August 26, 2002

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

Re: File Number S7-22-02

Dear Mr. Katz:

We at PricewaterhouseCoopers LLP appreciate the opportunity to comment on the Commission's Proposed Rule: Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date (the "Release" or the "proposed rule").

We fully support the Commission's recent efforts to improve the current system of continuous disclosure under the Securities Exchange Act. The Commission has focused on a very important area to the US capital markets - transparent reporting and the timely dissemination of accurate information by public companies to investors.

We have provided comments on the Commission's proposed rule adding 11 new items that will require issuers to file Form 8-K under the Securities Exchange Act as well as the Commission's proposal to shorten the filing deadline to two business days after a triggering event. We have additionally provided our views with respect to areas of the proposed rule, which we believe should be clarified by additional interpretive guidance.

Emphasize the quality of the disclosures in the current reporting environment accompanied by timely filings

We understand and recognize investor's needs for timely and accurate information, and support the Commission's goal to modernize and improve the current corporate reporting and disclosure system. We agree that issuers should place greater emphasis on their current disclosures and the proposed rule to amend the requirements of Form 8-K is a logical conduit for the current reporting concept. However, with respect to certain of the proposed disclosure requirements, we are concerned that as issuers focus on meeting shorter filing deadlines, there is the potential for adverse effects on the quality of those disclosures.

Additionally, we believe that changes to the existing reporting framework should include strengthening the basis for higher quality earnings releases. Thus, we continue to recommend, as we did in our comments on Release No. 33-8089 (File Number S7-08-02), that the Commission require press releases to be placed on file under an item of Form 8-K, defining such press releases as those purporting to portray partial or incomplete GAAP accounting results for a given reporting period.

The proposed two-day reporting period in some circumstances may be an easily attained deadline for certain issuers. However, we are concerned that in many other circumstances management may need to discuss issues with external securities counsel as well as with external auditors in order to arrive at a high-quality disclosure. Even assuming that the issuer's ability to obtain raw information within a day is in the control of management, there still needs to be sufficient time to permit management to consult with both internal personnel and external advisors, prior to releasing information externally, in order to enhance its quality.

Carefully consider the impact of the proposed rules on a registrant's ability to maintain its short-form eligibility

As the Commission is aware, under the proposed rule, the number of filings on Form 8-K will increase significantly by adding the proposed items. Thus the potential for an issuer to fail to meet its 1934 Act timely reporting requirement even with the proposed two-day extension will also increase. In today's environment, the inability to enter the U.S. markets in a timely manner could be very costly for issuers, and the costs to the Commission in terms of the human effort to evaluate an elevated level of waiver requests would become significant.

We recommend that the Commission weigh carefully the potential costs and benefits to both investors and issuers of losing short-form eligibility as a result of inadvertent late filings. As the Commission has previously proposed an exemption for "minor violations, subject to certain conditions" in its Proposed Rule: Form 8-K Disclosure of Certain Management Transactions, we suggest the Commission provide a similar exemption in its final rules. Additionally we would expect the Commission to provide further definitive guidance as to what constitutes a "minor violation" and "certain condition" to assist issuers and their securities counsel seeking interpretations related to these items.

Consider whether amending Rule 12b-25 will cause additional filing burdens on registrants

We believe that a two-day reporting requirement could potentially result in disclosure that will be less in quality than that otherwise attainable with a longer period of time available to prepare the filing.

Under the proposed amendment to Rule 12b-25, a registrant would have to file a Form 12b-25 no later than one business day after a Form 8-K was originally due (i.e., two days) in order to obtain a two-day extension. Thus, the issuer would have a total of four days to file Form 8-K without penalty of losing short form eligibility. Under the current rules, the filing timeframe is five days before considering a five-day extension under the current Rule 12b-25. It appears to us that most issuers will resort to using the new Rule 12b-25, thus diluting any benefit to investors. Therefore, we recommend that either the existing five-day filing requirement stay intact, perhaps removing any ability to further extend for the covered items, or the proposed deadline is changed to four days so that the issuer is not continuously burdened with multiple filings of Forms 8-K followed by multiple filings of Forms 12b-25.

If Rule 12b-25 is amended, we recommend that the Commission require companies disclose clearly in Form 12b-25 all the substantive reasons why they were unable to timely file the Form 8-K.

Changes in critical accounting policies should not be reported in Form 8-K

We recognize that significant changes in accounting policies, estimates and methods are important disclosures necessary for investors to understand the financial information being provided to them by issuers. In that regard, we strongly believe that investors can only obtain a complete understanding of such changes in policies or estimates if the changes are presented in context of the issuers' financial statements and related financial disclosures, (e.g. MD&A).

