Compass Bancshares, Inc.

VIA ELECTRONIC MAIL

December 13, 2002

Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
Attention: Jonathan G. Katz, Secretary

Re: Release Nos. 33-8145 and 34-46768 (the "Proposing Release"); File No. S7-43-02

Dear Commissioners:

On behalf of Compass Bancshares, Inc. ("Compass"), we respectfully submit these comments relating to the Commission's proposal regarding the disclosure or release of certain financial information derived on the basis of methodologies other than in accordance with generally accepted accounting principles ("GAAP"). The proposals set forth in the Proposing Release (the "Proposals") are intended, among other things, to implement the provisions of Sections 401(b) of the Sarbanes-Oxley Act of 2002 (the "Act"), which was signed into law by President Bush on July 30, 2002.

Compass is a financial services company that was organized in 1970 and operates approximately 344 full-service banking offices in Alabama, Arizona, Colorado, Florida, Nebraska, New Mexico and Texas. Compass has $23.7 billion in assets and is among the top forty (40) bank holding companies in the United States in terms of assets. Shares of Compass' common stock are traded on the Nasdaq stock market under the symbol "CBSS." Compass is considered an issuer for purposes of the Act and, therefore, would be subject to the provisions of the Proposals.

We have not addressed all of the specific requests for comment proposed by the Commission in the Proposing Release, but rather have limited our comments to those items with which we have concerns or for which we have suggestions for improvement. To the extent we have comments to the Commission's specific requests for comments, they are provided below.

GENERALLY

Section 401(b) of the Act is intended to address the perceived need of Congress and the President to deal with concerns relating to the use of pro forma financial information by public companies. Section 401(b) provides the following:

Not later than 180 days after the date of enactment of the [Act], the Commission shall issue final rules providing that pro forma financial information included in any periodic or other report filed with the Commission pursuant to the securities laws, or in any public disclosures or press or other release, shall be presented in a manner that -

    (1) does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the pro forma financial information, in light of the circumstances under which it is presented, not misleading; and

    (2) reconciles it with the financial condition and results of operations of the issuer under generally accepted accounting principles.

According to the Proposing Release, the Proposals are intended "to implement the provisions of the [Act], improve the transparency and quality of disclosure of non-GAAP financial measures and related information and enhance the current reporting of earnings information." To accomplish these goals, the Commission proposes to add new Regulation G, to amend Item 10 of Regulations S-K and S-B, to amend Form 20-F and to amend the disclosure requirements of Form 8-K. For purposes of the discussion below, we limit our comments to the proposed addition of Regulation G and proposed amendments to Item 10 of Regulation S-K and Form 8-K, as Compass would be subject to those provisions. To the extent our comments are applicable to other proposed rules contained in the Proposing Release, we urge the Commission to consider them in those contexts.

REGULATION G

Definition of "Non-GAAP Financial Measure." The Commission proposes to adopt the term "non-GAAP financial measure" to identify the types of information that are the subject of Section 401(b) of the Act. The Commission proposes to define the term "non-GAAP financial measure" as follows:

a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that:

    (i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP1 in the statement of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or

    (ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

Examples. According to the Commission, non-GAAP financial measures would not include (i) operating and other statistical measures2 or ratios or measures that are calculated using only financial measures calculated in accordance with GAAP and operating measures or other measures that are not non-GAAP financial measures. In addition, non-GAAP financial measures would not include information that does not have the effect of providing numerical measures that are unlike the comparable GAAP measure, such as the following:

  • disclosure of amounts of expected indebtedness, including contracted and anticipated amounts;

  • disclosures or amounts of repayments that have been planned or decided upon but not yet made;

  • disclosures of estimated revenues or expenses of a new product line, so long as such amounts were estimated as GAAP figures; and

  • measures of profit or loss and total assets for each segment required to be disclosed in accordance with GAAP.

