Corp Fin has posted some updates to its CDIs relating to the new rule amendments regarding smaller reporting companies. (See this Cooley Alert and the SEC’s Amendments to the Smaller Reporting Company Definition — Compliance Guide.) In connection with the new updates, Corp Fin has also withdrawn a number of CDIs (presumably, at least in part, because they were no longer appropriate in view of the changes to the rules). Below are summaries:

Regulation S-K

Item 10 — General

102.01 This CDI illustrates that, under the new amendments, companies can now be both accelerated filers and smaller reporting companies, which means that, as SRCs, they can use the scaled disclosure rules but, as accelerated filers, their periodic reports are due under the timeframes for accelerated filers and they must provide SOX 404(b) auditor attestation reports in their 10-Ks. More specifically, in the CDI example, a company was an accelerated filer with respect to filings due in 2018 and had a public float of $80 million on the last business day of its second fiscal quarter of 2018. Because its public float at that measurement date was below $250 million, the company would qualify as an SRC for filings due in 2019. However, because the company was an accelerated filer with respect to filings due in 2018, it is required to have less than $50 million in public float on the last business day of its second fiscal quarter in 2018 to exit accelerated filer status for filings due in 2019. Because the company’s public float exceeded $50 million, it was unable to transition to non-accelerated filer status. Accordingly, the company would be both an accelerated filer and an SRC.

102.02 This CDI recaps the circumstances under which a reporting company that fails to qualify as an SRC can later qualify if its revenues or public float decreases. Under the new rules, once a reporting company fails to qualify as an SRC, it will remain unqualified until, when making a subsequent annual determination, it meets other lower caps set at 80% of the initial qualification caps. That is, “either:

  • It determines that its public float is less than $200 million; or
  • It determines that:
    • for any threshold that it previously exceeded, it is below the subsequent annual determination threshold (public float of less than $560 million and annual revenues of less than $80 million); and
    • for any threshold that it previously met, it remains below the initial determination threshold (public float of less than $700 million or no public float and annual revenues of less than $100 million).”

The CDI provides the following example where the company had exceeded one of the caps, but not the other: “A company has a December 31 fiscal year end. Its public float as of June 28, 2019 was $710 million and its annual revenues for the fiscal year ended December 31, 2018 were $90 million. It therefore does not qualify as a smaller reporting company. At the next determination date, June 30, 2020, it will remain unqualified unless it determines that its public float as of June 30, 2020 was less than $560 million and its annual revenues for the fiscal year ended December 31, 2019 remained less than $100 million.”

202.01 In determining whether a company is an SRC, the company’s annual revenues should be calculated on a consolidated basis. For example, a holding company with no public float as of the last business day of its second fiscal quarter would qualify as an SRC if it had less than $100 million in consolidated annual revenues for its most recently completed fiscal year for which audited financial statements are available (that is, as the end of the fiscal year preceding that second fiscal quarter).

Exchange Act Forms

Form 10-K

104.13 An SRC indicates on the cover of its 2019 Form 10-K, which used scaled disclosure, that the company will no longer qualify as an SRC for 2020 (because its public float exceeded $250 million at the end of its second fiscal quarter in 2019). The company plans to incorporate into the 10-K its Part III information from its proxy statement, which will be filed within 120 days after its 2019 fiscal year end. Even though it does not qualify to use SRC disclosure for 2020, the company can use SRC disclosure for that proxy statement because it could have used SRC disclosure for Part III of its 2019 Form 10-K if it had not elected to incorporate that information by reference from the definitive proxy statement.