In this post we discussed the SEC’s new Release about the use of metrics.  One of the points the SEC emphasized in this release was consistency.  If a company changes how a metric is computed or changes its presentation to discontinue use of a previously presented metric, it should make appropriate disclosure about the change and the reasons for the change.

This Investor FAQ Document from Square provides an example of such a disclosure.  While this example is about a non-GAAP measure rather than a pure metric, it is an example of making disclosures about changes in the presentation of information outside the financial statements.

You will see that this document starts with two fundamental questions:

What change is being made to Square’s reporting?

Why were you using the Adjusted Revenue measure?

While there is no formal standard about such disclosure, it is clearly important to tell investors about such changes in a full and forthright manner.

As always, your thoughts and comments are welcome.

On January 30, 2020 the SEC issued formal guidance in a Financial Release about the use of key performance indicators and metrics.  This new Release, number 33-10751 or FR 87, was issued at the same time as a proposed rule to amend the MD&A requirements and eliminate S-K Item 301 Selected Financial Data and the quarterly information required by S-K Item 302.

While the MD&A changes and elimination of S-K Items 301 and 302 are all proposed, the new guidance about the use of metrics is not a proposed rule and its requirements will be effective when it is published in the Federal Register.

(We will put up a post when the Release is published in the Federal Register.)

Its imminent effectiveness makes becoming familiar with the Release important when preparing earnings releases as it may well apply to key performance indicators and metrics in year-end earnings releases and will almost certainly apply to such measures used in first quarter earnings releases.

As a brief review the SEC addressed Key Performance Indicators in its 2003 MD&A release, (33-8350 – FR 72):

1. Focus on Key Indicators of Financial Condition and Operating Performance

As discussed, one of the principal objectives of MD&A is to give readers a view of the company through the eyes of management by providing both a short and long-term analysis of the business.   To do this, companies should “identify and address those key variables and other qualitative and quantitative factors which are peculiar to and necessary for an understanding and evaluation of the individual company.”

Financial measures generally are the starting point in ascertaining these key variables and other factors. However, financial measures often tell only part of how a company manages its business. Therefore, when preparing MD&A, companies should consider whether disclosure of all key variables and other factors that management uses to manage the business would be material to investors, and therefore required.   These key variables and other factors may be non-financial, and companies should consider whether that non-financial information should be disclosed.

Over the years the staff has asked companies to provide additional information about their use of metrics in the comment process.  You can find some examples in this post which provides deeper background about metrics, this post with example SEC comments on the use of metrics and this post about an enforcement case focused on metrics.

In this new Release the SEC builds on and formalizes what it did in FR 72 and its comments about metrics in filing reviews.  The major points the SEC focuses on in the new Release include:

1. Metrics should be used with care to assure they are not misleading.

The release states:

“When including metrics in their disclosure, companies should consider existing MD&A requirements and the need to include such further material information, if any, as may be necessary in order to make the presentation of the metric, in light of the circumstances under which it is presented, not misleading.”

This language harkens back to Exchange Act Rule 12b-20:

12b-20   Additional information.

In addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made not misleading.

A perhaps extreme example of this situation would be presenting a metric that shows a business as improving and getting stronger when on a GAAP basis it is experiencing widening losses and potential liquidity issues.

2.  When presenting a metric companies should consider whether an existing set of requirements such as GAAP, IFRS or the SEC’s non-GAAP measure guidance in Regulation G or Regulation S-K Item 10(e) applies.

3.  When presenting a metric, companies should consider what additional information should be presented to “provide adequate context” for investors to understand the metric and the information it conveys. The Release indicates that the SEC would “generally expect” these disclosures:

“A clear definition of the metric and how it is calculated;

A statement indicating the reasons why the metric provides useful information to investors; and

A statement indicating how management uses the metric in managing or monitoring the performance of the business.”

The release also notes that if there are “estimates or assumptions underlying the metric or its calculation careful consideration should be given to disclosure of such items to assure the metric is not materially misleading”.

4.  The release emphasizes consistency in the preparation and presentation of metrics, an issue that the SEC has dealt with in the comment process. For example, when a company changes how a metric is computed it likely should explain why the change was made and what the impact of the change was. Additionally, if a new metric is presented or a previously presented metric is discontinued, this should likely be discussed and the metric for previous periods may need to be recomputed.

The Release states:

“If a company changes the method by which it calculates or presents the metric from one period to another or otherwise, the company should consider the need to disclose, to the extent material:

(1) the differences in the way the metric is calculated or presented compared to prior periods,

(2) the reasons for such changes,

(3) the effects of any such change on the amounts or

(4) such other differences in methodology and results that would reasonably be expected to be relevant to an understanding of the company’s performance or prospects.

Depending on the significance of the change(s) in methodology and results, the company should consider whether it is necessary to recast prior metrics to conform to the current presentation and place the current disclosure in an appropriate context.”