We believe that reporting changes in accounting policies or estimates on a "stand-alone" basis in Form 8-K in today's environment will cause investors to assume worst case scenarios or invite them to second-guess what the changes really mean. As a result of this information being read out of context, investors could possibly make uninformed decisions. This approach seems to contradict the Commission's, as well as our goal to restore investor confidence.

Imposing filing requirements for Form 6-K consistent with those for Form 8-K would impose an excessive burden on foreign private issuers

The Commission's rules and regulations for foreign private issuers have been based on the concept that each foreign issuer would be required to file an annual report that contains informational content that is similar to that provided by US domestic registrants. However, other information that is provided during the year is based on the requirements of the foreign issuers' home countries or by the foreign stock exchanges. Presently, the frequency of reporting, the level of detail, the inclusion or exclusion of US GAAP information, etc., that is furnished on Form 6-K is based on requirements imposed by other parties - not the Commission.

The concept of not creating any additional reporting requirements is very fundamental to the foreign private issuer reporting system. It is designed to balance the desire of US investors to have a foreign securities investment option with the cost of the incremental reporting by a foreign private issuer which might repel their approach to the US capital markets. Many other countries have developed interim reporting requirements and periodic requirements similar to that which would be provided on Form 8-K for domestic companies to meet the demands and expectations of the foreign issuer's primary market. We believe that there is no demonstrated evidence to indicate that the US market would benefit from applying the reporting requirements of Form 8-K to foreign private issuers. In fact, the incremental cost could discourage foreign issuers from coming to the US market and some may elect to terminate their registration if there was a significant increase in cost.

If the Commission believes that there is support to modify the system for foreign issuers with respect to Form 6-K, we recommend that the Commission issue a separate proposing release for foreign issuers to ensure that it receives the proper attention by those companies, US market intermediaries and legal advisors that would be impacted. In addition, if the Commission believes there should be changes in the interim and periodic reporting by foreign issuers, then the issues should be addressed by IOSCO in order to help ensure greater harmonization among the different countries.

In its proposal, the Commission has asked whether some information (e.g., change in auditors or the filing of a bankruptcy petition), because of its relatively high degree of importance, should be required to be the subject of a filing on Form 6-K even if such disclosure is not required under the foreign private issuers' home country laws or stock exchange rules. While there are some items that are significant, we would not propose any changes because it would be inconsistent with the reporting model for foreign private issuers. However, regarding changes in auditors, we would like to point out that the AICPA International Practices Task Force concluded that the requirements of Item 304 of Regulation S-K should be equally applicable to a foreign private issuer. However, the disclosure would be provided in Form 20-F and not Form 6-K. We believe the conclusions of the Task Force should be considered by the SECPS.

We also point out that the information listed in General Instruction B of Form 6-K has historically mirrored the requirements in Form 8-K. Accordingly, if the list of items in Form 8-K is expanded, we believe the Commission should also make similar modifications to Form 6-K.

Proposed Changes

Item 1.01: Entry into a Material Agreement

Clarify the definition of an "agreement"

The Commission should clarify the definition of an "agreement" so that it is not so encompassing as to include, for example, such items as non-binding agreements and letters of intent. We believe that disclosure of non-binding agreements and letters of intent would be premature because they are subject to significant changes. Additionally, these types of documents could be in the early stages of a negotiated transaction, and their disclosure could be both economically damaging to the issuer and confusing to investors. It would place a burden on issuers to repeatedly amend the initial Form 8-K as the terms of such agreements change. This also places a burden on investors, who would have to continually monitor filings on Form 8-K/A's to ensure they understood the changing terms of such agreements, or if an agreement were cancelled or revoked.

Require the disclosure to include all information necessary for a complete understanding of the agreement and its impact on the issuer

We are concerned that under the proposed item the information the Commission is requesting may be viewed as "minimum" disclosure. We recommend that the Commission require disclosure of how agreements affect the registrant's operations from a business/economic point of view as well as the registrant's financial statements so that investors are not misled by a lack of meaningful information.

Additionally, we believe that the materiality considerations to be used to determine what information should be disclosed should take into account qualitative factors in addition to quantitative measures. For example, if an issuer has a significant relationship with a customer, then entering into an agreement with that customer may be considered "material" by investors although the agreement by itself may be considered insignificant to the issuer.

We also recommend that the Commission explicitly clarify that the disclosure requirements under this item need not be made if covered by the "confidentiality exception" concept of Regulation FD.

Limit the disclosure to material agreements that are not made in the ordinary course of business

We believe that agreements made in the ordinary course of business should not warrant a Form 8-K reporting requirement. The current disclosures of these types of agreements under the Securities Exchange Act pursuant to Regulation S-K 601(b)(10) as exhibits in Form 10-K and 10-Q will suffice. Further, we recommend that issuers be required to file both material agreements made in the ordinary course of business as well as the material agreements which would be disclosed in Form 8-K in all filings on Form 10-K or 10-Q in the periods in which the agreements were executed.

