BDO SEIDMAN, LLP’S April 2005 FINANCIAL REPORTING UPDATE

1. BDO SEIDMAN, LLP’SApril 2005 FINANCIAL REPORTING UPDATE

2. PCAOB Update Lynford Graham April 2005 BDO Seidman, LLP

3. PCAOB AS 2 Update • Continued Questions and Answers • Supplemental Information • Use of Specialists • SAS 70 - Service Organizations • Efficiencies • Reliance on Others • Annual re-test • Defining MWs and SDs

4. Quarter Procedures • Remediate Close Process Issues “ASAP” • Gather Information • Disclose Material Changes in Controls • Remediation • New Findings • New Systems • Company must monitor – not required to test continuously

5. ED – Remediation Reporting • Market Demand? • Anytime • Company assert and auditor attest • Basis for assertion / basis for attestation • Adequate period of time to test and conclude • Control environment • Control procedure

6. GAAP UpdateApril 2005 Ben Neuhausen National Director of Accounting BDO Seidman, LLP

7. Discussion Outline • Practical considerations in implementing Statement 123(R) • FASB Exposure Draft, Uncertain Tax Positions • EITF Issue 04-5, General Partners’ Consolidation of Limited Partnerships

8. Statement 123R Developments • SEC rule to delay required implementation • Staff Accounting Bulletin No. 107

9. Summary of Statement 123(R) • Requires use of a fair value-based method of accounting for transactions in which employee services received are exchanged for either: • Equity, or • Liabilities based on fair value of company’s equity or that may be settled by issuance of such equity

10. Summary of Statement 123(R) How should compensation be measured? Fair value • For shares • Quoted market price unless restricted after vesting • For options • Option-pricing model

11. Summary of Statement 123(R) How should compensation be measured? Option-pricing models • Lattice models (e.g., binomial) • More costly to apply • Significant data about employee behavior • Potentially more precise • Closed-form models (e.g., Black-Scholes)

12. Statement 123R Implementation Issues • Income tax benefit • Income statement • Cash flow statement • Expected term and homogenous employee groups • Grants to retirement-eligible employees

13. Statement 123R Implementation Issues • Earnings per share • Capitalization in inventory • Post-vesting classification as equity or liability

14. How are Income Tax Effects Recognized? • For non-qualified options • Record deferred tax asset (DTA) and benefit as book compensation expense accrues • Measure as statutory tax rate times book compensation expense • DTA subject to realizability assessment, like all DTAs • Ignore stock price in assessment

15. How are Income Tax Effects Recognized? • At exercise date • If tax benefit realized on tax return exceeds DTA, excess credited to capital • If DTA exceeds tax benefit claimed on tax return, reverse unrecovered DTA against prior credits to capital, excess to income tax expense

16. How are Tax Benefits Treated in the Cash Flow Statements? • Income tax benefit from option exercises can substantially reduce or eliminate current tax liability • Under SFAS 95 and EITF 00-15, the entire tax benefit, whether recorded in earnings or APIC, is an operating cash flow • Under ED, tax benefit recorded to capital will be a financing cash flow • Computed option by option

17. Expected Term and Homogenous Employee Groups • Statement 123R says to analyze employee behavior in homogenous groups • SAB 107 says one or two groups (executives and rank and file) usually enough • Historic data may not be segregated by group

18. Grants to Retirement-Eligible Employees • Issue: grants of options to retirement-eligible employees that continue to “vest” after retirement • Employee is expected to continue working, but no service is required to benefit from the option • Risk of forfeiture only for termination for cause • Compensation expense should be recorded immediately

19. Earnings Per Share • Unamortized compensation represents “proceeds” for the treasury stock method • Reduces dilutive effect in the early years after grant • Sometimes overlooked in Statement 123 pro formas

20. Capitalization in Inventory • If production workers receive option grants, compensation expense should be capitalized in inventory • Most inventory costing systems currently not capable • SAB 107 says quarter-end estimates are appropriate

21. Post-Vesting Classification • Prior to vesting, equity/liability classification based on Statement 123R • After vesting, classification based on Statement 150 and “other GAAP” • If option shares are required to be registered, options would be liabilities under EITF 00-19, marked to market • Not intended--Proposed FASB Staff Position provides relief

22. Plan Design Under Statement 123R • Restricted stock vs. options • Plan design features that had adverse accounting under APB 25 but not under Statement 123R • Cashless exercise, instead of broker-assisted exercise • Performance targets • Indexed exercise prices • Market price hurdles

23. Uncertain Tax Positions • Exposure Draft expected shortly • Issue: company takes an aggressive position on tax return • Diversity in practice • Record current tax benefit unless disallowance is probable • Record current tax benefit if probable of being sustained (SEC staff speech)

24. Uncertain Tax Positions • Proposed accounting • Record current tax benefit if deduction is probable of being sustained upon examination • Equates with “should” opinion from tax professional • Reassess regularly • Record impairment whenit is more likely than not that the deduction will not be sustained

25. Uncertain Tax Positions • Proposed accounting • Liabilities classified based on estimated timing of cash outflow • Change in estimate is a discrete quarterly event • Adoption by cumulative catch up • Proposed effective for years beginning after December 15, 2005

26. EITF 04-5, General Partners’ Consolidation of Limited Partnerships • General partner is presumed to control limited partnership • Presumption is overcome if limited partners have significant participating rights • Right to “kick out” general partner by simple majority vote • Right to block acquisitions and dispositions of assets in the ordinary course of business • Other participating rights as defined in EITF Issue 96-16

27. SEC Update Jeffrey W. Lenz April 2005 BDO Seidman, LLP

28. SEC Reporting Deadlines • 404 deferral – non-accelerated filers and FPIs • Report in years ending on or after July 15, 2006 • Release 33-8545 (http://www.sec.gov/rules/final/33-8545.htm) • No relief for companies that become accelerated filers in 2005 • Calendar 2005 Form 10-Ks (accelerated filers) • Due 60 days after year-end • 404 reports due at the same time

29. SEC Activities • Advisory Committee on Smaller Public Companies • April 12 meeting • Information at http://www.sec.gov./info/smallbus/acspc.shtml • 404 Roundtable (April 13) • Information at http://www.sec.gov./spotlight/soxcomp.htm and http://www.sec.gov./news/press/4-497.shtml • First-Time Application of IFRS • Release 33-8567 (http://www.sec.gov/rules/final/33-8567.pdf)

30. SEC Activities –FAS 123R Implementation • SEC Deferral of Statement 123R Effective Date • Release 33-8568 (http://www.sec.gov/rules/final/33-8568.pdf) • SAB 107 (http://www.sec.gov/interps/account/sab107.pdf)

31. Future SEC Activities • Action in response to 404 roundtable • Off-balance sheet study (by 4/30?) • SABs on unadjusted differences • Annual financial statements (by 4/30?) • Interim financial statements • Publish comment letters on website