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January 28, 2020

SEC Issues New C+DIs on MD+A


In March 2019, in its FAST ACT Modernization and Simplification of Regulation S-K release, the SEC adopted, among other things, amendments to Item 303(a) of Regulation S-K. The amendments pertain to filings that include three years of financial statements (for most registrants, their Annual Report on Form 10-K) and permit the MD+A in those filings to omit a discussion of the earliest such year (Y3), subject to certain conditions. Conforming amendments were made to Item 5 of Form 20-F. On January 24, 2020, the SEC's Division of Corporation Finance issued three new C+DIs (Questions 110.02 - 04) to provide the following guidance regarding those amendments.

Instruction 1 to Item 303(a) requires a registrant that wishes to exclude a discussion of Y3 from MD+A to identify in the current filing the location in a prior EDGAR filing where the omitted discussion of Y3 can be found (Location Disclosure). The staff confirmed that including the Location Disclosure does not constitute incorporation by reference into the current filing unless the registrant expressly states that it does. In addition, where: (i) a company uses its 10-K as the Section 10(a)(3) update to an effective registration statement, and (ii) its 10-K for a given year omits the discussion of Y3 pursuant to Instruction 1 to Item 303(a), and includes the Location Disclosure, the company's discussion of Y3 will not be incorporated by reference in the registration statement. The filing of the Form 10-K for the given year 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 given year, which does not contain the company's discussion of Y3 unless, as indicated above, the information is expressly incorporated by reference.

The staff also confirmed that, notwithstanding the lack of an explicit condition to such effect, a registrant may not rely on Instruction 1 to Item 303(a) to omit a discussion of Y3 from its current MD+A if it believes such discussion to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. If information about Y3 is necessary to such an understanding, it must be included in the current disclosure or expressly incorporated by reference from a previous filing.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.