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January 12, 2010

Corp Fin Posts 32 “Non-GAAP Financial Measures” CDIs

Yesterday, Corp Fin posted this new batch of 32 Compliance & Disclosure Interpretations that deal with Non-GAAP Financial Measures, including interps that deal with business combinations; Item 10(e) of Regulation S-K; EBIT and EBITDA; segments; Item 2.02 of Form 8-K; FPIs and voluntary filers.

These CDIs replace a set of old FAQs that the Staff issued in 2003. Here’s a redline to note the differences between the two, courtesy of Davis Polk.

Status of Regulatory Reform: What Does Dodd’s Retirement Mean?

RiskMetrics’ Ted Allen recently weighed in with enlightening analysis of where we stand on regulatory reform and the possible impact of Senator Dodd’s retirement announcement (here is the Washington Post’s take on the same topic):

Capitol Hill and governance observers have varying views on what U.S. Senator Christopher Dodd’s planned retirement may mean for his sweeping financial reform and corporate governance legislation. Most observers believe that Dodd’s decision to step down will make him more determined to pass a reform bill this year to cement his legislative legacy. His spokeswoman said this week that Dodd is “committed to continue working in a bipartisan fashion to pass strong financial reform this year.”

The U.S. Chamber of Commerce, the Financial Services Roundtable, and other business advocates express hope that Dodd will be more likely to compromise with Senate Republicans because he no longer has to appease left-leaning and populist voters in Connecticut. At the same time, consumer advocates point out that Dodd won’t have to raise campaign funds and thus should have more freedom to stand up to Wall Street interests. Other observers say that Dodd’s retirement won’t make a significant difference, because it still will be difficult for Dodd and his fellow Democrats to attract Republican support for the legislation.

Dodd, who chairs the Senate Banking Committee, announced Jan. 6 that he would not seek another six-year term in office. Dodd, 65, would have a faced a difficult re-election fight this year; he was trailing in opinion polls behind his potential Republican challengers.

In early November, Dodd unveiled a draft 1,136-page bill to overhaul the financial regulatory system. The bill included various governance provisions, such as an annual “say on pay” requirement, authorization for the SEC to adopt a proxy access rule, and provisions to mandate majority voting in director elections and to require companies to obtain shareholder consent for classified boards.

However, Senator Richard Shelby, the ranking Republican on the banking panel, and his GOP colleagues criticized the far-reaching bill, while some Democrats expressed concerns. In early December, Dodd assigned Democratic and Republican committee members to work in pairs to try to reach consensus on different provisions. Senator Charles Schumer of New York, who introduced the “Shareholder Bill of Rights Act” last year, was assigned to work with Senator Michael Crapo, a business-friendly Republican from Idaho, on executive compensation and governance provisions. Other senators were delegated to work on systemic risk principles, regulation of derivatives, and oversight of the Federal Reserve.

On December 23, Schumer and Shelby said in a joint statement that they were making “meaningful progress” on the bill. While staff members for Schumer and Crapo have met, it doesn’t appear that they have reached common ground. According to committee observers, Schumer wants to keep the governance provisions in the bill, while Crapo isn’t convinced they are necessary and wants to hold hearings. Some Democratic staffers resist the idea of holding hearings, because they fear that Republicans are trying to delay the process and have no intention of supporting a revised bill.

A committee mark-up hearing has been scheduled for Jan. 26, but some staff members are skeptical that the lawmakers will complete their work by then, according to the Financial Times. Before a mark-up is held, committee members will be given a chance to offer amendments. “I think that we still have a chance [to pass a bill with governance provisions],” Jeff Mahoney, general counsel of the Council of Institutional Investors, told R&GW. “I don’t think [Dodd's] not seeking re-election changes much.”

Mahoney said he hopes that Schumer will keep pushing to keep the governance provisions in the bill. He also expressed optimism that Shelby and other Republicans, who generally favor market-based mechanisms over additional government regulation, will be receptive to reforms that empower shareholders. Mahoney said the council will continue lobbying for its three governance priorities–”say on pay,” authorization for a proxy access rule, and a mandate for majority voting in board elections.

Based on conversations with staffers on both sides, Mahoney said he believes that most committee members and staff members still are trying to reach consensus where possible. “No one wants to run this through on a partisan basis,” Mahoney said, recalling the recent rancor over health care reform legislation.

On December 11, the House of Representatives approved a narrower financial reform bill, which includes proxy access and “say on pay” but not other governance provisions. No Republicans voted for the final bill. Dodd has a greater need than the House Democrats to enlist Republican support because Senate rules require 60 votes to cut off debate on most bills. While the Democrats now hold 60 seats in the Senate, Dodd knows from the health care debate that he can’t count on every Democrat to support legislation that has no Republican support.

Dodd also has a limited amount of time to pass a bill before his term expires next January. During election years, lawmakers seldom pass any substantive legislation after their August recess. Senator Tim Johnson, Dodd’s likely successor as Banking Committee chairman, is unlikely to support significant new restrictions on banks. Johnson represents South Dakota, where Citigroup and other banks have significant operations.

Ask the Experts: Schedule 13D and Schedule 13G Issues

We have posted the transcript from our recent DealLawyers.com webcast: “Ask the Experts: Schedule 13D and Schedule 13G Issues.”

- Broc Romanek