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SEC Update

As part of its efforts to streamline and simplify disclosure pursuant to the Fixing America's Surface Transportation (FAST) Act, the SEC recently adopted the Disclosure Update and Simplification Amendments. The amendments, which become effective for reports filed on or after November 5, 2018, primarily eliminate or revise disclosure requirements that have become outdated or superseded as a result of the passage of time or that are substantially similar to disclosures required by generally accepted accounting principles (GAAP), international financial reporting standards (IFRS), or other SEC requirements. Although the amendments do not reflect substantive changes to the total mix of information available to investors, they do affect the presentation of information in the body of periodic reports. Because the amendments will apply to all periodic reports filed on or after November 5, 2018, calendar year-end companies should consider carefully the timing of their earnings and 10-Q for the third quarter when determining whether the changes will apply for Q3 reporting. The SEC has indicated that it will not object to delayed implementation of one of the revised disclosure requirements for 10-Qs filed for the quarterly period ended September 30, 2018.1

Generally, the amendments eliminate existing disclosure requirements or modify existing presentation requirements. However, in a few cases, disclosure has been moved to financial statements (such as disclosure regarding historical dividend payments), which makes the information subject to annual audit and/or interim review, internal control over financial reporting, and XBRL tagging requirements. Additionally, the safe harbor for forward-looking statements under the Private Securities Litigation Reform Act of 1995 is not available for disclosures in the financial statements, which may raise new liability concerns when using forward-looking statements to supplement the information. The SEC noted that it did not adopt any requirements to disclose forward-looking information in the financial statements and further observed that issuers retain the option of providing forward-looking information outside of the financial statements (and, in some cases, are required to provide that information).

Selected significant amendments include:
  • Elimination of Ratio of Earnings to Fixed Charges: Regulation S-K was amended to eliminate the requirement that issuers that register debt securities or preference equity securities disclose the historical and pro forma ratios of earnings to fixed charges and/or historical and pro forma ratios of combined fixed charges and preference dividends to earnings. The SEC reasoned that GAAP and IFRS require disclosure of many of the components commonly used in the ratio, as well as information from which other ratios may be computed that convey reasonably similar information about an issuer's ability to meet its financial obligations.
  • Elimination of Historical Stock Price Disclosure for Listed Companies: The amendments eliminated the requirement to disclose the high and low prices of common equity traded on an established public trading market because that information is widely available on numerous websites. Companies are now required to disclose their trading symbols.
  • Relocation of Historical Dividend Disclosure to Financial Statements: Disclosure of the frequency and amount of cash dividends has been moved from the body of a Form 10-K or prospectus to the issuer's financial statements. Additionally, the amendments consolidate requirements to disclose restrictions that currently, or are likely to, materially limit the issuer's ability to pay dividends on its common equity into a single requirement in Regulation S-X.
  • Elimination of Segment Financial Information: Requirements to disclose segment financial information and financial information by geographic area in the body of the report (or, as has been customary, a cross-reference to such information as presented in the financial statements) have been eliminated. Segment disclosure requirements in the financial statements remain unaffected.

If you have any questions regarding the new disclosure requirements, or SEC reporting requirements in general, please contact the Venable lawyer with whom you work, one of the authors of this article, or a member of our Corporate Finance and Securities Group.

[1] Specifically, the amendments to Rules 8-03(a)(5) and 10-01(a)(7) of Regulation S-X require a registrant to present changes in shareholders' equity in interim financial statements (either in a separate statement or footnote). The SEC has indicated that it would not object if a registrant first implements this change for the first interim quarterly report covering a quarterly period beginning on or after November 5, 2018. For calendar year-end reporting companies, this would be the 10-Q for the quarterly period ending March 31, 2019.