Financial Executives International
Committee on Corporate Reporting

December 16, 2002

Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

Subject: File No. S7-43-02

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") Proposed Rule: Conditions for Use of Non-GAAP Financial Measures ("Proposed Rules") Release nos. 33-8145 and 34-46768. 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. This document represents the views of the CCR and not necessarily the views of FEI.

FEI has been proactive in providing best practice guidance for clear and consistent public statements on corporate earnings. In April 2001, FEI and the National Investor Relations Institute (NIRI), jointly released "FEI/NIRI Earnings Press Release Guidelines." The objectives and the guidelines detailed in the FEI/NIRI release are generally consistent with those included in the Proposed Rules and therefore, we are highly supportive of most of the Commission's proposals herein to effectively address issues relating to public companies' use of "pro forma financial information." Further, we strongly support the Commission's proposal to require registrants to furnish earnings releases on Form 8-K, consistent with the position we took in our comment letter of May 2002 regarding the Commission's Proposed Rule, "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports".

We do, however, have some suggestions that we believe will make the Proposed Rules less restrictive, while still achieving the Commission's goals.

Prohibitions in Commission Filings

We oppose the proposals which would prohibit a company, in its filings with the Commission, from (a) adjusting a non-GAAP performance measure to eliminate or smooth items identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur, and (b) presenting a non-GAAP per-share measure. We believe that these proposed prohibitions are overly restrictive and in certain instances, will be an obstacle for a company seeking to provide clear and thorough financial discussion and analysis "through the eyes of management." For example, a registrant recognizing a large gain or loss on the sale of a business or an investment might be precluded from reporting a pro forma earnings amount which excluded the gain or loss, and would be prohibited from reporting a related pro forma EPS figure.

Further, we are concerned that these prohibitions may result in earnings releases and SEC filings that are more narrow in content, leaving much of a company's robust financial reporting and analysis for conference calls and other forums. This is contrary to one of Regulation FD's key objectives of reaching all investors with the same information at the same time.

These prohibitions are also at odds with the Commission's position put forth in its December 2001 release, "Cautionary Advice Regarding the Use of "Pro Forma" Financial Information in Earnings Releases", as follows:

" ...Pro forma financial information can serve useful purposes. Public companies may quite appropriately wish to focus investors' attention on critical components of quarterly or annual financial results in order to provide a meaningful comparison to results for the same period of prior years or to emphasize the results of core operations. To a large extent, this has been the intended function of disclosures in a company's Management's Discussion and Analysis section of its reports. There is no prohibition preventing public companies from publishing interpretations of their results, or publishing summaries of GAAP financial statements.

Moreover, as part of our commitment to improve the quality, timeliness, and accessibility of publicly available financial information, we believe that - with appropriate disclosures about their limitations - accurate interpretations of results and summaries of GAAP financial statements taken as a whole can be quite useful to investors.

....we commend the earning press release guidelines jointly developed by the Financial Executives International and the National Investors Relations Institute and we encourage public companies to consider and follow those recommendations before determining whether to issues "pro forma" results, and before deciding how to structure a proposed "pro forma" statement. A presentation of financial results that is addressed to a limited feature of financial results or that sets forth calculations of financial results on a basis other than GAAP generally will not be deemed to be misleading merely due to its deviation from GAAP if the company in the same public statement discloses in plain English how it has deviated from GAAP and the amounts of each of those deviations."

We continue to support the FEI/NIRI guidelines and we support most of the elements of the Commission's Proposed Rules. We believe that the Commission's Proposed Rules, without the restrictive and unnecessary prohibitions discussed above, will be effective in addressing issues related to "pro forma financial information" and fully satisfy the requirements of the Sarbanes-Oxley Act of 2002.

Disclosures in Commission Filings

We generally support the Commission's proposed disclosure requirements for companies that include non-GAAP financial measures in their Commission filings. However, we believe that certain of the proposed disclosure requirements are unnecessary, namely those which would require companies that include non-GAAP financial measures in their Commission filings to provide (a) a statement disclosing the purposes for which the registrant's management uses the non-GAAP financial measure presented: and (b) a statement describing the reasons why the registrant's management believes such non-GAAP financial measures provide useful information to investors. We expect that the purpose of including non-GAAP financial measures is self evident in most cases (i.e., to provide meaningful comparisons for each operating period presented), and therefore, these disclosures would not provide useful information and would become boiler-plate.


With respect to any final rules, we urge the Commission to make the effective date no earlier than first quarter 2003 for companies with calendar fiscal year-ends.

* * *

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 any questions regarding this letter, please feel free to call Frank Brod at (989) 636-1541 or David Sidwell at (212) 270-1892.


Frank H. Brod
Chair, Committee on Corporate Reporting
Financial Executives International
  David H. Sidwell
Chair, SEC Subcommittee
Committee on Corporate Reporting
Financial Executives International