SEC Adopts Amendments Related to New Summary in Form 10-K

 

June 10, 2016

 

On June 1, 2016, the Securities and Exchange Commission (“SEC”) adopted amendments to the Form 10-K to expressly permit a company, at its option, to include a summary in its Form 10-K provided the items summarized are hyperlinked to the relevant section of the form or exhibit that is being summarized.

 

The Form 10-K is the form used by public companies for annual reports required to be filed with the SEC pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”).

 

The amendments implement Section 72001 of the FAST Act.

 

New Item 16 of Form 10-K

 

The amendments add a new Item 16 to Part IV of the Form 10-K and expressly allow a company, at its option, to include a summary in its Form 10-K.   

 

The summary may be included if: 

  • each item in the summary is presented “fairly and accurately”

  • each summary topic includes a hyperlink to the material contained in the report to which such item relates or in an exhibit filed with the form

  • the summary refers only to Form 10-K disclosure that is included in the form or an exhibit at the time it is filed

 

In the adopting release, the SEC stated: “[i]n light of the varied nature of registrants’ size and operations, we believe that registrants should have the flexibility to determine how best to prepare the summary.”

 

The SEC stated that the amendment does not prescribe:

  • the length of the summary (other than that it should be brief),

  • specify the disclosure items to be covered by the summary,

  • dictate where it must appear

 

Further, the SEC stated that it might not be practicable or necessary to summarize every form item and that the amendment is principles-based and affords a company choosing to include a summary the flexibility to decide the items to summarize, as long as it is presented fairly and accurately.

 

The amendment requires the summary to include hyperlinks to the more detailed disclosure elsewhere in the form or an exhibit.  Accordingly, a company wishing to prepare a summary that discusses information incorporated by reference into the Form 10-K and for which an exhibit is filed with the form to include a hyperlink from the summary to the discussion in the accompanying exhibit.

 

Under Exchange Act Rule 12b-23, a company may incorporate information by reference in answer to an item in the Form 10-K under certain conditions, including information required by Parts I or II of Form 10-K from the company’s annual report, and information required by Part III from the company’s proxy or information statement involving the election of directors provided it is filed within 120 days of the fiscal year end.

 

A company including a summary will only be able to summarize information that is actually included in the Form 10-K or in an exhibit at the time the Form 10-K is filed.  Therefore, a company will not have to file an amended Form 10-K to summarize information that is incorporated by reference from a proxy or information statement that will be filed after it files its Form 10-K.  In that case, the company must indicate that the summary omits Part III information.

 

Conclusion

 

Prior to the form amendments, the SEC’s rules and forms did not prohibit a company from including a summary in the Form 10-K, although few companies elected to do so.  In view of these recent form amendments and increased awareness that such summary disclosure is permitted, we would expect to see more companies including summaries in their annual reports on Form 10-K.

 

The form amendments do not affect Form 20-F, the form used by foreign private issuers, although such issuers may rely upon the lack of a prohibition under the rules to include a summary and without the need to hyperlink.  The SEC is seeking comments on whether to amend the Form 20-F to follow a similar approach to that reflected in the new Form 10-K amendments.

 

For more information, please contact:

 

Neil R.E. Carr                                                               
Direct Dial: +1 202 587 2983                                       
neil.carr@somertons.com                                             

 

Kathleen L. Cerveny

Direct Dial: +1 202 779 9507

Kathleen.cerveny@somertons.com

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