August 26, 2002

Mr. Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date; Release Nos. 33-8106 and 34-46084

File No. S7-22-02

Dear Mr. Katz:

Deloitte & Touche LLP is pleased to respond to the Securities and Exchange Commission's (the "Commission") request for comments on its proposed rule regarding Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date.

I. Introduction

We fully support the Commission's efforts to enhance investor confidence in the fairness and integrity of the securities markets. We believe that ongoing dissemination of accurate information by companies about themselves and their securities is essential to this effort and that the proposed amendments to Form 8-K will provide investors with better and faster disclosure of significant corporate events. While we support more timely and comprehensive Form 8-K filings, we note below a few practical implementation issues that may impede compliance with certain disclosure requirements and the accelerated due dates. We believe the Commission should seriously consider the potential impact of these issues and make certain modifications prior to adopting a final rule.

II. Proposed Form 8-K Changes

We support the enhanced disclosures in the proposal and generally agree that the proposed disclosure items are of such importance to investors that prompt disclosure is necessary in Form 8-K.

A. Proposed New Form 8-K Disclosure Items

We support 10 of the 11 proposed new disclosure items as follows: disclosure regarding the entry into or termination of a material agreement not made in the ordinary course of business; termination or reduction of a business relationship with a customer that constitutes a specified amount of the company's revenues; creation of a material direct or contingent financial obligation; events triggering a material direct or contingent financial obligation; exit activities including material write-offs and restructuring charges; material impairments; changes in rating agency decisions; movement of the company's securities from one exchange to another or delisting from an exchange; and conclusion or notice that security holders no longer should rely upon previously issued financial statements or a related audit report. However, we are concerned about certain practical implementation issues discussed below related to disclosure about exit activities, impairments, and termination or reduction of business relationships with customers.

The only proposed new disclosure item that we believe the Commission may want to reconsider is disclosure about material events regarding the registrant's employee benefit, retirement, and stock ownership plans. About 70% of our survey respondents¹ did not believe that disclosure of these events would be important to investors since benefit plan lock-outs are "routine" and "need only be communicated promptly to the effected employees" because "the employees are the group impacted, not the public."

We believe that material exit activities and impairments are of such importance to investors that prompt disclosure is necessary. However, the requirement in the proposed disclosures to include the amount of any charges, using the approval of the action as the triggering event, may be unworkable because the knowledge of the existence of an impairment or the approval of a restructuring may precede a reasonable estimate of such event.

Another significant practical issue related to exit activities and impairments is the lack of clarity with respect to the event triggering disclosure in Form 8-K (the "triggering event"), and whether the triggering event is intended to be consistent with the date at which accrual of a liability or recognition of an impairment is appropriate under U.S. Generally Accepted Accounting Principles ("GAAP"). As indicated by survey respondents, if the triggering event for disclosure precedes the recognition date under GAAP, the amount of the charge and the ability to prepare an analysis of the effect of the event on the company may not be available for inclusion in a timely filing. Confusion as to when disclosure in Form 8-K is required may impede a company's ability to comply with the proposed disclosure requirements and accelerated due date. Clarification of the event triggering disclosure in Form 8-K is particularly important given the recent issuance of guidance regarding exit activities and impairments by the Financial Accounting Standards Board ("FASB").

For example, the recognition date for exit activities in the proposed rule appears to employ a "commitment date" concept similar to that used in Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), which requires a liability for exit costs be recognized at the date of an entity's commitment to an exit plan. However, in Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities, the FASB concluded that an entity's commitment to a plan, by itself, does not create a
present obligation to others that meets the definition of a liability in FASB Concepts Statement No. 6, Elements of Financial Statements. Therefore, by superceding EITF 94-3, SFAS No. 146 requires a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred, which may be later than the date management commits to a plan.

Another example relates to the impairment of long-lived assets under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Under the proposal, it is not clear if the disclosure of an impairment would be required when events or changes in circumstances indicate the carrying amount of the asset may not be recoverable, upon completion of a recoverability test which indicates the carrying amount is not recoverable, or upon determining the fair value of the asset.

