Staff Accounting Bulletin 96

us-sec-staff-accounting-bulletins-sab-96Staff Accounting Bulletin 96Guidance

==========================================START OF PAGE 1======

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.
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.

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, 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


March 19, 1996
==========================================START OF PAGE 2======

Part 211 - (AMEND)
     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.

                 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.
==========================================START OF PAGE 3======

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 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

---------FOOTNOTES----------
     -[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].
==========================================START OF PAGE 4======

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.
==========================================START OF PAGE 5======

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]-  

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?




















---------FOOTNOTES----------
     -[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.
==========================================START OF PAGE 6======

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]-  

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

---------FOOTNOTES----------
     -[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. 
==========================================START OF PAGE 7======

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]-

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

---------FOOTNOTES----------
     -[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..."
==========================================START OF PAGE 8======

shares issued to effect the combination?

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]-  

































---------FOOTNOTES----------
     -[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.

Continue your research in ChatGPT or Claude

Connect Omnilex to search the legal corpus from your AI assistant.