5.  FR 87 also emphasizes that metrics should be considered in a company’s disclosure controls and procedures. Disclosure controls and procedures (DCP) are defined in Exchange Act Rule 13(a)-15:

(e) For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Since DCP are applicable in reports “filed or submitted” and earnings releases are furnished to the SEC in an Item 2.02 Form 8-K it is important that metrics that provide material information be considered in the DCP process.  A likely starting point in this consideration is: are metrics included in your disclosure committee’s discussions?

Clearly the SEC will begin to focus on how companies use metrics and the adequacy of disclosures around metrics.  As an example of issues to consider, you could review this section at the beginning of Facebook’s most recent Form 10-K titled “Limitations of Key Metrics and Other Data” or the section about metrics at the beginning of Twitter’s 2018 Form 10-K.

In our next post we will review an example of the disclosures a company made when they decided to change their presentation of a metric like non-GAAP measure.

As always, your thoughts and comments are welcome.

ICFR is clearly a hot topic on the SEC and PCAOB agendas as the recent MetLife enforcement and other developments demonstrate.  And, ICFR over unusual transactions and new accounting standard implementation present significant challenges.  Reed Wilson, one of the workshop leaders of our Form 10-K In-Depth Workshop, who is also a member of the FEI Committee on Corporate Reporting (Yes, that is CCR! How about “Down on the Corner” as a theme song?), alerted us to some very useful preparer build ICFR aids from CCR at FEI.  The first deals with ICFR over the business combinations process:

A Guide to Designing and Operating an Effective System of Internal Control Over Business Combinations

CCR also published two Insight Guides dealing with ICFR considerations for the Lease Accounting Standardand CECL.

Thanks to Reed and FEI and, as always, your thoughts and comments are welcome!

One of the more subtle issues we discussed in our recent Sixth Annual Form 10-K Tune-up One Hour Briefing was a reminder to properly categorize (i.e., 12(b) versus 12(g) securities that the company has registered under the Exchange Act and to list all securities registered pursuant to either of those sections on the cover pages of Forms 10-K and 10-Q.  While this was not a big deal historically, the list of 12(b) securities now also requires the trading symbols to be included.

As an example shown below are the cover pages from P&G’s June 30, 2018 and 2019 Form 10-K’s.  You can see the difference in the 12(b) lists from 2018 to 2019.

As another thought, this is closely tied to the new requirement to have, as an exhibit to the Form 10-K a description of securities (as set forth in Item 202 of Regulation S-K) that are registered under section 12 (whether 12(b) or 12(g)).  You can read all the details in this blog post which will also has the detailed instructions from See S-K Item 601(b)(4)(vi) and Item 202.

In P&G’s case, they provided a separate exhibit for each class, which makes a lot of sense – some securities may go away (such as when debt securities are redeemed) and you can simply delete that exhibit in the future rather than having to amend an all-inclusive exhibit.

Which brings us to a final point – one that we noticed even with P&G – their exhibit 4.3.2, which purports to be a description of their common stock, also describes their preferred stock, none of which is outstanding nor are these classes registered under section 12.  The new exhibit requirement is NOT a requirement to provide a description of the company’s authorized capitalization – it is a requirement to provide certain information required by S-K Item 202 but only as to securities that are registered under section 12 of the Exchange Act.

Again, to see the difference compare these two P&G cover pages from 2018 and 2019:

Notice the difference in their cover page from their  June 30, 2019 10-K cover page after the Disclosure Modernization and Update rule:

As always, your thoughts and comments are welcome!

As we mentioned in our MD&A Hot Topics One-Hour Briefing on February 3^rd, the International Business Council of the World Economic Forum has been working to develop usable and practical ways of communicating ESG matters.  This report, prepared in collaboration with Deloitte, EY, KPMG and PwC and endorsed by many large public companies, is a first step in that process.

As always, your thoughts and comments are welcome!

On January 30, 2020 the SEC, as the next part of the JOB’s Act disclosure review, proposed changes to S-K Items 303 (MD&A), and also proposed to eliminate S-K Item 301 Selected Financial Data (the five year summary) and S-K Item 302 Supplementary Financial Data (the quarterly information for two years).

According to the SEC’s Release and Related Fact sheet the changes to MD&A would:

• “Add a new Item 303(a), Objective, to state the principal objectives of MD&A;
• Replace Item 303(a)(4), Off-balance sheet arrangements, with a principles-based instruction to prompt registrants to discuss off-balance sheet arrangements in the broader context of MD&A;
• Eliminate Item 303(a)(5), Tabular disclosure of contractual obligations given the overlap with information required in the financial statements and to promote the principles-based nature of MD&A;
• Add a new disclosure requirement to Item 303, Critical accounting estimates, to clarify and codify existing Commission guidance in this area; and
• Revise the interim MD&A requirement in Item 303(b) to provide flexibility by allowing companies to compare their most recently completed quarter to either the corresponding quarter of the prior year (as is currently required) or to the immediately preceding quarter.”

Interestingly, along with the proposed rule the SEC issued a release that, for the first time, provides formal guidance about the use of metrics.  Again, according to the release:

“The guidance provides that, where companies disclose metrics, they should consider whether additional disclosures are necessary and gives examples of such disclosures. The guidance also reminds companies of the requirements in Exchange Act Rules 13a-15 and 15d-15 to maintain disclosure controls and procedures and that companies should consider these requirements when disclosing metrics.”

