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Inside SEC reporting: Pro forma financial information · PwC's accounting podcast

0:00
SPEAKER_00: Thought Leadership from PWC's National Office.
0:07
SPEAKER_02: Hi, welcome to PWC's Accounting Podcast.
0:10
SPEAKER_02: I'm Kyle Moffitt, PWC's Professional Practice Leader, and your guest host for this SEC focused series.
0:17
SPEAKER_02: We've been taking a back to basics look at key areas of SEC reporting.
0:21
SPEAKER_02: And today's topic is one that often raises a lot of questions, and that is pro-forma financial information.
0:28
SPEAKER_02: These are the kinds of requirements that can feel straightforward until you're in the middle of a deal or filing, then the nuance really starts to show.
0:35
SPEAKER_02: Today we've got you covered with an overview of when they're required, what's required, and key insights and reminders to keep in mind as you prepare them.
0:44
SPEAKER_02: A quick reminder: this is also a video podcast series.
0:47
SPEAKER_02: If you're listening to the audio-only version and want to watch the video, just head to the show notes for the link.
0:54
SPEAKER_02: For today's discussion, I'm joined once again by Scott Feely.
0:57
SPEAKER_02: Scott is our SEC and capital markets leader in the national office, obviously specializing in SEC financial reporting.
1:05
SPEAKER_02: Scott, great to have you back with us.
1:06
SPEAKER_02: Good to be here, Kyle.
1:08
SPEAKER_02: So really excited to talk about this topic today.
1:10
SPEAKER_02: And it's one that was near and dear to my heart when I was at the SEC years ago, but it was 2018-19 timeframe where we started talking about potential changes to rules, streamlining some of the rules, the requirements, simplifying the pro forma financial information, the requirements there.
1:28
SPEAKER_02: I actually left before the rules were finalized, but I did have some insights into kind of what was going on.
1:34
SPEAKER_02: And so I think there's obviously a significant change from what the previous rules were.
1:39
SPEAKER_02: But I think it's it's important for us to, I think, level set and say there is a difference between what's required by Article 11 of Regulation SX, which is SEC requirement, versus what's required by GAAP, right?
1:50
SPEAKER_02: And that's an ASC 805.
1:52
SPEAKER_02: Obviously, we're going to focus solely on Article 11 today.
1:55
SPEAKER_02: Obviously, if you want to talk a little bit about ASC 805, feel free.
1:58
SPEAKER_02: But I just wanted to tee up and kind of start the conversation with you.
2:02
SPEAKER_02: So talking about some of the types of transactions that the SEC would require Proforma financial information for.
2:08
SPEAKER_03: Sure.
2:09
SPEAKER_03: Yep, I'm happy to do that.
2:10
SPEAKER_03: So there's a, you know, the rules are pretty prescriptive on this in terms of Article 11.
2:14
SPEAKER_03: I know you made reference to it earlier.
2:16
SPEAKER_03: Um, Article 11 is a section of um Regulation SX and it, you know, it stipulates a lot of things, right?
2:22
SPEAKER_03: One is the types of transactions that you would be expected to prepare um proformas for.
2:27
SPEAKER_03: Um, it will also lay out, you know, when proformas are required, you know, how do you go about preparing them?
2:32
SPEAKER_03: And we'll cover, we'll cover all of that here a little bit today.
2:35
SPEAKER_03: Um I would say for for most of our listeners, you know, there's a couple of big categories of transactions that they will most likely, you know, be the ones that they would encounter in terms of when pro forma financial information would be required.
2:48
SPEAKER_03: So the first is significant business acquisitions.
2:51
SPEAKER_03: Um, you know, so a registrant goes out, registrant or or maybe somebody contemplating IPO or or something like this, um, goes out and acquires another another business, right?
3:00
SPEAKER_03: Pretty, pretty straightforward.
3:02
SPEAKER_03: Um, there is a concept of significance that's also embedded there, and we'll talk about that.
3:06
SPEAKER_02: And that's very straightforward, the calculations.
3:08
SPEAKER_03: Yeah, not nuanced at all.
3:10
SPEAKER_03: Yep.
3:10
SPEAKER_03: So we'll talk about that a little bit in a second.
3:13
SPEAKER_03: We of course have the flip side, right?
3:15
SPEAKER_03: Where you know a company divests of a portion of itself.
3:19
SPEAKER_03: And that can similarly, if significant, can similarly drive a um a requirement for pro forma financial information.
3:26
SPEAKER_03: Um, other transactions that may give rise to the requirement for pro forma financial information include a combination of entities under common control.
3:33
SPEAKER_03: Yeah.
3:34
SPEAKER_03: So that's a bit um a bit less common.
3:36
SPEAKER_03: Um, situations where you know a business was previously part of another entity.
3:43
SPEAKER_03: Okay.
3:44
SPEAKER_03: And, you know, financial information or pro forma, financial information is necessary to quote unquote reflect um the operations and financial um position of that business as what the SEC refers to as an autonomous entity.
3:58
SPEAKER_03: Okay, so think spin-offs, subsidiary IPOs, things, things like this.
4:03
SPEAKER_03: Um, and then there's I sometimes maybe uh loosely refer to it as the catch-all in Article 11.
4:09
SPEAKER_03: Okay, and there's a provision that says, you know, if you have other transactions, whether consummated or probable, for which pro forma information would be material to investors, you know, you have a bit of a catch-all that allows you to provide pro forma financial information in those circumstances.
4:23
SPEAKER_03: Okay.
4:23
SPEAKER_03: And there's a handful of those that are set out in the FRM.
4:26
SPEAKER_02: Um well, the and the FRM, and keep in mind too, with the FRM, that has not been updated in a number of years.
4:33
SPEAKER_02: And so it doesn't necessarily reflect the current rules themselves.
4:38
SPEAKER_02: But but I think as far as the practice that, you know, involved, right, the expectation from the SEC is you still would kind of apply it similarly.
4:47
SPEAKER_02: Um you're just going to use the new rules, but the events that are listed would would be something you would reflect broken.
4:53
SPEAKER_03: Yeah, exactly.
4:53
SPEAKER_03: Exactly.
4:54
SPEAKER_03: So the FRM has, which is the SEC's interpretive guidance and manual, hasn't really been updated for the new rules, which as you said were issued in 2020.
5:01
SPEAKER_03: So, you know, they're they're pretty outdated at this stage in terms of what's happening in practice.
5:06
SPEAKER_03: But the, I would say the scoping of Article 11 and what types of transactions are, you know, require pro forma financial information, that didn't really change when you went from the old rules to the new rules.
5:17
SPEAKER_03: And so we think certain provisions that are um captured in the FRM continue to have relevance.
5:24
SPEAKER_02: But what well, what are your what's your team seeing?
