Cos Grapple With 8-K Rules, As Holders Await Timely Info
By PHYLLIS PLITCH
August 20, 2004 2:35 p.m.
Of DOW JONES NEWSWIRES
NEW YORK -- Picture this: You own stock in Amalgamated Consolidation Corp. and the top executives just up and left the company, something you and other investors would like to know about ASAP.
Under current federal securities laws, the company is under no obligation to spill this potentially market-moving news in a rapid fashion.
That will change Monday.
Publicly traded companies will for the first time be required to report within days the departure of top brass as well as a number of other internal financial changes and business developments, aimed at giving investors more "real-time" investment information.
On the eve of the Securities and Exchange Commission's new "8-K" disclosure rules, however, some corporate officials are still wrestling with the breadth of the requirements as they work to formalize processes that will push required information through the corporate corridors and computer systems into the sunlight.
"What I'm hearing is a mix," said Textron Inc. (TXT) senior associate general counsel, Michael Cahn, who sits on the board of the Association of Corporate Counsel, and who has gathered some intelligence on the issue. "Some companies are very far along in setting up procedures, while other companies may not have done that yet."
One indication that companies may still be sorting it all out is the demand TheCorporateCounsel.Net has seen for its "8-K In-House Memo for Reporting Chain Insiders," a memo that has gotten 2,500 hits over several days this week.
"It's not surprising given that the new 8-K rules represent a dramatic shift in disclosure philosophy," said Broc Romanek, editor of the corporate and securities law Web site, which will have an SEC lawyer on hand next month for a Webcast on the new disclosure mandates.
For years now, companies were only required to quickly report a half dozen concrete items to shareholders, including such important developments as a change in control, a bankruptcy filing, an auditor change and under very limited circumstances, a director resignation.
In the wake of Enron Corp.'s (ENRNQ) collapse, the SEC began moving to increase the number of real-time events companies should disclose, an effort that later became a Congressional mandate under the Sarbanes-Oxley Act. The rule, which was finalized earlier this year, also shortened the 8-K disclosure deadline to four days from five business days or 15 calendar days.
Under the new rules, 10 new items have to be filed with the SEC on an 8-K form, ranging from detailed information about the creation of off-balance sheet obligations to disclosing decisions about asset impairment charges to notice of a delisting from a stock exchange.
Experts said it's hard to gauge how huge the 8-K onslaught will be. In the early days, companies might overdo it to stay on the safe side, putting out information that isn't clearly material even though "the backdrop is that these are supposed to be presumptively, undeniably significant events," said Ronald O. Mueller, a corporate securities lawyer at Gibson, Dunn & Crutcher LLP in Washington.
"There is still a lot of uncertainty about what is a triggering event," he said. "The rules are drafted broadly and cover so many different situations, there will be companies that file an abundant number of 8-Ks in order to be sure they do catch what is required."
As far as investors are concerned: bring it on.
To be sure, at many corporations - especially large-cap companies, it was standard practice to disclose some of the new 8-K events - if not quickly, then at least in quarterly filings.
Now, however, companies across the board will report "in a prompt manner, rather than burying it in a 10-K (annual report) or -Q (quarterly report) that might be pretty lengthy," said Gerry Bollman, a portfolio manager at Great Companies LLC, a Clearwater, Florida, investment management firm.
Take the new off-balance sheet disclosures. While such information is often found in quarterly earnings reports, it's "not with the level of detail implicit in this rule," he said.
Having such information readily available and uniformly disclosed across companies "will improve our ability to develop accurate and timely intrinsic value analysis," added Bollman's boss, Jim Huguet, president and co-CEO of the firm, which manages $1.4 billion in assets.
"I don't know that this (the rule) is going to revolutionize disclosure among companies," he said. "But it certainly is going to make it easier to see changes and make sure everyone is playing on a level field."
-By Phyllis Plitch, Dow Jones Newswires; 201-938-2357; phyllis.plitch@dowjones.com
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