Key Considerations for the 2022 Annual Reporting and Proxy Season Part I: Form 10-K Considerations

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This is Part I of a two-part series outlining key considerations from White & Case's Public Company Advisory Group for US public companies during the 2022 annual reporting and proxy season.

Part I of this memo describes our key considerations for Annual Reports on Form 10-K in two parts:

(1) Seven Housekeeping Considerations for Form 10-K in 2022; and

(2) Eight Disclosure Considerations for Form 10-K in 2022.

Part II of the series will describe key considerations for annual meeting proxy statements.


Form 10-K: Key Housekeeping and Disclosure Considerations in 2022

I. Seven Housekeeping Considerations

The following seven housekeeping items are reminders for Form 10-Ks:

(1) Confirm Your Filing Status: First, confirm your filing status in order to appropriately complete your Form 10-K cover page. The determination of your filing status is crucial for determining the deadline for filing periodic reports for the fiscal year. For example, this year's Form 10-K is due on March 1, 2022 for large accelerated filers, March 16, 2022 for accelerated filers, and March 31, 2022 for non-accelerated filers. See the SEC's helpful compliance guide and information on filing deadlines.1

(2) Update Part II, Item 6 of Form 10-K: The requirement under Item 301 of Regulation S-K to provide five years of selected financial data has been removed. Remember to update Item 6 in Part II to state "Item 6. [Reserved]" instead of "Item 6. Selected Financial Data" as was included in the prior version of the Form 10-K. For more information, see "Considerations for the Form 10-K in 2022: Mandatory Compliance with SEC's Rule Amendments to Items 301, 302 and 303" below.

(3) Add New Item 9C (Disclosure Regarding Foreign Jurisdictions that Prevent Inspections): New Item 9C was added to Form 10-K under the Holding Foreign Companies Accountable Act, which requires the SEC to identify each "covered issuer" that has retained a registered public accounting firm to issue an audit report where that registered public accounting firm has a branch or office that is located in a foreign jurisdiction and the Public Company Accounting Oversight Board has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. Item 9C requires that these companies "must electronically submit to the Commission on a supplemental basis documentation that establishes that the registrant is not owned or controlled by a governmental entity in the foreign jurisdiction." Even companies not directly impacted by the law must include new Item 9C in their Form 10-K with the caption "Disclosure Regarding Foreign Jurisdictions that Prevent Inspections" and indicate that it is "[Not applicable]," where appropriate, and all companies should make sure this is added to the table of contents of their Form 10-K.

(4) Check Exhibit Index: Carefully review your exhibit list and add any required exhibits, including exhibits that were filed since last year's Form 10-K on Forms 8-K and 10-Q, as well as the recently added registered debt exhibit, if applicable, and the description of securities for each class of securities registered under Section 12 of the Securities Exchange Act of 1934 exhibit. Additionally, remove outdated exhibits no longer required to be filed, such as material contracts that have been fully performed.

With respect to confidential treatment orders, keep in mind that the SEC updated the standard for redacting confidential information in exhibit filings under Item 601(b)(2) and 601(b)(10), removing the "competitive harm" standard. Information may now be redacted if it is not material and is the type that the company both "customarily and actually treats as private or confidential."

See our 2021 Housekeeping Items for an explanation of recent rules on these items.

(5) Electronic Signatures. As part of amendments adopted in 2020, individuals have the option to sign a signature page or other authentication document with an electronic signature, instead of a manual, wet-ink signature.However, in order to use electronic signatures, companies must first take certain steps and meet the requirements explained in the "Electronic Signatures" section of our prior memo, which include signatories manually signing an attestation agreeing to the use of the electronic signature and a sample attestation found here.

(6) D&O Questionnaires. Ahead of your Form 10-K filing, review and update your D&O questionnaires, which provide back-up and support for the disclosure to be included in your Form 10-K and proxy statement. In particular, if you are a Nasdaq-listed company subject to the board diversity requirements or otherwise plan to voluntarily disclose the diversity of your directors, be sure to add in a question to elicit information on your directors' diversity characteristics and obtain their consent to disclose this information in the company's SEC filings. See Appendix A for a sample question to add to your D&O Questionnaires, and Appendix B for a summary of the Nasdaq diversity disclosure requirement and other key investor and proxy advisory firm policies on board diversity.