5:26
SPEAKER_02: Like or what what types of things are they seeing?
5:29
SPEAKER_02: Like I know one thing that we've talked about in the past is bankruptcy, you know, transactions, right?
5:34
SPEAKER_02: And kind of that that impact.
5:35
SPEAKER_02: But what else are we seeing the companies do or need to do pro forma uh reflection of the financial statement?
5:42
SPEAKER_02: Sure.
5:42
SPEAKER_03: Yeah, so so bankruptcy is a is a big one.
5:44
SPEAKER_03: It's relatively common.
5:45
SPEAKER_03: It's you know spelled right out in that section of the of the FRM.
5:49
SPEAKER_03: Um, we think about bankruptcy similar to an acquisition, right?
5:52
SPEAKER_03: In the sense that you have a change in basis and it makes sense to push that back to the first day of the earliest period presented.
5:58
SPEAKER_03: Again, this is a pretty broad concept, though, right?
6:01
SPEAKER_03: And it sort of puts the onus on the registrar to say if you think pro forma financial information would be material, there's a lot that you can capture there.
6:09
SPEAKER_03: So some other examples may be repayment of debt, um changes in capitalization at effectiveness or close of an IPO, you know, tax conversions.
6:17
SPEAKER_03: Um I've had questions, Kyle, around um pushdown accounting, right?
6:21
SPEAKER_03: If someone elects optionally to apply pushdown accounting under GAAP, would that be something?
6:26
SPEAKER_03: We look at that very similar to bankruptcy, right?
6:29
SPEAKER_03: Change in basis, you know, that probably is um is captured here.
6:33
SPEAKER_02: No, it's it's interesting.
6:34
SPEAKER_02: I think we we actually covered this something similar.
6:36
SPEAKER_02: We alluded to this in our um, you know, one of our previous ones that will air prior to this um one and it's on the capital formation um and it's kind of the process, the IPO process.
6:46
SPEAKER_02: And I think those couple of examples are great examples of things that you would this the staff would expect to see in a registration statement, these pro forma disclosures for, you know, could change in the business nature of the business, the entity, change in capitalization.
7:00
SPEAKER_02: So I think those are really great points to highlight.
7:02
SPEAKER_02: You you mentioned significance, right?
7:03
SPEAKER_02: And I know that we talked about it, and I don't, we don't need to go into too many details on it because I know it's pretty nuanced, but can you just at a high level talk about kind of size of the transaction?
7:13
SPEAKER_02: Like what's gonna trigger the requirement to present pro forma's?
7:16
SPEAKER_03: Sure.
7:17
SPEAKER_03: Yeah.
7:17
SPEAKER_03: So you will recall from what we were just talking about that this concept of significance is embedded in a couple of places in terms of um, you know, scoping of when you need pro forma financial information, most notably acquisitions and or um divestitures.
7:30
SPEAKER_03: We are gonna do a bit of a deep dive as an uh in another podcast in this series around mergers and acquisitions, okay, just given the nature of when significance um comes into play.
7:41
SPEAKER_03: Maybe for purposes of um of this podcast, I'll just say that, you know, when measuring significance, there's three tests.
7:49
SPEAKER_03: Um, one is the investment test, there's an asset test, um, which is assets to assets, and then there's an income test.
7:56
SPEAKER_03: Again, there can be a lot of nuances when you get into the mechanics of doing these tests.
8:01
SPEAKER_03: What's really important is that it's the highest of those three, right?
8:06
SPEAKER_03: So you're simultaneously going to run the three tests, and it's the highest outcome under any of those three that will, that will dictate.
8:14
SPEAKER_03: Okay.
8:14
SPEAKER_03: And then I would just say that, you know, for purposes of this podcast, um, you know, the threshold to keep your eyes on is 20, 20%, right?
8:21
SPEAKER_03: That's generally the line between significant and not significant.
8:24
SPEAKER_02: So if you if you hit just in the income test, if you hit 25% financial, you're gonna have to provide the the pro foremost for a particular transaction, potentially financial statements too, right?
8:34
SPEAKER_02: So correct.
8:35
SPEAKER_03: Exactly, exactly.
8:36
SPEAKER_03: And there's no, you know, if you're at 19.9, you're out.
8:39
SPEAKER_03: And if you're at 20.1, you're you're in.
8:41
SPEAKER_03: You're in.
8:42
SPEAKER_02: Exactly.
8:42
SPEAKER_02: Yeah, and I guess the other the other thing, and I guess just curious your perspective on what what what's the most challenging of the three that you typically see people just kind of is it the investment test and kind of how to how to do that calculation?
8:55
SPEAKER_02: Are there any nuances there?
8:57
SPEAKER_02: Um, or or even the income test.
8:59
SPEAKER_02: It seems like the asset test sounds pretty straightforward, but yeah, the other two, I I think historically, I I would see that that was usually the the challenging ones of just applying that, right?
9:07
SPEAKER_03: But yeah, I think it's certainly in terms of um, you know, anomalous outcomes, I would say the income test used to generate the most anomalies.
9:16
SPEAKER_03: And that's for obvious reasons, right?
9:17
SPEAKER_03: Income can be the most, the most volatile of these metrics.
9:21
SPEAKER_03: And if you start talking about putting a pretty volatile metric, especially in the in the denominator, you know, you can you can see your way to pretty anomalous outcomes pretty um pretty quickly.
9:33
SPEAKER_03: Uh again, there's a lot of nuance here.
9:35
SPEAKER_03: There's actually two legs to that income test, okay, because one of the problems that the SEC was attempting to solve in this 2020 rulemaking was to eliminate some of those anomalous outcomes, okay?
9:46
SPEAKER_03: That, you know, they were getting a lot of letters that were arguing.
9:48
SPEAKER_02: We were getting a lot of letters when I was sent to staff.
9:51
SPEAKER_03: Exactly.
9:51
SPEAKER_03: That were arguing that the the outcome of the test was anomalous.
9:54
SPEAKER_03: It wasn't really indicative of the significance of the transaction to the registrant.
9:58
SPEAKER_03: And a lot of times, what registrants would use to argue their case would be an alternative metric like revenue, okay, which is a bit more, a bit more stable.
10:07
SPEAKER_03: And so there's actually two legs to that, um, to that income test.
10:10
SPEAKER_03: And it's the lower of those two that then feeds the higher of the three.
10:14
SPEAKER_03: It can get a little bit messy, but I would say the income test probably has the most, the most nuance in it.
10:19
SPEAKER_02: Yeah, I think you're right.
10:20
SPEAKER_02: I think you're right.
10:21
SPEAKER_02: Um so type of filing, as we as you know, you you alluded to this earlier, you know, whether you have to, you know, file as certain events occur, right?
