Test are applicable, use

the lower of the two to determine the number of periods required.

Acquisition Scenario Reporting Requirement

Individual acquisition at or below the 20%

signicance level

No requirement to include audited or interim nancial statements.

Individual acquisition (or multiple acquisitions

of “related businesses,” as described above)

in excess of the 20% signicance level, but not

above the 40% level

Audited nancial statements for the most recent scal year of the

acquired business must be included. Unaudited interim nancial

statements for the most recently completed interim period may

need to be included, depending on the time of year that the

oering takes place.

Individual acquisition (or multiple acquisitions

of “related businesses,” as described above) in

excess of the 40% signicance level

Audited nancial statements for the two most recent scal years

of the acquired business must be included. Unaudited interim

nancial statements may need to be included, depending on the

time of year that the oering takes place.

Multiple acquisitions of unrelated businesses

aggregating more than 50% signicance that are:

• less than 20% signicance level

• greater than 20% and less than 50% signicance

level and:

• have not yet been consummated or

• have been consummated but for which

nancial statements are not yet required

because of the 75‑day grace period

Audited nancial statements for the most recent scal year will

be required for any acquired business that exceeds the 20%

signicance level and for the most recent two scal years for any

business that exceeds the 40% signicance level. The unaudited

interim nancial statements that are required for individual

acquisitions may need to be included, depending on the time of

year that the oering takes place.

Note that:

• The permitted age of nancial statements of an acquired or soon‑to‑be‑acquired business is generally

determined by looking to the “staleness” rules that apply to its nancial statements (rather than the staleness

rules applicable to the nancial statements of the acquiring company).

In other words, you need to determine

whether the acquired company is, for example, a large accelerated ler, an accelerated ler, or an initial ler, or

foreign business or foreign private issuer, and then analyze the dates on which its nancial statements go stale

under the rules summarized above.

• Below the 50% signicance level, no audited nancial statements are required in the oering document for

probable acquisitions or for completed acquisitions consummated up to 74 days before the date of the oering.

The commitment committees of some nancing sources may, however, require at least a one‑year audit of the

acquired company in this situation together with historical pro forma nancial information, even if the 74‑day

grace period has not yet expired.

• When a “foreign business”

is acquired, the nancial statements of the acquired business may be in accordance

with US GAAP, the English language version of International Financial Reporting Standards (IFRS) as issued by

the International Accounting Standards Board (IASB IFRS), or another local home‑country GAAP (local GAAP).

No US GAAP reconciliation is required for the inclusion of nancial statements of an acquired foreign business

where that business uses IASB IFRS or when the acquired business is below the 30% level for all signicance

tests.

At or above 30%, if the acquired business qualies as a foreign business or does not qualify as a foreign

business but would qualify as a foreign private issuer if it were a registrant, the nancial statements may be

prepared in IASB IFRS without reconciliation to US GAAP or in local GAAP reconciled to either IASB IFRS or

US GAAP for the annual and interim periods required to be presented.

Any reconciliation need only meet the

requirements of Item 17, not Item 18, of Form 20‑F.

• Except in very limited circumstances, if the acquired company is not already an SEC‑reporting company, its

nancial statements need not be audited by a PCAOB‑registered rm, and the audit report need not refer to

PCAOB standards.

However, in those cases the audit must be conducted in accordance with US generally

accepted auditing standards.

Exceptions to the Financial Statement Requirements for Acquired Businesses

There are a number of exceptions to the requirement to provide separate nancial statements of acquired businesses:

• Separate nancial statements for an acquired business do not need to be presented once the operating results of

the acquired business have been included in the issuer’s audited consolidated nancial statements for at least nine

months for an acquired business that exceeds the 20% level of signicance and one scal year for an acquired

business that exceeds the 40% level.

• A single audited period of nine, 10, or 11 months may count as a year for an acquired business in certain

circumstances.

S-X Rule 3-14: Real Estate Operations

The acquisition or probable acquisition of real estate operations is subject to S‑X Rule 3‑14. “Real estate operations”

means a business that generates substantially all of its revenues through the leasing of real property, such as a REIT.

In comparison, where real estate is merely incidental to the service provided by a business, as for example in the case

of many hotels, the regular S‑X Rule 3‑05 requirements would apply.

S‑X Rule 3‑14(a) requires that audited nancial statements be provided for the most recent scal year and most

recently completed interim period for any acquisition or probable acquisition that would exceed 20% signicance

using the Investment Test, discussed above.

S‑X Rule 3‑14(c) also permits certain variations from the typical form of

statement of comprehensive income provided certain additional textual disclosure is made.

In a registration statement,

issuers using S‑X Rule 3‑14 should also consider individually insignicant acquisitions (i.e., those amounting to less

than a 20% signicance level individually) if, as a group, they exceed the 20% signicance level.

MD&A for Acquisitions

Whenever historical nancial statements of an acquired business (or probable acquisition) are included in the

oering document, the issuer will need to consider whether a separate MD&A section discussing those nancial

statements is appropriate. Although there is no specic line item requiring that a second MD&A be included, it is not

uncommon for issuers to interpret Securities Act Rule 408

to require a full discussion and analysis of the nancial

statements of an acquired business (or probable acquisition), particularly where it is necessary to make the required

statements not misleading.

Pro Forma Financial Information

As noted above, where a material acquisition has occurred, or is probable, that would trigger the need for acquired

business nancial statements under S‑X Rule 3‑05, pro forma nancial information complying with S‑X Article 11 must

also be included. Pro forma nancial information will also be required for multiple acquisitions that in the aggregate

exceed the 50% level of signicance of (i) individually insignicant businesses (i.e., below the 20% signicance level),

and (ii) acquisitions of individually signicant businesses between the 20% and 50% signicance level that have either

not have been consummated or for which nancial statements are not yet required due to the 75‑day grace period.

Pro forma nancial information is intended to illustrate the continuing impact of a transaction, by showing how the

specic transaction might have aected historical nancial statements had it occurred at the beginning of the issuer’s

most recently completed scal year or the earliest period presented.

In particular, S‑X Article 11 requires:

• a pro forma condensed balance sheet

as of the end of the most recent period for which a consolidated balance

sheet of the issuer is required, unless the transaction is already reected in that balance sheet;

and

• a pro forma condensed statement of comprehensive income

for the issuer’s most recently completed scal year

and the most recent interim period, unless the historical statement of comprehensive income reects the transaction

for the entire period.

S‑X Article 11 also requires pro forma nancial information in a number of other situations, such as:

• certain dispositions at a greater than 20% signicance level (measured under the tests summarized above) that are

not fully reected in the nancial statements of the issuer included in the prospectus;

• acquisition of certain investments accounted for under the equity method;

and

• other events or transactions for which disclosure of pro forma nancial information would be material to investors.

S‑X Article 11 provides extensive specic requirements for the content of pro forma nancial information, including

those set out in the following table.

Pro Forma Financial Information – Certain Key Content Requirements – S‑X Rule 11‑02

Required Adjustments Transaction Accounting Adjustments – reect the application of US GAAP or IASB

IFRS to the transaction, linking the eects of the acquired business to the issuer’s

audited historical nancial statements and must include:

• Total consideration transferred or received, including its components and how they

were measured.

• If any consideration is contingent, the basis for determining the amount(s) and an

undiscounted estimate of the range of outcomes or an explanation of why a range

cannot be estimated.

• If the initial accounting is incomplete, a prominent statement to that eect, and a

description of the required information, including uncertainties aecting the pro

forma nancial information, an estimate of when the accounting will be nalized, and

other information regarding the magnitude of the potential adjustments.

Autonomous Entity Adjustments – reect the operations and nancial position of

the acquiror (i.e., the issuer) as an autonomous entity when it was previously part of

another entity and must include:

• A description of each adjustment and any material uncertainties, the calculation of

the adjustment, and qualitative information about the adjustment necessary to give a

fair and balanced presentation.

Transaction Accounting and Autonomous Entity Adjustments – must be included

in the calculation of the historical and pro forma per share data presented on the face of

the pro forma condensed statement of comprehensive income.

Pro Forma Financial Information – must include revenues, expenses, gains and

losses, and related tax eects that will not recur in the income of the issuer beyond

12 months after the transaction.

Pro Forma Financial Information – Certain Key Content Requirements – S‑X Rule 11‑02

Optional Adjustments Management’s Adjustments – permit the issuer to include forward‑looking

information

that depicts the synergies and dis‑synergies identied by management

and provides insight to investors into the potential eects of the acquisition and

management’s post‑acquisition plans.

The following conditions must be met:

• There is a reasonable basis for each such adjustment;

• Adjustments that reduce expenses may not exceed the amount of the related

expense historically incurred during the pro forma period presented;

• The pro forma nancial information includes a statement that, in the opinion of

management, it reects all Management’s Adjustments necessary to a fair statement

of the pro forma nancial information presented; and

• When synergies are presented, any related dis‑synergies must also be presented.

• Additional Form of Presentation requirements include:

• The explanatory notes must include disclosure of the basis for and material

limitations of each Management’s Adjustment, including any material

assumptions or uncertainties of such adjustment, an explanation of the method

of the calculation of the adjustment, if material, and the estimated period for

achieving the synergies and dis‑synergies of such adjustment.

• Management’s Adjustments must be presented in the explanatory notes in

the form of reconciliations of pro forma net income from continuing operations

attributable to the controlling interest and the related pro forma earnings per

share data to such amounts after giving eect to the adjustments.

• Management’s Adjustments included (or incorporated by reference) should

be as of the most recent practicable date prior to the applicable eective date,

mail date, qualied date, or ling date, which may require they be updated if

previously provided in a Form 8‑K that is incorporated by reference.

• If Management’s Adjustments will change the number of shares or potential

common shares, the change must be reected within Management’s

Adjustments in accordance with US GAAP or IASB IFRS, as applicable, as if

the shares were outstanding as of the beginning of the period presented.

Periods to Be Presented Pro forma condensed statements of comprehensive income should be presented

using the issuer’s scal year end.

If the most recent scal year end of the acquired

company diers from that of the issuer by more than 93 days, the acquired company’s

scal year end should be brought up to within 93 days of the issuer’s scal year end

(if practicable).

Even if pro forma nancial information for an acquired business is not required to be included in the prospectus, the

underwriters may nevertheless request that pro forma nancial information be included in the disclosure. This situation

arises where the bankers want to show the higher “run rate” operating results of the combined companies for marketing

reasons even though there is no specic requirement to do so.

Discontinued Operations and Other GAAP Retrospective Revisions

As noted above, signicant dispositions may require pro forma nancial information under S‑X Article 11. In addition,

dispositions of a “component” or group of components that are a separate major line of a business or major

geographical area of operations for a company may be reported as discontinued operations in the company’s nancial

statements, thereby triggering requirements under ASC 205‑20 for reclassication of prior period nancial statements.

