For many U.S. public companies, June 30 is the end of their second fiscal quarter, which means it is time to prepare their Quarterly Reports on Form 10-Q. This also means it is time for these companies to evaluate their filer status for the next fiscal year. Here are a few things to remember.
Determination of Initial Filer Status
A company with a December 31 year-end is required to calculate its public float as of June 30 (the last business day of its most recently completed second fiscal quarter) to determine its SEC filer status for the next fiscal year.[1] Based on the public float calculation, a company can initially qualify as a:
- Large Accelerated Filer – a public float of $700 million or more and is not a smaller reporting company (“SRC”) under the SRC revenue test referenced below;[2]
- Accelerated Filer – a public float of $75 million or more, but less than $700 million and is not an SRC under the SRC revenue test referenced below;[3] or
- Non-Accelerated Filer – a public float of less than $75 million, qualifies as an SRC under the SRC revenue test referenced below, or does not otherwise meet the requirements of a large accelerated filer or an accelerated filer.
In addition to these categories of filers, a December 31 year-end company can also initially qualify as an SRC if at June 30 it has (1) a public float of less than $250 million or (2) annual revenues of less than $100 million for its most recently completed fiscal year for which audited financial statements are available, and either (a) no public float or (b) a public float of less than $700 million. A company that is an SRC is exempt from the requirement to provide an auditor attestation of internal control over financial reporting (“ICFR”) under Sarbanes-Oxley Act Section 404(b) and may take advantage of certain less stringent scaled disclosure requirements if it chooses to do so.[4] A company must indicate that it is an SRC no later than its Quarterly Report on Form 10-Q for the first quarter of its next year, but may indicate it is an SRC and take advantage of the scaled disclosure requirements with its upcoming Quarterly Report on Form 10-Q for the second quarter. In addition, an SRC under the revenue test referenced in clause 2 above also qualifies as a non-accelerated filer even if it otherwise would be a large accelerated filer or an accelerated filer, and therefore, has extended SEC filing deadlines.[5]
The following table provides a summary of the initial filer alternatives as well as whether the company is required to obtain a separate attestation of its ICFR from outside auditors and its future SEC filing deadlines:
* Under the Jumpstart Our Business Startups Act (known as the JOBS Act), emerging growth companies (a company generally qualifies as an emerging growth company until the earlier of (1) the last day of the fiscal year ending after the fifth anniversary of its initial public offering; (2) the last day of the fiscal year in which its total annual gross revenues are $1.07 billion or more; or (3) the date that it becomes a large accelerated filer) are already exempt from the auditor attestation requirement.
Entering and Exiting a Filer Status after Initial Determination
If a company has already made its initial determination of its filer status, it will remain that category of issuer until at a future determination date (i.e., a subsequent June 30) it meets the thresholds set forth in the following table:
In addition to these public float thresholds, a large accelerated filer or an accelerated filer also transitions to non-accelerated filer status if it is an SRC under the SRC revenue test discussed below.
As referenced above, a company can initially qualify as an SRC if it has (1) a public float of less than $250 million or (2) annual revenues of less than $100 million and a public float of less than $700 million. Once a company determines that it does not qualify as an SRC, it will remain unqualified under the public float test under clause (1) above until it determines that it has a public float of less than $200 million and it will remain unqualified under the revenue test under clause (2) above until it determines that it meets the public float and annual revenue requirements set forth in the following table:
The SEC has provided a few examples of how the SRC transition rules will apply to the determination of filer status:
Example 1 - An issuer with a December 31 fiscal year-end that did not exceed the public float threshold as of June 30, 2019, and that has a public float as of June 30, 2020 of $230 million, and annual revenues for the fiscal year-ended December 31, 2019 of $101 million will be eligible to be an SRC under the public float test; however, because the issuer would not be eligible to be an SRC under the SRC revenue test, it will be an accelerated filer (assuming the other conditions to being an accelerated filer are also met). At the next determination date (June 30, 2021), if its public float remains at $230 million and its annual revenues for the fiscal year-ended December 31, 2020 are less than $100 million, the issuer will be eligible to be an SRC under the SRC revenue test (in addition to the public float test) and thus it will become a non-accelerated filer.
Example 2 - On the other hand, an issuer with a December 31 fiscal year-end that has a public float, as of June 30, 2020, of $400 million and annual revenues for the fiscal year ended December 31, 2019 of $101 million will not be eligible to be an SRC under either the public float test or the SRC revenue test, and will be an accelerated filer (assuming the other conditions to being an accelerated filer are also met). At the next determination date (June 30, 2021), if its public float remains at $400 million, that issuer will not be eligible to be an SRC under the SRC revenue test unless its annual revenues for the fiscal year-ended December 31, 2020 are less than $80 million, at which point it will be eligible to be an SRC under the SRC revenue test and to become a non-accelerated filer.
[1] Public float is the aggregate worldwide market value of voting and non-voting common equity of the company held by non-affiliates by reference to the price at which the common equity was last sold, or the average of the bid and asked prices of the common equity, in the principal market for the common equity as of the particular date.
[2] The company must also be subject to the SEC reporting requirements for a period of at least twelve calendar months and have filed at least one annual report.
[3] See note 2.
[4] While an auditor attestation of ICFR is not required for qualifying companies, these companies are still required to establish, maintain and assess the effectiveness of ICFR; to provide certifications of financial reports by the principal executive officer and the principal financial officer; and complete a financial statement audit by an independent auditor who is required to consider ICFR in the performance of that audit.
[5] Foreign private issuers that apply U.S. GAAP and file on domestic forms designated for domestic issuers are also excluded from the accelerated and large accelerated filer definitions if they qualify as an SRC under the SRC revenue test.
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