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To: rrufff who wrote (538)	10/25/2002 3:46:25 PM
From: StockDung	Read Replies (2) \| Respond to of 838

.SEC seen requiring prominent GAAP earnings display By Deepa Babington NEW YORK, Oct 25 (Reuters) - Stock market regulators are expected next week to propose that corporate earnings announcements must present conventional net profit figures at least as prominently as the widely maligned "pro forma" numbers, according to people familiar with the matter. The use of pro forma earnings, which strip out a bevy of expenses from restructuring charges to merger costs, has ballooned in recent years, drawing the ire of investors and inviting the attention of regulators eager to clamp down on their abuse. "The importance of this will be to give guidance to companies who have not been sure today how much pro forma information to use," said Brian Lane, a former head of the SEC's division of corporate finance and currently a partner at law firm Gibson, Dunn & Crutcher. "And how best to present it and to have some insight into what the SEC is thinking." Enthusiasm for highlighting pro forma figures has waned in recent months as investors clamor for conservative accounting following a series of corporate scandals. But their use is still widespread. According to an August survey by the National Investor Relations Institute, about 46 percent of companies polled presented pro forma information in the second quarter this year, down from 52 percent in the fourth quarter last year. The new Sarbanes-Oxley law passed over the summer requires the U.S. Securities and Exchange Commission to tackle the hot button issue to curb corporate shennanigans. Specifically, the SEC must issue a rule requiring companies to provide information reconciling pro forma earnings figures to GAAP, or generally accepted accounting principles. In addition, pro forma information in earnings press releases must not be misleading or contain errors. In addition to those requirements, the SEC staff is also planning to propose that companies must not present pro forma numbers in their earnings press release more prominently than GAAP numbers, people familiar with the matter said. The SEC staff, however, is still working on the issue and details of the proposal may change, these people said. In particular, the SEC is still exploring the best way of instructing companies to present figures in their earnings press release such that net profit figures are displayed as clearly as other earnings numbers, they said. The SEC is scheduled to have an open meeting on Wednesday to consider proposing new rules on pro forma information. "From the standpoint of requiring companies that GAAP be presented as prominently as pro forma clearly cannot hurt," said Michael Littenberg, a lawyer at Schulte, Roth & Zabel who specializes in securities law. "And it can only help companies avoid investor confusion" PRO FORMA FAD FADES Pro forma earnings were developed as a way to help investors make meaningful year-to-year comparisons after a merger or acquisition. They proliferated during the technology boom, when Internet start-ups would report net losses, but guide investors to figures they called "core earnings" or "operating earnings" or "pro forma earnings" excluding a variety of costs, many of which were not clearly identified. Many companies used pro forma numbers in an attempt to eke out a profit from a huge net loss, claiming they could help investors understand the profitability of their core operations. Critics derided pro forma numbers as "earnings before bad stuff," calling them a tactic to mask ugly losses. Wall Street analysts base valuations and research of many companies around pro forma figures, making it hard to ignore. When stock prices were soaring, critics of pro forma numbers were mostly unheeded. Then came the stock market slump and a flurry of accounting scandals. Last year, the Financial Accounting Standards Board, which sets accounting rules in the U.S., began a project to improve the quality of information in financial statements in response to the fast growth of pro forma reporting. The SEC got into the act a few months later, accusing Trump Hotels & Casino Resorts Inc.<DJT.N> with presenting a misleading earnings release -- a case that was ultimately settled. "It's a continuing hot topic, it has been put on the backburner somewhat as the SEC has had bigger fish to fry," said Littenberg. "But with that said, it's a topic that has continuing relevance." 10/25/02 13:46 ET