The Release about metrics will be effective upon publication in the Federal Register.

The proposed rule will have a 60 day comment period.

More about these changes in future posts, and we will also address them in our Fifth Annual MD&A Hot Topics One Hour Briefing on Monday February 3, 2020.

As always, your thoughts and comments are welcome!

Clearly ICFR is a major agenda item at the SEC and the PCAOB.  On December 18, 2019 the SEC announced that the Commission had “charged MetLife, Inc. with violating the books and records and internal accounting controls provisions of the federal securities laws relating to two errors in its accounting for reserves associated with its annuities businesses.”  MetLife will pay $10 million to settle the charges.

This case relates to the books and records and internal accounting controls provisions of the federal securities laws.  In essence it is an ICFR case, and it illustrates the importance of disclosing material weaknesses in ICFR and also makes the point that a material misstatement does not have to occur for a material weakness to exist.

In its December 31, 2017 financial statements in Form 10-K MetLife disclosed the following:

Revisions

As a result of the following adjustments, amounts previously reported have been immaterially restated. In addition, the Company has corrected other unrelated immaterial errors which were previously recorded in the periods the Company identified them.

Group Annuity Reserves

On December 15, 2017, the Company announced that it was undertaking a review of practices and procedures used to estimate its reserves related to certain Retirement and Income Solutions (“RIS”) group annuitants who have been unresponsive or missing over time. As a result of this process, the Company increased reserves by $510 million , before income tax, to reinstate reserves previously released, and to reflect accrued interest and other related liabilities. Of this increase, $372 million was considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017.

Assumed Variable Annuity Guarantee Reserves

An internal review of practices and procedures was completed in early 2018, focusing on the calculation of certain reserves associated with MetLife Holdings variable annuity guarantees assumed from a former operating joint venture in Japan. As a result, the Company reduced these reserves by $896 million , before income tax. Of this decrease, $682 million was considered an error and, recording this amount in the fourth quarter of 2017 financial statements would have had a material effect on the results of operations for 2017.

Interestingly, the materiality of the revisions is based on the “iron curtain” versus “roll-over” thought process in SAB 108, but the effect on each year reported was not deemed material.

With all of that as a starting point, in MetLife’s Form 10-K for the previous year, 2016, their ICFR report in Item 9A stated that ICFR was effective:

Management’s Annual Report on Internal Control Over Financial Reporting

 Management of MetLife, Inc. and subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with GAAP.

Management has documented and evaluated the effectiveness of the internal control of the Company at December 31, 2016 pertaining to financial reporting in accordance with the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 In the opinion of management, MetLife, Inc. maintained effective internal control over financial reporting at December 31, 2016 .

 Deloitte & Touche LLP, an independent registered public accounting firm, has audited the consolidated financial statements and consolidated financial statement schedules included in the Annual Report on Form 10-K for the year ended December 31, 2016 . The Report of the Independent Registered Public Accounting Firm on their audit of the consolidated financial statements and consolidated financial statement schedules is included on page 386.

MetLife’s 2017 Form 10-K Item 9A included this different report:

 Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with GAAP.

Management evaluated the design and operating effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”). Solely because of the material weaknesses in internal control over financial reporting described below, in the opinion of management, MetLife, Inc. did not maintain effective internal control over financial reporting as of December 31, 2017.

 A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Identification of the Material Weaknesses in Internal Control over Financial Reporting

 The Company has identified the following deficiencies in the principles associated with both the control activities and information and communication components of the COSO framework:

 RIS Group Annuity Reserves:

 Ineffective design and operating effectiveness of the controls related to processes and procedures for identifying unresponsive and missing group annuity annuitants and pension beneficiaries (Control Activities); and

Ineffective design and operating effectiveness of the controls intended to ensure timely communication and escalation of the issue throughout the Company (Information & Communication).

 Assumed Variable Annuity Guarantee Reserves:

Ineffective design and operating effectiveness of the controls related to data validation and monitoring of reserves for variable annuity guarantees issued by a former operating joint venture in Japan and reinsured by the Company and included within MetLife Holdings (Control Activities).

 These deficiencies, if not effectively remediated, could result in unprevented and undetected misstatements of accounts or disclosures related to liabilities for certain RIS group annuity contracts and MetLife Holdings assumed variable annuity guarantee reserves. Such misstatements could result in a material misstatement of the annual or interim consolidated financial statements.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on its audit of the effectiveness of internal control over financial reporting, which is included on page 401.

There was no material misstatement in MetLife’s financial statements as a result of these ICFR material weaknesses.  Still, as the enforcement release brings out, the material weaknesses created books and records violations and resulted in the fine.

As always, your thoughts and comments are welcome!

On January 24, 2020 the SEC’s Division of Corporation Finance issued three C&DI’s dealing with questions surrounding the March 2019 Disclosure Modernization and Simplification rule change allowing the omission of the third year back in MD&A.  As a reminder the rule change added this instruction to S-K Item 303:

For registrants providing financial statements covering three years in a filing, discussion about the earliest of the three years may be omitted if such discussion was already included in the registrant’s prior filings on EDGAR that required disclosure in compliance with Item 303 of Regulation S-K, provided that registrants electing not to include a discussion of the earliest year must include a statement that identifies the location in the prior filing where the omitted discussion may be found.