(7) Remember New Auditor iXBRL Tagging Requirements. New for all Form 10-Ks for periods ending on or after December 15, 2021, companies must tag in inline XBRL their auditor’s: (1) name (tagging the signature on the audit report is not sufficient), (2) location (i.e., city and state, province or country) and (3) PCAOB ID number.3 Companies must provide and tag this information for all auditors who have provided opinions related to the financial statements presented in their annual report. While there are not specific rules as to where this tagging should appear in the filing, one option is to add the auditor’s name and ID number to the Index to the Financial Statements (in Item 8 or 15, as applicable) and tag those, along with the location, in the audit report. Companies should coordinate this tagging with the financial printer.


Eight Disclosure Considerations for the Form 10-K in 2022

Below are our eight disclosure considerations when preparing your upcoming Form 10-K in 2022.

(1) Confirm Effects of SAB No. 120 for Equity Awards: In December 2021, the SEC announced the adoption of Staff Accounting Bulletin ("SAB") No. 120 to provide guidance on how companies should recognize the cost of "spring-loaded" compensatory awards. "Spring-loaded" awards refer to stock options and other share based awards (including restricted stock units) granted shortly before a company announces market-moving information. As your company's accountants close the books for 2021, confirm if and how they may need to consider SAB No. 120 to appropriately account for and disclose the terms of any equity awards granted in 2021. If any "spring-loaded" compensatory awards were granted during fiscal 2021, additional disclosures may be required in the Form 10-K to comply with SAB No. 120, including in the footnotes to the financial statements and Management's Discussion and Analysis ("MD&A") discussion of critical accounting estimates.

(2) Carefully Consider Climate Change, Human Capital Management and Other ESG Disclosures: With increased focus from the SEC and investors on climate-related and other environmental, social and governance ("ESG") disclosures, companies should proactively consider discussion of these topics in their Form 10-Ks. For the first time in late 2020, the SEC required public companies to provide human capital management ("HCM") disclosures in Form 10-Ks. The SEC is expected to propose mandatory climate-related disclosure requirements in 2022.

Climate Disclosures

In recent months, the SEC has significantly increased its focus on climate-related disclosures. While proposed SEC rulemaking is still in the works, any material information related to how climate change might impact a company's business should be included in its Form 10-K. Companies should consider their existing climate-related disclosure in light of the SEC's 2010 climate change disclosure guidance, as well as recent Corp Fin comment letters on companies' climate disclosure. For a summary of recent SEC comments, see our prior client alert, "SEC Issues Sample Comment Letter as it Ramps Up Scrutiny of Climate Disclosures." In light of this increased focus, companies should proactively confirm whether additional information regarding climate change is material for their business and should consider their risk factors, business description, legal proceedings and MD&A when assessing their climate disclosures. See "Environmental" discussion in "Risk Factors: What to Include", below.

Human Capital Management ("HCM") Disclosures 4

The fiscal year 2021 Form 10-K is the second annual report in which US public companies must comply with amended Item 101 of Regulation S-K, including a description of human capital resources and human capital measures or objectives that the company focuses on in managing its business, to the extent material to the company as whole.5 The amended rule retains the requirement to provide the total number of persons employed and provides that measures or objectives that address the attraction, development and retention of personnel are non-exclusive examples of items that may be material, depending on the nature of the company's business and workforce.6

Now that companies have had more time to assess this disclosure, they should consider what, if any information, should be added to the previous year's disclosure, taking the following steps:

  • Update HCM Disclosure to Reflect Developments Within the Company: Companies should consider which human capital measures or objectives the board and senior management has focused on during fiscal 2021, and how these should be discussed in the company's disclosure.7 Companies should also consider whether recent developments in their operations and industry, including those related to COVID-19, warrant updates to their HCM disclosures. For example, the negative impact from the COVID-19 pandemic has, in many cases, contributed to heightened levels of employee attrition and difficulties retaining employees and talent, which could have a material impact on the company's HCM strategies.
  • Keep in Mind Disclosure Trends in the Market: Companies should consider recent market trends in HCM disclosure, which reflect investors' heightened focus on diversity disclosures. For example, a review of the 2021 Form 10-Ks of Fortune 50 companies found that over half of the Form 10-Ks included quantitative human capital metrics, such as information on (i) the percentage of employees who are women or people of color, (ii) corporate investments to improve gender and ethnic/racial diversity in their workforce, and (iii) employee turnover and retention rates.

