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SEC Adopts Amendments To Simplify and Update Certain Disclosure Requirements

On August 17, the Securities and Exchange Commission announced the adoption of proposed rule amendments (Amendments) to update and simplify certain disclosure requirements that “have become redundant, duplicative, overlapping, outdated or superseded” in light of (1) US Generally Accepted Accounting Principles (GAAP); (2) International Financial Reporting Standards (IFRS); (3) other SEC disclosure requirements; or (4) changes in the information environment, noting that the Amendments are intended to reduce the compliance burden for registrants without “significantly altering the total mix of information available to investors.” The SEC first proposed (and requested comment on) the Amendments in July 2016. The Amendments are part of the SEC’s ongoing efforts to review and improve disclosure requirements for the benefit of investors and issuers, as well as implement provisions of the Fixing America’s Surface Transportation (FAST) Act.

The following are some highlights of the Amendments:

  • The Amendments eliminate or revise several disclosure requirements under Regulation S-K. For example:

o          Segments (Item 101(b) of Regulation S-K). Registrants will no longer be required to disclose segment information in the business section of a prospectus or periodic report. The SEC noted that similar disclosure is required in the notes to the registrants’ financial statements and in the management’s discussion and analysis (or MD&A) section of the relevant filing.

o          Research and Development (Item 101(c)(1)(xi) of Regulation S-K). Disclosure of amounts spent on research and development activities for all years presented in a prospectus or periodic report will no longer need to be presented in the business section of the relevant filing, with the SEC noting that GAAP requires similar disclosure in the notes to the financial statements.

o          Financial Information by Geographic Area (Items 101(d)(1) and 101(d)(2) of Regulation S-K). Disclosure of financial information by geographic area in the business section of a prospectus or periodic report will no longer be required. The SEC noted that similar disclosure is required under GAAP to be included in the notes to the financial statements and may otherwise be presented in the risk factors section of the relevant filing.

o          Market Price (Item 201(a)(1) of Regulation S-K). Due to the widespread availability of market quotes, registrants whose common equity is traded on an established public market will no longer be required to disclose in prospectuses or annual reports the high and low sale prices for shares of their common equity for each quarter within the two most recent fiscal years and any subsequent interim period. However, registrants will be required to disclose the trading symbol for their common equity in prospectuses and annual reports.

o          Seasonality in Interim Reports (Instruction 5 to Item 303(b) of Regulation S-K). Registrants will no longer be required to include a discussion of the seasonality of the registrant’s business in MD&A in interim reports. The SEC noted that reasonably similar disclosure is required under GAAP and the remainder of Item 303 of Regulation S-K. Following the effectiveness of the Amendments, registrants will still be required under Item 303(b) of Regulation S-K to provide MD&A disclosure in interim reports concerning seasonality at the segment level, if material to the registrant’s business as a whole, and registrants will continue to be required under Item 101(c)(1)(v) to provide disclosure concerning seasonality in their annual reports.

o          Ratio of Earnings to Fixed Charges (Items 503(d) and 601(b)(12) of Regulation S-K and Item 1010(a)(3) of Regulation M-A). When registering debt securities or preferred stock, registrants will no longer be required to disclose the historical and pro forma ratios of earnings to fixed charges or, in the case of preferred stock, the historical and pro forma ratios of earnings to fixed charges and preferred stock dividends. Registrants will also no longer be required to provide the corresponding ratio of earnings to fixed charges calculation exhibited in their registration statements and periodic reports. The SEC’s final rule adopting release indicates that these requirements were eliminated for a number of reasons, including because other ratios that accomplish similar objectives can be calculated based on information readily available in the financial statements and in light of the sentiment that the provided information is “generally not used by investors or other users of financial statements.”

  • The Amendments eliminate or revise certain disclosure requirements under Regulation S-X where the SEC noted that such requirements were reasonably similar to disclosure that is required under GAAP. For example, the Amendments eliminate the requirement under Rule 4-08(n) of Regulation S-X and Note 2(b) to Rule 8-01 of Regulation S-X that registrants disclose in the notes to the financial statements accounting policies for certain derivative instruments.

  • The Amendments also identify a number of areas in which the SEC’s disclosure requirements overlap with, but require incremental information to, GAAP and refer those matters to the Financial Accounting Standards Board (FASB) to consider whether the incremental requirements should be incorporated into GAAP in connection with FASB’s standard-setting process, including, among others, SEC disclosure requirements concerning:

o          Major customers (Item 101(c)(1)(vii) of Regulation S-K);

o          The effect of derivatives on a registrant’s statement of cash flows;

o          Certain equity compensation plan information; and

o          Income taxes in the notes to a registrant’s financial statements.

Any such SEC disclosure requirement that becomes integrated into GAAP may potentially be eliminated in the future as a separate, stand-alone SEC disclosure requirement.

The Amendments will become effective 30 days after publication in the Federal Register.

The full text of the SEC’s press release announcing the adoption of the Amendments is available here, and the full text of the SEC’s final rule adopting release is available here.

©2020 Katten Muchin Rosenman LLP

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About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm
Partner

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

312-902-5493
Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office
Partner

Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

Shown below is a selection of Mark’s engagements.

  • Representation of hospitality company in connection with its initial public offering and listing on NYSE, as well as ongoing counseling with respect to compliance with securities laws and NYSE rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed public company in the banking industry in connection with strategic transactions, capital raising transactions, compliance with securities laws and NYSE rules, disclosure and corporate governance matters, including strategic acquisitions, notes offering and at-the-market offering.
  • Representation of clean tech manufacturer for industrial equipment in connection with alternative public offering and listing on NASDAQ, as well as ongoing counseling with respect to compliance with securities laws and NASDAQ rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed issuer in connection with selling stockholder block trades.
  • Representation of NYSE-listed industrial manufacturer with respect to compliance with securities laws and NYSE rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed medical device company with respect to compliance with securities laws and NASDAQ rules, disclosure and corporate governance matters.
312-902-5612
Associate

Alyse Sagalchik concentrates her practice on corporate matters, with an emphasis on mergers and acquisitions, joint ventures, private equity and securities transactions. Alyse also advises companies on a broad range of general corporate, federal securities laws and corporate governance matters, including Securities Exchange Act of 1934 reporting and disclosure matters. She has represented strategic and financial buyers and sellers in M&A transactions ranging in value from $10 million to more than $15 billion and spanning a wide variety of industries, including health...

312.902.5426