SRC Definition PRA Supporting Statement Final.09-24-2018

SUPPORTING STATEMENT FOR THE PAPERWORK REDUCTION ACT
INFORMATION COLLECTION SUBMISSION FOR FINAL AMENDMENTS TO
SMALLER REPORTING COMPANY DEFINITION
This supporting statement is part of a submission under the Paperwork Reduction Act of
1995, 44 U.S.C. §3501, et seq.
A.

JUSTIFICATION
1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

The Securities Act of 1933,1 as amended (the “Securities Act”), generally requires that a
registration statement be filed with the Securities and Exchange Commission (the
“Commission”) disclosing prescribed information before securities may be offered for sale to the
public. In addition, the Securities Exchange Act of 1934, 2 as amended (the “Exchange Act”),
empowers the Commission to require periodic reporting of information by companies with
publicly traded securities. These disclosure requirements are contained in Regulation S-K3 and
Regulation S-X4 and are imposed through Commission forms and schedules that are subject to
the requirements in those regulations.
The Commission’s disclosure system provides accommodations in the form of scaled
disclosure requirements for certain categories of smaller registrants, including those qualifying as
“smaller reporting companies,” as defined in Securities Act Rule 405,5 Exchange Act Rule 12b2,6 and Item 10(f) of Regulation S-K.7 Substantively, the three definitions are identical.
On June 28, 2018, in Release No. 33-10513, the Commission adopted amendments to the
definition of “smaller reporting company” (“SRC”) to expand the number of registrants that
qualify as smaller reporting companies and thereby are eligible to rely on the scaled disclosure
requirements. Under the amended definition, SRCs generally include registrants with a public
float of less than $250 million, as compared to the $75 million threshold under the prior
definition. The amended definition also includes registrants with revenues of less than $100
million in the previous year and either no public float or public float of less than $700 million.
This reflects a change from the revenue test in the prior definition, which allowed companies to
provide scaled disclosure only if they had no public float and less than $50 million in annual
revenues.

1

15 USC 77a et seq.

2

15 USC 78a et seq.

3

17 CFR 229.10 et seq.

4

17 CFR 210.1-01 et seq.

5

17 CFR 230.405.

6

17 CFR 240.12b-2.

7

17 CFR 229.10(f).

1

In addition, the Commission adopted amendments to Rule 3-05(b)(2)(iv) of Regulation SX to align the prior $50 million revenue threshold in that rule with the new $100 million revenue
threshold in the SRC definition. The amendments to Rule 3-05 decrease the disclosure burden
for registrants acquiring other companies by increasing the number of acquired companies for
which Rule 3-05(b)(2)(iv) of Regulation S-X permits one less year of financial information to be
disclosed.
The amendments contain “collection of information” requirements within the meaning of
the Paperwork Reduction Act of 1995.8 The titles of the collections of information are:
(1)

“Regulation S-K” (OMB Control No. 3235-0071);

(2)

“Regulation S-X” (OMB Control No. 3235-0009);

(3)

“Regulation C” (OMB Control No. 3235-0074);

(4)

“Regulation 12B” (OMB Control No. 3235-0062);

(5)

“Form 10-K” (OMB Control No. 3235-0063);

(6)

“Form 10-Q” (OMB Control No. 3235-0070);

(7)

“Form 8-K” (OMB Control No. 3235-0060);

(8)

“Regulation 14A and Schedule 14A” (OMB Control No. 3235-0059);

(9)

“Regulation 14C and Schedule 14C” (OMB Control No. 3235-0057);

(10)

“Form 10” (OMB Control No. 3235-0064);

(11)

“Form S-1” (OMB Control No. 3235-0065);

(12)

“Form S-3” (OMB Control No. 3235-0073);

(13)

“Form S-4” (OMB Control No. 3235-0324); and

(14)

“Form S-11” (OMB Control No. 3235-0067).

2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

The purpose of the new collection of information is to make scaled disclosure
accommodations available to a larger number of registrants in order to reduce compliance costs
for those registrants and promote capital formation and while maintaining appropriate investor
protections. The amendments should decrease the disclosure requirements for:

8

44 USC 3501 et seq.

2




3.

some registrants with a calculable public float of more than $75 million but less
than $250 million;
some registrants with no public float and revenues of $50 million or more but less
than $100 million; and
some registrants with public float of $250 million or more but less than $700
million and revenues of less than $100 million.
CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

Reports on Form 10-K, Form 10-Q, and Form 8-K, proxy statements on Schedule 14A,
information statements on Schedule 14C, and registration statements on Form 10, Form S-1,
Form S-3, Form S-4, and Form S-11, subject to temporary and continuing hardship exemptions
available under Regulation S-T,9 are required to be filed electronically with the Commission
using the Commission’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system.
4.

