SEC Updates to Disclosure Rulebook and Fee Rate

On August 17, 2018, the Securities and Exchange Commission (“SEC”) finalized a series of amendments to its rules and forms with the aim of reducing redundant and outdated disclosure requirements for public companies. Although many of the modifications simply “clean up” references and cross-references that have become outdated due to changes in accounting terminology or other revisions to the SEC’s forms and rules, several of the amendments do serve to remove certain disclosure requirements previously required by the SEC. The summary below outlines those modifications that may be of significance to public companies.

Changes to SEC Disclosure Requirements

I.  Segment Disclosures in the “Business” Section
Financial information about a company’s business segments will no longer be required to be disclosed in the “Business” section of a company’s Form 10-K or Schedule 14A. Furthermore, disclosures regarding restatement of prior periods when reportable segments change and discussion of interim segment performance will not be required, as GAAP and Item 303(b) of Regulation S-K require similar disclosures. Additionally, since Item 101(b) of Regulation S-K permits companies to cross-reference to the notes to financial statements and the “Business” section, the requirement was deemed redundant.

II.  R&D Disclosures in the “Business” Section
The amount a company expends on company-sponsored research and development will no longer require disclosure in the “Business” section of a company’s Form 10-K or Schedule 14A, as GAAP requires “reasonably similar” disclosures.

III.  Geographic Disclosures in the “Business” Section
The geographic breakdown of a company’s revenues and assets is not required to be disclosed in the “Business” section of a company’s Form 10-K or Schedule 14A. Item 101(d)(2) of Regulation S-K allows companies to cross-reference between the notes to financial statements and the “Business” section, so this requirement was viewed as duplicative by the SEC.

IV.  Public Reference Room References
The SEC has deleted mandatory references to the Public Reference Room in its forms. Instead, the SEC will allow investors themselves to rely on the internet to locate materials and documents filed with the SEC. However, given the greater prevalence of investors accessing information via a company’s website, the SEC has issued guidance on the liability associated with making disclosures on a company’s website (please click here for more information).

V.  Mandatory Disclosure of Company Website
In light of the removal of the references to the SEC’s Public Reference Room, companies are now required to disclose their website addresses in their forms, instead of merely being “encouraged” to do so.

VI.  Disclosure of Market Price Information
Due to the widespread public availability of the trading prices of a company’s common stock, companies will no longer be required to disclose the high and low trading prices of their common stock in the last two years in their Form 10-K or Schedule 14A. Instead, companies with one or more classes of common stock will simply be required to identify the markets on which each class is traded and the corresponding trading symbols for these classes.

VII.  Disclosure of Seasonality in Interim Reports
The SEC will not require companies to discuss seasonality in the MD&A sections of interim reports because “reasonably similar” disclosures are required under GAAP and other provisions of Item 303(b) of Regulation S-K.

VIII.  Disclosure of Ratio of Earnings to Fixed Charges
When registering debt or preferred stock, companies will not be required to disclose historical and pro forma ratio of earnings to fixed charges or fixed charges and preferred stock dividends, as applicable. Companies can also remove the corresponding calculation exhibit from registration statements and periodic reports.

IX.  Disclosures Under Regulation S-X
Finally, the SEC made several changes to disclosure requirements under Regulation S-X. These modifications include elimination of the requirements that earnings per share be presented on the face of interim income statements and that material events subsequent to the end of the most recent fiscal year be disclosed in interim financial statements. Moreover, companies are no longer required to disclose the reason for a change in accounting principle for an interim period. These disclosures were viewed as duplicative of GAAP and therefore eliminated.

Because the amendments outlined above are relatively limited in scope, we expect the SEC to propose similar changes in the future in terms of reducing disclosures required in SEC filings. The SEC has stated that the amendments “are part of an initiative by the Division of Corporation Finance to review disclosure requirements . . . to improve the requirements for the benefit of investors and issuers.” We will continue to monitor the SEC’s activities with respect to these disclosure requirements.           

Fee Rate Advisory for Fiscal Year 2019
As an additional matter, the SEC announced on August 24, 2018 that the fee for public companies to register their securities with the SEC will be decreased to $121.20 per million dollars (from $124.50 per million dollars) for fiscal year 2019. The effective date of this change is October 1, 2018.

For more information on the matters discussed in this advisory, please contact Mark Reuter, Jim Kennedy, Allie Westfall or Brett Niehauser. To ensure that you are current on recent activities, subscribe to our Corporate and Securities Blog by entering your email address in the sidebar at http://corporate-securities.kmklaw.com/.

KMK Legal Alerts and Blog Posts are intended to bring attention to developments in the law and are not intended as legal advice for any particular client or any particular situation. Please consult with counsel of your choice regarding any specific questions you may have.

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