August 26, 2002

Mr. Jonathan G. Katz Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549-0609

Subject: File No. S7-22-02

Dear Mr. Katz:

The Committee on Corporate Reporting (CCR) of Financial Executives International ("FEI") appreciates the opportunity to respond to the Securities and Exchange Commission's (the "Commission's") Proposed Rule: Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date ("Proposed Rule") Release Nos. 33-8106 and 34-46084. FEI is a leading international organization of 15,000 members including Chief Financial Officers, Controllers, Treasurers, Tax Executives, and other senior financial executives. CCR is a technical committee of FEI which reviews and responds to research studies, statements, pronouncements, pending legislation, proposals, and other documents issued by domestic and international agencies and organizations.

Overall, we strongly support the Commission's initiatives to improve the transparency of financial disclosures, which includes the timely identification and disclosure of a registrant's significant and important events. The objective of this Proposed Rule should be to highlight through the Form 8-K process, material events on a timely basis to the investment community. We are generally supportive of this initiative by the Commission and believe it will provide investors with important information on a timely basis; we have however, noted several suggestions to strengthen this Proposed Rule. Specifically:

The remainder of our letter discusses each of our concerns in more detail.

Form 8-K Filing Deadline

While we appreciate the importance of providing the investment community with timely information on significant events occurring in a registrant's business, we are concerned about the ability to complete these Form 8-Ks in a two-day time period. It would be very difficult to properly prepare the Form 8-K and secure management review prior to submission for some of the events described in this Proposed Rule. In addition to reviews by management, many of these events would require review by the registrant's independent auditor and/or outside legal counsel. Expanding the disclosure requirement to 5 business days would allow time for these reviews to occur. We do not believe that the value of the information to the investment community would be lost by allowing the completion of these 8-K filings within a slightly longer period.

Also, many registrants utilize the services of an outside service provider to EDGARize the Form 8-Ks and have limited staff with SEC filing capabilities. It would be difficult for registrants and the service providers to complete and EDGARize the Form 8-Ks in 2 business days as outlined in the Proposed Rule. Whether completed in-house or through a service provider, the EDGAR process requires a full day to complete. This would leave only one day for the registrant to complete and review the report. Under the Proposed Rules, the schedules of the staff with SEC filing capabilities would need to be micromanaged should one of these 8-K events occur.

Based upon these factors, as well as the materiality discussion below, we believe that completion of these filings within 5 business days is more realistic, should be sufficient for the investment community, and allows enough time for registrants to properly complete and review the filings prior to submission. Rather than bifurcating certain events in the Proposed Rule from other events and having different filing deadlines, we believe a 5-business day filing requirement for all items included in the Proposed Rule, will ease the administration of this rule. With the 5-business day requirement we propose, we would eliminate the automatic extension under 12b-25 discussed in the Proposed Rule.

Requirements for Transactions Not Completed

We are strongly opposed to the filing of a Form 8-K for "letters of intent and other non-binding agreements" as contemplated in the Proposed Rule. It is not unusual for registrants to complete a non-binding letter of intent with another company many months before the final agreement is actually executed. Often, the delays are a result of continued negotiations as details are finalized. As these agreements are non-binding, they are subject to change. In addition, it is not unusual for a letter of intent to be executed, but the transaction is not consummated due to various factors.

Serious consideration needs to be given by the Commission to a situation in which the Proposed Rule is enacted and a non-binding term sheet is executed between two parties triggering a Form 8-K filing. Under certain circumstances, we believe that it is highly likely that after the Form 8-K is filed with a subset of information containing certain components of the proposed agreement, market reaction to the Form 8-K will lead one of the companies to not want to continue with the transaction, and the transaction will be terminated. In addition, the registrant may be entering into the agreement for strategic purposes, in which all aspects may not be in place and therefore, has not been fully disclosed to the investors at the time that the letter of intent is executed. This forced premature disclosure presents significant and unnecessary risk to the shareholders of companies if disclosure occurs prior to a transaction being finalized. For example, terms disclosed may cause financial harm if the registrant ends up having to go to a secondary choice as a partner. This result does not appear to be an objective of the Proposed Rule and would lead to market over-reaction based upon a transaction that may not occur. We are strongly opposed to this section of the Proposed Rule.

