May 20, 2002
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Acceleration of Periodic Report Filing Dates and
Disclosure Concerning Web Site Access to Reports
Commission File No. S7-08-02
Dear Mr. Katz:
I am writing on behalf of the National Investor Relations Institute (NIRI) to provide comments on the Commission's proposed rules that would accelerate periodic report filing dates and regulate other matters set forth in Release No. 33-8089; 34-45741 (the "Proposing Release").
NIRI represents more than 5,000 investor relations (IR) professionals, including 76% who are IR officers representing more than 2,400 publicly held corporations and 15% who are IR counselors to many corporations of varying market capitalizations. The remaining 9% provide various products and services in support of the IR function.
Over a 32-year history, NIRI has been a strong supporter of the Commission's goals of providing full, fair, accurate and timely disclosure of corporation information to the investment community. This is evident, not only in our Standards of Practice for Investor Relations, but also in the practice of IR throughout corporate America.
Our members are very much involved, along with corporate controllers, chief financial officers and legal counsel in the development of periodic reports and are acutely aware of the issues involved in this process. In most companies, IR officers draft the corporate quarterly earnings news releases and prepare senior management for the quarterly earnings webcast conference calls, and in some instances, they are the individuals who conduct those calls.
Today, virtually all companies represented by the NIRI membership have IR sections on their corporate Web sites, which have become a primary means of communication with investors, both individual and institutional as well as the media.
We are most encouraged with the Commission's recognition in the Proposing Release of Web site technology as a means of communicating timely and valuable corporate information to investors and the media.
A. Acceleration of Quarterly and Annual Report Due Dates
Overview of Proposed Requirements
The rules set forth in the Proposing Release would require reporting issuers with a public float of at least $75 million and that meet certain other specifications to file 10-Qs within 30 days after the end of their fiscal quarters and 10-Ks within 60 days after the end of their fiscal year - an acceleration of 15 days for 10-Qs and 30 days for 10-Ks. The Commission believes that companies should be able to meet these shortened deadlines without sacrificing accuracy or completeness and that this acceleration of deadlines would significantly improve the flow of more timely information to the investing community.
The SEC would also require companies to expand the Management Discussion & Analysis (MD&A) section of the periodic filings to provide additional trend information and to explain the company's accounting policies. While we certainly agree with the direction of these requirements, the development of this information takes additional time.
NIRI's Perspective
NIRI conducted a survey (see enclosure #1) of 406 (11%) of our corporate members and found that 87% file their 10-Ks between 61-90 days, 11% between 41-60 days and 2% in less than 40 days. Sixty percent said they would encounter "significant" problems filing their 10-Ks within 60 days following the end of their fiscal year. The four most frequently cited reasons were:
1) There would be insufficient time to complete the auditor review, a reason particularly prevalent among smaller capitalization companies that have to wait for a major audit firm to complete audits of large "cap" company clients.
2) Accelerating the work processes will incur substantial cost and reallocation of workload. Again, smaller "cap" companies often said that this would impose major personnel and systems costs that they lack the resources to support.
3) Sixty days is too short a time to develop the 10-K because of the more extensive disclosure the SEC now requires, particularly in the expanded MD&A section of the report.
4) Insufficient time to consolidate business segments, an issue mostly cited by larger "cap" companies.
Survey respondents indicated that 81% could file a 10-Q within 40 days. Nineteen percent said they would file within 35 days. The primary reasons cited for being unable to file within the proposed 30 days were virtually the same as for the 10-K.
Clearly, developing a 10-K and 10-Q involves a detailed and time-consuming process. We believe it would be beneficial for the Commission to see representative examples of timetables from varying size companies in different industries (see enclosure #2). These timetables indicate that most companies in this sample could meet a filing deadline of 80 days for the 10-K and 40 days for the 10-Q. These deadlines are consistent with the broader NIRI survey. Our survey and other anecdotal information from our members suggest that most companies would experience greater problems with the shorter filing deadline for the 10-Q than the 10-K.
Recommendation
While NIRI supports timely disclosure, we must question and are concerned with whether the proposed shortened filing periods will address the greater need to restore diminished levels of investor confidence in this country. Rather, we believe that promoting increased quality and quantity of certain information will better meet that need.
