Just before the December holidays began, companies dreading the prospect of shorter quarterly reporting deadlines got a gift from the Securities and Exchange Commission. The SEC has voted to adopt final rules that, among other things, give companies a break from filing their quarterly reports in less time next year.
The new rules, adopted during a Dec. 14 open meeting, come three years after the Commission first adopted rules to gradually shorten the deadlines for companies to file their annual and quarterly reports in an effort to provide investors with more timely information.
Atkins
The adoption of the final rules “successfully closes the book on a rulemaking process that began three years ago,” Commissioner Paul Atkins noted during the meeting.
Under rules originally adopted in 2002, the periodic reporting deadlines for companies considered to be accelerated filers under Exchange Act rules would have gradually shortened over a three-year period. The planned phase-in would have ultimately shortened the deadline for filing annual reports from 90 to 60 days, and for quarterly reports from 45 to 35 days. However, in November 2004, the SEC postponed the final phase-in for the acceleration of filing dates—to allow companies and their auditors more time to focus on complying with the internal control requirements of Sarbanes-Oxley—keeping the deadlines at 75 days for annual reports and at 40 days for quarterly reports for an additional year.
The SEC proposed amending those rules in September, but the amended final rules adopted included some changes from those proposed in September. In addition to maintaining the current 40-day quarterly report deadline for accelerated filers, the final rules modify the accelerated filer definition, create a new category of filers, and make it much easier for companies to exit accelerated filer status.
The SEC received 46 comment letters on the amendments proposed in September. Most companies that commented said the proposed 35-day quarterly reporting deadline would be too burdensome.
KEY PROVISIONS
Filing Acceleration Changes
Next year, larger public companies will be subject to the final phase-in of accelerated periodic report filing deadlines. The Commission voted to adopt amendments to the periodic report filing deadlines and the Exchange Act Rule 12b-2 definition of an accelerated filer. The amendments will:
Create a new category of companies called "large accelerated filers", and redefine the category of "accelerated filers"
The amendments will create a new category of "large accelerated filers" that will include companies with a public float of $700 million or more.
The amendments also will redefine "accelerated filers" as companies that have at least $75 million, but less than $700 million, in public float.
Establish longer Form 10-K annual report and Form 10-Q quarterly report deadlines for accelerated filers, except that only the category of large accelerated filers would be subject to a final phase-in of the 60-day Form 10-K annual report deadline beginning with fiscal years ending on or after Dec. 15, 2006.
Under the amendments, the deadlines will be changed in the following manner:
Large accelerated filers will be subject to a 60-day Form 10-K annual report deadline starting in fiscal years ending on or after Dec. 15, 2006, and to a 75-day deadline until then;
Large accelerated filers will be subject to a 40-day Form 10-Q quarterly report deadline;
The redefined accelerated filers will be subject to a 75-day Form 10-K annual report deadline; and
The redefined accelerated filers will be subject to a 40-day Form 10-Q quarterly report deadline.
The periodic report filing deadlines for the other reporting companies will not be changed. Non-accelerated filers will continue to file their annual reports on Form 10-K or 10-KSB under the 90-day deadline and quarterly reports on Form 10-Q or 10-QSB under the 45-day deadline. The amendments also will not impact Form 20-F or Form 40-F filing deadlines applicable to foreign private issuers.
Amend the definition of an accelerated filer to modify the requirements for exiting out of accelerated filer status, and exiting out of large accelerated filer status.
The amendments will modify the exit requirements out of accelerated filer status by permitting an accelerated filer whose public float has dropped below $50 million to file an annual report on a non-accelerated basis for the same fiscal year that the determination of public float is made. The amendments also will provide for similar requirements for exiting out of large accelerated filer status, permitting a large accelerated filer to exit promptly out of large accelerated filer status once its public float has dropped below $500 million.
Source:
SEC Votes To Propose Rules On Tender Offers, Foreign Issuer Deregistration; Also Votes To Adopt Filing Acceleration Changes (Dec. 14, 2005)
While the quarterly reporting deadline stays the same, the final rules adopted require the largest companies to file their annual reports faster, but gives those filers an extra year before the shorter 60-day deadline takes effect.
The final rules create a new category of "large accelerated filers," defined as companies with a public float of $700 million or more, and redefine "accelerated filers" as companies that have at least $75 million, but less than $700 million, in public float. Under the old definition, accelerated filers were those companies with a public float of $75 million or more.
Under the final rules, only large accelerated filers are subject to a 60-day Form 10-K annual report deadline, but that 60-day deadline will take effect for fiscal years ending on or after Dec. 15, 2006—a year later than the SEC had earlier proposed. The current 75-day deadline remains in place until then.
Cooper
“The SEC's revisions to the Form 10-K filing deadlines are a welcome relief to our larger public company clients,” says Brett Cooper, a partner in the San Francisco office of Orrick, Herrington & Sutcliffe. “The continuation of the 75-day filing deadline for another year will allow large accelerated filers more time to refine and shorten their internal reporting processes to be able to meet the ultimate 60-day filing deadline without compromising the quality and accuracy of their disclosure."
Hyatte
"The SEC's rule amendments provide good news for public companies of all sizes," says Theresa Hyatte of Weil, Gotshal & Manges in Washington, D.C.
Both smaller and larger public companies benefit from the easing of the restrictions on exiting accelerated filer status, while larger companies will also benefit from the delay of the final-phase in, notes Hyatte.
Hyatte adds, "Companies that have a public float near the threshold for becoming an accelerated or large accelerated filer should bear in mind that once they cross that threshold on the test date they may need to review their disclosure controls and procedures to ensure that they will be able meet the shorter filing deadlines."
Cox
During the meeting, SEC chairman Christopher Cox said the SEC approved the delay of the final phase-in for the largest companies “in recognition of the fact that they are in only their second year of reporting under Section 404, which has imposed significant burdens” that he said “were not contemplated when the accelerated filings deadlines were introduced three years ago.”
The deadline for annual reports for accelerated filers under the new definition will stay at 75 days. Under the rules proposed in 2002, those filers would have faced a 60-day annual report deadline and a 35-day quarterly report deadline. The SEC noted that, by maintaining the current deadlines for accelerated filers, the final rules are consistent with an Aug. 10 recommendation by an SEC advisory committee that smaller public companies not be subject to any further accelerated filing deadlines.
The periodic report filing deadlines for the other reporting companies are not affected. The new rules don’t impact Form 20-F or Form 40-F filing deadlines applicable to foreign private issuers.
The amendments adopted will make it much easier for companies to exit out of accelerated filer status by permitting an accelerated filer whose public float has dropped below $50 million to file an annual report on a non-accelerated basis for the same fiscal year that the determination of public float is made. The rules include a similar provision for exiting out of large accelerated filer status for companies whose public float has dropped below $500 million. Those thresholds are far lower than the exit thresholds proposed in September, which would have applied to accelerated filers whose public float dropped below $25 million and large accelerated filers whose public float dropped below $75 million as of two consecutive year-ends.
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