10:29
SPEAKER_02: You have you do have AK reporting requirements within four business days, you're reporting events or transactions.
10:34
SPEAKER_02: Talk about kind of the types of filings we see pro forma financial information in.
10:38
SPEAKER_03: Sure.
10:39
SPEAKER_03: Yep.
10:39
SPEAKER_03: So um so you hit a little bit, a little bit of this.
10:41
SPEAKER_03: So certainly event reporting.
10:43
SPEAKER_03: So form 8K, that's obviously for existing registrants, and that is all triggered off of consummation of a transaction.
10:50
SPEAKER_03: Okay, that's important when you're delineating between the Form 8K and maybe some of what I'll broadly call transactional documents.
10:57
SPEAKER_03: Um, we're going, again, in this series, we're going to have a podcast specifically on 8K, 8K reporting.
11:04
SPEAKER_03: So some of my colleagues will go deep on that.
11:07
SPEAKER_03: But again, it's tied to consummation, and there's a requirement to certainly file an 8K within four days of consummation.
11:14
SPEAKER_03: And then depending on whether it's an acquisition or a disposition, you may or may not have more time to get pro forma financial information on file.
11:20
SPEAKER_03: We'll cover that here in a second.
11:22
SPEAKER_03: The second, maybe broad type of document where you would expect to see pro forma financial information is in what I'll call transactional documents.
11:30
SPEAKER_03: Okay.
11:30
SPEAKER_03: And that might be registration statements.
11:33
SPEAKER_03: Um, it could be proxy statements or information statements.
11:36
SPEAKER_03: Um, and here again, that will get covered in the capital raising podcast.
11:41
SPEAKER_03: And so we're not, we're gonna focus on the the building, um, the preparation of pro forma as opposed to you know going deep on you know when they're gonna show up in a particular document.
11:52
SPEAKER_02: Okay, so let's assume you have to prep prepare these pro forma financial uh information.
11:58
SPEAKER_02: Um, what periods are required?
12:00
SPEAKER_02: And I think kind of start there.
12:01
SPEAKER_03: So I'd say the the baseline for for the vast majority of transactions, the baseline is that you need the latest.
12:08
SPEAKER_02: I love it's always the vast majority, although there's always an exception when it comes to the SEC.
12:12
SPEAKER_02: There's always exceptional.
12:13
SPEAKER_03: These exceptions in this case, they make it make sense.
12:15
SPEAKER_03: They make sense.
12:16
SPEAKER_03: I'll explain them here in a second, but they do make sense.
12:18
SPEAKER_03: In most instances, you're going to need one balance sheet, and that will be the latest balance sheet that is otherwise in the document or on file.
12:26
SPEAKER_03: It can be an interim balance sheet or an annual, but you're only going to need one balance sheet.
12:30
SPEAKER_03: Um, and then you're gonna need the the latest annual period for the registrant.
12:35
SPEAKER_03: Um, and then to the extent that they have a year-to-date interim period, you'll use the most recent year-to-date interim period.
12:41
SPEAKER_03: Okay, so one, possibly two, depending on timing during the year, um, income statement periods.
12:47
SPEAKER_03: One annual, one, one year-to-date interim.
12:50
SPEAKER_03: Um, I did say in certain circumstances, you know, you you might have a different outcome.
12:56
SPEAKER_03: Right.
12:56
SPEAKER_03: Those are really um two different, two different situations.
12:59
SPEAKER_03: And in in that situation, you're gonna need all three years, right?
13:03
SPEAKER_03: Rather than the latest annual, you're gonna need three annuals.
13:06
SPEAKER_03: Those two situations are divestitures that are gonna be accounted for as discontinued operations and common control transactions.
13:15
SPEAKER_03: Uh the underlying logic is that in each of those cases, those transactions will eventually be accounted for fully retrospectively in the gap financial statements.
13:29
SPEAKER_03: Okay.
13:29
SPEAKER_03: And so by preparing three years of proformas to the extent that it's not already fully reflected in the gap financial statements, what you're really doing is giving the reader a preview of what those historical financial statements are eventually going to look like.
13:43
SPEAKER_03: Exactly.
13:44
SPEAKER_03: Right.
13:44
SPEAKER_03: Exactly.
13:44
SPEAKER_03: But absent fully retrospective gap accounting treatment, you're gonna have the latest annual period plus an interim.
13:52
SPEAKER_03: And then I was just gonna hit one other nuance here, which is in acquisition scenarios, you know, you sometimes run into a fact pattern where the the year ends don't align.
14:03
SPEAKER_03: Okay, the year end for the registrant and the year end for the target.
14:06
SPEAKER_02: Which is always fun.
14:07
SPEAKER_02: That's another rental.
14:08
SPEAKER_02: Exactly.
14:09
SPEAKER_03: Exactly.
14:09
SPEAKER_03: And so registrants often wrestle with, well, how do I how do I do this, right?
14:13
SPEAKER_03: Do I need to force the target onto the registrant's calendar?
14:17
SPEAKER_03: Or, you know, is there some provision in the rules that would allow me to do something, something different?
14:22
SPEAKER_03: And, you know, in those fact patterns, similar to what you might, you know, see in some areas of gap, there's some allowance to combine periods on up to a 93-day differential.
14:32
SPEAKER_03: Okay.
14:32
SPEAKER_03: And so, you know, if the target has, just to keep it simple, a September 30 year end, and um the registr has a December 31st year end, you could potentially look at combining those periods because they're they're less than or maybe just equal to 93 days, um, 93 days different.
14:51
SPEAKER_03: Okay.
14:51
SPEAKER_03: And so it's a practical accommodation that can simplify the process where you have non-aligning, um, non-aligning year year ends.
14:59
SPEAKER_03: Okay.
15:00
SPEAKER_03: You see that a lot?
15:01
SPEAKER_03: Do we see that a lot?
15:02
SPEAKER_03: I would more than more than I would have thought.
15:05
SPEAKER_03: So when I was out in the practice, um, you know, I had a sense that I, you know, it didn't come up that frequently.
15:12
SPEAKER_03: And, you know, like a lot of things, when you sit here at National, you you you see a lot, a lot more.
15:17
SPEAKER_03: You don't go as deep on everything, you know, as teams would in the field, but you know, you see a lot more.
15:22
SPEAKER_03: And so this fact pattern comes up more than um more than I would have previously thought, I guess I would say.
15:30
SPEAKER_02: So so as it relates to what I always think about with just with respect to the pro forma financials um form and content.
15:39
SPEAKER_02: So, so, so you know, obviously the rules address it.
15:42
SPEAKER_02: When you talk high-level kind of, you know, obviously there, the the one thing I always think about is the introduction, right?