Therefore, we would like to propose the following solution for the Commission to enhance the quantity and quality of information provided to investors and the markets while still shortening the filing period for each report, though by less than the Proposing Release would require. Virtually all companies issue an earnings news release within two to four weeks from the end of the close of the fiscal quarter or year. The quality of information in these releases varies, with some providing very extensive information and others minimal information. Many companies, for example, omit a balance sheet, with its significant financial information for investors, from their earnings news release.
We propose that NIRI establish and publish Standards for Earnings News Releases for all issuing companies. These Standards would set minimum information content for an earnings news release. While the SEC may not have the regulatory authority to compel companies to follow such Standards, the Commission could support these Standards (as the Commission did with respect to the FEI/NIRI 2002 Guidelines for the Use of Pro-Forma Information in Earnings News Releases) and permit companies that choose to follow these Standards to file their 10-Ks within 80 days and their 10-Qs within 40 days. Those that abstain would have to file their 10-Ks within 60 days and 10-Qs within 30 days.
This would provide a market incentive to provide more complete information to investors and the markets on an even more timely basis instead of the dramatically accelerated filing deadlines in the Proposing Release.
The Standards for Earnings News Release would require, as a minimum, the following:
1) A balance sheet (with comparisons to prior year)
2) An abbreviated (one page or less) "Executive Summary" Management Discussion & Analysis (MD&A) written in "plain English" (see enclosure #3)
3) A discussion of key drivers of earnings and material factors affecting financial condition (specific to various industries) such as:
The SEC could then require that this information be furnished in an 8-K and posted simultaneously on the company's Web site.
While the financial information provided under the Standards for Earnings Releases would be unaudited under most circumstances, it would be very close to the audited information contained in the 10-K and 10-Q.
We believe this proposal would accomplish even more than what the SEC Proposing Release would achieve by providing more timely key financial information and management's discussion of the most significant trends that are driving a company's business going forward. Moreover, the abbreviated MD&A as presented in the earnings news release would be written in "plain English," thereby enhancing better understanding of the significant trends and issues that management sees affecting current and future corporate performance sooner than the 10-Q or 10-K filing.
This information would be provided in an earnings news release, which means it would be broadly disseminated under Self-Regulatory Organization listed company requirements, which include dissemination to the media and the markets. Coupled with posting on the corporate Web site in which a strong majority of corporate issuers use "push technology" to disseminate this information to interested investors and the media, more complete information would be provided on a very timely basis using today's dissemination technologies.
B. Web Site Access to Information.
Virtually all companies represented by the NIRI membership have IR sections on their corporate Web site. We strongly agree with the Commission's proposal that companies simultaneously post all documents filed with the SEC on their corporate Web site. Almost 90% of companies in the March 2002 NIRI survey on the SEC's proposed changes in corporate disclosure expected to accomplish this with ease. Currently, 87% post their 10-K on the company Web site either simultaneously with filing it with the SEC or shortly thereafter. In terms of how they currently post the 10-K on their corporate Web site, over half link to the Edgar site, a fourth link to a third party Web site, and the remainder post the documents directly on their corporate site.
While the corporate Web site does not satisfy the self-regulatory organization disclosure requirements for dissemination of material information, individual investors, institutional investors and the media are increasingly using the corporate Web site as an important source of information. A 2000 study shows that individual investors (500 members of the American Association of Individual Investors and the National Association of Investors Corporation) consider corporate Web sites are a significant source of information, and 84% of individual investors in the study had Web access - 19% traded exclusively online, 35% traded both online and through a traditional broker and 46% traded exclusively through a traditional broker.1 A 2002 study shows that the business and financial media access corporate Web sites as part of the "virtual newsroom" for background information on companies in which they are interested.2 The study indicates that reporters often go to the company Web site before calling a company spokesperson for additional information, although reporters do not consider the "virtual newsroom" a substitute for talking directly with a company spokesperson.
C. Summary.
We believe that the Commission's proposed rule to shorten the filing period for the 10-K to 60 days and the 10-Q to 30 days will sacrifice the quality of information for more timely, but not necessarily, better information given current internal and external resource constraints for corporate issuers. Instead, we propose shortening the filing period for the 10-K to 80 days and the 10-Q to 40 days and urge companies to adopt NIRI Standards for Earnings News Releases that will set minimum information requirements, including a balance sheet, a summary MD&A and commentary on specific financial information. This information would normally be presented in the quarterly earnings news release within two to four weeks from the close of the quarter. Those companies that chose not to follow these standards would be required to file in the time specified by the proposed rule.
