I recently provided insight for an article published in Compliance Week on the SEC’s pay ratio rule, which will require companies to disclose for the first time in their 2018 proxy statements the ratio between the median annual total compensation of all employees and the annual total compensation of its CEO. While the rule has brought some opposition, companies should still keep an eye out for developments in Washington and the SEC, but should not have unrealistic expectations. As I point out in the article, “given all the dynamics and the make-up of the Commission still evolving, companies should proceed with things the way they are now, with the rule in effect.” While there may be possibilities for some type of alleviation, companies should not rely on that to avoid delaying any adjustments needed to be made in preparation.
Last week, the SEC’s Division of Corporation Finance issued updated guidance on processing procedures for draft registration statements. Below is a FAQ summary table we have prepared related to this new guidance.
There are some nuances in the guidance, so please consult with outside securities counsel before omitting any financial statements in your filing. Contact any member of our Corporate & Securities practice for more information.
With the September 1, 2017, deadline fast approaching for complying with the SEC’s new rules on exhibit hyperlinks, we have updated our March blog post with the frequently asked question below.
How does one link to an exhibit in a 30-year old registration statement that was filed as one gigantic ASCII file? The only available “link” would be to the whole file.
Based on recent informal Staff discussions relating to this question, we were instructed that the filer should hyperlink to the ASCII filing containing the exhibit and clearly identify the hyperlinked exhibit that is being incorporated by reference from the ASCII filing. By way of example, the hyperlink description could look something like this:
3.1 Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Form S-1 Registration Statement filed with the SEC on XX XX, XXX) (File No. XXX-XXXXXX)
Alternatively, the registrant could voluntarily choose to re-file the old exhibit with the present filing.
Last month, the Staff of the SEC’s Division of Corporation Finance announced that, as part of the Division’s ongoing efforts to facilitate capital formation, all issuers are now permitted to submit draft registration statements relating to IPOs and Exchange Act Section 12(b) registration (e.g., spin-offs) to the Staff for nonpublic (i.e., confidential) review.
Previously, nonpublic review was available only to emerging growth companies (EGCs), as authorized by the JOBS Act, and in certain circumstances to foreign private issuers. Nonpublic submission of registration statements makes it possible for companies to avoid alerting the market of offering plans before the company is certain that it will move forward with any offering.
The most recent edition of The Business Lawyer, published by the ABA’s Business Law Section, includes its Annual Review of Federal Securities Regulation prepared by its Subcommittee on Annual Review from the Committee on Federal Regulation of Securities. The Review outlines significant developments in federal securities law and regulation during 2016. The Review is divided into three sections:
- Regulatory actions
- Accounting statements
- Case law developments
I currently chair the Subcommittee and wish to give special thanks to all of its distinguished authors that contributed content, including a special thanks to William Lay and Talley Wood from Bass, Berry & Sims for helping draft and edit portions of the Review.
The Review is available here.
For most companies, the end of June means the end of the second fiscal quarter, which means right now you are hard at work finalizing the company’s interim financial statements and preparing its Form 10-Q for an August filing deadline. The end of the second quarter also means that it is time to check the company’s filing status for Exchange Act reports for fiscal 2018.
Know Your Filing Status
While the determination of whether a company will qualify as an “accelerated filer” or “large accelerated filer” for 2018 will not take effect until the date your Form 10-K is filed for fiscal 2017 (or, if earlier, your 10-K due date), the determination of your public float is calculated as of the last business day of the most recently completed second fiscal quarter, or June 30 for companies with a calendar fiscal year. Below are reminders for the different types of filers.
The new SEC Chairman, Jay Clayton, testified on June 27 to the Senate Appropriations Subcommittee about the SEC’s budget request. His comments clearly show that rulemaking is in the pipeline at the Staff level to facilitate capital formation in the public markets. In this regard, Chairman Clayton states, “U.S. capital markets remain the envy of the world, but fewer companies are choosing to enter the public capital markets than in the past, and, as a result, investment opportunities for Main Street investors are more limited.” The following is an excerpt of Chairman Clayton’s comments.
In monitoring SEC comment letters, we came across this SEC comment letter made public last week. It serves a reminder to registrants about their loss contingency disclosures, particularly those involving a “reasonably possible” loss per ASC 450. In the letter the SEC staff comments, “In regards to this [disclosed litigation] matter as well as any additional matters for which you believe it is at least reasonably possible that a material loss has been incurred but are unable to estimate the amount of loss, please supplementally tell us (a) the procedures you undertake on a quarterly basis to attempt to develop a range of reasonably possible loss for disclosure and (b) the specific factors that are causing your inability to estimate and when you expect those factors to be alleviated for each matter.”
Recently, I provided guidance and insight on how the SEC is using technology to make structured financial data more widely available and efficient to users. In two articles featured in the Technology and SEC Disclosure newsletter, I discussed EDGAR upgrades and the use of hyperlinks in company filings. As mentioned in the newsletter, “I do think the use of additional hyperlinking should be explored further. There is a great deal of information that could be hyperlinked in a particular filing, whether or not it’s a Securities Act registration statement that’s incorporating Exchange Act filings such as the 10-K and Qs. And I do think there are more hyperlink opportunities for issuers that would not be a significant burden and could provide a lot of benefit to investors.”
If you’re interested, the articles – “Reinventing Edgar” and “The Hyperlinks Rule” – were featured in the June 2017 Technology and SEC Disclosure newsletter, published in conjunction with Mergermarket and Toppan Vintage.
In monitoring SEC comment letters, we came across this SEC comment letter made public today, which we thought of particular interest to our readership given its direct application to almost all public companies. In the letter, the SEC Staff expressly concludes that simply including a URL address in an earnings press release that directs readers to a website where the non-GAAP reconciliation is located does not comply with the requirements in Item 10(e)(1)(i) of Regulation S-K (i.e., “must include….in the filing…a reconciliation”) and the general rules regarding disclosure of non-GAAP financial measures outlined in Regulation G (i.e., “must accompany that non-GAAP financial measure with…a reconciliation”). Although this is the Staff’s current position, we believe this may be an interesting area to watch in light of the SEC’s recent rulemaking in the hyperlinking space (see this post) as well as continued innovation in electronic communication and IR practices.