The other practical issue is how to interpret "material" for purposes of disclosure. Without further clarification of what is deemed material, we are concerned that companies may provide disclosure for every exit activity or impairment charge in order to avoid potential liability issues, resulting in "disclosure overload". For purposes of determining materiality for these items (as described more fully below), the Commission should consider whether disclosure should be tied to a specific financial threshold rather than a "materiality" standard. For example, the Commission may want to consider requiring disclosure of charges that exceed 5 or 10% of certain financial statement measures, such as assets, equity, revenues, or operating income. This approach is consistent with that used in the proposal for determining the materiality of events related to the termination or reduction of a business relationship with a customer and the completion of an acquisition or disposition of assets, and should result in consistent reporting of like events between companies.

We support the proposed disclosure item about termination or reduction of a business relationship with a customer. But, we are concerned that the event triggering disclosure is unclear. The proposed new item would require disclosure when a company becomes aware that a customer terminates or reduces the scope of a business relationship with the company and the loss of revenues to the company from such termination or reduction equals 10% or more of the company's consolidated revenues during the company's most recent fiscal year. No disclosure would be required if the company is in negotiations or discussions with a customer, or a suspension or reduction of orders occurs, unless and until an executive officer of the company is aware that the termination or reduction has occurred or will occur. Changes in customer relationships are routine and it is not clear what changes would or would not be reported. For example, a significant contract with a customer may be terminated or an existing contract may not be renewed but a different contract resulting in an anticipated similar amount of revenue may be executed. Also, awareness of an officer that a customer may or may not reduce or terminate its relationship is not a specific objectively measurable event.

B. Disclosure in Form 8-K of Items Currently Reported in Annual and Quarterly Reports

The Commission proposes to move two items from other Exchange Act reports to Form 8-K. These two items would require disclosure in a Form 8-K of unregistered sales of equity securities and material modifications of rights of security holders. Consistent with substantially all of the respondents to our survey, we agree that investors would benefit from more prompt disclosure in Form 8-K of unregistered sales of equity securities and material modifications to rights of security holders. However, we do not believe that disclosure of all unregistered sales is necessary. Rather, disclosure should be limited to those sales above a specified threshold, such as a percentage (for example, 1%) of the company's outstanding shares. In addition, if the above disclosure is moved to Form 8-K, we do not believe it necessarily needs to be duplicated in annual and quarterly reports.

C. Existing Form 8-K Disclosure Items

The Commission also proposes to make changes to existing Form 8-K items. The Commission proposes to expand the current Form 8-K item that requires disclosure about the resignation of a director to also require disclosure regarding the departure of a director for reasons other than a disagreement or removal for cause, the appointment or departure of a principal officer, and the election of new directors. Consistent with approximately 80% of the survey respondents, we agree with this proposed modification to the existing Form 8-K disclosure item. We also agree with the Commission's proposal to combine the current Form 8-K item regarding a change in a company's fiscal year with a new requirement to disclose any material amendment to a company's articles of incorporation or bylaws. We believe that investors would benefit from prompt disclosure of these items in Form 8-K.

D. Other

The Commission has asked whether there are any other additional significant corporate events that should be disclosed on Form 8-K. As indicated in our response letter to the Commission's proposed rule on Acceleration of Periodic Report Filing Dates and Disclosure Concerning Website Access to Reports, we believe the Commission should consider requiring in a Form 8-K or some other periodic form disclosure of the information provided in quarterly and annual earnings press releases. This Form 8-K should also contain a reconciliation of pro forma measures included in the press release to financial position and results of operations under GAAP and summarized, meaningful information provided in quarterly telephone calls with analysts. As one respondent to our survey indicated, "these calls typically yield additional insight from management that may not ever be included in a Form 10-Q or Form 10-K."

The Commission has asked whether a change in a company's critical accounting polices should be disclosed on Form 8-K. We believe that this disclosure is more appropriately provided in quarterly and annual reports because disclosure about critical accounting policies and estimates should be accompanied by financial statements. Changes in accounting polices and estimates can only be evaluated and assessed within the context of the financial statements.