DUPLICATION OF INFORMATION

The final rules do not duplicate, overlap, or conflict with other federal rules.
5.

REDUCING THE BURDEN ON SMALL ENTITIES

The amendments increase the thresholds in the SRC definition and Rule 3-05 of
Regulation S-X, making scaled disclosure accommodations available to a greater number of
registrants. We believe it is likely that virtually all entities that qualify as a “small business” or
“small organization” under 17 CFR 230.157 are already encompassed within the current SRC
definition and the current revenue threshold in Rule 3-05(b)(2)(iv) of Regulation S-X and will
continue to be encompassed within the revised thresholds contained in the final rules. To the
extent any small business or small organization is not already encompassed within the current
SRC definition and the current revenue threshold in Rule 3-05(b)(2)(iv) of Regulation S-X, we
believe it is likely that the revised thresholds contained in the final rules will capture those
entities. Accordingly, the amendments may decrease existing collection of information total
burden estimates, or not affect them at all, for some reports on Form 10-K, Form 10-Q, and Form
8-K, some proxy statements on Schedule 14A, some information statements on Schedule 14C,
and some registration statements on Form 10, Form S-1, Form S-3, Form S-4, and Form S-11,
filed by small businesses or small organizations that meet the amended SRC definition.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

The regulations and forms set forth the disclosure requirements for registration periodic
and current reports filed by companies to help investors make informed investment. Not
conducting this collection would deprive investors of access to information that is important to
their voting and investment decisions.

9

17 CFR 223.201 and 223.202.

3

7.

SPECIAL CIRCUMSTANCES

Not applicable.
8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

On June 27, 2016, the Commission issued Release No. 33-10107 proposing amendments
to the SRC definition and soliciting comment on the new “collection of information”
requirements and the associated paperwork burdens. In response to the solicitation for comment
in the proposing release, registrants, investors, and other market participants provided comments.
The Commission received one comment relating to our Paperwork Reduction Act analysis. As
discussed in Section V.C. of Release No. 33-10513, this commenter stated that the proposed
adjustment to the SRC definition is fair and that the details provided as the basis for the cost
reduction estimates appear to be thorough and specific. In addition, the Commission and staff
participated in ongoing dialogue with representatives of various market participants through
public conferences, roundtables, and meetings. All comments received on the proposal are
available at https://www.sec.gov/comments/s7-12-16/s71216.htm. The Commission considered
all comments received prior to publishing the final rules as required by 5 CFR 1320.11(f).
9.

PAYMENT OR GIFT TO RESPONDENTS

Not applicable.
10.

CONFIDENTIALITY

The proposed rules do not prevent requests for confidential treatment from being made
under the Commission’s existing rules. Otherwise, the collections of information are public
documents.
11.

SENSITIVE QUESTIONS

Regulation 14C and Schedule 14C, Regulation 14A and Schedule 14A, Form 10-K,
Form 10, Form S-1, Form S-11, Form 10-Q, Form S-3, and Form S-4. The information
collection collects basic Personally Identifiable Information (PII) that may include a name and
job title. However, the agency has determined that the information collection does not constitute
a system of record for purposes of the Privacy Act. Information is not retrieved by a personal
identifier. In accordance with Section 208 of the E-Government Act of 2002, the agency has
conducted a Privacy Impact Assessment (PIA) of the EDGAR system, in connection with this
collection of information. The EDGAR PIA, published on January 29, 2016, is provided as a
supplemental document and is also available at https://www.sec.gov/privacy.
No information of a sensitive nature, including social security numbers, will be required
under Regulation 12B, Regulation S-K, Regulation S-X and Regulation C. These collections of
information do not collect personally identifiable information (PII). The agency has determined
that a system of records notice (SORN) and privacy impact assessment (PIA) are not required in
connection with the collection of information.