Direct or Contingent Financial Obligation

We believe that the completion of a Form 8-K for the creation of a direct or contingent financial obligation that is material to the registrant should be limited to obligations that are assessed as "probable" under Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies. Appropriate disclosures are already required in Form 10-Qs and 10-Ks for those guarantees or other material obligations that are not directly recorded on the balance sheet. Considering the additional Form 8-Ks required as part of this Proposed Rule and the Proposed Rule No. S7-09-02, Form 8-K Disclosure of Certain Management Transactions, we believe that "disclosure overload" is a significant possibility and the value of this additional information would be lost on the investor. The disclosure of a guarantee on a Form 8-K prior to the next periodic filing that will include the appropriate disclosure of the guarantee does not appear warranted. These contingent financial obligations should not be given equal weighting with other Form 8-K requirements.

In addition, transactions inherent to the nature of a registrant's business should not be required to be disclosed on a Form 8-K. For example, lease agreements entered into by the registrant or purchase agreements for raw materials in the manufacturing of the product are entered in the normal course of a registrant's business, and would add to "disclosure overload" for investors, if filed separately under Form 8-K. In addition, we believe that investors may lose value by the disclosure of confidential information. These types of agreements should not be included in the scope of the Proposed Rule.

Agreement Attachments

We do not believe that attachment of agreements as exhibits to the 8-Ks should be required under the Proposed Rule. Certain portions of agreements are confidential in nature, do not impact the overall agreement, and can lead to a competitive disadvantage for registrants as they attempt to enter into other similar agreements. For these reasons, attachment of an agreement as an exhibit is not in the best interest of the investors of a registrant. The normal remedy for this problem, the confidential treatment request under FOIA, is cumbersome and a time-consuming process that would be extremely difficult to execute in the compressed 8-K timeline. If material, the agreements will ultimately be filed with periodic reports, which have a timeline much more conducive to the confidential treatment request process. We believe a summary of the significant sections of a material agreement is appropriate and inclusion of the actual agreement is not necessary and can be damaging to a registrant and its investors.

Definitions of "Material" in the Proposed Rule

We agree with the Proposed Rule regarding a Form 8-K filing for the events described in the Proposed Rule that the registrant believes are significant and important to investors. We believe that the Commission should clarify its intention regarding "material" under the Proposed Rule. We do not believe that materiality under the Proposed Rule should be defined the same as under Staff Accounting Bulletin 99, Materiality. Rather, a separate standard of materiality should be adopted for purposes of this Proposed Rule.

Generally, we support a principles-based approach to accounting and disclosure rules, which would include an analysis by management utilizing its judgment of the events under the Proposed Rule that management believes are significant and important to investors. We prefer this approach compared with an approach based upon a defined financial materiality level. However, based upon the events described under the Proposed Rule, we believe that unless stated otherwise, registrants may be required to utilize SAB 99 in its assessment of materiality, as used in the Proposed Rule. We do not believe this is appropriate and it is inconsistent with a principles-based approach.

The Commission has stated in the Proposed Rule, "agreements can be material for reasons other than the monetary amount involved, [therefore] we propose to require disclosure under this item based on a `materiality' standard and do not propose to tie the disclosure to a financial measure". We believe that financial consideration should be evaluated by the registrants for all items currently being considered for disclosure under the Proposed Rule. The result of not including a financial measure for materiality could lead to inconsistency of application in practice and disclosure overload to the investment community and the value of the Proposed Rule may be lost.

