April 17, 2007, Meeting Highlights

 John Wolfson, Chair

 Chris Holmes, Vice Chair

 Doug Bennett

 Jack Ciesielski

 Michael Cinalli

 Brad Davidson

 Melanie Dolan

 David Follett

 Karin French

 Steve Henning

 Bob Laux

 Jeff Lenz

 Steve Meisel

 Scott Pohlman

 Amy Ripepi

 Kurtis Wolff

 B. Securities and Exchange Commission

 Office of the Chief Accountant

 Conrad Hewitt, Chief Accountant

 John Albert, Senior Associate Chief Accountant

 Mark Barrysmith, Professional Accounting Fellow

 Robert Burns, Chief Counsel

 Cathy Cole, Associate Chief Accountant

 Amy Hargrett, Associate Chief Accountant

 Julie Erhardt, Deputy Chief Accountant

 Josh Forgione, Assistant Chief Accountant

 Jeff Kessman, Assistant Chief Accountant

 Sandie Kim, Professional Accounting Fellow

 Katrina Kimpel, Professional Accounting Fellow

 Jim Kroeker, Deputy Chief Accountant

 Timothy Kviz, Professional Accounting Fellow

 Mark Mahar, Assistant Chief Accountant

 Joseph McGrath, Professional Accounting Fellow

 Jennifer Minke-Girard, Senior Associate Chief Accountant

 Thomas Noland, Academic Fellow

 Zoe-Vonna Palmrose, Deputy Chief Accountant

 David Plumlee, Academic Fellow

 Marlene Plumlee, Academic Fellow

 Nili Shah, Assistant Chief Accountant

 Charlotte Thomas, Research Specialist

 Cheryl Tjon-Hing, Valuation Specialist

 Oscar M. Young, Jr. Associate Chief Accountant

 Joseph Ucuzoglu, Professional Accounting Fellow

 Division of Corporation Finance

 Carol Stacey, Chief Accountant

 Craig Olinger, Deputy Chief Accountant

 Louise Dorsey, Associate Chief Accountant

 Parveen P. Gupta, Academic Fellow

 Stephanie Hunsaker, Associate Chief Accountant

 Todd Hardiman, Associate Chief Accountant

 Joel Levine, Associate Chief Accountant

 Leslie Overton, Associate Chief Accountant

 Michael Stehlik, Business Associate

 Sandra Stokes, Associate Chief Accountant

 Division of Enforcement

 Susan Markel, Chief Accountant

 Division of Investment Management

 Rick Sennett, Chief Accountant

 Toai Cheng, Assistant Chief Accountant

 C. Center for Audit Quality

 Cynthia Fornelli

 Lillian Ceynowa

 Annette Schumacher Barr

 D. Guests

 Karen Van Compernolle, D&T

 Nedra Downing, D&T

Conrad Hewitt provided the following update of the activities in the Office of the Chief Accountant:

• Staffing Update

  • Mark Barrysmith, Ashley Carpenter and Katrina Kimpel have joined OCA as Professional Accounting Fellows and will serve two-year terms. Robert Malhotra, Muneera Carr, Liza McAndrew Moberg and Jeffrey Ellis will also join the staff this summer as Professional Accounting Fellows. Tom Nolan, Marlene Plumlee and David Plumlee are serving as Academic Fellows.
  • Jim Kroeker has joined the staff as the new Deputy Chief Accountant for Accounting.
  • Four new Assistant Chief Accountants have joined the staff: Nilima Shah, Oscar Young, Josh Forgione and Jon Duersch.
• Update of OCA Projects

  • Internal Control Guidance. The SEC received many comment letters on its proposed interpretive guidance on management’s report on internal control over financial reporting. The staff is working hard to finalize an interpretive release, which the SEC might issue in May or early June. The staff is also working with the PCAOB staff to finalize the replacement of AS 5 in the same timeframe.
  • XBRL. The staff is overseeing a project to develop XBRL taxonomies, including those relating to financial statement note disclosures.
  • IFRS and International Convergence. The staff continues to implement the steps outlined in its IFRS Roadmap. [Note: Subsequent to the meeting, the SEC issued a press release announcing the Commission’s next steps relating to International Financial Reporting Standards.]
  • Complexity. The SEC plans to co-sponsor, along with the FASB and PCAOB, an advisory committee, similar to the SEC’s Advisory Committee on Smaller Pubic Companies, to develop recommendations to reduce complexity in accounting and financial reporting. The advisory committee is in the early formation stage.
  • Materiality. OCA staff members are working with the Division of Corporation Finance to develop guidance on (a) interim period materiality assessments, and (b) qualitative assessments applicable to quantitatively large errors. The SEC staff understands that a private sector task force has been formed to help address those practice issues, and the SEC staff is looking forward to their input.
  • Independence. The staff continues to address practice issues relating to independence issues. The staff continues to study potential improvements to the current structure and regime for auditor independence.
  • SFAS No. 159. The staff continues to monitor implementation issues relating to this Standard. [Note: Subsequent to the meeting, the Center for Audit Quality issued an E-Alert entitled FAS 159 Early Adoption Date Approaching – Factors to Consider which provides additional clarification on the adoption of FAS 159.]

Carol Stacey provided the following Division of Corporation Finance update:

• Steven Jacobs has been named an Associate Chief Accountant in the Division.
• Due to attrition, the Division currently has open positions for accountants, which it hopes to fill in the coming months.
• For the time being, the Division’s Professional Accounting Fellow program remains inactive.

Susan Markel provided the following update of activities in the Division of Enforcement:

• Staffing Update
  The Enforcement Division will be posting a position for an additional staff member this summer following an internal promotion.
• Recent Enforcement Cases and Investigations
  Stock Option Investigations. There are currently over 100 active investigations on stock option related matters. Enforcement staff members work actively with OCA staff in assessing the nature of the restatement (e.g., intentional backdating, administrative errors).
  Other issues. The staff is working on a variety of other issues. In addition to stock options, a number of current investigations involve revenue recognition and earnings management issues.

Rick Sennett was announced as the new Chief Accountant in the Division of Investment Management. Mr. Sennett stated that IM has 2 open positions in its Professional Accounting Fellow program. They are looking for candidates from public accounting or the mutual fund industry.