If a disposition would be treated as a discontinued operation under GAAP, a key question is whether prior period

nancial statements need to be recast to reect the discontinued operation. In general, retrospective revision of

pre‑event nancial statements is required in connection with an oering when the pre‑event nancial statements are

reissued after post‑event nancial statements have been issued.

100

The following table summarizes some common scenarios, assuming that a material discontinued operation has

occurred after the end of a scal year (say, in the rst scal quarter).

Scenario Requirement

IPO/initial registration statement on

Form S‑1, S‑4, or S‑11

Revision of pre‑event nancial statements is required if post‑event

nancial statements are needed for the oering. For example, if the

oering takes place at a time when Q1 interim nancial statements are

required for the registration statement, retrospective revision of pre‑event

nancial statements would be required.

101

New/follow-on registration statement

on Form S-1, S-3, S-4, or S-11 (including

post-eective amendments to those forms)

or proxy statement

If post‑event nancial statements have already been led, then both

pre‑event and post‑event nancial statements are needed for the oering

and revision of pre‑event nancial statements is required.

102

If post‑event nancial statements have not been led, then ling audited

revised pre‑event nancials is not required or allowed (although unaudited

supplementary information may be provided or pro forma nancial

statements reecting the discontinued operation may be needed).

Takedown from an eective shelf

registration statement

Pre‑event nancial statements in a shelf registration statement that was

declared eective prior to the discontinued operation are not required to

be retrospectively revised, whether or not post‑event nancial statements

have been led, unless there has been a “fundamental change.”

103

New registration statement on Form S-8 Revision of pre‑event nancial statements is typically not required.

104

Note that these same guidelines generally apply to other retrospectively applied revisions required by GAAP, such as

changes in segments and accounting methods.

In addition, the following revisions to MD&A may be required:

• if annual nancial statements have been recast to reect discontinued operations, then a revised MD&A should be

included to describe the events or circumstances that led to the discontinued operations, the material terms of that

disposition, and the impact on the issuer’s operating results and business;

105

and

• the liquidity and capital resources section of MD&A should discuss whether the company’s liquidity is likely to be

aected by the discontinued operations.

106

Guarantor Financial Statements

A guarantee of a security (such as a guarantee of a debt or preferred equity security) is itself a security that must be

registered under the Securities Act, absent an applicable exemption.

107

As a result, the general rule is that guarantors,

as “issuers” of the guarantee, are required to present the same nancial statements as the issuer of the guaranteed

securities.

108

Fortunately, S‑X Rules 3‑10(a) and 13‑01 provide an alternative disclosure regime (the Alternative

Disclosures) that does not generally require extensive nancial information about subsidiary issuers, subsidiary

guarantors, and subsidiary non‑guarantors. The Alternative Disclosures permit disclosure of summarized nancial

information about consolidated subsidiary issuers and guarantors, together with material non‑nancial disclosure

about the guarantee, the issuer, and the guarantors. The eort required to provide the Alternative Disclosures is less

burdensome and expensive than producing the separate audited nancial statements for every subsidiary issuer or

guarantor that would otherwise be required.

Eligibility for Alternative Disclosures

In order to substitute Alternative Disclosures for audited nancial statements of individual subsidiary issuers or

guarantors, the oering must meet the following conditions:

109

• The issuer or guarantor must be a consolidated subsidiary of the parent company.

• The parent company must have led consolidated nancial statements and either is or will become an Exchange Act

reporting company as a result of the oering.

• The guaranteed security must be debt or “debt‑like.”

110

• The parent company must either:

• issue or co‑issue the security jointly and severally with one or more of its consolidated subsidiaries or

• fully and unconditionally guarantee the security which is issued by or co‑issued with one or more of its

consolidated subsidiaries.

Requirements for Alternative Disclosures

The Alternative Disclosures will consist of, to the extent material, qualitative narrative disclosure and summarized

nancial information, along with an exhibit listing all subsidiary issuers and guarantors. Financial and non‑nancial

disclosures must also include any additional information that would be material to an investor to evaluate the suciency

of the guarantee and to make the nancial information not misleading.

111

The Alternative Disclosures may be located in

the MD&A or in the notes to the nancial statements.

112

The obligation to provide Alternative Disclosures ends when the

issuers and guarantors no longer have an Exchange Act reporting obligation with respect to the securities, even though

the securities themselves remain outstanding.

113

Narrative Disclosures should provide a description of:

• The issuers and guarantors (the Obligor Group).

114

• The terms and conditions of the guarantees and how payments to holders may be aected by the composition of

and relationships among the issuers, guarantors, and non‑obligor subsidiaries.

115

• Other factors that may aect payments to holders of the guaranteed securities, including restrictions on dividends,

guarantee enforceability, or the rights of a non‑controlling interest holder.

116

Summarized Financial Information must be presented for the Obligor Group covering the parent company’s

117

most

recently completed nancial year and year‑to‑date interim period.

118

The summarized nancial information may be

presented on a combined basis after eliminating intercompany balances and transactions and excluding investments

by obligors in non‑obligors.

119

If any nancial or non‑nancial disclosure does not apply to the combined Obligor Group,

summarized nancial information for the aected obligors should be presented separately.

120

Narrative disclosure may be

substituted for separately presented summarized nancial information where it can be easily explained and understood.

121

The registration statement for the oering must include pre‑acquisition summarized nancial information for any

“signicant” business (and/or its subsidiaries) that has been acquired by the parent company since the last balance

sheet date where that business or subsidiary will be a member of the Obligor Group.

122

The parent company may omit summarized nancial information if the parent determines such information would not be

material to investors.

123

S‑X Rule 13‑01(a)(4) lists four non‑exclusive examples that permit omission of the summarized

nancial information, if the conditions are met and the omission disclosed:

• The nancial information of the combined Obligor Group is not materially dierent than the corresponding

information in the parent company’s consolidated nancial statements.

124

• The combined Obligor Group, excluding investments in subsidiaries that are non‑obligors, has no material assets,

liabilities, or results of operations.

125

• The issuer is a nance subsidiary

126

of the parent company, the parent company has fully and unconditionally

guaranteed the security, and no other subsidiary of the parent company guarantees the security.

127

• The issuer is a nance subsidiary that co‑issued the security, jointly and severally, with the parent company, and no

other subsidiary of the parent company guarantees the security.

128

Subsidiary Obligor Exhibit must be provided under S‑K Item 601 listing each subsidiary member of the Obligor Group

and its role as issuer or guarantor in relation to the securities.

129

Secured Oerings

Where the securities of one or more of an issuer’s aliates have been pledged as collateral for securities being

oered, S‑X Rule 13‑02 requires, to the extent material, substantially the same summarized nancial information

and non‑nancial disclosure for each aliate as would be required under S‑X Rule 13‑01 for a subsidiary issuer or

guarantor.

130

The aliate disclosure is subject to the same requirement to include any nancial and narrative information

that would be material to investors to evaluate the pledge of securities and to make the nancial and non‑nancial

information not misleading.

131

This information may be located outside the nancial statements

132

and is required only as

long as the issuer maintains an Exchange Act reporting obligation with respect to the securities.

133

Investments Accounted for Under the Equity Method

S‑X Rule 3‑09 generally requires the inclusion of separate audited nancial statements for signicant investments

that are accounted for under the equity method.

134

S‑X Rule 3‑09 applies whether the investee is held by an issuer,

a subsidiary, or another investee.

135

Note that if the investee is not already an SEC‑reporting company, its nancial

statements need not be audited by a PCAOB‑registered rm, and the audit report need not refer to PCAOB standards

(although in some circumstances, such as when the principal auditor of the issuer is making reference in its report to

the investee auditor’s report, the audit must be carried out in accordance with PCAOB standards).

136

For investees, signicance is evaluated under S‑X Rule 1‑02(w) based on the following two tests:

137

• whether the amount of the issuer’s (and its other subsidiaries’) investment in and advances to the investee exceeds

20% of the total assets of the issuer and its subsidiaries on a consolidated basis as of the end of the most recently

completed scal year (Test 1);

138

and

• whether both (where applicable) the equity of the issuer (and its other subsidiaries) in: (i) the pre‑tax income from

continuing operations and (ii) the consolidated total revenues from continuing operations (after intercompany

eliminations) of the equity investee exceeds 20% of such income and revenue of the issuer and its subsidiaries on a

consolidated basis for the most recently completed scal year (Test 2).

139

The revenue component of Test 2 applies

only when both the issuer and its consolidated subsidiaries and the equity investee had material revenue in each of

the two most recently completed scal years.

If either of the above tests is met, separate nancial statements of the investee must be led.

140

Insofar as practicable,

those nancial statements must be as of the same dates and for the same periods as the required audited annual

nancial statements of the issuer, but need only be audited for those scal years in which either Test 1 or Test 2 is met

at or above the 20% level.

141

An EGC may include two years of investee nancial statements in its initial registration

statement, irrespective of whether it presents two or three years of its own nancial statements.

142

US GAAP permits the use of the “fair value option” for certain investments that would otherwise be accounted for under

the equity method. If an issuer elects the fair value option, Test 2 above is altered to compare the change in fair value of

the investee (as reected in the issuer’s nancial statements) to the issuer’s consolidated pre‑tax income for the most

recently completed scal year.

For equity investees that meet any of the three S‑X Rule 1‑02(w) criteria at the greater than 10% but not more than

the 20% signicance level, S‑X Rule 4‑08(g) requires the presentation of summary nancial information as described

by S‑X Rule 1‑02(bb).

143

Financial statements of equity investees that are presented under local GAAP or non‑IASB IFRS to comply with

S‑X Rule 3‑09 do not have to be reconciled to US GAAP unless either of the Test 1 or Test 2 criteria is greater than 30%

(calculated on a US GAAP basis).

144

That reconciliation may be done under the less comprehensive requirements of

Item 17 of Form 20‑F rather than Item 18.

145

A description of the dierences in accounting methods is required regardless

of the signicance levels.

146

Equity investees using IASB IFRS do not need to include a reconciliation.

147

Summary nancial information for a foreign business provided under S‑X Rule 4‑08(g) must be presented under

the same GAAP used by the issuer. For example, a US company would report summarized information for a foreign

investee under US GAAP no matter what basis of accounting is used by the foreign investee to prepare its own

nancial statements.

148

Segment Reporting

In addition to all the consolidated nancial information required to be included in an oering document, companies that are

engaged in more than one line of business or operate in more than one geographic area may also be required to include

separate revenue and operating data for each of their business lines or geographic areas. This requirement is a function

of whether the company’s business comprises more than one operating segment, as dened by US GAAP. S‑K Item 303

requires certain nancial reporting and textual disclosure in the MD&A for each relevant, reporting segment or other

subdivision of the business if the discussion would be necessary to understanding the business.

149

FASB Accounting

Standards Codication 280, “Segment Reporting” (ASC 280), provides detailed guidance for when a component of a

larger enterprise constitutes an operating segment and how its discrete nancial information must be reported.

