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Ownership Plans SEC Accounting Series Release No. 268, Presentation in Financial Statements

By Certain Hedging Activities


Under federal income tax regulations, employer securities (such as convertible preferred stock) that are held by participants in an employee stock ownership plan (ESOP) and that are not readily tradeable on an established market must include a put option. The put option is a right to demand that the sponsor redeem shares of employer stock held by the participant for which there is no market for an established cash price. The employer may have the option to issue marketable securities for all or a portion of that option rather than to pay cash. The provisions of the ESOP may permit the ESOP to substitute for the sponsor as buyer of the employer stock; however, in no case can the sponsor require the ESOP to assume the obligation for the put option. Copyright © 1989, Financial Accounting Standards Board Not for redistribution Page 1The issue is, in a leveraged ESOP, if securities subject to a put option are classified outside of permanent equity, whether any of the debit in the equity section of the sponsor's balance sheet (sometimes described as loan to ESOP or deferred compensation) should be similarly classified. EITF DISCUSSIO

Year: 1989
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