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A reporting entity that enters into a share-lending arrangement on its own shares in contemplation of a convertible debt offering or other financing should disclose a description of any outstanding share-lending arrangements on its own stock. As discussed in ASC 470-20-50-2A, information to be disclosed includes:
  • Number of shares, term, circumstances under which cash settlement would be required, and other significant terms
  • Requirements for the counterparty to provide collateral
  • Reason for entering into the arrangement
  • Fair value of the outstanding loaned shares as of the balance sheet date
  • Treatment for the purposes of calculating earnings per share
  • Unamortized amount and classification of the issuance costs
  • Classification of issuance costs associated with the share-lending arrangement at the balance sheet date
  • Amount of interest cost recognized relating to the amortization of the issuance cost associated with the share-lending arrangement for the reporting period
  • Any amounts of dividends paid related to the loaned shares that will not be reimbursed
As discussed in ASC 470-20-50-2B, a reporting entity that enters into a share-lending arrangement on its own shares in contemplation of a convertible debt offering or other financing is also required to comply with the disclosure requirements of ASC 505, Equity. See FSP 5 for discussion of these requirements.
As discussed in ASC 470-20-50-2C, in the period in which a counterparty defaults, or a reporting entity concludes it is probable that the counterparty to its share-lending arrangement will default, the reporting entity should disclose:
  • The amount of expense reported in the income statement in that period related to the default or any subsequent period
  • Any material changes in the amount of expense recorded due to changes in fair value of the reporting entity's shares or probable recoveries
  • If the default is probable but has not yet occurred, the number of shares related to the share-lending arrangement that will be reflected in basic and diluted earnings per share when the counterparty defaults
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