SEC Adopts New Amendment to Form 10-K

New Item 16 of Form 10-K

The SEC recently adopted an amendment to the annual report on Form 10-K to add new Item 16, which provides that a registrant may, at its option, include a summary in its Form 10-K if: 

• each summary topic is hyperlinked to the related, more detailed disclosure item in the Form 10-K or an accompanying exhibit;

• the summary is brief;

• the information is presented fairly and accurately; and

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

A copy of the SEC adopting release is available here. The amendment implements Section 72001 of the Fixing America’s Surface Transportation (FAST) Act, which includes several provisions intended to continue the reforms of the Jumpstart Our Business Startups (JOBS) Act to make it easier for smaller companies to raise capital. Section 72001 directs the SEC to issue regulations by June 1, 2016 to permit issuers to include a summary in their Form 10-K, provided that each summary item includes an electronic or other cross-reference to the related information in the filing.

New Item 16 generally lets registrants decide what to summarize in the summary. It does not: prescribe a specific length other than it be brief; specify the Form 10-K disclosure items that should be included; or designate where the summary should be located within the Form 10-K.

The SEC believes that a summary with hyperlinked cross-references will allow readers to locate the more complete disclosures more easily and potentially enhance the ability to process the relevant information and/or reduce processing time and search costs.       

With respect to information incorporated by reference in answer, or partial answer, to any item of Form 10-K that a registrant may choose to summarize, registrants may only discuss information incorporated by reference in their summary when the information is filed in an accompanying exhibit to the Form 10-K at the time the form is filed. Therefore, a registrant will not have to file a Form 10-K amendment to summarize information required by Part III that is incorporated by reference from a proxy or information statement filed after the Form 10-K, provided that the registrant states in the summary that the summary does not include Part III information.

Effect of New Item 16

Prior to the amendment, the SEC’s rules did not prohibit a registrant from voluntarily including a summary in its Form 10-K, but very few registrants chose to do so. Given that context, and the fact that new Item 16 is optional, the SEC does not expect the amendment to have a substantial impact on disclosure practices because registrants that do not currently provide a summary are not likely to begin doing so as a result of new Item 16.

The SEC expects that the amendment will affect only a small number of registrants that currently include a summary in their Forms 10-K, namely those that:

• do not include any cross-references with the summary items;

• use cross-references other than hyperlinks; or

• use hyperlinks, but not for all disclosure items included in the summary.

The rules mandated by the FAST Act are technically limited to Form 10-K filings and do not affect annual reports on Form 20-F filed by foreign private issuers. Form 20-F filers may continue to rely on the absence of any prohibition on voluntarily providing a summary in their Form 20-F filings under existing SEC rules to provide a summary in their Form 20-F without the need to include hyperlinked cross-references. However, the SEC has asked for comments on whether the same approach provided by Item 16 of Form 10-K should be extended to Form 20-F.   

Effective Date

The amendment, which was adopted as an interim final rule, will become effective upon its publication in the Federal Register, expected on June 9, 2016. The SEC has requested comments within 30 days of this date.