Introduction
Hewlett Packard Enterprise (HPE) reported diluted earnings of $1.93 a share for its fiscal year to October 2024. When it completed its $13.4 billion cash acquisition of Juniper Networks in July 2025, it had to show investors what that year would have looked like had the deal already happened. Its pro forma financial information, filed two months after closing, combined the two companies' results, added the amortization of Juniper's newly valued intangibles and the interest on $10.5 billion of acquisition debt, and arrived at $0.82 a share. Revenue rose to $35.2 billion; earnings per share fell by more than half.
Pro forma figures of this kind are required by the Securities and Exchange Commission (SEC) for significant acquisitions, and they follow a defined set of rules in Article 11 of Regulation S-X. They are unaudited, but they are the closest thing to an official view of a combined company before it has reported a full year together, and they are a starting point for much of the analysis bankers do after a deal is announced or closed.
When Pro Formas Are Required
The obligation depends on how large the target is relative to the buyer, measured by three significance tests in Rule 1-02(w) of Regulation S-X, explained in Deloitte's guide to measuring an acquiree's significance. The investment test compares the price paid, including the fair value of any contingent consideration, with the aggregate worldwide market value of the buyer's common equity. The asset test compares the target's total assets with the buyer's. The income test compares the target's pre-tax income with the buyer's and, for most companies, also requires the target's revenue to be significant relative to the buyer's.
- Significance test
One of three tests in Regulation S-X, based on investment, assets and income, that measure the size of an acquired or disposed business relative to an SEC registrant. If any test exceeds 20%, the registrant must generally file audited financial statements of the acquired business under Rule 3-05 and pro forma financial information under Article 11.
If any test exceeds 20%, the buyer must file the target's audited financial statements under Rule 3-05, for one year above 20% and two years above 40%, together with pro forma financial information. For a completed deal, the buyer reports the closing on Form 8-K within four business days and can file the financial statements and pro formas by amendment up to 71 calendar days after that initial report is due, which is why HPE's pro formas appeared in September for a deal closed on July 2. Deals paid in shares bring the same information forward: the registration statement or proxy that shareholders receive before they vote includes pro formas based on the most recent figures.
Large Deals That Stay Below the Line
The tests are relative, so a large acquisition by a much larger company may require nothing. A buyer worth $400 billion that pays $18 billion for a target is at under 5% on the investment test, and its target's assets and income may be equally small next to its own. Significance is measured deal by deal, though individually insignificant acquisitions can trigger requirements in a registration or proxy statement when their aggregate significance exceeds 50%.
What Goes Into Article 11 Pro Formas
Article 11 pro formas consist of a condensed balance sheet as of the end of the most recent period, presented as if the deal had occurred on that date, and condensed income statements for the most recent fiscal year and the latest interim period, presented as if the deal had occurred at the start of that fiscal year. When the deal has already closed before the latest balance sheet date, no pro forma balance sheet is needed, because the reported balance sheet already includes the target: HPE presented income statements only. When the two companies' fiscal years differ, the target's figures can be used for a period ending within one fiscal quarter of the buyer's, as HPE did with Juniper's calendar year.
The SEC's 2020 amendments, set out in Release 33-10786, organized the adjustments into three categories. Transaction accounting adjustments are required and reflect the accounting for the deal itself: the purchase price allocation, the new depreciation and amortization, the financing and its interest, the shares issued and the tax effects. Autonomous entity adjustments are required when the registrant itself was previously part of another company, as in a spin-off, the situation described in carve-out financial statements. Management's adjustments, such as expected synergies, are optional and, if presented, appear in the notes rather than in the pro forma columns.
