From: Klafter, Cary [cary.klafter@intel.com] Sent: Monday, May 20, 2002 11:19 PM To: 'rule-comments@sec.gov' Cc: Klafter, Cary Subject: File No. S7-08-02 -- Release No. 33-8089; 34-45741 May 21, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 C/o rule-comments@sec.gov Attn: Jonathan J. Katz, Secretary Re: File No. S7-08-02 -- Release No. 33-8089; 34-45741 Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports Dear Mr. Katz: This letter from Intel Corporation is in response to Securities and Exchange Commission ("SEC" or "Commission") Release No. 33-8089 and 34-45741 concerning proposals to accelerate the filing of quarterly reports and annual reports under the Securities Exchange Act of 1934. We appreciate the opportunity to provide comments on the proposed rules. Since Intel Corporation would clearly meet any definition of "accelerated filer" based on market capitalization, we will not comment on the specifics of that definition or the requirements for companies that do not meet that definition. Accelerated Filing Dates In our opinion, accelerating the filing deadline for quarterly reports on Form 10-Q to 30 calendar days will adversely affect the quality of the review process and the resulting disclosures. We believe that a 35-day quarterly Form 10-Q filing deadline would be feasible without such an adverse impact. The Commission has suggested that advances in information technology should allow companies to file their formal reports more quickly. Technology has increased the speed with which information can be gathered, but technology has not significantly reduced the time that it takes to draft the narrative disclosures and to review them with management, external auditors, internal and external counsel and the Board's Audit Committee. The requirements for the narrative disclosure, including the MD&A, have increased substantially over time and, in turn, the involvement of executive management and the Audit Committee has increased as the quantity and complexity of the disclosure increased. It is necessary in the context of these and related proposals that important distinctions be kept in mind between the processes involved in preparing the financial schedules and the processes involved in preparing the narratives. Form 10-Q. Intel publishes an earnings release approximately 17 calendar days following the end of the fiscal period for both interim quarters and fiscal year-end. With a 30-day 10-Q filing requirement, the time available to prepare and review the detailed narrative and other disclosures would be only 10 or 11 days, allowing for time to create an EDGAR filing. Even if the financial reporting and disclosure process occurred in parallel with the financial statement close process and the related preparation of the earnings release, 10 days is not enough time for a sufficient review process. For Intel, a 35-day deadline would represent a 50% increase in the time available for review over the Commission's 30-day proposal. Therefore, we advocate an increase from 30 days to 35 days in the filing deadline; the value afforded by the additional 5 days in the review process would be well worth the additional time. For a complex and geographically dispersed company such as Intel, a large number of people are involved in reviewing the SEC financial filings. We believe that a high quality review process should be sequential rather than parallel, with initial review by content experts (business or segment owners and technical accounting and legal personnel), followed by management review and then review by the external auditors and the board's audit committee. Compressing the review time available creates the risk that relevant data cannot be gathered in time, that participants will review documents that are incomplete or otherwise not ready for review, and that there will be insufficient time for thorough, high-quality review. We believe that shortened filing deadlines will likely have a negative impact on the ability of external auditors and outside counsel to adequately review the filings of all of their clients within the same short time frame, reducing the value that they currently add to the process. Considering the Commission's initiatives to improve the quality of disclosure and increase the level of management and audit committee accountability, we believe that a 30-day quarterly filing deadline would be counterproductive and would result in lower quality disclosure. The possibility that shorter deadlines may adversely affect the quality of our filings would be heightened for any quarter in which new accounting or MD&A disclosure requirements were being implemented. For example, filing within 30 days would have been extremely difficult for the first quarter of 2001, when we adopted Statement of Financial Accounting Standards (SFAS) No. 133 on accounting for derivatives and hedging. This adoption required significant changes to our disclosure and the inclusion of disclosures in the quarterly report that are normally only made at year-end. Similarly, the adoption of SFAS No. 141 and 142 in the first quarter of 2002 entailed changes in disclosure and additional review. We would also like to make the general point that the Commission needs to keep these proposals in context with its other, and future, rule-making initiatives in disclosure matters. At the moment, the MD&A itself is the subject of a proposal to expand disclosure, and there is a significant disclosure expansion proposed for the 8-K. Commissioners and the staff have also recently noted in various forums that issuers can expect, e.g., further 8-K proposals, some form of "continuous disclosure" regime, some form of "core" Plain English financial and narrative disclosure document, and more. Other portions of the President's 10-Point Plan await rule-making, and there are numerous and far-reaching Congressional proposals directly requiring shorter filing deadlines, major changes in GAAP, substantially increased disclosure requirements covering many topic areas, and mandated corporate governance procedures relating to these areas. The proposed 10-K and 10-Q deadline changes would be challenging by themselves, but they become even more daunting when the full constellation of proposals is considered. The proposals would not only add further requirements to the 10-K and 10-Q, but would add additional filings of various types to the current quarterly and annual filing calendars. In our case we can expect that these filings will be the natural responsibility of the same personnel, executives and board audit committee that work on the 10-K, 10-Q and other current disclosures. 