 In September 2005, the Committee provided the SEC staff with a copy of the draft compilation that incorporates joint meeting discussion documents from the 1994 to 2005 highlights. The draft compilation, which is organized by rule/regulation, contains numerous superseded discussion documents. This summer the Committee plans to reorganize the compilation to include only the issues, background and conclusion sections, together with links to the original meeting highlights. Superseded items would be maintained in a separate archived section. The SEC staff agreed with this approach.

 The staff found a number of public companies, predominantly smaller companies, which had used the SAB 108 transition to correct immaterial prior year errors, without disclosing the nature of each error corrected. Also, the SEC staff found a number of public companies, predominantly larger companies, which had used the SAB 108 transition to correct stock option accounting issues, where it is unclear that the errors were immaterial to prior years based on qualitative considerations. The staff expects to issue comment letters to those companies. Otherwise, the staff noted no new trends thus far in reviews of 2006 annual reports.

 The staff is wrapping up its review of 2005 Form 20-Fs by IFRS filers, and noted that it has issued numerous comments on presentation and disclosure. The most frequent comment areas have been the clarity of the assertion of compliance with IFRS, income statement presentation, cash flow presentation, consolidation/equity method, revenue recognition, and impairments. Where an issuer’s accounting policies are unclear, the staff has requested support for the accounting applied as well as better disclosure.

 The SEC staff is making steady progress on finalizing an update of its Staff Training Manual and has completed drafting most sections. An expected completion date has not been set. The new format will facilitate periodic updating of new materials.

 The staff has previously indicated that it might issue alerts or letters containing general guidance and identifying additional factors registrants should consider in evaluating filings. At the meeting, both OCA and Division of Corporation Finance staff stated that no alerts are planned at this time.

 The Division of Corporation Finance published an update of its Current Accounting and Disclosures Issues in November 2006 and plans to issue another update in May. The staff noted that the current update contains an error involving segment reporting (i.e., the proper aggregation of a segment that is not considered a reportable segment). This error will be corrected in the May update.

1. Rule 3-10, 3-16 Task Force Discussion Documents. Two Committee discussion documents addressing the application of Rule 3-10 and Rule 3-16 of Regulation S-X were discussed at the meeting, and subsequently approved by the staff and posted to the Center for Audit Quality website. A third document (addressing the application of Rules 3-10 and 3-16 of Regulation S-X to automatic shelf registration statements) was sent to the staff and is currently being considered.

2. Financial Statements of Credit Enhancers and Related Accountants’ Consents in Filings by Asset-Backed Issuers. A discussion document addressing the application of Regulation AB was sent to the SEC staff on July 31, 2006. The SEC staff approved the Committee’s recommendations on the first of the two questions posed in the document (see Appendix B to the September 26, 2006 Joint Meeting Highlights). The staff indicated that they are currently reviewing the document’s second issue (addressing whether a credit enhancer’s quarterly financial statements are required to be filed on Form 10-D) and suggested that registrants with live fact patterns in this area should discuss the issue with the staff.

 The staff is currently considering comment letters received on the Commission’s Interim Final Rule on Executive Compensation Disclosure. The staff indicated it would likely update its Q&A to address the implementation issue raised by the Committee so that new public companies that adopted Statement No. 123(R) on the modified prospective method would not have to make any new computations in order to comply with the executive compensation disclosure requirements.

 A list of final rules and notices of proposed rulemakings that were issued since the September 26, 2006 Joint Meeting with the SEC Staff is included at Appendix A.

Termination Of A Foreign Private Issuer's Registration of a Class of Securities Under Section 12(g) and Duty to File Reports Under Section 13(a) Or 15(d) of the Securities Exchange Act of 1934

Technical Amendment to Regulation S-T

Regulation NMS Compliance Date Extension

Internet Availability of Proxy Materials

Correcting Amendment: Amendment to Rule Filing Requirements for Self-Regulatory Organizations Regarding New Derivative Securities Products

Executive Compensation Disclosure (Interim Final Rules)

Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies

Delegation of Authority to Chief Administrative Law Judge

Electronic Filing of Transfer Agent Forms

Amendments to the Tender Offer Best-Price Rules

Definition of Eligible Portfolio Company under the Investment Company Act of 1940

Mutual Fund Redemption Fees

Amendments to Regulation SHO

Interagency Proposal for Model Privacy Form under the Gramm-Leach-Bliley Act

Amendments to Financial Responsibility Rules for Broker-Dealers

Proposed Rule Changes of Self-Regulatory Organizations

Extension of Interactive Data Voluntary Reporting Program on the Edgar System to Include Mutual Fund Risk/Return Summary Information

Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations

Universal Internet Availability of Proxy Materials

Investment Company Governance [Correction]

Prohibition of Fraud by Advisers to Certain Pooled Investment Vehicles; Accredited Investors in Certain Private Investment Vehicles

Termination of a Foreign Private Issuer's Registration of a Class of Securities Under Section 12(g) and Duty to File Reports Under Section 13(a) or 15(d) of the Securities Exchange Act of 1934

Management's Report on Internal Control Over Financial Reporting (Corrected to Conform to the Federal Register Version)

Exemptions for Banks Under Section 3(a)(5) of the Securities Exchange Act of 1934 and Related Rules

Definitions of Terms and Exemptions Relating to the "Broker" Exceptions for Banks

Investment Company Governance

Amendments to Regulation SHO and Rule 10a-1

Short Selling in Connection With A Public Offering

Proposed Amendments to Municipal Securities Disclosure

Covered Securities Pursuant to Section 18 of the Securities Act of 1933

Definition of Eligible Portfolio Company under the Investment Company Act of 1940

Amendments to Rule 15c3-1 and Rule 17a-11 Applicable to Broker-Dealers also Registered as Futures Commission Merchants

 Background: Companies with publicly-traded equity securities must adopt the recognition provisions of FAS 158 beginning with fiscal years ending after December 15, 2006. Companies that do not have publicly-traded equity securities must adopt the recognition provisions of FAS 158 no later than fiscal years ending after June 15, 2007. FAS 158, paragraph 16 states:

 Consider the following example:

 Question 1: When preparing the IPO Form S-1, is Company X required to reflect the adoption of the recognition provisions of FAS 158 as of December 31, 2006 (i.e., as if it had always been a public company)?