III. Shortened Filing Deadline for Form 8-K

The proposed amendments would require domestic issuers to file required reports on Form 8-K within two business days of a triggering event. We support more timely disclosure of significant corporate events and believe that disclosure regarding certain of the proposed items, which are objective facts that occur on specific dates, can be accelerated without compromising the quality of those disclosures. However, as discussed below, disclosure of certain other items within a two day deadline may not be workable.

A. Proposed New Form 8-K Disclosure Items

We support accelerated disclosure of the proposed new disclosure items for entry into or termination of a material agreement, creation of or events triggering a direct or contingent financial obligation, changes in rating agency decisions, movement of the company's securities from one exchange to another or delisting from an exchange, and conclusion or notice that security holders no longer should rely upon previously issued financial statements or a related audit report. However, we do not believe two days is sufficient for disclosure about exit activities including material write-offs and restructuring charges, material impairments, and termination or reduction of a business relationship with a customer because of the practical implementation issues discussed above for these items and the detailed disclosures that would be required for these items. Less than half of the respondents to our survey believed that a two business day due date was sufficient to develop meaningful disclosure for these three items.

For material exit activities and impairments, which require disclosure of estimated amounts and an analysis of the effect of the charge on the company, the accelerated due date may not allow sufficient time to prepare, review and analyze the information required, particularly given the involvement of outside counsel and external auditors. Accelerated disclosure is further complicated by the fact that these items are typically triggered by events that may be unusual and/or nonrecurring or beyond the control of the company, and therefore, advance preparation of the information may not be possible. As a result, the proposal may have the unintended consequence of companies filing inadequate disclosure, which may have an adverse impact on investors and the securities markets.

For the three disclosure items above, we believe that at least a five business day due date should be used. The Commission could also consider adopting a two-stage disclosure process similar to that for acquiree financial statements. For example, initial disclosure of non-quantitative information could be required at the commitment date for exit activities and at the date the recoverability test is completed for impairments, followed by detailed quantitative disclosure no later than 5-10 days (or some other specified number of days) after the date the initial report on Form 8-K was required to be filed.

Regardless of the approach adopted, the Commission should balance investors' need for timely access to information with the adequate time needed by companies to prepare and analyze accurate, complete, and quality disclosures. Two days may not be enough for certain of these items, and the loss of eligibility to use short form registration statements is a significant penalty for an untimely Form 8-K filing.

B. Disclosure in Form 8-K of Items Currently Reported in Annual and Quarterly Reports

Consistent with the respondents to our survey, we support the accelerated reporting deadline for disclosure about unregistered sales of equity securities and material modifications to rights of security holders. We believe the accelerated due date will provide sufficient time for companies to compile the required information and file a Form 8-K.

C. Existing Form 8-K Disclosure Items

Consistent with the majority of our survey respondents, we believe that companies will be able to comply with the accelerated due date for certain of the existing Form 8-K disclosure items, including change in control, bankruptcy or receivership, resignation of a director, and change in fiscal year. However, we are concerned with the impact of the accelerated due date on the filing requirement for financial statements of an acquiree. Adoption of the accelerated due date will result in a reduction in the filing deadline for financial statements of an acquiree under Rule 3-05 of Regulation S-X from 75 days to 62 days. We believe it may be impracticable in some cases (for example, privately-held companies or carve-out financial statements of a division or part of a larger company) to complete the audit of the acquired business within the shortened timeframe since the acquiree may not have audited financial statements and the audit may not be started until after the actual closing of the transaction. The additional substantial costs incurred would not seem to justify the benefit of providing financial statements of an acquired business sooner than currently required.

We are particularly concerned that a two day deadline for disclosure about changes in a company's certifying accountants may not be a sufficient period of time necessary to prepare the disclosures required by Item 304 of Regulation S-K, particularly considering the necessary review of these disclosures by the company's counsel and former auditor. A possible alternative is to file an initial Form 8-K for notification of a change, similar to the current AICPA SEC Practice Section notice, within two days of resignation or termination, followed by an amended Form 8-K including the required Item 304 disclosures within five days of the change, and the letter required by Item 304(a)(3) from the former auditors in an amendment within the next ten days after the amended Form 8-K.

