SEC Postpones Filing Date for Internal Control Reports for Smaller Accelerated Filers
 
December 1, 2004
 
Rodney H. Bell- Miami
Steven Sonberg - Miami

The Securities and Exchange Commission (SEC) yesterday issued an exemptive order[1] granting certain accelerated filers[2] up to an additional 45 days to include in their annual reports the management report on internal control over financial reporting and the related auditor’s report on management’s assessment of internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act. The SEC action was taken due to increasing concern that many smaller accelerated filers would not be in a position to meet the original Section 404 deadline.[3] All other information required in annual reports, including audited financial statements, would have to be filed on the original due date for the annual reports.

In order to take advantage of the exemptive order, the following conditions must be met:

(a) The accelerated filer has a fiscal year ending between and including November 15, 2004 and February 28, 2005.

(b) The market value of the accelerated filer’s outstanding common equity held by non-affiliates was less than $700 million at the end of its second fiscal quarter in 2004.

(c) The accelerated filer files all of the information required to be included in the Form 10-K within the 75-day period specified in the form (or within the extended period permitted by Exchange Act Rule 12b-25 if the accelerated filer has satisfied the conditions of that rule), including all of the information required by Item 9A. Controls and Procedures, except that the accelerated filer may omit from the Form 10-K management’s annual report on internal control over financial reporting, required by Item 308(a) of Regulation S-K, and the related attestation report of the registered public accounting firm, required by Item 308(b) of Regulation S-K.

(d) The accelerated filer identifies the information that it has not filed as permitted by paragraph (c) above.

(e) If the accelerated filer has identified a material weakness in its internal control over financial reporting, or the accelerated filer’s registered public accounting firm has identified such a material weakness and communicated this finding to the accelerated filer, before the Form 10- K is filed as required by paragraph (c) above, the accelerated filer must disclose this information in the filing required by paragraph (c) above.

(f) The accelerated filer completes its Form 10-K by filing an amendment to the information required by paragraph (c) above not later than 45 days after the end of the 75-day filing period specified in Form 10-K (regardless of whether the accelerated filer relied on Exchange Act Rule 12b-25 to extend the 75-day filing period), to include the information that it did not file as permitted by paragraph (c) above.

(g) The accelerated filer may not rely on Exchange Act Rule 12b-25 to extend the deadline for the Form 10-K amendment described in paragraph (f) above.[4]

An eligible accelerated filer relying on the exemptive order to exclude the Section 404 management’s report and related auditor report from its initially filed Form 10-K will be deemed in compliance with the annual report filing requirements of Exchange Act Rule 13a-1 or Rule 15d-1, as applicable. However, for purposes of Form S-2 and S-3 eligibility requirements, an accelerated filer relying on this exemption will not be considered to have timely filed its Form 10-K report until it has filed the Form 10-K amendment required by paragraph (f) above.

For more information, e-mail James Lurie, Rod Bell or Steven Sonberg at james.lurie@hklaw.com, rodney.bell@hklaw.com, or steven.sonberg@hklaw.com, respectively, or call toll free, 1-888-688-8500.

This Public Companies Alert is a summary for general information and discussion only. It is not a complete analysis of the matters presented and may not be relied upon as legal advice which may often turn on specific facts. Readers should seek legal advice before acting with regard to the matters mentioned herein.

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1. The full test of the exemptive order can be found at http://www.sec.gov/rules/exorders/34-50754.htm

2. As defined in Exchange Act Rule 12b-2, an “accelerated filer” is a company that (i) has a public float of at least $75 million; (ii) has been subject to the SEC’s periodic reporting requirements for at least 12 months and has filed one annual report; and (iii) is not eligible to use the SEC’s small business reporting forms.

3. Starting with fiscal years ending on or after November 15, 2004, SEC rules require accelerated filers to include in their annual reports both the management report and auditor report on the effectiveness of the company’s internal control over financial reporting.

4. The Public Company Accounting Oversight Board also met on November 30, 2004 to adopt a temporary rule, subject to SEC approval, that would permit the delayed filing of auditors’ internal control reports consistent with the SEC’s exemptive order.