    Similarly, a 2021 survey of HCM disclosures made in the Form 10-Ks of S&P 500 companies found the following were common new human capital metrics disclosed: geographical distribution of employees; breakdown of types of employees (e.g., full-time, part-time, seasonal); steps taken to identify, recruit, and retain new and existing employees; diversity statistics and commitments to diversity and inclusion; employee incentives and benefits (e.g., insurance packages, stock-based compensation awards, cash-based performance bonus awards); employee learning/development/training programs; core values (e.g., learning, development, inclusion, diversity, teamwork); social impact and social justice initiatives; impact of and response to the COVID-19 pandemic; employee safety measures and employee engagement surveys.

ESG Disclosure Considerations Generally

The following considerations apply to all ESG-related disclosures, including those on climate and HCM.

  • Assess Disclosure in Sustainability Reports, on Company Websites and in Investor Presentations: Companies should assess the climate-related and other ESG information contained in their sustainability reports to determine whether any such information is material and therefore required to be included in their Form 10-K. In its above-noted sample comment letter on climate disclosures, the SEC included a comment warning companies that it may ask why disclosures that are made voluntarily in sustainability reports are not also included in the company's Form 10-K.

    In addition to publishing sustainability reports, companies are also increasingly disclosing emissions performance metrics, climate commitments and other ESG information on their websites and in presentations to investors, including in roadshow presentations in connection with securities offerings. Any material ESG information a company publishes or discloses outside of its SEC filings should be considered for inclusion in the Form 10-K.8Companies should also take cautionary steps to ensure that there are no significant inconsistencies across all of their ESG disclosures.

  • Confirm Accuracy of ESG Disclosures Through Robust Disclosure Controls: Companies should take steps to ensure that ESG disclosure is subject to the same robust, traditional disclosure controls covering other information in the Form 10-K. These controls may include designating information "owners" responsible for vetting this information, confirming its accuracy and consistency across all public disclosure and having such "owners" sign sub-certifications regarding this disclosure. To the extent the company has a disclosure committee, it should consider presenting compiled ESG information to such committee and ensuring that senior management in charge of ESG matters participate in committee meetings. Informative climate and other ESG reporting can require a complex interaction of many different functions in a company, such as supply chain, production and other operations, investor relations, human resources, finance/accounting, and legal, as well as the incorporation of complex assumptions about the effect of changing climate on the business. As always, legal departments should also review drafts of ESG disclosures in the Form 10-K for litigation risks and other issues, such as potentially inaccurate and inconsistent statements or overly broad and optimistic statements that could raise liability concerns.
  • Board Oversight: Update Your Audit Committee and/or Other Board Committees: In light of heightened SEC and investor scrutiny of climate and other ESG disclosures, companies should consider providing updates to their audit committees and other board committees responsible for ESG oversight, such as a public policy or sustainability committee, on recent developments related to climate and their company's current and planned climate disclosures, as well as how assumptions about future climate change should be reflected in their financial statements and risk assessments. In addition, companies should consider presenting HCM information and disclosures to their compensation committees prior to publication of their Form 10-K.
  • Consider Institutional Investor Positions Relevant to Your Shareholder Base: Companies should carefully consider their institutional investors' positions on climate disclosure, including their preferred disclosure frameworks, and how best to meet such demands for information. While not dispositive on the materiality of such information for a particular company, investor mandates and expectations related to climate-related and other ESG disclosures are expected to increase. For example, in his 2021 letter to CEOs, BlackRock CEO Larry Fink asked companies to disclose a "plan for how their business model will be compatible with a net zero economy" and how transition and physical climate risks, as well as risk mitigation, affect a company's business.9 Items to consider for disclosure include risks related to sea level rise and extreme weather events, national emissions goals, carbon taxes, regulations and investment in alternative energy.10

