[Federal Register Volume 61, Number 152 (Tuesday, August 6, 1996)]
[Rules and Regulations]
[Pages 40721-40722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19901]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 211
[Release No. SAB 97]
Staff Accounting Bulletin No. 97
AGENCY: Securities and Exchange Commission.
ACTION: Publication of Staff Accounting Bulletin.
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SUMMARY: The interpretations in this staff accounting bulletin express
the views of the staff regarding the inappropriate application of Staff
Accounting Bulletin No. 48, Transfers of Nonmonetary Assets by
Promoters or Shareholders, to purchase business combinations
consummated just prior to or concurrent with an initial public
offering, and the identification of an accounting acquirer in
accordance with APB Opinion No. 16, Business Combinations, for purchase
business combinations involving more than two entities.
EFFECTIVE DATE: July 31, 1996.
FOR FURTHER INFORMATION CONTACT: Brian Heckler, Office of the Chief
Accountant (202-942-4400), or Douglas Tanner, Division of Corporation
Finance (202-942-2960), Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The statements in staff accounting bulletins
are not rules or interpretations of the Commission, nor are they
published as bearing the Commission's official approval. They represent
interpretations and practices followed by the Division of Corporation
Finance and the Office of the Chief Accountant in administering the
disclosure requirements of the Federal securities laws.
Dated: July 31, 1996.
Margaret H. McFarland,
Deputy Secretary.
PART 211--[AMENDED]
Accordingly, Part 211 of Title 17 of the Code of Federal
Regulations is amended by adding Staff Accounting Bulletin No. 97 to
the table found in Subpart B.
Staff Accounting Bulletin No. 97
The staff hereby adds Item 8 and Question 2 to Item 2 to Section A
of Topic 2 of the Staff Accounting Bulletin Series. Item 8 of Topic 2:A
provides guidance regarding the applicability of SAB No. 48 to purchase
business combinations just prior to or concurrent with an initial
public offering. Question 2 of Topic 2:A(2) provides the staff's views
regarding the identification of an accounting acquirer in a business
combination involving more than two entities.
TOPIC 2: BUSINESS COMBINATIONS
* * * * *
A. Purchase Method
* * * * *
8. Business Combinations Prior to an Initial Public Offering
Facts: Two or more businesses combine in a single combination just
prior to or contemporaneously with an initial public offering.
Question 1: Does the guidance in SAB Topic 5:G (SAB No. 48) apply
to business combinations entered into just prior to or
contemporaneously with an initial public offering?
Interpretive Response: No. The guidance in SAB Topic 5:G is
intended to address the transfer, just prior to or contemporaneously
with an initial public offering, of nonmonetary assets in exchange for
a company's stock. The guidance in SAB Topic 5:G is not intended to
modify the requirements of APB Opinion No. 16, ``Business
Combinations'' (APB Opinion 16).1 Accordingly, the staff believes
that the combination of two or more businesses should be accounted for
in accordance with APB Opinion 16 and its interpretations.2
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\1\ The provisions of APB Opinion 16 apply to transactions
involving the transfer of net assets as well as the acquisition of
stock of a corporation. This guidance does not address the
accounting for joint ventures or leveraged buy-out transactions as
discussed in EITF Issue No. 88-16.
\2\ Except as otherwise provided below, the staff will expect
the provisions of this SAB to be applied by registrants in all
filings with the Commission subsequent to the publication of this
guidance. The staff is aware that accounting practices regarding the
application of SAB Topic 5:G to business combinations have varied in
previous filings with the Commission. Accordingly, the staff
generally will not object to the application of the guidance in SAB
Topic 5:G to business combinations entered into just prior to, or
contemporaneously with, an initial public offering for which merger
agreements were executed by all of the combining companies prior to
the publication of this guidance and the initial public offering is
filed with the Commission prior to September 30, 1996.
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Paragraphs 46 through 48 of APB Opinion 16 specify the conditions
that must be met for a business combination to be recorded using the
pooling-of-interests method of accounting. If the business combination
fails to meet any of the conditions for the pooling-of-interests method
of accounting, APB Opinion 16 requires the combination to be recorded
as the acquisition of one or more entities by an acquiring entity using
the purchase method.3
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\3\ AICPA Accounting Interpretation No. 38 of APB Opinion 16
states, ``when more than two companies negotiate a combination which
is contingent upon the mutual agreement by the several companies to
the terms, the resulting combination is deemed to be a single
business combination regardless of the number of companies involved.
Each company must meet all of the conditions of paragraphs 46-48 if
the combination is to be accounted for by the pooling of interest
method. . .if any condition in paragraphs 46-48 is not met by any
company, the entire combination would be accounted for by the
purchase method.''
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* * * * *
2. Determination of the Acquiring Corporation
* * * * *
Question 2
Facts: Three or more substantive operating entities combine in a
single business combination effected by the issuance of stock. The
combination occurs just prior to or contemporaneously with an initial
public offering and does not meet the criteria in APB Opinion No. 16,
``Business Combinations,'' (APB Opinion 16) for the application of the
pooling-of-interests method of accounting.1
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\1\ See AICPA Accounting Interpretation No. 38 of APB Opinion
16.
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Question: In the staff's view, does APB Opinion 16 require the
identification of an acquirer when three or more entities combine in a
single transaction accounted for using the purchase method of
accounting?
Interpretive Response: Yes. The staff believes that APB Opinion 16
requires the identification of the acquiring entity for all business
combinations that are
[[Page 40722]]
required to be accounted for using the purchase method of accounting.
When more than two entities are involved in a purchase business
combination, the identification of the acquiring entity may require
rigorous analysis when no single former shareholder group obtains more
than 50 percent of the outstanding shares of the new entity following
the transaction. APB Opinion 16 states, ``presumptive evidence of the
acquiring corporation in combinations effected by an exchange of stock
is obtained by identifying the former common shareholder interests of a
combining company which either retain or receive the larger portion of
the voting rights in the combined corporation.'' 2 Thus, even when
no single former shareholder group of the combining entities
individually obtains more than a 50 percent ownership interest in the
new combined entity, the staff believes that the shareholder group
receiving the largest ownership interest in the combined company should
be presumed to be the acquirer unless objective and verifiable evidence
rebuts that presumption and supports the identification of a different
shareholder group as the acquirer for accounting purposes.3
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\2\ APB Opinion 16, paragraph 70.
\3\ The accounting acquirer should provide its financial
statements for the periods specified in Rules 3-01 and 3-02 of
Regulation S-X. The financial statements of each individually
significant acquired company should be presented pursuant to the
requirements of Rule 3-05 of Regulation S-X and SAB No. 80. The
presentation of pre-acquisition combined financial statements of the
accounting acquirer and the acquired companies is not appropriate
for a transaction that is not accounted for using the pooling-of-
interests method.
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[FR Doc. 96-19901 Filed 8-5-96; 8:45 am]
BILLING CODE 8010-01-P