The new C&DI’s address three issues:

Question 110.02

Question: A registrant providing financial statements covering three years in a filing relies on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years and includes the required statement that identifies the location of such discussion in a prior filing. Does the statement identifying the disclosure in a prior filing incorporate such disclosure by reference into the current filing?

Answer: No. A statement merely identifying the location in a prior filing where the omitted discussion can be found does not incorporate such disclosure into the filing unless the registrant expressly states that the information is incorporated by reference. See Securities Act Rule 411(e) and Exchange Act Rule 12b-23(e). [Jan. 24, 2020]

Question 110.03

Question: May a registrant rely on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years from its current MD&A if it believes a discussion of that year is necessary?

Answer: No. Item 303(a) requires that the registrant provide such information that it believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. A registrant must assess its information about the earliest of three years and, if it is required by Item 303(a), include it in the current disclosure or expressly incorporate by reference its discussion from a previous filing. [Jan. 24, 2020]

Question 110.04

Question: A registrant has an effective registration statement that incorporates by reference its Form 10-K for the fiscal year ended December 31, 2018. In its Form 10-K for the fiscal year ended December 31, 2019, the registrant will omit the discussion of its results for the fiscal year ended December 31, 2017 pursuant to Instruction 1 to Item 303(a) and include a statement identifying the location of the discussion presented in its Form 10-K for the fiscal year ended December 31, 2018. The filing of the Form 10-K for the fiscal year ended December 31, 2019 will operate as the Section 10(a)(3) update to the registration statement. After the company files the Form 10-K for the fiscal year ended December 31, 2019, will the company’s discussion of its results for the fiscal year ended December 31, 2017 be incorporated by reference in the registration statement?

Answer: No. The filing of the Form 10-K for the fiscal year ended December 31, 2019 establishes a new effective date for the registration statement. As of the new effective date, the registration statement incorporates by reference only the Form 10-K for the fiscal year ended December 31, 2019, which does not contain the company’s discussion of results for the fiscal year ended December 31, 2017 unless, as indicated in Question 110.02, the information is expressly incorporated by reference. [Jan. 24, 2020]

As always your thoughts and comments are welcome!

In the SEC’s March 2019 Disclosure Modernization and Simplification Final Rule there was a bit of confusion about a new exhibit added to S-K Item 601 for Form 10-K.  This post reviews the requirements for this exhibit and provides links to two examples.

Part of the confusion emanated from the omission of the following change to the S-K Item 601 Exhibit Table from the originally published Final Rule:

The later version of the rule that was corrected and conformed to the Federal Register version included this change, but the confusion was already started.  The first line in the table above was not changed by the March 2019 rule.  The section labeled “(vi) Description of registrant’s securities” is the new exhibit added by this rule.  And while the headings do not appear in this table from the final rule, the column on the far right with an X for the new exhibit is the 10-K column.

So, for 10-K’s that are being filed after the May 2, 2019 effective date for the rule, this exhibit will be new information.

The requirements outlined below are pretty long and detailed, so if you would like to just see two examples of this disclosure just scroll to the bottom of this post.

The requirements in S-K Item  601 for this new exhibit 4(vi) are reasonably straightforward.  Note Instruction 1 states that the new exhibit is required only in Form 10-K:

(4) * * *

(vi) For each class of securities that is registered under Section 12 of the Exchange Act, provide the information required by Item 202(a) through (d) and (f) of Regulation S-K
(§ 229.202 of this chapter).

Instruction 1 to paragraph (b)(4)(vi). A registrant is only required to provide the information called for by Item 601(b)(4)(vi) if it is filing an annual report under Exchange Act Section 13(a) or 15(d).

Instruction 2 to paragraph (b)(4)(vi). For purposes of Item 601(b)(4)(vi), all references in Item 202 to securities to be or being registered, offered, or sold will mean securities that are registered as of the end of the period covered by the report with which the exhibit is filed. In addition, for purposes of this Item, the disclosure will be required for classes of securities that have not been retired by the end of the period covered by the report.

Instruction 3 to paragraph (b)(4)(vi). The registrant may incorporate by reference to an exhibit previously filed in satisfaction of Item 601(b)(4)(vi) of Regulation S-K, as applicable, so long as there has not been any change to the information called for by Item 202 (§ 229.202 of this chapter) since the filing date of the linked filing. Such hyperlink will be deemed to satisfy the requirements of Item 601(b)(4)(vi) for the current filing.

Lastly, to close the loop, here is the relevant section of S-K Item 202 that enumerates the required information.  In this excerpt we have deleted the sections not required for this exhibit.  The list is fairly long and detailed, and in case it will help we have included links to two examples after the S-K 202 excerpts.

 229.202   (Item 202) Description of registrant’s securities.