(3) Mandatory Compliance with SEC's Amendments to Items 301, 302 and 303: The SEC's comprehensive changes to Items 301, 302 and 303 of Regulation S-K became mandatory for Form 10-Ks filed for fiscal years ending on or after August 9, 2021. Therefore, this will be the first Form 10-K in which calendar-year companies are required to comply with these rule changes, which are shown in Appendix C.11

  • Selected Financial Data Disclosure (Item 301). Item 301 of Regulation S-K previously required companies to furnish selected financial data in comparative tabular form for each of the last five fiscal years.12 The SEC's rule amendments eliminated this disclosure requirement (for more information, see "Housekeeping Items for Form 10-K in 2022: Update Part II, Item 6 of Form 10-K"). However, in making this rule change, the SEC still encouraged companies to consider whether trend information for periods earlier than those in the financial statements may be necessary as part of MD&A's objective to "provide material information [regarding] the financial condition and results of operations." In addition, the SEC encouraged companies to consider whether a "tabular presentation of relevant financial or other information, as part of an introductory section or overview" may help a reader's understanding of trends in MD&A."13 Therefore, companies should consider whether any of this additional trend information previously disclosed under Item 301 is material and should be added to their MD&As this year.
  • Selected Quarterly Financial Data (Item 302). Item 302(a) of Regulation S-K previously required disclosure of selected quarterly financial data of specified operational results and changes in these results from amounts previously reported on the company's Form 10-Q. The rule amendments significantly reduced the scope of Item 302 such that the disclosure will not be required for most companies. Item 302 disclosure is now mandated "only when there are one or more retrospective changes that pertain to the statements of comprehensive income for any of the quarters within the two most recent fiscal years and any subsequent interim period for which financial statements are included or required to be included…and that, individually or in the aggregate, are material."14 As examples of the type of "retrospective change" that may trigger Item 302(a) disclosure, the SEC noted the following: a correction of an error, the disposition of a business that is accounted for as discontinued operations, a reorganization of entities under common control, or a change in an accounting principle. The SEC cautioned, however, that these examples are not intended to be an exhaustive list and noted that such changes may not always be material such that disclosure would be required under amended Item 302(a).  Therefore, companies should confirm whether any such retrospective changes exist and require disclosure under Item 302(a) in their upcoming Form 10-Ks. 
  • Streamlined MD&A (Item 303): The SEC made substantial changes to the MD&A requirements under
    Item 303 of Regulation S-K. While some companies complied early, this will be the first year for many
    companies to comply with the amended requirements, which include both active changes and more
    general implications, including reinforcements of traditional MD&A best practices:

    • Contractual Obligations Table No Longer Technically Required: The amended rules eliminate the requirement for the formulaic contractual obligations table in Item 303(a)(5), and replace it with a more general requirement in Item 303(b)(1) to provide, in the discussion of liquidity and capital resources, an analysis of "material cash requirements from known contractual and other obligations." This analysis should specify the type of obligation and the relevant time period for the related cash requirements, to the extent material to liquidity and capital resources. 
      • As a result, companies can remove the contractual obligations table in MD&A. However, companies must confirm that their MD&A otherwise adequately addresses all known material cash requirements (i.e., capital investments, human capital, contractual obligations, and any off-balance sheet arrangements) and material trends, commitments or uncertainties reasonably likely to affect liquidity and capital resources.
    • Critical Accounting Policies Expressly Required: The SEC has clarified the requirements in Item 303(b)(3) to disclose critical accounting estimates, codifying a long-standing practice of many companies in their MD&As. The disclosure should contain "qualitative and quantitative information necessary to understand" estimation uncertainty, and explain "the impact the critical accounting estimate has had or is reasonably likely to have on financial condition," "why each critical accounting estimate is subject to uncertainty and, to the extent the information is material and reasonably available, how much each estimate and/or assumption has changed over a relevant period."
      • Thus, companies should ensure they address critical accounting estimates in MD&A,
        why such estimates are subject to uncertainty, and the assumptions and estimates 
        underlying the critical accounting estimate’s calculation. Moreover, as noted in the 
        adopting release, this disclosure "must supplement, but not duplicate, the description of 
        accounting policies or other disclosures in the notes to the financial statements."
  • Off-Balance Sheet Caption No Longer Required: The SEC eliminated the requirement to present a separately captioned section discussing off-balance sheet arrangements and instead added a principles-based Instruction 8 regarding commitments and obligations that constitute off-balance sheet arrangements. As a result, companies should remove the separately captioned off-balance sheet arrangements section, but consider whether additional disclosure is required in liquidity and capital resources. 
  • Known Events, Uncertainties and Trends Disclosure: The SEC added new paragraph (a) to Item 303 to clarify the objective of MD&A disclosure, including to "focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition." This includes both "descriptions and amounts of matters that have had a material impact on reported operations," and "matters that are reasonably likely based on management's assessment to have a material impact on future operations."