 View A: When preparing the IPO Form S-1, Company X must revise its December 31, 2006 financial statements to reflect the adoption of the recognition provisions of FAS 158 to the same extent as if Company X had always had publicly-traded equity securities. Additionally, Company X must also apply the recognition provisions of FAS 158 in the March 31, 2007 interim financial statements.

 View B: Company X must reflect the adoption of the recognition provisions of FAS 158 in Q2 of 2007. This would give weight to the fact that the company was still private during the periods covered by the financial statement and would take into account the "no-retrospective application" concept included in FAS 158.

 View C: Company X must reflect the adoption of the recognition provisions of FAS 158 in Q1 of 2007. This would reflect the "no-retrospective application" concept included in FAS 158.

 View D: Company X should not reflect the adoption of the recognition provisions of FAS 158 until its 2007 Form 10-K.

 Committee Recommendation: The Committee supports View A. The Committee discussed a similar issue with the Staff at the April 2004 meeting (relating to adoption of FAS 150). Similar to FAS 150 (and certain other accounting standards), FAS 158 has accounting treatment alternatives for public and non-public entities. An entity is generally no longer eligible for the non-public company treatment alternatives when it is in the process of becoming a public entity. Such entities must comply with public company treatment alternatives in the standard as of the date that all public companies were required to adopt the standard, even if that requires a company that is in the process of filing an IPO to restate prior period financial statements. This approach is consistent with the staff’s past practice for adoption of new standards with different transition provisions for public and non-public entities.

 SEC Staff Response: The Staff supports View A.

 Question 2: Would the answer to Question 1 be different if Company X was a debt-only issuer prior to commencing its common equity IPO and had been filing Exchange Act reports with the Commission (because of the outstanding registered debt) since 2003?

 View A: Yes. Company X was not required to follow the recognition and measurement provisions of FAS 158 in connection with its 2006 Form 10-K (because Company X did not meet FAS 158's definition of a company with publicly traded equity). If Company X did not early adopt the recognition provisions of FAS 158 in connection with its 2006 10-K, then it would not be required to restate those financial statements in connection with the Form S-1. Since the recognition provisions of FAS 158 can only be adopted as of a company's fiscal year-end, Company X will not be required to adopt FAS 158 until its fiscal year ended December 31, 2007.

 View B: No. The answer is the same as the answer to Question 1. Although Company X would not be required to file amendments to its 2006 Form 10-K and March 31, 2007 Form 10-Q, it would be required to retrospectively apply the recognition provisions of FAS 158 in the December 31, 2006 and March 31, 2007 financial statements included in the Form S-1 on the same basis as if they had always had publicly-traded equity.

 Committee Recommendation: The Committee supports View A. Consistent with a follow-up question addressed with respect to the adoption of FAS 150 (see Discussion Document G from the April 2004 meeting), the Committee believes that the prior public reporting history of Company X should be respected. Company X should not be required to restate its previously filed financial statements to retrospectively apply the recognition provisions of FAS 158. The Committee notes that FAS 158 prohibits retrospective application. Company X could elect to restate its previously filed financial statements (but not for periods that precede the initial effective date of FAS 158). The Committee also notes that Company X's prior Exchange Act reports would include the disclosures required by SAB 74 and paragraph 14 of FAS 158, as appropriate. Those disclosures should also appear in the financial statements included in the Form S-1.

 SEC Staff Response: The staff would not object to View A. Consistent with the Committee recommendation, the staff indicated that it would not object if such an issuer elects to restate its financial statements for the first fiscal year ending after December 15, 2006 (and any subsequent interim periods provided in the registration statement) to reflect the adoption of FAS 158, with clear disclosure of such restatement(s).

 Background: SAB Topic 1.B.3. (as interpreted by Topic 3.IV.B.2 of the SEC Staff Training Manual) requires presentation of pro forma EPS for the latest fiscal year and interim period when an issuer pays a dividend to its owners/promoters in connection with an equity offering if the dividend exceeds the company's earnings for the most recent 12 months. This pro forma disclosure is required to be included in the historical financial statements. Topic 1.B.3 and the relevant portion of the Staff Training Manual (at 3-15) are as follows:

 Consider the following example:

 Question: What should Subsidiary A use as the denominator in the pro forma EPS calculation presented in its historical financial statements?

 View A: 900,000 calculated as follows:

 The amount of the dividend that Subsidiary A will pay to Company X at the closing date of the IPO ($15 million) exceeds Subsidiary A's net income for the previous 12 months ($1 million). Accordingly, a portion of the dividend is deemed paid from the proceeds of the IPO. Since the amount of the dividend in excess of Subsidiary A's net income for the previous 12 months ($14 million) exceeds the gross proceeds of the IPO ($5 million), Subsidiary A should include all 800,000 of the shares offered in the IPO in the denominator of the pro forma EPS calculation included in the historical financial statements. In order to present a transparent picture for the investor, the numerator of the pro forma EPS computation should also be adjusted to reflect the incremental interest expense (net of tax) relating to the portion of the dividend that exceeds both the gross proceeds from the equity offering and the previous 12 months' earnings ($9 million in this example).

 View B: 2,340,000 calculated as follows:

 The amount of the dividend that Subsidiary A will pay to Company X at the closing date of the IPO ($15 million) exceeds Subsidiary A's net income for the previous 12 months ($1 million). Accordingly, Subsidiary A must present a pro forma EPS calculation in its historical financial statements showing how many shares would be issued at the IPO price to fund the excess dividend.

 Committee Recommendation: The Committee supports View A. The Committee does not believe the pro forma EPS calculation should reflect more shares than will actually be outstanding after the offering. The Committee is aware of at least one example where the staff has concluded that View B is the appropriate interpretation.

 SEC Staff Response: The staff supports View A.

 Background: In a speech at the December 2006 AICPA National Conference on Current SEC and PCAOB Developments, a staff member addressed accounting and reporting issues for an IPO that occurs in connection with a merger of entities under common control. The speech addressed the form and content of the financial statements required in the registration statement when a merger of such entities occurs (a) by the time of effectiveness of the IPO and (b) after effectiveness. The speech noted that it is appropriate to reflect the merger in the historical financial statements only if such a merger occurs by the time of effectiveness. If such a merger occurs after effectiveness (e.g., the merger occurs at the time of and as a condition to the closing of the IPO), the speech states that the separate historical financial statements of the entities to be combined should be presented, and the merger should be reflected only in pro forma financial statements.

