On June 28, the SEC adopted regulations that could reduce the reporting burden on middle market public companies. In summary, the SEC adopted amendments to the smaller reporting company (SRC) definition to increase the thresholds for eligibility. Under the amendments, companies with a public float of less than $250 million will qualify as SRCs (up from $75 million). The SEC estimates that about 1,000 additional companies will now be eligible for scaled disclosure as a result of the rule amendments. We expect these amendments may also help companies that have undertaken their IPO in the last five years as they roll off emerging growth company eligibility because of the passage of time.

Below is a table that summarizes the change in the initial qualification threshold amounts:

Criteria Previous SRC definition Revised SRC definition
Public Float Public float of less than $75 million Public float of less than $250 million
Revenues Less than $50 million of annual revenues and no public float

Less than $100 million of annual revenues and

  • no public float, or
  • public float of less than $700  million

Consistent with the previous definition, under the amendments, if a company determines that they do not qualify as an SRC under either of the above thresholds, then they will continue to be unqualified for SRC status until they can meet one or more lower qualification thresholds. The subsequent qualification thresholds, set forth in the table below, are set at 80% of the initial qualification thresholds.

Criteria Previous SRC definition Revised SRC definition
Public Float Public float of less than $50 million. Public float of less than $200 million, if it previously had $250 million or more of public float.
Revenues Less than $40 million of annual revenues and no public float. Less than $80 million of annual revenues, if it previously had $100 million or more of annual revenues; and less than $560 million of public float, if it previously had $700 million or more of public float.

No Change in Accelerated Filer Definition

The SEC did not amend the current thresholds in the “accelerated filer” and “large accelerated filer” definitions in Exchange Act Rule 12b-2. As a result, companies with $75 million or more public float that qualify as SRCs will remain subject to the requirements that apply to accelerated filers, including the timing of the filing of periodic reports and the requirement that accelerated filers provide the auditor’s attestation of management’s assessment of internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.

Transition Details

The final rules are effective on September 10, 2018. For purposes of the first fiscal year ending after effectiveness of the amendments, a company will qualify as an SRC if it meets one of the initial qualification thresholds in the revised definition as of the date it is required to measure its public float or revenues (the ‘‘measurement date’’), even if such company previously did not qualify as an SRC. For example, a registrant with a December 31 fiscal year end that previously was not an SRC and that had a public float of $220 million as of June 29, 2018, (the last business day of its most recently completed second quarter) will qualify as a SRC for the fiscal year ending December 30, 2018.

Scaled Disclosure Benefits Summary Chart

The SEC’s adopting release (linked here) included the following table summarizing the scaled disclosure accommodations. In addition, to the accommodations itemized in the table, SRCs using Form S–1 may incorporate by reference information filed prior and subsequent to the effectiveness of the registration statement if they meet the eligibility requirements in General Instruction VII of Form S–1.

Item Scaled disclosure accommodation
Regulation S-K
101—Description of Business May satisfy disclosure obligations by describing the development of the registrant’s business during the last three years rather than five years. Business development description requirements are less detailed than disclosure requirements for non-SRCs.
201—Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters Stock performance graph not required.
301—Selected Financial Data Not required.
302—Supplementary Financial Information Not required.
303—Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Two-year MD&A comparison rather than three-year comparison. Two-year discussion of impact of inflation and changes in prices rather than three years. Tabular disclosure of contractual obligations not required.
305—Quantitative and Qualitative Disclosures About Market Risk Not required.
402—Executive Compensation

Three named executive officers rather than five.

Two years of summary compensation table information rather than three.

Not required:

  • Compensation discussion and analysis.
  • Grants of plan-based awards table.
  • Option exercises and stock vested table.
  • Pension benefits table.
  • Nonqualified deferred compensation table.
  • Disclosure of compensation policies and practices related to risk management.
  • Pay ratio disclosure.
404—Transactions With Related Persons, Promoters and Certain Control Persons Description of policies/procedures for the review, approval or ratification of related party transactions not required.
407—Corporate Governance Audit committee financial expert disclosure not required in first annual report. Compensation committee interlocks and insider participation disclosure not required. Compensation committee report not required.
503—Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed Charges No ratio of earnings to fixed charges disclosure required. No risk factors required in Exchange Act filings.
601—Exhibits Statements regarding computation of ratios not required.
Regulation S-X
Item Scaled disclosure accommodation
8-02—Annual Financial Statements Two years of income statements rather than three years. Two years of cash flow statements rather than three years. Two years of changes in stockholders’ equity statements rather than three years.
8-03—Interim Financial Statements Permits certain historical financial data in lieu of separate historical financial statements of equity investees.
8-04—Financial Statements of Businesses Acquired or to Be Acquired Maximum of two years of acquiree financial statements rather than three years.
8-05—Pro forma Financial Information Fewer circumstances under which pro forma financial statements are required.
8-06—Real Estate Operations Acquired or to Be Acquired Maximum of two years of financial statements for acquisition of properties from related parties rather than three years.
8-08—Age of Financial Statements Less stringent age of financial statements requirements.

If you have any questions regarding any of the topics covered in this blog post, please feel free to contact a member of our Corporate & Securities practice group or, if applicable, contact your primary Bass, Berry & Sims relationship attorney.

Special thanks to Sarah Guthrie, a Bass, Berry & Sims summer associate based in our Nashville office, for her assistance in drafting this post.