Pickard and Djinis LLP
1990 M Street, N.W.
Washington, D.C. 20036
(202) 223-4418 (202) 331-3813
May 23, 2002
By Hand and Electronically
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Mail Stop 6-9
Washington, D.C. 20549
Re: Commission File No. S7-08-02
Dear Mr. Katz:
We submit these comments on behalf of Corporate Communications Broadcast Network ("CCBN") regarding the above-referenced rule proposal to accelerate periodic report filing by certain issuers and to encourage such issuers to disclose whether they make those reports available over their Internet websites.
CCBN is the global leader in enabling direct communications between public companies and investors over the Internet. In this regard, CCBN builds, manages and hosts the investor relations sections of websites for more than 2,000 public companies, including nearly 50% of the Fortune 500, providing in-depth shareholder information through interactive, multi-media solutions. CCBN also hosts live and archived conference calls for more than 3,000 corporations each quarter; in a typical quarter, CCBN conducts over 3,500 such webcasts. Through its StreetEventsK institutional event management database (www.streetevents.com) CCBN provides more than 1,100 institutional firms with access to corporate information. Over 15,000 analysts and portfolio managers subscribe to StreetEvents, making it the leading repository of investment-related event information received directly from public companies and investment firms.
CCBN also facilitates the delivery of information about issuers to retail investors by maintaining content licensing agreements with a number of investment portals including America Online, The Motley Fool, Fidelity.com, Forbes.com and Lycos/Quote.com. Through these arrangements, retail investors gain access to corporate event data, conference call webcasts and other financial information that heretofore has been available only to the institutional marketplace.
CCBN commends the Commission for recognizing the power of the Internet and the opportunity it affords to improve communications between public companies and investors. Recent events have brought the corporate disclosure practices of public companies into sharper focus. Increased scrutiny of the disclosure of corporate earnings and significant events has made investor relations communications strategies more critical to a public company's success. To retain investor confidence, companies must ensure that their shareholders are fully informed, and the Internet is increasingly being seen as a way to accomplish this goal.
The adoption of Regulation FD has also caused public companies to rethink their communication strategies. As a result of this regulation, issuers now regard investor relations websites not only as a public relations tool, but also as a means of avoiding the selective disclosure of corporate information. It is no surprise that 99 percent of National Investors Relations Institute ("NIRI") member firms have corporate web sites and 98 percent of these have sections dedicated to investor relations.1
In addition to the increased reliance on corporate websites as a distribution medium for investor information, more and more issuers are choosing to webcast quarterly corporate conference calls with analysts, enabling both institutional and individual investors to listen in. An August 2001 NIRI survey showed that 92% of companies that conduct quarterly analyst conference calls are now webcasting them for full access to the media and interested investors.2 More and more guidance calls and mid-quarter updates are being held and webcast, further adding to the amount of information accessible to investors.
Issuers are not the only ones who have recognized the power of the Internet in this area. Today, professional and retail investors alike expect to have access to timely and complete corporate information, and they are increasingly looking first to the Internet and corporate websites to obtain such information. Institutional investors and sell-side analysts in particular are using the web as a primary source of current and historic information on publicly traded companies. In a study conducted last year by Kraker & Company, over 40% of the analysts and portfolio managers surveyed said they use corporate websites daily and another 35% said they use them weekly for investment research.3 Furthermore, 56% of the respondents said that company websites are more important since the passage of Regulation FD.
However, this rush to the Web also has the potential to inundate investors with corporate information. Issuers and communication vendors must develop new ways to channel all this data, so that investors can access and process what they need in the most efficient manner possible. The regulators, too, must be sensitive to the fact that information that overwhelms does not advance the goal of investor protection.