 The Committee’s understanding is that in the past, when a merger of entities under common control was to occur at the time of closing of the IPO, in lieu of separate historical financial statements of the entities to be combined and pro forma financial statements, the staff has permitted registrants to present combined financial statements of the entities under common control. The Committee is aware of IPO registration statements where this was done.

 We presume that this practice has been accepted in the past because, consistent with the guidance in paragraph 22 of ARB 51, it has been viewed as providing more useful information to investors. Combined financial statements could be viewed as more useful because:

• They are audited, whereas combined pro forma information is unaudited;
• They provide multiple combined balance sheets, rather than a combined pro forma balance sheet as of only the most recent date for which an historical balance sheet is included in the filing;
• They provide combined cash flows information, whereas pro forma financial statements do not report cash flows information; and
• They provide complete combined footnote disclosures.

 In addition, using combined financial statements as the denominator for purposes of significance calculations pursuant to rules such as Rule 3-05 and Rule 3-09 is likely to better serve investors, because this approach is less likely to trigger the need for unnecessary information that should be filtered out of registration statements.

 This issue also arises in initial registrations that do not involve a capital raising transaction, e.g., a spin-off where entities are contributed to the spinnee after the effective date of a Form 10 but before the time of the spin-off.

 Committee Recommendation: If the controlling shareholder has complete discretion as to when and if the merger will take place and the merger will occur by the time of the closing, we believe the information needs of IPO investors (or investors that will receive shares of a spin-off company) are the same, regardless of whether the merger occurs before effectiveness or at closing. Accordingly, we believe it is appropriate for a registrant to provide the same financial statements. (Of course, if the merger occurs after effectiveness, the financial statements would have to reflect the appropriate technical changes, i.e., be labelled “combined,” rather than “consolidated,” and report combined, rather than consolidated, equity accounts.)

 Staff Response: The staff indicated it needed additional time to consider this issue. In the meantime, the staff encourages registrants with this fact pattern to consult with the staff regarding the primary financial statement requirements in their particular facts and circumstances. The SEC staff also indicated that they would consider requests for relief to use combined financial amounts as the denominator for purposes of significance calculations in determining other financial statement requirements for the filing (e.g., Rules 3-05 and 3-09 of Regulation S-X).

 Background: Regulation S-K Item 303(a)(5) requires MD&A for annual periods to include a tabular disclosure of “known contractual obligations,” including those related to long-term debt obligations, capital lease obligations, operating lease obligations, and purchase obligations. The prescribed table also includes the caption “other long-term liabilities reflected on the registrant's balance sheet under GAAP.”

 Instruction 7 to Regulation S-K Item 303(b) states, “The registrant is not required to include the table required by paragraph (a)(5) of this Item for interim periods. Instead, the registrant should disclose material changes outside the ordinary course of the registrant's business in the specified contractual obligations during the interim period.”

 FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, FIN 48, is effective for fiscal years beginning after December 15, 2006. FIN 48 removes income taxes from the scope of FASB Statement No. 5, Accounting for Contingencies, and creates a single model to address uncertainty in income tax positions. FIN 48 utilizes a two-step approach for the recognition and measurement of tax positions. Recognition requires the enterprise to conclude that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement is based on the largest amount of benefit, determined on a cumulative probability basis, that is more likely than not to be realized upon ultimate settlement. Those tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period that they meet the more-likely-than-not standard, are resolved through negotiation or litigation with the taxing authority, or on expiration of the statute of limitations.

 Paragraph 17 of FIN 48 states,

 At the 2006 AICPA National Conference on Current SEC and PCAOB Developments, a member of the SEC staff stated that, given the objectives of the table and its usefulness to investors, it made sense to include FIN 48 liabilities in the contractual obligations table, with disclosure in the footnotes to the table of any assumptions underlying the estimates of the periods in which such liabilities will be settled in cash.

 Question 1: Must a registrant’s tabular disclosure of contractual obligations include liabilities for unrecognized tax benefits recorded under FIN 48?

 View A: Yes. FIN 48 liabilities are reflected on the registrant's balance sheet under GAAP as current liabilities and/or other long-term liabilities. Accordingly, the registrant should include all FIN 48 liabilities in its contractual obligations table based on its best estimate of the period of settlement. In addition, any significant judgments made by management when disclosing such liabilities in the contractual obligations table should be discussed in the footnotes accompanying the table.

 View B: No. While FIN 48 liabilities are legally enforceable obligations, they are not contractual obligations. Because the scope of MD&A table is limited to contractual obligations, a registrant should not include any FIN 48 liabilities in its contractual obligations table.

 View C: Yes, a registrant should consider FIN 48 liabilities for inclusion in the contractual obligations table in MD&A. A registrant should include FIN 48 liabilities in the contractual obligations table if it can make reasonable estimates about the related demands on its liquidity. For example, if any FIN 48 liabilities are classified as a current liability in the registrant’s balance sheet, a registrant should include that amount in the “Less than 1 year” column of its contractual obligations table. Similarly, the contractual obligations table should include any noncurrent FIN 48 liabilities for which the registrant can make a reasonable estimate of the amount and period of related future payments (e.g., uncertain tax positions subject to an ongoing examination by the respective taxing authority for which settlement is expected to occur beyond the next operating cycle). However, there is often a high degree of uncertainty regarding the timing of future cash outflows associated with some FIN 48 liabilities, and, in those cases, a registrant might be unable to make reasonable estimates of the period of cash settlement with the respective taxing authority (e.g., unrecognized tax benefits for which the statute of limitations might expire without examination by the respective taxing authority). A registrant could exclude from the table that component of the FIN 48 liability for which reasonable estimates cannot be made, or disclose such amounts within an “other” column added to the table. To the extent any FIN 48 liabilities are excluded from the contractual obligations table or included in an “other” column, a footnote to the table should disclose the amounts excluded and the basis for such exclusion.

 Committee Recommendation: The Committee supports View C.

 SEC Staff Response: The staff supports View C.

