Smaller Company Reporting Rules:
Impact on 2008 Form 10-K and Proxy
By: RYAN C. BRAUER
April 2008
Recent amendments to Securities and Exchange Commission (SEC) disclosure and reporting requirements extended the less onerous reporting obligations of “small business issuers” to a larger category of public filers known as “smaller reporting companies.” The amendments, which became effective on February 4, 2008, phase out the two-tiered reporting scheme (and SB forms) and integrate the provisions of Regulation S-B into Regulation S-K. A new paragraph titled “Smaller Reporting Companies” has been added to each item of Regulation S-K and contains separate disclosure standards for the smaller reporting companies. A “smaller reporting company” is any issuer meeting either of these qualifications:
- A company with less than $75 million in public float, calculated as of the last day of the issuer’s second fiscal quarter.
- A company that has no calculable public float with annual revenues of less than $50 million.
The amendments generally allow a smaller reporting company to choose, on an item-by-item basis, whether to comply with the simplified disclosure requirements for smaller reporting companies or the typically more rigorous requirements for larger companies, provided that comparable period-to-period disclosures must be made.
Companies that now qualify as “smaller reporting companies” have the option to use the new simplified disclosure requirements in periodic reports due to be filed after the effective date of February 4, 2008. The simplified disclosure requirements include the following:
- Under Executive Compensation, no Compensation Discussion and Analysis (CD&A) requirement exists and fewer compensation tables are required.
- A stock performance chart is not required.
- “Selected financial data” is not required.
- Qualitative and quantitative disclosure regarding market risk is not required.
- Management Discussion and Analysis (MD&A) is condensed because of reduced financial statement requirements.
- Disclosure regarding corporate governance and related parties is reduced.
- Risk factor disclosure is not required.
Considerations for newly qualifying smaller reporting companies include the following:
- Whether the status as a smaller reporting company is temporary.
- Investor expectations and perceptions.
- Comparability with disclosures by industry competitors.
Note that if an issuer meets the criteria for a smaller reporting company, it must check the “smaller reporting company” box on the cover of its Form 10-K, regardless of whether the issuer decides to avail itself of the simplified disclosure items.
This article is not intended as a comprehensive guide on the simplified disclosure requirements. Please contact Ryan Brauer or any member of the Fredrikson & Byron Securities Practice Group at 612.492.7000 to discuss the new requirements in detail and whether it makes sense for your company to take advantage of them. “A Small Entity Compliance Guide” is also available on the Securities and Exchange Commission Web site at www.sec.gov/info/smallbus/secg/smrepcosysguid.pdf.
Takeaway
The simplified disclosure requirements, among other things, allow “smaller reporting companies” to exclude such items as a CD&A discussion, a stock performance chart, and selected financial data, while allowing a more condensed MD&A.