(a) Capital stock. If capital stock is to be registered, state the title of the class and describe such of the matters listed in paragraphs (a) (1) through (5) as are relevant. A complete legal description of the securities need not be given.

(1) Outline briefly: (i) dividend rights; (ii) terms of conversion; (iii) sinking fund provisions; (iv) redemption provisions; (v) voting rights, including any provisions specifying the vote required by security holders to take action; (vi) any classification of the Board of Directors, and the impact of such classification where cumulative voting is permitted or required; (vii) liquidation rights; (viii) preemption rights; and (ix) liability to further calls or to assessment by the registrant and for liabilities of the registrant imposed on its stockholders under state statutes (e.g., to laborers, servants or employees of the registrant), unless such disclosure would be immaterial because the financial resources of the registrant or other factors make it improbable that liability under such state statutes would be imposed; (x) any restriction on alienability of the securities to be registered; and (xi) any provision discriminating against any existing or prospective holder of such securities as a result of such security holder owning a substantial amount of securities.

(2) If the rights of holders of such stock may be modified otherwise than by a vote of a majority or more of the shares outstanding, voting as a class, so state and explain briefly.

(3) If preferred stock is to be registered, describe briefly any restriction on the repurchase or redemption of shares by the registrant while there is any arrearage in the payment of dividends or sinking fund installments. If there is no such restriction, so state.

(4) If the rights evidenced by, or amounts payable with respect to, the shares to be registered are, or may be, materially limited or qualified by the rights of any other authorized class of securities, include the information regarding such other securities as will enable investors to understand such limitations or qualifications. No information need be given, however, as to any class of securities all of which will be retired, provided appropriate steps to ensure such retirement will be completed prior to or upon delivery by the registrant of the shares.

(5) Describe briefly or cross-reference to a description in another part of the document, any provision of the registrant’s charter or by-laws that would have an effect of delaying, deferring or preventing a change in control of the registrant and that would operate only with respect to an extraordinary corporate transaction involving the registrant (or any of its subsidiaries), such as a merger, reorganization, tender offer, sale or transfer of substantially all of its assets, or liquidation. Provisions and arrangements required by law or imposed by governmental or judicial authority need not be described or discussed pursuant to this paragraph (a)(5). Provisions or arrangements adopted by the registrant to effect, or further, compliance with laws or governmental or judicial mandate are not subject to the immediately preceding sentence where such compliance did not require the specific provisions or arrangements adopted.

(b) Debt securities. If debt securities are to be registered, state the title of such securities, the principal amount being offered, and, if a series, the total amount authorized and the total amount outstanding as of the most recent practicable date; and describe such of the matter listed in paragraphs (b) (1) through (10) as are relevant. A complete legal description of the securities need not be given. For purposes solely of this Item, debt securities that differ from one another only as to the interest rate or maturity shall be regarded as securities of the same class. Outline briefly:

(1) Provisions with respect to maturity, interest, conversion, redemption, amortization, sinking fund, or retirement;

(2) Provisions with respect to the kind and priority of any lien securing the securities, together with a brief identification of the principal properties subject to such lien;

(3) Provisions with respect to the subordination of the rights of holders of the securities to other security holders or creditors of the registrant; where debt securities are designated as subordinated in accordance with Instruction 1 to this Item, set forth the aggregate amount of outstanding indebtedness as of the most recent practicable date that by the terms of such debt securities would be senior to such subordinated debt and describe briefly any limitation on the issuance of such additional senior indebtedness or state that there is no such limitation;

(4) Provisions restricting the declaration of dividends or requiring the maintenance of any asset ratio or the creation or maintenance of reserves;

(5) Provisions restricting the incurrence of additional debt or the issuance of additional securities; in the case of secured debt, whether the securities being registered are to be issued on the basis of unbonded bondable property, the deposit of cash or otherwise; as of the most recent practicable date, the approximate amount of unbonded bondable property available as a basis for the issuance of bonds; provisions permitting the withdrawal of cash deposited as a basis for the issuance of bonds; and provisions permitting the release or substitution of assets securing the issue; Provided, however, That provisions permitting the release of assets upon the deposit of equivalent funds or the pledge of equivalent property, the release of property no longer required in the business, obsolete property, or property taken by eminent domain or the application of insurance moneys, and other similar provisions need not be described;

(6) The general type of event that constitutes a default and whether or not any periodic evidence is required to be furnished as to the absence of default or as to compliance with the terms of the indenture;

(7) Provisions relating to modification of the terms of the security or the rights of security holders;

(8) If the rights evidenced by the securities to be registered are, or may be, materially limited or qualified by the rights of any other authorized class of securities, the information regarding such other securities as will enable investors to understand the rights evidenced by the securities; to the extent not otherwise disclosed pursuant to this Item; no information need be given, however, as to any class of securities all of which will be retired, provided appropriate steps to ensure such retirement will be completed prior to or upon delivery by the registrant of the securities;

(9) If debt securities are to be offered at a price such that they will be deemed to be offered at an “original issue discount” as defined in paragraph (a) of section 1273 of the Internal Revenue Code (26 U.S.C. 1273), or if a debt security is sold in a package with another security and the allocation of the offering price between the two securities may have the effect of offering the debt security at such an original issue discount, the tax effects thereof pursuant to sections 1271-1278;

(10) The name of the trustee(s) and the nature of any material relationship with the registrant or with any of its affiliates; the percentage of securities of the class necessary to require the trustee to take action; and what indemnification the trustee may require before proceeding to enforce the lien.

