SEC's Recent Corporation Finance Statements

July 13, 2011

The Staff of the Securities and Exchange Commission’s Division of Corporation Finance recently published a number of new interpretive positions that are significant to public companies. This Client Alert discusses these interpretations and provides links to the relevant documents.

1. The Division of Corporation Finance Updated its Financial Reporting Manual

The Division’s Financial Reporting Manual is extremely useful for finding the Staff’s views on common accounting issues and related disclosure. The new update (which is dated as of March 31, 2011) includes a number of technical updates, but also includes significant new information with regard to subsidiary guarantor financial statements, internal control over financial reporting requirements for newly public companies, and reporting requirements in a reverse recapitalization. As the Staff has begun updating the Financial Reporting Manual much more frequently, it is now providing a summary of changes at the beginning of the manual.

2. The Division Revised its Guidance Regarding Disclosure Concerning Non-Continuing Directors

The Staff revised its guidance regarding Item 401 of Regulation S-K relating to disclosure on non-continuing directors. Under new C&DI Question 116.10, if a company provides its Form 10-K Part III information by incorporation by reference from its proxy statement, it need not include information regarding non-continuing directors. Importantly, however, the Staff did not change its view with regard to the inclusion of the Part III information directly in the Form 10-K from that expressed in the withdrawn C&DI Question 116.08. As such, if a company includes this information directly in the Form 10-K itself (either by choice or because it did not file a proxy statement containing the Part III information within 120 days of fiscal year end), it must provide information about non-continuing directors in its Form 10-K.

3. The Division Issued a Number of New Compliance and Disclosure Interpretations

The Staff issued new interpretations related to Form 12b-25, disclosure regarding “say-on-frequency” votes, executive compensation disclosure, and non-GAAP financial measures. Clicking on each title below will direct you to each new C&DI. 

Form 12b-25 -- Question 107.02

This new C&DI addresses the situation where a company needs to file a Form 12b-25 to provide notice of a late periodic filing, but does not believe that it will be able to file the periodic report within the applicable extension period provided by Rule 12b-25(b). This presents an issue, as there is a box in Part II of the Form that requires the company to indicate that it will file by the extended deadline. Under the C&DI, the Staff makes clear that the company should not check that box if it does not intend to file by the extended deadline. The significant part of the new C&DI is the statement that the Commission will consider a filing made by the extended deadline to be timely, even where the company did not check the box in Part II. 

Item 5.07 of Form 8-K -- Question 121A.03

This new C&DI addresses the disclosure related to “say-on-frequency” votes. The Staff indicates that, with respect to “say-on-frequency” votes, a company is not required to disclose the number of broker non-votes; rather, the company is required to disclose the number of votes cast for each of the one-, two- or three-year frequency options and the number of abstentions. 

Item 5.07 of Form 8-K -- Question 121A.04

This new C&DI also addresses the disclosure related to “say-on-frequency” votes. The C&DI presents three different Staff views:

  1. a company may disclose the initial voting results from its shareholder meeting in a Form 10-Q or Form 10-K, rather than in a Form 8-K, if that quarterly or annual report is filed by the deadline for filing the otherwise-required Form 8-K;
  2. if a company reports the “say-on-frequency” voting results in a Form 10-Q or Form 10-K, it may choose to disclose its board’s decision as to how frequently it will hold the “say-on-pay” vote in a new Form 8-K (i.e., it need not amend the Form 10-Q or Form 10-K in which it disclosed the initial voting results); and
  3. if a company disclosed the initial “say-on-frequency” voting results in a Form 8-K, the board’s subsequent decision as to how frequently to hold the “say-on-pay” vote must be disclosed in an amendment to the original Form 8-K (i.e., it should not be filed as a new Form 8-K).

Item 402 of Regulation S-K -- Question 117.07 

This new C&DI provides that a company may omit disclosure regarding disability plans that do not discriminate in scope, terms or operation, in favor of its executive officers or directors, and that are available generally to all salaried employees. This C&DI places disability plans in the same category as group life, health, hospitalization, and medical reimbursement plans.

Item 402 of Regulation S-K -- Question 118.08

This new C&DI states that Regulation G and Item 10(e) of Regulation S-K apply to any non-GAAP financial disclosures, other than target level disclosures (e.g., financial performance targets) contained in the Compensation Discussion and Analysis, that are included in a company’s proxy statement. It is important to note the language in this C&DI regarding the means of providing the required GAAP reconciliations. Specifically, it indicates that the Staff will not object if a company includes these reconciliations in a prominently cross-referenced annex or by incorporation by reference to the relevant pages of the company’s Form 10-K containing such reconciliation. The Division repeated this guidance in Question 108.01 in the C&DIs on Non-GAAP Financial Measures. 

Item 402 of Regulation S-K -- Question 119.28

This new C&DI expresses the Staff’s view that the grant date fair value for stock and option awards that are subject to performance conditions must be reported based on the probable outcome of the performance conditions as of the grant date, even if the actual outcome is known as of the disclosure date.

4. The Division Issues its Analysis Regarding WKSI “Ineligible Issuer” Waivers

The Division released a statement outlining its analysis for determining whether to grant an “ineligible issuer” waiver to a company that has lost its status as well-known seasoned issuer for having violated the anti-fraud provisions of the federal securities laws. Under Securities Act Rule 405, the Commission may grant waivers of “ineligible issuers” status upon a showing of good cause. The Commission has delegated the authority to grant such waivers to the Director of the Division. The statement sets forth the analysis that the Division will evaluate in determining the appropriateness of granting a waiver. The Division also published three recent no-action letters that apply this analysis -- Raymond James Financial, Inc., JPMorgan Chase & Co., and Regions Financial Corporation.