SEC continues its disclosure simplification initiative

On March 20, 2019, the SEC amended its disclosure requirements to ease reporting burdens for most public companies. While no individual change is particularly noteworthy, the aggregate impact of the changes should generally simplify the reporting process. A few changes will require modest additional disclosures. The most significant changes are:

  • Confidential treatment requests – Very helpfully, the SEC is dispensing with the need to obtain the staff’s prior approval of a confidential treatment request before redacting information from certain exhibits when the information is not material and its disclosure would likely cause competitive harm. Because the SEC would not declare registration statements effective if a confidential treatment request were outstanding, this change will remove a potential roadblock for follow-on offerings. (We anticipate that the staff will nonetheless continue to review redactions made in exhibits filed for an IPO.) The new rules will apply to material contracts filed under Item 601(b)(10) of Regulation S-K and plans of acquisition, reorganization and the like filed under Item 601(b)(2) of Regulation S-K. Companies will be able to redact such information with customary markings and legends but must stand ready to justify the omissions upon request. The SEC will continue to apply the same rigorous standards that it has historically applied for redacting information. We think the SEC staff will eventually conduct a sweep examination of redacted information and take appropriate enforcement action for egregious violations; accordingly, we advise against overly aggressive redactions. Similarly, companies will no longer need to file a confidential treatment request to redact personally identifiable information in an exhibit if its disclosure would constitute a “clearly unwarranted invasion of privacy.”
  • Management’s discussion and analysis – Companies will no longer be required to provide year-to-year comparisons of their financial results; instead, they may use any format that enhances a reader’s understanding of their financial statements. Companies providing three years of financial results will also be able to omit the discussion of the earliest year if that discussion was previously filed and the company discloses its location.
  • Description of securities – Annual reports on Form 10-K will have to include or incorporate by reference an exhibit containing a description of the company’s registered securities in accordance with Item 202 of Regulation S-K. The SEC believes this requirement will make the disclosure easier to find. The new requirement will also prompt companies to update the disclosure on a more consistent basis.
  • Material contracts – The SEC clarified that the two-year lookback requirement of Item 601(b)(10) of Regulation S-K, under which companies must file material contracts executed with the previous two years even if fully performed, will only apply to newly reporting registrants. More mature companies will only need to file material contracts with obligations yet to be performed.
  • Omission of schedules to exhibits – The SEC also revised its exhibit filing requirements to expressly permit the omission of schedules and similar attachments when those items do not contain material information and the omitted information is not otherwise disclosed. Companies must include a list of the omitted items and provide copies to the SEC upon request.
  • Description of property – Under revised Item 102 of Regulation S-K, companies must provide descriptions of principal physical properties only “to the extent material.” The SEC observed that companies were disclosing immaterial information in response to Item 102, and the revisions are intended to prompt companies to focus only on disclosures that are material to investors.
  • Cover page changes – Forms 10-Q and 8-K have been revised to require that companies disclose on the cover page, for each class of exchange-listed securities, the title of the class, each exchange where registered and the trading symbol. Form 10-K has also been revised to require disclosure of the trading symbol of exchange-listed securities. The SEC also revised these forms to require inline XBRL tagging of the information on the cover page. The tagging requirements will apply on the same schedule as the recently adopted inline XBRL rules for financial statements (generally, mid-2019 for large accelerated filers, mid-2020 for accelerated filers and mid-2021 for others).

The changes to the rules regarding redaction of confidential information from material contracts will be effective upon publication of the new rules in the Federal Register, and all other changes will be effective 30 days later.  Depending on the date of publication, certain technical requirements of the new rules may apply to proxy statements filed later this spring.  Companies should pay close attention to the effective date of the new rules.

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