Companies continue to miss their filing deadline at an alarmingly growing rate. According to a quarterly analysis by Glass, Lewis & Co., 98 companies filed for a five-day extension to report their results for the three-month period ending in September. This compares with 77 in the second quarter. [The data include companies with market caps greater than $100 million.]

In the third quarter of 2004, 61 companies filed for extensions, according to the proxy research firm. However, just 34 companies requested an extension in the first quarter of 2004 and only 30 in the second.

“This is a complete surprise,” says Leah Townsend, author of the study, who was figuring on the rising trend abating somewhat in the most recent three-month period.

A big portion of the late filers—44, or nearly half of the total—were companies with pending or recently completed restatements. That includes several high-profile companies mired in accounting scandals or regulatory probes, such as Fannie Mae and Hollinger. Other late filers that have been investigation are BearingPoint, Bausch and Lomb, and, most recently, Telephone and Data Systems (see related coverage at right).

Restatements, Staffing, And Katrina

Glass, Lewis & Co. also said 14 companies have identified accounting issues that it believes could lead to restatements, but for which a restatement has not yet been announced. It cites, for example, Terayon Communications Systems, which is analyzing its revenue recognition procedures. “Based on our experience, we believe it is likely if the company finds an error, previously issued financial statements may need to be restated,” Glass, Lewis adds in its report.

Staffing issues were also mentioned by the firm as causes for late filings. Alliance Semiconductor, for example, attributed its delay to board and audit committee turnover, and continued turnover in the accounting and finance department.

Eight companies cited delays related to Hurricane Katrina. But while companies whose principle executive offices are located in storm-related disaster areas have been given a reprieve by the SEC, Townsend points out that only two of the eight companies have their headquarters in the specific counties in Mississippi and Louisiana targeted for relief.

Altogether, 32 of the most recent quarter’s late filers have material weaknesses and received negative opinions concerning their effectiveness of internal control, according to the report. They include BearingPoint, Fannie Mae, Hollinger International, JDS Uniphase and Service Corp. International.

Perhaps most significantly, 36 companies were repeat offenders from recent filing deadlines. They include Fannie Mae and BearingPoint, which still haven’t filed their 2004 financials. Other serial late-filers include Ferro Group, Service Corp. International and Terex Corp.

“Given the number of repeat filers, it is almost like they are not taking providing accurate data to investors seriously,” Townsend asserts. “It calls into question their commitment to quality financial reporting.”

The Scarlet Letter

There are many ramifications for a company that files late.

Nasdaq, for example, places an “E” at the end of the ticker of companies that file their quarterly and annual reports late. “It’s the Scarlet Letter of the accounting world,” Townsend quips.

If a company does not meet the five-day extension deadline, it also is no longer in compliance with SEC regulations and may be subject to such consequences as defaulting on bank loans as well as delisting from national exchanges, Glass, Lewis & Co. points out in its report.

And, as Compliance Week has covered in the past (see box above, right), the exchanges—especially Nasdaq—as well as the SEC have been aggressively cracking down on chronic late filers. The exchange is able to delist companies while the regulator revokes the securities registrations.

In addition, if a company no longer qualifies as a timely filer, it can be precluded from using certain SEC benefits such as the availability of short form shelf registrations for one year following the late filing, says the report. Glass, Lewis & Co. also points out that late filers will find Rule 144 temporarily unavailable for security holders’ resales of restricted and controlled securities and make new filings on Form S-8 temporarily unavailable for resales of employee benefit plan securities, the research firm points out. “In other words, the company will be prohibited from taking certain actions with its own equity and will have to complete the long versions of some filings with the SEC,” it adds.

Livnat

Late filers also typically suffer negative reactions to their stocks, according to Joshua Livnat, an accounting professor at New York University’s Stern School of Business, who along with four other academics recently completed a study of late filers. Though the primary purpose of the study was to examine various ways to automate the categorization of Late Filing Notification forms filed with the SEC, the academics found the mean negative return in the three days following a delayed filing was minus 1.4 percent. “The most negative (severe) market reactions occur for bankruptcy-related and financial-condition-related delays,” the study found.