CURRENTCURRENT DEVELOPMENTSDEVELOPMENTS ININ THETHE DIVISIONDIVISION OFOF CORPORATIONCORPORATION FINANCEFINANCE National Conference on Current SEC & PCAOB Developments December 6, 2005 DisclaimerDisclaimer TheThe SecuritiesSecurities andand ExchangeExchange Commission,Commission, asas aa mattermatter ofof policy,policy, disclaimsdisclaims responsibilityresponsibility forfor anyany privateprivate publicationpublication oror statementstatement byby anyany ofof itsits employees.employees. Therefore,Therefore, thethe viewsviews expressedexpressed todaytoday areare ourour own,own, andand dodo notnot necessarilynecessarily reflectreflect thethe viewsviews ofof thethe CommissionCommission oror thethe otherother membersmembers ofof thethe staffstaff ofof thethe Commission.Commission. 2 2 CorporationCorporation FinanceFinance OverviewOverview FinancialFinancial ReportingReporting andand DisclosureDisclosure IssuesIssues 3 3 CorporationCorporation FinanceFinance OVERVIEWOVERVIEW CraigCraig OlingerOlinger 4 4 OverviewOverview FYEFYE SeptemberSeptember 30,30, 20052005 OverOver 60006000 issuerissuer reviewsreviews (51%(51% ofof issuers)issuers) 26.126.1 daysdays averageaverage timetime forfor initialinitial commentscomments onon registrationregistration statementsstatements 5 5 OverviewOverview 6 6 OverviewOverview ADAD OfficesOffices -- 44 NewNew ACAsACAs Structured Finance, Transportation & Leisure: Lyn Shenk Financial Services Amit Pande Electronics & Machinery Kate Tillan Telecommunications Ivette Leon 7 7 OverviewOverview 1111 NewNew AccountingAccounting BranchBranch ChiefsChiefs Health Care & Insurance Kevin Woody Consumer Products Will Choi Natural Resources & Food Karl Hiller April Sifford 8 8 OverviewOverview NewNew AccountingAccounting BranchBranch ChiefsChiefs Manufacturing & Construction Nilima Shah Financial Services Joyce Sweeney Real Estate & Business Services Steven Jacobs Cicely Luckey 9 9 OverviewOverview NewNew AccountingAccounting BranchBranch ChiefsChiefs Emerging Growth Companies Terence O’Brien Electronics & Machinery Angela Crane Michele Gohlke 10 10 CorporationCorporation FinanceFinance FinancialFinancial ReportingReporting andand DisclosureDisclosure IssuesIssues 11 11 FinancialFinancial ReportingReporting andand DisclosureDisclosure AcceleratedAccelerated FilerFiler ProposalProposal StatementStatement ofof CashCash FlowsFlows JoelJoel LevineLevine 12 12 AcceleratedAccelerated FilerFiler ProposalProposal ProposedProposed AcceleratedAccelerated FilerFiler RuleRule AmendmentAmendment •• ComputationComputation ofof publicpublic float.float. •• NewNew categorycategory ofof acceleratedaccelerated filer.filer. •• ModificationModification ofof acceleratedaccelerated deadlines.deadlines. •• EaseEase abilityability toto exitexit acceleratedaccelerated filerfiler status.status. •• NewNew covercover pagepage disclosures.disclosures. 13 13 AcceleratedAccelerated FilerFiler ProposalProposal AcceleratedAccelerated FilerFiler –– TheThe issuer:issuer: • Has been subject to Section 13(a) or 15(d) of Exchange Act for at least 12 calendar months.. • Has filed at least one annual report under Section 13(a) or 15(d) of the Exchange Act.. • Is not eligible to use forms 10-KSB and 10-QSB.. • Had an aggregate worldwide market value of its voting and non-voting common equity held by non- affiliates of $75 million or more, but less than $700 million, as of the last business day of its most recently completed second fiscal quarter.. 14 14 AcceleratedAccelerated FilerFiler ProposalProposal FormForm 1010--KK FormForm 1010--QQ NonNon--acceleratedaccelerated filerfiler 9090 daysdays 4545 daysdays AcceleratedAccelerated filerfiler 7575 daysdays 4040 daysdays LargeLarge acceleratedaccelerated filerfiler 6060 daysdays 4040 daysdays 15 15 AcceleratedAccelerated FilerFiler ProposalProposal ImportantImportant RemindersReminders • Assess and reassess status only at year end. • Public float is always determined as of the end of the most recently completed second quarter. • A change in status will impact filing deadlines beginning with the Form 10-K for the year in which the assessment is made. 16 16 AcceleratedAccelerated FilerFiler ProposalProposal AA LargeLarge AcceleratedAccelerated FilerFiler oror anan AcceleratedAccelerated FilerFiler whosewhose publicpublic floatfloat dropsdrops belowbelow $25$25 millionmillion becomesbecomes aa nonnon--acceleratedaccelerated filerfiler,, beginningbeginning withwith thethe 1010--KK forfor thethe yearyear inin whichwhich thethe publicpublic floatfloat waswas determined.determined. AA LargeLarge AcceleratedAccelerated FilerFiler whosewhose publicpublic floatfloat dropsdrops belowbelow $75$75 million,million, butbut notnot belowbelow $25$25 million,million, becomesbecomes anan AcceleratedAccelerated FilerFiler,, beginningbeginning withwith thethe 1010--KK forfor thethe yearyear inin whichwhich thethe publicpublic floatfloat waswas determined.determined. 