May 21, 2002
Jonathan G. Katz
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Re: File No. S7-08-02 and S7-09-02
Dear Mr. Katz:
We are respectfully submitting our comments on Release No. 33-3089, Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports, and Release No. 33-8090, Form 8-K Disclosure of Certain Management Transactions.
Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports
We understand that under the proposed rule certain domestic companies ("accelerated filers") would file annual reports on Form 10-K within 60 calendar days after fiscal year end instead of the current 90 days, and would file quarterly reports on Form 10-Q within 30 calendar days after quarter end, instead of the current 45 days. As an issuer with active manufacturing or business unit facilities in 12 countries, we recognize that the filing dates have remained unchanged for many years and our global means of communication and financial reporting have changed dramatically during those years. However, at the same time communication methods and reporting systems have become more efficient, the process which diligent filers go through prior to making such a filing has expanded considerably. Additional and more complex reporting requirements have somewhat offset the benefits of technological advances. At Technitrol, we have a process whereby our quarterly financial reports are prepared, discussed and dissected internally; they are reviewed by our external auditors; the external auditors meet with management and the Audit Committee regarding the results of the quarter; a draft of the Form 10-Q filing is prepared and distributed internally; there is considerable review and discussion regarding the draft leading to a revised draft which is then presented to the auditors and the Audit Committee; the auditors review the draft and circulate it within their firm to other reviewing parties; the Audit Committee reviews and discusses the report; comments are returned to management, compiled and a revised draft is assembled and redistributed, ultimately culminating in the final report which is then filed with the Commission. Considerable time is required by all parties involved in the process in order to assure meaningful substantive participation. As a result, the elimination of one-third of the current available time, as suggested under the proposed rule could - and undoubtedly sooner or later will - result in hurried efforts, less review, and less thorough reporting.
As an alternative to the proposed rule, we suggest a less aggressive acceleration, such as Form 10-Q in 40 days and Form 10-K in 75 days, for at least one full filing year. Depending on the results, further acceleration to 30 days and 60 days for the 10-Q and 10-K respectively could be phased in at a later date. Although we believe that we could file Form 10-Q and Form 10-K per the proposal's suggested timeframe, we wonder whether it is in the investing public's interest to receive information a few days earlier at the possible - and in some cases probable - sacrifice of adequate review in order to ensure full and fair disclosure and a substantive, orderly review process.
Other points of consideration in response to certain questions for comment included in the release are as follows:
- We believe that the integrity of the financial reporting process relies largely on the integrity of the parties involved and their commitment to carry out their responsibilities in a professional way with a healthy degree of skepticism and respect for user's needs for full and fair disclosure. The highly publicized recent breakdowns in the financial reporting process at certain companies were caused by greed and carelessness, or outright affirmative failure to disclose - not by the length of time available for filings.
- Based on our experience with a number of non-U.S. subsidiaries, our current annual filing deadline of 90 days in the United States is shorter than many countries (where statutory filings are not required for 120 days, 180 days or other periods beyond 90 days).
- We do not believe that the Commission should require only certain information, such as the audited or reviewed financial statements and Management's Discussion and Analysis, be filed on an accelerated basis. Due to the unavoidable interplay between the financial statements, Management's Discussion and Analysis and other information included in the filings, we believe that all items in the report should be required at the same time. Piecemeal disclosure will only lead to confusion and ultimately claims of non disclosure or partial disclosure by unhappy investors.
- We do not believe that the proposal would impose significant incremental financial costs on our company; however it may create more demand for external audit services during a shorter time period and external audit fees would, therefore, likely increase. We believe that the cost of inaccurate and unreviewed data would be the most significant cost of the proposed change. We believe this would be an ongoing cost. As noted above, the process of audit review, analysis and discussion is important to ensure that the report is comprehensive and accurate.
- We believe that the Commission's understanding that a company's audit (or review in the case of interim financial statements) is substantially complete by the time the company issues its earnings announcement is generally accurate. However, the earnings announcement is made in abbreviated form and is less comprehensive than the filing of the corresponding periodic report. The additional time between the earnings announcement and the filing of the report is important to finalize all classification, disclosure and other issues that are integral to a more formal and comprehensive report, as well as allowing full audit committee participation in the filing process.
- We believe the reliability and accuracy of the reports would suffer as a result of the shortened due date. Again, this is driven by an unavoidable compromising of the review process prior to filing.
- We are very concerned about the consideration of making conforming revisions to accelerate the timeliness requirement in Regulation S-X for the inclusion of financial statements by accelerated filers in other Commission filings. In particular, we are concerned about making similar revisions to the financial statement filing requirement in Item 7 of Form 8-K (i.e., reducing the filing deadlines by one-third from 60 to 40 days). As an issuer with an active acquisition program and considerable operations and opportunities outside of the U.S., we find that the 60-day filing deadline for financial statements in connection with Item 7 of Form 8-K is a greater challenge than the current period for filing Form 10-Ks and 10-Qs. We have made numerous acquisitions whereby we acquired a foreign company that was not subject to U.S. GAAP reporting requirements. This is often further complicated by the lack of an independent audit by a firm knowledgeable in U.S. GAAP; longer statutory filing deadlines in the local countries; the acquisition of a portion of a business (i.e., a "carve out") and other factors. Our most notable example was an acquisition of a portion of a company in Germany that was in receivership and had not been audited in recent years. This acquisition was material to our existing business. In a situation complicated by almost every conceivable factor, we were nearly unable to complete the audited consolidated statements relating to product lines and operations acquired by us. The proposed rules do not currently change the requirements for foreign private issuers filing on Form 20-F. We believe that the reasons for foreign private issuers needing additional time are equally relevant to the Form 8-K Item 7 requirement when acquisitions of non U.S. companies are involved.
- We do not believe that the exclusion of small issuers under the proposal is appropriate. The need for timely information about these issuers is no less than the need for timely information regarding large issuers. In some cases, the lack of complexity and size of the smaller issuer may make their ability to compile the required reports easier than for larger companies. We also believe that having different rules for different size issuers adds to the complexity of filing requirements to be understood by issuers and their professional advisors.
- We support the Commission's effort to expand usage of registrant websites to help further disseminate financial information to investors and other interested users. However, we feel that concurrent publishing of filed documents is not always feasible. As such, we would support publishing by no later than the next business day.
- We see benefits to conforming the accelerated schedule to all filings, and see no issue with accelerating proxy statements by 30 days, at least in situations where preliminary proxy statements are not required.
Form 8-K Disclosure of Certain Management Transactions
We would also like to take this opportunity to comment on the proposal to require domestic companies to report on Form 8-K under new Item 10 information about transactions by executive officers and directors. We support the additional disclosures required by the proposed rules. We would prefer, however, that such activity be reported on a form under Section 16. Section 16 generally covers insider reporting requirements and we believe that the forms and timing of such filings should be addressed in the context of the existing reporting requirements under Section 16. Historically, Form 8-K has been used to report other corporate events and it may be confusing to include the proposed activity on Form 8-K.
Thank you for the opportunity to comment on the proposed rules and to allow issuer feedback to be considered prior to finalizing the rules.
/s/Drew A. Moyer
Drew A. Moyer
Vice President - Corporate Controller and Secretary
Chief Accounting Officer