15:47
SPEAKER_02: Like the description, like, you know, what's the transaction that you are reflecting or providing pro forma information for, right?
15:53
SPEAKER_02: Um, what entities are involved?
15:55
SPEAKER_02: If you have, you know, company A and company B are merging.
15:58
SPEAKER_02: Um, how are you thinking about, you know, which entities, how you're reflecting the transaction, the periods, um, provide an explanation of really what it shows, but talk about what those look like.
16:09
SPEAKER_03: Yeah.
16:10
SPEAKER_03: Yeah.
16:10
SPEAKER_03: So normally with a traditional um set of proformas, and I'll talk about scenarios where you know you may not see this format, but normally with a traditional um set of proformas, you see, you know, some introductory text that will cover a lot of the things that you mentioned.
16:25
SPEAKER_03: Okay, so it'll sort of describe the transaction, it'll describe the gap accounting that's going to be applied to the transaction.
16:33
SPEAKER_03: Um, it will speak to the entities that are involved.
16:36
SPEAKER_03: Um, it will explain what periods you've combined, maybe going back to this situation where you have non-aligning year ends.
16:43
SPEAKER_03: Um, you know, and it will give the reader some context for what pro forma adjustments are being shown shown.
16:50
SPEAKER_03: You'll then have um, you know, typically again the tabular presentation in the middle, and we'll talk about that in a second.
16:58
SPEAKER_03: Um, that would then be followed by, again, typically a series of pretty detailed footnotes that explain each of the adjustments that are reflected in this tabular presentation in some detail, um, including typically with, you know, setting out the assumptions that have been made and deriving those adjustments.
17:17
SPEAKER_03: Um, in certain instances, maybe setting out sensitivity so that reader can understand readers can understand, you know, if an interest rate moves by one eighth of a thought that I was thinking right there, right?
17:27
SPEAKER_02: Exactly.
17:28
SPEAKER_02: Impacts of a difference in interest rate or whatever, you know, variable interest rate, uh, potentially what the impact would be.
17:34
SPEAKER_03: Exactly.
17:34
SPEAKER_03: Exactly.
17:35
SPEAKER_03: So that that's the general format.
17:37
SPEAKER_03: In in some, I would say limited circumstances, you know, there's some provision in the rule that you don't actually have to do a tabular presentation.
17:45
SPEAKER_03: Um you know, but this is it's not really common.
17:49
SPEAKER_03: I've seen it a few times, but not a lot.
17:51
SPEAKER_03: Yeah, you don't see it a lot because the the situation where it would apply is generally pretty narrowly scoped.
17:58
SPEAKER_03: So, you know, think limited adjustments from a pro-forma standpoint, they're easily understood and I'll call it isolated, meaning, you know, they impact very few line items exactly on the on the PL.
18:11
SPEAKER_03: Um, you know, the situations where I've seen that acquisition of a non-controlling interest, okay, so it's already a consolidated subsidiary.
18:17
SPEAKER_03: You're taking out an NCI, pretty easy to understand that.
18:21
SPEAKER_03: I've also seen it in situations where um a company is divesting of a business, but it was reflected as a discontinued operation in their historical financial statements.
18:31
SPEAKER_03: And so they're left with a handful of adjustments, we call it to de-recognize the assets and liabilities from their balance sheet, recognize the proceeds, and maybe push a gain or loss through.
18:41
SPEAKER_03: Okay, it's pretty, pretty limited, pretty easy to understand.
18:45
SPEAKER_03: So I've seen a few registrants, you know, take that approach in that in that scenario as well.
18:51
SPEAKER_02: And I don't think, and I I've not seen the staff comment and say that that's not an appropriate approach to take.
18:57
SPEAKER_02: I mean, I I've seen, you know, not to say that the staff's looking at every, let's say, 8K that's including performer financial information, they may not be reviewing it, but um, but I think by and large, like to your point, if if they are the nature of the adjustments are pretty straightforward, you you probably can accomplish it with some sort of narrative disclosure.
19:13
SPEAKER_02: Exactly.
19:14
SPEAKER_03: But that should be really for very narrow fact.
19:17
SPEAKER_03: It should be obvious.
19:19
SPEAKER_03: Yeah.
19:19
SPEAKER_03: Okay.
19:19
SPEAKER_03: Like when you say the SEC hasn't commented on it, it could be that they they just didn't pick up that 8K.
19:24
SPEAKER_03: Right.
19:24
SPEAKER_03: But it could also be that the situations that we're talking about here are so obviously simple that, you know, they're likely not um going to be the subject of a lot of a lot of debate.
19:34
SPEAKER_03: So um I was gonna hit a couple of other things on on structure.
19:39
SPEAKER_03: Um, so one is that, you know, from a PL standpoint, you go through income from continuing operations and income from continuing operations attributable to shareholders of the registrant.
19:49
SPEAKER_03: Um, most important point in there is that if you have discontinued operations, those are coming out and they're not being reclassified down to the discontinued operations uh line.
19:58
SPEAKER_03: They just they just come out in their in their entirety.
20:01
SPEAKER_03: Um and then maybe one other, one other fact pattern that, you know, again isn't the most common fact pattern, although we did see a lot of it uh with a particular class of transactions recently.
20:12
SPEAKER_03: And that is, you know, situations where you know there are multiple possible outcomes to a transaction that's being contemplated.
20:20
SPEAKER_03: And you sometimes in that fact pattern, you know, see registrants present multiple, what I'll call multiple sets of proformas, with, you know, most recently we saw it in the in the DSPAC crates, okay, where we were talking about redemptions and you saw a low-end redemption scenario, a high-end redemption scenario.
20:37
SPEAKER_03: And in certain circumstances, we saw a midpoint or a best estimate or something, something like that.
20:42
SPEAKER_03: Again, it's not the most common outcome, but in situations where there are multiple multiple possible Yeah, I you can expect the staff's gonna see that and issue a comment.
20:50
SPEAKER_02: To the extent they could it could change, they absolutely would would would potentially see a comment there.
20:55
SPEAKER_02: I guess I guess my my question for you is just follow on is where does this go in the document?
21:00
SPEAKER_02: Like, so if it's if it's in a registration statement, like, you know, what's the location of it?
21:06
SPEAKER_02: Does it go in the financial statements?
21:08
SPEAKER_02: Like maybe you can clarify that where it needs to reside or where we typically see it reside in a document.
21:13
SPEAKER_03: Yeah, of course.
21:13
SPEAKER_03: So every every once in a while we'll see it, you know, added to the what I'll call the F pages, okay, to the very back of the document, out certainly outside of the historical financial statements.
21:21
SPEAKER_03: Okay, it hasn't has no um impact on the historical financials.
21:24
SPEAKER_03: Every once in a while we'll see a registrant put it into the F pages.