    The SEC also revised the results of operations section to require disclosure under Item 303(b)(2)(ii) of known events that are "reasonably likely" to (as opposed to the prior standard that a company "reasonably expects will") cause a material change in the relationship between costs and revenues, such as "known or reasonably likely future increases in costs of labor or materials." 

    • Companies should confirm that they assess past and ongoing known trends, events and uncertainties and disclose those which are "reasonably likely" to impact financial results, including results of operations and liquidity and capital resources. Moreover, companies should carefully consider whether any significant trend or uncertainty that management is closely monitoring and/or has discussed with the board is appropriate for MD&A disclosure.
  • Discussion of Drivers in Period-to-Period Changes: The SEC clarified in amended Item 303(b) that where there are period-to-period material changes in a line item of a company's financial statements (including where material changes within a line item offset one another), disclosure of the underlying reasons for these material changes in quantitative and qualitative terms is required. Additionally, Item 303(b)(2)(iii) now requires disclosure of the extent to which any period-to-period "material changes" (as opposed to the prior reference to "material increases") in net sales or revenues stemmed from "changes in prices or to changes in the volume or amount of goods or services being sold or to the introduction of new products or services." As a result, companies should confirm that they have provided disclosure of the underlying reasons of material changes both in quantitative and qualitative terms, including material changes in net sales or revenues. 

(4)  Confirm Compliance with Previously Amended Requirements:15 In addition to the rule changes impacting MD&A described above, companies are reminded of the 2020 rule changes to the business and legal proceedings sections, which took effect in November 2020, and thus were already required in companies' most recent Form 10-Ks.

  • Include Required Discussion of Material Changes to a Previously Disclosed Business Strategy: Companies are now specifically required under Item 101(a) of Regulation S-K to disclose "material changes to a registrant's previously disclosed business strategy." This is particularly relevant for a company that recently went public and provided a lengthy discussion of its business strategy in the business section of its IPO registration statement. The SEC's adopting release emphasized the principles-based approach of the amendments and the ability of companies to determine the appropriate level of detail for these disclosures.
  • Consider Streamlining Business Disclosure No Longer Required: Under the SEC's principles based approach, certain information that was previously required under Item 101 of Regulation S-K in the Business section may now be removed if not material for a company.16 However, companies must still provide disclosure on Business section topics (even those eliminated from Item 101(c)'s previous prescriptive disclosure list, as detailed in the chart in Part II of our prior memo) if material to an understanding of the business.
  • Confirm Your Business Section Includes a Discussion of Compliance with Material Government (Not Just Environmental) Regulations: Codifying common practice among reporting companies, amended Item 101(c) of Regulation S-K specifically requires, to the extent material to an understanding of the business taken as a whole, disclosure of the material effects on capital expenditures, earnings and competitive position of compliance with government regulations generally, not just environmental regulations. Companies should ensure that regulatory disclosure in their Form 10-Ks adequately addresses all areas of government regulations generally that are responsive to this principles-based materiality standard, which may be accomplished through cross-references to other sections of the Form 10-K, such as risk factors. 
  • Assess Your Environmental Legal Proceedings Disclosure. The amended requirements for environmental legal proceedings under Item 103 of Regulation S-K added two points of flexibility to existing disclosure requirements. Specifically, the amendments: (i) increased the existing quantitative threshold for such environmental proceedings disclosure from $100,000 to $300,000; and (ii) allow a company to opt for a different threshold of the lesser of $1 million or one percent of the current assets of the registrant and its subsidiaries on a consolidated basis. A company may only opt for a different threshold if it determines such alternative threshold is "reasonably designed to result in disclosure of any such proceeding that is material to the business or financial condition" and discloses the threshold in each annual and quarterly report (including any change thereto). Companies facing environmental proceedings in fiscal 2021 should therefore consider the nature and anticipated short- and long-term impacts of past and current environmental proceedings and determine the appropriate monetary threshold for their company under the amended rule. In the end, companies will need to weigh the appropriateness and desire for a higher threshold against the requirement to publicly disclose, in each annual and quarterly report, their materiality threshold for disclosing such proceedings.

