TheCorporateCounsel.net Blog |
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Thursday, July 29, 2004
Whatever Happened to that California Shareholder Access Bill? I had blogged way back when about a California bill introduced by Judy Chu that went beyond what the controversial SEC proposal. After significant pushback from all quarters - including CalPERS - legislator Chu introduced a resolution in support of the SEC rules, which won overwhelming support in both branches of the Legislature. At that time, Chu also agreed to amend her bill to require that companies provide a process in which shareholders could merely "recommend" candidates for election as directors and that they file the process with the secretary of state. In June, the bill went through yet another round of tweaking in the California Senate Judiciary Committee, which eliminated the "recommend" clause and turned it into simply a disclosure bill. This disclosure bill would require publicly traded companies to file a copy of their corporate election procedures - or those portions of the company's articles of incorporation and bylaws that related to nominating and electing directors - with the secretary of state. The bill will be heard by the Senate Appropriations Committee on August 2nd. Now only the state Department of Corporations remains opposed to the bill because it believes the issue should be addressed by the SEC. Crying in My Spilt Milk As I head off for a vacation next week, I need to get my "moving da office" woes off my chest...no Internet access for two weeks...cross-talk from a radio station on my phone...losing my wallet in a cab...I need a vacation. Julie Hoffman will be blogging next week for your entertainment. Wednesday, July 28, 2004
Developments on Contingent Convertible Bond Accounting Treatment The FASB has released a draft abstract of a Tentative Conclusion of the Emerging Issues Task Force (EITF) that contingently convertible bonds should be included in calculating diluted earnings per share regardless of whether the contingent feature has been met. As an example of contingently convertible debt, the debt might provide that it is not convertible into common shares until the stock price has exceeded some percentage threshold for some specified time period (e.g., 20% above the conversion price for a 30-day period). Presently, most issuers exclude the potential dilutive effect until the market price contingency is met. The FASB staff has reported that more than $100 billion in contingently convertible debt has been issued, with more than $90 billion currently outstanding. In addition to contingently convertible debt, the Task Force is inviting comments on whether other instruments with similar contingencies should be included. Comments are due on September 3, 2004. If the Task Force reaches a decision, this guidance will require FASB Board ratification before it becomes effective. The proposed effective date would be reporting periods ending after December 15, 2004, and prior period EPS amounts presented for comparative purposes would have to be restated. Thanks to roving reporter Mike Holliday for this heads-up! Calling All Accountants! According to a GAO report issued yesterday, the SEC faces ongoing challenges filling many of its newly created positions, particularly accountants, due to competition from the private sector. In 2004, Corp Fin received funding for 175 new accountants and attorneys, but Corp Fin had filled only about 30% of its vacancies through the first half of the year. The report also noted that in 2003, Corp Fin reviewed only 23% of all reporting issuers, falling short of its goal of 33% (mandated by SOX Section 408). Ultimately, the report made no recommendations. Tuesday, July 27, 2004
Hear From the Experts on Impact of Option Expensing on ESPPs! Don't forget tomorrow’s NASPP webcast – “Employee Stock Purchase Plans and Expensing: What Now?” - during which Renee Deming of Heller, Ehrman, White & McAuliffe; Paula Todd of Towers Perrin and Ellie Kehmeier of Deloitte & Touche will discuss the potential impact of the FASB’s option expensing proposal on ESPPs and what alternatives you should consider now. New course materials were posted today - a powerpoint in a PDF file that you should print off before the program. An audio archive and transcript will be posted following the live webcast. The non-member fee for this special webcast is $495. If you wish to access this valuable program without paying this fee, you may simply take advantage of a no-risk trial. Increase in O&D Bars In addition to disclosing a range of $108 to $135 for its IPO, Google disclosed yesterday (in its Amendment No. 4 to the S-1) that the SEC staff intends to seek a civil injunction against David