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Preparing to go public General rules for acquisitions more than 75 days pre-IPO Acquisition criteria Reporting requirement 3 The acquisition does not exceed 20% for any of the three significance criteria. The acquired business (or multiple acquisitions of related businesses) exceeds 20% but not 40% for any of the three significance criteria. There have been multiple acquisitions of unrelated businesses whose significance is less than 20% individually but more than 50% for any of the three significance criteria when aggregated. The acquired business (or multiple acquisitions of related businesses) exceeds 40% but not 50% for any of the three significance criteria. The acquired business or any acquisition that is probable at the time of the offering exceeds 50% for any of the three significance criteria (or securities are being registered to be offered to the shareholders of the acquired business). acquisitions that occurred more than 75 days before the offering. 2 In addition, if audited financial statements are required, applicable interim financial information that would be required according to the guidelines described in “Age of financial statements” and “Unaudited interim financial statements” must also be included. Staff Accounting Bulletin No. 80 (SAB 80) provides a special interpretation of Rule 3-05 of Regulation S-X for IPOs 2 An exception to the general requirements occurs for an individual or multiple acquisitions that exceed 50% of any of the significance criteria, for which, if they have closed within the 75-day period prior to the offering or are “probable” at the time of the offering, the financial statements described above will be required. Audited financial statements for the earliest of the three fiscal years required may be omitted if net revenues reported by the acquired business in its most recent fiscal year are less than $50 million. Unaudited interim financial statements may need to be included, depending on the time of year that the offering takes place. No audited financial statements required. One year of audited financial statements required. One year of audited financial statements required for a mathematical majority of the individually insignificant acquisitions. Two years of audited financial statements required. Three years of audited financial statements required, unless the business has under $50 million in revenues, in which case only two years of audited financial statements required. involving companies whose operations have been built by the aggregation of discrete businesses that remain substantially intact after acquisition. SAB 80 allows firsttime issuers to consider the significance of businesses recently acquired or to be acquired based on the pro forma financial statements for the issuer’s most recently completed fiscal year. While compliance with this interpretation requires an application of SAB 80’s guidance and examples on a case-by-case basis, this interpretation allows currently insignificant business acquisitions to be excluded from the financial statement requirements, while still ensuring that the registration statement will include not less than three, two and one year(s) of financial statements for not less than 60%, 80% and 90%, respectively, of the constituent businesses of the issuer. The acquisition or probable acquisition of real estate operations is subject to its own 3 The number of years for which balance sheets and income statements are required to be presented is based upon the level of significance. set of disclosure requirements under Rule 3-14 of Regulation S-X, which addresses income-producing real estate operations such as apartment buildings and shopping malls. Rule 3-14(a) requires as follows: • Audited income statements must be provided for the three most recent fiscal years for any such acquisition or probable acquisition that would be “significant” (generally, that would account for 10% or more of the company’s total assets as of the last fiscal year-end prior to the acquisition). If the property is not acquired from a related party, only one year of income statements must be provided if certain additional textual disclosure is made. Rule 3-14(a) also requires certain variations from the typical form of income statement. • If the property is to be operated by the company, a statement must be furnished showing the estimated taxable operating results of the company based on the most recent 12-month period, including such adjustments as can be factually supported. If the property is to be acquired subject to a net lease, the estimated taxable operating results shall be based on the rent to be paid for the first year of the lease. In either case, the estimated amount of cash to be made available by operations shall be shown. An introductory paragraph is required stating the principal assumptions which have been made in preparing the statements of estimated taxable operating results and cash to be made available by operations. • If appropriate under the circumstances, a table should be provided disclosing the estimated cash distribution per unit for a limited number of years, with the portion thereof reportable as taxable income and the portion representing a return of capital together with an explanation of annual variations, if any. If taxable net income per unit will become greater than the cash available for distribution per unit, that fact and the approximate year of occurrence should be stated, if significant. The SEC staff has noted that one element used in distinguishing a real estate operation from an acquired business subject to Rule 3-05 of Regulation S-X is 18 NYSE IPO Guide