CCBN Supports The Commission's Efforts To Encourage Companies
To Disseminate Exchange Act Reports Via Their Websites
CCBN's experience has been that the use of the Internet to distribute SEC filings and other corporate information is both beneficial to investors and inexpensive for issuers.4 We note that over 90% of the 2,000 corporations whose websites are hosted or managed by CCBN already make such filings available essentially immediately upon submission to the SEC. In addition to posting Commission filings and other corporate information on their websites, many issuers are also taking advantage of technology that allows them to notify shareholders and investors, through electronic mail or phone alerts, when new information is posted. As a result of these technological advances, the investing public has more timely access to more information than ever before. The increased use of corporate websites as a distribution medium has leveled the playing field between institutional and retail investors. Therefore, CCBN supports the Commission's efforts to encourage the use of corporate websites to disseminate reports required under the Securities Exchange Act of 1934 ("Exchange Act") and other information.
This support is not diminished by the fact that some investors do not have ready access to the Internet. Although the existence of the "technology gap" certainly must be recognized, the benefits that accrue to investors from electronic information dissemination are so pronounced, and the number of people with at least some form of Internet access is so substantial and growing so rapidly,5 that encouraging issuers to communicate through websites is more than justified.
That being said however, there are steps issuers can take to facilitate the rapid dissemination of corporate information to those investors who do not have Internet access. For example, many issuers have established a toll-free investor hotline through CCBN, which provides investors with immediate access to current corporate information 24 hours a day, seven days a week. Investors can use the hotline to request that current SEC filings or earnings and new releases be delivered to them byfacsimile or mail. Investors also may use the hotline to hear stock quotations, management commentary and answers to frequently asked questions.
In addition to the hotline, CCBN also provides services which allow issuers to reach out to investors to inform them of the availability of SEC filings or of other corporate news and events. In this regard, CCBN can "blast" messages to large groups of investors by telephone, facsimile or electronic mail, to alert them to an SEC filing, earnings release or analyst conference call. Investors may then access the information through the corporate website, or, if they do not have access to the Internet, through the toll-free investor hotline described above.
For all of these reasons, CCBN supports the Commission's proposal to amend Item 101 of Regulation S-K to require certain large companies to disclose whether they provide website access to their Exchange Act reports.
CCBN Supports the Proposal to Accelerate
Certain Issuers' Filing Deadline For Form 10-K
CCBN's substantial experience in webcasting earnings reports places them in a unique position to understand the pattern of earnings announcements and news releases that comprise annual and quarterly earnings periods. Most of CCBN's webcast clients operate on a calendar fiscal year. These clients typically schedule a conference call with analysts immediately after each earnings release is made public, in order to put the results in context and give management a chance to comment on or explain surprises, trends and other items of interest to investors. Data drawn from CCBN's StreetEvents database indicate that accelerating the filing for Form 10-K to 60 days should not pose a significant burden on large, seasoned issuers. For the first quarter of 2002, 83% of issuers tracked by CCBN had reported their earnings by day 60:6
1Q02 Earnings Period Number of Issuers Releasing Percentage
0 - 15 days 177 3.5%
16 - 30 days 1,705 33.9%
31 - 45 days 1,321 26.3%
46 - 60 days 955 19.0%
61 - 90 days 869 17.3%
Moreover, requiring annual reports to be filed within 60 rather than 90 days after the close of the issuer's fiscal year will enhance investors' ability to make informed investment decisions by narrowing the gap between the time a company announces its earnings and the time the more extensive information required by the Exchange Act reports is made available. Because shortening the due date of annual reports would provide more timely disclosure to investors and the market without unduly burdening issuers, CCBN supports the Commission's proposal to require large, seasoned reporting companies to file their annual reports on Form 10-K within 60 days of the end of their fiscal year.
CCBN has a different view, however, regarding the Commission's proposal to accelerate the filing of quarterly reports.