HPE's Pro Forma Income Statement
HPE's pro forma figures for fiscal 2024 show how the adjustments move from operating income down to earnings per share:
| Line item | HPE | Juniper | Adjustments | Pro forma |
|---|---|---|---|---|
| Total net revenue | 30,127 | 5,074 | 0 | 35,201 |
| Amortization of intangible assets | (267) | (49) | (956) | (1,272) |
| Earnings from operations | 2,190 | 291 | (1,399) | 1,082 |
| Interest and other, net | (117) | 7 | (538) | (648) |
| Earnings before taxes | 2,953 | 288 | (1,937) | 1,304 |
| Net earnings available to common shareholders | 2,554 | 287 | (1,718) | 1,123 |
| Diluted earnings per share | 1.93 | 0.82 |
Source: HPE Form 8-K/A, September 2025, Exhibit 99.3. Adjustments combine the merger and financing columns. Subtotals include lines not shown, among them other costs, taxes and preferred dividends. HPE's results include a 733 million gain on the sale of its stake in H3C.
The $1.9 billion pre-tax reduction comes mostly from four items, partly offset by smaller ones: $956 million of extra amortization on the intangibles identified in the purchase price allocation, $236 million for the step-up of Juniper's inventory, recognized as if the inventory had been sold in the first months, $230 million of stock-based compensation on replacement awards, and $521 million of interest on the debt raised for the deal. After tax, and $89 million of extra dividends on the mandatory convertible preferred stock HPE issued to help pay for it, earnings available to common shareholders fall by $1.7 billion. HPE did not include synergies, stating that the figures do not reflect expected cost savings or the costs of achieving them.
Transaction Costs and Other One-Off Items
Costs that will not recur are handled carefully. HPE had already expensed $128 million of transaction costs in fiscal 2024 and Juniper $62 million, so no adjustment was needed for them; the buyer's own costs not yet in the historical figures are reflected as if incurred at the start of the pro forma year, while the target's later costs are left out. Items unrelated to the deal stay in: HPE's $733 million gain on the sale of its H3C stake remains in its historical column, and so in the pro forma total. Pro forma earnings are not adjusted earnings, and they should be normalized like any other reported figure, the process covered in quality of earnings.
Three Kinds of Pro Forma
The term covers figures prepared for different purposes and under different rules, and confusing them is a common source of error:
| Type | Required by | What it shows | Synergies included? |
|---|---|---|---|
| Article 11 pro formas | SEC rules for significant deals | Balance sheet and income statements as if the deal had occurred earlier | Optional, in notes only |
| Supplemental pro forma disclosure | Accounting Standards Codification (ASC) 805, in the buyer's own financial statements | Combined revenue and earnings as if the deal had occurred at the start of the prior year | No |
| Pro forma figures in credit agreements and marketing | Lenders and the company | Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reflecting acquisitions and expected cost savings | Often, within negotiated limits |
The supplemental disclosure required by the acquisition method appears in the notes to every public acquirer's annual report for material deals, whether or not the deal is significant for SEC purposes, but gives only revenue and earnings. Credit agreements define their own pro forma EBITDA, often including run-rate synergies, which can make leverage look lower than any SEC-compliant figure would.
How Bankers Use Them
Bankers use Article 11 pro formas as an independent check on their own merger models. The bankers' model, covered in accretion and dilution analysis, forecasts future years and usually includes synergies; the SEC pro formas apply the same mechanics to a historical year without synergies. The two should reconcile in their treatment of amortization, interest and share count, and a large gap in any of these usually signals a modeling error or a change in the purchase price allocation.
After closing, pro formas also provide the baseline for comparable growth rates and trailing figures. Reported results include the target only from the acquisition date, so growth in the first year after a deal mixes organic and acquired revenue. Pro forma combined figures for the prior year, and the supplemental disclosures in later filings, let analysts measure growth on a like-for-like basis, the problem described in LTM figures from filings.
Pro formas are also preliminary. They rely on a purchase price allocation that may change during the measurement period, and HPE noted that differences between its estimates and the final acquisition accounting could be material. Comparing the pro forma amortization with the amounts the buyer later reports is a quick test of how far the allocation moved.