30 years may have passed since the current filing deadlines were last changed, but we are in a whole different world of greater and more complex disclosure 30 years later, and obviously moving quickly to yet more, and more complex, disclosure. It is worth an additional 5 days on the 10-Q deadline to help issuers do their best with these filings. Form 10-K. Accelerating the due date for the Form 10-K filing to 60 days following the year-end is more feasible for us. We believe we can meet the 60-day deadline despite the fact that many of the same core personnel who work on the financial statement close/earnings release process also are involved with the 10-K, Annual Report to Stockholders, and proxy statement and also report to and support the board of directors and the audit committee. However, removing 30 days from the time available means that preparation and review activities will have to be significantly accelerated, and we expect to have to hire additional personnel to be able to run the earnings release, 10-K and Annual Report processes concurrently rather than sequentially. In addition, we expect that we will have to eliminate the production of a traditional "glossy" Annual Report to Stockholders so that the relevant personnel can be committed to completing the work required to meet the filing deadline. Overall, we do not see how the proposed 60-day deadline and its related costs will result in an enhancement to the quality of data provided to stockholders. Filing Due Date Based on Earnings Release Timing The Commission asked for comments on an alternative of requiring companies to file by the earlier of the current deadlines or some earlier time after their first release of earnings information. If the Commission takes this approach, we recommend that the filing deadlines should be at least 20 days after the earnings release for quarterly reports on Form 10-Q and 45 days for annual reports on Form 10-K. We do not presently expect that such a rule would cause us to change our existing schedules for the quarterly earnings releases. Changing the Timing of the Earnings Release Accelerating the timing of the earnings release may seem like a way to increase the time for review at the back-end of the financial reporting process. However, for large international companies such as Intel, accelerating the timing of the earnings release will not likely be feasible without making significant changes to existing information systems. For Intel and many other manufacturers, the manufacturing accounting systems are highly integrated in the manufacturing operations, and changing the accounting systems would require a costly project with an extended, multi-year, timeline. Given the time frame envisioned in the Commission's proposal, it would not be possible for Intel and other similarly situated companies to make the information systems changes necessary to accelerate the timing of the earnings release. In the longer term, an accelerated financial close process to facilitate an earlier earnings release would most likely involve increased use of estimates, closing based on less reliable data and an increased risk that financial information originally disclosed in the earnings release might have to be revised in the formal SEC filings. Further, we note that we include relatively extensive historical and forward-looking statements in our earnings releases. The forward-looking statements, and associated risk factor statements, constitute an important part of our investor relations program in dealing with stockholders and securities analysts. We believe it is not in the investors' interests to have to reduce the scope of that information in the earnings release in order to reduce the time and effort involved in preparing the release. Cost Considerations We anticipate that accelerating the annual and quarterly report filing deadlines will require us to hire additional personnel to prepare our reports. If the rules are implemented as proposed, with a 30-day deadline for the Form 10-Q, we would also expect to incur significant costs associated with our accounting systems as a result of changing the financial close process. In addition, we expect that various service providers, such as external auditors, outside legal counsel and financial printers, would also be significantly affected by the accelerated deadlines and pass the associated costs to their customers, including Intel. We note in this regard, on an anecdotal basis, that the Commission's cost burden estimates in its rule proposals usually underestimate the actual cost burden increase. Alternative Ways to Accelerate Dissemination of Financial Information Our current quarterly practice is to publish our earnings release approximately 17 calendar days following the end of the fiscal period. Our earnings release includes the historical income statement and balance sheet and a Business Outlook section that includes forward-looking estimates for the next quarter and the fiscal year. We promptly file this document on Form 8-K. We would not be able to publish an MD&A at the time of the earnings release. Preparation of the MD&A narrative cannot be speeded up by automation, and the review process and the inherent quality of the document would suffer if pulled in so dramatically. The Commission may want to consider splitting the presentation of information so that certain core financial information would be required to be in the earnings release and filed relatively early, but the narrative MD&A would still be required to be filed within the current 45 days. We believe that it would not be in the best interests of our stockholders to rush the preparation and filing of a narrative that the SEC considers to be a central feature in the disclosure flow. Conforming Change to Definitive Proxy Filing Requirement We oppose any action to change instruction G (3) to Form 10-K, which permits incorporation by reference in the 10-K of certain information in the proxy statement, as long as the proxy statement is filed within 120 days after fiscal year-end. We note that the Commission's current and expected proposals related to the contents of the MD&A and the requirements for 8-K filings will cover a substantial amount of data related to Part III of the Form 10-K, which is permitted to be incorporated by reference to the proxy statement. Preparation of the proxy statement is another major task that occurs during the same time period that the 10-K and other key reporting and corporate governance events are scheduled, and it necessarily involves many of the