In light of the concern over disclosure overload to the investment community, we propose the Commission allow registrants flexibility in disclosing those events that the registrant believes are significant and important to investors. We believe that some quantitative materiality threshold may be warranted and believe that this "materiality" threshold should be based upon a percentage of assets or equity and not on net income, as net income can fluctuate significantly between periods. In the case of the sale of unregistered securities, we believe that unless the aggregate transactions of such securities exceed 10% dilution to the existing shareholders in any one accounting period, disclosure of the dilution in a separate Form 8-K is not warranted.

Form 8-K Timing for Material Write-offs, Restructuring Charges and Impairments

We agree with the Commission's views discussed in the Proposed Rule related to material write-offs, restructuring charges, and impairments and agree that a Form 8-K is warranted for these events. We believe that the timing of the Form 8-K filing for these events should be based upon the date that the registrant finalizes the accounting, determines the appropriate amount of the loss, and records the transaction into its financial records. Under the Proposed Rule, a Form 8-K would be required in some instances before a liability is recognized under SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. For example, a restructuring plan approved in concept by the appropriate responsible party, but not communicated to the employees' triggers an 8-K filing, but a liability would not be recorded.

The Commission proposed that the 8-K filing timeline would start when the Board of Directors or other officers, as appropriate, commit to a course of action that would lead to these charges. Normally, after this commitment occurs, the amount of the charge is appropriately determined in compliance with generally accepted accounting principles, further discussions occur with senior management, and the independent auditor reviews the charge. We do not believe an 8-K should be filed related to these events until the commitment occurs and the amount is determined, approved, and an initial liability exists.

Rating Agency Decisions

We believe the Form 8-K filing with respect to rating agency decisions should be limited only to the nationally recognized rating agencies of Moody's, Standard & Poors, Duff & Phelps, and A.M. Best. Rating agency decisions usually involve a high level of discussion and the registrant usually is allowed enough time to react to the change in rating; however, activities related to less well-known rating agencies are not tracked as closely by the registrant. Therefore, under the Proposed Rule, the registrant could be surprised by the actions of one less well-known rating agency that changes its views on the registrant. This reaction by this lone rating agency would create a "fire drill" within the registrant to react to and prepare an 8-K filing, review it with management, EDGARize the document, and file it with the SEC. This appears counter-productive. Therefore, we believe this portion of the Proposed Rule should be restricted to only the above indicated nationally recognized rating agencies.

Critical Accounting Policies

We do not believe that the filing of a Form 8-K for a change in a registrant's critical accounting policies is warranted and are opposed to this proposal by the Commission. Providing the critical accounting policy change without the context provided by the financial statements, footnotes, and management's discussion and analysis sections which are included in the Form 10-Q and Form 10-K filings would be confusing to the investor and inappropriate as a stand-alone document.

Foreign Filer Requirements

CCR has long held the belief that rules applicable to domestic filers in the U.S. should also apply to foreign filers in the U.S., wherever possible. In this case, we do not hold the opinion that requiring foreign filers to file Form 8-Ks consistent with the final rule of the Commission would represent a significant burden beyond that experienced by U.S. filers. We therefore believe that in an effort to present a level playing field for domestic and foreign issuers, both groups should be required to file these 8-K documents under the final rules.

* * *

We appreciate the Commission's consideration of these important matters and welcome the opportunity to discuss any and all issues with the Commission at its convenience. If you have questions regarding this letter, please feel free to call Arnie Hanish at (317) 276-2024 or me at (212) 270-1892.

Sincerely,

Frank H. Brod
Chair, Committee on Corporate Reporting
Financial Executives International

David H. Sidwell
Chair, SEC Subcommittee of the Committee on Corporate Reporting
Financial Executives International

This letter represents the views of FEI's Committee on Corporate Reporting (CCR) and not necessarily those of FEI. CCR is a technical committee of FEI, which reviews and responds to research studies, statements, pronouncements, pending legislation, proposals and other documents issued by domestic and international agencies and organizations. FEI is a leading international organization of 15,000 members, including Chief Financial Officers, Controllers, Treasurers, Tax Executives and other senior financial executives.