[Federal Register Volume 61, Number 58 (Monday, March 25, 1996)]
[Rules and Regulations]
[Pages 12020-12022]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7071]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 211
[Release No. SAB 96]
Staff Accounting Bulletin No. 96
AGENCY: Securities and Exchange Commission.
ACTION: Publication of Staff Accounting Bulletin.
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SUMMARY: The interpretations in this staff accounting bulletin express
certain views of the staff regarding treasury stock acquisitions
following a business combination accounted for as a pooling-of-
interests.
EFFECTIVE DATE: March 19, 1996.
FOR FURTHER INFORMATION CONTACT: Mary Tokar or Brian Heckler, Office of
the Chief Accountant (202-942-4400), or Kurt Hohl, Division of
Corporation Finance (202-942-2960), Securities and Exchange Commission,
450 Fifth Street NW., Washington, DC 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: March 19, 1996.
Margaret H. McFarland,
Deputy Secretary.
Accordingly, Part 211 of Title 17 of the Code of Federal
Regulations is amended by adding Staff Accounting Bulletin No. 96 to
the table found in Subpart B.
PART 211--[AMENDED]
Staff Accounting Bulletin No. 96
The staff hereby adds Section F to Topic 2 of the Staff Accounting
Bulletin Series. Topic 2-F provides guidance regarding the effect of
treasury stock acquisitions following consummation of a business
combination accounted for as a pooling-of-interests.
Topic 2-F: Treasury Stock Acquisitions Following Consummation of a
Business Combination Accounted for as a Pooling-of-Interests
Facts: An issuer, concurrently with the development of a plan for a
business combination, formulates a plan to reacquire treasury stock
after the consummation date of the combination. The treasury stock will
not be reacquired directly from former shareholders of the combining
company.
Question 1: Does the staff believe that an intention to reacquire
treasury stock precludes accounting for a business combination as a
pooling-of-interests?
Interpretive Response: Yes, except in certain limited
circumstances. The staff believes that an intention to reacquire
treasury stock is part of the plan of combination (a ``planned
transaction'') if the intention is formulated concurrently with the
development of the plan of combination. However, the staff does not
believe that planned transactions that merely defer actions that would
be permitted prior to consummation preclude the application of pooling-
of-interests accounting to the combination. Accordingly, the staff has
not objected to planned transactions involving reacquisitions of either
untainted treasury stock (as discussed in Accounting Series Release
Numbers 146 and 146-A) or tainted treasury stock up to the limits
permitted under paragraph
[[Page 12021]]
47 of APB Opinion 16, Business Combinations.
Paragraph 48 of APB Opinion 16 provides that some planned
transactions preclude accounting for a combination as a pooling-of-
interests. This prohibition extends not only to transactions explicitly
agreed to, but also to intended transactions.1 Specifically,
paragraph 48(a) of APB Opinion 16 identifies the intention to reacquire
the common stock issued to effect the combination as a planned
transaction that is inconsistent with a pooling-of-interests. Paragraph
48(a) of APB Opinion 16 does not specify a period after which an
otherwise prohibited reacquisition of treasury stock is permitted.
However, based on related planned transaction guidance in paragraph
48(c) of APB Opinion 16, which precludes application of pooling-of-
interests accounting if a company plans to make significant
dispositions of assets within two years of consummation, the staff has
not required a period longer than two years for other prohibited
planned transactions.
\1\ Paragraph 48 of APB Opinion 16, captioned ``Absence of
planned transactions,'' states, ``Some transactions after a
combination is consummated are inconsistent with the combining of
entire existing interests of common stockholders. Including those
transactions in the negotiations and terms of the combination,
either explicitly or by intent, counteracts the effect of combining
stockholder interests'' [emphasis added].
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In applying the 90% test of paragraph 47 of APB Opinion 16 at the
consummation date, the staff believes that, unless the shares to be
reacquired would be untainted, the maximum number of shares that may be
reacquired within two years of consummation of the combination pursuant
to any planned transaction should be aggregated with other ``paragraph
47 exceptions.'' If the total paragraph 47 exceptions exceed 10% of any
combining company's outstanding shares, the staff believes that
application of pooling-of-interests accounting to the combination would
not be appropriate.2
\2\ See the computational guidance provided by the FASB's
Emerging Issues Task Force, in its discussion of Issue 87-16,
regarding how tainted treasury shares (net of shares ``cured''
through reissuance) should be aggregated with other ``paragraph 47
exceptions'' (e.g., dissenters' shares) when testing for
satisfaction of the requirements of paragraph 47 of APB Opinion 16.
The 10% limitation described above normally is computed by reference
to the number of shares issued to effect the combination. In some
circumstances, such as those where the smaller of the combining
companies is the issuer, the 10% limitation might be further
constrained.
Additionally, while an issuer may cure tainted treasury stock
acquired prior to consummation, issuing shares to effect the pooling
would not cure tainted treasury stock.
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Question 2: Does the staff believe that an intention to reacquire
treasury stock should be considered part of the plan of combination if
the intention is not announced until after consummation of the business
combination?
