PHILLIPS PETROLEUM COMPANY
Bartlesville, Oklahoma 74004
May 23, 2002
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: File No. S7-08-02
We are writing in response to rule changes proposed by the Commission in Release No. 33-8089, "Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports," dated April 12, 2002. While we support the Commission's objective of providing more timely disclosure to investors and the financial markets, we are concerned about the feasibility and ramifications of a broad-based acceleration of periodic reporting deadlines
The 30-day filing deadline for the Form 10-Q is particularly onerous. We are concerned that the accelerated filing dates, as proposed, will jeopardize both the accuracy and integrity of the information we disclose, particularly our quarterly disclosures, and runs counter to the Commission's long-standing quest for increased, improved disclosures. The proposed filing deadlines will place an intolerable compliance burden on our company and dramatically increase our exposure to potential liability.
Although filing deadlines have not been changed in 30 years, the amount of disclosure required has increased significantly. More complex business transactions, the globalization of companies, and increased accounting and reporting requirements have more than offset any benefits that Phillips has gained from advances in technology. Our first-quarter Form 10-Q in 1976 was only five pages long. The Form 10-Q that we filed for first-quarter 2002 was 46 pages long, excluding exhibits.
Having only 30 days to close the books, review and analyze the results, and assemble the financial statements and footnotes, leaves little time for a thorough, reasoned analysis of the company's quarterly activity for Management's Discussion and Analysis (MD&A), which could lead to more limited disclosure or increased use of boilerplate language in MD&A, a practice that the Staff has long discouraged.
It may be possible to close the books in only a few days in some industries. This is not the case in the oil and gas industry. It takes Phillips 10 business days to close its books, which means that it's at least mid-month before earnings analysis can begin. For the first quarter of 2002, this meant that it was April 15 before we could begin to analyze first-quarter results. This is not unusually late in the month in the oil and gas industry. Phillips generally issues its earnings press release about nine business days after final results are available. This is the minimum amount of time needed to properly analyze the quarter's results, draft the press release, and review it with senior management.
We issue the first draft of the 10-Q soon after we release earnings because we are very concerned about keeping earnings confidential until they are released to the public to maintain "a level playing field" for all investors. We don't issue a draft of the Form 10-Q for review prior to releasing earnings because the 10-Q drafts are distributed to a much broader audience within Phillips than the drafts of the earnings press release.
We are able to distribute drafts of filings much faster today thanks to improved technology, but the drafting and reviewing process still involves significant human input and intervention as documents are read and revised. At Phillips, a number of groups of people - controllers, legal, treasury, operating management, the independent auditors, and the Audit Committee of the Board of Directors - are involved in the review process. All need sufficient time to review the filing to ensure its integrity, completeness and overall effectiveness. (Due to the length and complexity of today's disclosure requirements, coupled with reviewers' busy schedules, we feel that two days is the minimum amount of time needed for a thorough review of a 10-Q draft.)
A great deal of analysis is done prior to announcing earnings, but, contrary to the Commission's assumption, independent auditor review is not substantially complete prior to the announcement of preliminary earnings - it's hardly begun. Filing within 30 days after the end of the quarter is not currently possible given Phillips' closing schedule, the complexity and length of disclosures required, and the requirement to review the draft of the Form 10-Q with the Audit Committee prior to filing. We feel that the methods available for accelerating the preparation process would all be detrimental to producing quality disclosure: a) reducing review time; b) reducing the number of drafts; or c) eliminating the Audit Committee review.
We appreciate the opportunity to comment on this proposal and ask that the Commission please reconsider its proposal to shorten the filing deadlines.
PHILLIPS PETROLEUM COMPANY
/s/ Rand C. Berney
Rand C. Berney
Vice President and Controller