[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