Generally, an operating segment is a component of a larger enterprise:

• that engages in business activities from which it may earn revenues and incur expenses (including revenues and

expenses relating to transactions with other components of the same enterprise);

• whose operating results are regularly reviewed by the enterprise’s chief operating decision maker

150

to make

decisions about resources to be allocated to the segment and assess its performance; and

• for which discrete nancial information is available.

The aim of segment reporting is to align public nancial reporting with a company’s internal reporting in order to permit

nancial analysts and the public to see the overall enterprise the same way management sees it. The most critical

factor in determining whether an issuer has more than one operating segment is how management runs its business.

151

Whether an issuer can aggregate operating segments is highly fact‑specic and depends on factors such as economic

similarity, the similarity of the products or services sold, the nature of the production process, customer type, distribution

methods, and the regulatory environment for the business. The determination is very subjective and is often the subject

of much discussion with the company’s accountants and, through the SEC comment process, with the SEC Sta.

Once a segment has been identied, the issuer must provide information about the segment if it meets any of the

following 10% thresholds:

• its reported revenue (including both sales to external customers and inter‑segment sales) is 10% or more of the

combined revenue (internal and external) of all reported operating segments;

• the absolute amount of its reported prot or loss is 10% or more of the greater, in absolute amount, of (i) the

combined prot of all operating segments that did not report a loss or (ii) the combined loss of all operating

segments that did report a loss; or

• its assets are 10% or more of the combined assets of all operating segments.

152

A company with more than one segment (or aggregated segments) in excess of any of these thresholds must

disclose for each such segment the revenues from external customers, a measure of prot or loss,

153

and the total

assets attributable to that segment, as well as a reconciliation to the corresponding consolidated amounts. Additional

information on items such as equity investments and capital expenditures may be required under ASC 280 if such

amounts are reviewed by the company on a segment basis. For interim periods, disclosure must include a measure of

prot or loss for each segment, reconciliations, and material changes to total assets. Financial disclosure for segments

will typically be included in the nancial statements and may be part of a discussion on operating segments in the MD&A

if the company concludes such information is necessary to understand the business. The eect of these requirements is

to force disclosure of protability by segment, which many issuers are reluctant to do for competitive reasons.

The identication and reporting of nancial information for operating segments will be critical in the oering process,

as the time to prepare such information, the eect on textual disclosure, and the impact on enterprise valuation may all

be signicant. The need for segment reporting is always considered carefully when a company is issuing securities for

the rst time. However, the issue should be revisited whenever the company has entered into new business lines or if

management has begun to analyze its business in a new way that may impact the original segment analysis. Because

the guidance of ASC 280 is complex and its application very fact‑specic, it is important to begin an early dialogue with

the independent auditors when there may be segment reporting issues.

Supplemental Schedules for Certain Transactions

S‑X Rule 5‑04 requires a number of supplemental schedules for particular industries and circumstances.

154

Each

schedule contains additional nancial information that must be audited and provided, typically including:

• Schedule I – Condensed Financial Information of Registrant (known as “parent-only” nancial statements): requires

the presentation of condensed non‑consolidated balance sheets, statements of comprehensive income, and

cash ows, as of the same dates and for the same periods as the audited consolidated nancial statements. This

requirement applies if the restricted net assets of subsidiaries exceed 25% of the issuer's consolidated net assets

as of the end of the most recently completed scal year. “Restricted net assets” refer to the issuer's proportionate

share of net assets of consolidated subsidiaries (after eliminating intercompany transactions) that, as of the end of

the most recent scal year, may not be transferred to the parent company in the form of loans, advances, or cash

dividends without obtaining consent from a third party. This third party may include lenders, regulatory agencies,

foreign governments, or other relevant entities.

155

• Schedule II – Valuation and Qualifying Accounts: requires an analysis of each valuation and qualifying account (e.g.,

allowance for doubtful accounts, allowance for obsolescence).

• Schedule III – Real Estate and Accumulated Depreciation: requires real estate operating and investment companies

to disclose certain nancial details regarding each of their properties.

• Schedule IV – Mortgage Loans on Real Estate: requires real estate operating and investment companies to disclose

details of each mortgage loan that accounts for 3% or more of the carrying value of all of the issuer’s mortgages.

• Schedule V – Supplemental Information Concerning Property-Casualty Insurance Operations: requires disclosure

as to liabilities on property‑casualty insurance claims if the issuer, its subsidiaries, or 50%‑or‑less‑owned, equity‑

basis investees have such liabilities. However, the schedule may be omitted if reserves for unpaid property‑casualty

claims and claims adjustment expenses did not, in the aggregate, exceed 50% of common stockholders’ equity of

the issuer and its consolidated subsidiaries as of the beginning of the scal year.

Note that issuers in specic industries may have schedule requirements that vary from those listed above. In addition,

an issuer may provide the schedule information separately or in the notes to the audited nancial statements.

Industry Guides

S‑K Item 801 sets out three industry “guides” requiring enhanced disclosure of nancial and operational metrics for

issuers in certain industries:

156

• Guide 4 – Prospectuses Relating to Interests in Oil and Gas Programs: requires enhanced disclosure relating to the

oering terms and participation in costs and revenues among investors and others, as well as a 10‑year nancial

summary of any drilling programs by the issuer and its associates, including recovery on investment for investors in

those programs.

• Guide 5 – Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships: requires

a summary of the nancial performance of any other real estate investment programs sponsored by the general

partner and its aliates.

• Guide 6 – Disclosure Concerning Unpaid Claims and Claim Adjustment Expenses of Property-Casualty Insurance

Underwriters: requires disclosure of details of reserves and historical claim data if reserves for unpaid property‑

casualty claims and claim adjustment expenses of the issuer, its consolidated and unconsolidated subsidiaries, and

equity investees exceed 50% of the common stockholders’ equity of the issuer and its consolidated subsidiaries.

In recent years, the SEC has rescinded the following industry guides and moved the disclosure requirements into

subparts of S‑K.

• S-K Item 1200 (formerly Guide 2): requires enhanced disclosure of oil and gas reserves (including from non‑

traditional sources), the company’s progress in converting proved undeveloped reserves into proved developed

reserves, technologies used in establishing reserves, the company’s internal controls over reserves estimates, and

disclosure based on geographic area (as dened). Required disclosure also includes information regarding proved

undeveloped reserves; oil and gas production; drilling and other exploratory and development activities; present

activities; delivery commitments; and oil and gas properties, wells, operations, and acreage. Disclosure of probable

and possible reserves and oil and gas reserves’ sensitivity to price is optional under S‑K Item 1200.

157

• S-K Item 1300 (formerly Guide 7): requires disclosure of mineral resources and reserves that have been determined

on the company’s properties. The company must provide summary disclosure about its properties in the aggregate

along with detailed disclosure about individually material properties, including location of the property, history of

previous operations, and a description of the present condition of and operations on the property. The company

must also disclose material exploration results and related exploration activity and exploration targets, if the

disclosure is accompanied by specied cautionary and explanatory statements. The disclosure must be based

on and accurately reect information and supporting documentation prepared by a mining expert—or “qualied

person,”

158

including a dated and signed technical report summary, which identies and summarizes the information

reviewed and conclusions reached about the mineral resources or mineral reserves determined to be on each

material property. The technical report summary must be led as an exhibit when disclosing mineral reserves or

mineral resources for the rst time or when there is a material change in the mineral reserves or mineral resources

from the last technical report summary led for the property.

159

• S-K Item 1400 (formerly Guide 3): requires disclosure by bank holding companies about the following for each

annual period presented and any additional interim period if a material change in the information or trend evidenced

thereby has occurred: distribution of assets, liabilities and stockholders’ equity, the related interest income and

expense, and interest rates and interest dierential; weighted average yield of investments in debt securities by

maturity; maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and

oating or adjustable interest rates; certain credit ratios and the factors that explain material changes in the ratios,

or the related components during the periods presented; the allowance for credit losses by loan category; and bank

deposits including average amounts and rate paid and amounts that are uninsured.

160

Compiling the information required by these industry guides and S‑K Items may be a signicant undertaking, and the

issuer’s nancial and operating management should consult with its professional advisors early in the process if an

industry guide applies to the oering.

Quantitative and Qualitative Disclosure About Market Risk

S‑K Item 305 sets out various specic requirements for quantitative and qualitative disclosure about market risk

sensitive instruments (such as derivatives). This disclosure can be signicant for companies with substantial trading

portfolios or that engage in extensive hedging.

Some Related Issues

Additional Financial Information That Is Typically Included

In addition to the formal requirements of S‑K and S‑X, it is customary to include additional operational and other metrics

in the oering document to help investors understand the issuer’s business. The three most common examples are

described below.

Summary Financial Data

A page of summary nancial data is always included in the “summary box” in the oering document. This key marketing

page often supplements the nancial data with additional operational and other metrics. These additional metrics

will vary with the type of issuer and its industry and will be selected based on the criteria that management and the

investment community monitor to evaluate performance or liquidity. Typical examples include comparable store sales

data for a retailer, capital expenditures for a manufacturer, and subscriber numbers for a cable television company.

Recent Financial Results

If a signicant amount of time has passed since the most recent nancial statements included in the oering document,

it may be appropriate to include a summary of the quarter in progress (or recently ended) in the “summary box” even

before full nancial statements for that quarter are required. Examples of “recent results” disclosures are most common

after a quarter is completed but before nancial statements for that quarter have become available. The issuer and the

underwriters will want to tell investors as soon as possible about any positive improvement in operating trends, while if

the recent results are negative, recent results disclosure may be advisable to avoid any negative surprises for investors

when the full quarterly/half yearly numbers become available.

Recent Developments

To the extent material, the likely consequences of material recent developments may also be disclosed in the “summary

box” or the MD&A section of the disclosure. For example, it is customary to discuss a material recent or pending and

probable acquisition, whether or not audited nancial statements of the acquired or to‑be‑acquired business are required

to be presented. This practice will often result in a “Recent Developments” paragraph in the summary and a discussion

of the impact of the pending or recently completed transaction on margins, debt levels, etc., in a section of the MD&A

labeled “Overview,” “Impact of the Acquisition,” or a similar title. The textual disclosure may also include a discussion of

any special charges or anticipated synergies expected to result from the acquisition or other pending event.

Non‑GAAP Financial Measures

Many issuers choose to disclose measures of nancial performance or liquidity that, while derived from GAAP gures

presented in a company’s nancial statements, are not themselves calculated in accordance with GAAP. EBITDA is

perhaps the best‑known (and most widely used) non‑GAAP nancial measure.

The SEC’s rules (adopted in response to Section 401(b) of the US Sarbanes‑Oxley Act of 2002 (Sarbanes‑Oxley)) limit

the use of non‑GAAP nancial measures in various ways. First, Regulation G applies to any public disclosure of non‑

GAAP nancial measures.

161

Second, Item 10(e) of S‑K layers on additional requirements for disclosures in Securities

Act and Exchange Act lings (and earnings releases furnished to the SEC under Item 2.02 of Form 8‑K).