17 17 AcceleratedAccelerated FilerFiler ProposalProposal CoverCover pagepage toto FormsForms 1010--K,K, 1010--Q,Q, andand 2020--F:F: Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer. Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer ____ 18 18 AcceleratedAccelerated FilerFiler ProposalProposal ProposedProposed ConformingConforming AmendmentsAmendments • Regulation S-X Rules 3-01, 3-09, and 3-12.. • Transition reports filed for change in fiscal year- end under Rules 13a-10 and 15d-10.. ProposedProposed RuleRule AmendmentAmendment ReleaseRelease andand CommentComment LettersLetters • www.sec.gov.. • Regulatory Actions. 19 19 StatementStatement ofof CashCash FlowsFlows IncreasedIncreased focusfocus byby investors.investors. GreaterGreater scrutinyscrutiny inin staffstaff reviews.reviews. • DiscontinuedDiscontinued operations.operations. • DealerDealer floorfloor planplan financing.financing. • InsuranceInsurance claimclaim settlementsettlement proceeds.proceeds. 20 20 StatementStatement ofof CashCash FlowsFlows DiscontinuedDiscontinued OperationsOperations Footnote 10, FASB Statement 95 Separate disclosure of cash flows pertaining to discontinued operations reflected in the operating, investing, and financing categories is not required. An enterprise that nevertheless chooses to report separately operating cash flows of discontinued operations shall do so consistently for all periods affected. 21 21 StatementStatement ofof CashCash FlowsFlows KeyKey considerationconsideration isis whetherwhether thethe presentationpresentation conformsconforms withwith thethe basicbasic disclosuredisclosure requirementrequirement inin FASFAS 95:95: AllAll cashcash flowsflows mustmust bebe reportedreported asas eithereither anan operating,operating, investing,investing, oror financingfinancing activity.activity. 22 22 StatementStatement ofof CashCash FlowsFlows Examples:Examples: CombineCombine cashcash flowsflows fromfrom discontinueddiscontinued operationsoperations withwith cashcash flowsflows fromfrom continuingcontinuing operationsoperations withinwithin eacheach category.category. IdentifyIdentify cashcash flowsflows fromfrom discontinueddiscontinued operationsoperations withinwithin eacheach category.category. IdentifyIdentify cashcash flowsflows fromfrom discontinueddiscontinued operationsoperations forfor eacheach categorycategory andand presentpresent themthem separately.separately. 23 23 StatementStatement ofof CashCash FlowsFlows FASFAS 9595 doesdoes notnot support:support: AggregatingAggregating operating,operating, investing,investing, andand financingfinancing cashcash flowsflows fromfrom discontinueddiscontinued operationsoperations intointo aa singlesingle lineline item.item. PresentingPresenting operating,operating, investing,investing, andand financingfinancing cashcash flowsflows fromfrom discontinueddiscontinued operationsoperations allall withinwithin thethe operatingoperating cashcash flowsflows category.category. 24 24 StatementStatement ofof CashCash FlowsFlows IfIf usingusing thethe indirectindirect methodmethod underunder FASFAS 9595 –– reconcilereconcile fromfrom netnet income.income. Paragraph 28 Entities that choose not to disclose operating cash receipts and payments by the direct method should adjust net income to reconcile it to net cash flow from operating activities (the indirect or reconciliation method). 25 25 StatementStatement ofof CashCash FlowsFlows MD&AMD&A –– LiquidityLiquidity andand CapitalCapital Resources:Resources: DescribeDescribe howhow cashcash flowsflows fromfrom Disc.Disc. Ops.Ops. areare reportedreported inin thethe cashcash flowsflows statement.statement. QuantifyQuantify cashcash flowsflows fromfrom Disc.Disc. Ops.Ops. ifif notnot discloseddisclosed separatelyseparately inin thethe cashcash flowsflows stmt.stmt. DescribeDescribe howhow thethe absenceabsence ofof cashcash flowsflows fromfrom Disc.Disc. Ops.Ops. areare expectedexpected toto affectaffect futurefuture liquidityliquidity andand capitalcapital resources.resources. ForFor example,example, effecteffect onon financingfinancing levels,levels, terms,terms, covenants,covenants, etc.etc. 26 26 StatementStatement ofof CashCash FlowsFlows DealerDealer purchasespurchases inventoryinventory throughthrough floorfloor planplan financingfinancing arrangementarrangement withwith subsidiarysubsidiary ofof suppliersupplier (seller(seller financing):financing): FinanceFinance subsidiarysubsidiary payspays suppliersupplier (its(its parent).parent). FinanceFinance subsidiarysubsidiary