The SEC gives not just guidance, but a roadmap to 2007

U.S. securities regulators have been all over the map in recent years when it comes to setting priorities and getting necessary rules in the hands of those who need to follow them. Certainly, that has been the principal problem for the Sarbanes-Oxley Act—and particularly Section 404—in its first years. But besides the long-overdue guidance now coming out of both the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) on 404, regulators this year seem ready to go beyond the outline of the priorities they provide companies annually. In a speech delivered late last week called "The Promise of Transparency — Corporation Finance in 2007," John W. White, the SEC's director of the division of corporation finance, listed 11 initiatives in various forms of development on which his division is working. Several involve rulemaking changes— such as foreign deregistrations, Section 404 management guidance, online availability of proxy materials and executive compensation disclosures—that are pending or already completed. But there are several others, such as new rulemaking for shareholder access to corporate proxies, on which the SEC staff is still hard at work developing proposals.

White promised that amendments to the compensation rules may be on the way as the SEC is preparing "targeted reviews of a critical mass of these new disclosures." He added, that the agency is "also planning to prepare a report in some form to assist in conveying our observations to issuers for the next proxy season."

On the issue of international financial reporting standards and their reconciliation with U.S. GAAP, White indicated an upcoming roundtable in March and added, "I believe the time when the staff will recommend the end of reconciliation is clearly in sight." On new interactive data initiatives (XBRL), he said the SEC is considering applying interactive data tagging to certain new executive compensation disclosures, to make the information more useful.

Two important clarifications were also included in the director's comments. The first involved disclosures and registrations of "problematic" private investment public equity offerings, or PIPES. "The staff's response to these transactions has also drawn attention due to the mistaken view that we are reconsidering our approach to PIPE transactions," White told a Dallas audience. "I'll be very clear about this—the staff's view of PIPE transactions has not changed; we have simply addressed the recent development where convertible note transactions are structured in an abusive manner."

The second clarification involved the SEC's interest in so-called "stealth restatements," in which he said that some companies may tuck restatements into periodic reports rather than issue a separate Form 8K, owing largely to a weakness in the current rule. White said a clarification is expected within the next few months. Regulators also continue to monitor the issue of small business capital raising and private offering reform, which White said is being actively reviewed.

Finally, White indicated important changes to the corporation finance pages to the SEC.gov Web site, where all guidance is in the process of being updated by subject matter, making for quicker and easier navigation in the coming months.

John White will be a keynote speaker at Treasury & Risk's Vision for Tomorrow's Treasurer conference March 27 and 28 in New York.

Time to start worrying?

There is a faint, but noticeable odor, from the corporate bond market that suggests something may be going bad—and on a day when global stock markets took a tumble it might be worth investigating. In January, the 12-month trailing rate of defaults in speculative grade debt in the U.S. rose to 1.39%, a 10% increase from the rate recorded in December 2006, according to a recent report from Standard & Poor's. Worse, as the U.S. economy slows, S&P further projects that the default rate in these junk bonds will continue this rise throughout 2007, hitting 2.33%—up almost 7% over the year. And this is not even the pessimistic scenario: If the unemployment rate hits 5.6% (instead of the currently projected 4.7%) and corporate profits begin to decline, the default rate could almost double, to 3.52%, by yearend. While that number would still be below the long-term average default rate of 4.54%, it suggests a trend that won't make executives or investors happy. S&P's managing director Diane Vazza gives a 25% probability for the worst-case scenario to unfold.

Circuit City Stores Inc. announced that Executive Vice President and CFO Michael E. Foss is expected to leave the Richmond, Va.-based $11.6 billion electronics retailer in April. Foss, 49, has accepted the position of CFO at PETCO Animal Supplies Inc., a $2 billion private equity-owned retailer, which is based in San Diego. Foss joined Circuit City in 2003. Prior to joining the company, he served in financial and operational positions at TeleTech Holdings Inc., a provider of customer management solutions, from 1999 to 2003. He will remain on the board of directors of Circuit City until the annual meeting in June. A search for his replacement has begun.

State Auto Financial Corp. named Steven B. English vice president and CFO of the $1.1 billion property and casualty insurer, which is based in Columbus, Ohio. English, 46, had served as vice president and director of corporate development and planning. English was CFO and treasurer of Meridian Insurance Group of Indianapolis, which was acquired by State Auto in 2001. Prior to joining Meridian, he was vice president of planning for Conseco Inc. He replaces Steven J. Johnston, who left State Auto in June.

XL Capital Ltd. named Michael E. Mathisen global treasurer of the $11.3 billion Hamilton, Bermuda-based insurer. Mathisen, 51, joined XL Capital in 2001 as director of worldwide tax. Prior to joining the insurer, he was a partner at KPMG in Philadelphia and director of insurance tax services. XL Capital, with $60 billion in assets, is a leading reinsurer.

Tronox Inc. named David J. Klvac vice president and controller of the $1.4 billion Oklahoma City producer of titanium dioxide pigment. Prior to joining Tronox, Klvac, 36, served as assistant controller of Smithfield Foods Inc., a hog producer and pork processor. He joined Smithfield as director of financial planning in 2004. Previously, he was manager of external financial reporting for MidAmerican Energy Holdings Co. from 2002 to 2004.

Schering-Plough Corp. named Lori Queisser senior vice president for global compliance and business practices for the $9.5 billion pharmaceutical company, which is based in Kenilworth, N.J. Queisser joins the company from Eli Lilly and Co., where she served as vice president and chief compliance officer and was responsible for establishing and implementing Eli Lilly's global compliance program. She will become a member of Schering-Plough's executive management and operations management teams. Queisser, 47, replaces Brent Saunders, who was appointed president of the Consumer Health Care division.