162

Regulation G

A non‑GAAP nancial measure under Regulation G is broadly dened as a numerical measure of nancial performance

that excludes (or includes) amounts that are otherwise included in (or excluded from) the comparable measure

calculated and presented in the nancial statements under GAAP.

163

The term “non‑GAAP nancial measure” carves out certain items including:

• operating measures and ratios or statistical measures calculated using nancial measures determined in

accordance with (1) GAAP (e.g., GAAP sales per square foot and operating margin calculated by dividing GAAP

revenues into GAAP operating income) or (2) measures that are not themselves non‑GAAP nancial measures;

164

• nancial measures required to be disclosed by GAAP, SEC rules, or an applicable system of regulation of a

government, governmental authority, or a self‑regulatory organization (e.g., segment measures required by

ASC 280).

165

Under Regulation G, if a public company discloses a non‑GAAP nancial measure, it must:

166

• present the most directly comparable nancial measure calculated in accordance with GAAP; and

• quantitatively reconcile the dierences between the non‑GAAP nancial measure and the most directly comparable

GAAP nancial measure.

167

In addition, Regulation G contains an antifraud prohibition – that is, an issuer may not make any non‑GAAP nancial

measure public if the measure contains a material misstatement or omission.

168

S-K Item 10(e)

For purposes of Item 10(e), the term “non‑GAAP nancial measures” has the same meaning as under Regulation G.

169

Under Item 10(e), if a public company includes a non‑GAAP nancial measure in an SEC ling (or an earnings release

furnished under Form 8‑K Item 2.02) it must also include:

170

• a presentation, with equal or greater prominence, of the most directly comparable GAAP nancial measure;

• a quantitative reconciliation of the dierences between the non‑GAAP nancial measure and the most directly

comparable GAAP nancial measure;

• a statement why management believes the non‑GAAP nancial measure provides useful information for investors; and

• to the extent material, a statement of the additional purposes for which management uses the non‑GAAP nancial

measure.

Furthermore, Item 10(e) prohibits in SEC lings (but not an earnings release furnished under Form 8‑K Item 2.02),

among other things:

171

• non‑GAAP measures of liquidity that exclude items requiring cash settlement, other than EBIT and EBITDA;

• non‑GAAP measures of performance that eliminate or smooth items characterized as non‑recurring, unusual, or

infrequent when it is reasonably likely that a similar charge or gain will recur within two years, or there was a similar

charge or gain within the prior two years;

• the presentation of non‑GAAP nancial measures on the face of the nancial statements, in the accompanying

notes, or on the face of any pro forma nancial information required to be disclosed by Article 11 of S‑X; and

• using a name for non‑GAAP nancial measures that is the same as, or confusingly similar to, titles or descriptions

used for GAAP nancial measures.

The SEC Sta monitors the use of non‑GAAP nancial measures and has issued several interpretations of SEC rules.

The guidance covers various areas, such as ensuring equal or greater prominence for GAAP measures, appropriate

presentation of per‑share measures, handling of forward‑looking non‑GAAP nancial measures without reconciliation,

exclusion of recurring items, consistency in the inclusion or exclusion of gains or charges in non‑GAAP measures over

time, tailored recognition and measurement methods for specic nancial statement line items (e.g., revenue), accurate

labeling and clear descriptions of non‑GAAP measures, and the recognition that disclosure alone may not be sucient

to address misleading non‑GAAP measures.

172

Form 8-K Filing Requirements in Connection With Signicant Acquisitions or Dispositions

Completion of the acquisition or disposition of a “signicant amount of assets” other than in the ordinary course

of business must be disclosed under Item 2.01 of Form 8‑K, and in turn may trigger the requirement for nancial

statements of the acquired business under Item 9.01 of Form 8‑K. Instruction 4 to Item 2.01 provides that an

acquisition

173

or disposition is deemed to involve a signicant amount of assets if:

• the issuer’s and its other subsidiaries’ equity in the net book value of the assets or the amount paid or received for

the assets upon such acquisition or disposition exceeded 10% of the total assets of the issuer and its consolidated

subsidiaries; or

• it involved a “business” that is “signicant.”

A “signicant” acquisition of a business for these purposes is one meeting the denition of a “signicant subsidiary”

under S‑X Rule 1‑02(w) above the 20% level, as discussed above.

174

If a completed acquisition of a business results in Item 2.01 disclosure, Item 9.01 of Form 8‑K comes into play.

That item requires a company to le separate audited nancial statements of the acquired business under

S‑X Rule 3‑05 or S‑X Rule 3‑14, based on the signicance of the acquisition. In other words, if an acquisition is

signicant above a 20% level, nancial statements of the acquired business need to be provided. Similarly, if S‑X

Rule 3‑05 or S‑X Rule 3‑14 nancial statements are needed then S‑X Article 11 pro forma nancial information will be

required (and conversely, if no S‑X Rule 3‑05 or S‑X Rule 3‑14 nancials are needed, then no S‑X Article 11 nancials

will generally be required).

175

Item 9.01(a) provides that the required nancial information may be led with the initial

Form 8‑K or by amendment to that Form 8‑K not later than 71 calendar days after the due date for the initial Form 8‑K

(i.e., four business days after the occurrence of the event). The age of the acquired business’s nancial statements

required by Form 8‑K Item 9.01 should be determined by reference to the ling date of the Form 8‑K Item 2.01

initially reporting consummation of the acquisition, subject to exceptions applicable to certain previously led nancial

statements as well as certain accommodations for acquired businesses that are foreign private issuers.

176

The situation is dierent for dispositions. Unlike in the case of acquisitions, there is no link between the need for

S‑X Rule 3‑05 or S‑X Rule 3‑14 nancial statements and S‑X Article 11 pro forma nancial information. Neither

S‑X Rule 3‑05 nor S‑X Rule 3‑14 applies to dispositions, but you may nonetheless need S‑X Article 11 pro forma

nancial information. For example, in the case of a disposition that is signicant at a 22% level, pro forma nancial

information would be required notwithstanding that there are no required nancial statements of the disposed business.

Third, the pro forma nancial information required in an Item 9.01 Form 8‑K must be led more quickly in the case of

dispositions, because if S‑X Article 11 pro forma nancial information is required, a company does not get the benet of

the 71‑day extension under Item 9.01(a) of Form 8‑K.

177

In other words, the company has four business days to prepare

and le its pro forma nancial information (rather than four business days plus 71 additional calendar days).

Internal Control Over Financial Reporting

An IPO will involve close scrutiny of a company’s internal control over nancial reporting, or ICFR. Once a company is

public, Section 404(a) of Sarbanes‑Oxley requires an assessment by management of the eectiveness of the issuer’s

ICFR, while Section 404(b) requires an attestation report of the issuer’s independent auditors on management’s

assessment. Compliance with Section 404 can be a major undertaking for a newly public company. The SEC has

adopted rules to allow an IPO issuer to wait until its second annual report to provide management’s Section 404(a)

assessment and its auditor’s Section 404(b) attestation.

178

Issuers that are “large accelerated lers” or “accelerated lers”

179

must comply with both the Section 404(a)

management’s assessment of internal control over nancial reporting and the Section 404(b) independent auditor’s

attestation report in annual reports led on Form 10‑K with the SEC. By contrast, issuers that are neither large

accelerated lers nor accelerated lers are required only to provide management’s assessment of internal control under

Section 404(a).

180

An EGC is not required to provide the Section 404(b) independent auditor’s attestation report for as

long as it qualies as an EGC.

181

If an entire annual report is incorporated by reference into a registration statement (as is the case with a registration

statement on Form S‑3), the Section 404 reports and disclosures will also be part of the registration statement.

Interactive Data

The SEC has adopted rules that require public companies and foreign private issuers that prepare their nancial

statements in accordance with US GAAP or IASB IFRS to supplement their led nancial statements with

nancial statements formatted in eXtensible Business Reporting Language (XBRL).

182

XBRL is a form of electronic

communication whose main feature includes interactive electronic tagging of both nancial and non‑nancial data. All

operating company lers (including foreign private issuers) are required to embed XBRL data directly into the body of

an SEC ling, rather than tag the information in a separate exhibit.

183

A previously non‑reporting company is not required to include XBRL nancial statements in its initial Securities Act

registration statement (i.e., an IPO on Form S‑1 or an initial exchange oer on Form S‑4) or its initial Exchange Act

registration statement (i.e., Form 10).

184

It will begin including XBRL nancial statements with the rst Form 10‑Q

(or annual report on Form 20‑F ) it les as a reporting company.

185

Once having provided its rst XBRL nancial

statements, the company would include XBRL nancial statements in a subsequent Securities Act registration statement,

but only if it includes a price or price range (and not if it merely incorporates nancial statements by reference).

186

This

means, for example, that XBRL nancial statements are not needed in a base registration statement for a shelf oering.

Special Considerations in Rule 144A Transactions and for Foreign Private Issuers

Rule 144A Transactions

The disclosure document in a Rule 144A oering is typically modeled after a public oering prospectus. This holds true

for nancial statement requirements as well – although the line item disclosure rules of the Securities Act do not strictly

apply to private oerings under Rule 144A, it has become standard practice to follow these rules as if they applied

to Rule 144A oerings, with only limited exceptions. In many situations, the commitment committees of the major

nancing sources will insist on including nancial disclosure in the Rule 144A oering circular that is in all material

respects consistent with the nancial statement requirements that would apply to a registration statement led with

the SEC. Rule 144A oerings are typically sold to buyers who expect levels of disclosure substantially equivalent to

what they would receive in a public deal. Additionally, in the case of a Rule 144A oering with registration rights, the

Rule 144A circular will be followed by a registered exchange oer prospectus, and the buyers of the oered securities

will thereby receive full Securities Act disclosure after the closing. Therefore, Rule 144A oering circulars typically follow

the public oering rules described above in all material respects.

It is not uncommon, however, for a working group on a Rule 144A deal to decide to dispense with a particular

nancial statement requirement if the group determines that that particular item will not materially alter the total mix of

information provided, or if there is another way to disclose the item that the S‑X requirement is targeting.

After all, Rule 144A(d)(4)’s information requirement is very modest and calls only for “the issuer’s most recent balance

sheet and prot and loss and retained earnings statements, and similar nancial statements for such part of the

two preceding scal years as the issuer has been in operation (the nancial statements should be audited to the

extent reasonably available).” A more exible approach can also be justied by the fact that the liability standards of

Sections 11 and 12 of the Securities Act do not apply to Rule 144A deals. Although Rule 10b‑5 does apply to Rule 144A

oerings, it is more dicult for disgruntled purchasers to demonstrate the requisite scienter required to establish a

valid Rule 10b‑5 claim.

