December 18, 2019

Making a List and Checking it Twice: Preparing for the Most Wonderful Time of the Year – Annual Report and Proxy Season

By Elizabeth A. Diffley and Adam S. Weinstock

With proxy and reporting season preparations in full swing, demands on time are high and resources might be limited, so we focus our reminders on new and changed disclosure items that might otherwise be easy to overlook.

10-K Cover Page Changes and Inline XBRL

Recent SEC rulemaking has resulted in the following changes to the Form 10-K cover page:

Delinquent Section 16 Reports The cover page no longer includes the checkbox indicating that late Section 16 filing disclosure will be included in the Form 10-K or proxy statement.
Trading Symbol As has already been the case with Forms 10-Q and 8-K, the cover page must include (i) the ticker symbol for securities registered pursuant to Section 12(b) of the Exchange Act, (ii) the title of each class of securities, and (iii) the name of each exchange where the securities are registered.
Cover Page Tagging Requirements

All cover page data must be tagged in Inline XBRL, subject to the following compliance schedule:

  • Large accelerated filers — tagging of Form 10-K will be required for calendar year issuers
  • Accelerated filers that prepare their financial statements in accordance with U.S. GAAP — reports for fiscal periods ending on or after June 15, 2020
  • All other filers — reports for fiscal periods ending on or after June 15, 2021

These tagging requirements and phased compliance dates are also applicable to Forms 10-Q and 8-K.

Companies that use Inline XBRL are subject to updated exhibit index requirements, which require special care, as noted in newly released Compliance and Disclosure Interpretations (C&DIs):

  • Registrants subject to Inline XBRL requirements should include an Exhibit 101 to identify the required Interactive Data Files.
  • The Interactive Data File that is required because the cover page is tagged should be identified as Exhibit 104 in the exhibit index and should cross-reference the files submitted under Exhibit 101.
  • When an interactive data file is submitted using Inline XBRL, the exhibit index should include the word “Inline” in the exhibit’s title description.

Fast Act Changes

During 2019, the SEC adopted a number of rule changes to modernize and simplify disclosure requirements pursuant to the Fixing America’s Surface Transportation Act, or FAST Act.

For Form 10-K reports:

  • New “Description of Securities” Exhibit Requirement: Regulation S-K 601(b)(10)(4) adds a new 10-K exhibit, which must include a brief description of securities consistent with Regulation S-K Item 202(a)-(d) and (f). This disclosure requirement had previously been limited to registration statements.
  • Elimination of Two-Year Look-Back for Material Contracts Exhibits: Except for “newly reporting registrants,” companies will no longer be subject to the two-year look-back period that requires the inclusion of all material contracts entered into during the two years before the filing. All companies are still required to file all material contracts that are not entered into in the ordinary course of business and that are to be performed in full or in part after the filing of the report. As a result, companies not subject to the look-back can omit contracts that have been fully performed or that are no longer in effect.
Management’s Discussion and Analysis of Financial Condition and Results of Operation (MD&A)
  • Item 303 of Regulation S-K amendments increase the flexibility in discussing two versus three years of financial results in the MD&A, allowing companies to exclude the earliest of the three years if the MD&A from any prior EDGAR filing includes a discussion of the omitted year.
  • Companies eliminating the earliest year must identify the location in the prior filing where the omitted discussion may be found.
  • Instruction 1 of Item 303 now (1) eliminates the reference to trends in five-year selected financial data (however, the materiality analysis remains the same), and (2) clarifies that companies may use any appropriate basis of presentation.
Description of Property
Regulation S-K Item 202 was amended to clarify that disclosure need only be provided about a physical property to the extent that it is material to the company. In addition, companies may describe their properties on a collective basis when appropriate.
Executive Officer Disclosure

Regulation S-K Item 404 requires companies to include certain biographical information about their executive officers. Although Form 10-K permits companies to incorporate this information by reference to their proxy statement, companies can choose to include the disclosure in Part I of Form 10-K. For those companies that include officer biographies in Part I, the required caption now takes a “plain English” approach. The required caption is “Information about our Executive Officers” instead of “Executive officers of the registrant.”

For proxy statements:

Section 16 Compliance Disclosure

Item 405 of Regulation S-K was amended to:

  • Change the caption regarding delinquent disclosure from “Section 16(a) Beneficial Ownership Reporting Compliance” to “Delinquent Section 16(a) Reports.”
  • Clarify that the company may rely on filings made via EDGAR. Section 16 filers are no longer required to provide companies with copies of their Section 16 reports.

A new instruction to Item 405 encourages companies to omit the “Delinquent Section 16(a) Reports” caption when there are no delinquencies to report.

Audit Committee Report

Item 407(d)(3)(1)(B) was amended to update the audit committee report reference, from “matters required by AU section 380, Communication with Audit Committees” to refer more broadly to “the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”) and the Commission.”


Hedging Disclosures

Many companies will be required to disclose their hedging policies in proxy statements for the first time in 2020, although emerging growth companies and smaller calendar year reporting companies are not required to include this disclosure until the 2021 proxy statement. Newly adopted Regulation S-K Item 407(i) requires proxy statement disclosure of a company’s practices or policies regarding the ability of its employees (including its officers) and directors to engage in certain hedging transactions in the company’s equity securities, including a description of the practices or policies and the categories of persons covered. If a company does not maintain a hedging policy, the company must state that fact or state that hedging transactions by its employees and directors are generally permitted.

The above is just a brief summary of this year’s key changes. Please contact Beth, Adam, Natalie or any member of the Corporate and Securities Group with any questions on implementing these and/or other recently enacted reporting requirements.

*Natalie Kraft, associate in the Corporate and Securities Group, assisted in the preparation of this article.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

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