In addition, the Commission does not intend that the term "non-GAAP financial measures" would include all measures that have the effect of depicting either:

  • a measure of performance that is different from that presented in the financial statements, such as income or loss before taxes, or net income or loss as calculated in accordance with GAAP; or

  • a measure of liquidity that is different from cash flow or cash flow from operations computed in accordance with GAAP.

According to the Commission, examples of non-GAAP financial measures would be "a measure of operating income that excludes one or more expense or revenue items that are identified as `non-recurring'" and "EBITDA (earnings before interest, taxes, depreciation and amortization), which could be calculated using elements derived from GAAP financial presentations but, in any event, is not presented in accordance with GAAP."

We believe that the Commission's definition of the term "non-GAAP financial measure;" generally captures the information targeted by Section 401(b) of the Act; however, we have the following comments:

(a) We believe that the definition of the term "non-GAAP financial measures" should be limited to historical financial measures. We believe that current securities laws and regulations provide sufficient protections for investors regarding misleading forward-looking statements; therefore, the Proposals need not address such information. In addition, as the Commission notes throughout the Proposing Release, forward-looking information does not lend itself to reconciliation as well as historical information may.

(b) We encourage the Commission to include the examples set forth above and in the Proposing Release in any final rules relating to the Proposals, perhaps as instructions, as they provide much needed additional clarity for issuers.

Proposed Disclosure. Proposed Regulation G would apply to entities that are required to file reports pursuant to Sections 13(a) or 15(d) of the Exchange Act, other than registered investment companies. Regulation G would apply whenever an issuer discloses or releases any material information that includes non-GAAP financial measures. Under Regulation G, issuers would be required to provide the following information as part of such disclosure or release:

(i) A presentation of the most directly comparable financial measure or measures calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP);

(ii) A reconciliation (by schedule or other clearly understandable method), which shall be quantitative for historical non-GAAP measures presented, and quantitative, to the extent available without unreasonable efforts, for forward-looking information, of the differences between the non-GAAP financial measure disclosed or released with the most comparable financial measure or measures calculated and presented in accordance with GAAP identified in paragraph [(i) above];

If a non-GAAP financial measure is released orally, telephonically, in a webcast or broadcast or by similar means, an issuer would be permitted under proposed Regulation G to provide the required accompanying information on its website.3

We generally agree with the Commission's proposals implementing the provisions of Section 401(b) of the Act; however, as stated above, we believe that the Proposals should be limited to historical non-GAAP financial measures; therefore, we encourage the Commission to eliminate references in Regulation G to forward-looking information.

Specific Questions. Below are our responses to certain specific questions posed by the Commission in the Proposing Release.

As an alternative to requiring reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP, should we require reconciliation to specific GAAP financial measures in all cases, such as net income and cash flow from operating activities? If yes, to which GAAP financial measures should we require reconciliation?

No. We agree with the Commission's approach as proposed. The Commission's approach allows issuers the flexibility to provide the investing public with information that is most relevant to the understanding of the issuer's results of operations, financial position and changes in financial position. A requirement to provide a reconciliation to certain specified GAAP measures runs the risk of overburdening investors with unnecessary information and of reducing the significance of relevant information.

Is there a danger that investors would consider the reconciliation to have been audited or reviewed by the issuer's independent auditors? Should Regulation G require companies to disclose whether the reconciliation has been reviewed or audited by their independent accountants in order to avoid investor confusion?

So long as the standard of review for the reconciliation is consistent with the standard of review for the presentation in which it appears, investors have no reason to be confused. Issuers should be free to disclose whether the reconciliation has been reviewed or audited by their independent accountants; however, they should not be required to make such a disclosure.

In this release, we propose to require companies that include non-GAAP financial measures in filings to also include a discussion of the purposes for which the company's management uses the non-GAAP financial measure and why management believes the presentation of the non-GAAP financial measure provides useful information to investors. Should we require that information in all communications that are subject to Regulation G? If so, why? If not, why not?

No. We believe that the reason an issuer's management would include non-GAAP financial measures in a presentation is fairly evident - to aid investors in understanding the issuer's results of operations, financial position or changes in financial position and to increase the transparency of a presentation to its investors. We would encourage the Commission to require issuers to include a discussion of the purposes for which the issuer's management uses such non-GAAP financial measures only in the event such use is inconsistent with the reason we have assumed in the preceding sentence.

