Alert #90 stated the following:

The SEC staff has advised us that their views concerning classification of discontinued operations within the statement of cash flows were discussed in Joel Levine’s December speech at the AICPA Annual Conference on SEC and PCAOB Current Developments. In that speech, Mr. Levine identified certain presentation formats considered to be inconsistent with Statement of Financial Accounting Standard No. 95, Statement of Cash Flows (SFAS 95). While the staff believes issuers using any of those formats should revise their presentation through restating prior periods as correction of an error, the staff further advised us they will not object to issuers retrospectively modifying their presentation similar to a change in accounting method (without referring to the correction of an error). In reaching this position, the staff considered many factors, including the usefulness of information currently depicted in those presentations and the longstanding practice of a large population of issuers. Issuers who choose to retrospectively modify their presentation must provide enhanced disclosures such that readers are aware that the cash flow presentation has been modified.

For example, if the previous presentation was to have a single line at the bottom of the statement of cash flows containing the combined Operating, Investing and Financing cash flows of Discontinued Operations and the registrant's choice is to disclose such cash flows by expanding the previous one caption display, then the footnotes would need to clearly disclose the change, and the face of the cash flow statement should indicate the change by labeling either the column or the marginal heading as "revised" or "restated." However the SEC Staff has advised us that characterizing the modification as “reclassified” in the column or marginal heading would not be acceptable. An example appears below:

If a registrant chooses to provide the disclosures of the cash flows pertaining to the discontinued operations by adding an additional line to each of the three categories of cash flows, that method would have the effect of changing the total for each such category. In that case, the marginal caption revision described above cannot be used and the column heading of each year must be labeled "Revised - See note X" or "Restated - See note X."

The SEC staff has stated that the footnote disclosure of the change must be specific and that it is not acceptable to assert that this change is already encompassed by the general policy note statement "Certain prior year amounts have been reclassified for comparative purposes to conform to current year presentation." The SEC Staff would expect the disclosure to more closely approximate "In 2005 the company has separately disclosed the operating, investing and financing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount."

Registrants would need to make these changes in the next periodic report filed subsequent to February 15, 2006. If the issue is discovered and corrected in a later interim or annual period, the SEC staff would expect the modification to be treated as a correction of an error, and would expect the prior filing(s) to be amended. The staff believes that misclassifications in the statement of cash flows that are caused by a misapplication of SFAS 95 are errors and therefore their conclusions in this issue would not affect other situations.

Other reminders:

If an issuer presents on its balance sheet a single line for assets of the discontinued operations and it includes ‘cash and cash equivalents’ – the issuer should consider additional disclosures that may be necessary with respect to cash flows from discontinued operations depicted on the statement of cash flows.

Even though the alternative disclosure is similar to a change in accounting method, no preferability letter is required in this circumstance.

Additional Transitional Information

Below is the additional transitional information the staff agreed to at the April 4, 2006 joint meeting of the AICPA SEC Regulations Committee and the SEC staff:

Periodic Reporting (Applies to all Non-Calendar Year End Companies)

The first periodic report filed after February 15, 2006 for a company with a fiscal year end other than December 31, 2005 would generally be a Form 10-Q. Under the guidance noted above and Rule 10-01(a)(5) of Regulation S-X, the company should, in that Form 10-Q:

• Present the year-to-date information using the presentation guidance noted above; and
• Revise the comparative prior year condensed Statement of Cash Flows to reflect the guidance noted above and label information “revised” or “restated” (if the company has not previously filed revised prior year cash flow information).

If a non-calendar year end company does not file a registration or proxy statement before its next annual report on Form 10-K is due, the company is not required to provide audited revised Statements of Cash Flows for previously filed annual periods until it files its 2006 Form 10-K. However, the company should disclose in its first interim period filing (Form 10-Q) after February 15, 2006:

• its intent to revise its previously issued annual Statements of Cash Flows in its next annual report;
• the reasons for the revisions; and
• the quantitative effect of the revision on the three latest fiscal years.