Drummond, Google’s VP of Corporate Development, Secretary and General Counsel, alleging violations of federal securities laws. The Staff’s action arises out of Drummond’s prior employment as CFO of SmartForce, and involves certain disclosure and accounting issues relating to SmartForce’s financial statements. SmartForce’s successor had discovered “several accounting issues” in SmartForce’s past financial statements and, earlier this year, agreed to pay more than $30 million to settle class-action lawsuits related to the accounting problems. The SEC also instituted O&D proceedings yesterday in D.C. federal court against Capital One Financial Corp.’s former CFO, David Willey. The SEC suit alleges that Willey made $3 million in profits on the material, nonpublic information that the Federal Reserve Board was considering downgrading the company in 2002. As Enforcement Director Stephen Cutler noted in his speech to the D.C. Bar in February, the SEC is making more frequent use of its Officer and Director bar powers. In fiscal year 2003, the SEC sought 170 O&D bars, compared to only 38 in fiscal year 2000. SEC Continues to Clean House On June 9, we blogged that the SEC instituted two separate public administrative proceedings against 31 companies to determine whether to revoke the registration of their securities under the '34 Act. The Staff continues to clean house, as evidenced by the recent proceedings with EVTC, Inc. (7/26), Spiegel Inc. (7/23), Ocumed Group, Inc. (7/7), Pinnacle Business Management (7/6) and IDT Venture Group, Inc. (6/25), to name a few. None of these cases appears to be newsworthy in and of itself; although the consistency with which these types of cases are brought is interesting. This is especially true given Corp Fin's review burden under Section 408 of Sarbanes-Oxley (i.e. each '34 Act filer must be reviewed once every 3 years). -Submitted by Julie Hoffman Monday, July 26, 2004
Spotlight on Environmental Disclosure On July 14, the GAO issued a report on environmental disclosure in SEC filings. The report addresses (1) market participants’ views on how well the SEC has defined the requirements for environmental disclosure, (2) the extent to which companies are disclosing such information in their SEC filings, (3) the adequacy of the SEC’s efforts to monitor and enforce compliance with disclosure requirements, and (4) suggestions for increasing and improving environmental disclosure. As you might expect, the GAO found that market participants vigorously disagree about whether the SEC’s existing disclosure requirements are adequate. Also, the GAO was unable to determine the extent to which companies are disclosing environmental information without access to companies’ records because no disclosure on environmental issues could mean that a company does not have existing or potential environmental liabilities, has determined that such liabilities are not material, or is not adequately complying with disclosure requirements. Consequently, the GAO couldn’t determine the adequacy of the SEC's efforts to monitor and enforce compliance with environmental disclosure requirements without more information. Ultimately, the GAO recommended that the SEC “take steps to improve the tracking and transparency of information related to its reviews of companies’ filings” by increasing the amount of information available within the SEC and to the public on the results of the SEC’s filing reviews (e.g., public availability of comment letters) and by improving the level of coordination between the SEC and EPA. Introducing XBRL The SEC announced last week that it is pursuing a rulemaking project to permit public companies to file financial reports using XBRL technology, which tags data for easier online searches. Unlike HTML (hypertext mark-up language), XBRL (extensible business reporting language) allows for ready comparisons and analysis of financial results. The relatively new XBRL software reportedly makes it easier for companies to prepare quarterly and annual financial reports because it creates a single document that is able to be converted to different formats, reducing duplication, inefficiencies and errors. Last summer, the FDIC, Federal Reserve and the OCC launched a project to create a shared data repository of Call Reports (a quarterly financial statement filing made by banks) that would be submitted via the Internet in XBRL. It is expected that banks will file their 3rd quarter 2004 Call Reports via the new system. This year, TSX Group, Inc. (listed on the Toronto Stock Exchange) became the first public company to publish annual financial results in XBRL. To learn how to view those financial statements, click here. To learn more about XBRL, click here. -Submitted by Julie Hoffman |