 Question 2: The table of contractual obligations included in the most recent Form 10-K might have included or excluded amounts related to income tax contingencies, as determined under the registrant’s previous accounting policy. In the interim period of adoption of FIN 48, what MD&A disclosures are required related to the table of contractual obligations?

 View A: The registrant should provide a complete table, if there are material differences from the table in the Form 10-K. MD&A in the first Form 10-Q reflecting the adoption of FIN 48 should update the table of contractual obligations for any material amounts related to FIN 48 liabilities (on a basis consistent with View C to Question 1).

 View B: MD&A in the first Form 10-Q reflecting the adoption of FIN 48 should provide narrative disclosures regarding any material effects of FIN 48 liabilities on the table of contractual obligations.

 View C: None. Interim MD&A rules only require disclosure of “material changes outside the ordinary course of the registrant's business in the specified contractual obligations during the interim period.” The adoption of FIN 48 does not represent a material change in the underlying economic exposure from uncertain tax positions, only the way in which the related liability is recognized and measured. Accordingly, no interim MD&A disclosure would be required absent a material change, outside the ordinary course of business, in the liability for unrecognized tax benefits during the interim period.

 Committee Recommendation: The Committee supports View C.

 SEC Staff Response: The staff indicated they would accept either View A or B.

 Background: Item 503(d) of Regulation S-K defines fixed charges as:

 The definition does not, however, specifically address how interest related to uncertain tax positions should be considered in the calculation.

 Consider the following example:

 Company X and Company Y are unrelated SEC registrants. The companies are direct competitors in the heavy equipment manufacturing sector. Because of the capital intensive nature of their businesses, both Company X and Company Y frequently use registered debt offerings to finance their operations. Company X and Company Y's 2006 income statements are as follows:

 Each company had $2,000 of interest expense relating to uncertain tax positions. Company X's policy presents interest expense relating to uncertain tax positions as a component of interest expense (i.e., a deduction in arriving at pre-tax income). Company Y presents interest expense relating to uncertain tax positions as a component of its provision for income taxes. Therefore, the only difference between Company X and Company Y's financial statements is that Company X included the $2,000 of interest expense related to its uncertain tax positions as a reduction in arriving at pre-tax income and Company Y recorded $2,000 of interest related to its uncertain tax positions as a component of its income tax provision.

 Question: How should each company consider the $2,000 interest expense relating to its uncertain tax positions when calculating the 2006 ratio of earnings to fixed charges?

 View A: All interest should be included in the calculation of the ratio of earnings to fixed charges, without regard to where it is classified on the income statement. Accordingly, Company X and Company Y should each include the $2,000 interest expense relating to its uncertain tax positions as a component of "fixed charges". However, when calculating "earnings" for purposes of the ratio of earnings to fixed charges, Company Y should not add back the $2,000 to pre-tax income because it was not deducted in arriving at pre-tax income for financial reporting purposes. The two companies' calculations would be as follows:

 

View B: The interest to be included in "fixed charges" should only be interest on third party indebtedness, however, any expenses (other than income taxes) that are reported as a component of the income tax provision should be deducted in arriving at "earnings" for purposes of the ratio calculation. Accordingly, Company X and Company Y should each exclude the $2,000 interest expense relating to uncertain tax positions from the determination of "fixed charges". However, Company Y should deduct the $2,000 in calculating "earnings". The two companies' calculations would be as follows:

 

View C: The interest to be included in "fixed charges" should only be interest on third party indebtedness, and any interest expense accrued on uncertain tax positions should be excluded from the calculation of "earnings" (because that amount could have been presented as a component of income taxes). Accordingly, Company X and Company Y should each exclude the $2,000 interest expense relating to uncertain tax positions from the determination of "fixed charges". Company X should add back the $2,000 in calculating "earnings". The two companies' calculations would be as follows:

 

View D: The determination of "earnings" and "fixed charges" should follow the registrant’s accounting policy for the classification of interest on FIN 48 liabilities. If the registrant classifies interest on FIN 48 liabilities within interest expense, it should treat interest on FIN 48 liabilities as a fixed charge (consistent with View A above). If the registrant classifies interest on FIN 48 liabilities within its income tax provision, it should exclude interest on FIN 48 liabilities from fixed charges (consistent with either View B or C above).

 Committee Recommendation: The Committee supports View C.

 SEC Staff Response: The staff did not express a view. However, the staff expressed its expectation that the computation of the ratio of earnings to fixed charges provide a transparent disclosure of the treatment of interest on FIN 48 liabilities and other types of interest on non-third party indebtedness.

 Background: The Division of Corporation Finance Accounting Disclosure Rules and Practices Training Manual requires the inclusion of an audited annual balance sheet for the general partner (whether public or non-public) in transactional filings of a limited partnership. The Training Manual indicates that the audited balance sheet should be as of the end of the most recent fiscal year.

 The guidance also indicates that if there has been a fundamental change in the general partner's financial condition such balance sheet should be updated. In any event, the balance sheet of a non-public general partner should be no more than six months old. The updated balance sheet may be included on an unaudited basis.

 Question 1: If the transactional filing is made within 90 days of the non-public general partner's year end, is the general partner required to update their audited balance for their most recently completed fiscal year?

 View A: No. Since the general partner is a non-public entity, the general partner is not required to include an audited balance sheet as of their most recently completed fiscal year. The general partner would not be required to provide an audited balance sheet unless the transaction filing is made more than 90 days after general partner’s the fiscal year end (in accordance with Rule 3-01(i)(1)(iii) of Regulation S-X).

 View B: It depends. The general partner should look to the limited partnership-registrant's eligibility under Rule 3-01(c) of Regulation S-X to determine whether the general partner's balance sheet needs to be updated. If the registrant would be required to update its financial statements under Rule 3-01(c), then the general partner must update their balance sheet if the filing is made more than 45 days after the general partner's year end.

 View C: No. As long as the general partner's balance sheet is no more than 6 months old, the general partner is not required to provide an updated balance sheet (audited or unaudited). Accordingly, the transaction filing could be completed using the unaudited balance sheet of the general partner for September 30, October 31 or November 30.

