SEGMENT 1:

Lee Klumpp, CPA, Senior Technical Manager, Institute for Nonprofit Excellence ,
BDO Seidman, LLP

SFAS 164 - Mergers of nonprofits and goodwill:

Not-for-Profit Entities: Mergers and Acquisitions - Including an amendment of FASB Statement No. 142

Accounting for combinations of not-for-profit organizations:
- SFAS 164 distinguishes between a Merger and an Acquisition
- Mergers accounted for on ‘carryover basis’ - similar to pooling accounting under APB 16
- Acquisitions accounted for on ‘acquisition basis’ - similar to SFAS 141(R)
- Determining factor of a merger: ceding of control by the governing bodies of two (or more)
  organizations to a new organization; the governing board of the new entity must be newly formed,
  but establishing a new legal entity is not a requirement
- Other factors such as relative size, relative dominance of the process and of the combined entity,
  and relative financial health, can be considered in judging whether control has been ceded, but
  are not themselves determinants of a merger vs. an acquisition
- All other combinations are acquisitions

Accounting for a merger:
- Add together the historical financial data of the merging entities as of the merger date (not, as
  under APB 16, as of the beginning of the fiscal year in which the merger occurs)
- Financial statements of the period of the merger include data only since the date of the merger
  (except that for a public company (FSP 126-1), pro forma disclosure is required as if the merger
  had occurred at the beginning of the fiscal year)
- Conform accounting policies, except, because this is not a ‘fresh-start’, a merger is not an event
  that permits the election of accounting options that are restricted to the entity’s initial acquisition or
  recognition of an item (or the reversal of a previous election). Thus, for example, one merging
  entity’selection of the fair value option (SFAS No. 159), for a particular financial asset or liability
  permits neither the new entity’s election of the fair value option for other financial assets or
  liabilities nor reversal of a previous election of this option.
- Eliminate effects of any intra-entity transactions
- All reclassifications, adjustments, and other changes needed to effect a merger are rolled into
  opening balances
- Since the successor organization after a merger is a new entity, there is no prior period statement
  of activity or cash flows (an ‘opening’ balance sheet may be presented if desired)

Accounting for an acquisition:
- Identifiable assets and liabilities (and any noncontrolling interest) of the acquired entity are
  brought in at their fair values at date of acquisition
- Exceptions specific to nonprofits: Collections are accounted for in accordance with the policy
  of the acquirer; conditional pledges are not recorded; no value is attributed to donor
  relationships
- Exception for leases: Leases are classified (operating vs. capital) according to their terms
  at lease inception, unless they have been modified
- If the value of the acquired assets exceeds the sum of the acquired liabilities plus any
  consideration, the difference is recorded as an inherent contribution and reported as a
  separate credit in the statement of activities
- If the sum of the liabilities plus consideration exceeds the assets, the difference is recorded
  as goodwill, except:
- if the entity is predominantly supported by contributions and/or investment return, the goodwill is
  written off immediately as a separate charge in the statement of activities (‘predominantly
  supported by’ means that contributions and investment return are expected to be
  significantly more than the total of all other revenues)
- Any noncontrolling interests are accounted for in accordance with SFAS 160
- Acquisition-related costs are period expenses, except for debt issuance costs

SFAS 142 (Goodwill) is made fully effective for not-for-profit entities (goodwill is no longer amortized, rather it is tested for impairment)

Various descriptive, quantitative, and qualitative (why the merger/acquisition occurred) disclosures are required.

Effective date:
- Combinations occurring in reporting periods beginning on or after 15 December 2009;
- Early adoption prohibited

SFAS 142 does not apply to:
a. The formation of a joint venture
b. The acquisition of assets that do not constitute either a business or a nonprofit activity
c. A combination between entities under common control
d. An event in which a not-for-profit entity obtains control of another entity but does not consolidate
    that entity, as permitted or required by AICPA SOP No. 94-3.

SEGMENT 2:

Mark L. Zyla CPA/ABV, CFA, ASA, Managing Director,
Acuitas, Inc.

** Speaker Talking Points to be added soon.. **

SEGMENT 3:

Jerald A. Jacobs, Partner,
Pillsbury Winthrop Shaw Pittman LLP

Focusing on the legal aspects of nonprofit mergers and consolidations, as distinguished from the accounting aspects, several things stand out. First and foremost is process. Mergers and consolidations are creatures of state nonprofit corporation law. Observing the requirements of that law -- for deadlines, approvals, filings, and other processes -- is one key to success.

Conventional "acquisitions" rarely occur among nonprofit organizations because by definition none has "owners." Instead when a small group joins a large one, or a weak one joins a strong one, the former usually dissolves and transfers assets to the latter.

The main legal-related steps are: (1) a preliminary NDA; (2) legal and financial reciprocal due diligence reviews; (3) a comprehensive merger/consolidation agreement with key attachments; (4) reciprocal governing board approvals; (5) reciprocal membership approvals where organizations have voting members; and (6) closing. Three-to-six months for all steps is typical; but it's been done as fast as one month or as slow as several years.

Legal and financial due diligence reviews have some commonality but are usually quite different in scope and result.

Most failed attempts fail over seemingly trivial issues; so "deal breakers" and "near deal breakers" should be exposed early and accommodated if possible.

Failure to achieve approvals usually results from inadequate attempts; so "marketing" is a key factor.

SEGMENT 4:

Darren S. Cordier, CFA, President and CEO,
FV Specialists, Inc.

Fair Value Issues
      - Criteria/Definition
      - Assumptions
      - Hierarchy of support
      - Assets with uncertain cash flows
      - Assets subject to operating leases in which the acquire is the lessor
      - Assets That the Acquirer Intends Not to Use or to Use in a Way Other Than Their Highest
        and Best Use
      - Measuring the Fair Value of a Noncontrolling Interest in an Acquiree

Measuring Consideration for an acquisition
      - Fair value criteria
      - Contingent consideration
      - Acquisition related costs
      - Effective Settlement of a Preexisting Relationship between the Acquirer and the Acquiree
      - Transfer of Consideration in Which the Acquirer Retains Control
      - Measurement Period
      - Determining What Is Part of the Acquisition

Recognition of assets and liabilities
      - Reacquired rights
      - Non-identifiable assets
      - Identification criteria
      - Exceptions to identification

Sample intangible assets
      - Marketing related intangible assets
      - Customer and donor related intangible assets
      - Artistic related intangible assets
      - Contract-based intangible assets
      - Technology based intangible assets