Item 1.03: Termination or Reduction of a Business Relationship with a Customer

Clarify how issuers will comply this item, or consider an alternate disclosure requirement

We believe that issuers' compliance with this proposed rule may be difficult and inconsistent in practice due to all of the events that could transpire unknown to an executive officer of a company. For example, how would an executive officer know what a customer's intentions were and at what point in time would it become a measurable event? There are situations where a customer has slowly, over the course of the year, reduced its purchases or changed the composition of its purchases. Under the proposed rules, what would be the appropriate time to report this type of reduction in Form 8-K? It appears that the issuer would have to track all sources of revenue from all of its customers and, not only be aware of reductions, but also have procedures in place to track additions for possible customers' "order backlog" changes.

We believe that the Commission should require issuers to track only those customers that have been disclosed in prior year's Form 10-K pursuant to Item 101(c) of Regulation S-K. This would allow issuers to more objectively identify those customers subject to the rule, and whose total revenue exceeds the 10% threshold defined therein. At the time in which revenues dropped below this threshold, the issuer would be required to report the reduction in Form 8-K.

Additionally, if the Commission elects not to implement reporting requirements following Item 101(c) of Regulation S-K, then further guidance and clarification should be provided instructing issuers on how to obtain from their customers all of the affiliate information of each customer. It is our belief that currently issuers do not maintain this type of information related to their customers, and an additional burden will be placed on issuers to implement procedures to properly track this information, if extended below the Regulation S-K 101(c) thresholds.

Item 2.01: Completion of Acquisition or Disposition of Assets

Do not accelerate the due date of audited financial statements of an acquired business

We recommend that the Commission clarify that the additional time to provide audited financial statements of an acquired entity following the filing of Form 8-K announcing the acquisition has not been eliminated. We further recommend that the Commission retain the 75-day period to provide audited financial statements after the consummation of the acquisition. Thus, if the Commission changes the current 15-day reporting requirement of the initial Form 8-K to two days, then we recommend that the audited financial statements should be filed by the issuer in an amendment to the initial Form 8-K no later that 73 days after the initial Form 8-K was filed (assuming it was filed on day two).

It has been our experience that issuers need the full 75-day timeframe for many reasons. Not only are there many instances in which acquiree's financial statements were not previously audited, but also there are situations that place unanticipated hardships on the issuer/acquirer such as significant turnover of management of the acquiree; more time needed to prepare for the audit and/or the inability to locate certain accounting records.

Item 2.05: Exit Activities Including Material Write-Offs and Restructuring Charges and Item 2.06: Material Impairments

Clarify that the triggering event should be the measurement date under GAAP

We believe the appropriate triggering event would be the measurement date for the recognition of a liability or an impairment of a long-lived asset or goodwill under the applicable authoritative accounting standards. It is at this date issuers have all of the relevant and meaningful information, including the impact on the operations and financial statements that will be the most informative to investors.

For example, under Statement of Financial Accounting Standards ("SFAS") 142, Goodwill and Other Intangible Assets, when an issuer completes the first step of an impairment test, it will know whether or not impairment of goodwill exists. However, the actual measurement date will occur at a later date, as the issuer has to determine the fair value of the assets and liabilities of the reporting unit in order to determine the amount of impairment to be recognized. Therefore, filing Form 8-K upon completion of the first step would not provide an investor with any more information than will be disclosed in Form 10-Q for the period in which the issuer completes step one and knew there would be an impairment, but had not yet quantified the amount. However, once step two of the impairment test is completed, the issuer could disclose the results within the two-day requirement. This Form 8-K would be filed subsequent to the Form 10-Q that initially disclosed that step one had indicated impairment would be recognized in a future period, yet before the next periodic filing on either Form 10-Q or Form 10-K. Thus, the Form 8-K will supplement the disclosure in Form 10-Q in a timely fashion with accurate and relevant information.

Similar issues exist pursuant to SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, and SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Under the guidelines of SFAS 146, "a liability for a cost associated with an exit or disposal activity is recognized and measured initially at its fair value in the period in which the liability is incurred" (with one exception). Additionally, under the guidelines of SFAS 144, the impairment of a long-lived asset to be held and used or to be disposed of other than by sale is recorded at the date it is tested for recoverability; and a long-lived asset classified as held for sale is measured at the lower of fair value or carrying value, less costs to sell in the period it is classified as such. In both cases, although management may know that there will be a restructuring related charge or an impairment charge, the amount to ultimately be recognized will not be known until a future date.

