Recently, the Securities and Exchange Commission (SEC) adopted amendments (the Amendments) to modernize and simplify disclosure requirements in Regulation S-K (and related rules and forms). Consistent with the SEC’s mandate under the 2015 Fixing America’s Surface Transportation (FAST) Act, these Amendments are intended to eliminate outdated and unnecessary disclosures while improving the readability and navigability of company filings. According to the SEC, these Amendments should reduce the costs and burdens on public companies while continuing to provide investors with material information. The SEC also adopted parallel amendments to several rules and forms applicable to investment companies and investment advisors to provide a consistent set of rules to govern incorporation by reference and hyperlinking to the Amendments published in the Federal Register on April 2, 2019.
Below is a summary of the most notable changes for public companies resulting from the Amendments.
Redaction of Confidential Terms Without Filing a Confidential Treatment Request—Items 601(a)(6), (b)(2) and (b)(10) of Regulation S-K. As a result of the Amendments, a company may omit confidential information in material contracts and certain other exhibits filed with the SEC without submitting a confidential treatment request to the staff of the Division of Corporation Finance (the SEC Staff) of the SEC so long as the information is (i) not material, and (ii) would likely cause competitive harm to the company if publicly disclosed.
Consistent with current SEC rules, when filing a redacted exhibit, a company must:
- Include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is not material and would likely cause competitive harm to the company if publicly disclosed.
- Indicate in the exhibit index that portions of the exhibit or exhibits have been omitted.
- Indicate by brackets where the information is omitted from the filed version.
Consistent with existing SEC Staff guidance, companies should narrowly tailor redactions, as SEC Staff may monitor redactions and request, in certain instances, a copy of the unredacted agreement along with written analysis to support the redactions.
Additionally, the Amendments codify the current SEC Staff practice to permit companies to redact personally identifiable information (such as social security numbers, bank account numbers, home addresses and similar information) without filing a confidential treatment request if such disclosure would constitute a clearly unwarranted invasion of personal privacy. Companies availing themselves to this accommodation may provide appropriate redactions and are not required to include an analysis supporting the redactions at the time of filing. (Effective April 2, 2019)
Two-Year Look-Back Period For Material Contracts Limited to Newly Reporting Companies—Item 601(b)(10) of Regulation S-K. Currently, under Item 601(b)(10)(i) of Regulation S-K, companies are required to file every contract not made in the ordinary course of business that is material to the registrant and (i) is to be performed in whole or in part at or after the filing of the registration statement or report, or (ii) was entered into not more than two years before such filing. The Amendments limit the two-year look-back period only to newly reporting companies. Companies (other than newly reporting companies) will not be required to file material contracts that were made within two years of the applicable registration statement or report if such contracts have already been fully performed. All companies will still need to file, as exhibits, material contracts not made in the ordinary course of business if they are to be performed, in whole or in part, at or after the filing of the registration statement or report. (Effective May 2, 2019)
Omission of Schedules and Similar Attachments to Exhibits—Item 601(a)(5) of Regulation S-K. The Amendments provide that companies will no longer be required to file schedules or similar attachments to any exhibit if they do not contain information material to an investment or voting decision and that information is not otherwise disclosed in the exhibit or disclosure document. When such schedules or attachments are omitted, the filed exhibit must briefly identify the contents of such omitted schedules or attachments (if such a list is not already a part of the exhibit, such as, in such agreement’s table of contents). This extends the accommodation to all exhibits that is currently provided for liquidation, reorganization, acquisition or succession plans filed pursuant to Item 601(b)(2) of Regulation S-K. (Effective May 2, 2019)
Management’s Discussion and Analysis—Regulation S-K, Item 303(a)