(c) Warrants and rights. If the securities described are to be offered pursuant to warrants or rights state:

(1) The amount of securities called for by such warrants or rights;

(2) The period during which and the price at which the warrants or rights are exercisable;

(3) The amount of warrants or rights outstanding;

(4) Provisions for changes to or adjustments in the exercise price; and

(5) Any other material terms of such rights on warrants.

(d) Other securities. If securities other than capital stock, debt, warrants or rights are to be registered, include a brief description (comparable to that required in paragraphs (a), (b) and (c) of Item 202) of the rights evidenced thereby.

(e) *********

(f) American Depositary Receipts. If Depositary Shares represented by American Depositary Receipts are being registered, furnish the following information:

(1) The name of the depositary and the address of its principal executive office.

(2) State the title of the American Depositary Receipts and identify the deposited security. Describe briefly the terms of deposit, including the provisions, if any, with respect to:

(i) The amount of deposited securities represented by one unit of American Depositary Receipts;

(ii) The procedure for voting, if any, the deposited securities;

(iii) The collection and distribution of dividends;

(iv) The transmission of notices, reports and proxy soliciting material;

(v) The sale or exercise of rights;

(vi) The deposit or sale of securities resulting from dividends, splits or plans of reorganization;

(vii) Amendment, extension or termination of the deposit;

(viii) Rights of holders of receipts to inspect the transfer books of the depositary and the list of holders of receipts;

(ix) Restrictions upon the right to deposit or withdraw the underlying securities;

(x) Limitation upon the liability of the depositary.

(3) Describe all fees and charges which may be imposed directly or indirectly against the holder of the American Depositary Receipts, indicating the type of service, the amount of fee or charges and to whom paid.

Note:  The Instructions to Item 202 are omitted for the sake of brevity.  Be sure to read them as you work on the exhibit.

If you would like to see examples of this new exhibit here are two you can review:

First, Microsoft included this exhibit in their June 30, 2019 Form 10-K.  The exhibit includes their common stock and various notes.

Second, P&G, which has stock and bonds registered, included this exhibit in their June 30, 2019 10-K for their common stock.  You can find example of the disclosures for registered debt in their 10-K

This information was generally required before in registration statements, so having this information filed with Form 10-K means that the registration process can be a bit more streamlined.

To summarize and hopefully  eliminate confusion about this new exhibit as we approach year-end and to help make sure it is included properly in your Form 10-K, here is a summary of the change.

1. The SEC’s March 2019 Disclosure Modernization and Simplification final rule added new exhibit 4(vi) to S-K Item 601.
2. The Exhibit Table requires this new exhibit in Form 10-K, but not in any other filings.
3. The content of the exhibit is from S-K Item 202.
4. This information was not previously required in Form 10-K

As always, your thoughts and comments are welcome!

In two recent posts we linked to examples of companies that have used the new Disclosure Modernization and Simplification opportunity to omit the third year back from MD&A. Check out the comments at the bottom of this post for more examples.  And, one of the members our blog community, Alyson Clabaugh from Intelligize, has been working on finding more examples.  She has built this treasure trove of examples!

WOODWARD, INC.  10-K  (FY 2019)          11/25/2019

https://apps.intelligize.com/SECFilings/View/Filings/18137272

For a discussion of the 2018 Results of Operations, including a discussion of the financial results for the fiscal year ended September 30, 2018 compared to the fiscal year ended September 30, 2017, refer to Part I, Item 7 of our Form 10-K filed with the SEC on November 13, 2018.

BRIGHTVIEW HOLDINGS, INC.  10-K  (FY 2019)     11/21/2019

https://apps.intelligize.com/SECFilings/View/Filings/18128052

For discussion around results of operations for the nine months ended September 30, 2017 and for a comparison of our results for the fiscal year ended September 30, 2018 and twelve months ended September 30, 2017 see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended September 30, 2018, filed with the SEC on November 28, 2018.

KEY TRONIC CORP  10-K  (FY 2019) 9/12/2019

https://apps.intelligize.com/SECFilings/View/Filings/18018826

To review the results of operations comparison of the fiscal year ended June 30, 2018 with the fiscal year ended July 1, 2017, please refer to our Form 10-K filed September 10, 2018 with the Securities and Exchange Commission or follow the link below.

https://www.sec.gov/Archives/edgar/data/719733/000071973318000054/ktcc-06302018x10k.htm

ADTALEM GLOBAL EDUCATION INC.  10-K  (FY 2019)        8/28/2019

https://apps.intelligize.com/SECFilings/View/Filings/17997774

The following discussion is on the comparison between fiscal year 2018 and fiscal year 2019 results. For a discussion on the comparison between fiscal year 2017 and fiscal year 2018 results, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Adtalem’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018, as filed with the Securities and Exchange Commission (“SEC”).