(5) Pay Attention to Non-GAAP Compliance: Non-GAAP financial measures remained the most frequent topic in SEC staff comment letters in 2021, so it is important to pay careful attention to the use and disclosure of such measures each fiscal quarter. In addition, companies should carefully review non-GAAP adjustments relating to the COVID-19 pandemic to ensure compliance with applicable SEC rules. SEC guidance has emphasized the following:

  • Ensure that when a non-GAAP measure is used, the comparable GAAP measure is disclosed with equal or greater prominence, and a reconciliation of the two measures is provided. The staff's 2021 comments on non-GAAP disclosures in several instances focused on "equal or greater prominence" issues, including where the staff asked companies to re-order the presentation of sections of their periodic reports in order to give greater prominence to GAAP information17;
  • Maintain consistent treatment of items between periods, or otherwise provide adequate disclosure about the reason for any change in treatment. For example, if there is a COVID-19-related adjustment for an item during the current reporting period, and that adjustment was not made during the prior period, the company should provide sufficient disclosure regarding the change, including (i) the differences in the way the metric is calculated, (ii) the reasons for such changes, and (iii) the effects of any such change on the amounts or other information being disclosed18; and 
  • To the extent a company presents a non-GAAP financial measure or performance metric to adjust for or explain the impact of COVID-19, it should highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company's financial position and results of operations.

    Moreover, the Staff has reminded companies that it is not appropriate for a company to present non-GAAP financial measures or metrics for the sole purpose of presenting a more favorable view of the company. Rather, the acceptable purpose of non-GAAP measures is to share with investors "how management and the Board are analyzing the current and potential impact of COVID-19 on the company's financial condition and operating results."

(6) Confirm Risk Factor Format Continues to Meet the SEC's Previously Amended Requirements:19 Companies should ensure that their risk factor section continues to comply with the SEC's amended rules, which took effect in November 2020 and thus were already required in companies' most recent Form 10-Ks:

  • If Risk Factor Section is More Than 15 Pages, Add Summary Risk Factor Disclosure: If a company's risk factor section exceeds 15 pages, it must add a series of concise, bulleted or numbered statements that is no more than two pages summarizing the principal risk factors and place this summary at the beginning of the Form 10-K. Many companies have chosen to combine this disclosure with their forward-looking statement legends in order to avoid repetition, and companies may consider this approach so long as the legend is titled to reflect its dual purposes (i.e., "Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary"). 
  • Tailor Generic Risks or Add a General Risk Factor Section: For any risk factors that apply generically to any registrant or offering, the company must either (i) tailor these risk factors to emphasize the specific relationship of the risk to the company, or (ii) disclose the generic risk factors at the end of the risk factor section under the caption "General Risk Factors".
  • Organize Risk Factors Under Relevant Headings: Companies must now organize risk factors into groups of related risk factors under "relevant headings", in addition to the sub-caption previously required for each risk factor.