21:28
SPEAKER_03: They think, you know, it's financial information, it's pro forma, not historical, but let's put it back there.
21:33
SPEAKER_03: So we'll have the historical financials and then a separate entry in the index for pro forma's.
21:38
SPEAKER_03: But most commonly, okay, maybe almost universally, it's it's in the front part, front part of the document, right?
21:44
SPEAKER_03: In the four part of the document.
21:45
SPEAKER_03: So somewhere in and around um MDNA, you'll have a dedicated section of um you know registration statement that will have the pro forma financial information.
21:54
SPEAKER_02: So so we we in our kind of capital markets are you know, talking about the IPO process, we talk the Little bit about a comfort and comfort letters.
22:02
SPEAKER_02: What type of comfort, or or at least you don't need to get into the details of it, but is that information that typically you know people are asking for comfort from the auditors on?
22:11
SPEAKER_02: Certainly.
22:12
SPEAKER_03: Yeah, undoubtedly, um, auditors will be asked for comfort on that.
22:16
SPEAKER_03: I would say there's there's two types of comfort in that fact pattern.
22:19
SPEAKER_03: So, you know, the proformas are anchored to historical financial information as a starting point, right?
22:25
SPEAKER_03: So when you start thinking about that tabular presentation, the far left column is going to be a set of historical financial statements.
22:33
SPEAKER_03: Then you're going to apply pro forma adjustments to that to arrive at, you know, I'll call it simplistically the far right column, which is the actual pro forma financial information itself.
22:43
SPEAKER_03: So again, two types of pro-forma uh uh comfort that might, you know, be requested of auditors in that fact pattern.
22:50
SPEAKER_03: So banks, underwriters may come along and ask for circle comfort on the historical financial information.
22:57
SPEAKER_03: So circle the column, ticker tie it back to um, you know, the historical financials, either annuals or interims included elsewhere in the document.
23:05
SPEAKER_03: Um the second element of comfort would be, again, I sometimes speak simplistically, but I'll call it the, I'll call it the blanket comfort, okay, which is which is negative assurance on the pro forma financial statements taken as a whole, right?
23:21
SPEAKER_03: And negative assurance is, you know, nothing came to our attention that caused us to believe that, you know, the pro forma information is not prepared.
23:28
SPEAKER_02: Similar to what we do with review procedures.
23:30
SPEAKER_02: Exactly.
23:30
SPEAKER_03: Exactly.
23:31
SPEAKER_03: Okay, so there's two, there's two aspects to the to the comfort.
23:34
SPEAKER_03: Um, you know, in certain situations where, you know, an acquisition, for example, you may have two audit firms involved, right?
23:41
SPEAKER_03: So the registrant may be audited by one, the target may be audited by another.
23:45
SPEAKER_03: And so there'll be two comfort letters.
23:48
SPEAKER_03: Only one will provide the negative assurance over the pro forms as a whole, but each of the firms may be requested to circle their respective.
23:55
SPEAKER_02: And this is why it's important to know that that information, right, is going to be looked at.
24:00
SPEAKER_02: This is why the auditors will look at that information and review that information because it is definitely relied upon in transactions.
24:08
SPEAKER_02: And so you you keep talking about adjustments.
24:11
SPEAKER_02: And so I think back to what the old rules said about the nature of the adjustments, um, kind of what the parameters were.
24:17
SPEAKER_02: And essentially it was, you know, fashionally supportable, directly attributable to the transaction itself, um, expected to have a continuing impact.
24:26
SPEAKER_02: So, so three things that in practice were were pretty difficult to kind of apply.
24:31
SPEAKER_02: Um, and so I think you know, we we have a different construct in this rule.
24:35
SPEAKER_02: Can you talk a little bit about the the three buckets of adjustments that companies can can actually or should be looking to and thinking about um as they're preparing proformas?
24:43
SPEAKER_02: Sure.
24:44
SPEAKER_03: Yeah, and this was all newly created in the 2020 rules.
24:47
SPEAKER_03: So you did have the the old three three criteria.
24:51
SPEAKER_03: Some of those, well, they've all really gone away.
24:53
SPEAKER_03: Some of those concepts still live on a little bit in the new rules.
24:56
SPEAKER_03: Um, but you didn't really have different categories of adjustments, okay, like you have in the new, in the new rules.
25:02
SPEAKER_03: Um, and I would say that, you know, these these changes, you know, by by and large were were positive, right?
25:09
SPEAKER_03: They were, they moved in the direction of detaching from, you know, factually supportable.
25:14
SPEAKER_03: I have a contract to a model where you say, you know, what's really useful for investors, right?
25:22
SPEAKER_03: And if I don't have a contract, you know, should that really stand in the way of me putting information, you know, that's going to be helpful, helpful to the the the decision-making process.
25:32
SPEAKER_03: So, so three um three types of adjustments.
25:35
SPEAKER_03: These are the only types that you can contemplate.
25:37
SPEAKER_03: Okay, so it's they they have to include So don't make up another adjustment, is what you're trying to say.
25:42
SPEAKER_03: There are no there are no other categories.
25:44
SPEAKER_03: There are no other categories.
25:45
SPEAKER_03: Okay, so the first is transaction accounting.
25:47
SPEAKER_03: Okay, and these are uh maybe the the the simplest of the of the lot, right?
25:51
SPEAKER_03: And this is, you know, um you go and you do gap accounting for whatever the transaction is on your butt, start with your balance sheet.
25:59
SPEAKER_03: So if it's an acquisition, go do my my purchase price allocation.
26:02
SPEAKER_03: If it's a divestiture, do recognize you know those assets and liabilities.
26:07
SPEAKER_03: Um once you do the gap accounting on the balance sheet, then take the impacts of what you just did to the balance sheet and flow them through, um, flow them through the income statement.
26:18
SPEAKER_03: Okay.
26:18
SPEAKER_03: And on the assumption that you the transaction closed on the first day of the fiscal year that's um that's that's presented.
26:26
SPEAKER_03: Okay.
26:26
SPEAKER_03: And so these transaction accounting adjustments, again, most common in acquisitions and um and investitures, you certainly see it with financing, um, you know, so so on and so forth.
26:38
SPEAKER_03: Second big category of adjustment is what we call or what they call autonomous entity adjustments.
26:44
SPEAKER_03: Okay, and remember that one of the categories of transactions that we talked about that would prompt a requirement for pro forma financial information was where an entity was previously part of a bigger entity, and pro forma financial information is required to, you know, show that smaller entity on a on an autonomous entity type basis.
27:07
SPEAKER_03: So that's what this contemplates.
27:09
SPEAKER_03: You know, depending on how some of this gets interpreted, this leaves a lot of you know, room for for judgment, yeah, right.