187

As a result, it is not uncommon to provide only two years of audited nancial statements

in a Rule 144A transaction where a registration statement would require three years. This is true for the issuer and

for material acquired businesses. We have seen this decision taken in a number of deals, particularly where the

issuer is already in its third or fourth scal quarter, since the third year of audited nancial statements will likely be

completed in the natural course before the exchange oer registration statement is required to be led. Other working

groups have elected to exclude some of the ner elements of the nancial information requirements where they have

determined that such additional information would not materially alter the total mix of information presented. Although

the industry custom is to follow the public oering rules as if they applied to the Rule 144A deal, there is no requirement

in Rule 144A to do so, and some working groups will conclude that not every detail of the information called for in a

registration statement is required to present Rule 144A investors with full and fair disclosure.

As the full impact of Sarbanes‑Oxley has made itself felt upon the private equity community and smaller public

companies (for whom a few extra million dollars of administrative expenses are material), we have seen a rise in

“144A‑for‑life” debt nancings. These transactions are identical to regular Rule 144A oerings, except that they do not

oer bond investors any registration rights and they do not require the bond issuers to become or remain voluntary

lers of Exchange Act reports. Because these oerings will not be followed by a registered exchange oer prospectus

that is fully compliant with S‑X, some deal teams are concluding that “144A‑for‑life” disclosure documents can more

freely dispense with non‑core S‑X requirements than would be the case in a Rule 144A oering with registration rights.

There is no clear consensus among practitioners at this time as to whether, or to what extent, such additional exibility

is appropriate.

Special Rules Applicable to Foreign Private Issuers and Acquired Foreign Businesses

The nancial statement requirements for foreign private issuers dier in a number of signicant ways from those of

domestic US issuers. These requirements, discussed extensively in our companion publication “Financial Statement

Requirements in US Securities Oerings: What Non‑US Issuers Need to Know,” are summarized briey below:

Ability to Use US GAAP, IFRS, or Local GAAP

US domestic companies must le nancial statements with the SEC in accordance with US GAAP.

188

The nancial

statements of foreign private issuers, however, may be prepared using US GAAP, IASB IFRS, or local GAAP.

189

In the

case of foreign private issuers that use IASB IFRS, no reconciliation to US GAAP is needed.

190

By contrast, if local

GAAP or non‑IASB IFRS is used, a note to the consolidated nancial statements (both annual and required interim

statements in a prospectus) must include a reconciliation to US GAAP.

191

Quarterly Reporting Not Required; Current Reporting on Form 8-K Not Required

Unlike domestic US issuers, foreign private issuers are not required to le quarterly reports (including quarterly nancial

information) on Form 10‑Q.

192

They also are not required to use Form 8‑K for current reports and instead furnish (not

le) Form 6‑K with the SEC.

193

Some foreign private issuers, however, choose (or are required by contract) to le the

same forms with the SEC that domestic US issuers use. In that case, they must comply with the requirements of the

forms for domestic issuers (and would le quarterly reports on Form 10‑Q and current reports on Form 8‑K, in addition

to annual reports on Form 10‑K).

194

Financial Information Goes Stale More Slowly

The SEC’s rules also allow a foreign private issuer’s registration statement to contain nancial information that is of an

earlier date than that allowed for domestic US issuers. In particular, foreign private issuers can omit interim unaudited

nancial statements if a registration statement becomes eective less than nine months after the end of the last audited

scal year (unless the issuer has already published more current interim nancial information).

195

After that time, a foreign

private issuer must provide interim unaudited nancial statements (which may be unaudited) covering at least the rst

six months of the scal year, together with comparative nancial statements for the same period in the prior year.

196

Conclusion

Knowing what nancial statements will be required to complete a particular nancing and when they go stale is a

critical step in planning a nancing. This User’s Guide is designed to provide a roadmap to the answers to those

questions in the typical cases that we face every day, but is of course not a substitute for reading the rules and

regulations we have summarized. In any particular case, securities counsel and the auditors will need to be consulted

to conrm your analysis.

If you have any questions about this User’s Guide, please contact one of the authors listed below or the Latham or

KPMG personnel with whom you normally consult:

Latham & Watkins LLP

Michele M. Anderson

+1.202.637.2109

michele.anderson@lw.com

Alexander F. Cohen

+1.202.637.2284

alexander.cohen@lw.com

Paul M. Dudek

+1.202.637.2377

paul.dudek@lw.com

Joel H. Trotter

+1.202.637.2165

joel.trotter@lw.com

KPMG LLP

Timothy D. Brown

+1.212.954.8856

[email protected]

Erin L. McCloskey

+1.212.872.5718

[email protected]

Endnotes

The JOBS Act created a category of issuer, called an emerging growth company (EGC). EGCs benet from various accommodations

designed to make the initial public oering (IPO) process more attractive and to ease the transition from private to public company.

For a detailed discussion of these rules, see our companion publication “Financial Statement Requirements in US Securities Oerings:

What Non‑US Issuers Need to Know.”

A foreign private issuer is any issuer (other than a foreign government) incorporated or organized under the laws of a jurisdiction outside

the United States, unless (1) more than 50% of its outstanding voting securities are directly or indirectly owned by US residents and

(2) either (A) the majority of its executive oers or directors are US citizens or residents, (B) more than 50% of its assets are located in

the United States, or (C) its business is administered principally in the United States. See Rule 405 under the Securities Act of 1933, as

amended (the Securities Act); Rule 3b‑4 under the US Securities Exchange Act of 1934, as amended (the Exchange Act).

The nancial statement requirements discussed in this User’s Guide also apply to spin‑os registered on Form 10 for the distribution

of shares of a subsidiary to the existing shareholders of a public company. However, we do not cover nancial statements in mergers

and acquisitions (M&A) transactions. When securities are registered on Form S‑4 or F‑4 in connection with a stock‑for‑stock acquisition,

dierent requirements may apply.

Generally, Form S‑3 may be used by an issuer to sell securities (provided that the issuer has at least $75 million of common equity

outstanding held by non‑aliates) if the issuer has been subject to the Exchange Act reporting requirements and timely led all Exchange

Act reports for the 12 months prior to registration, and neither the issuer nor its subsidiaries have had any material defaults on a payment

related to a dividend, sinking fund, indebtedness, or rentals under long‑term leases.

See Form S‑3, General Instructions.

In particular, Form S‑1 allows an issuer to incorporate information by reference from its previously led Exchange Act reports if the issuer:

• is required to le Exchange Act reports;

• has led all required reports and other materials under the Exchange Act during the prior 12 months (or for such shorter period that the

issuer was required to le such reports and materials);

• has led an annual report for its most recently completed scal year;

• is not, and during the past three years neither the issuer nor any of its predecessors was, a blank check issuer, shell company, or

penny stock issuer; and

• makes its Exchange Act reports readily available on its website (including by way of a hyperlink to the reports).

See Form S‑1, General Instructions.

The requirements of Regulation S‑X (S‑X) Rule 3‑01 are imported into both Form S‑1 and Form S‑3. See Form S‑1, Item 11(e) (noting

nancial statements must be included meeting the requirements of S‑X generally); see also Form S‑3, Item 12(a) (noting the registrant’s

latest annual report on Form 10‑K must be incorporated by reference; in turn, Form 10‑K, Item 8 species that nancial statements must

be included meeting the requirements of S‑X, with certain exceptions).

See S‑X Rule 3‑01(a). If the ling is made on or before February 14 (i.e., within 45 days after the end of the prior scal year), and audited

nancial statements for the most recent year are not available, the balance sheet may be as of the end of the two preceding scal years.

See S‑X Rule 3‑01(b). In this case, the ling must include an additional balance sheet as of an interim date at least as current as the end

of the issuer’s third scal quarter of its most recently completed scal year. Id. Under certain circumstances, this approach may be taken

if the ling is made after 45 days but within 90 days of the end of the issuer’s scal year. See S‑X Rule 3‑01(c). In any event, interim

balance sheets need not be audited. See S‑X Rule 3‑01(f).

See S‑X Rule 3‑01(a). Financial information of a registrant’s predecessor is required for all periods prior to the registrant’s existence, with

no lapse in audited periods or omission of other information required about the registrant. SEC Division of Corporation Finance, Financial

Reporting Manual, Section 1170 [Financial Reporting Manual]. The term “predecessor” is dened broadly. See Securities Act Rule 405.

See S‑X Rule 3‑02(a) (statements of comprehensive income and cash ows); see also S‑X Rule 3‑04 (changes in stockholders’ equity).

See S‑X Rule 3‑06. Under this rule, the SEC will accept nancial statements for periods of not less than nine, 21, and 33 consecutive

months as substantial compliance with the requirement to provide nancial statements for one, two, and three years, respectively. In

particular, whenever audited nancial statements are required for a period of one, two, or three years, a single audited period of nine to

12 months may count as a year if:

• the issuer has changed its scal year during the period;

• the issuer has made a signicant business acquisition for which nancial statements are required under S‑X Rule 3‑05 and the

nancial statements covering the interim period pertain to the business being acquired; or

• the SEC grants permission to do so under S‑X Rule 3‑13, provided that nancial statements are led that cover the full scal year or

years for all other years in the time period.

See id. Note that historically the SEC Sta has been reluctant to grant this relief. See Financial Reporting Manual, Note to Section 1140.8

(issuer must show unusual circumstances). On June 29, 2017, the SEC Sta signaled that it might be willing to grant permission if an

issuer is able to argue that the information is not necessary for investor protection. See Sta of the Division of Corporation Finance, Draft

Registration Statement Procedures Expanded (June 29, 2017, updated Aug. 17, 2017) [2017 Procedures]:

While an issuer should take all steps to ensure that a draft registration statement is substantially complete when

submitted, we will not delay processing if an issuer reasonably believes omitted nancial information will not be

required at the time the registration statement is publicly led. In addition, we will consider an issuer’s specic facts

and circumstances in connection with any request made under Rule 3‑13 of Regulation S‑X.

See 2017 Procedures.

See Financial Reporting Manual, Section 4110.5 (accounting rm must be PCAOB registered and auditor’s report must refer to PCAOB

standards); Section 4110.1 (citing PCAOB Rule 2100, which requires each rm to register with the PCAOB that prepares or issues any

audit report with respect to any issuer, or plays a substantial role in the preparation or furnishing of an audit report with respect to any

issuer).

See S‑X Rules 3‑01(c), 3‑01(e), and 3‑01(f). If the ling is made on or before February 14 (i.e., within 45 days after the end of the prior

scal year), and audited nancial statements for the most recent year are not available, then an interim unaudited balance sheet must be

included as of the previous September 30 (i.e., as of the end of the most recently completed third quarter). See S‑X Rule 3‑01(b).

See S‑X Rules 3‑02(b) and 3‑04. Note that the statement of stockholders’ equity may be provided in the notes to the nancial statements.

See Financial Reporting Manual, Section 1120.

See Form S‑1, Item 11(e) (nancial statements must be included meeting the requirements of S‑X generally); see also Form S‑3,

Item 11(b)(i) (nancial information under S‑X Rule 3‑05 must be included if not incorporated by reference under Form S‑3, Item 12(a)).

See JOBS Act Sections 101(a) and (b) (adding new Securities Act Section 2(a)(19) and Exchange Act Section 3(a)(80)).

