November 1998 Issue


By Bruce Berger, Arthur Andersen LLP, and Lewis Schier, PhD, Pace University

Public companies have 45 days from the end of their fiscal quarter to submit a Form 10-Q Quarterly Report and 90 days from the end of their fiscal year to submit a Form 10-K Annual Report. As investors, analysts, and other interested parties anxiously await financial performance results for the most recent fiscal period on the prescribed due date, an increasing number of public companies are filing Form 12b-25 in lieu of the expected forms.

Form 12b-25 is used as a notification to the SEC of a late filing by a reporting company and automatically extends the due date of the required report an additional five calendar days in the case of Form 10-Q, and fifteen calendar days in the case of Form 10-K. The filing company is required to indicate if the Form 10-K or 10-Q cannot be filed without unreasonable effort or expense and provide a reasonable narrative detail why it cannot be filed within the prescribed time period.

Companies are more likely to provide boilerplate explanations for late Form 10-Q quarterly reports, but are more likely to cite accounting issues for delays in filing Form 10-K annual reports, according to a recent research study done by Pace University. The findings of the study are summarized in the Exhibit. Additionally, a significant number of companies surveyed had previously filed late reports.

Many companies failed to state any compelling reason why they had petitioned for an extension on Form 10-Q, saying such things as "The said form could not be filed without unreasonable effort or expense."

In contrast, the most common reason cited for a company's failure to file a 10-K on time was related to accounting issues. In some cases, either a change in auditor or an auditor resignation accounted for the delay. In a few cases, the independent auditor's report was delayed because the filing company failed to pay the auditor's fees for the prior year.

Among the accounting issues cited were changes in accounting treatments related to prior period adjustments, estimates, or accounting and financial disclosures. Personnel-related problems included the hiring of new management, management illness or unavailability, management resignations, and accounting department layoffs. Financing transactions included mergers, acquisitions, recapitalization, reorganization, divestiture, securities offerings, and debt restructuring. Other reasons cited by Form 12b-25 filers involved computer systems difficulties, SEC or litigation issues, overseas operations issues, and operational issues.

Additionally, the study revealed that a pattern exists with respect to repeat filers. Of the Form 10-K filings examined, 24% of the filing companies had filed a Form 12b-25 in the preceding fiscal quarter. Of the Form 10-Q filings examined, 48% of the filing companies had filed a Form 12b-25 for either Form 10-K or 10-Q. *

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