Finally, we fully endorse simultaneous posting documents filed with the Commission on the corporate Web site because of the value and power of the Internet to bring full and timely information to investors, the markets and the media, when combined with the more traditional means of information dissemination.
Sincerely,
Louis M. Thompson, Jr.
President & CEO
National Investor Relations Institute
Enclosures:
Results from Survey on SEC Proposed Changes to Corporate Disclosure. National Investor Relations Institute, March 1, 2002.
Sample Timelines for Preparing the 10-K and 10-Q. These companies provide a representative sample of companies of varying market capitalizations and industries.
Sample Example of an "Executive Summary" MD&A written in "plain English"
Cc: Harvey L. Pitt, Chairman
Robert K. Herdman, Chief Accountant
Alan L. Beller, Director, Corporation Finance
The National Investor Relation's Institute's
Executive Alert
Updates on Issues Vital to the Practice of Investor Relations
March 20, 2002
Louis M. Thompson, Jr.
President & CEO
National Investor Relations Institute
NIRI Releases Survey Results
On SEC Proposed Changes to Corporate Disclosure
The National Investor Relations Institute released today the findings of a survey on current disclosure practices among its corporate members. The survey was in response to the February 13, 2002, SEC issued statement announcing its intent to propose changes to its corporate disclosure rules which are designed to improve the financial reporting and disclosure system. Among the changes, the SEC intends to propose rules that will accelerate the due date for companies to file their quarterly and annual reports on Forms 10-Q and 10-K, respectively.
NIRI had 406 NIRI corporate members respond to the survey, an 11% response rate.
1. How many days after the end of your fiscal year do you typically file the Form 10-K with the SEC?
| Less than 30 days | 1% |
| 30-40 days | 1% |
| 41-60 days | 11% |
| 61-90 days | 87% |
2. Would you anticipate any significant problems filing a 10-K within 60 days after the end of the fiscal year?
No | 40% |
| Yes | 60% |
If yes, please explain. Most frequently mentioned problems:
3. If unable to file Form 10-K within 60 days, would you be able to file within (251 responded):
| 70 days | 22% |
| 80 days | 78% |
4. How many days after the end of each quarter do you typically file a 10-Q with the SEC?
Less than 10 days | .5% |
| 10-15 days | .8% |
| 16-30 days | 8% |
| 31-45 days | 90% |
5. Would you anticipate any significant problems filing a 10-Q within 30 days after the end of fiscal quarters?
No | 46% |
| Yes | 54% |
If yes, please explain. Most frequently mentioned problems:
6. If unable to file Form 10-Q within 30 days, would you be able to file within: (225 responded)
| 35 days | 19% |
| 40 days | 81% |
7. When do you post the 10-K on your Web site?
46% | After filing it with the SEC. |
| 41% | At the same time it is filed with the SEC. |
| 13% | Don't post it on Web site. |
8. Would you anticipate any significant problems if required to post company filings at the same time it is filed with the SEC?
No | 89% |
| Yes | 11% |
9. How do you currently post the 10-K on your Web site?
| Count | |
| 214 | Link to Edgar site |
| 98 | Link to another third party site |
| 104 | Post the documents directly on your site |
10. Would you anticipate any significant problems reporting insider stock transactions to the SEC on a current basis (same day) that the purchase or sale is made?
| Yes | 49% |
| No | 51% |
If yes, please explain. Most frequently mentioned problems.
11. Do you anticipate any problems if required to submit a Form 8-K for any or all the items listed?
No | 83% |
| Yes | 17% |
###
Company A An approximately $30 billion multinational communications services company doing business in the U.S. and 14 other countries. Cap Size - $54 billion
10Q - 32 days
Company B
A leading supplier of integrated automation solutions for the global semiconductor, data storage and flat panel display manufacturing industries.
