From: Canup, Barbara [barbara.canup@intel.com] Sent: Friday, December 13, 2002 6:36 PM To: 'rule-comments@sec.gov' Subject: Comments re File No. S7-43-02, Release Nos. 33-8145 and 34-46768 December 13, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 C/o rule-comments@sec.gov Attn: Jonathan J. Katz, Secretary Re: File No. S7-43-02 -- Release Nos. 33-8145; 34-46768 Conditions for Use of Non-GAAP Financial Measures Dear Mr. Katz: Intel Corporation is pleased to submit this letter with our comments on Securities and Exchange Commission ("SEC" or "Commission") Release Nos. 33-8145 and 34-46768. Executive Summary We appreciate the objective of the Sarbanes-Oxley Act and the proposed rules of enhancing disclosure by public companies and eliminating the use of non-GAAP financial measures in potentially misleading ways. We have some concerns in areas where the Commission appears to have gone beyond the requirements of the Sarbanes-Oxley Act, particularly in the area prohibiting certain information in filings and, due to the Form 8-K filing requirement, ultimately in earnings releases. Discussion and Analysis The proposed Item 10(e) of Regulation S-K regulates presentation in filings with the SEC and would prohibit presenting a non-GAAP per share measure, adjusting a non-GAAP performance measure to eliminate a non-recurring item if it is reasonably likely to recur, or excluding charges requiring cash settlement from a non-GAAP liquidity measure. Although Regulation G as proposed does not directly require earnings releases to comply with the requirements of Item 10(e) of Regulation S-K, the requirement to file earnings releases on Form 8-K and the application of Item 10(e) to that filing then limits what can be presented in an earnings release. This effectively puts limits on a company's ability to discuss what they think is important and to discuss the measures that management uses to assess the business. One of the purposes of MD&A is to see the business through management's eyes and this limitation creates a barrier to that end. Non-GAAP EPS measures are routinely used by analysts and investors, and, when presented in the appropriate context, we believe that non-GAAP EPS and other non-GAAP measures provide useful incremental information for the users of financial reports. The rules should not eliminate management's ability to discuss these in the earnings release, the most broadly disseminated communication vehicle and the vehicle that allows management to be the most forthcoming and precise. If the Item 10(e) and 8-K rules are implemented as proposed and no exception is made to give more flexibility to management for the earnings release, companies will be forced to discuss non-GAAP EPS only in conference calls or webcasts. This would likely result in investors and other users being confused, information being misinterpreted and an unlevel playing field being created. We believe that the requirements to present the most directly comparable GAAP financial measure accompanied by a clear reconciliation are appropriate to adequately address concerns about investor confusion and any additional prohibitions on information that companies may present are inappropriate and would be counter-productive. It is unclear what is meant in the proposed rules by a "non-GAAP liquidity measure." Would earnings before interest, taxes, depreciation and amortization (EBITDA) be considered a liquidity measure under the proposed rules? This is a measure of a company's ability to meet interest payments commonly used by analysts and investors, and it does not appear to be in the investors' interests to limit management's flexibility to discuss such measures. The proposed rules for Item 1.04 of Form 8-K provide that if material non-public information is disclosed in an oral, telephonic or webcast presentation following an earnings release, an 8-K is not required to be filed as long as the financial and statistical information in the presentation is provided on the registrant's website, along with any information required under Regulation G. As stated, the rule implies that all financial and statistical information presented would have to be posted on the company's website. This would require the company to analyze for materiality any financial information or statistic given in the presentation, or discussed in the question and answer session, and if material, post that on the web site, whether or not non-GAAP financial measures are disclosed. When published, the Regulation FD rules made clear that comments made in conference calls or webcasts were considered publicly disseminated as long as the call or webcast met certain conditions for public notice and public access. If all financial and statistical information from such calls must now be posted on the company's website, this goes well beyond the issue of non-GAAP financial measures and beyond the intent of the Sarbanes Oxley Act, and is effectively an amendment of Regulation FD. We believe that the purpose of regulating non-GAAP disclosures would be appropriately served by requiring only that for any non-GAAP financial measure disclosed in a call or webcast, the required information under Regulation G should be posted to the website. Some companies include non-financial information in the earnings release, such as new product offerings during the period. We believe the rules should either provide that the non-financial information included in an earnings release need not be included in the Form 8-K filing or alternatively should specify that this non-financial information is not deemed filed. In the proposal, the Commission asked for comments as to whether the presentation of a reconciled balance sheet, income statement and cash flow statement should be required. Although they may be useful in some cases, we do not believe that such a requirement would add value in many cases where the reconciling items are few or relatively self-evident in their impact. A company should be able to present the reconciliation in the form that it believes to be most appropriate. * * * We thank you for consideration of our views and we would be pleased to discuss the issues further at your convenience. I can be contacted at the number indicated below, or you can contact Cary Klafter, Director of Corporate Affairs, Legal Department, at 408-765-1215. /s/ Barbara C. Canup Barbara C. Canup External Reporting Controller Intel Corporation 2200 Mission College Blvd. Mail stop RNB5-65 Santa Clara, CA 95052-8119 dd (408) 653-7939