Item 303(a) of Regulation S-K currently requires companies to provide two comparative year-to-year discussions in their management’s discussion and analysis (MD&A) that cover the three fiscal years covered by their financial statements. The Amendments will permit companies to exclude discussion in their MD&A related to the earliest of the three years if they have already included this discussion in a prior filing. If companies exclude a discussion of the earliest year, however, they must identify the location in the prior filing where the omitted discussion may be found. The Amendments do not affect smaller reporting companies, as they may limit their disclosure to the two-year period covered in their financial statements. Similarly, the Amendments would not affect emerging growth companies that elect to provide two years of audited financial statements. (Effective May 2, 2019)
Description of Physical Properties—Item 102 of Regulation S-K. A company will only need to provide disclosure about physical properties that are material to the company. Additionally, companies will be permitted to provide descriptions of physical properties on a collective basis. (Effective May 2, 2019)
Description of Risk Factors—Item 503(c) of Regulation S-K. The requirement to disclose risk factors will be moved from the current Item 503(c) of Regulation S-K to a new Item 105 to reflect the fact that since 2005 the requirement for risk factor disclosure has been extended beyond offering documents to periodic reports and registration statements. Additionally, the generic risk factor examples currently listed in Item 503(c) will be eliminated consistent with the emphasis on principle-based risk disclosure by companies that are precisely calibrated to their particular circumstances. (Effective May 2, 2019)
Description of Registrant’s Securities—Item 601(b)(4). Currently, Item 202 of Regulation S-K requires companies to describe, in their registration statements, each class of their securities registered under Section 12 of the Exchange Act of 1934, as amended (the Exchange Act). The Amendments extend this requirement to require such disclosure in an exhibit to Form 10-K filings. After the first such exhibit is filed, future disclosure may be made by reference to such first exhibit. (Effective May 2, 2019)
Cross-Referencing Nonfinancial Statement Information from Financial Statements. The Amendments provide that financial statements will no longer be permitted to cross-reference to disclosures in other parts of a filing or incorporate by reference to such disclosures unless explicitly permitted or required by SEC rules, U.S. generally accepted accounting principles (GAAP) or the International Financial Reporting Standards Foundation (IFRS). (Effective May 2, 2019)
Changes in Prospectus Content. Companies may omit the offering price on the cover page of the prospectus if providing such a specific offering price would be impractical and the offering price can be determined by a particular formula or method described in the prospectus. If the offering price is omitted, the cover page should include a cross-reference to the location of such method or formula in the prospectus. Additionally, companies may omit the portion of the “red herring” legend in prospectuses relating to state law for offerings not prohibited by state securities laws. (Effective May 2, 2019)
On the cover page for annual reports on Forms 10-K, 20-F and 40-F as well as quarterly reports on Form 10-Q and current reports on Form 8-K, companies will be required to disclose the national exchange or principal U.S. market for their securities, the trading symbol and the title of each class of securities registered under Section 12(b) of the Exchange Act. Companies will be also required to tag cover-page data in Inline eXtensible Business Reporting Language (iXBRL) for certain filings and use hyperlinks, instead of filing, for information that is incorporated by reference and is available on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. Investment company filings will now be required to submit certain filings in HyperText Markup Language (HTML) format and include hyperlinks to exhibits and other information incorporated by reference.
Additionally, the required disclosure regarding delinquent Section 16 filers is being removed from the cover page of Form 10-K. In addition, the current heading required under Item 405 of Regulation S-K, “Section 16(a) Beneficial Ownership Reporting Compliance,” will be changed to “Delinquent Section 16(a) Reports.”
The requirement to tag data on the cover pages of certain current and periodic reports filed pursuant to the Exchange Act, will be applicable to reports for fiscal periods ending on or after:
- June 15, 2019, in the case of large accelerated filers who prepare their financial statements in accordance with U.S. GAAP.
- June 15, 2020, in the case of accelerated filers who prepare their financial statements in accordance with U.S. GAAP.
- June 15, 2021, in the case of all other filers who are subject to the cover-page tagging requirements, including foreign private issuers who prepare their financial statements in accordance with IFRS.
Note that domestic form filers will be required to comply beginning with their first Form 10–Q for a fiscal period ending on or after the applicable compliance date above, as opposed to the first filing for a fiscal period ending on or after that date.