SEC Issues Final Rules On Accelerated Filing Deadlines for Certain Public Companies
To Our Public Company Clients and Friends: The SEC has adopted final rules that shorten the filing deadlines for many public companies’ quarterly and annual reports. The new rules implement changes proposed by the SEC in April 2002 as part of the SEC’s initiative to restore investor confidence in public companies by improving public company disclosure. Which Public Companies are Affected? The new filing deadlines apply to “accelerated filers,” which generally are public companies that: have been a public company for at least twelve calendar months; have filed at least one annual report; are not “small business issuers” and have public float (the aggregate market value of the voting and non-voting common equity held by non-affiliates of the company) of $75 million or more. In determining whether a company satisfies the public float test, the measurement date is the last business day of the company’s most recently-completed second fiscal quarter. The second quarter date was chosen so that companies that become accelerated filers due to an increase in their public float can prepare to meet the new deadline. Once a company becomes an accelerated filer, it generally will remain subject to the accelerated filing requirements, even if it later has a public float of less than $75 million. The new rules require all public companies to disclose in their annual report their public float as of the end of their second fiscal quarter. Each public company also is required to check a box on the cover of its annual report to indicate whether the company is an accelerated filer. The SEC estimates that approximately one-half of domestic public companies will satisfy the accelerated filer test. What are the New Filing Deadlines? The current filing deadlines (90 days after fiscal year end and 45 days after fiscal quarter end for a company’s first three fiscal quarters) remain in effect for public companies that are not accelerated filers. The current filing deadlines also continue in effect for accelerated filers for the fiscal year ending on or after December 15, 2002 and prior to December 15, 2003. The Form 10-K and Form 10-Q deadlines for accelerated filers then will be accelerated as shown in the following table: For Fiscal Years Ending on or After Form 10-K Deadline Form 10-Q Deadline December 15, 2002 90 days after fiscal year end 45 days after fiscal quarter end December 15, 2003 75 days after fiscal year end 45 days after fiscal quarter end December 15, 2004 60 days after fiscal year end 40 days after fiscal quarter end December 15, 2005 60 days after fiscal year end 35 days after fiscal quarter end Note that even for accelerated filers, the Form 10-Q deadline remains at 45 days for two full fiscal years. Suggestions for Accelerated Filers We encourage accelerated filers to use the phase-in period to prepare systems and practices for complying with the new deadlines. In most cases, an accelerated filer should plan to complete its 2002 Form 10-K within the 75-day period that will apply for its 2003 Form 10-K, to ensure the company is ready to meet this deadline. Similarly, in 2004 the company should plan to complete its 2003 Form 10-K within the 60-day period that will be required for its 2004 Form 10-K. During the phase-in period, accelerated filers that complete their Form 10-K by the new deadlines may nonetheless elect to file their reports under the deadline applicable to that time period, using the additional time to review the report for accuracy and completeness. Of course, market practices may lead a company to file its report early if the filer’s peer companies elect to file early. Accelerated filers should examine the process used to prepare their annual report on Form 10-K to determine critical path items and the steps needed to complete them. The examination should yield a plan tied to a calendar timeline that, if followed, will result in completing the filing by the projected deadline. The company should consult with their internal audit staff, their independent audit firm, their legal staff, outside counsel and their financial printer or filing agent to ensure that all involved parties understand and endorse the company’s plan. The company’s audit committee may wish to participate in this planning process. Beginning at least one year in advance of the new Form 10-Q deadlines, accelerated filers should make similar adjustments to their Form 10-Q preparation process. Suggestions for Companies that are not Accelerated Filers As public company audit work becomes centralized at fewer accounting firms and as these firms are pressed to complete audits for accelerated filers first, audits for smaller public companies (and private companies) could become more difficult to complete in a timely manner. Some observers are concerned that the new deadlines will disrupt the reporting process for non-accelerated filers as the audit and reporting process develops into a two-stage process: accelerated filers first and non-accelerated filers second. Non-accelerated filers should engage in planning with their audit and reporting participants to ensure that all parties have appropriate expectations for the process and agree on the interim deadlines. Non-accelerated filers also should prepare for the possibility that they could become an accelerated filer. As an example, if a non-accelerated filer first satisfies the public float test as of the last business day of its second fiscal quarter (in a fiscal year ending on or after December 15, 2004), then that company would be subject to a 60-day deadline for its next Form 10-K, rather than the 90-day Form 10-K deadline. Because the $75 million public float threshold is low and because the 60-day deadline eventually may become the standard that is expected by investors from all companies, we anticipate that some non-accelerated filers voluntarily will elect to file under the accelerated filer deadlines. Effect on Securities Act Filings The SEC’s rule amendments also change the timeliness requirements for financial statements included in registration statements. Under the new rules, an accelerated filer must include in any registration statement financial statements that are at least as current as the statements included in the Company’s 10-K or 10-Qs that are required to be filed prior to the filing of the registration statement. Effect on Proxy Statement Filing Deadline The information required by Part III of Form 10-K (relating to officers and directors) can be incorporated by reference to a company’s proxy statement, as long as the definitive proxy is filed not later than the 120th day after the Company’s fiscal year end. The new Form 10-K filing deadlines do not change the proxy statement filing deadlines. Companies still can incorporate the Part III information by reference to their proxy statement. Please note, however, that accelerated filers may have to amend their 10-K to include the Part III information, or accelerate the filing of their proxy statement, if the company wishes to utilize a short-form registration statement incorporating the Part III information by reference to the company’s Form 10-K prior to the customary filing date of the company’s proxy statement.
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