CIT Group Inc. named Nancy J. Foster executive vice president and chief credit and risk officer of the $5.7 billion New York commercial and consumer finance company. Prior to CIT, Foster, 45, was group senior vice president of LaSalle Bank Corp., the Chicago subsidiary of Amsterdam-based financial services giant ABN AMRO. The position at CIT is a new one.

Cirrus Logic Inc. appointed Thurman K. Case CFO of the $193.7 million chipmaker, which is based in Austin, Tex. Case, 50, joined Cirrus Logic in 2000 and has served in positions of increasing responsibility, including vice president of finance, controller and treasurer. Case has been the acting CFO since September 2006, when John T. Kurtzweil left the company to pursue other opportunities.

PMI Group Inc. promoted Thomas H. Jeter senior vice president, chief accounting officer and controller of the $1.1 billion private mortgage lender insurer, which is based in Walnut Creek, Calif. Jeter, 41, has been vice president and controller since 2005. Prior to joining PMI, Jeter was with PricewaterhouseCoopers LLP, where he was a senior manager.

Directed Electronics Inc. named Ronald F. Dutt executive vice president, CFO and treasurer of the $304.6 million home theater designer and marketer, which is based in Vista, Calif. He succeeds John D. Morberg, who is leaving to pursue opportunities outside the company. Dutt, 59, joined Directed Electronics in October 2006 as executive vice president. Prior to joining Directed, Dutt served as executive vice president and CFO of Sola International and before that he was senior vice president and CFO of DHL Americas, a $2 billion U.S. subsidiary of DHL Worldwide, the express delivery service company.

Berry Petroleum Co. named Steven Wilson controller of the $406.7 million oil and gas production and exploration company, which is based in Bakersfield, Calif. Wilson, 43, joined Berry Petroleum as assistant controller in 2003. Prior to joining Berry, Wilson held financial positions of increasing responsibility with several companies and was an audit manager with PricewaterhouseCoopers. Wilson succeeds Donald A. Dale, who is retiring after serving for 21 years as Berry's controller.

Dimension Data Holdings PLC named Daniel Celoni senior vice president and CFO of its North American business, which is based in New York. Dimension Data is a South Africa-based $3.1 billion information technology network services provider. Celoni, 52, served most recently as the senior vice president of finance at CompuCom Systems and earlier was controller for ComputerLand, a $2 billion computer reseller.

Chase Corp. named Kenneth L. Dumas CFO and treasurer of the $108.4 million Bridgewater, Mass.-based manufacturer of coatings and insulation for the utility industry. Dumas has served as Chase's director of finance since February 2006. Prior to that he was controller from January 2004 and began as assistant controller in April 2003. Before joining Chase, Dumas was employed by PricewaterhouseCoopers LLP.

Sedgwick CMS Inc. named Bill Brewer executive vice president and CFO of the Memphis-based healthcare claims management provider. Before coming to Sedgwick CMS, Brewer was a partner at PricewaterhouseCoopers LLP in its financial services assurance practice. He began his career in the audit and advisory services practice at Coopers & Lybrand and was transferred to its Memphis office in 1992 to assume responsibility for the audit of the North American operations of Sedgwick Group PLC. Brewer, 44, replaces William A. Houlihan, who resigned to pursue other interests. Sedgwick is a minority-owned subsidiary of the insurer Fidelity National Financial Inc. Thomas H. Lee Partners L.P. and Evercore Capital Partners are the other investors in Sedgwick.

Scentric makes it easy to identify potential data security threats. Scentric Inc., a provider of universal data classification solutions for governance compliance, launched a free Data Privacy Assessment Tool for organizations to identify potential data privacy risks. The new tool is available as a free download at www.scentric.com for a 30-day period, and can be used to assess files on laptops, desktops and file servers. "Most shops believe from an IT perspective they've done their job, that they have locked down sensitive information and it's highly protected," says Larry Cormier, senior vice president of marketing at Scentric. "What they don't realize is how much of that information gets out into the open land. This tool is a wake-up call to [show] what kind of information is floating out there." That exposure can come in the form of spreadsheets and emails that employees create containing sensitive customer or employee information that can become susceptible to data thieves. The Data Privacy Assessment Tool uses contextual analysis methods, such as algorithms that identify patterns such as credit card and social security numbers, to locate information that is not properly protected. It does not perform remediations; that is left to one of Scentric's other products.

Help arrives for better real-time cash visibility. Shadow Financial Services Corp., a provider of post trade processing and brokerage accounting solutions for buy side and sell side firms, released a cash management module that can operate on a standalone basis or be integrated with the ShadoSuite global trade processing, reconciliation, clearing and brokerage accounting system. The module can show through a single dashboard all enterprise wide cash balances at all locations and by currency. The system also offers real time views, helping users avoid overdrafts and more efficiently allocate bulk investment of excess cash. Cash movements can be made more efficient through connections with the SWIFT and FED wire modules and drill-down features offer real time access to summary details of each balance. The cash module can manage multi-currency processing and reconciliations on an intra-day basis, comparing open items or transactions to credit and debit advisories received from the banks to immediately update cash positions and identify any exceptions. "Users can identify their cash and collateral positions throughout the day, without having to wait on an end of day statement or reconciliation from their bank, vendor or custodian," says Don Marino, CEO of Shadow Financial. Unauthorized accesses can be blocked with configurable security features.