SAB No. 97
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 211
[Release No. SAB 97]
AGENCY: Securities and Exchange Commission.
ACTION: Publication of Staff Accounting Bulletin.
SUMMARY: The interpretations in this staff accounting bulletin
express the views of the staff regarding 1) 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 2) the identification of an
accounting acquirer in accordance with APB Opinion No. 16,
Business Combinations, for purchase business combinations
involving more than two entities.
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.
Jonathan G. Katz
Secretary
Part 211 - (AMEND)
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.
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.
* * * * *
A. Purchase Method
* * * * *
8. Business Combinations Prior to an Initial Public Offering
Two or more businesses combine in a single combination just
prior to or contemporaneously with an initial public offering.
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?
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]-
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]-
-[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.
-[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 (continued...)
* * * * *
2. Determination of the Acquiring Corporation
* * * * *
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.-[4]-
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
---------FOOTNOTES---------- -[3]-(...continued) 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."
-[4]- See AICPA Accounting Interpretation No. 38 of APB Opinion 16.
of accounting?
Yes. The staff believes that APB Opinion 16 requires the
identification of the acquiring entity for all business
combinations that are 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. -[5]- 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
-[5]- APB Opinion 16, paragraph 70.
evidence rebuts that presumption and supports the identification
of a different shareholder group as the acquirer for accounting
purposes.-[6]-
-[6]- 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.