ETHAN ALLEN INTERIORS INC  10-K  (FY 2019)      8/9/2019

https://apps.intelligize.com/SECFilings/View/Filings/17967420

For a comparison of our results of operations for the fiscal years ended June 30, 2018 and 2017, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2018, filed with the SEC on August 2, 2018.

PROCTER & GAMBLE CO  10-K  (FY 2019)              8/6/2019

https://apps.intelligize.com/SECFilings/View/Filings/17957753

A detailed discussion of the fiscal 2018 year-over-year changes can be found in the MD&A section in the Form 8-K filed October 22, 2018, which updated our Form 10-K for the year ended June 30, 2018, to revise disclosures to reflect the adoption of the Financial Accounting Standards Board (FASB) ASU 2017-07 and 2016-18. For more information on the adoption of this standard, refer to Note 1 to the Consolidated Financial Statements.

DARDEN RESTAURANTS INC  10-K  (FY 2019)        7/19/2019

https://apps.intelligize.com/SECFilings/View/Filings/17928523

For a comparison of our results of operations for the fiscal years ended May 27, 2018 and May 28, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended May 27, 2018, filed with the SEC on July 20, 2018.

RESOURCES CONNECTION INC  10-K  (FY 2019)    7/19/2019

https://apps.intelligize.com/SECFilings/View/Filings/17927982

For a comparison of our results of operations for the fiscal years ended May 26, 2018 and May 27, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended May 26, 2018, filed with the SEC on July 23, 2018 (File No. 0-32113).

ELASTIC N.V.  10-K  (FY 2019)      6/28/2019

https://apps.intelligize.com/SECFilings/View/Filings/17900516

For a discussion of our consolidated statement of operations data for the fiscal year ended April 30, 2018 compared to the year ended April 30, 2017 and as a percentage of revenue for that period, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” the Company’s final prospectus for its IPO filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (File No. 333-227191) on October 5, 2018.

ADVANCED DRAINAGE SYSTEMS, INC.  10-K  (FY 2019)     5/30/2019

https://apps.intelligize.com/SECFilings/View/Filings/17851913

The discussion of our results of operations for the fiscal year ended March 31, 2018 compared with the fiscal year ended March 31, 2017 can be found in our fiscal 2018 Form 10-K. See Item 7. Management’s Discussion and Analysis of Financial Discussion and Results of Operations in our fiscal 2018 Form 10-K for further information on our prior period results of operations.

ABIOMED INC  10-K  (FY 2019)    5/23/2019

https://apps.intelligize.com/SECFilings/View/Filings/17838810

For a comparison of our results of operations for the fiscal years ended March 31, 2018 and March 31, 2017, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on May 24, 2018.

EAGLE MATERIALS INC  10-K  (FY 2019)   5/23/2019

https://apps.intelligize.com/SECFilings/View/Filings/17839359

FISCAL YEAR 2019 COMPARED WITH FISCAL YEAR 2018

Please see our Form 10-K for fiscal year 2018 for the discussion of our Results of Operations and results of Revenue and Operating Income by segment for fiscal 2018 compared with fiscal 2017. Our 2018 Form 10-K can be found on the investor page of our website, at www.eaglematerials.com.

NEW RELIC, INC.  10-K  (FY 2019)              5/15/2019

https://apps.intelligize.com/SECFilings/View/Filings/17818700

The following tables summarize our consolidated statements of operations data for the fiscal years ended March 31, 2019 and March 31, 2018 and as a percentage of our revenue for those periods. For a discussion of our consolidated statement of operations data for the fiscal year ended March 31, 2017 and as a percentage of revenue for that period, see “Results of Operations for Fiscal Years Ended March 31, 2018, 2017, and 2016” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on May 11, 2018.

 ARROWHEAD PHARMACEUTICALS, INC.  10-K  (FY 2019)  11/25/2019

https://apps.intelligize.com/SECFilings/View/Filings/18136363

Results of Operations Comparison for 2018 and 2017

For a discussion of our results of operations comparison for 2018 and 2017, refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2018 filed on December 11, 2018.

HORTON D R INC /DE/  10-K  (FY 2019)    11/25/2019

https://apps.intelligize.com/SECFilings/View/Filings/18135171

For similar operating and financial data and discussion of our fiscal 2018 results compared to our fiscal 2017 results, refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2018, which was filed with the SEC on November 16, 2018.

JACK IN THE BOX INC /NEW/  10-K  (FY 2019)       11/21/2019

https://apps.intelligize.com/SECFilings/View/Filings/18130004

Results of operations – an analysis of our consolidated statements of earnings for fiscal 2019 compared to fiscal 2018. For a comparison of our results of operations for the fiscal 2018 compared to fiscal 2017 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, filed with the SEC on November 21, 2018.

TRANSDIGM GROUP INC  10-K  (FY 2019)              11/19/2019

https://apps.intelligize.com/SECFilings/View/Filings/18124389

Fiscal year ended September 30, 2018 compared with fiscal year ended September 30, 2017

For our results of operations for fiscal 2018 compared with fiscal 2017, refer to the discussion in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Form 10-K for the fiscal year ended September 30, 2018, as filed with the Securities and Exchange Commission on November 9, 2018.

