Cleary, Gottlieb, Steen & Hamilton
one liberty plaza
new york, ny 10006-1470
May 23, 2002
Mr. Jonathan Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Proposed Rules Regarding Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports (File No. S7-08-02)
Dear Mr. Katz:
We are submitting this letter in response to the request of the Securities and Exchange Commission (the "Commission") for comments on the Commission's proposed rules regarding the acceleration of periodic report filing dates and disclosure concerning website access to reports set forth in Release Nos. 33-8089; 34-45741 (the "Proposing Release"). We appreciate the opportunity to comment on the matters discussed in the Proposing Release.
We commend the Commission for its efforts to improve the usefulness of annual and quarterly reports to investors. However, we are concerned that by sharply reducing the time available to draft and review these reports, the new deadlines will seriously undermine the Commission's parallel efforts to promote better quality disclosure, particularly MD&A. We believe the proposed deadlines will needlessly strain the capabilities of issuers, their boards of directors and audit committees at a time when the need for better quality MD&A disclosure is increasingly apparent.
We would elaborate on our views as follows:
I. The 30- and 60-day deadlines should not be adopted at this time.
We do not support alteration at this time of the deadlines for quarterly and annual reports. Our view is based on the following observations:
II. Any acceleration of the filing deadlines should be phased in gradually.
If the Commission determines to accelerate the filing deadlines at this time, we believe it should do so more gradually than set out in the Proposing Release. For example, the Commission could accelerate the deadline only for Form 10-K, and to 75 days, rather than 60 days, after the end of an issuer's fiscal year. This approach would allow the Commission to evaluate the ability of issuers to meet the new MD&A disclosure and audit committee review requirements on a somewhat accelerated basis, without greatly increasing the likelihood that a large number of issuers would fail to meet the requirements or would provide reduced quality disclosure. This approach would also have the benefit of avoiding the problems that would likely accompany an acceleration in the Form 10-Q deadline, since, for the reasons described above, we believe any meaningful acceleration of the current deadline would not allow issuers time to prepare useful MD&A, even under existing disclosure requirements. After an evaluation of the success of this initial phase, in conjunction with an analysis of the burden added by the new MD&A requirements, the Commission could consider whether to accelerate the Form 10-Q filing deadlines or to further accelerate the Form 10-K filing deadlines.4
III. Filing Deadlines for Foreign Issuers should not be accelerated.
The Proposing Release asks for comment on whether the due date for annual reports of foreign private issuers on Form 20-F should be reduced from six months after the end of their fiscal year to four or five months after the end of their fiscal year.
We would not support an acceleration of the Form 20-F filing deadline. Accelerating the due date for filing Form 20-F would be unduly costly and burdensome to foreign private issuers. Although some foreign private issuers may be able to produce the requisite financial information, including U.S. GAAP reconciliation, and the other detailed disclosure required within the proposed accelerated time frames, a significant number will not be able to do so. Many foreign private issuers also face the considerable burden of preparing English translations or English summaries of foreign language documents and financial information.5 We do not believe the possible marginal benefit that may be achieved in receiving earlier disclosure by foreign private issuers justifies the considerable burdens it will place on them. Furthermore, this proposal would only serve to undermine the Commission's efforts to encourage foreign issuers to access the U.S. public markets in connection with their capital raising efforts.6
IV. Website Access to Periodic Reports.
We generally support the proposal to require subject companies to disclose in their annual reports their website addresses, if they have one, and to post on their websites their annual, quarterly and current reports. We note, however, that requiring subject companies to post these reports on the same day as they are filed electronically with the SEC may prove difficult. In our experience, many of these filings are made late in the day, either just before or after the close of business. This timing may for practical and technological reasons prevent companies from being able to post their reports on their websites on the same day they are electronically filed. In response to this technological hurdle, we suggest simply requiring that this information be made available within 24 hours of the time of filing.
V. Suggestions in the event the 30- and 60-day deadlines are adopted.
If, despite our concerns outlined above, the Commission decides to adopt the 30- and 60-day accelerated filing deadlines set forth in the Proposing Release, we would urge the Commission to implement the suggestions set out below in order to reduce the negative consequences of the new deadlines and make them more workable.
* * *
We thank you for the opportunity to submit this comment letter. We would be happy to discuss with you any of the comments described above or any other matters you feel would be helpful in your review of the proposal. Please do not hesitate to contact Leslie N. Silverman or Janet L. Fisher in New York (212-225-2000) or Edward F. Greene in London (44-171-614-2200) if you would like to discuss these matters further.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
cc: The Honorable Harvey Pitt, Chairman
Alan L. Beller, Director, Division of Corporation Finance
1 See generally, SEC Release Nos. 33-8098; 34-45907; International Series Release No. 1258 (May 10, 2002) (the "Critical Accounting Policies Release"). See also SEC Release Nos 33-8056; 34-45321; FR-61 (Jan. 22, 2002) (the "MD&A Release").
2 See, e.g., the Commission's statements in the Critical Accounting Policies Release indicating that it currently is considering additional proposals to require a MD&A summary, further disclosure regarding off-balance sheet structures and improved trend information. It can be expected, in the wake of Enron, that accounting pronouncements will also require increased disclosures as part of financial statement presentation. These proposals are, of course, in addition to increased disclosure requirements under accounting standards promulgated in recent years, including SFAS 144, SFAS 140 and SFAS 133.
3 See, e.g., the Commission's suggestion in the Critical Accounting Policies Release that management should discuss critical accounting estimates with the audit committee. The additional burden on audit committees should not be understated: the sample audit committee charters in the Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees (1999) suggest some 20 responsibilities often assigned to audit committees.
4 We would not recommend that the Commission adopt new rules requiring companies to file their reports by the earlier of the existing deadlines or an earlier time after their first release of earnings. Such a rule would effectively penalize companies that publish earnings releases, and reward those that do not. Adopting it would both discourage and delay the prompt release of earnings information to investors.
5 These burdens will likely increase under the new rules regarding translation and English summaries of foreign language exhibits. See Release Nos. 33-8099, 34-45922, International Series Release No. 1259 (May 14, 2002).
6 We raised similar timing and related concerns in our comments on the proposals by the Commission in the Aircraft Carrier Release and on the Commission's earlier proposals with respect to changes in the permitted age of financial statements of non-U.S. issuers. See SEC Release No. 33-7606A; 34-40632A; IC23519A (Nov. 13, 1998) (the "Aircraft Carrier Release") and our comment letter with respect thereto dated June 30, 1999. See also SEC Release No. 33-7637; 34-41014; IC 1182A (Feb. 2, 1999) and our comment letter with respect thereto dated May 18, 1999.