(7) Risk Factors: What to Include: For upcoming Form 10-Ks, a number of recent trends and events may impact risk factor disclosures, as well as disclosures in other sections of the report. Although each company will need to assess its own material risks and tailor its risk factors to its unique circumstances, below is a list highlighting certain areas of SEC focus and key trends that a company should consider when assessing its risk factors.

Beware of Hypothetical Language: Companies should be mindful of providing thoughtful, accurate and thorough risk factor disclosure, as recent SEC enforcement actions indicate the SEC is focused on misrepresentations or omissions in connection with risk factors. In particular, the SEC has alleged that statements in a company's risk factors were materially misleading because a company stated that an event only "may" or "could" occur, when the event was no longer hypothetical at the time of the disclosure. Accordingly, a company should ensure that its risk factors accurately and fully describe the risks it faces, including risks that have already had an impact on the company, rather than describing these risks as merely hypothetical.20 Moreover, risk factor disclosure should clarify whether a potential material risk has in fact occurred to some degree (whether or not the degree of occurrence is material on its own). 21

  • Human Capital Resources: In light of the rule changes requiring HCM disclosure (discussed above), companies should assess what, if any, material issues their company faces with respect to human capital resources. This could include risks related to the ability to attract and retain skilled employees, employee health and safety issues, increases in labor costs and increased employee turnover, particularly in light of the COVID-19 pandemic. 
  • Environmental: Environmental issues such as climate change have been receiving increased attention, and many companies are including new risk factors on environmental topics or expanding upon existing risk factors that discuss the potential impact of climate change on their businesses. Risk factor disclosure related to environmental issues should be tailored to the company's specific circumstances and can address a number of topics, including applicable environmental regulations and the impact of climate change on a company's business, such as risks of increased costs or reduced demand for products, carbon asset risk, risks due to severe weather events and management of greenhouse gas emissions. Environmental risk factors should also address risks to companies from anticipated changes to regulations affecting their businesses. Companies should consider whether these factors present material risks for their businesses. See also "Carefully Consider and Review Climate Change, Human Capital Management and Other ESG Disclosures: Climate Disclosures" above.
  • Cybersecurity: As cybersecurity incidents and data misuse continue to proliferate, the SEC staff has been focusing on, and providing comments regarding, cybersecurity and privacy disclosures.22 The SEC is expected to be more aggressive in reviewing public company disclosure of cybersecurity incidents, and recently the Ninth Circuit found that plaintiffs adequately alleged that a company intentionally made statements in its Forms 10-Q that omitted material facts regarding cybersecurity risks. In addition, the SEC has recently filed enforcement actions against public companies related to the timing and content of cybersecurity incident disclosures.23  These follow other high-profile enforcement actions for alleged inadequate or misleading disclosures,  all of which signal the SEC's continued focus on how public companies respond to and disclose material cybersecurity incidents and risks.
  • IP and Technology Risks: In December 2019, the SEC staff released guidance specifically calling on companies to assess risks related to the potential theft or compromise of their technology, data or intellectual property ("IP") in connection with their international operations and disclose them where material. The guidance encourages companies to consider a range of questions when assessing these risks, including whether they are operating in foreign jurisdictions where the ability to enforce rights over IP is limited as a statutory or practical matter, and whether they have controls and procedures in place to adequately protect technology and IP. The Staff also emphasized that disclosure of material risks should be specifically tailored, and that where a company's technology, data or IP is being (or previously was) materially compromised, hypothetical disclosure of potential risks is not sufficient to satisfy a company's reporting obligations. Accordingly, companies should continue to consider this evolving area of risk and evaluate its materiality on an ongoing basis.
  • Labor Shortages/Supply Chain Disruptions: Shortages of supplies or labor or shipping delays may need to be disclosed as a risk, particularly as these have become more common due to COVID-19-related impacts. Companies should assess whether they have, or may experience in the future, issues related to labor shortages or supply chain disruptions that should be disclosed as a risk factor. In addition, depending on the severity of the impact of these factors on the company's business, companies may need to consider whether such issues should also be included in their MD&A disclosures. 
  • LIBOR: In light of the discontinuation of LIBOR after 2021,24  the SEC staff issued guidance in December 2021 urging companies to provide detailed and specific disclosure about their progress toward LIBOR risk identification and mitigation and the anticipated impact on the company, if material, such as: (i) quantitative disclosures to provide context for the status of the company's transition efforts and the related risks25; (ii) for companies with material risk related to outstanding debt with inadequate fallback provisions (i.e. those that do not provide a process for replacing LIBOR with an alternative reference rate, or do not otherwise address a permanent cessation of LIBOR), how much debt will be outstanding after the relevant cessation date and the steps the company is taking to address this, such as renegotiating contracts or refinancing the obligations; and (iii) to the extent that a company has or is taking steps to identify and assess LIBOR exposure and mitigate material risks or potential impacts of the transition, insight into what the company has done, what steps remain, and the timeline for further efforts. Companies typically include disclosures about the LIBOR transition as part of risk factors, MD&A and/or quantitative and qualitative disclosures about market risk. To the extent a company provides LIBOR transition disclosure in response to more than one disclosure requirement within a filing, it should consider providing a cross-reference or otherwise tying the information together to provide investors with a complete picture. For further guidance on disclosure considerations, companies should continue to refer to the SEC's 2019 guidance.
  • Regulatory: Changes and potential changes in law, regulation, policy and/or political leadership, including the regulatory agenda of the Biden administration, may necessitate modifications to risk factor disclosure for certain companies. Some examples include: current and potential changes to immigration policies, minimum wage, tariffs, taxes, environmental policies, health care and other political developments in the US.

