Increasing numbers of companies are having difficulty filing their financial reports to regulators on time—and the number of repeat offenders is growing rapidly.

According to the latest quarterly analysis by proxy services firm Glass, Lewis & Co., at least 120 companies failed to meet their deadline for filing first-quarter 2006 financial reports, up 32 percent from one year ago.

In a separate analysis, Glass Lewis found that 90 accelerated filers have been late filing both their 2004 and 2005 annual reports, while 30 missed the deadline for their 2003 and 2004 annuals. Fifteen companies missed their deadline for each of the past three years.

“We expected things to slow down this year, but that was not the case,” says Mark Grothe, a research analyst at Glass Lewis who follows the late filings.

Glass Lewis also noted numerous companies—Flowserve Corp., HealthSouth Corp., MedQuist and Financial Industries Corp.—that were late filing their 2004 and 2005 annual reports, as well as all their quarterly reports in the same years. “Including their most recent late filing for the first quarter of 2006, that makes nine straight late filings,” the report says.

Some companies do simply need just a bit more time to complete their financial statements accurately. For example, NeoPharm, a biotech company with $500,000 in revenues last year, reported unaudited financial statements for the first quarter on its filing deadline of May 10. At the same time it filed a request for extra time to submit audited results to the SEC.

Kenyon

As it turns out, NeoPharm, which also filed its 2005 annual report late, filed its first-quarter 2006 statements on May 11—just one day late. “We were just making sure we had all of our ducks in a row,” explains Larry Kenyon, the company’s chief financial officer. Kenyon laments that closing the books is much more difficult thanks to Sarbanes-Oxley, because the company has more items to track and needs two audits, one for financial statements and one for internal controls.

Some of the chronic late filers are finally up-to-date after painstaking reconstruction of several years of financial statements in the wake of accounting scandals. HealthSouth, for example, had to recover from a $2.7 billion accounting scandal. “It took us while,” a spokesman admits. “But every six months we would hold a public update and provide a sense of what was happening.”

Grinney

In fact, when HealthSouth filed its 2005 10-K, Chief Executive Officer Jay Grinney acknowledged the significance, noting on a conference call: “This is the first Form 10-K that the company has filed with the SEC on a timely basis since 2002. And I am enormously proud of all of the hard work and dedication of everyone involved with this accomplishment … I am relieved to finally have this chapter behind us.”

Restatements Lead To Late Filings

According to Glass Lewis, a prime culprit for late filings is the rash of restatements Corporate America has endured recently; most companies that needed more time to file their statements either had previously restated results, or are taking more time to complete a restatement now.

For example, in the first quarter, Glass Lewis identified 22 late filers as having unresolved accounting issues that may lead to restatements. Half of that number were also late in filing their 2005 annual reports, including Carmike Cinemas, UTStarcom and Westmoreland Coal. Four of the 22 also filed late quarterly statements last year: Chicago Bridge & Iron, Frozen Food Express Industries, Power Integrations and Pride International.

Another 41 of the first quarter’s late filers have already announced restatements. Of that group, eight filed their 2005 annual report late, while 23 missed both their annual and quarterly reports last year. The group includes long time late filers Fannie Mae, HealthSouth and Flowserve, as well as Terex, Telephone & Data Systems and Mercury Interactive.

Willens

“If there are controversial items quarter after quarter, it raises a red flag,” says Robert Willens, tax and accounting analyst for Lehman Brothers. “I think this speaks unfavorably to the company’s internal accounting system. It means that information can’t be generated efficiently. They have trouble with controls.”

Then there is the case of Motient, a $36 million telecommunications business that in the early part of the decade restated several years’ worth of results after emerging from bankruptcy. Just last year it finally filed its 2002 and 2003 quarterly and annual reports. The company also delayed filing of its 2005 annual report because it was finishing certain aspects of its accounting relating to the spin-off of, and its related investment in, TerreStar Networks.

BY AUDITOR

The table below, excerpted from Glass, Lewis & Co.'s "Recently Delayed Quarterly Filings—First Quarter 2006," shows a breakdown of companies, by auditor, that submitted late-filing notices for the first

quarter of 2006:

Firm

No. of Late Filers

% of Total

PricewaterhouseCoopers

34

28.3%

KPMG

28

23.3%

Ernst & Young

16

13.3%

Deloitte & Touche

13

10.8%

Grant Thornton

5

4.2%

BDO Seidman

3

2.5%

Crowe Chizek

0

0.0%

Other

21

17.5%

Total

120

100.0%

Source: "Recently Delayed Quarterly Filings—First Quarter 2006," Glass, Lewis & Co., May 19, 2006 (Chart cited as source: Glass Lewis, FactSet, company filings).

Motient delayed its most recent quarterly filing by five days until it could figure out its stock option expensing—a problem many companies have experienced this year, the first that they must fully expense options. The company ultimately wound up including a $3.7 million expense related to stock options.

“For a company that generated only $2 million in revenue during the first quarter of 2006, that’s an eye-opening add-on to the income statement,” Glass, Lewis notes.

Myrna Newman, the company’s principal financial officer, chief accounting officer and controller, stresses that Motient did file its statements within the five-day grace period the Securities and Exchange Commission allows. “That’s something the SEC provides you for a reason,” she says. “I don’t see it as a major concern.” Every company is being extra careful these days, she says.

Newman also says companies like hers are filing their financials late because of the final phase-in of accelerated periodic report filing deadlines, which these days require companies to close their quarterly books within 40 days.

She acknowledges that with a $1.1 billion market cap, Motient easily meets the definition of an accelerated filer. However, with just eight full-time finance employees, she contends that the company isn’t structured like an accelerated filer, many of which have scores of finance people. “In the short term, the [40-day deadline] is causing more harm than good,” she says.