SV Risk Factor Disclosure Trends: Potential Impact of Proposed Rulemaking
Wilson Sonsini recently came out with its risk factor trends report among Silicon Valley’s 150 largest public companies. One item the report delves into is the potential impact of SEC proposed rulemaking relating to risk factors that the Commission is slated to consider at its meeting tomorrow. Some may recall that the proposed amendments to Item 105 of Regulation S-K would require summary risk factor disclosure if the risk factor section is greater than 15 pages and that companies organize risk factors with headings.
Wilson Sonsini’s report covers risk factor disclosures from Forms 10-K filed from early 2019 through March 2020 and includes information of disclosure practices overall of the SV150. Given the timing of the disclosures that were reviewed, the report doesn’t indicate trends in COVID-19 risk factor disclosure, but it does illustrate how disclosures related to COVID-19 impacted the overall length of risk factor disclosures. Here’s an excerpt:
Wilson Sonsini’s report says that 74% of SV150 companies include at least one heading for risk factors, with most including only one to three headings. And, all companies that went public in the last five years include at least one heading in their risk factors – whereas companies that went public over 20 years ago only 39% include at least one heading in their risk factors.
As far as inclusion of summary risk factor disclosure, the report says none of the SV150 companies include an explicit summary risk factor disclosure in their 10-K filings. So although this practice is rare, the report references Walmart’s Form 10-K filed in March of this year as a notable example of a titled summary risk factor disclosure (see page 5).
Other trends noted in the report include the number of pages of risk factors decreases as more time elapses since a company’s IPO – companies that went public in the last five years average about 27 pages of risk factors compared to companies that went public at least 20 years ago that average about 15 pages of risk factors.
As annual sales increase, the average total number of pages of risk factors also decreases.
Companies in the technology industry average the highest total number of pages of risk factors disclosure – approximately 23 pages.
-Lynn Jokela, TheCoporateCounsel.net August 25, 2020
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