In general it has been our experience that registrants usually do not commit to a restructuring plan until they have performed an analysis and understand the significant costs that will be incurred. This information is usually included in press releases and in filings in Form 8-K. However, with regard to recording impairments, the events that trigger possible impairments are generally not within the control of management, who will need sufficient time to calculate the amount of loss to be recorded in their financial statements.

Therefore, we recommend that the Commission clarify that either the triggering event for filing Form 8-K under the proposed rule is a measurement date in accordance with GAAP, or consider implementing a two-step reporting process whereby a Form 8-K would be filed initially by the registrant disclosing that there will be an impairment or other charge, followed by an amendment to that Form 8-K once the impairment or other charge has been appropriately measured and recognized by the issuer. This approach is similar to the approach suggested for acquisitions where the registrant initially discloses the nature of the acquisition and later files the audited financial statements of the acquiree in an amendment to the initially filed Form 8-K. The drawbacks related to impairments are that market speculation and uncertainty will ensue until the GAAP amounts become known and are disclosed.

Item 4.01: Changes in Registrant's Certifying Accountant

Do not revise the current five-day reporting requirements under Item 4.01

We recommend that the Commission retain the present five-day reporting requirements under Item 4. Although it appears that the disclosure requirements of Regulation S-K 304 are fairly straightforward, it has been our experience that registrants are not familiar with this rule and recognize that the former auditors have the best knowledge base as it relates to this rule. Typically, time is needed by the registrant and its legal counsel along with the former auditor for discussion, review and modification related to the text of Item 4 prior to filing. The former auditor also must comply with the member firm's reporting requirements by the SEC Practice Section, which is also a five-day requirement.

Also, as evidenced by the Commission's comment letters related to past filings of Item 4 disclosures in Form 8-K, it should be kept in mind that the staff of the Commission demands strict compliance with the disclosure requirements of Regulation S-K 304. We believe that more than two days are necessary to help ensure such level of compliance.

Clarify the reporting requirements of an employee benefit plan and its sponsor/registrant

We recommend that the Commission require employee benefit plans ("EBPs"), whose auditor is other than that the auditor for the sponsor/registrant, to comply with Item 4.01 when the EBP changes auditor. In the event that the same auditor audits both the sponsor/registrant and the EBP, we recommend that only the sponsor/registrant should be required to disclose the change in auditor pursuant to Item 4.01 of Form 8-K. Generally, EBPs that file Form 11-Ks that refer to the filings of their sponsor/registrant has satisfied their reporting requirements as it relates to a change in auditor.

If the Commission wishes to enhance the disclosure of the EBP in circumstances where the EBP and its sponsor/registrant had the same auditor and there was a subsequent change, the Commission should consider amending the requirements of Form 11-K to include a new item that would require disclosing the Regulation S-K 304 disclosures. However, if the EBP had a different auditor than its sponsor/registrant, then it would report any change in Form 8-K.

Do not delete Item 9, "Changes in and Disagreements with Accountants on Accounting and Financial Disclosure" of Form 10-K

We recommend that the Commission retain the reporting requirements of Form 10-K Item 9. We believe that these disclosure requirements are valid and informative to investors since there can be situations where an auditor is dismissed subject to the completion of its work related to an audit or a review. In these situations, Item 9 would disclose, pursuant to Regulation S-K 304, whether or not there were any disagreements or other reportable event between the time the auditor was initially notified of its pending termination and the time the Form 10-K was filed, which may be before a final Form 8-K/A is required reporting the completion of the pending assignments.

Item 4.02 Non-reliance on Previously Issued Financial Statements or a Related Audit Report

Clarify that the auditor should be required to state whether or not it agrees with the Item 4.02 disclosures if the Registrant concludes that previously issued financial statements should no longer be relied upon, or if an auditor provides notice that reliance can no longer be placed on previously issued financial statements

We recommend that in either situation described above, as contemplated by the proposed rules, the auditor should have the opportunity to review the Registrant's disclosures and be required to provide the Registrant with a letter stating whether or not the auditor agrees with the statements concerning its firm as disclosed by the Registrant. We agree with the Commission that the auditor should also state the reasons why it disagrees, if this is the case. The letter will then be filed as an exhibit to the Form 8-K or 8-K/A, as appropriate.

We also recommend that the Commission require disclosure of these events in its periodic filings on Forms 10-Q and 10-K.

* * * * * * *

We appreciate the opportunity to express our views and we commend the Commission and its Staff for the speed in which it continues to modernize the periodic financial reporting system under the Securities Exchange Act in its efforts to restore investor confidence in the U.S. capital markets.

We will be pleased to discuss our comments or answer any questions that you may have. Please do not hesitate to contact Jay P. Hartig at (973) 236-7248 regarding our submission.


PricewaterhouseCoopers LLP