Earlier today, the SEC issued an interim final rule amending Form 10-K pursuant to section 72001 of the FAST Act. That section required the SEC to allow issuers to include summary sections in their annual reports on Form 10-K as long as each summary item included a cross-reference (electronic or otherwise) to the complete discussion located elsewhere in the report.
The SEC decided to adopt a flexible principles-based rule rather than proscribing a specific format for issuers to follow. Any summary is permissible as long as the information is presented “fairly and accurately” and each item includes a hyperlink to the related full discussion located elsewhere in the report.
The SEC decided that the “cross-reference” requirement may only be satisfied with a live hyperlink (rather than a textual reference). The hyperlink must direct the reader to the specific section of the 10-K where the detailed description appears or, if the relevant information appears in a document incorporated by reference, to the relevant section in the incorporated document.
The summary rule is completely voluntary and I suspect it will take a few brave registrants next year before (and if) Form 10-K summaries become common. The amended Form 10-K will now include new Item 16:
Item 16. Form 10–K Summary.
Registrants may, at their option, include a summary of information required by this form, but only if each item in the summary is presented fairly and accurately and includes a hyperlink to the material contained in this form to which such item relates, including to materials contained in any exhibits filed with the form.
Instruction: The summary shall refer only to Form 10-K disclosure that is included in the form at the time it is filed. A registrant need not update the summary to reflect information required by Part III of Form 10-K that the registrant incorporates by reference from a proxy or information statement filed after the Form 10-K, but must state in the summary that the summary does not include Part III information because that information will be incorporated by reference from a later filed proxy or information statement involving the election of directors.
Before the amendment is finalized, the SEC is seeking public input regarding further revisions. Additionally, the interim final rule poses the following specific questions that provide some insight into the Commission’s thinking about some potential issues with the new rule:
- Are companies and investors likely to find a Form 10-K summary useful? If so, should we propose mandating a summary?
- Would it be helpful to EDGAR users for the Form 10-K summary or a link to the summary to be displayed on a registrant’s EDGAR search results landing page?
- Should we impose a length limitation on the summary? If so, what limitation would be appropriate (e.g., a page limit, word limit, character limit)?
- Should we provide further guidance on preparation of the summary? For example, should we include language similar to Item 503(a) of Regulation S-K, which covers a prospectus summary?
- Should we require that the summary appear at the beginning of the Form 10-K? Should we require certain content or a specific format for the Form 10-K summary? For example, should we propose to require registrants choosing to prepare a summary to include specified Form 10-K items, such as the MD&A? Are there some items that registrants should not be permitted to include in a summary? If so, which items should be required to be included in, or excluded from, the summary?
- Should we require registrants that cannot include a summary of the Part III information (because that information will be incorporated by reference from a later filed proxy or information statement involving the election of directors) to file a Form 10-K amendment to update the summary to reflect the Part III information when that information is filed with the proxy or information statement?
- Are there other cross-reference methods that we should allow in lieu of, or in addition to, hyperlinks?
- Should we propose to amend other annual reporting forms, such as Form 20-F18 filed by foreign private issuers, or Form 1-K filed by issuers that have conducted a Regulation A offering, to expressly allow a summary similar to the approach we are adopting for Form 10-K? Would such revisions be useful given that our rules do not prohibit such registrants from voluntarily including a summary in their annual reports?
You can read the SEC’s interim final rule here (starts automatic pdf download).