This Practical tip provides guidance regarding using less than 12 month financial statements in lieu of a full year for an acquired business.
When an SEC registrant acquires a business, it is required to assess the significance of the acquired business to determine whether the acquiree's historical financial statements and certain pro forma financial information need to be filed with the SEC on Form 8-K or included in a registration statement under Rule 3-05 of Regulation S-X (“S-X 3-05”).
Depending on the significance of the acquisition, Rule 3-05 requires audited financial statements for the most recent one, two or three years. The significance tests are described in Rule 1-02(w) of Regulation S-X.
Rule 3-06(b) of Regulation S-X ("S-X 3-06(b)") provides that, except with respect to registered investment companies, financial statements covering a period of nine to twelve months may satisfy a one-year financial statement requirement under S-X 3-05. This rule applies to the target financial statement requirements only. It does not apply to the financial statements of the acquirer.
No audited financial statements for a period shorter than nine months or in excess of twelve months may be presented under S-X 3-06(b). Additionally, when financial statements are presented for 21-month and 33-month periods to satisfy a 2-year or 3-year requirement, generally only one period presented should be less than 12 months, and such period should be presented as one continuous period.
Rule 3-06(b) does not apply to the target company’s financial statements required to be filed in connection with Form S-4 or Item 14(c)(2) of Schedule 14A. This is because the target’s financial statements in these situations are not presented pursuant to S-X 3-05. See SEC FRM 1140.8.
If nine-month audited financials are presented initially, registrants may be required to update for twelve months under certain circumstances to meet the age of financial statements and updating provisions of Rule 3-12 of Regulation S-X.
Company A, an SEC registrant accelerated filer with a calendar year-end, acquired 100 percent of the shares of Business B (a calendar year-end private company) on January 10, 2014. Business B is 60% significant to Company A. Company A is considering what financial statements and pro forma financial information it should include in its:
Since Business B exceeds the 50% significance level, Company A is required pursuant to S-X 3-05 to file three years of audited financial statements of Business B along with subsequent unaudited interim financial information. Company A reported the acquisition of Business B on Form 8-K on January 16, 2014 (4 business days after the date of acquisition). January 16, 2014 is the reference date for determining the age of Business B’s financial statements to be included in Company A’s Form 8-K. Business B's historical financial statements and the required pro forma financial information must be filed by amendment to Company A's Form 8-K no later than March 28, 2014 (the 71st calendar day after the due date of Company A's initial Form 8-K).
When Company A files its Form 8-K/A, it may present audited financial statements of Business B for the years ended December 31, 2012, 2011, and 2010 along with the unaudited interim financial information for the nine-month periods ended September 30, 2013 and 2012.
Alternatively, due to the timing of the transaction as well as the availability of the financial information, Company A could apply S-X 3-06(b) and provide audited financial statements for Business B for the nine-month period ended September 30, 2013 and for the years ended December 31, 2012 and 2011.
If Company A were to file a new registration statement on June 12, 2014, that date would become the reference date for determining the age of Business B's financial statements to be included in the registration statement. Since the registration statement will be filed more than 89 days after Business B’s year-end, Company A must provide updated audited historical financial statements for Business B for the year ended December 31, 2013. Additionally, Company A must provide updated pro forma financial information for the twelve-months ended December 31, 2013 and the three months ended March 31, 2014.
PwC clients that have questions about this Practical tip should contact their engagement partner. Engagement teams that have questions should contact Mila Petrova (1-973-236-5601) or Elizabeth Bonneville (1-973-236-5164) in the National Professional Services Group.