a. Pro forma statements that give effect to a business combination using the purchase method of accounting generally require only two pro forma adjustments:

1. The allocation of the purchase price, including adjusting assets and liabilities to fair value and recognizing intangibles, with related changes in depreciation and amortization expense; and

2. The effects of additional financing necessary to complete the acquisition. However, other related adjustments may be necessary.

b. Contractual terms of the combination such as major new compensation contracts with management would require pro forma adjustment if the new contracts are entered into as part of the acquisition agreement.

c. Transaction costs should be recognized in the pro forma statements as follows:

i. Direct, incremental costs of the specific acquisition which are not yet reflected in the historical financial statements of either the target or acquirer —No adjustment should be reflected in the pro forma statement of comprehensive income, but the pro forma balance sheet should reflect an adjustment (as the costs are non-recurring and directly related to the transaction)

ii. Direct, incremental costs of the specific acquisition which are reflected in the historical financial statements of either the target or acquirer — An adjustment should remove those costs from the pro forma statement of comprehensive income (as a non-recurring charge directly related to the transaction)

iii. Direct, incremental costs related to one or more other acquisitions that are reflected in the historical financial statements of either the target or acquirer — An adjustment should remove those costs from the pro forma statement of comprehensive income only if pro forma effect is given to the other acquisition as well. (Last updated: 3/31/2010)

d. Actions to be taken by management subsequent to a business combination may relate to the planned disposal or termination of revenue producing activities, as well as other business integration activities. It is appropriate to present pro forma adjustments depicting the recurring effects of exiting revenue producing activities. That type of pro forma adjustment is consistent with the requirement to provide pro forma information depicting material dispositions as discussed in Section 3120. Only revenues and costs specifically identifiable with that revenue-producing activity may be included in the pro forma adjustments. Allocations of corporate costs should not be adjusted for the disposition. (Last updated: 10/30/2020)

e. Termination of employees and closing facilities are typical actions taken in connection with business combinations to eliminate costs perceived by management as redundant. The timing and effects of these actions are generally too uncertain to meet the S-X Article 11 criteria for pro forma adjustments. Management's estimate of how these actions (and other business integration activities not specifically associated with the disposition of a business) are expected to impact the operations and liquidity of the newly combined companies going forward should be discussed in MD&A and in supplemental information clearly identified as forward-looking information.

f. A schedule showing the calculation of the purchase price (including the value assigned to non-cash portions) should be provided in a note, if not otherwise reasonably apparent.

g. The purchase price should be allocated to specific identifiable tangible and intangible assets (such as customer lists, contracts acquired, trademarks and patents, in-process research and development) and liabilities. If the accounting is preliminary/provisional, significant liabilities and tangible and intangible assets likely to be recognized should be identified and uncertainties regarding the effects of amortization periods assigned to the assets should be highlighted.

h. If the registrant is awaiting additional information that may impact the measurement of a contingency of the acquired company during the measurement period specified by ASC 805, the registrant should disclose prominently that the purchase price allocation is preliminary/provisional. In this circumstance, the registrant should:

1. Describe clearly the nature of the contingency;

2. Discuss the reasons why the allocation is preliminary/provisional (e.g., identify the information that the registrant has arranged to obtain);

3. Indicate when the allocation is expected to be finalized; and

4. Furnish other available information which will enable a reader to understand the magnitude of any potential adjustment.

i. If contingent consideration is issuable (see ASC 805-30-20), the registrant should disclose the terms of the contingent consideration and the potential impact on future earnings.

j. The expected useful lives or amortization periods of significant assets acquired in a purchase business combination, including identified intangibles, should be disclosed in a note to the pro forma financial statements.

k. If amortization of purchase adjustments is not straight-line, the effect on operating results for the five years following the acquisition should be disclosed in a note, if material.

l. Either the registrant or its target may expect to dispose of certain operations in order for a merger to gain the approval of one or more U.S. regulatory agencies. Pro forma recognition should be given to the impact of those disposals to the extent they are identifiable at the time the pro formas are prepared. If operations to be disposed of are not identifiable with any reasonable certainty at that time, the notes to the pro forma financial information should disclose any contingencies and the reasonably possible impact on the financial statements. Pro forma financial information giving effect to the disposals should be filed on Form 8-K when the disposals occur if the disposition is significant under Item 2.01 of Form 8-K.

m. If a registrant adopts a new accounting standard as of a different date and/or under a different transition method than a significant acquired business, the registrant must conform the date and method of adoption of the acquired business to its own in its pro forma financial information. The staff will consider requests for relief from this requirement. (Last updated: 12/1/2017)

n. A registrant retrospectively adopts a new accounting standard on January 1, 2018 and in September 2018 it makes a significant acquisition and later files a Form 8-K that includes pro forma financial information for the year ended December 31, 2017 and the six months ending June 30, 2018. The registrant does not need to apply the new accounting policy to the pro forma information for periods prior to adoption until it has reflected the new standard in the historical financial statements for those periods. As such, only the 2018 pro forma information need reflect the adoption of the new standard, while the 2017 pro forma information is not required to reflect adoption of the new standard. However, if the registrant believes the effect of the new standard on 2017 historical information will be material, it should make appropriate disclosure to that effect in the notes to the pro forma financial information. (Last updated: 12/1/2017)