As proposed below, and consistent with staff practice, the Commission generally has required more detailed disclosure requirements where non-GAAP financial measures are included in Commission filings. Should we require these additional disclosure requirements in all cases, even in documents not filed with the Commission?

No. This information is neither necessary nor desirable for inclusion in documents not filed with the Commission. We believe that such a practice would have chilling effect on issuers communicating freely with its shareholders and the investing public.

Should we prohibit the presentation, whether or not included in filings with the Commission, of certain non-GAAP financial measures (for example, certain per-share measures or liquidity measures that exclude cash items)? If so, which measures?

No. So long as a reconciliation to GAAP is presented along with the non-GAAP financial measures, there is no reason to prohibit the presentation of such information. If the Commission believes that certain information is inherently misleading, we encourage the Commission to prohibit the presentation of such information. We are unaware of any such inherently misleading information.

Should Regulation G be enforceable by the Commission only or also by private plaintiffs? Should language be included in Regulation G that makes explicit the manner in which it is to be enforced?

We believe that Regulation G should be enforced by the Commission only, and language to that effect should be included therein.

AMENDMENT TO ITEM 10 OF REGULATION S-K

Summary of Proposals. The Commission proposes to amend Item 10 of Regulations S-K4 to provide guidance to those issuers that include non-GAAP financial measure in their filings with the Commission. We would propose that the Commission revise the proposed amendment to Item 10 of Regulation S-K as set forth below.5 The reasons for our suggestions follow the suggested revisions.

§229.10 (Item 10) General.

* * * * *

(e) Use of non-GAAP financial measures in Commission filings.

(1) Whenever one or more non-GAAP financial measures are included in a filing with the Commission:

(i) The registrant must include the following in the filing:

(A) A presentation of the most directly comparable financial measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP);

(B) A quantitative reconciliation (by schedule or other clearly understandable method) of the differences between the non-GAAP financial measure disclosed with the financial measure or measures calculated and presented in accordance with GAAP identified in paragraph (e)(1)(i)(A) of this section;

(C) A statement disclosing the purposes for which the registrant's management uses the non-GAAP financial measure; and

(D) A statement disclosing the reason why the registrant's management believes that presentation of the non-GAAP financial measure provides useful information to investors regarding the registrant's financial condition and results of operations; and

(ii) A registrant must not:

(A) Present the non-GAAP financial measure in a manner that would give it greater authority or prominence than the comparable GAAP financial measure or measures;

(B) Exclude charges or liabilities that required, or will, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures;

(C) Adjust Present a non-GAAP performance financial measure to eliminate or smooth that eliminates an item identified as non-recurring, infrequent or unusual, when the nature of the charge or gain is such that it is reasonably likely to recur;

(D) Present non-GAAP financial measures on the face of the registrant's financial statements prepared in accordance with GAAP or in the accompanying notes;

(E) Present non-GAAP financial measures on the face of any pro forma financial information required to be disclosed by Article 11 of Regulation S-X;

(F) Use title or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures; or

(G) Present a non-GAAP per share measure; and

(iii) If the filing is not an annual report on Form 10-K or Form 20-F ..., a registrant need not include the information required by paragraphs (e)(1)(i)(C) and (e)(1)(i)(D) of this section if that information was include in its most recent annual report on Form 10-K or Form 20-F or a more recent filing, provided that the required information is updated to the extent necessary to meet the requirements of paragraph (e)(1)(i)(C) and (e)(1)(i)(D) of this section at the time of the registrant's current filing.

(2) For purposes of this paragraph (e), a non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that:

(i) Excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheet or statement of cash flows (or equivalent statements) of the issuer; or

(ii) Includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented.

