Call them the gang that couldn't file in time.

In the first year that companies were required to complete their annual reports earlier than in prior years, 59 companies with at least $100 million market caps—roughly defined as accelerated filers—filed for extensions of the March 15 deadline. This compares with 54 companies that sought more time in 2003, according to an analysis by Glass, Lewis & Co., an independent institutional research firm.

What's more, six companies, including Goodyear and Chartermac, filed for extensions for the second year in a row.

RELATED SURVEYS, DEADLINES

Oct. Survey Said S&P 500 Won't Be Ready

The Glass, Lewis data (see story at left) is reminiscent of a survey published by Parson Consulting last October. According to the survey, over 60 percent of the S&P 500 weren't yet meeting the shorter 10Q filing deadline of 40 days for 2004. The accelerated deadline, which will apply in 2004 for fiscal years ending on or after Dec. 15, 2003, will ultimately be shortened to 35 days (see schedule below). The Parson data was basically in sync with a similar KPMG study CW covered in early September, which was much more thorough in its analysis. Schedule, related guidance and data from both surveys are available, below:

Schedule of Filing Deadlines

Filing

CalendarFY 2002

CalendarFY 2003

CalendarFY 2004

CalendarFY 2005

1st Qtr 10-Q

May 15

May 15

May 10

May 5

2nd Qtr 10-Q

Aug 14

Aug 14

Aug 9

Aug 4

3rd Qtr 10-Q

Nov 14

Nov 14

Nov 9

Nov 4

Form 10-K

Mar 31

Mar 15

Mar 1

Mar 1

Survey Data & Related Guidance

Title

Author

Description

10Q Filing Trend Analysis

Parson Consulting

Says companies "have made little progress" in shortening quarterly reporting cycles.

SEC Filing Readiness

KPMG

Copy of KPMG's Sept. edition of "Defining Issues" covers accelerated filing preparedness.

Plan For Meet-ing Deadlines

Steve Eddy, PwC

Column from CW archives from PwC's SmartClose leader offers accelerated filing approach.

"Most of the extensions were tied to restatements," points out Todd Fernandez, senior research analyst for the San Francisco-based company.

Under Sarbanes-Oxley, beginning 2004 companies were required to file their audited annual reports within 75 days, down from 90 days last year. In 2005, the deadline will move up to 60 days.

Companies can then seek extensions for an additional 15 days.

Delay Equals Weakness?

Of course, it's hard to determine what role the new accelerated filing deadlines played on the companies that wound up requesting more time to file their annuals. But, Fernandez notes, "It's no coincidence that you saw a pickup in the numbers."

Now, keep in mind that not filing on time is a violation of SEC rules. Companies can be delisted from exchanges or default on bank loans.

In general, Glass, Lewis concludes in its analysis that the inability to file on time is likely an indication of weakness in internal controls and reporting capabilities. So, it's also no coincidence that most of the late filers are also in the process of restating current or historic financials.

They include companies like Nortel Networks, which recently announced it will likely restate results for the second time in several months. It also said that it is being investigated by the Securities and Exchange Commission. In addition, the telecom equipment maker recently put its chief financial officer, Douglas Beatty, and its controller, Michael Gollogly, on paid leaves of absence.

Veritas, a high-flier from the Internet bubble days, is another good example. It is restating its results for the years ended 2001 and 2002 as a result of an internal probe and revising its financials for 2003 to correct prior periods and resolve tax audits stemming from its 2000 acquisition of Seagate Technology.

Of course, not all companies delayed their filings due to restatements. Calpine Corp., for example, postponed its filing so it can include the effects of a debt offering, Glass, Lewis noted.

And Shurgard Storage Centers delayed its filing because PricewaterhouseCoopers did not complete in time its audit of the company's financial statements for the three years ended 2003 after Deloitte and Touche had resigned.

In some cases, Glass, Lewis has called into question the delayed filing.

For example, it challenged Mastec's request for a delay for the second year in a row because it is still in the process of providing the support necessary for its auditors to conclude their work in connection with the audited financial statements. The research firm notes, "We believe this reason does not sufficiently meet the disclosure requirements of the SEC. Investors are given no basis for why the audit is not complete."

Second Deadline

Alas, although 59 companies sought extensions, a large number of them did not wind up filing their audited annual reports when the 15-day period was up.

Glass, Lewis points out in a separate report that 15 companies provided notice of failing to meet extended deadlines, including Nortel, Mastec and Shurgard.

And another seven companies have yet to file their annual reports or provide any additional notice that the deadline extension would not be met. They include Veritas, El Paso, Flowserve, Goodyear Tire and Rubber, Hollinger International, Mission West Properties and SPSS.

Next year could be more challenging, Fernandez insists.

Companies must meet a new, accelerated deadline of 60 days.

It will also be the first time companies must comply with Section 404 of Sarbanes-Oxley, which requires them to document their internal controls over their financials.

"This will be new for everybody, including the auditor," Fernandez notes. "The reporting is complex. There will be some hiccups. We will see where the cracks are."