Interpretive Response: Yes. The staff believes that the formulation
of an intention to reacquire treasury stock, and not the announcement
of that intention, is the action that precludes application of pooling-
of-interests accounting. Further, it is difficult to conclude that an
action that occurs shortly after a business combination is consummated
is not evidence of an intention formulated concurrently with
development of the plan of combination. Accordingly, the staff
considers whether a registrant's actions, both prior to and following
consummation of a business combination, provide evidence of an
intention to reacquire shares after the combination.3
\3\ Actions that the staff has determined provide evidence of an
intention to reacquire shares after consummation of a combination
include use of projections or forecasts reflecting post-consummation
acquisitions of treasury stock or decisions to reacquire treasury
stock where those decisions were made by management having the
requisite authority to commit the enterprise to such a plan. Any
statement made prior to consummation of a business combination that
a company intends to reacquire treasury stock after consummation of
that combination also is evidence of a planned transaction. These
examples are illustrative only and do not include all instances in
which the staff may conclude that a company has formulated an
intention to reacquire treasury stock.
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In applying this interpretive guidance, the staff presumes that
reacquisitions of treasury stock within six months following
consummation of a business combination are planned transactions that
are part of the combination plan. Other actions that may occur less
than six months after consummation of a business combination provide
persuasive evidence of a prior intention that was part of the
combination plan. For example, the staff believes that the announcement
of an intention to reacquire shares made within six months following
consummation of a business combination provides persuasive evidence of
an intention that was part of the combination plan.
The staff generally has not questioned the use of pooling-of-
interests accounting as a result of reacquisitions of treasury stock
made more than six months after the combination is consummated in
circumstances in which there is no evidence that the reacquisitions of
treasury stock were planned transactions.
Question 3: Prior to initiation of a business combination, a
company announced a plan to reacquire tainted treasury stock, but
suspended reacquisitions pursuant to that plan prior to consummation of
the combination. Does the staff believe that an intention to resume
reacquisitions of treasury stock after consummation of the combination
pursuant to a pre-existing plan can be distinguished from other
intentions to reacquire treasury stock after the combination?
Interpretive Response: No. The staff believes that an intention to
resume reacquiring tainted treasury stock pursuant to a pre-existing
plan cannot be distinguished from an intention to reacquire treasury
stock formulated concurrently with development of the plan of
combination. As the Commission commented in ASR 146, it is difficult to
separate reasons for reacquiring treasury stock from intentions to
reacquire shares that are part of the plan of combination, even if the
reason for the acquisition of such shares is reissuance for recurring
distributions.4 Unless treasury stock reacquired will be untainted
treasury stock, the assertion that those shares were acquired for
reasons other than the business combination is not sufficient to
separate the intention to resume reacquiring treasury stock from other
planned transactions to reacquire shares issued to effect the
combination.5
\4\ ASR 146 comments that, ``in determining the purpose of
treasury stock acquisitions, it is ordinarily appropriate to focus
on the intended subsequent distribution of common shares rather than
on the business reasons for acquiring treasury shares [emphasis
added]. For example, shares may be reacquired because management
believes the company is overcapitalized or considers that ``the
price is right,'' but such reasons do not overcome the presumption
that they were acquired in contemplation of effecting business
combinations to be accounted for as poolings of interests.''
\5\ ASR 146 states that ``the mere assertion that common shares
are acquired for such purposes [as stock option or purchase plans or
stock dividends] even where the assertion is formalized by action of
the board of directors reserving the treasury shares, does not
provide persuasive evidence [that the acquisition of treasury stock
is unrelated to a business combination]. * * * Accordingly, the
Commission concludes that treasury shares acquired in the restricted
period for recurring distributions should be considered ``tainted''
unless they are acquired in a [seasoned] systematic pattern of
reacquisition * * *''
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Question 4: Paragraph 48(a) of APB Opinion 16 prohibits application
of pooling-of-interests accounting when there is an intention to
reacquire, either directly or indirectly, the common stock issued to
effect the combination. In the opinion of the staff, does an intention
to reacquire treasury stock from parties other than former shareholders
of the combining company after consummation of a business combination
represent an intention to reacquire shares issued to effect the
combination?
[[Page 12022]]
Interpretive Response: Yes. The staff believes that the identity of
the seller of the treasury stock is not the deciding factor in
determining whether the issuer has reacquired stock issued to effect
the combination. For example, the staff believes that a reacquisition
of treasury stock in an open market transaction results in an indirect
reacquisition of shares issued to effect the combination.6
\6\ See, for example, paragraph 47(b) of APB Opinion 16, which
notes that the choice of an issuer in a combination is a matter of
convenience. This interpretive response also recognizes the fungible
nature of common stock. The Commission has commented on the
fungibility of shares of common stock when addressing cures of
tainted treasury stock in ASR 146, noting that there is no
substantive difference between treasury stock and newly-issued
stock.
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[FR Doc. 96-7071 Filed 3-22-96; 8:45 am]
BILLING CODE 8010-01-P