(3) * * * * *

Sections (e)(1)(i)(C) and (e)(1)(i)(D). As stated above, we believe that the reason an issuer's management would include non-GAAP financial measures in a filing with the Commission is fairly evident - to aid investors in understanding the issuer's results of operations, financial position or changes in financial position and to increase the transparency of the filing to the investing public. We would encourage the Commission to require issuers to include a discussion of the purposes for which the issuer's management uses such non-GAAP financial measures only in the event such use is inconsistent with the reason we have assumed in the preceding sentence.

Section (e)(1)(ii)(C). We do not understand the Commission's intended meaning of Section (e)(1)(ii)(C) as proposed, and we encourage the Commission to clarify its intended meaning. If the Commission intentionally chose the word "performance" in this section, we encourage the Commission to explain the distinction between the term "non-GAAP financial measure" and the term "non-GAAP performance measure."

Section (e)(1)(iii). If the Commission does not require issuers to disclose the statements of purpose as proposed in Sections (e)(1)(i)(C) and (e)(1)(i)(D), Section (e)(1)(iii) is unnecessary. If the Commission does require the disclosure of such statements of purpose as proposed, we do not recommend that Section (e)(1)(iii) be revised.

Section (e)(2). As stated above, we believe that the definition of the term "non-GAAP financial measures" should be limited to historical financial measures.

PROPOSED FORM 8-K DISCLOSURE

Summary of Proposals. The Commission proposes to require issuers to file a current report on Form 8-K6 within two business days of any public announcement or release disclosing material non-public information regarding an issuer's results of operations or financial condition for an annual or quarterly fiscal period that has ended. A Form 8-K filed pursuant to Item 1.04 would satisfy an issuer's obligation under Regulation FD if the Form 8-K were filed within the time frame required by Regulation FD. We believe that the proposed addition of Item 1.04 to Form 8-K is appropriate and agree with the Commission's proposals in this regard.

Specific Questions. Below are our responses to certain specific question posed by the Commission in the Proposing Release.

Proposed Item 1.04 would apply only to disclosures regarding completed annual or quarterly periods. Should we expand the scope of proposed Item 1.04 to require the filing of all material updates to estimates for current or future fiscal periods?

No. As we discuss immediately below, requiring issuers to disclose material updates to estimates for current or future fiscal periods in a Form 8-K is unnecessary and inappropriate.

Will proposed Item 1.04 have the effect of decreasing the extent to which public companies make public announcements or releases of material non-public information regarding completed fiscal periods? If so, what the specific factors that would result in that decrease? Why would those factors result in that decrease?

No. As proposed, we do not believe issuers will be any less likely to make public announcements or releases of material non-public information. On the other hand, if the scope of Item 1.04 were extended to include material updates to estimates for current and future fiscal periods, we believe issuers likely would reduce the number of announcements of material non-public information. In such an event, we believe that issuers would provide as little information regarding estimates for current and future periods as would be permitted under the securities laws.

CONCLUSION

We respectfully submit these comments with the hope that they are helpful to the Commission's consideration of the Proposals. We would be happy to meet with representatives of the Commission to discuss our comments.

Respectfully submitted,

/s/ Jerry W. Powell

Jerry W. Powell
General Counsel / Secretary
Compass Bancshares, Inc.

____________________________
1 As provided in the Proposals, "GAAP refers to generally accepted accounting principles in the United States, except that in the case of foreign private issuers whose primary financial statements are prepared in accordance with other generally accepted accounting principles, references to GAAP also include the principles under which those primary financial statements are prepared."
2 Examples of operating and other statistical measures are "unit sales, numbers of employees, numbers of subscribers, or numbers of advertisers."
3 Under proposed Regulation G, issuers would be required to disclose the location and availability of the required accompanying information during its presentation.
4 The Commission also proposes to amend Item 10 of Regulation S-B and Form 20-F; however, we limit our comments to the proposed amendments to Item 10 of Regulation S-K.
5 All insertions are indicated in bold, double-underlined text. All deletions are indicated in stricken text.
6 The Commission proposes to add a new Item 1.04 "Disclosure of Results of Operations and Financial Condition."