Preparing to go public the predictability of cash flows ordinarily associated with apartment and commercial property leasing, which generally includes shopping centers and malls. Nursing homes, hotels, motels, golf courses, auto dealerships, equipment rental operations and other businesses that are more susceptible to variations in costs and revenues over shorter periods due to market and managerial factors are not considered to be real estate operations. In such cases, the Rule 3-05 requirements will apply. Financial statements of an equity method investment: If the company holds an investment in unconsolidated subsidiaries or 50%-or-less owned entities accounted for under the equity method that exceeds significance thresholds as defined by Rule 3-09 of Regulation S-X, separate financial statements for the investee company may need to be filed with the registration statement, including an audit for certain periods. Significance of investees is evaluated under Rule 1-02(w) of Regulation S-X based on the following tests: • the company’s and its other subsidiaries’ investments in, and advances to, the investee exceed 20% of the total assets of the company and its subsidiaries consolidated as of the end of the most recently completed fiscal year; and • the company’s and its subsidiaries’ equity in the pre-tax income from continuing operations of the investee exceed 20% of such income of the company and its subsidiaries consolidated for the most recently completed fiscal year. If either of these tests is met, separate financial statements of the investee must be filed. Insofar as is practicable, the separate financial statements required shall be as of the same dates and for the same periods as the audited consolidated financial statements required to be filed by the company. The required financial statements of the investee must be audited only for those fiscal years in which either of the above tests is met; the remaining years can be unaudited. These audited financial statements may or may not be required to be audited by an independent accountant registered with the PCAOB, depending on the level of reliance placed on these audited financial statements by the company’s principal independent accountant. If the registrant’s principal independent accountant makes reference to the audit of the investee in its report, then the investee audit must be performed by an independent accountant registered with the PCAOB. 4 Under Rule 4-08(g) of Regulation S-X, for any unconsolidated subsidiaries and 50%-or-less owned entities accounted for under the equity method that meet any of the three Rule 1-02(w) criteria at the greater than 10% but not more than 20% significance level, summary financial information as described by Rule 1-02(bb) must be presented in the notes to the financial statements. Financial statements of guarantors and for collateralizations: A guarantee of a public security (e.g., a guarantee of a public debt or public preferred equity security) is itself considered a security that must be registered under the Securities Act, absent an applicable exemption. Rule 3-10 of Regulation S-X requires each guarantor of registered securities to file the same financial statements required for the company in the filing. If certain criteria are met, condensed consolidating financial information may be provided in the company’s financial statements in lieu of separate audited financial statements, unless a guarantor is newly acquired. Under Rule 3-16 of Regulation S-X, audited financial statements must also be filed for each affiliate whose securities collateralize any class of registered securities if the greater of the aggregate principal amount, par value, book value or market value equals 20% or more of the principal amount of the secured class of securities being offered. If any of the above situations is applicable, Rules 3-10 and 3-16 should be reviewed to determine the extent of financial information required to be included with the registration statement. 4 The auditor of the financial statements of the nonissuer entity must be registered if, in performing the audit, the auditor played a “substantial role” in the audit of the issuer, as that term is defined in PCAOB Rule 1001(p)(ii). If the “substantial role” test is not met, the firm is not required to be registered. The inclusion or exclusion of such a report under Rule 2-05 of Regulation S-X does not affect this determination. Pro forma financial information: Pro forma financial information may be required to assist investors in understanding the nature and effect of significant acquisitions, dispositions, reorganizations, unusual asset exchanges, debt restructurings or other transactions contemplated in the prospectus. In such cases, historical financial information is adjusted in the pro forma financial information to reflect the transactions and the impact of the offering on the company’s capital structure. All significant assumptions must be disclosed. Guidance regarding pro forma financial information is provided in Article 11 of Regulation S-X. 5 Rule 11-01 of Regulation S-X specifies the circumstances under which pro forma financial information is required in filings with the SEC and sets forth general guidelines for the content of that information. Article 11 requires: • a condensed pro forma balance sheet as of the end of the most recent period for which a consolidated balance sheet of the company is required, unless the transaction is already reflected in that balance sheet; and • a condensed pro forma income statement for the company’s most recently completed fiscal year and the most recent interim period of the company, unless the historical income statement reflects the transaction for the entire period. Pro forma adjustments related to the pro forma condensed balance sheet and condensed income statement must include adjustments which give effect to events that are: • directly attributable to the transaction; • factually supportable; and • expected to have a continuing impact on the company (applicable only to the condensed income statement). 5 Certain pro forma disclosures are required by GAAP (e.g., Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805 [Statement of Financial Accounting Standards (SFAS) 141R], ASC Topic 718 [SFAS 123(R)] and certain Emerging Issues Task Force (EITF) consensuses) and should be provided where applicable. Those presentations may differ in style and content from the requirements of Article 11 of Regulation S-X. NYSE IPO Guide 19
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Contributor profiles NYSE IPO Guide
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Contributor profiles (SEC) register
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Contributor profiles The Children
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Contributor profiles KPMG 345 Park
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Contributor profiles Morrow & Co.,
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