The disclosure should be transparent and provide sufficient information for the reader to understand the nature and quantified effect of the future revisions. The disclosure may take the form of an unaudited revised condensed Statement of Cash Flows. Where a single line item below financing cash flows was previously used to present cash flows related to discontinued operations, quantitative disclosure may be limited to expansion of that line into operating, investing and financing categories. Revised Statements of Cash Flows for prior years included in the 2006 Form 10-K would be labeled “revised” or “restated” as discussed above.

Additional Considerations for Calendar and Non-Calendar Year End Companies Related to Registration and Proxy Statements into which Exchange Act Reports are Incorporated by Reference

Company files Registration or Proxy Statement before Filing Its First Periodic Report after February 15, 2006

If a calendar or non-calendar year end company files a registration/proxy statement before its first periodic report after February 15, 2006 is filed (e.g., August 31 year end company files a registration statement March 10, 2006 that incorporates by reference its Form 10-K for the year ended August 31, 2005 and Form 10-Q for the quarterly period ended November 30, 2005, neither of which reflect the revised cash flow presentation), the company should disclose in the registration/proxy statement or a report incorporated by reference into the registration/proxy statement:

• its intent to revise its previously issued annual Statements of Cash Flows in its next annual report;
• the reasons for the revisions; and
• the quantitative effect of the revision on the three latest fiscal years and most recent interim-to-date period.

The disclosure should be transparent and provide sufficient information for the reader to understand the nature and quantified effect of the revisions. The disclosure may take the form of an unaudited revised condensed annual Statement of Cash Flows. Where a single line item below financing cash flows was previously used to present cash flows related to discontinued operations, quantitative disclosure may be limited to expansion of that line into operating, investing and financing categories. Revised Statements of Cash Flows for prior years included in the next Form 10-K would be labeled “revised” or “restated” as discussed above.

Company files Registration or Proxy Statement after Filing a Periodic Report that Includes Revised Cash Flow Information for All Interim Periods Presented

If a non-calendar year end company files a registration/proxy statement before filing its next annual report on Form 10-K but after filing a periodic report that includes revised current and prior year comparative interim period cash flow information (e.g., August 31 year end company files a registration statement March 10, 2006 that incorporates by reference its Form 10-K for the year ended August 31, 2005 that does not reflect the revised cash flow presentation and Form 10-Q for the quarterly period ended November 30, 2005 that reflects the revised cash flow presentation, but for only the interim periods to date), the company should disclose in the registration/proxy statement or a report incorporated by reference into the registration/proxy statement:

• its intent to revise its previously issued annual Statements of Cash Flows in its next annual report;
• the reasons for the revisions; and
• the quantitative effect of the revision on the three latest fiscal years.

The disclosure should be transparent and provide sufficient information to understand the nature and quantified effect of the revisions.  The disclosure may take the form of an unaudited revised condensed annual Statement of Cash Flows. Where a single line item below financing cash flows was previously used to present cash flows related to discontinued operations, quantitative disclosure may be limited to expansion of that line into operating, investing and financing categories. Revised Statements of Cash Flows for prior years included in the 2006 Form 10-K would be labeled “revised” or “restated” as discussed above.

Labeling of Quarterly Information Following Filing of Annual Report with Revised Statements of Cash Flows

Calendar year end companies that file annual reports with revised Statements of Cash Flows will present the 2005 fiscal year cash flow information on a corrected basis but such basis may be inconsistent with how quarterly cash flow information throughout 2005 was reported in the company’s Form 10-Q’s. In quarterly reports on Form 10-Q that will be filed throughout 2006 the prior year comparative period column will need to be labeled “revised” or “restated” since those periods will be reported on a revised basis for the first time in each Form 10-Q.

If you have any questions regarding this position, please contact us at 1-888-817-3277 or the SEC Division of Corporation Finance at (202) 551-3400.