New SEC Rules Modify and Simplify Regulation S-K
The Securities and Exchange Commission (“SEC”) recently adopted amendments (available at https://www.sec.gov/rules/proposed/2017/33-10425.pdf) to its Regulation S-K and related rules and forms in seeking to modernize and simplify disclosure requirements for public companies, investment advisers and investment companies. The amendments are intended to improve the readability and navigability of disclosure documents and lessen disclosure of immaterial or repetitive information. Regulation S-K governs primarily non-financial reporting requirements for SEC filings.
The amendments include:
Tagging Cover Page Data. The amendments require that all of the information on the cover pages of Form 10-K, Form 10-Q, Form 8-K, Form 20-F and Form 40-F be tagged in Inline XBRL. The amendments also require the cover page to include the tagged ticker symbol for each class of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”) to facilitate investors’ efforts to search news websites and stock market data for information on companies and distinguish between similarly named companies.
Incorporation by Reference. The amendments prohibit incorporation by reference or cross-referencing in financial statements from outside the financial statements unless otherwise specifically permitted or required by the SEC’s rules or by Generally Accepted Accounting Principles. The amendments also prohibit incorporation by reference of financial information required to be presented in comparative form for multiple years or periods unless the incorporation by reference covers the entire period for which comparative data are given. In addition, the amendments eliminate the five-year limit on incorporation by reference.
Revisions to MD&A Disclosure Requirements. The period-to-period comparison required in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) by Item 303(a) of Regulation S-K will be limited to the two most recent fiscal years covered by the financial statements, rather than the existing three-year requirement, so long as the discussion of the earliest of the three years has been included in the company’s prior filings on EDGAR. If a company elects to not include a discussion of the earliest year in reliance on this change it must identify the location in the prior filing where the omitted discussion may be found. A narrative discussion may also be used in lieu of the year-to-year comparisons as currently required if a company believes the narrative discussion is a more appropriate way of conveying the information.
Streamlining of Confidential Treatment Provisions. The amendments allow companies to omit confidential information from material contracts filed under Item 601(b)(10) (Material Contracts) of S-K where such information is both (i) not material and (ii) would likely cause competitive harm if publicly disclosed, even where the company has not submitted a confidential treatment request as is currently required. Although companies will not have to submit a request, they will still be required to disclose all material information and redactions will be limited to those portions necessary to prevent competitive harm. In addition, companies must mark the exhibit index to indicate that portions of one or more exhibits have been omitted and to include a prominent statement on the first page of each redacted exhibit that information in the marked sections of the exhibit has been omitted from the filed version of the exhibit. Companies must also indicate with brackets where the information has been omitted from the filed version of the exhibit. Item 601(b)(2) (Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession) was amended in a like manner.
Omission of Schedules and Similar Attachments. Companies will be permitted to omit the filing of entire schedules and similar attachments to exhibits unless they contain material information not otherwise disclosed. Companies will be required to provide with each exhibit a list identifying the contents of any omitted schedules or attachments. Also, personal information, such as bank account numbers, social security numbers, home addresses and similar information, can also be omitted from exhibits without first requesting confidential treatment.
Required Hyperlinks. The amendments expand requirements for hyperlinks to information incorporated by reference from previously filed documents available on EDGAR.
Limitation on Material Contracts Required to Be Filed – Elimination of the Two-Year Look-Back. Previously, companies had to file material contracts not made in the ordinary course of business if one of two tests was met: (1) the contract was to be performed in whole or in part at or after the filing of the registration statement or report or (2) the contract was entered into within the last two years before the filing. The amendments eliminate the two-year look-back test for all companies other than newly reporting companies.
Simplification of Description of Property. Item 102 of Regulation S-K was revised to focus only on the disclosure of material physical properties.
Description of Securities – Expanded Disclosure. Item 202 of Regulation S-K now requires a registration statement to describe the terms of the securities being offered. The amendments required a company to provide this description as an exhibit to its annual report, for all of its securities registered under Section 12 of the Exchange Act.
Disclosure of Executive Officers. Item 401 clarifies that any disclosure about executive officers will not need to be duplicated in a company’s proxy statement if the information is already included in Part I of its Form 10-K under a separate section entitled “Information about our Executive Officers.”
Compliance with Section 16(a) of the Exchange Act. Item 405 of Regulation S-K has been revised to clarify that companies may rely only on (1) a review of Section 16 reports that have been filed on EDGAR and (2) any written representation that no Form 5 is required when determining whether there are any Section 16 delinquencies that must be disclosed in the company’s proxy statement.
Amendments to Forepart of Registration Statement – Technical Revisions. Item 501(b) of Regulation S-K was amended to, among other things, (1) allow companies to include a cross reference to the explanation of the method of computing the offering price for securities (with the method itself to be explained fully in the prospectus) if it is impracticable to state the price formula on the cover page of the registration statement (although this will not change the requirement for securities being offered at market price or at a price based on market price), (2) expand the cover page disclosure of markets for the company’s securities being offered to require not only disclosure of “national securities exchanges” but also of the principal U.S. markets for the securities being offered on which the company has actively sought and achieved quotation and (3) shorten the “subject to completion” legend.
The amendments also include parallel amendments to several rules and forms applicable to investment companies and investment advisers.
The amendments will be effective May 2, 2019, except that the amendments relating to the redaction of confidential information in certain exhibits are now effective. However, the requirements to tag data on the cover pages of certain filings are subject to a three-year phase-in, depending on the nature of the filer.
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