4

12. AND 13. ESTIMATES OF HOUR AND COST BURDENS
The estimated burden hours and cost burden are made solely for the purposes of the
Paperwork Reduction Act and represent the average burden for all issuers. The cost burden is
not derived from a comprehensive or even a representative survey of the costs of Commission
rules and forms. The estimated decreases reflect the estimated decreases for registrants that will
be newly eligible as smaller reporting companies under the amended definition. In addition, for
quarterly and annual reports and for proxy and information statements, we estimate that 75% of
the burden of preparation is carried by the registrant internally and that 25% of the burden is
carried by outside professionals retained by the registrant at an average cost of $400 per hour.10
For registration statements, we estimate that 25% of the burden of preparation is carried by the
registrant internally and that 75% of the burden is carried by outside professionals retained by
the registrant at an average cost of $400 per hour.
The table below shows the estimated decrease in burdens, in hours and in costs, under the
amendments for each report or statement affected.11 For each report or statement, we estimated
the number of registrants that will become newly eligible to use scaled disclosure for smaller
reporting companies and the burden and cost savings if these registrants use all of the scaled
disclosure requirements. However, we assume that a portion of these newly eligible smaller
reporting companies either (1) will not elect to rely on all of the available scaled disclosure
accommodations or (2) will already qualify as emerging growth companies, which are eligible to
rely on certain scaled disclosure requirements for a limited period, including some of the scaled
requirements available to smaller reporting companies. Accordingly, we estimate that
approximately 80% of these savings will be realized, except in the case of Form 10 and Form S11, where due to the low number of filers and rounding considerations, we assume that newly
eligible registrants would realize the full extent of these savings.

10

We recognize that the costs of retaining outside professionals may vary depending on the nature of the
professional services, but for purposes of this PRA analysis we estimate that such costs would be an
average of $400 per hour. This estimate is based on consultations with several registrants, law firms and
other persons who regularly assist registrants in preparing and filing reports with the Commission.

11

For convenience, the estimated hour and cost burdens in the table have been rounded to the nearest whole
number. The paperwork burdens from Regulation S-K, Regulation S-X, Regulation 12B, and Regulation C
are imposed through the forms that are subject to the requirements in these regulations and are reflected in
the analysis of those forms. To avoid a PRA inventory reflecting duplicative burdens and for
administrative convenience, we assign a one-hour burden to each of Regulation S-K, Regulation S-X,
Regulation 12B, and Regulation C.
We estimate that the amendments to Rule 3-05 may decrease the existing paperwork burden for some
registrants but not change the total burden estimates for Form 8-K. This reflects our appraisal that few
registrants were eligible to rely on the $50 million threshold in Rule 3-05(b)(2)(iv) and our expectation that
the amendments will not significantly change the number of registrants that are eligible to rely on Rule 305(b)(2)(iv). This also is consistent with the Commission’s estimate of the impact on the compliance
burden for Form 8-K when it revised Rule 3-05 of Regulation S-X in 2007 to increase the threshold in Rule
3-05(b)(iv) from $25 million to $50 million.

5

Table 1A.

Decreased Paperwork Burden under the Final Rules: Burden Hours
Full Election
Decrease in Burden
Hours per Affected
Total Decrease in
Response
Burden Hours
(B)
(C)=(A)*(B)
521.80
504,063
38.33
37,027
.75
602
.75
15
9.30
9
7.25
181
.25
48
7.25
254
7.25
15

Likely
Total Decrease in
Burden Hours
(D)=(C)*80%12
403,250
29,621
481
11
9
145
38
203
15

Form 10-K
Form 10-Q
Schedule 14A
Schedule 14C
Form 10
Form S-1
Form S-3
Form S-4
Form S-11

Estimated No. of
Newly Eligible SRCs
(A)
966
966
802
18
1
25
190
35
2

Table 1B.

Decreased Paperwork Burden under the Final Rules: Professional Costs

Form 10-K
Form 10-Q
Schedule 14A
Schedule 14C
Form 10
Form S-1
Form S-3
Form S-4
Form S-11

Estimated No. of
Newly Eligible SRCs
(A)
966
966
802
18
1
25
190
35
2

Full Election
Decrease in
Professional Costs per
Total Decrease in
Affected Response
Professional Costs
(B)
(C)=(A)*(B)
$69,660
$67,291,651
$5,112
$4,938,192
$100
$80,200
$100
$1,800
$11,163
$11,163
$8,700
$217,500
$300
$57,000
$8,700
$304,500
$8,700
$17,400

