Compliance with the changes to Reg S-K’s financial disclosure rules doesn’t become mandatory until August 9th, but companies are permitted to early adopt the changes on a line item-by-line item basis as of the February 10th effective date. One of those changes eliminates Item 301 of S-K and its requirement to include selected financial data in a company’s 10-K filing. If you’re still trying to decide what to do about selected financial data in your 10-K, Jenner & Block has some help for you.
The firm surveyed 100 Form 10-K filings made after the February 10th effective date of the rules by large accelerated filers & accelerated filers to see what companies were doing about selected financial data disclosure. This excerpt summarizes the survey’s findings:
Approximately 40% of the Sample Eliminated Item 301 Disclosure: On the balance, we found that companies were slightly more likely to include the selected financial data than to omit such information based on the sample we reviewed.
– 61 companies within the sample included the selected financial data in the Form 10-K
– 39 companies within the sample omitted the selected financial data in the Form 10-K
No Distinct Patterns within the Sample: We did not detect any concrete patterns with respect to industry or company size. Companies of all industries and sizes elected to include and omit the selected financial data.
For Companies that Early Adopted, Use of Disclosure Varied: Some companies elected to explain why the information was omitted, some omitted the item entirely from the Form 10-K, and some used “Reserved” or similar disclosure.
On this last point, I think that if you’re going to eliminate Item 301 disclosure, the better approach from a technical standpoint is to continue to include the caption “Item 6 – Selected Financial Data” in the 10-K. Here’s why – Item 6 is still included in Form 10-K, and Rule 12b-13 says that an Exchange Act report “report shall contain the numbers and captions of all items of the appropriate form. . .” It also says that unless the form provides otherwise, “if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.”
So, while I doubt very much anybody will end up in SEC prison for just omitting Item 6 in its entirety, Rule 12b-13 indicates that you should continue to include it in your 10-K along with an appropriate statement about why you’re not disclosing the selected financial data that it calls for. Looking for an example? Check out Zillow Group’s 10-K.
-John Jenkins, TheCorporateCounsel.net February 22, 2021