Cap Size - $576 million
10Q - 43 days
10K - 75 days (year-end Sept 30)
Company C A global leader in providing integrated self-service delivery systems and services. Employs more than 13,000 associates with representation in more than 88 countries worldwide. Reported revenue of $1.76 billion in 2001 and is publicly traded on the New York Stock Exchange. Cap Size - $2.65 billion NOTE: Concerned that an accelerated timeline would unduly burden registrants, impact accuracy of information and create additional costs required to comply. This is due to an expanding global company with non-integrated financial IT systems.
10Q - 44 days
10K - 75 days
Company D A $26 billion regional bank holding company. Cap Size - $5.3 billion Note: Concerned that an accelerated timeline would unduly burden registrants, impact accuracy of information and create additional costs required to comply.
10Q - 44 days
10K - 90 days
Company E A provider of innovative trade execution services to broker-dealers and institutional investors. Cap Size - $639 million
10Q - 30 days
10K - 62 days
Company F Is the world's largest supplier of semiconductor assembly equipment, according to a recent market share analysis. Cap Size - $813 million Note: Would have to double the accounting staff, adding a financial burden. 10Q - Did not provide
10K - 82 days
Company G The largest US-based precious metals royalty company. Provides a distinctly different way to invest in precious metals - by investing in a public company that holds and manages royalties on precious metals properties. Cap Size - $178 million Note: Receive royalty information from various mines on day 27 and cannot get this any sooner. If filing deadlines are shortened financial report will not be accurate. They file the 10K on day 75 so they can incorporate the proxy by reference, allowing more time for filing the proxy.
10Q - 38 days
10K - 75 days
Company H Is one of the leading providers of outsourced antennae site and network services to the wireless communications and broadcast industries in the North America and Europe. Cap Size - $50 million
10Q - 40 days
10K - 80 days
Company I Is the internationally renowned retailer, designer, manufacturer and distributor. The Company's merchandise offerings include an extensive selection of fine jewelry (79% of fiscal 2001 sales), timepieces, sterling silverware, china, crystal, stationery, fragrances and accessories. Cap Size - $5.8 billion
10Q - 40 days
10K - 70 days
Company J The world's leading manufacturer and marketer of major home appliances. Cap Size - $5 billion Note: Suggests a 75-day timeline for the 10K or require particular disclosures be included in annual press releases. Was concerned with "logjams" at the print shops.
10Q - 25 days
10K - 71 days
Company K Is the world's No. 1 supplier of digital programmable logic solutions, including integrated circuits, software and service, and the fifth largest overall supplier of custom logic chips. Cap Size - $11 billion
10Q - 42 days
10K - 72 days
Sample Example Executive Summary Management Discussion and Analysis
Diebold, Incorporated provides integrated self-service delivery systems and services and sells, services, installs and manufactures automated teller machines (ATMs), voting machines and other self service devices and related software. The Company's security solutions include physical, electronic and campus card systems.
In fiscal year 2001, Diebold had total revenue of $1.76 billion, up from $1.74 billion in 2000. Total product revenue was $924.6 million (52.5%) down 4.7 percent from 2000, while total service revenue was $835.7 million (47.4%) and up 8 percent from the prior year.
Of all revenue in 2001, $1.424 billion (80.9%) came from the sale of financial self-service systems, up 8.8 percent from prior year, while $334 million (19.1%) from the sale of security solutions, up 5 percent. The growth is the result of the Company's global acquisition strategy, which was executed in 1999 and 2000.
Diebold reported net income of $66,893,000, or diluted $.93 per share on revenue of $1,760,297,000 for 2001. For the same period in 2000, the company reported net income of $136,919,000, or diluted $1.92 per share, on revenue of $1,743,608,000. The decline in 2001 was due to a pre-tax charge of $109,893 ($73,628 after tax or $1.03 per diluted shares) for expenses related to a corporate-wide realignment program, losses incurred in the write off of the InnoVentry equity investment, receivables; and exiting of certain product lines, including the sale of our MedSelect business. InnoVentry was a large customer who ceased operations during the third quarter of 2001. Diebold had invested $20 million in this company who sold automated check-cashing machines. InnoVentry receivables amounted to $9.86 million. MedSelect was a wholly owned subsidiary of Diebold and supplied inventory control systems to the medical industry. MedSelect was sold to Medecorx, Inc. in September of 2001.
