Disclosure Considerations – Second Quarter 2023 Form 10-Q Reports

With the end of the second quarter of calendar year 2023 approaching, this is a reminder of disclosure changes and considerations for Form 10-Q reports for the quarter ended June 30, 2023.  These are included in the updated Goodwin Form 10-Q Form Check.  A copy of the updated form check is attached, together with a copy marked to show changes from the prior quarter’s version.  The SEC has updated the Form 10-Q posted on its website to include the applicable portions of the Rule 10b5-1 amendments adopted by the SEC in December 2022.

Director and Officer Trading Plans and Arrangements. (Regulation S-K, Item 408(a))

Starting with the Form 10-Q report for the quarter ended June 30, 2023, domestic operating companies that do not qualify as a smaller reporting company under SEC rules must provide quarterly disclosure about the adoption, modification or termination, on or after April 1, 2023, by the company’s directors and Section 16 officers of trading plans or arrangements that are intended to satisfy the affirmative defense conditions of Rule 10b5-1 (“Rule 10b5-1 plans”) and plans that are “non-Rule 10b5-1 plans,” as defined in Item 408(c).  Item 408(a) also requires disclosure about whether any such plans or arrangements are intended to satisfy the affirmative defense requirements of Rule 10b5-1(c) and the material terms of the plan or arrangement, other than price.  Item 408(a) disclosure for the fourth quarter will be required in a company’s Form 10-K report.  The Form 10-Q posted on the SEC website has been updated to include Part II, Item 5(c), which reads “[f]urnish the information required by Item 408(a) of Regulation S-K.”

SRCs must comply with Item 408(a) for adoptions, modifications or terminations that occur on or after October 1, 2023 and provide this disclosure beginning with the periodic report that covers the quarter ending December 31, 2023.  SRCs that have a December 31 fiscal year end will first include this disclosure for the fourth fiscal quarter of 2023 in their Form 10-K report for the year ended December 31, 2023.

Domestic operating companies will not be required to comply with the related annual disclosure requirements under Item 408(b) and Item 402(x) until the Form 10-K annual report that covers the first full fiscal year that begins on or after April 1, 2023 (October 1, 2023 for SRCs).  Domestic operating companies, including SRCs, that have a December 31 fiscal year end will first include this disclosure for calendar year 2024 in their Form 10-K report for the fiscal year ended December 31, 2024, to be filed in 2025, and their 2025 proxy or information statement.

Companies should review their disclosure controls and procedures and determine whether revisions may be appropriate, especially with respect to disclosure based on information relating to the company’s directors and Section 16 officers.  Disclosures under Items 408(a), 408(b) and 402(x) are subject to SEC Interactive XBRL requirements.

Risk Factors and Related Disclosure

As always, companies should review the disclosure in “Risk Factors” in the most recent Form 10-K report and any subsequent Form 10-Q reports to determine whether changes would be appropriate.  Companies should also review any related disclosure included in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the forward-looking statement disclaimer (if any) and the financial statement footnotes, among others, to determine whether changes or updates would be appropriate.  Among topics for consideration are the following:

  • COVID-19: In light of the termination of the COVID-19 public health emergency on May 11, 2023, consider whether any risk factors related to the COVID-19 pandemic should be deleted or, if retained, revised to reflect current risks and conditions and/or moved to the “General Risk Factors” section. For some companies, COVID-19 risks may have evolved into risks involving remote/hybrid work transitions, supply chain/distribution issues or other post-pandemic impacts.
  • Silicon Valley Bank: Consider whether any risk factors that specifically refer to the failure of Silicon Valley Bank should be deleted or revised. Consider whether a broader discussion of financial market risks and risks involving the financial services industry may be relevant, to the extent material to the company.
  • Federal Government Fiscal Crisis, Default and Shutdown: In light of the legislative response to the potential default by the federal government and shutdown of many federal governmental agencies and services, companies that had disclosure in the Risk Factors section or elsewhere that related to these risks should consider whether that disclosure should be revised or deleted.  Some companies may have incurred material financial or other losses caused by or related to valuation or trading of U.S. government securities or other securities that have values calculated or derived from U.S. government securities.  If material, these losses should be disclosed in MD&A and, potentially, elsewhere in the Form 10-Q report; note that risk factor disclosure alone of events that have already occurred is unlikely to satisfy applicable disclosure requirements.

Please contact any member of Public Company Advisory Practice at DG-PCAP with any questions.