IV. Other Issues and Questions Considered

A. Principles-Based Approach

The Commission has asked whether in lieu of, or in addition to, the current approach involving a list of specific disclosure items, it should adopt a broad principle requiring companies to report highly important corporate events, leaving the company to determine the trigger for and scope of the necessary disclosure. While we believe that a "principles-based" approach to reporting is generally more effective than a prescriptive "rules-based" approach, we are not concerned with the proposal given the flexibility in the proposed Form 8-K rules. In addition to the proposed disclosure items, Form 8-K also may be used, at the company's option, to report any events that the company deems to be of importance to shareholders and to disclose nonpublic information required by Regulation FD. The optional disclosure provisions, including the use of Form 8-K for Regulation FD disclosures, should provide adequate flexibility to companies to report any information deemed relevant and useful to investors and other participants in the securities markets.

B. Materiality

The Commission has asked whether the materiality threshold used to trigger disclosure in Form 8-K should be harmonized based on a materiality standard that is not tied to a financial measure or a quantitative test tied to a financial measure. A significant concern expressed by several of the respondents to our survey is the lack of guidance with respect to what is considered material. Survey respondents indicated that "the issue is the definition of materiality and the sheer volume of reporting that would be required to include all the events," that companies "may be near filing an 8-K everyday just to avoid potential liability," and "the current `information a prudent investor would deem useful...' rule for materiality is not appropriate as it arguable makes most anything material."

Judgments about materiality are extremely difficult given that an event may be qualitatively material even when it is quantitatively insignificant, it is hard to predict in advance what information the market will treat as material, and such judgments are easy to second-guess in hindsight. This lack of clarity creates an incentive for companies to provide endless disclosure of arguably immaterial events. This "disclosure overload" may make it more difficult for investors to focus on the arguably more important disclosures about significant corporate events.

A majority of survey respondents (55%) believed that the Commission should consider harmonizing the materiality thresholds based on a quantitative test for disclosure items that have a direct impact on amounts recognized in the financial statements, such as entry into or termination of material agreements, creation of a direct or contingent financial obligation, exit activities, and impairments. The test could be based on a specified percentage of relevant financial measures, such as assets, equity, revenues and operating or net income. The Commission could consider an approach similar to that of the "significant subsidiary" test prescribed in Rule 1-01(w) of Regulation S-X. Such an approach is consistent with that proposed for determining the materiality of events regarding the termination or reduction of a business relationship with a customer and the completion of an acquisition or disposition of assets, should result in consistent reporting of like events between companies, and would address the concern regarding "disclosure overload".

C. Cost Considerations

Consistent with 90% of the respondents to our survey, we do not believe the cost of disclosure of any of the proposed items outweighs the benefits enough to warrant exclusion of the item. The majority of the survey respondents (55%) indicated that the estimated annual cost for compliance with the proposal would be less than $100,000, while 36% of the respondents estimated the cost of compliance at between $100,000 and $500,000, and 9% indicated that the costs would be between $500,000 to $1,000,000. While cost was not considered a significant issue, concerns were expressed by respondents regarding the increased regulatory compliance burden of the proposed rule and the potential dilutive impact of the additional disclosure items on truly significant disclosures (that is, disclosure overload).

V. Conclusion

We fully support disclosure by companies of significant events and the Commission's initiative to improve the delivery of timely, high-quality information to the securities markets to ensure that securities are traded on the basis of current information. We generally support the enhanced disclosure items proposed by the Commission and hope that the Commission will consider the few implementation issues discussed above in any final rule. We also support the Commission's proposal to accelerate the due dates for certain Form 8-K items and hope that for the other items the Commission will balance investors' need for timely information with the time needed by companies to prepare quality information.

If you have any questions, please contact John Wolfson at (203) 761-3741 or Christine Davine at (202) 879-4905.

Very truly yours,

/s/ Deloitte & Touche

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1	We surveyed approximately 15 registrants (approximately 50% with revenues of more than $1 billion and 85% with a market capitalization greater than $75 million) requesting comments on a series of questions about the proposed rule.