October 31, 2005
October 31, 2005
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 205449
Dear Mr. Katz:
Ferrellgas Partners, L.P. respectfully submits the following comments for your consideration concerning certain topics in the Securities and Exchange Commissions the Commission proposed rule regarding Revisions to Accelerated Filer Definition and Accelerated Deadlines for Filing Periodic Reports.
Three tiers of filing deadlines
We believe the three tiers of filing deadlines in this proposed rule is unduly complex and would not provide the balance and structure within the reporting system that the Commission seeks to achieve. We believe most large accelerated Filers with the internal resources necessary to monitor this rule will fall well above the 700 million world wide market value threshold. We believe smaller companies with fewer internal resources will be the filers most impacted by this rule. Their internal resources will likely be stretched to comply with this rule and they will be less capable of increasing staffing to accommodate the shortened filing deadlines.
We suggest the Commission consider one filing deadline for all filers regardless of the size of company. We believe this would simplify the filing process for smaller filers who will be most impacted by this rule and would also provide the market with a consistent filing expectation. We believe a 75 day 10-K and 40 day 10-Q deadline would be appropriate for all filers. Please see below for a discussion of the appropriateness of these deadlines as it relates to large accelerated filers.
60 day 10-K filing requirement for large accelerated filers
We do not believe the 60 day 10-K filing requirement is an appropriate balance of the markets demand for more timely information and the time that Filers need to prepare accurate financial information. To support this position we submit the following for the Commissions consideration:
Although large accelerated filers may have more internal resources at their disposal, we believe the closing process is vastly more complex for these filers. As an example, in order to meet the current 10-K 75 day filing deadline, we must cut-off certain accounting processes several days early and accrue estimates for business taking place during the period of time from cut-off until the end of the fiscal quarter/year. In order to meet the timing of a 60 day 10-K filing deadline, we would likely be forced to accelerate this cut-off and may be required to utilize early cut-off procedures for additional accounting processes. We do not believe the benefits to investors of an earlier 10-K filing outweigh the risk of a possible errors caused from the increased use of early cut-off procedures and use of estimates.
Regardless of the size of the filer, a small number of individuals are typically responsible for coordinating the 10-K filing process. These individuals are generally responsible for drafting the documents, collecting, reviewing, and obtaining adequate support for all information in the document, and ensuring a proper level of consistency throughout the document. We do not believe this process can effectively be supplemented and hurried by adding additional individuals or resources. In our opinion, an accelerated filing deadline would put additional strain on this process and on these individuals ability to produce a quality 10-K document.
In our opinion, there appears to be a mismatch of time given to filers to prepare all necessary documents to file quarterly 10-Q s 40 days versus the amount of time granted to filers to prepare a much more comprehensive set of documents to file their annual 10-K 60 days. It does not appear reasonable to grant only 20 additional days to complete all that is required for an audited 10-K versus an unaudited 10-Q.
We believe a significant contributor to the Commissions original position that a 60 day filing requirement was achievable was the Commissions belief that filers heavy investment in technology throughout the late 1990s would make this filing deadline more feasible. However, since the Commissions original adoption of this accelerated filing requirement in September 2002, there have been no significant technological improvements that would compensate for the amount of additional work filers and external auditors must now perform due to the requirements of the Sarbanes Oxley Act. The additional Sarbanes Oxley work more than offsets any efficiencies gained from technology in the late 1990s and for this reason negates the original key argument for accelerated 10-K deadlines.
Under the new 75 day filing 10-K deadline, effective for us with our recently filed 10-K in October 2005, we were successful in streamlining our filing process by, among other things, reducing the number of 10-K drafts circulated for review. This review involves members from the SEC reporting department, senior management, board of directors including the audit committee, outside SEC counsel and our external auditors. Our modified procedures for the preparation of the fiscal 2005 10-K filing allowed us to circulate our third and final draft 64 days after our fiscal year end, July 31. This final draft included results from the completed audited financial statements and the new Sarbanes Oxley internal audit and the required expanded disclosures. We then gave all of the above parties the opportunity to review the completed draft and give comments by day 70. We then had 5 days to process their changes, Edgarize, and file the document.
If we are required to move to a 60 day 10-K filing deadline, we would likely be forced to cut the number of circulated 10-K drafts from three to two. It should be noted that our first draft circulated to the above parties is prepared without current year financial statements. This means that when the above parties receive draft two under the new 60 day timeline, it would be the first and only time they will see a significant amount of current year financial information. We believe that a further shorting of our newly implemented 3 draft process may increase the risk of errors not being identified and corrected before the new filing deadline.
When adjusting from a 90 day filing process to the 75 day filing process for our fiscal 2005 10-K, we were able to identify certain processes where efficiencies could be achieved. For example, we were able to save approximately 5 days by outsourcing our Edgarization process. This was a more expensive way for us to file the 10-K but it did allow us to permanently cut time out of our filing process. As we analyze our 75 day process and look for more efficiencies, we believe our ability to meet the new 60 day filing deadline will depend more on our ability to put the same amount of effort into fewer days than it will our ability to further streamline the process with outsourcing, technology enhancements or additional resources.
Consideration should be given to the impact that a shortened filing deadline will have on external auditors ability to complete their audit procedures within a shortened 60 day time frame. Now with the requirement of two audits financial and internal control and the increased audit procedures and hours, a move to a 60 day filing deadline may put additional strain on external auditors when they already appear challenged to complete their work in the current 75 day time frame.
We believe a 60 day filing 10-K deadline would leave little room for error. For example, the slightest delay in the filing process caused from an unusual transaction or event or a request or finding by the external auditors that required unplanned analysis or research would increase the risk of a late filing assuming a tight 60 day deadline.
We believe a 60 day filing 10-K deadline could impact our willingness to complete certain business activities such as debt or equity offerings, divestitures, and acquisitions during a significant portion of our fourth fiscal quarter and through the 60 day filing 10-K deadline. Any special transactions taken on during this time period could strain our accounting resources and impact our 10-K filing deadlines.
In summary, based on the items detailed above, we believe the filing deadlines currently in place of 75 days for 10-Ks and 40 days for 10-Qs best achieve the Commissions goal of providing detailed financial reports to the market as quickly as possible without compromising the reliability and accuracy of these reports.
If you have any questions, please feel free to contact me directly at 816-792-6879.
Alan C. Heitmann