September 2018

On August 17, 2018, the U.S. Securities and Exchange Commission (SEC) amended its rules to modernize and streamline certain disclosure requirements for public companies and those pursuing an IPO. The amendments primarily eliminate redundant, outdated or unnecessary disclosures in periodic reports and registration statements. These amendments are part of the SEC’s ongoing initiative to reduce the compliance burden on public companies without negatively impacting the total mix of information provided to investors. The entire text of the SEC’s 300+ page release can be found here.

The amendments will become effective 30 days after publication in the Federal Register, which is expected to occur soon.

Below are a few of the most noteworthy amendments:

Description of Business –

  • Segments – Companies no longer need to disclose financial information about their financial reporting segments in the “Business” sections of their annual reports and registration statements. However, financial information regarding segments will still be required in financial statements and the related notes included in these filings.
  • Research & Development Expenses – Companies no longer need to disclose in their “Business” sections the amount spent on research and development activities. Again, though, material research and development expenditures may need to be disclosed in their financial statements and related notes pursuant to U.S. GAAP.
  • Geographic Area – Companies no longer need to disclose financial information by geographic area in their “Business” sections, but will be required to address material business trends and uncertainties in geographic areas within their “MD&A” disclosures.
  • Risks Associated With Foreign Operations – Companies no longer need to disclose risks associated with foreign operations and segment dependence on foreign operations in their “Business” sections; however, the SEC specifically noted in its release that companies should disclose, in the “Risk Factors” section, risks with regard to foreign operations when such risks are “significant.”

Cash Dividends – Companies are no longer required to disclose the frequency and amount of cash dividends declared or restrictions on the payment of dividends in the narrative portion of the report. This deletion eliminates a redundancy with the similar disclosure that is still required in financial statements and related notes.

Ratio of Earnings to Fixed Charges – Companies will no longer need to disclose the ratio of earnings to fixed charges in Securities Act registration statements or periodic reports, or file any exhibit as to the calculation of that ratio.

Market Price Disclosure – Companies with equity securities traded on an exchange must now disclose (1) the principal U.S. trading market(s) for the equity securities and (2) the trading symbol for such securities, but are no longer required to disclose the high and low price information for the two most recent fiscal years and subsequent interim periods. The SEC noted that this information is readily available – and on a more updated basis – through other sources. Foreign issuers are now required to identify the principal foreign public trading market and trading symbol for each class of securities traded on an exchange.

Pro Forma Financial Information about Business Combinations – The requirement to file certain pro forma business combination financial information has been eliminated from Regulation S-X. The SEC noted that this Regulation S-X requirement overlapped with similarly existing requirements found in U.S. GAAP and Item 9.01 of Form 8-K, and the SEC was satisfied that compliance with these existing disclosure obligations will not result in less frequent financial reporting about mergers and other business combinations and their impact on issuers because U.S. GAAP will continue to require disclosure of such activities in interim period as well as year-end financial statements and related notes.

Foreign Private Issuers – Foreign private issuers no longer need to provide exchange rate data when their financial statements are prepared in a currency other than the U.S. dollar, which was previously a requirement under Item 3.A.3 of Form 20-F.

SEC’s Public Reference Room Information – Companies no longer need to identify the SEC’s Public Reference Room, including its physical address and phone number. However, companies must still disclose the SEC’s Internet address and a statement that SEC filings are available there.

Disclosure of Internet Address – All companies must now disclose their Internet address if they have one, where previously only accelerated and large accelerated filers were required to make such disclosure.

The attorneys in Polsinelli’s Securities and Corporate Finance Practice Group are ready to assist clients in updating their reports based on these amendments.