• After the initial determination of EGC status, a company will remain an EGC until the earliest of:

• the last day of any scal year in which the company earns $1.235 billion or more in revenue;

• the date when the company qualies as a “large accelerated ler,” with at least $700 million in public equity oat;

• the last day of the scal year ending after the fth anniversary of the IPO pricing date; or

• the date of issuance, in any three‑year period, of more than $1.0 billion in non‑convertible debt securities.

EGC status will ordinarily terminate on the last day of a scal year. However, the issuance in any three‑year period of more than

$1.0 billion in non‑convertible debt securities would cause an issuer to lose its EGC status immediately. Id.

Note however, that EGC status will be extended during the registration process even if the registrant’s revenues exceed $1.235 billion or

the registrant issues in excess of $1.0 billion of debt securities during the registration process. Any condential submission or public ling

by an EGC will lock in EGC status through the earlier of (i) the IPO date or (ii) one year after the issuer would have otherwise lost EGC

status. Fixing America’s Surface Transportation (FAST) Act, revising Securities Act Section 6(e)(1).

See JOBS Act Section 102(b)(1) (adding new Securities Act Section 7(a)(2)).

See JOBS Act Section 102(b)(2) (modifying Exchange Act Section 13(a)).

See S‑K Item 303(b).

See S‑K Item 302(a). This summarized nancial information required by this item is specied in S‑X Rule 1‑02(bb)(1)(ii) and includes:

• net sales or gross revenues;

• gross prot (or costs and expenses associated applicable to nets sales or gross revenues);

• income (loss) from continuing operations;

• net income (loss); and

• net income (loss) attributable to the entity.

This information is typically incorporated by reference rather than presented in the oering document, when permitted.

An issuer is required to provide this information for each aected quarter and the fourth quarter of the same year along with earnings per

share and the reasons for the change. See Item 302(a).

JOBS Act, Section 106(a), adding Securities Act Section 6(e)(1). The condential submission is automatically exempt from disclosure

under the Freedom of Information Act (FOIA). JOBS Act, Section 106(a), adding Securities Act Section 6(e)(2).

See 2017 Procedures. Prior to the end of the twelfth month following the eective date of the initial registration statement, these issuers

may also submit the rst draft of a follow‑on registration statement for nonpublic review. Id.

Nonpublic submissions are not automatically exempt from FOIA, and issuers are advised to request condential treatment under SEC

Rule 83. 2017 Procedures, at n.1. Making a Rule 83 request does not guarantee that the information will be protected from public

disclosure; the issuer simply puts the SEC on notice that it wants the information kept condential. The SEC will resolve whether to honor

a condentiality request only when disclosure of the information is requested under FOIA. See Condential Treatment Procedures Under

the Freedom of Information Act, 17 C.F.R. 200.83.

FAST Act Section 71003, adding new JOBS Act Sections 102(d)(1) and (2); FAST Act Compliance and Disclosure Interpretations

(C&DIs), Question 1. See also Securities Act Forms C&DIs, Question 101.04 (Aug. 17, 2017).

See 2017 Procedures; SEC Division of Corporation Finance, Voluntary Submission of Draft Registration Statements – FAQs

(June 30, 2017), Question 7. See also Securities Act Forms C&DIs, Question 101.05 (Aug. 17, 2017). A non‑EGC must publicly le its

registration statement and all previous nonpublic submissions at least 15 days before commencing any road show or, absent a road

show, 15 days prior to eectiveness. 2017 Procedures. In the case of a follow‑on oering, the public ling must be made at least 48 hours

prior to eectiveness. 2017 Procedures.

FAST Act C&DIs, Question 2 (Dec. 10, 2015). The SEC Sta has signaled a more exible approach in reviewing requests to omit nancial

information under S‑X Rule 3‑13, based on an issuer’s specic circumstances. See 2017 Procedures.

See Financial Reporting Manual, Section 1210. Section 1210 was updated in October 2020 to clarify that the SEC Sta will “not delay

processing if an issuer reasonably believes omitted nancial information will not be required at the time the registration statement

is publicly led.” See also 2017 Procedures (“While an issuer should take all steps to ensure that a draft registration statement is

substantially complete when submitted, we will not delay processing if an issuer reasonably believes omitted nancial information will not

be required at the time the registration statement is publicly led.”).

We do not discuss the requirements applicable generally to “smaller reporting companies” under the SEC’s rules. For a discussion of

these requirements, see Exchange Act Rule 12b‑2 and S‑K, Item 10(f); see also Final Rule: Smaller Reporting Company Regulatory

Relief and Simplication, Release No. 33‑8876 (Dec. 19, 2007) and Final Rule: Amendments to Smaller Reporting Company Denition,

Release No. 33‑10513 (June 28, 2018). A smaller reporting company for these purposes generally means an issuer that is not an

investment company, an asset‑backed issuer, or a majority‑owned subsidiary of a parent that is not a smaller reporting company and that:

• had a public oat of less than $250 million; or

• had annual revenues of less than $100 million and either no public oat or a public oat of less than $700 million.

See Exchange Act Rule 12b‑2.

See Exchange Act Rule 12‑b‑2. A business development company would use annual investment income as the measure of its annual

revenue to determine whether it meets the revenue test of the “smaller reporting company” denition. See Exchange Act Rule 12b‑2(4).

See Exchange Act Rule 12b‑2.

See S‑X Rule 3‑12(d). We use the term “initial ler” to refer to the ling status delineated in, though not explicitly dened by, Rule 3‑12(d).

See S‑X Rule 3‑01(c).

See id.

The rules regarding staleness of the required nancial statements for foreign private issuers vary a great deal from those applicable to US

domestic issuers. Generally speaking, the nancial statements for US domestic issuers go stale at a much faster rate.

See S‑X Rules 3‑12(a), 3‑12(g)(1)(i).

See S‑X Rules 3‑12(a), 3‑12(g)(1)(ii).

See S‑X Rule 3‑12(a).

See S‑X Rules 3‑12(a), 3‑12(g)(1)(i).

See S‑X Rules 3 12(a), 3‑12(g)(1)(ii).

See S‑X Rule 3‑12(a).

See S‑X Rule 3‑12(b) (loss corporations and non‑c urrent lers); S‑X Rule 3‑12(d) (initial lers). This rule also applies to initial registrations

under the Exchange Act on Form 10 for issuers not previously subject to Exchange Act reporting.

See S‑X Rules 3‑12(b), 3‑12(g)(2)(i).

See S‑X Rules 3‑12(b), 3‑12(g)(2)(ii).

See S‑X Rules 3‑12(b), 3‑12(g)(2)(iii).

See S‑X Rules 3‑12(a), 3‑12(g)(1)(i).

See S‑X Rules 3‑12(a), 3‑12(g)(1)(ii).

See Form S‑1, Item 11(h); Form S‑3, Item 12(a)(1).

See S‑K Item 303(b)(1).

See S‑K Item 303(b)(2)(i).

See S‑K Item 303(b)(2)(ii).

See S‑K Item 303(b)(3).

See Final Rule: Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information,

Release No. 33‑10890 (Nov. 19, 2020); Commission Guidance on Management’s Discussion and Analysis of Financial Condition

and Results of Operations, Release No. 33‑10751 (Jan. 30, 2020); Commission Guidance on Presentation of Liquidity and Capital

Resources Disclosures in Management’s Discussion and Analysis, Release No. 33‑9144 (Sept. 17, 2010); Interpretation: Commission

Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operations, Release No. 33‑8350

(Dec. 19, 2003); Commission Statement about Management's Discussion and Analysis of Financial Condition and Results of Operations,

Release No. 33‑8056 (Jan. 22, 2002); and SEC Interpretation: Management's Discussion and Analysis of Financial Condition and Results

of Operations; Certain Investment Company Disclosures, Release No. 33‑6835 (May 18, 1989).

Disclosure requirements for Investment companies (including business development companies) that were formerly included in

S‑X Rule 3‑05, have been moved to new Rule 6‑11, which covers nancial reporting in the event of a fund acquisition.

See Form S‑1, Item 11(e); see also Form S‑3, Item 11(b)(i). This requirement does not apply to annual reports. See Form 10‑K,

Item 8(a). See generally S‑X Rule 3‑05(b)(4). Also, when securities are registered on Form S‑4 or F‑4 in connection with a stock‑for‑stock

acquisition, somewhat dierent requirements apply for the nancial statements of the company being acquired. Finally, in the case of

a takedown from an already eective shelf registration statement, the SEC Sta has conrmed that guidance in Financial Reporting

Manual Section 2045.3 and Section 2050.3, which indicates that nancial statements of an acquired business that is greater than 50%

signicant would be required to be led prior to the oering (except in certain limited types of oerings specied in Financial Reporting

Manual Section 2050.3), does not apply to a probable business acquisition unless management determines that the probable business

acquisition constitutes a fundamental change. See The Center for Audit Quality SEC Regulations Committee Highlights (Oct. 21, 2015).

See S‑X Rule 11‑01(d). The question whether an acquisition is of a “business” should be evaluated in light of the facts and circumstances

involved and whether there is sucient continuity of the acquired entity’s operations prior to and after the transactions so that disclosure

of prior nancial information is material to an understanding of future operations. A presumption exists that a separate entity, a subsidiary,

or a division is a business. However, a lesser component of an entity may also constitute a business. Among the facts and circumstances

to consider in evaluating whether an acquisition of a lesser component of an entity constitutes a business are:

• whether the nature of the revenue‑producing activity of the component will remain generally the same as before the transaction; or

• whether any of the following attributes remain with the component after the transaction: (i) physical facilities, (ii) employee base,

(iii) market distribution system, (iv) sales force, (v) customer base, (vi) operating rights, (vii) production techniques, or (viii) trade names.

See id.

However, a dierent conclusion may be reached depending upon the customary practice for an industry or a particular issuer. For

example, an issuer may be submitting a letter of intent as one of many parties in a bidding process, or a roll‑up entity may routinely sign

letters of intent to further its due diligence investigations of multiple potential targets, but with the acquisition of only a minority of those

companies becoming probable.

See Financial Reporting Manual, Section 2005.4.

S‑X Rule 1‑02(w)(1)(i)(A).

S‑X Rule 1‑02(w)(1)(ii).

By “pre‑tax income” we mean the income from continuing operations. See S‑X Rule 1‑02(w)(1)(iii)(A)(1). Absolute values should be used

for the net income component.

S‑X Rule 1‑02(w)(1)(iii)(A)(1).

S‑X Rule 1‑02(w)(1)(iii)(A)(2).

See S‑X Rule 3‑05(b)(2).

S‑X Rule 1‑02(w)(1).

S‑X Rule 1‑02(w)(1)(i)(A)(3).

See S‑X Rule 3‑05(b)(3) referring to Rule 11‑01(b)(3) and (4). The tests may not be made by “annualizing” data, and may only include

Transaction Accounting Adjustments.

See S‑X Rule 3‑05(b)(3) referring to Rule 11‑01(b)(3) and (4).