Geographically, Diebold derived 76 percent ($1.34 billion) of annual revenue from North and South America, which declined 4.9 percent; 18.9 percent ($331.9 million) from Europe, the Middle East and Africa, which increased 30 percent; and 6.3 percent ($110.7 million) from Asia Pacific, increasing 14 percent. The majority of the decrease in North and South America pertains to a large non-recurring voting machine order in Brazil for $106.5 million. Diebold's balance sheet remains one of the strongest in any industry with a net debt to total capital ratio of approximately 8 percent. Net debt was impacted during the year by the purchase of selected assets of the former Mosler, acquisition of Global Election Systems, the purchase of the service business of Bank of America, and the repurchase of Diebold stock. DSO was 65 days, down from 69 at the end of last year and inventory turns were 5.9, down from the 6.3 last year. Inventories increased by 14.8 percent due to higher levels temporarily created with the shift of ATM manufacturing to Europe and due to the acquisition of Mosler inventory.
Diebold returned $45.7 million to shareholders in the form of cash dividends paid during 2001, which was a 3.4 percent increase from 2000. The company also repurchased 255,000 shares of Diebold stock during 2001
The risks to the Company's future performance include several factors, which can be found on page 63 under the "Forward Looking Statement Disclosure."
Sample Example Executive Summary Management Discussion and Analysis
Tiffany & Co. 2001 net earnings declined by 9% because of lower retail sales. We faced poor economic conditions throughout the year, as well as reduced tourism after the events of September 11.
Geographically, our sales are concentrated in the U.S. and Japan. U.S. sales accounted for 59% of sales and international sales accounted for 41% of sales (with Japan at 28% of sales). Fluctuations between the Japanese yen and the U.S. dollar affect earnings and we use hedging techniques to moderate this effect.
Total sales, which declined 4%, were helped by new store openings, which increased gross retail square footage by 9% in 2001 and 7% in 2000. Management focuses on comparable store sales, which declined 6% in the U.S. and grew 3% in Japan. We will continue to open three to five new stores in the U.S. each year as well as several international locations. Our new distribution arrangements in Japan will permit further expansion in the Tokyo market. Such worldwide expansion is a key component to our business plan.
Earnings declines would have been greater but for improved gross margins. Our customers purchased a greater portion of our lower-priced jewelry, on which we earn a greater profit. Earnings also benefited from tight controls on discretionary spending. Other expenses net of other income were largely influenced by two events: the Company's write-off of an investment in an Internet company, offset by a gain derived from our Canadian diamond mining investment.
Reported earnings are an accurate basis for comparison to prior years. Changes to our business and accounting practices did not materially affect year-to-year comparisons in 2001, and they are not expected to do so in 2002.
We have the capital resources and borrowing capacity to support seasonal borrowing needs and our expansion plans, which include expanded distribution facilities and increased manufacturing capacity. We intend to borrow additional funds in the private debt market in 2002.
Capital spending nearly doubled in 2001, as the Company purchased its existing distribution center, started construction of a new center, expanded internal manufacturing capacity, opened and renovated stores and moved administrative functions. Capital spending will continue in the range of $175 to 200 million in 2002.
Inventories declined 6% -- down 1% if the strengthened U.S. dollar is taken into account. Management was pleased with its ability to manage inventories in the face of sales declines.
We have small investments in Little Switzerland, Inc. and WeddingChanel.com. We have a larger investment in Aber Diamond Corporation, with which we have a diamond purchase agreement.
At year-end, $58 million remained available for share repurchases under the program approved by our directors. We pay a quarterly dividend, but expect to retain most of our earnings to support our business and expansion plans.
For more information, please read Management's Discussion and Analysis of Financial Condition and Results of Operation in its entirety. In particular, we suggest that you read Risk Factors.
1 "Information Source Use for Investment Decision Making: Examining Information Source Dependencies for Personal Finance," Oi Yu Chung, Iowa State University Greenlee School of Journalism and Communication. May 2000. Information provided on corporate Web site was the third most used source of investment information out of nine sources exceeded only by online providers such as Yahoo, Lexis-Nexis and traditional mass media. The nine sources included online, traditional (mass media, printed documents such as 10-Ks and 10-Qs, broker information and independent research tools such as Value Line, Moody's and Standard and Poor's)
2 "An Investigation of Financial and Business Journalists' Use of Virtual Press Rooms," Joanna Schroeder, Iowa State University Greenlee School of Journalism and Communication. 2002