The Financial Accounting Standards Board has issued a new statement that aims to improve accounting for certain financial instruments, including mandatorily redeemable shares, put options, and forward purchase contracts.
Under previous regulations, companies could account for these instruments as equity. Under Statement 150, they will be booked as liabilities.
The new statement responds to the need to clarify how these financial instruments with characteristics of both equities and liabilities should be recorded. In addition to the instruments already mentioned, obligations that a company can settle by simply issuing tis own shares also should be booked as a liability.
Later this year, FASB is expected to expand this initiative by tackling accounting for convertible bonds, puttable stock, and other instruments not covered by Statement 150.
The new statement will apply to all financial instruments entered into or modified after May 31, 2003. Otherwise, it will become effective at the beginning of the first interim period beginning after June 15, 2003. For private companies, mandatorily redeemable financial instruments will be subject to the provisions of Statement 150 for the fiscal period beginning after December 15, 2003.
Oh yes, in case you’re wondering: mandatorily is a word.
(Editor’s note: To read the full text of Statement 150, go to FASB’s Web site.)
Ahold Lets Go of More Execs
Managers at Dutch supermarket retailer Royal Ahold announced that U.S. Foodservice’s chief financial officer, Michael Resnick, and general counsel, David Abramson, have resigned.
Resnick joined U.S. Foodservice in October 2000 and became chief financial officer in 2001. Abramson had been general counsel at the unit since July 1996.
The latest departures at the scandal-ridden company follow the exit of U.S. Foodservice chief executive Jim Miller, who resigned last week. Miller left the food distributor after company management found that incorrect accounting of vendor rebates at U.S. Foodservice had resulted in the overstatement of earnings by $880 million over the past three years.
The accounting problems at the Foodservice unit also led to the resignations of Ahold chief executive Cees van der Hoeven and CFO Michael Meurs.
Donaldson Makes Point About Decimals
William Donaldson’s call to end decimalization — the practice of breaking down share prices into decimals rather than fractions — has drawn a mixed response, according to the Financial Times. The Securities and Exchange Commission chairman, who used to head the New York Stock Exchange, claims decimalization has cut into market-makers’ profits —- and may have hampered liquidity in the stock market.
“I think the whole issue really needs to be looked at,” said Donaldson in an interview on CNBC television late on Tuesday.
The switch from fractions to 1 cent increments would increase the number of trading prices per share. The practice has already been adopted by the NYSE, Nasdaq, and other U.S. stock exchanges. Observers say the switch at those bourses helped align their practices with exchanges in other parts of the world. The alignment also helped reduce the spread between the prices at which a stock is bought and sold.
In an interview in the FT, Meyer Frucher, chairman of the Philadelphia stock exchange, welcomed Donaldson’s position. “When trading firms can’t sustain their business, liquidity evaporates, and the overall quality of the markets is diminished,” he said. Frucher maintains the SEC and Congress should “recognize that decimalization may be a failed experiment.”
For his part, Benn Steil, an exchanges specialist at the Council on Foreign Relations think tank, told the FT that the comments suggested Donaldson was more concerned with brokers than with investors. “The only question is whether decimalization is in the interests of investors, and it unambiguously is,” said Steil.
Staggering Defeat at Gillette
Shareholders at Gillette, the world’s largest maker of shaving products, are pushing to stop the company’s practice of electing board members to staggered terms. This according to Reuters.
While staggering the terms of directors is often employed as an antitakeover defense, critics say it also helps executives keep their jobs.
The proposal to end the practice received approval of shareholders representing about 64 percent of the stock voted at the company’s annual meeting in Delaware, Gillette managers said during a Webcast. Board members oppose the proposal.
“We believe that in this point of our turnaround efforts we should have a board structure that would ensure shareholders receive top dollar” if there is a takeover attempt, chief executive James Kilts said at the meeting.
Kilts said the board would again decide whether to elect its directors all at one time, a step that could make it easier for shareholders to oust the company’s management team. Some investors have reportedly been less than thrilled with the recent performance of the Gillette board.
Gillette shareholders also defeated a proposal to expense options. Management had argued against the proposal, claiming that Gillette should wait until a clear standard has been developed for expensing options.
* The SEC has launched an informal investigation into Abington Bancorp. The probe began shortly after company managers announced they would restate financial results for 2001 and 2002. The reason for the rejiggerings? Accounting errors related to Abington’s mortgage-backed securities portfolio.
Management at the Weymouth, Massachusetts-based holding company of Abington Savings Bank indicated it would cooperate fully with the SEC’s investigation—always a wise idea.
Last week Abington management issued revised results for 2002. Net income for the year, which was initially reported at $7.3 million ($2.07 a share), was cut to $6.2 million ($1.76 a share). In 2001 the company’s restated net income was $2 million (63 cents a share), compared with previously reported net income of $3.08 million (95 cents a share).
* Atlas Worldwide Holdings, a New York—based cargo carrier, promoted controller David Lancelot to the CFO post. Lancelot succeeds Douglas Carty, who left Atlas in January to take a position with Laidlaw Inc., the parent company of Greyhound bus lines. Lancelot had been controller at Atlas since March 2002.
Lancelot first joined Atlas’s Polar Air Cargo subsidiary in July 2000 from AirTran Airways, where he was vice president of finance, controller, and treasurer. Prior to that, he held various accounting positions at American Airlines.
Last month Atlas fired 125 ground staff in an effort to pare annual costs by $14 million. Management also announced it would be late filing the company’s 10-K with the SEC. Ernst & Young is currently reauditing the company’s 2000 and 2001 results. Those statements had originally been audited by the now-defunct Andersen. The SEC has ordered a formal probe tied to the restatement. The company is also reportedly in talks with lenders to restructure its aircraft leases and debt.
* Daniel O’Brien has been named the new finance chief at besieged telecom provider Global Crossing. O’Brien joins Global Crossing from Internet service provider Genuity Inc., where he served as finance chief. He replaces Dan Cohrs.
Prior to joining Genuity, O’Brien spent 17 years in various roles at GTE Corp. As GTE’s executive vice president and CFO, O’Brien helped structure the merger of GTE and Bell Atlantic, which created Verizon. He also served in various financial and management roles in the manufacturing and chemical industries. O’Brien holds a BS in chemistry from Boston College and an MBA from the University of Chicago.