CCBN Does Not Believe That The Benefits Of Accelerated
Quarterly Report Filings Would Offset The Burdens That
Such Acceleration Would Impose On Issuers And Investors
CCBN's experience has been that few, if any, issuers are prepared to report earnings results earlier than the eighth day of the month following the end of the calendar quarter. The daily volume of earnings releases and conference calls grows over the next several weeks, peaking on or around the 30th, but continuing right up to the 45th day following the end of the quarter. Data derived from CCBN's StreetEvents database indicates that for calendar quarters other than year-end, approximately 55% of earnings releases occur during the first 30 days following the end of the quarter, and 85% occur within the 45-day period following the end of the quarter.7
Releases issued in: 15 days 30 days 45 days
CCBN is concerned that accelerating the filing deadline for Form 10-Q will not only put enormous pressure on some issuers, but will also create a glut of information that will be extremely difficult for institutions, sell-side analysts and retail investors to process. As noted above, approximately 30% of the issuers CCBN monitors currently release their earnings and hold follow-up conference calls between the 30th and 45th day following the end of the quarter. Because issuers typically want to hold conference calls as soon as possible after earnings are publicly released, accelerating the filing deadline of Form 10-Q from45 days to 30 days would cause more earnings releases and conference calls to be concentrated in the already busy period between the 15th and the 30th day following the end of the quarter. CCBN believes that inundating investors during this 15-day period with a large volume of additional information that they may not have time to process would place a tremendous burden on investors that would outweigh the benefits of having the Form 10-Qs of some issuers made available more quickly.8
Nevertheless, CCBN is sympathetic to the Commission's view that investors should receive the important disclosures found in Form 10-Q promptly after a company releases its earnings to the public. CCBN believes that this goal can be accomplished without creating an information overload that disserves investors, by adopting the approach advocated by one of the commenters to the Commission's 1998 release proposing reform of the Securities Act registration process.9 Under this approach, an issuer would be required to file its quarterly reports by the earlier of the existing 45-day deadline or a specified date after the company first releases its earnings.10 CCBN further believes that 10 days would be an appropriate time between the public release of earnings and the formal filing with the SEC. This solution would allow investors to receive the benefit of the disclosures found in Form 10-Q in a timely manner after a company's earnings are announced, while avoiding additional concentration of the already crowded earnings period. This approach also would accommodate the needs of those issuers who require additional time to finalize their quarterly reports.
CCBN applauds the Commission's initiatives to improve the dissemination of corporate information to investors through the use of issuer websites. CCBN also supports the Commission's proposal to require large, seasoned reporting companies to file their annual reports within 60 days after the end of their fiscal year. With regard to quarterly reports, however, CCBN believes that the laudable goal of providing more timely information to investors can be better accomplished through a balanced approach that results in the release of information in an orderly and digestible fashion. CCBN appreciates this opportunity to comment on this very important proposal.
Very truly yours,
cc: Hon. Harvey Pitt
Hon. Isaac C. Hunt, Jr.
Hon. Cynthia A. Glassman
Alan L. Beller
Jeffrey J. Minton
Elizabeth M. Murphy
1 NIRI Executive Alert, January 9, 2001.
2 NIRI Executive Alert, December 21, 2001.
3 "How Equity Analysts View and Use Corporate Websites for Research," Kraker & Company (July 2001).
4 For example, CCBN can provide access to an issuer's SEC filings through the issuer's existing website for as little as $250 a month.
5 Indeed, many public libraries now provide free Internet access.
6 CCBN believes that the remaining 17% includes issuers who have a fiscal year other than a calendar year.
7 CCBN believes that the remaining 15% consists for the most part of issuers who have a fiscal year other than a calendar year.
8 Indeed, ever since the implementation of Regulation FD, analysts and investors have been struggling to keep their heads above the conference-call waters during earnings season. See Opdyke and Nelson, "Conference-Call Crunch: New SEC Rule Turns Analysts' Rite Into a Hectic Affair," The Wall Street Journal, October 31, 2000, at C1.
9 Release No. 33-7606A (Nov. 13, 1998). In this Release, the Commission also requested comment on whether the due dates of annual and quarterly reports should be shortened.
10 See letter of American Bar Association in SEC File No. S7-30-98.