Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 11-01 -- Presentation Requirements

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(a) Pro forma financial information shall be furnished when any of the following conditions exists:



(1) During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Rule 3-01, a significant business combination accounted for as a purchase has occurred (for purposes of these rules, the term "purchase" encompasses the purchase of an interest in a business accounted for by the equity method);


(2) After the date of the most recent balance sheet filed pursuant to Rule 3-01, consummation of a significant business combination to be accounted for by either the purchase method or pooling-of-interests method of accounting has occurred or is probable;


(3) Securities being registered by the registrant are to be offered to the security holders of a significant business to be acquired or the proceeds from the offered securities will be applied directly or indirectly to the purchase of a specific significant business;


(4) The disposition of a significant portion of a business either by sale, abandonment or distribution to shareholders by means of a spin-off, split-up or split-off has occurred or is probable and such disposition is not fully reflected in the financial statements of the registrant included in the filing;


(5) During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Rule 3-01, the registrant has acquired one or more real estate operations or properties which in the aggregate are significant, or since the date of the most recent balance sheet filed pursuant to that section the registrant has acquired or proposes to acquire one or more operations or properties which in the aggregate are significant.


(6) Pro forma financial information required by Item 914 of Regulation S-K is required to be provided in connection with a roll-up transaction as defined in Item 901(c) of Regulation S-K.


(7) The registrant previously was a part of another entity and such presentation is necessary to reflect operations and financial position of the registrant as an autonomous entity; or


(8) Consummation of other events or transactions has occurred or is probable for which disclosure of pro forma financial information would be material to investors.



(b) A business combination or disposition of a business shall be considered significant if:



(1)A comparison of the most recent annual financial statements of the business acquired or to be acquired and the registrant's most recent annual consolidated financial statements filed at or prior to the date of acquisition indicates that the business would be a significant subsidiary pursuant to the conditions specified in Rule 1-02(w), substituting 20 percent for 10 percent each place it appears therein;


(2) The business to be disposed of meets the conditions of a significant subsidiary in Rule 1-02.



(c) When consummation of more than one transaction has occurred or is probable during a fiscal year, the tests of significance in (b) above shall be applied to the cumulative effect of those transactions. If the cumulative effect of the transactions is significant, pro forma financial information shall be presented.


(d) For purposes of this rule, the term business should be evaluated in light of the facts and circumstances involved and whether there is sufficient continuity of the acquired entity's operations prior to and after the transactions so that disclosure of prior financial 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 which should be considered in evaluating whether an acquisition of a lesser component of an entity constitutes a business are the following:



(1) Whether the nature of the revenue-producing activity of the component will remain generally the same as before the transaction; or


(2) 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.



(e) This rule does not apply to transactions between a parent company and its totally held subsidiary.

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