Likely
Total Decrease in
Professional Costs
(D)=(C)*80%13
$53,833,321
$3,950,554
$64,160
$1,440
$11,163
$174,000
$45,600
$243,600
$17,400

Form 10-K
We estimate that approximately 966 additional registrants will satisfy the revised
definition of a SRC and become eligible to use scaled disclosure in their annual reports on Form
10-K. These registrants could experience burden and cost savings under the final rules. We
estimate that, if all of these registrants used all of the scaled disclosure requirements, they would
save an estimated 504,063 burden hours and an aggregate cost of $67,291,651.
Based on our assumption that 80% of newly eligible registrants will begin to use scaled
disclosure, we estimate an aggregate decrease of 403,250 internal burden hours and costs of
$53,833,321 for Form 10-K.

12

Except with respect to Form 10 and Form S-11, as described above.

13

Except with respect to Form 10 and Form S-11, as described above.

6

Form 10-Q
We assume that the same approximately 966 registrants will become newly eligible to
use scaled disclosure for purposes of their quarterly reports. We estimate that if all of these
registrants used all of the scaled SRC requirements, they would save 37,027 burden hours and an
aggregate cost of $4,938,192.
Assuming that 80% of newly eligible registrants will begin to use scaled disclosure, we
estimate an aggregate decrease of 29,621 internal burden hours and costs of $3,950,554 for Form
10-Q.
Schedule 14A
We estimate that registrants newly eligible to use scaled disclosure will file
approximately 802 definitive proxy statements on Schedule 14A per year. We estimate that if all
of these registrants used all of the scaled SRC requirements, they would save 602 burden hours
and an aggregate cost of $80,200.
Assuming that 80% of newly eligible registrants will begin to use scaled disclosure, we
estimate an aggregate decrease of 481 internal burden hours and costs of $64,160 for Schedule
14A.
Schedule 14C
We estimate that registrants newly eligible to use scaled disclosure will file
approximately 18 definitive information statements on Schedule 14C per year. We estimate that
if all of these registrants used all of the scaled SRC requirements, they would save 15 burden
hours and an aggregate cost of $1,800.
Assuming that 80% of newly eligible registrants will begin to use scaled disclosure, we
estimate an aggregate decrease in burden of 11 internal burden hours and costs of $1,440 for
Schedule 14C.
Form 10
We estimate that registrants newly eligible to use scaled disclosure will file one
registration statements on Form 10 per year. Assuming that this registrant uses all of the scaled
SRC requirements, we estimate an aggregate decrease of nine internal burden hours and cost of
$11,163 for Form 10. Due to the low number of Form 10 filers and rounding considerations, we
assume that all newly eligible registrants filing Form 10 will begin to use scaled disclosure and
therefore realize the full extent of burden and cost savings.

7

Form S-1
We estimate that registrants newly eligible to use scaled disclosure will file
approximately 25 registration statements on Form S-1 per year. We estimate that if all of these
registrants use all of the scaled SRC requirements, they would save 181 burden hours and an
aggregate cost of $217,500.
Assuming that 80% of these newly eligible registrants will begin to use scaled disclosure,
we estimate an aggregate decrease of 145 internal burden hours and costs of $174,000 for Form
S-1.
Form S-3
We estimate that registrants newly eligible to use scaled disclosure will file
approximately 190 registration statements on Form S-3 per year. We estimate that if all of these
registrants use all of the scaled SRC requirements, they would save 48 burden hours and an
aggregate cost of $57,000.
Assuming that 80% of the newly eligible registrants will begin to use scaled disclosure,
we estimate an aggregate decrease of 38 internal burden hours and costs of $ 45,600 for Form
S-3.
Form S-4
We estimate that registrants newly eligible to use scaled disclosure will file
approximately 35 registration statements on Form S-4 per year. We estimate that if all of these
registrants use all of the scaled SRC requirements, they would save 254 burden hours and an
aggregate cost of $304,500.
Assuming that 80% of newly eligible registrants will begin to use scaled disclosure, we
estimate an aggregate decrease of 203 internal burden hours and costs of $243,600 for Form S-4.
Form S-11
We estimate that registrants newly eligible to use scaled disclosure will file
approximately two registration statements on Form S-11 per year. Assuming that both of these
registrants use all of the scaled SRC requirements, we estimate an aggregate decrease of 15
burden hours and cost of $17,400 for Form S-11.
Due to the low number of Form S-11 filers and rounding considerations, we assume that
both of the newly eligible registrants filing Form S-11 will begin to use scaled disclosure and
realize the full extent of burden and cost savings.
14.