same core personnel. If the filing deadline for the proxy statement were shortened, and we were then required to produce the proxy statement and 10-K at the same time, we believe that it would likely compromise the preparation and review process for both of these important disclosure documents. As a practical matter, proxy distribution should remain fundamentally linked to the schedule for the annual stockholders' meeting. Intel's annual stockholders' meeting is traditionally held at the end of May, which is nearly five months after our fiscal year-end. We typically distribute our proxy statement and glossy annual report approximately 45 days prior to the annual meeting, and it has been our experience that most stockholder votes are received in the two-week period prior to the annual meeting, not in the initial period following distribution of the proxy statement. We have over 4 million record and beneficial holders, and in recent years have typically received proxies for over 85% of the shares eligible to vote. We believe that distributing our proxy statement much earlier than 45 days prior to the annual meeting would result in an increase in lost and disregarded proxies by stockholders, leading to reduced voting and ultimately to difficulty (with the attendant cost of additional solicitation efforts) in obtaining a quorum for all issues to be voted upon. We also believe that accelerating the proxy-filing deadline would result in an increased number of issuers filing and mailing their proxy statements within the same very short period of time. We make every effort to increase the acceptance of electronic delivery by stockholders, but we still mail annual meeting materials to the majority of our four million stockholders. To avoid overwhelming the U.S. Postal Service, we try to time our mailing so that it is approximately a week earlier than the mailings of other issuers with a December fiscal year end. Like many other technology companies, many of our stockholders are located in the San Jose, California area, and as a result, it has been our past experience that mail deliveries to this area and other areas with a high concentration of stockholders are often delayed during the April and May proxy season as a result of the high volume of stockholder mailings in the U.S. postal system. If the filing deadline for proxy statements were accelerated, we believe that these postal delays would be exacerbated, resulting in many stockholders not receiving their annual meeting materials until the annual meeting had already passed. Further, as the Commission is no doubt aware, the majority of all annual meeting materials are processed and mailed by one vendor, and this vendor also receives and tabulates the majority of all stockholder votes cast. We are concerned that the additional burden upon this vendor caused by an accelerated proxy filing deadline might result in delayed mailings and vote processing, as well as additional costs that would likely be passed on to the issuers. Because this vendor contracts with banks and brokers to provide these delivery services, issuers do not have the power to change vendors or even supervise the process. Intel is incorporated in Delaware and is subject to Section 213 of the Delaware General Corporation Law, which fixes the date for determining stockholders of record for the annual stockholders' meeting at not more than 60 days prior to the meeting. Historically, we have fixed our record date at the earliest legally permissible date, allowing the time necessary to prepare our stockholder list and verify stockholders' mailing addresses, which is a significant task. If the proxy filing deadline were accelerated, it would necessarily shorten this period of time between the record date and the filing/mailing date, and we are concerned that this would compromise our vendors' ability to verify all of our stockholders' addresses to ensure that they receive their annual meeting materials in a timely manner. Furthermore, we negotiate the cost of printing and transporting our proxy statement on the basis that we give our financial printer clearance to print our proxy statement a week earlier than many other issuers with a December fiscal year-end. As a result, our financial printer is able to offer us a substantial discount. If the proxy filing deadline were accelerated, we would lose this substantial cost savings opportunity. Clearly, any rule change that might result in fewer stockholders having the necessary information to vote on board membership and other important issues would have a detrimental impact on corporate governance. Further, a rule change likely to result in increased corporate costs and have a negative impact on stockholder value is clearly undesirable, especially in the current uncertain economic climate. For the foregoing reasons, we oppose any change in the 120-day period provided by instruction G (3) to Form 10-K. Website Access to Information We are generally supportive of your proposals regarding web access and related disclosure, but we do object to your proposal regarding the timing of access. Like many other companies, we provide Internet access to our SEC filings on our website through a customized 3d-party link to the EDGAR system. This arrangement would not meet the Commission's proposed standard for timing, because, as the Commission notes, "Currently, hyperlinking to our EDGAR system would not allow a company to state that it provides website access to its reports as soon as reasonably practicable after, and in any event on the same day, as those reports are filed." At an additional cost, we could separately post these documents on our website to avoid the 24-hour delay, but we would not consider it money well spent, given the short period of time between EDGAR availability and the date of filing, and especially because "[The Commission] anticipate[s] eliminating this 24-hour delay for filings posted to our website, thus providing real-time posting of disseminated filings." We believe that it would be more appropriate to simply allow issuers to make a declarative statement that their filings are available online when posted to the SEC system. * * * We thank you for consideration of our views and we would be pleased to discuss the issues further at your convenience. /s/ Cary Klafter Cary Klafter Director of Corporate Affairs, Legal Department Intel Corporation 2200 Mission College Blvd. Mail stop SC4-203 Santa Clara, CA 95052-8119 dd (408) 765-1215 _____________________________ Cary Klafter Intel Corporation 408.765.1215 408.653.8050 (fax) 408.219.6959 (cell)