 Committee Recommendation: The Committee supports View C. The Committee believes the general partner's balance sheet would not need to be updated to include an audited balance sheet for the most recently completed fiscal year as long as the balance sheet could be updated based on unaudited periods for the preceding fiscal year.

 SEC Staff Response: The staff supports View C. The staff also notes that for continuous or shelf offerings, the balance sheet of the general partner should be updated as required by Section 10(a)(3) of the Securities Act and whenever the registrant files a post-effective amendment in accordance with Item 512(a)(1) of Regulation S-K.

 Question 2: How should registrants apply the requirement that the balance sheet of the non-public general partner be no more than 6 months old? That is, if a public limited partnership is preparing a transactional filing to be filed on July 2, 2007, is the registrant required to include the general partner's balance sheet for an interim period in addition to the audited general partner's balance sheet as of 12/31/06?

 View A: The general partner's balance sheet would not need to be updated until the December 31, 2006 balance sheet is more than 6 months and 45 days old (i.e., a calendar year-end non-public general partner's audited balance sheet would not need to be updated past December 31, 2006 unless the transaction filing were made after August 14, 2007).

 View B: Since 6 months have passed as of June 30, 2007, the general partner's balance sheet must be updated on an unaudited basis.

 Committee Recommendation: The Committee supports View B.

 SEC Staff Response: The staff supports View B.

 Question 3: Is the general partner's balance sheet required to be updated in connection with a draw-down off an existing shelf?

 View A: In connection with a draw-down off an existing shelf registration, the limited partnership may revise the prospectus to reflect the terms of the offering and any other changes in a prospectus supplement, except that the limited partnership is required to file a post-effective amendment if there has been a fundamental change in a general partner’s financial condition and include its updated balance sheet reflecting such change. Otherwise, the balance sheet does not need to be updated.

 View B: Since there may be situations in which investors may be influenced by the general partner's balance sheet, the general partner's balance sheet should be updated to be no more than six months old (i.e., consistent with a new registration statement).

 Committee Recommendation: The Committee supports View A. The Committee believes the general partner's balance sheet should only be required to be updated (in connection with a prospectus supplement) when there has been a fundamental change.

 SEC Staff Response: The staff supports View A and notes that a public limited partnership should file a post effective amendment to its shelf registration statement to update the prospectus as required by Section 10(a)(3) of the Securities Act.

 Background: Generally, an SEC registration statement must provide executive compensation disclosures for the registrant’s most recently completed fiscal year. When a Form S-1 registration statement is filed or declared effective after a registrant’s fiscal year-end, the Form S-1 generally must include executive compensation disclosures for that most recently completed fiscal year. For example, in the SEC Division of Corporation Finance’s Compliance and Disclosure Interpretations – Item 402 of Regulation S-K – Executive Compensation (Last Updated: February 12, 2007) (http://www.sec.gov/divisions/corpfin/guidance/execcomp402interp.pdf), the SEC staff response in Section 4.01 on page 17 indicates a filing made by a calendar year company on January 2 must include compensation information for the previous year ended December 31 when compensation information may not be incorporated by reference into the filing.

 Separately, in Section H.6. of the SEC Division of Corporation Finance’s Manual of Publicly Available Telephone Interpretations (http://www.sec.gov/interps/telephone/cftelinterps_forms-3.pdf), the SEC staff provided its views when a registrant files a Form S-3 after filing its annual report on Form 10-K, which omits the disclosures otherwise required in Part III, because the registrant expects to file those disclosures in its definitive proxy statement within 120 days after its fiscal year end. In that circumstance, the SEC staff concluded that the registrant must either file the definitive proxy statement or update the Form 10-K to include the required information prior to the Form S-3 becoming effective.

 However, we understand that the SEC staff not objected if a WKSI files an automatic shelf registration statement on Form S-3 that incorporates by reference the most recent Form 10-K and executive compensation disclosures filed by the WKSI. That is, a WKSI’s automatic shelf registration statement on Form S-3 could become effective even if it had not yet filed its definitive proxy statement with the disclosures otherwise omitted from Part III of its Form 10-K. In this situation, we understand that the SEC staff has emphasized that such a WKSI must conclude that the registration statement and related prospectus satisfy the Securities Act requirements.

 In a follow-up question to Discussion Document A from the April 2004 meeting, the SEC staff concurred that, unlike other registrations statements such as Forms S-3 and S-4, a registration statement on Form S-8 could be filed and become effective even if the registrant’s Form 10-K that is incorporated by reference omits the Part III disclosures.

 Form S-4 allows incorporation by reference if the registrant is Form S-3 eligible. Item 13 of Form S-4 requires the registrant to incorporate by reference its latest Form 10-K filed with the SEC. Items 18 and 19 of Form S-4 also require the disclosures specified in Item 402 of Regulation S-K with respect to each person who will serve as a director or an executive officer of the surviving or acquiring company.

 Question: In the Form S-4 of a WKSI, for what period must the Regulation S-K Item 402 disclosures be provided?

 View A: The most recently completed year. Similar to a Form S-1 registration statement, any Regulation S-K Item 402 disclosures required in response to Items 18 and 19 of Form S-4 of Form S-4 must be provided for the most recently completed year.

 View B: The most recent fiscal year for which Form 10-K has been filed. Because a WKSI is Form S-3 eligible, its Form S-4 would only be required to provide disclosures as current as those that would be required in a Form S-3. Until the WKSI files its Form 10-K for the most recently completed fiscal year, its Form S-4 could become effective without Regulation S-K Item 402 disclosures for the most recently completed year. Once the WKSI files its Form 10-K for the most recently completed fiscal year, its Form S-4 must provide Regulation S-K Item 402 disclosures for the most recently completed year. If the WKSI’s Form 10-K omitted the disclosures otherwise required in Part III, it must either file the definitive proxy statement or update the Form 10-K to include the required information prior to the Form S-4 becoming effective. The WKSI could, however, file a preliminary Form S-4 before the time that the Part III information is filed, as long as the Part III information is filed before the S-4 becomes effective.