27:18
SPEAKER_03: Because this is really intended to say, you know, I'm a I'm a spin co or I'm a subsidiary that is going public via IPO.
27:27
SPEAKER_03: And, you know, I was previously part of a much bigger parent who is sponsoring, you know, this separation transaction.
27:37
SPEAKER_03: What is it going to take for me to run this business on a standalone, a standalone basis, right?
27:44
SPEAKER_03: Do I have to go out and establish um you know all kinds of corporate corporate functions, whether finance or legal or risk management or you know, executive functions, you know, so so on and so forth.
27:56
SPEAKER_03: So that's the type of stuff that these autonomous entity adjustments um contemplate.
28:02
SPEAKER_02: And they're not perfect, it's not a perfect science either, right?
28:04
SPEAKER_02: You're trying to find out what the calculation would be.
28:07
SPEAKER_02: Like when you think about, and I guess like as you're saying all this, it's it sounds to me, and maybe you can confirm it with the data or what your experience is.
28:15
SPEAKER_02: Like it is, are we seeing most of the comments from the staff or at least the areas that really seem to be more challenging in the that autonomous entity adjustment space?
28:26
SPEAKER_02: Obviously, it's not every single transaction is going to have those types of adjustments, but to the extent they do, it seems like almost every time I have seen them or worked on them that they always have comments on them.
28:35
SPEAKER_03: Yeah, always.
28:36
SPEAKER_03: Yeah, and I I would say because you you can think about the the the comments in in two different ways.
28:41
SPEAKER_03: So, you know, we're into an area where there's a lot of judgment, okay, which might you know prompt comments from from a regulator, um, but it might also be a pretty difficult, you know, to challenge, right?
28:56
SPEAKER_03: It's like this is this is a judgment that I've made.
28:58
SPEAKER_03: And so it it really comes down to um you know having a process in place to build out you know these cost estimates.
29:08
SPEAKER_03: And, you know, as you might expect, when you get into a big area of judgment, you know, disclosure can become pretty important around how they were calculated and things like this, so that the registrant understands, sorry, the the investors understand the basis upon which these adjustments have been prepared.
29:24
SPEAKER_03: I would say the second maybe line of questioning that you see from the regulator as it relates to autonomous entity is, you know, they're it can get a little bit um gray in terms of where the line is between autonomous entity and this next category of adjustment, which are management adjustments.
29:44
SPEAKER_03: They're treated very differently from a pro-forma standpoint.
29:49
SPEAKER_03: And so the delineation becomes pretty important.
29:52
SPEAKER_03: And we've certainly seen um regulatory focus on that delineation.
29:58
SPEAKER_02: Well, and and here's the thing, right?
30:00
SPEAKER_02: It it's when there's a lack of kind of you know, a lot of detail, I mean this is all principles-based types of disclosures, when it's not doesn't have the a ton of very specific, like do this, do that, right?
30:14
SPEAKER_02: You're going to have differences in practices across registrants and, of course, maybe even you know, accounting firms, but certainly the staff, right?
30:21
SPEAKER_02: The staff may have a view reviewing your filing that you know it's not an autonomous entity adjustment, it's a management adjustment.
30:27
SPEAKER_02: Exactly.
30:28
SPEAKER_02: And that nuance may matter.
30:30
SPEAKER_02: And so I why don't why don't we go to that point of management adjustments?
30:33
SPEAKER_02: And I guess my first question to you before we dive into kind of what they are, and do we see a lot of companies doing management adjustments?
30:40
SPEAKER_02: Because I I would say when I was reviewing filings as part of you know the SC and Capital Markets team, um I would see these, you know, the those, but but very rarely.
30:51
SPEAKER_02: You wouldn't see them that often.
30:53
SPEAKER_02: Are we seeing people utilize them more now, or is it kind of the same as kind of the experience I had in the past?
30:59
SPEAKER_03: Yeah.
30:59
SPEAKER_03: So so I'm gonna answer that question, but before I do, I'm gonna go back just one step because I think it's important to draw out what we're what we're what we're really talking about here.
31:09
SPEAKER_03: Autonomous entity adjustments are presented on the face of the pro form of financial information.
31:15
SPEAKER_03: Okay.
31:16
SPEAKER_03: And so when we're building far left to far right, autonomous entity adjustments and transaction accounting adjustments are going to show up in the middle and they're gonna be reflected in the derivation of that far right column.
31:29
SPEAKER_03: Management adjustments are a third category of adjustments.
31:34
SPEAKER_03: They're completely voluntary.
31:35
SPEAKER_03: Okay, unlike those first two.
31:37
SPEAKER_03: If you're in the that that situation, you have to prepare adjustments in those first two categories.
31:42
SPEAKER_02: Yep.
31:42
SPEAKER_03: Management adjustments are completely voluntary.
31:45
SPEAKER_03: If a registrant, which is inherent in your commentary, okay, if a registrant chooses to prepare and present management adjustments, they are limited to presenting that in the footnotes to the pro forma financial information.
31:59
SPEAKER_03: Okay.
32:00
SPEAKER_03: And so they can't go on the face of the pro forma and and I'll call it be embedded in that far right, that far right column, right?
32:09
SPEAKER_03: That's not that's not permitted.
32:11
SPEAKER_03: So let me do one other thing.
32:12
SPEAKER_02: But what are you people are probably thinking, why?
32:15
SPEAKER_02: Why is it not permitted?
32:16
SPEAKER_02: Right.
32:17
SPEAKER_02: And I think I think we'd say prominence is always an issue with this the staff, right?
32:22
SPEAKER_02: And it's also, we're not talking about numbers that, like when you see the actual financial statements moving forward for the company, the historical financials, they will somewhat mirror their pro forma as when you think about purchase price accounting, the adjustments, right?
32:37
SPEAKER_02: You expect to see that incremental expense for, let's say, you know, PPE uh uh depreciation, right?
32:43
SPEAKER_02: But as it relates to management's adjustments, it's what is what is what are management's adjustments?
32:48
SPEAKER_03: Yeah.
32:48
SPEAKER_03: So, and this is this is the crux of it.
32:50
SPEAKER_03: So management adjustments reflect synergies and dissynergies of the acquisitions and dispositions for which pro forma effect is being given.
32:59
SPEAKER_03: Okay.
33:00
SPEAKER_03: And so if you have an acquisition or a disposition, obviously acquisitions most commonly, you know, a big portion of that rationale has to do with synergies.
33:09
SPEAKER_03: Maybe if you have a uh divestiture, you know, there will be some dissynergies, um, dissynergies involved because you're getting, you're getting smaller.
33:16
SPEAKER_03: Maybe your uh purchasing power goes down, something, something like this.