See S‑X Rule 3‑05(a)(3) (governing whether businesses are “related”); S‑X Rule 11‑01(d) (governing whether an acquisition involves a

“business”).

See S‑X Rule 3‑05(b)(2)(ii). A comparative interim period for the prior year is not required when only one year of audited Rule 3‑05

Financial Statements is required. Interim nancial statements included in a ling pursuant to S‑X Rule 3‑05 are not required by the SEC to

be reviewed by an independent public accountant.

See S‑X Rule 3‑05(b)(2)(iii). Interim nancial statements included in a ling pursuant to S‑X Rule 3‑05 are not required by the SEC to be

reviewed by an independent public accountant.

See S‑X Rule 3‑05(b)(2).

See S‑X Rule 3‑05(b)(2)(iv). See also Final Rule: Amendments to Financial Disclosures About Acquired and Disposed Businesses,

Release No. 33‑10786 (May 20, 2020), p. 79. “Individually insignicant businesses” include any: (a) acquisition consummated after

the acquiror’s audited balance sheet date whose signicance does not exceed 20%; (b) probable acquisition whose signicance does

not exceed 50%; and (c) consummated acquisition whose signicance exceeds 20%, but does not exceed 50%, for which nancial

statements are not yet required because of the 75‑day grace period.

See S‑X Rule 3‑05(a)(1) (nancial statements of acquired businesses must be prepared and audited in accordance with S‑X).

Although the staleness date for an acquired company’s nancial statements is determined based on the status of the acquired company

(e.g., as an accelerated or non‑accelerated ler), an interesting wrinkle may emerge where the acquiring company is on a faster track

than the acquired company. In that fact pattern, the separate requirement to include pro forma nancial information under S‑X Article 11

can eectively accelerate the need for the acquired company’s nancial information. The acquiring company will need to produce nancial

statements for the acquired business if the acquiring company wants to go to market with “LTM” pro forma nancials after the date on

which its own year‑end nancials are due but before the due date for the acquired company’s nancials.

See S‑X Rule 3‑05(b)(4)(i). The date of an oering will be deemed to be the date of the nal prospectus or prospectus supplement led

pursuant to Rule 424(b). See id. By analogy, the pricing date would be the date of an oering in a Rule 144A transaction.

“Foreign business” is dened in S‑X Rule 1‑02(l) as a business that is majority owned by persons who are not citizens or residents of the

United States and is not organized under US law, and either:

• more than 50% of its assets are located outside the United States; or

• the majority of its executive ocers or directors are not US citizens or residents.

• In determining the majority ownership of a business, the SEC Sta will consider the ultimate parent entity that would consolidate the

business under US GAAP (or IFRS for IASB IFRS issuers) and the parent’s controlling shareholders. See Financial Reporting Manual,

Section 6110.4. The implication of this is that a non‑US subsidiary of a US company would likely not be considered a “foreign business.”

See also S‑X Rule 3‑05(c) (nancial statements of an acquired foreign business can meet Item 17 of Form 20‑F); Form 20‑F,

Item 17(c)(2)(v) (nancial statements of an acquired business may omit reconciliation below the 30% signicance level).

S‑X Rule 3‑05(d).

See S‑X Rule 3‑05(c) Accommodations in Item 17(c)(2) that would be inconsistent with IASB IFRS may not be applied, but IFRS 1 First

Time Adoption of International Financial Reporting Standards may be applied.

See Financial Reporting Manual, Section 4110.5. However, an acquired company that uses US GAAP will likely meet the denition of a

public business entity as dened in the FASB Accounting Standards Codication.

S‑X Rule 3‑05(b)(4)(iii).

See S‑X Rule 3‑06.

See S‑X Rule 3‑14(a)(2)(i). (dening a real estate business as a “business that generates substantially all of its revenues through the

leasing of real property”).

See S‑X Rule 3‑14(b)(2). Where the acquiror does not have publicly traded securities, the acquiror’s investment in the real estate

operation should include any debt secured by the real property that is assumed by the acquiror in connections with the acquisition

compared to the acquiror’s total assets. Signicance for blind pool oerings must be computed by comparing the issuer’s investments

in the real estate operations or other acquired business to the sum of its total assets as of the date of the acquisition and the proceeds

(net of commissions) in good faith expected to be raised in the registered oering over the next 12 months. After the distribution period

for the oering ends and until the next Form 10‑K is led, signicance is based on the issuer’s total assets as of the date of acquisition

or disposition, except that for acquisitions total assets must exclude the acquired real estate operations. After that next Form 10‑K is

led, the issuer can determine signicance using total assets as of the end of the most recently completed scal year included in the

Form 10‑K. See S‑X Rule 11‑01(b)(4).

See S‑X Rule 3‑14(c). The additional disclosure includes: (i) material factors considered by the issuer in assessing the property, including

sources of revenue (including, but not limited to, competition in the rental market, comparative rents, occupancy rates) and expense

(including, but not limited to, utility rates, ad valorem tax rates, maintenance expenses, and capital improvements anticipated), and (ii) an

indication that, after reasonable inquiry, the issuer is not aware of any material factors relating to the property other than those discussed

in (i) that would cause the reported nancial information not to be necessarily indicative of future operating results. See S‑X Rule 3‑14(f).

Securities Act Rule 408 states that “In addition to the information expressly required to be included in a registration statement, there shall

be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances

under which they are made, not misleading.”

See S‑X Rule 3‑05(b)(iv)(A) and S‑X Rule 3‑14(b)(2)(i)(C)(1).

See S‑X Rule 11‑01(a)(1) (noting pro forma nancial information required for a “signicant” business acquisition); S‑X Rule 11‑01(b)(1)

(noting a “signicant” acquisition means an acquisition above the 20% signicance level); S‑X Rule 11‑01(c) (noting no pro forma

nancial information is needed if separate nancial statements of the acquired business are not included and the aggregate impact of the

acquisition of these multiple businesses does not exceed the 50% signicance level).

See S‑X Rule 11‑02(a)(1).

See S‑X Rule 11‑02(c)(1). The pro forma condensed balance sheet should be prepared as if the transaction had occurred on the date of

the latest historical balance sheet.

See S‑X Rule 11‑02(a)(1).

See S‑X Rule 11‑02(c)(2)(i). The pro forma condensed statements of comprehensive income should be prepared as if the transaction had

taken place at the beginning of the latest scal year included in the ling.

See S‑X Rule 11‑01(a)(4). A “signicant” disposition for these purposes is one where the business would be a “signicant subsidiary”

under S‑X Rule 1‑02(w) at the 20% signicance level. See S‑X Rule 11‑01(b)(2).

See S‑X Rule 11‑01(a)(1) and Financial Reporting Manual, Section 3110.1.

See S‑X Rule 11‑01(a)(8).

See generally S‑X Rule 11‑02.

This information is expressly protected by the safe harbor provisions for forward‑looking information of Rule 175 under the Securities Act

and Rule 3b‑6 under the Exchange Act. See Final Rule: Amendments to Financial Disclosures About Acquired and Disposed Businesses,

Release No. 33‑10786 (May 20, 2020), p. 115. See also, S‑X Rule 11‑01 Instruction to paragraph (a)(7).

See S‑X Rule 11‑02(c)(3).

See id. This updating could be accomplished by adding subsequent interim period results to the most recent scal year‑end information

and deducting the comparable preceding year interim period results. See id. Another common approach is to use the acquired company’s

most recent quarterly information.

See generally ASC 205‑20; Financial Reporting Manual, Section 13200. In April 2014, the FASB issued Accounting Standards Update

(ASU) No. 2014‑08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The ASU revised the

denition of discontinued operations and additional nancial statement disclosures. Under the ASU, a discontinued operation is either:

(i) a component of an entity or a group of components of an entity that represents a separate major line of business or major geographical

area of operations that either has been disposed of or is part of a single coordinated plan to be classied as held for sale, or (ii) a

business that, on acquisition, meets all of the criteria to be classied as held for sale.

100

See Financial Reporting Manual, Section 13100.

101

See Financial Reporting Manual, Section 13110.1.

102

See Financial Reporting Manual, Section 13110.2; Form S‑3 Item 11(b)(ii).

103

See Financial Reporting Manual, Section 13110.2; S‑K Item 512(a).

104

See Securities Act Forms C&DIs Question 126.40 (“The fact that nancial statements eventually will be retroactively restated does not

necessarily mean that there are ‘material changes in the registrant’s aairs,’ thereby requiring the nancial statements to be restated for

inclusion, or incorporation by reference, in a Form S‑8.”).

105

See Financial Reporting Manual, Section 9830.1.

106

See Financial Reporting Manual, Section 9210.6.b.

107

See Section 2(a)(1) of the Securities Act.

108

See S‑X Rule 3‑10(a). In the case of a foreign private issuer, these would be the nancial statements required by Item 8.A of Form 20‑F.

Note that S‑X Rule 3‑10 typically does not apply to credit enhancements that are not guarantees. However, in certain cases the nancial

condition of the party providing the credit enhancement could be material to investors and subject to disclosure. See Final Rule: Financial

Statements and Periodic Reports for Related Issuers and Guarantors, Release No. 33‑7878 at n.50 (Aug. 15, 2000).

109

S‑X Rule 3‑10(a).

110

S‑X Rule 3‑10(b)(2) denes a security as “debt” or “debt‑like” if: “(i) The issuer has a contractual obligation to pay a xed sum at a xed

time; and (ii) Where the obligation to make such payments is cumulative, a set amount of interest must be paid.”

111

S‑X Rule 13‑01(a)(6)‑(7). In some situations, this may require the parent company to include separate summarized nancial information

for the issuers and guarantors to which that additional information applies. For instance, where a subsidiary guarantee is not full and

unconditional and the guarantor is not wholly owned by the parent company, the parent may be required to disclose separate summarized

nancial information for the guarantor, as well as additional information about the terms of the guarantee and the rights of minority

interests in the subsidiary.

112

S‑X Rule 13‑01(b). The parent company may decide to include the Alternative Disclosures in the notes to the consolidated nancial

statements, which would then subject the information to audit and with possible delay and expense. If not included in the consolidated

nancial statements or in the MD&A, the parent company must include the disclosures in its prospectus immediately following “Risk

Factors” or, if there are no risk factors, immediately following pricing information.

113

S‑X Rule 13‑01(a). For instance, if there were fewer than 300 holders of record of the subject securities, the reporting obligation would be

automatically suspended after the rst annual report on Form 10‑K following the issuance. See Exchange Act Section 15(d)(1).

114

S‑X Rule 13‑01(a)(1).

115

S‑X Rule 13‑01(a)(2).

116

S‑X Rule 13‑01(a)(3).

117

See S‑X Rule 3‑10(b)(1) the “’parent company’ is the entity that (i) Is an issuer or guarantor of the guaranteed security; (ii) Is, or as

a result of the subject Securities Act registration statement will be, an Exchange Act reporting company; and (iii) consolidates each

subsidiary issuer and/or subsidiary guarantor of the guaranteed security in its consolidated nancial statements.