 View C: The most recent fiscal year for which Regulation S-K Item 402 disclosures have been filed (either in the Form 10-K or a definitive proxy statement). Unlike other Form S-3 eligible registrants, a WKSI need not update its Regulation S-K Item 402 disclosures in its Form S-4 once it files the Form 10-K for its most recently completed fiscal year. Similar to an automatic registration statement on Form S-3, the Form S-4 of a WKSI could become effective even if the WKSI had not yet filed its definitive proxy statement with the disclosures otherwise omitted from Part III of its Form 10-K, provided that the WKSI concludes that the Form S-4 and related prospectus/proxy statement satisfy the Securities Act requirements.

 Committee Recommendation: The Committee Supports View B.

 SEC Staff Response: The SEC staff noted that the WKSI position outlined above is largely based on the fact that the Form S-3 was automatically effective upon filing, which is not the case with Form S-4. Therefore, while the staff leans toward supporting View B, the answer may depend on the nature of the Form S-4. For example, View B may not be appropriate for an S-4 that relates to a proxy solicitation that includes the election of directors or the approval of matters related to executive compensation.

 Column L in the Grant Table is essentially the sum of Columns E (Stock Awards) and F (Options Awards) in the original Summary Compensation Table. Those two columns required presentation of “the aggregate grant date fair value computed in accordance with FAS 123R” (see Item 402(c)(2)(v) and (vi) in the August 2006 release). The requirements for Columns E and F were amended in the interim-final rules to require that registrants present “the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R” (see Item 402(c)(2)(v) and (vi) in the December 2006 release). The interim-final release instructs that such amounts should “disregard the estimate of forfeitures related to service-based vesting conditions”.” (See Instruction to Item 402(c)(2)(v) and (vi)).

 FASB Statement No. 123(R), Share-Based Payment, considers the question of measurement (i.e., how to value stock and option awards) to be separate from the question of recognition (i.e. when to report the compensation arising from those awards). The measurement objective of FAS 123R is “to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example, to exercise share options. That estimate is based on the share price and other pertinent factors, such as expected volatility at the grant date.” (paragraph 16 of FAS 123R).

 FAS 123R explicitly states that “performance or service conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date.” (paragraph 48) FAS 123R treats these conditions as matters affecting recognition. Therefore, if a performance condition that affects vesting is not met, no compensation cost is recognized1. This aspect of FAS 123R is further explained in Illustration 5(a) of FAS 123R. Footnote 87 in that illustration observes that whether an employee will vest upon providing a defined number of years of service or upon achieving a performance target, “the equity instruments being valued have the same estimate of grant-date fair value. That is a consequence of the modified grant-date method, which accounts for the effects of vesting requirements or other restrictions that apply during the vesting period by recognizing compensation cost only for the instruments that actually vest.”

 Question: What is the fair value of the award to be reported in the Grant Table when the number of shares or options that the executive will vest in is based on performance?

 For example, assume that on March 19, 2007, the Board grants options to the CEO. The number of options that will vest is tied to EPS for the year ended March 31, 2009 as follows:

 Regardless of the EPS target achieved, the strike price and term of the option are the same. At the grant date, the fair value of an option is $10.00. At grant date, management believes it is probable that EPS for 2009 will be above $2.50 but will less than $3.00. Accordingly, for accounting purposes, the amount of compensation expense for 2007 is being recognized based on the CEO vesting in 5,000 options.

 View A: The fair value of the award is based on the probable number of options that will vest. Using the example, $50,000 (i.e. 5,000, options × $10.00 = $50,000) is reported in Column L of the Grant Table.

 View B: The fair value of the award is based on the maximum number of options that will vest. Using the example, $200,000 (i.e. 20,000 options × $10.00 = $200,000) is reported in Column L of the Grant Table.

 Supporters of View A believe that the principle in the executive compensation disclosure rules is that the amount reported for equity-based compensation should be computed using both the measurement and recognition criteria of FAS 123R, ignoring only service-based forfeitures. Supporters of View A acknowledge that the Grant Table could report a $0 fair value at grant date if the performance criteria were not probable of being achieved. For example, in the above example, if it were probable that EPS would be less $2.50 in 2009, the grant date fair value of the award would be $0 since no options would vest in that scenario. However, that result is consistent with FAS 123R.

 Supporters of View B believe that the objective of the equity award disclosure in the Grants Table is provide investors with information about the fair value of the full amount of the award as measured under FAS 123R, regardless of when or whether such amounts are ultimately recognized in the financial statements. They note that the amount of compensation recognized for financial reporting purposes is presented in the Summary Compensation Table and thus the Grant Table information is provided for an alternative purpose. Further, they note that the failure to vest in a performance-based award is considered a forfeiture (see paragraph 48 of SFAS 123R). Although the Summary Table disclosure of equity-based compensation earned in the current year excludes only service-based forfeitures, supporters of View B believe that Grants Table information was intended to exclude all forfeitures. Supporters of View B are troubled by the notion that a probability assessment could result in reporting $0 fair value in the Grants Table. They observe that an equity award with a market condition would not result in a $0 fair value at grant date even if the valuation model used to value the award indicated that achieving the market condition was not probable.

 Committee Recommendation: The Committee supports View B.

 SEC Staff Response: The staff supports View B.

 Background: In December 2006, the SEC issued a final rule, Internal Control Over Financial Reporting in Exchange Act Periodic Filings of Non-Accelerated Filers and Newly Public Companies (SEC Release Nos. 33-8760; 34-54942). As adopted, a non-accelerated filer must begin to provide management’s report on internal control over financial reporting, under Item 308(a) of Regulations S-K or S-B, in the annual report for its first fiscal year ending on or after December 15, 2007. A non-accelerated filer must begin to provide its auditor’s report on internal control over financial reporting, under Item 308(b) of Regulations S-K or S-B, in the annual report for its first fiscal year ending on or after December 15, 2008.

 To implement this phase-in, the SEC adopted temporary provisions, Item 308T of Regulations S-K and S-B (“Item 308T”), which apply to a registrant that is a non-accelerated filer for a fiscal year ending on or after December 15, 2007 but before December 15, 2008. Under Item 308T, a non-accelerated filer is permitted to “furnish” management’s report on internal control over financial reporting it its annual report for its fiscal year ending on or after December 15, 2007. Item 308T also provides that such annual report is not required to include the auditor’s report on internal control over financial reporting. A registrant following Item 308T must provide a statement similar to the following in its SEC annual report:

 As adopted, the scope of Item 308T is limited to the SEC annual report of a non-accelerated filer for a fiscal year ending on or after December 15, 2007 but before December 15, 2008. However, a non-accelerated filer might wish to voluntarily provide its management’s report on internal control over financial reporting for a fiscal year ending before December 15, 2007.