33:20
SPEAKER_03: Um, so I would just say that, you know, as we think about these three categories of adjustments, whether it be transaction accounting adjustments, um, autonomous entity or management adjustments, as we move through that continuum, they get progressively more um judgmental or oriented towards projection.
33:38
SPEAKER_02: I think that's a great way to describe it.
33:40
SPEAKER_03: Yeah.
33:40
SPEAKER_02: Yeah.
33:40
SPEAKER_02: Yeah.
33:41
SPEAKER_03: And so from both a regulator standpoint, but I would say also from a registrant standpoint, okay, that when this rulemaking was happening, there weren't a lot of registrants who were enamored with the idea of being forced to present their estimated synergies in a tabular.
33:58
SPEAKER_02: Sounded like you read the proposing release and the adopting release.
34:01
SPEAKER_03: Exactly.
34:02
SPEAKER_03: Exactly.
34:03
SPEAKER_03: And so that's part of why, maybe a big part of why we landed where we did, which is these are voluntary.
34:10
SPEAKER_03: And if you're going to do them, they go into the um, they go into the footnotes.
34:14
SPEAKER_02: What types of management adjustments do you see?
34:17
SPEAKER_02: Like what are are you and are you seeing them in practice?
34:20
SPEAKER_03: I would say they're not that common.
34:22
SPEAKER_03: Okay.
34:22
SPEAKER_03: So in certain, in certain spaces, um, you know, it's not maybe not uncommon to talk about them in in some way in some.
34:30
SPEAKER_02: You may expect synergies from an acquisition, you may talk about it elsewhere, but you may not be comfortable enough maybe to put it in some sort of adjustment in your performance.
34:39
SPEAKER_03: Exactly.
34:39
SPEAKER_03: Exactly.
34:40
SPEAKER_03: Right.
34:40
SPEAKER_03: And so, so at least from my standpoint, it hasn't been, you know, uh there haven't been that many um situations where registrants have, you know, availed themselves of this ability.
34:50
SPEAKER_03: I I would say, going back to the point we made earlier, Kyle, you know, in terms of this gray space between autonomous entity and management adjustments, there have been situations in spin-offs, for example, where there have been some questions around whether projected costs are autonomous entity adjustments or are they dissynergies, management adjustments, you know, so on and so forth.
35:16
SPEAKER_03: I have a view on that that orients to the fact that, you know, from a spin co standpoint, you're neither acquiring nor divesting it.
35:23
SPEAKER_03: So personally, I sit and think, I'm not sure there's a rationale to explain why they would be management adjustments.
35:32
SPEAKER_03: But that said, that's not how everything has played out in the marketplace.
35:37
SPEAKER_03: And so when we do see management adjustments, I would say they're most common in Form 10 spin documents, okay, where registrants, you know, perhaps have been precluded from presenting something as autonomous entity adjustment that they really think is important for investors.
35:55
SPEAKER_03: And so they they go to this third alternative, which is to present them as as a management adjustment.
36:00
SPEAKER_02: That was great.
36:01
SPEAKER_02: And I think you did a really nice job of kind of highlighting what the the what each adjustment is is for.
36:06
SPEAKER_02: We've already mentioned a little bit on this, touched a little bit on this, but I'd like for you to kind of just summarize for me the prohibitions or for the audience the prohibitions on you know presenting pro forma as well.
36:22
SPEAKER_02: So they're they're not gonna be presented in in the face of the historical financial statements, but what what what other prohibitions are there that the SEC has embedded in this role?
36:31
SPEAKER_03: Yeah.
36:31
SPEAKER_03: Yeah.
36:31
SPEAKER_03: So there's a so there's a handful.
36:33
SPEAKER_03: I would say the the biggest one was um, you know, historically there were there were some spec, I'll call them special situations, um, going back to the FRM that is yet to be updated.
36:41
SPEAKER_03: Yeah.
36:41
SPEAKER_03: There were some special situations that required, you know, the presentation of some pro forma data in the historical financial statements, right?
36:49
SPEAKER_03: Side by side with some of the historical information, et cetera.
36:52
SPEAKER_03: When this new rule came out, you know, there was a prohibition built in that said, you know, unless it's required by gap.
37:01
SPEAKER_03: So think ASC 805 pro forma information required by gap.
37:05
SPEAKER_03: Unless it's required by gap, you shouldn't have pro forma financial information either on the face of your historical financial statements or in the notes there too.
37:13
SPEAKER_03: Okay, so that was a that was a big prohibition, which caused some of the historical practices where um you know pro forma financial information was actually included in the historical financials to migrate to the front part of um of the document.
37:29
SPEAKER_03: Um you're also prohibited, you know, once you um, you know, remember that, you know, this is pretty prescriptive in terms of the when's and the hows that we've we've covered up to now.
37:41
SPEAKER_03: And so one of the prohibitions, which seems pretty commonsensical to me, is you know, you're prohibited from presenting pro-forma financial information that doesn't reflect everything that's in the pro-forma financial statements themselves.
37:56
SPEAKER_03: Um and then I would say the maybe the third, and this maybe feels a little bit similar to non-gap guidance when we get into prominence and things like this, but you can't present pro forma data that's been adjusted for management adjustments, okay, think projected synergies, without presenting side by side with the baseline pro forma that reflects, remember, only transaction accounting adjustments and to the extent it applies, autonomous entity adjustments.
38:25
SPEAKER_02: That's a great point there.
38:26
SPEAKER_02: And I think certainly could be one that people might lose sight of.
38:30
SPEAKER_02: Um, so so you talked earlier, and I'm just thinking about just you know, companies going through implementation and you you spoke about only presenting through continuing operations um, you know, on the income statement.
38:41
SPEAKER_02: In your experience, I guess, you know, the or the SEC's requirement versus like what do you see companies doing, if it's any different um columns, you know, transactions.
38:51
SPEAKER_02: So let's say you have multiple transactions, how should that be dealt with?
38:53
SPEAKER_03: I would say the rules are pretty clear on that, right?
38:55
SPEAKER_03: That if you have a separate each transaction ought to enjoy its own, its own column in the proformas.
39:02
SPEAKER_03: Um, you can envisage scenarios, you know, in a simple scenario, you're pro formaing for one transaction, but that's not the real world.
39:10
SPEAKER_03: Okay.
39:10
SPEAKER_03: There are plenty of situations where we're pro-formaing for multiple transactions um simultaneously.
39:16
SPEAKER_03: And so it can get um it can get messy.
39:18
SPEAKER_02: Don't you love how we've made up all these words pro forma-ing.
39:21
SPEAKER_02: Yeah, turn it into a verb.
39:23
SPEAKER_02: Dysynergies, which the SEC, like I was assured when when that rule was you know being proposed that disynergies was in fact something that we could we could utilize when I was sure I've seen it used at all before.
