04/21/2000 Mr. Jonathan G. Katz Secretary U.S. Securities and Exchange Commission 450 Fifth Street NW Washington, DC 20549-0609 Subject: File No. S7-03-00 Dear Mr. Katz, The National Association of Manufacturers (NAM) appreciates this opportunity to comment on the Securities and Exchange Commission's (the Commission) proposed rule, "Supplementary Financial Information." The NAM - "18 million people who make things in America" - is the nation's largest and oldest multi-industry trade association, representing 14,000 members in every industrial sector and all 50 states. While the NAM supports increased transparency in financial reporting and believes that shareholders should receive proper and adequate disclosure of information material to investment decisions, we also agree with the SEC's stated goal of "streamlining, simplifying, and modernizing the overall regulatory scheme." (from Chairman Levitt letter in the March 1996 Report of the Task Force on Disclosure Simplification) As the proposed rule seeks to add significantly more detail and complexity to disclosures, it is appropriate to strictly scrutinize the benefits it would provide versus the burdens it would impose. The NAM is concerned that in this case, the burdens would far outstrip the benefits. The NAM's concerns in this regard are twofold. First of all, we are extremely concerned about the likely harm to companies and their shareholders from disclosing proprietary information to financially interested parties and potential adversaries, particularly with respect to tax, legal, and environmental reserves. Secondly, the level of detailed disclosure goes far beyond the reasonable needs of financial statement users and will be costly to collect and maintain. Potential Harm The NAM is especially concerned about the harm to its members that would likely result from disclosing proprietary information to financially interested parties and potential adversaries, particularly with respect to tax, legal, and environmental contingencies. Companies are already required to provide information about material events and transactions affecting loss contingencies, as well as information about accounting policies and related assumptions. The Commission's proposal would significantly expand on existing requirements by requiring detailed information about virtually every loss accrual account. The resulting incremental information that would be provided would be of little or no consequence to shareholders; however, it could be very advantageous to financially interested parties. Information of this nature could easily be used to strengthen the negotiating position of such a party versus the reporting company, most notably as either an admission against interest or a starting point for negotiations. It could also act as an attractive inducement for frivolous lawsuits attempting to squeeze settlement money out of the company. Compliance Costs The Commission did estimate compliance costs for the proposed rule, which comes out to an estimated $87,000 per registrant, or $250,000,000 for the population of registrants presumed to be affected, over ten years at a 7% discounted interest rate. While we believe this financial burden is already excessive in light of the competitive issues raised above, we are persuaded by the analysis done by the Financial Executives Institute (FEI) that the burden would significantly exceed the Commission's estimate. FEI's analysis resulted in a total cost of approximately $6,600,000 per registrant over ten years. It is the NAM's position that the incremental information that would result from the proposed rule would not only not materially benefit investors, but it would, in fact, be harmful to the reporting company. Consequently, the excessive cost that would be imposed to comply with the rule - regardless of whether one relies on the Commission's estimates or FEI's - is unwarranted. Effective Date Finally, the NAM is concerned that the Commission's proposal does not include an anticipated effective date. While the NAM does not support the proposal, we would urge that any new disclosure requirements should be effective on a prospective basis only. As the information that would be requested is not currently available and significant lead-time would be required to compile it, time should be allowed to modify internal processes. Additionally, as corporations need to be able to rely with certainty on current laws when planning future business activities, an adequate phase-in period would be appropriate to facilitate such planning. While the NAM sympathizes with the Commission's concern regarding abusive "earnings management" by public companies, we believe that improved compliance with and enforcement of existing rules is a more appropriate solution than increased layers of complexity in reporting requirements. The material disclosures already required by the current rules provide ample information on which market participants can rely when making investment decisions. More detailed, immaterial data would serve only as a source of information overload and would not solve underlying compliance issues. Thank you for your attention to the NAM's concerns regarding the "Supplementary Financial Information" proposal. If you require additional information, please feel free to contact myself or the NAM's director for corporate finance and tax, Kimberly Pinter at kpinter@nam.org or (202) 637-3071. Sincerely, Michael E. Baroody