Last week, the U.S. Securities and Exchange Commission's (SEC's) Division of Corporation Finance issued three new Compliance & Disclosure Interpretations (C&DIs) relating to disclosure of management's discussion and analysis of financial condition and results of operations (MD&A) and, in particular, Instruction 1 of Item 303(a) of Regulation S-K.
As discussed in our previous Client Alert, in March 2019, the SEC adopted new rules to modernize and simplify the disclosure requirements in Regulation S-K, including, among others, amendments to Instruction 1 to Item 303(a) of Regulation S-K. Prior to the adoption of the amendments, Instruction 1 to Item 303(a) provided that the MD&A should generally cover the three-year period covered by the financial statements included in the filing.
Although Instruction 1 to Item 303(a) is not limited to Form 10-Ks, the release of the three new C&DIs serves as a useful reminder for those companies currently preparing their Form 10-Ks for 2019. As amended, Instruction 1 now provides, among other things, that, for companies providing financial statements covering three years in a filing, discussion about the earliest of the three years may be omitted if the company previously included such discussion in a prior filing on EDGAR that required disclosure in compliance with Item 303 of Regulation S-K. The company must, however, identify the location in the previous filing of where the omitted discussion may be found. When determining whether to omit the earliest year, a company must still assess the materiality of the discussion.
The new C&DIs offer some further guidance on this amended Instruction 1 to Item 303(a).
What to do now?
When preparing your Form 10-K, consider the materiality of the discussion of the earliest of the three years in your MD&A. If this information is necessary to an understanding of the company's financial condition, changes in financial conditions, and results of operations, then it should be included in the MD&A or expressly incorporated by reference therein. Otherwise, companies may omit this discussion so long as they clearly identify the location in the previous filing (which need not be a Form 10-K) of where the omitted discussion may be found.
For more information on rules relating to Form 10-Ks, the new C&DIs, or any related matter, please contact any member of Wilson Sonsini's public company representation practice.
[1] See FAST Act Modernization and Simplification of Regulation S-K, 84 Fed. Reg. 63 (April 2, 2019), pg. 12679 located at: https://www.govinfo.gov/content/pkg/FR-2019-04-02/pdf/2019-05695.pdf (last accessed on January 27, 2020).