Reg FD Prompts Companies To Backtrack on Public Statements

Lately, there has been a spate of companies backtracking from statements they made on conference calls, in interviews and in press releases.

The flurry of activity comes in the wake of Regulation Fair Disclosure, the Securities and Exchange Commission's new rule requiring companies to widely disseminate material information to investors.

That regulation was designed to get more information in the marketplace. But an unwanted byproduct has been that some of this information is just wrong, leaving companies scrambling to correct the mistakes and avoid securities violations.

In the past, when companies were waxing about their hopes and dreams to small audiences of analysts, it wasn't as crucial to communicate in laser-precise fashion. In those cases where a company worried that too much would be read into a comment about to be published by an analyst, an informal phone call, perhaps, would have been in order.

But nowadays, when so much more information is disseminated to the public, the entire public-relations apparatus is being called into duty to make sure that some data isn't misinterpreted.

"I think everybody for the last 10 to 15 years was used to doing more subtle communications in less formal settings," said Boris Feldman, a lawyer at Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif

In some cases, the clarifications seem to come down to fairly nuanced modifications that very well may be lost on many investors, anyway.

That could be said about at least a portion of the recent never-mind from Mark Frissora, chairman and CEO of Tenneco Automotive Inc.

In an interview earlier this month with Bloomberg Forum, Mr. Frissora said that Tenneco "is in a position now where we'll be able to meet or exceed expectations in the marketplace" and that the company "is looking to" repay $300 million to $400 million of its debt over the next two to three years.

Not so fast, Tenneco said in a filing two days later with the SEC. His earnings projections "relate to the company's belief that it should at least meet the current average earnings-per-share expectation in the marketplace for the second quarter of 2001," the company said.

As for the debt, Tenneco said "while it is the company's goal to aggressively reduce debt over the next several years, by as much as $300 to $400 million, the company is not currently forecasting such debt reduction."

To some ears, the debt clarification seemed to be shading language purely for protection against legal liability, underscoring one of the practical difficulties companies face in trying to keep a step ahead of regulators and suit-happy plaintiffs' lawyers.

"It's very difficult to stick to a script where every word is perfect," said Chris Danne, a partner at The Blueshirt Group, a San Francisco investor-relations firm. "If you're going to look at it with a legal magnifying glass and have to issue [clarifying] press releases, that doesn't get to the intent of FD. The real intent was to make sure everyone had access to information at the same time."

Errors, of course, predated Reg FD, and companies traditionally have moved quickly in the past to correct things like typos or sloppy math.

But in the past, "it was much more touchy-feely," said Raphael Soifer, a former securities industry analyst.

"Today when a senior executive such as a chairman gives a presentation, it's a public occasion. Therefore, if, as frequently happens, executives don't always get the facts exactly right, then someone on the staff has to put out a public clarification because the statement itself was made public," Mr. Soifer said.

To be sure, many of the clarifying or correcting press releases issued this year have been to fix these small errors. Computer Associates International Inc., for instance, fixed a figure in its fiscal fourth-quarter earnings table. Likewise, Keith Cos. issued a press release after its first-quarter earnings conference call, saying it misstated the projected number of weighted shares outstanding as 6.1 million instead of 7.1 million to 7.3 million.

But, in some cases, even typos have risen to the level of a Reg FD event. Waste Management Inc. earlier this year issued a 2001 pro forma outlook of $3.3 billion to $3.4 billion for earnings before interest, taxes, depreciation and amortization.

Turns out the company was too conservative. Its real range should have been between $3.4 billion to $3.5 billion. So Waste Management not only corrected the release, it filed the correction with the SEC as a Reg FD disclosure.

"It's really not a black-and-white issue," a Waste Management spokeswoman said. "It was a simple filing to make, it only took about an hour to do, so we did it."

More such decisions are likely, particularly as an increase in information leads to an inevitable increase in mistakes or unclear statements needing clarification, observers predict.

"My companies haven't yet," blueshirt's Danne said. "I'm crossing my fingers."