COSTS TO FEDERAL GOVERNMENT

The estimated cost of preparing the final rules was approximately $150,000.

8

15.

REASON FOR CHANGE IN BURDEN

The estimated changes in burdens for certain forms changed significantly from the
estimated changes at the time the rules were proposed due to (1) substantive differences between
the proposed and final rules made in response to public comment; (2) changes in the filing years
used to estimate the number of affected filings – more recent filing year numbers were used at
the adopting stage to have more current estimates than used at the proposing stage; and (3)
changes in the average burdens for such forms due to unrelated rule and form changes that
occurred between proposal and adoption of these rules.
A significant change was made to the final rules that caused an additional category of
registrants to meet the revised definition of a “smaller reporting company.” Specifically, in
response to commenters’ suggestions, the final rules define companies with a public float over
$250 million, but under $700 million, and less than $100 million in annual revenues. This effect
of that change is that an estimated 161 additional companies qualify as smaller reporting
companies over the proposed estimate and are eligible to take advantage of the scaled disclosure
requirements.
The estimated total number of respondents and estimated number of annual responses for
the information collections described in this supporting statement did not change as a result of
the amendments. The amendments affected only smaller reporting companies, a subset of the
respondents. We estimate that the newly eligible smaller reporting companies will still make the
same number of responses but will incur a decreased number of burden hours associated with the
scaled disclosure requirements. Table 2 below illustrates the changes to the total annual
compliance burden of the collection of information in hours and cost, respectively. The total
estimated burdens were calculated by deducting the incremental burden savings from the existing
burdens. Then, the requested burdens and costs per response were calculated by dividing the
requested burden estimates by the number of annual responses, which is not expected to change
as a result of the amendments.

9

Table 2A.

Calculation of Burden Hours per Response
Annual
Responses
(A)

Form 10-K

8,137

14,620,594

403,250

14,217,344

Proposed Burden
Hours per
Response
(E)=(D)/(A)
1,747.2464

Form 10-Q

22,907

3,271,578

29,621

3,241,957

141.5269

Schedule 14A

5,586

546,814

481

546,333

97.8039

Schedule 14C

569

55,881

11

216

11,783

9

11,774

901

151,143

145

150,998

1,657

196,968

38

196,930

551

565,282

203

565,079

64

12,529

15

12,514

Form 10
Form S-1
Form S-3
Form S-4
Form S-11

Table 2B.

Current Burden
Hours
(B)

Proposed
Burden Hours
(D)=(B)-(C)

98.1898

55,870

54.5092
167.5893
118.8473
1,025.5517
195.5312

Calculation of Costs per Response
Annual
Responses
(A)

Form 10-K
Form 10-Q
Schedule 14A
Schedule 14C
Form 10
Form S-1
Form S-3
Form S-4
Form S-11

16.

Decrease in
Burden Hours
(C)

8,137
22,907
5,586
569
216
901
1,657
551
64

Current Cost
(B)

Decrease in
Costs
(C)

$1,950,114,190
$436,240,908
$72,908,472
$7,451,624
$14,140,051
$181,371,300
$236,367,636
$678,338,304
$15,034,368

$53,833,321
$3,950,554
$64,160
$1,440
$11,163
$174,000
$45,600
$243,600
$17,400

Proposed Cost
(D)=(B)-(C)

Proposed Cost per
Response
(E)=(D)/(A)

$1,896,280,869
$432,290,354
$72,844,312
$7,450,184
$14,128,888
$181,197,300
$236,322,036
$678,094,704
$15,016,968

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES

Not applicable.

10

$233,044
$18,872
$13,041
$13,093
$65,412
$201,107
$142,620
$1,230,662
$234,640

17.

APPROVAL TO OMIT OMB EXPIRATION DATE

We request authorization to omit the expiration date on the electronic version of the form.
Including the expiration date on the electronic version of the form will result in increased costs,
because the need to make changes to the form may not follow the EDGAR application’s
scheduled version release dates. The OMB control number will be displayed.
18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION
ACT SUBMISSIONS

Not applicable.
B.

STATISTICAL METHODS
Not applicable.

11