When a domestic corporation issues securities in an SEC-registered offering, what financial statements must it include in the registration statement? The Securities Act of 1933, as amended, and its related rules and regulations mandate that all offerings of registered securities provide the financial statements specified in Article 3 of Regulation S-X. Issuers subject to the Securities Exchange Act of 1934, as amended, that are already public companies filing periodic reports with the SEC may, in most cases, incorporate by reference financial statements required by Regulation S-X.
- Regulation S-X specifically requires:
- An audited balance sheet for each of the two most recent fiscal years;
- Audited income statements, statement of cash flows and changes in stockholders’ equity for each of the three most recent fiscal years preceding the date of the most recent audited balance sheet being filed;
- An unaudited balance sheet as of the most recent three-, six- or nine-month period following the most recent audited balance sheet, as applicable;
- Unaudited income statements, statement of cash flows and changes in stockholders’ equity for the period between the most recent audited financial statements being presented and the most recent interim unaudited balance sheet being presented (the so-called "stub period"), along with the corresponding period of the prior fiscal year;
- Financial statements of any acquired business, if the issuer has closed an acquisition 75 days or more before the date of the offering, depending on the significance (in the Regulation S-X sense) of the acquired business; and
- Financial information of the guarantors of the issuer’s securities.
For a filing made within 45 days of the end of the issuer’s fiscal year, the issuer may file the audited balance sheet as of the end of the preceding two fiscal years, along with related audited income statements, statement of cash flows and change in stockholders’ equity, and the issuer’s unaudited interim balance sheet as of the third quarter of the prior fiscal year, along with the related unaudited interim income statement, statement of cash flows and statement of changes in stockholders’ equity.
Some issuers may also file the same financial statements for filings after 45 days of their fiscal yearend but within 60 days of their fiscal year, in the case of large accelerated filers; 75 days of their fiscal year, in the case of accelerated filers; or 90 days of their fiscal year, in the case of all other issuers. If the filing occurs outside the applicable period, the issuer must file financial statements for its most recently completed fiscal year.
An unaudited balance sheet and related unaudited income statements, statement of cash flows and changes in stockholders’ equity are generally required if there is a gap between the date of the most recent audited balance sheet or interim unaudited balance sheet filed; specifically, the financial statements "go stale" 129 days (in the case of a large accelerated filer or accelerated filer) or 134 days (in the case of all issuers) after the end of the last fiscal year or quarter for which an audited balance sheet or unaudited balance sheet, respectively, have been filed. The SEC will not declare the registration statement effective unless the issuer includes the next quarter’s or full year ‘s (if the last quarter already included was the third quarter) financial information.
Completed or, under some circumstances, merely pending acquisitions can require inclusion of additional financial statements. Rule 3-05 of Regulation S-X mandates the inclusion of financial statements for a "significant acquisition" of a business if it has closed 75 days or more before the date of filing of the final prospectus or prospectus supplement, or, if it is a "material acquisition," as soon as the acquisition becomes "probable."
The required financial statements depend on how significant the acquisition is to the issuer. In making this determination, the issuer must compare the most recent annual financial statements of the acquired business to the issuer’s most recent annual consolidated financial information without regard to the acquisition. The issuer determines the periods for which financial statements will be required by calculating:
- The issuer’s investments in and advances to the acquired business as a percentage of the issuer’s total assets,
- The issuer’s proportionate share of the total assets of the acquired business as a percentage of the issuer’s total assets, and
- The issuer’s share of the income from continuing operations of the acquired business as a percentage of the issuer’s income from continuing operations.
- Depending on the "significance level" of each measure, the issuer must include financial statements of the acquired business as follows:
- If the securities being registered are being offered to holders of securities issued by the business to be acquired, all financial statements for the periods outlined above generally shall be required.
- If none of the significance levels exceeds 20 percent, no financial statement is required.
- If any of the significance levels exceeds 20 percent but none exceeds 40 percent, financial statements are required for the most recent full fiscal year and any interim periods as outlined above.
- If any of the significance levels exceeds 40 percent but none exceeds 50 percent, financial statements are required for the two most recent full fiscal years and any interim periods as outlined above.
- If any of the significance levels exceeds 50 percent, all financial statements outlined above are required; however, the issuer may omit financial statements for the earliest of the three fiscal years if net revenues reported by the acquired business in its most recent fiscal year are less than $50 million.
The federal securities laws for determining the required financial statements for a public offering are complex. A late discovery that additional financial statements are needed can significantly delay an offering’s timing, as well as the length of time the issuer will be "in registration." Market vagaries are also somewhat unpredictable . Accordingly, issuers must assess a range of possible effective dates for the registration statement to determine which financial statements will ultimately be required. Issuers should review the possibilities with their legal and financial advisers early in the decision-making process to ensure all required financial statements will be timely prepared and ready for inclusion in the registration statement as needed.