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.

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.

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]-

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

* * * * *

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.-[4]-

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

---------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?

Interpretive Response

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.