Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607
May 22, 2002
VIA EMAIL (email@example.com)
Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Release Nos. 33-8089 and 34-45741; File No. S7-08-02
Dear Mr. Katz:
We at Wyrick Robbins Yates & Ponton LLP appreciates the opportunity to comment on Release No. 33-8089. For your information, we are an approximately 50-attorney law firm based in Raleigh, North Carolina. We represent approximately a dozen public companies, primarily in the life sciences and high technology industries. Some of these companies would be accelerated filers if these proposals are adopted and a number would not. Our comments are based both on our experience and on comments from some of our public company clients who have reviewed the proposed rule changes.
We have drafted our comments to respond to the question categories formulated by the SEC that are listed in release, although we do not address all questions posed.
Questions regarding accelerating filing due dates:
We doubt that the accelerated due dates for reports would improve the flow of information to investors and the markets, for two principal reasons: (1) we believe that investors and the markets do not typically make significant investment decisions based on annual and quarterly reports, but that those decisions, as evidenced by stock price movements and significant trading volume, are more typically made as a result of earnings releases; and (2) while the speed of information dissemination would increase, the reliability of the information might suffer. Accelerating these filings by 30 or 15 days will not provide "real-time" or forward-looking information that will be particularly valuable to investors and the markets, but will increase the risk of disclosure shortcomings.
The filing periods should be longer than proposed; they should remain as they are. The principal factor to consider in setting these filing periods should be allowing companies sufficient time to prepare thorough and accurate disclosures. During the course of the past several years, and especially within the past few months, companies and their advisors have been required to stay abreast of new filing requirements, techniques and suggestions. Complying with these changes is time-consuming both as a function of a learning curve in conforming reports to new requirements and because many of the new requirements are more time-consuming in and of themselves.
No. This proposal would result in confusion in the market and for the companies themselves, in that every company would have a different deadline every period, which would have to be calculated individually. The result would be increased confusion in the market over whether a company has missed a filing deadline, potentially indicating significant problems. Another result would likely be increased inadvertently late filings that would have the effect of inappropriately punishing a company from a regulatory perspective (inability to use Form S-3 for a year, inability to use Form S-8 and Rule 144 in the interim, etc.).
For the reasons stated in this letter, we believe that the current deadlines make sense. They allow companies sufficient time to gather and analyze information, and draft and review disclosures. Companies can always seek to fulfill the market's desire for more prompt information by filing early, and/or by releasing material information, such as earnings, early, subject to existing rules governing misleading (Rule 10b-5, etc.) and selective (Regulation FD) disclosure.
In this light, alternatives that the Commission might consider would include requiring that companies file/release certain information earlier than other information. However, management's discussion and analysis is perhaps the single most time-consuming portion of Forms 10-K and 10-Q, so we would not support accelerating its due date. Furthermore, keep in mind that in requiring some information to be filed earlier than other, the Commission will at least impliedly be determining that, to paraphrase Animal Farm, some information is more material than other.
We believe that a better alternative (although still not as good as the current system) would be to require that companies file their reports prior to or at the same time they release earnings, but in no event later than the current deadlines. This proposal has the advantages of treating all information equally, providing all information to investors and the market at the same time, allowing companies sufficient time to prepare their reports and letting them and the markets, as opposed to regulation, drive early, quality disclosure when feasible and appropriate.
The proposed due dates might not provide enough time. For example, one multinational company that we represent has remarked that its efforts to close quarterly books in various countries around the world, transmit the data to the home office, consolidate reports and get external auditor review as well as complying with "blue ribbon panel" requirements for review by the company's audit committee is a huge undertaking within the current filing due dates. Accelerated deadlines would exacerbate the problems companies already have in preparing accurate reports under the current filing deadlines.
The proposal would impose significant costs. Some of these costs might be short-term or one-time costs such as purchase and implementation of additional information systems, but the bulk of the costs would be ongoing costs for additional internal accounting, legal and reporting personnel, as well as increased costs for outside advisors, such as auditors and counsel, working under increased time pressures. All of these costs would be pure overhead, significantly reducing earnings or increasing losses and adding little or no value to the actual business operations of the companies or to their investors.
No. Another drawback to accelerating the filing due dates would be the time constraints placed upon auditors, audit committees, boards of directors and legal counsel to companies. The amount of work required of these parties will remain constant (if not increase in light of increased disclosure standards), yet the timeframe in which to perform that work will be shortened.
Questions regarding the proposed definition of accelerated filer:
Yes, as noted above at the bottom of page 2 (see comments re "Should we require companies to file their reports by the earlier . . ."). We believe a delineation in filing due dates based upon the size of the company will add confusion to the companies and their investors, especially under this proposal allowing the companies to choose the date on which to measure their public float.
Any method for entering and exiting accelerated filing status will further confuse companies and investors as to which companies have to file when. In addition, as we have seen with the significant decline in the markets, especially in the technology sector, over the past year or two, companies can fall on hard times very quickly. These kinds of market movements require quick actions by management to reduce and control costs. The current proposals might not allow companies to exit accelerated filing status quickly enough to eliminate the related costs, which will ultimately hurt investors in these companies.
We believe this set of questions highlights the reasons why there should not be different filing deadlines for different companies. Furthermore, adding a notice requirement would only increase the number of required filings, further burdening companies, without providing investors or the markets with information of value on which to base investment decisions.
Thank you for considering our comments. If you have any questions or need additional information, please contact the undersigned or Jeffrey Smith of this office at (919) 781-4000.
Donald R. Reynolds