 Question: Is a non-accelerated filer permitted to follow Item 308T of Regulations S-K or S-B for a fiscal year ending before December 15, 2007?

 View A: Yes. Notwithstanding the Note to Item 308T that limits its scope to “a fiscal year ending on or after December 15, 2007 but before December 15, 2008,” a non-accelerated filer may furnish its management report on internal control over financial reporting in its Form 10-K or Form 10-KSB for a fiscal year ending before December 15, 2007. Such voluntary compliance with Item 308(a) of Regulations S-K or S-B would not preclude the application of Item 308T in the fiscal year ending on or after December 15, 2007 but before December 15, 2008. That is, the non-accelerated filer could rely on Item 308T until its annual report for the fiscal year ending on or after December 15, 2008. Until that time, the non-accelerated filer could omit the auditor’s report on internal control over financial reporting otherwise required under Item 308(b) of Regulations S-K or S-B in reliance on Item 308T.

 View B: No. The Note to Item 308T clearly limits its scope to “a fiscal year ending on or after December 15, 2007 but before December 15, 2008.” If a non-accelerated filer wishes to voluntarily comply with Item 308 of Regulations S-K or S-B for a fiscal year ending before December 15, 2007, it must file, rather than furnish, both management’s report on internal control over financial reporting, under Item 308(a) of Regulations S-K or S-B, and its auditor’s report on internal control over financial reporting, under Item 308(b) of Regulations S-K or S-B.

 Committee Recommendation: The Committee supports View A, which would further encourage non-accelerated filers to early adopt the internal control reporting provisions of Section 404(a) of the Sarbanes-Oxley Act of 2002 for the benefit of investors and the capital markets.

 SEC Staff Response: The staff noted that Item 308T does not technically apply to a fiscal year ending before December 15, 2007, and would not be available if a non-accelerated filer wanted to early adopt Section 404 reporting on internal control over financial reporting for a fiscal year ending before December 15, 2007. However the staff expressed doubt that further action would be taken if a registrant “furnished” its report.

 Background: At the June 2004 Joint meeting, the Committee and the staff discussed an issue regarding the determination of accelerated filer status by a company that was previously the subsidiary of an SEC registrant. This discussion was summarized in Discussion Document C. Specifically relating to a spin-off, the Committee and the staff agreed that a spinee should make its own assessment of its accelerated filer status based on the criteria set forth in Exchange Act Rule 12b-2. The "Committee Recommendation" section of Discussion Document C included the following statement:

 In December 2006, the Commission adopted Release 33-8760 (Final Rule: Internal Control Over Financial Reporting in Exchange Act Periodic Reports of Non-Accelerated Filers and Newly Public Companies). This release included the following footnote (on page 25):

 The Committee believes Discussion Document C from the June 2004 joint meeting should be updated as described in the attached (which is marked for changes from the previously published Discussion Document C)

 C. Determining accelerated filer status for companies that were previously subsidiaries of an SEC registrant [Updated April 2007 for Release 33-8760]

 Facts: Company X is an SEC registrant with common stock traded on the New York Stock Exchange. Company X is an accelerated filer under Rule 12b-2. Company X owns 100% of the equity of Spinco. Spinco has never made any filings with the SEC on a stand-alone basis. In June 20042007, Company X completed the pro-rata distribution (a spin-off) of 100% of its investment in Spinco to its shareholders. Concurrent with the spin-off, Spinco registered its stock (which is also traded on the New York Stock Exchange) under the '34 Act on Form 10. At June 30, 20042007, the aggregate market value of Spinco's voting and non-voting common equity held by non-affiliates was $1 billion.

 Question: Should Company X's status as an accelerated filer be "pushed down" to Spinco?

 View A: No. Spinco should make its own assessment of its status as an accelerated filer based on the criteria set forth in Exchange Act Rule 12b-2.

 View B: Yes. All companies within a consolidated group should have the same accelerated filer status and therefore Spinco would retain accelerated filer status after its spin-off (unless it was eligible to use small business issuer forms).

 View C: Maybe. In some situations, a spun-off entity may attempt to use its parent’s reporting history to meet the eligibility requirements of Form S-3. Refer to Staff Legal Bulletin 4. Because of the inter-relationship between Form S-3 eligibility and accelerated filer status, if Spinco seeks to use and is deemed eligible to use Form S-3 on the basis of Company X's reporting history, Spinco would also be deemed an accelerated filer. This means Spinco would be required to comply with Items 308(a) and 308(b) of Regulation S-K (i.e., Sarbanes-Oxley Section 404 reporting) in its 2007 annual report (even though that report is its first annual report). If, however, Spinco did not seek to use Company X's prior reporting history for purposes of meeting the eligibility requirements of Form S-3, then Spinco should evaluate its status as an accelerated filer (and a newly public company) based on the criteria set forth in Exchange Act Rule 12b-2 and Release 33-8760.

 Committee Recommendation: The Committee believes View C is consistent with the guidance provided by the Commission in footnote 76 to Release 33-8760. . The committee supports View A. Although the committee recognizes that Company X's '34 Act reporting history might (under certain circumstances described in Staff Legal Bulletin #4) be considered by Spinco in determining its eligibility to use Form S-3, the committee does not believe that this accommodation should be considered when determining whether or not Spinco meets the definition of an accelerated filer. As of December 31, 2004, Spinco (as a stand alone entity) had not been subject to the requirements of Section 13(a) or 15(d) of the Exchange Act for 12 months and Spinco had not filed an annual report pursuant to Section 13(a) or 15(d) of the [Exchange] Act. The absence of either of these criteria means that Spinco does not meet the definition of an accelerated filer. Accordingly, the committee believes that Spinco should not be considered an accelerated filer as of December 31, 2004 and its 2004 10-K would not need to comply with the requirements of Items 308(a) and (b) of Regulation S-K.

 The committee also supports View A in the case of a separation transaction effected in the form of an offering of Spinco's stock for cash by either Company X or Spinco (registered on Form S-1).

 SEC Staff Response: The staff supports View C.