May 17, 2002
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Subject: Proposed Rule: Acceleration of Periodic Filing Dates and Disclosure Concerning Website Access to Reports (File No. S7-08-02)
Dear Mr. Katz:
This letter responds to the request of the Securities and Exchange Commission (the "Commission") in the above-referenced rule proposal for comments on the acceleration of filing dates for periodic reports required by the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and disclosure concerning website access to such Exchange Act reports (the "Proposal"). Our comments are directed primarily towards the proposed acceleration of filing dates.
Who We Are
The Principal Financial Group ("The Principal") is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and mortgage banking through its diverse family of financial services companies. The Principal recently completed the demutualization process, converting from a mutual insurance holding company structure to a stock company. The initial public offering of Principal Financial Group, Inc. common stock was completed in October of 2001.
As such, the Principal is not yet an accredited filer, as defined in the Proposal (we meet the public float requirement, but not the reporting history requirements). The Principal filed its annual report on Form 10-K for the year ended December 31, 2001, but has not been subject to the reporting requirements of § 13(a) or 15(d) of the Exchange Act for a full calendar year. The Principal will qualify as an accredited filer by the close of the current calendar year.
Acceleration of Due Dates
In its Proposal, the Commission proposes to shorten the due date for annual reports on Form 10-K from 90 to 60 calendar days, and the due date for quarterly reports on Form 10-Q from 45 to 30 calendar days. The Principal recognizes today's environment is much different than the environment in which the report filing dates were established, and agrees technology has
accelerated our ability to prepare financial results on a more timely basis. However, we disagree with accelerating the quarterly and annual reporting due dates to 30 and 60 days, respectively, for the reasons set forth below.
The Principal's current quarterly earnings releases are approximately 38 to 40 days following the end of each calendar quarter. The Company serves as one example of a publicly traded entity that does not announce quarterly earnings well before the filing of its quarterly reports on Form 10-Q. The Principal's earnings release and 10-Q filing dates are within one week of each other.
Today's business and financial reporting environment is much more complicated than in the past. Business transactions are more complex (e.g., hedging with use of derivatives), organizations are more diverse and global, and accounting guidance and disclosure requirements are more extensive (e.g., FAS 133, FAS 140, FAS 141/142 and segment reporting). The Principal operates in several financial services industries and has locations around the world. The reporting requirements for asset management, life and health insurance, mutual funds and banking are extensive and require considerable time to collect and review.
While the rudimentary numbers can be developed within weeks, it does take time to fill in the blanks and develop a comprehensive reporting of the Company's financial condition. Accurate reporting of results requires time for many parties to review the results and resolve questions. For the Principal, this includes reviews by business unit management, corporate management, legal and accounting areas, investor relations, our audit committee and our external auditors. Technology has improved the delivery of this information to these areas, but the human elements (to review, analyze, discuss, and resolve) require a considerable amount of time. The reporting requirements for the industries in which the Principal operates require complex calculations, use of estimates and judgment to properly report items such as policyholder reserves, health claim reserves, deferred policy acquisition costs, investment valuation and impairments, derivative valuations, and deferred income taxes. To assure quality financial reporting, it is critical that management has sufficient time to review financial reports.
Accordingly, acceleration of due dates (especially the quarterly due date to 30 days) will reduce the amount of time to review, understand and assure financial results are accurate. Quality of financial information could be compromised.
If the Commission adopts the accelerated due dates, we strongly recommend a phased-in approach to these requirements. Technology and processes are complicated and need a considerable amount of lead-time to accelerate. For large organizations, such as the Principal, this would require significant technology changes and would require up to 18 months of lead-time. If 30 days for quarter end and 60 days for year-end is a goal, we recommend moving towards these goals by eliminating a set number of days for each filing over the next 3 years. This will allow companies to add staff and to make incremental changes to their systems and processes to effectively implement the acceleration.
Website Access to Information
We are in agreement with the Commission's recommendation that issuers make available their Exchange Act reports via website at no cost as soon as such reports have been filed with the Commission. The Principal currently makes recent Exchange Act filings, including its proxy statement, available in PDF format on the investor relations portion of its website. In addition, all Exchange Act filings are available from the same location via a link to a third party website. The Principal has no objection to disclosing these practices and our website address in our annual report on Form 10-K.
Thank you for your consideration of our comments. Please call me if you have questions about our views.
/s/ Michael H. Gersie
Michael H. Gersie
Executive Vice President and
Chief Financial Officer