AUTOZONE INC  10-K  (FY 2019) 10/28/2019

https://apps.intelligize.com/SECFilings/View/Filings/18078013

Fiscal 2018 Compared with Fiscal 2017

A discussion of changes in our results of operations from fiscal 2017 to fiscal 2018 has been omitted from this Form 10-K, but may be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K for the fiscal year ended August 25, 2018, filed with the SEC on October 24, 2018, which is available free of charge on the SECs website at www.sec.gov and at www.autozone.com, by clicking “Investor Relations” located at the bottom of the page.

WD 40 CO  10-K  (FY 2019)          10/22/2019

https://apps.intelligize.com/SECFilings/View/Filings/18070588

Fiscal Year Ended August 31, 2018 Compared to Fiscal Year Ended August 31, 2017

For discussion related to changes in financial condition and the results of operations for fiscal year 2018 compared to fiscal year 2017, refer to Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2018, which was filed with the SEC on October 22, 2018.

KIMBALL ELECTRONICS, INC.  10-K  (FY 2019)       8/27/2019

https://apps.intelligize.com/SECFilings/View/Filings/17995496

A discussion regarding our financial condition and results of operations for fiscal year 2019 compared to fiscal year 2018 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 2018 compared to fiscal year 2017 can be found under captions entitled “Results of Operations – Fiscal Year 2018 Compared with Fiscal Year 2017” and “Liquidity and Capital Resources” in the section entitled “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2018 filed with the SEC on August 28, 2018, which is available free of charge through the SEC’s website at http://www.sec.gov or the Company’s website, http://investors.kimballelectronics.com. The Company’s website and the information contained therein, or incorporated therein, are not intended to be incorporated into this Annual Report on Form 10-K.

LIFEVANTAGE CORP  10-K  (FY 2019)        8/14/2019

https://apps.intelligize.com/SECFilings/View/Filings/17976687

Comparison of Fiscal Years Ended June 30, 2018 and 2017

For a discussion of our results of operations for the fiscal 2018 compared with fiscal 2017, refer to “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended June 30, 2018, as filed with the SEC on August 15, 2018.

RESMED INC  10-K  (FY 2019)      8/8/2019

https://apps.intelligize.com/SECFilings/View/Filings/17961759

For discussion related to the results of operations and changes in financial condition for the fiscal year ended June 30, 2018 compared to fiscal year June 30, 2017, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the Year Ended June 30, 2018, which was filed with the United States Securities and Exchange Commission on August 17, 2018.

THERMON GROUP HOLDINGS, INC.  10-K  (FY 2019)         6/12/2019

https://apps.intelligize.com/SECFilings/View/Filings/17874036

Year Ended March 31, 2018 (“fiscal 2018”) Compared to the Year Ended March 31, 2017 (“fiscal 2017”)

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K/A for the fiscal year ended March 31, 2018 filed with the SEC on June 8, 2018 for a discussion of the results of operations in fiscal 2018 as compared to fiscal 2017.

TOYOTA MOTOR CREDIT CORP  10-K  (FY 2019)   6/4/2019

https://apps.intelligize.com/SECFilings/View/Filings/17859774

Fiscal 2018 Compared to Fiscal 2017

For a discussion comparing our consolidated results of operations for fiscal 2018 to fiscal 2017, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018, filed with the SEC on June 4, 2018.

NORTONLIFELOCK INC.  10-K  (FY 2019)  5/24/2019

https://apps.intelligize.com/SECFilings/View/Filings/17842177

Pursuant to instruction 1 of the instructions to paragraph 303(a) of Regulation S-K, discussion of the results of operations from fiscal year 2018 to fiscal year 2017 has been omitted. Such omitted discussion can be found under Item 7 of our annual report on Form 10-K for the fiscal year ended March 30, 2018, filed with the Commission on October 26, 2018.

ELECTRONIC ARTS INC.  10-K  (FY 2019)   5/24/2019

https://apps.intelligize.com/SECFilings/View/Filings/17840057

Comparison of Fiscal Year 2018 to Fiscal Year 2017

For the comparison of fiscal year 2018 to fiscal year 2017, refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for our fiscal year ended March 31, 2018, filed with the SEC on May 23, 2018 under the subheading “Comparison of Fiscal Year 2018 to Fiscal Year 2017.”

VISTA OUTDOOR INC.  10-K  (FY 2019)     5/23/2019

https://apps.intelligize.com/SECFilings/View/Filings/17839446

Please see Part III, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 filed with the SEC on May 18, 2018 for the results of operations for Fiscal 2018 compared to Fiscal 2017 and for other financial information related to Fiscal 2017.

8X8 INC /DE/  10-K  (FY 2019)      5/21/2019

https://apps.intelligize.com/SECFilings/View/Filings/17833863

For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended March 31, 2017, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, filed with the Securities and Exchange Commission on May 30, 2018.

Thank you, Chrissy and Alyson, and as always, your thoughts and comments are welcome!