118

S‑X Rule 13‑01(a)(4)(v).

119

S‑X Rule 13‑01(a)(4), referring to the denition of “summarized nancial information” in S‑X Rule 1‑02(bb), required for other note

disclosures (e.g., equity investees). There is no requirement to present cash ow information, but the required disclosures include current

and non‑current assets, preferred stock, non‑controlling interests, net sales or gross revenues, income/loss from continuing operations,

and net income/loss.

120

S‑X Rule 13‑01(a)(4)(iv).

121

S‑X Rule 13‑01(a)(4)(iv).

122

S‑X Rule 13‑01(a)(5). An acquired business is signicant for these purposes if it exceeds 20% on any of the Asset, Investment, or Income

Tests discussed above in “Recent and Probable Acquisitions.”

123

S‑X Rule 13‑01(a)(4)(vi).

124

S‑X Rule 13‑01(a)(4)(vi)(A).

125

S‑X Rule 13‑01(a)(4)(vi)(B).

126

S‑X Rule 13‑01(a)(4)(vi) denes a “nance subsidiary” as a “a subsidiary that has no assets or operations other than those related to the

issuance, administration and repayment of the security being registered and any other securities guaranteed by its parent company.”

127

S‑X Rule 13‑01(a)(4)(vi)(C).

128

S‑X Rule 13‑01(a)(4)(vi)(D).

129

S‑K Item 601(b)(22).

130

S‑X Rule 3‑16 will continue to apply to any secured oering registered before January 4, 2021 where the registrant has not been

providing S‑X Rule 3‑16 nancial statements. This extension of the S‑X Rule 3‑16 regime for the remaining term of securities that meet

these criteria is designed to ensure that collateral release provisions in the related indentures are not unintentionally triggered and

holders’ rights impaired.

131

S‑X Rule 13‑02(a)(6)‑(7).

132

S‑X Rule 13‑02(b).

133

S‑X Rule 13‑02(a).

134

See ASC 323, Investments – Equity Method and Joint Venture; see also Financial Reporting Manual, Section 5210.

135

See SAB 103, Topic 6.K.4.

136

See Financial Reporting Manual, Section 4110.5.

137

See S‑X Rule 3‑09(a).

138

Note this test is derived from S‑X Rule 1‑02(w)(1)(i).

139

Note this test is derived from S‑X Rule 1‑02(w)(1)(iii).

140

See S‑X Rule 3‑09(a).

141

See S‑X Rule 3‑09(b).

142

The Center for Audit Quality SEC Regulations Committee Highlights (Mar. 19, 2013) (EGC may include only two years of nancial

statements of the Rule 3‑09 investee, even in situations where an EGC voluntarily provides a third year of nancial statements).

143

See generally S‑X Rule 4‑08(g).

144

See Form 20‑F, Item 17(c)(vi).

145

See S‑X Rule 3‑09(d).

146

See Form 20‑F, Item 17(c).

147

See id.

148

See Financial Reporting Manual, Note to Section 6410.6.

149

See S‑K Item 303(a).

150

ASC 280 uses the term “chief operating decision maker” to identify a function rather than a specic person; the “chief operating decision

maker” could be the CEO, CFO, or a group of senior managers, depending upon the circumstances.

151

In practice, there is a great variety of ways in which management may view its business and there is no one right answer within a given

industry.

152

See ASC 280‑10‑50‑12 (quantitative thresholds).

153

Under ASC 280, the details provided in reporting a “measure of prot or loss” depend upon the information that is actually reviewed by

the chief operating decision maker and may include revenues from external versus internal customers, interest revenue and expenses,

depreciation and amortization, and unusual items, among others.

154

See generally S‑X Rule 5‑04(c).

155

Where restrictions on the amount of funds that may be loaned or advanced dier from the amount restricted as to transfer in the form of

cash dividends, the amount least restrictive to the subsidiary may be used. Redeemable preferred stocks and non‑controlling interests

are deducted in computing net assets for purposes of this test. See S‑X Rules 5‑04 and 1‑02(dd).

156

See generally S‑K Item 801.

157

See Interpretive Release: Modernization of Oil and Gas Reporting, Release No. 33‑8995 (Dec. 31, 2008).

158

The rules dene a “qualied person” to mean:

• a mineral industry professional with at least ve years of relevant experience in the type of mineralization and type of deposit under

consideration and in the specic type of activity that person is undertaking on behalf of the company; and

• an eligible member or licensee in good standing of a recognized professional organization at the time the technical report is prepared.

159

See Final Rule: Modernization of Property Disclosures for Mining Registrants, Release No. 33‑10570 (Oct. 31, 2018).

160

See Final Rule: Update of Statistical Disclosures for Bank and Savings and Loan Registrants, Release No. 33‑10835 (Sept. 11, 2020).

161

See Regulation G, Rule 100(a).

162

See Form 8‑K, Item 2.02, Instruction 2 (requirements of S‑K Item 10(e)(1)(i) apply to Item 2.02 disclosures).

163

See Regulation G, Rule 101(a)(1).

164

See id. at Rule 101(a)(2).

165

See id. at Rule 101(a)(3).

166

See id. at Rule 100(a).

167

See id. at Rule 100(a)(2). In the case of forward‑looking non‑GAAP measures, a quantitative reconciliation need only be provided to the

extent available without unreasonable eorts. Id.

168

See id. at Rule 100(b).

169

See S‑K, Items 10(e)(2), 10(e)(4), and 10(e)(5).

170

See id. at Item 10(e)(1)(i).

171

See id. at Item 10(e)(1)(ii).

172

See generally Non‑GAAP Financial Measures C&DIs (last updated Dec. 22, 2022).

173

Instruction 4 to Form 8‑K, Item 2.01 explains that “[t]he acquisition of a business encompasses the acquisition of an interest in a business

accounted for by the registrant under the equity method or, in lieu of the equity method, the fair value option; or in the case of a business

development company, if the amount paid for such assets exceeded 10 percent of the value of the total investments of the registrant and

its consolidated subsidiaries.”

174

See S‑X Rule 11‑01(b).

175

See S‑X Rules 11‑01(a)(1), 11‑01(b)(1), 11‑01(c).

176

See Financial Reporting Manual, Sections 2045.13‑17.

177

See Form 8‑K, Item 9.01(b).

178

See S‑K Item 308, Instruction 1 (providing a “transition period” for “newly public companies” pursuant to which the management’s

assessment and the auditor’s attestation is not required until the company “either had been required to le an annual report pursuant to

Section 13(a) or 15(d) of the Exchange Act for the prior scal year or had led an annual report with the Commission for the prior scal

year”); see also Final Rule: Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and

Newly Public Companies, Release No. 33‑8760 (Dec. 15, 2006) (adopting the transition period codied in S‑K Item 308, Instruction 1).

179

See S‑K Items 308 (a) and (b). Under Exchange Act Rule 12b‑2, a “large accelerated ler” is an issuer that, as of the end of its scal year:

• has an aggregate worldwide market value of voting and non‑voting common equity held by non‑aliates (market capitalization) of

$700 million or more (measured as of the last business day of the issuer’s most recently completed second scal quarter);

• has been subject to SEC reporting under the Exchange Act for a period of at least 12 calendar months;

• has led at least one annual report under the Exchange Act with the SEC; and

• is not eligible to be a “smaller reporting company” and had annual revenues of less than $100 million in the most recent scal year for

which nancial statements are available.

In addition, under Exchange Act Rule 12b‑2, an “accelerated ler” is an issuer meeting the same conditions, except that it has a

market capitalization of $75 million or more but less than $700 million (measured as of the last business day of its most recently

completed second scal quarter). See also Final Rule: Accelerated Filer and Large Accelerated Filer Denitions, Release No. 34‑88365

(Mar. 12, 2020). See also Final Rule: Smaller Reporting Company Denition, Release No. 33‑10513 (July 10, 2018).

180

See Final Rule: Internal Control over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers, Release

No. 33‑9142 (Sept. 21, 2010). This rule implemented Section 989G of the Dodd‑Frank Wall Street Reform and Consumer Protection Act,

which added Section 404(c) to Sarbanes‑Oxley. Under Section 404(c), the requirements of Section 404(b) do not apply to any audit report

prepared for an issuer that is neither an accelerated ler nor a large accelerated ler.

181

JOBS Act Section 103 (revising Sarbanes‑Oxley Section 404(b)); JOBS Act Section 101(a) and (b) (adding new Securities Act Section

2(a)(19) and Exchange Act Section 3(a)(80)).

182

See Final Rule: Interactive Data to Improve Financial Reporting, Release No. 33‑9002 (Jan. 30, 2009).

183

See Final Rule: Inline XBRL Filing of Tagged Data, Release No. 33‑10514 (June 28, 2018). In addition, any electronic ler that is required

to submit interactive data les in Inline XBRL format must also tag all of the information required on the cover page of Forms 10‑K, 10‑Q,

8‑K, 20‑F, and 40‑F. The requirement applies to Forms 20‑F and 40‑F only if they are being used as annual reports and not as registration

statements. See Final Rule: FAST Act Modernization and Simplication of Regulation S-K, Release 33‑10618 (Mar. 20, 2019) (adding

new Rule 406 to Regulation S‑T, new Item 601(b)(104) to S‑K, new paragraph 104 to the “Instructions as to Exhibits” of Form 20‑F, and

new paragraph B.17 to the “General Instructions” of Form 40‑F).

184

See S-K Item 601(b)(101)(i).

185

See id.

186

See id.

187

Under the relevant Rule 10b‑5 case law, a plainti must show more than a simple misstatement or omission. A showing of scienter or

recklessness is also required to establish liability.

188

See S‑X Rule 4‑01(a)(1) (nancial statements not prepared in accordance with “generally accepted accounting principles” are presumed

to be misleading or inaccurate); Financial Reporting Manual, Section 1410 (S‑X and US GAAP must be followed by domestic issuers).

189

S‑X Rule 4‑01(a)(2).

190

Final Rule: Acceptance from Foreign Private Issuers of Financial Statements Prepared in Accordance with International Financial

Accounting Standards Without Reconciliation to US GAAP, Release No. 33‑8879 (Dec. 21, 2007). Note that the accounting policy note

must state compliance with IASB IFRS and the auditor’s report must opine on IASB IFRS. Financial Reporting Manual, Section 6310.2.

191

See Form 20‑F, Items 17(c), 18.

192

Exchange Act Rule 13a‑13(b)(2).

193

Exchange Act Rule 13a‑11(b); see also Exchange Act Rule 13a‑16(c) (reports on Form 6‑K are furnished, not led).

194

See Exchange Act Rule 13a‑16(a)(3); see also Financial Reporting Manual, Section 6120.1 (same).

195

See Form 20‑F, Item 8.A.5; Financial Reporting Manual, Sections 6220.1, 6220.6.

196

See Form 20‑F, Item 8.A.5.

LW.com

kpmg.com