From: George Bachman
To the SEC Advisory Committee on Smaller Public Companies,
I am writing on behalf of Florida Public Utilities Company to comment on the Committee’s draft report, which is recommending scaled securities regulation for applying the Sarbanes-Oxley Act of 2002 to smaller public companies. We are a public utility company with a market capitalization of less than $100 million and have already incurred great expense to comply with the requirement complexity of SOX 404. With annual income of a little more than $4 million dollars, not only have we absorbed additional expenses, but we were forced to divert funds from other priorities in order to develop the required documentation needed for detailed audits. The current rules will not only cause ongoing expenses but threaten to double our annual external auditing fee. The cost of the current legislation, particularly in relation to our size and income, in our opinion greatly outweigh any benefit to our shareholders. We welcome the Committee’s report recommending different regulation for smaller public companies.
Based on our understanding of the recommendation, we would like to see the emphasis stay on market capitalization and not necessarily revenue. The microcap and smallcap company breakout is a good idea, but we feel that including revenue size begins to cloud the issue. As a utility company, our revenue can fluctuate greatly based on the cost of electricity or natural gas. These costs are directly passed through to customers and have no impact to income or shareholders. We are sure other companies are also impacted by the cost of their materials or goods sold. Requiring the additional compliance costs to test internal control over reporting shouldn’t be influenced by the cost of a company’s raw materials and revenues, but we believe it is more appropriate to determine it by the market exposure of the company as determined by market capitalization.
Another consideration should be the industry of a company. We are audited by the Florida Public Service Commission which reviews our expenses, revenues, and many aspects of our financial reporting. It seems smallcap companies in regulated industries should have special recognition before requiring additional SOX 404 auditing and testing expenses, which would increase costs being absorbed by ratepayers. We would recommend that the revenue aspect of the proposal be dropped, but at a minimum that it be dropped for smallcap companies in regulated industries such as utilities, because of the unique revenue impacts and additional regulatory oversight.
Thank you for the opportunity to offer our opinion.