39:35
SPEAKER_03: Yeah.
39:35
SPEAKER_03: There can be questions.
39:36
SPEAKER_03: Okay, and we get into a business combination and you know, I've got financing related to that business combination, right?
39:44
SPEAKER_03: Does that technically require a second column?
39:47
SPEAKER_03: I think maybe pure than uh pure technical view, people probably say, yeah, it's probably a different, a different transaction.
39:55
SPEAKER_03: But I would say practically, again, because those adjustments on the financing column are generally pretty easy to understand.
40:01
SPEAKER_03: They impact a couple of line items, you most commonly see them, you know, put together in in um in one column.
40:07
SPEAKER_03: So there's a little bit of room for interpretation.
40:10
SPEAKER_02: Um, I think I think to your point earlier, it's it's all about disclosure.
40:14
SPEAKER_02: And in that introductory section, we were teeing up the proformas themselves, right?
40:19
SPEAKER_02: That's where you talk about.
40:19
SPEAKER_02: This is what we've done.
40:20
SPEAKER_02: This is how we've presented it.
40:22
SPEAKER_02: And shouldn't be any surprise when somebody flips the page and starts to look at the the tabular disclosures, the pro forma financial information, that those the sets of those financial statements themselves, you'll you should be able to understand what is being uh presented.
40:35
SPEAKER_02: So I guess the the other piece here, which I think is also one that we always say to people, be mindful of tax impacts.
40:42
SPEAKER_02: So can you talk a little bit about that?
40:43
SPEAKER_02: Sure.
40:44
SPEAKER_03: Yeah.
40:45
SPEAKER_03: Um, so on tax impacts, I think we sometimes see restaurants who want to go straight to, you know, pull the effective rate from their, you know, their rate rec footnote in their historical financials and apply that to the pro forma's and off they go.
40:56
SPEAKER_03: I think the guidance is pretty clear, right?
40:58
SPEAKER_03: That you start with a statutory rate when you're pro-formaing here, here goes that verb again.
41:03
unknown: Okay.
41:04
SPEAKER_03: When you're when you're coming up with the tax, the pro forma tax impact of pre-tax adjustments, the starting point is statutory rate.
41:12
SPEAKER_03: Okay.
41:13
SPEAKER_03: It doesn't mean you do it blindly.
41:15
SPEAKER_03: Okay, if a company is in a full valuation allowance position, you're not going to tax affect something at 40%, let it flow through to the bottom line, right?
41:23
SPEAKER_03: You're going to think a little in a little bit more of a nuanced way about it.
41:26
SPEAKER_03: But this again, the starting point is statutory rate.
41:29
SPEAKER_03: I want to go back to one point on the columns.
41:31
SPEAKER_03: Yeah.
41:31
SPEAKER_03: Okay, if I if I can.
41:32
SPEAKER_03: Yeah.
41:33
SPEAKER_03: Because you sometimes see an interesting scenario where, you know, a company has to pro forma for discontinued operations.
41:40
SPEAKER_03: Recall that we said that that's a three-year requirement when we talked earlier.
41:44
SPEAKER_03: Um, and they may have either in connection with the divestiture itself, you know, they may have other things that they want to pro forma, like a TSA.
41:51
SPEAKER_03: Um, it could be that they have a discontinued operation, three years, and an acquisition in a registration statement.
41:59
SPEAKER_03: Be really careful that just because discontinued operations are being pro-forma'd and require three years, it doesn't create allowance to pro forma any other transactions for more than the latest year.
42:12
SPEAKER_03: Okay.
42:12
SPEAKER_03: And so in those situations, you'll see proformas that are built for the most recent annual period that will handle the discontinued operations and then go on to handle, let's say, an acquisition.
42:23
SPEAKER_03: Whereas in the two earlier years, it will handle the discontinued operation and it will stop, stop there.
42:29
SPEAKER_03: So I just wanted to make sure we hit that.
42:31
SPEAKER_02: I think I think you're that's very helpful because it's important for people to know that, you know, form and content matters, right?
42:39
SPEAKER_02: And, you know, when I think about like takeaways, you know, from this session itself, before I get to you know, your takeaways, I I think about it's important to always look at the form, what the form tells you is required.
42:52
SPEAKER_02: Look at the rule itself.
42:53
SPEAKER_02: So look at, you know, Article 11 of Regulation SX, understand what's required.
42:59
SPEAKER_02: But then also, you know, I think benchmark, look at other companies' disclosures of similar transactions.
43:05
SPEAKER_02: Um, you know, talk to your advisors, I think is always key.
43:07
SPEAKER_02: It's critical.
43:08
SPEAKER_02: Um, but I think the the thing that you mentioned earlier, which I really liked was you it was very clear that you've read the proposing release and the adopting release.
43:17
SPEAKER_02: And there's a lot of nuggets embedded within that.
43:20
SPEAKER_02: And it's something that working on the rule of the people, the really smart people at the SEC and Corpfin that actually worked on this rule, um, they really spent a lot of time thinking about all these nuances.
43:30
SPEAKER_02: And so I think it's really important that you do look and be and you're grounded in the rule itself.
43:36
SPEAKER_02: What are what are your takeaways?
43:38
SPEAKER_02: Or hopefully I didn't steal.
43:39
SPEAKER_03: No, no, no, not at all.
43:40
SPEAKER_03: Not at all.
43:40
SPEAKER_03: I'll make up another one.
43:41
SPEAKER_03: Okay, so there's no problem.
43:42
SPEAKER_03: I I think maybe I'll go up, and I think those are those are great reminders.
43:46
SPEAKER_03: I'll I'll go perhaps um a a little bit of a different direction.
43:50
SPEAKER_03: I'll just say that, you know, these these concepts that we talk about with ProFormas and Proforma Financial Information and some of the underlying concepts, they're they're pervasive, right?
44:00
SPEAKER_03: So we talked a little bit here about the build of the Proformas, but maybe I'll just encourage our listeners to this podcast to also switch on, because of the integrated nature of ProFormas, to get to um the MA-oriented podcast, the capital raising podcast, and also the Forum 8K podcast, because these comps concepts kind of weave themselves through through all of them.
44:26
SPEAKER_02: Yeah.
44:26
SPEAKER_02: So, Scott, really appreciate you taking the time.
44:30
SPEAKER_02: I know this is this is definitely an area that you probably spent a lot of time on, get a little questions on, and I think just really shed some light on kind of best practices and appreciate you taking the time and look forward to participating in other podcasts with us.
44:43
SPEAKER_03: Happy to do it and thanks thanks for having me.
44:45
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45:07
SPEAKER_01: From Thought Leadership at PwC, I'm Heather Horn.
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