(8) COVID-19 Disclosure in Form 10-K: Now that we are nearly two years into the COVID-19 pandemic, disclosure regarding the impact of the pandemic on your company should be concrete and provide investors with clear information on such impact to date.26 For many companies, this may be reflected in the various waves of the pandemic, including effects from the most recent Omicron variant. Key impacts should be identified, assessed and described, including, but not limited to: information on liquidity, operational adjustments, health and safety of employees, any material changes in the company's debt, loans and credit, any material changes to equity investments, impairment of assets, rent concessions and government assistance related to COVID-19. Companies should also carefully consider whether any significant trend or uncertainty that management is closely monitoring and/or has discussed with the board is appropriate for MD&A disclosure.

Companies should also ensure their risk factor disclosure related to COVID-19 is appropriately robust and specific. COVID-19 is no longer a novel consideration from a disclosure perspective and it is therefore important for companies to discuss company-specific risks rather than general economic or societal impacts.

In addition, companies should consider the potential impacts of vaccine-mandates, and what material impacts might need to be disclosed. In September 2021, President Biden signed an executive order to require all federal contractors to ensure their US-based employees and contractors are fully vaccinated and in November 2021, the Department of Labor's Occupational Safety and Health Administration ("OSHA") implemented a rule requiring all employers with at least 100 employees to confirm that their employees are fully vaccinated or require that all unvaccinated workers to produce a negative COVID-19 test on a weekly basis.27  The rule has been challenged but remains in effect while it is being considered by the US Supreme Court. This mandate could have material impacts on a company that are appropriate to disclose in its MD&A, forward-looking statements, risk factors or other sections of the Form 10-K.28


Click here to download the full PDF "Key Considerations for the 2022 Annual Reporting and Proxy Season Part I: Form 10-K Considerations" 


1 For additional information, see our prior alert "Key Considerations for the 2021 Annual Reporting and Proxy Season Part I: Form 10-K Considerations."
2 See the SEC's final rule amendment on electronic signatures here and the press release here.
3 See EDGAR Filer Manual (Section 6.5.54).
4 For more information, see our alert, "SEC Adopts Amendments to Modernize Disclosures and Adds Human Capital Resources as a Disclosure Topic: Key Action Items and Considerations for US Public Companies." 
5 Smaller reporting companies are not technically required to provide human capital management disclosures, but some may do so for investor relations purposes. 
6 Over the past year, the SEC issued comment letters to several companies that did not comply with the baseline requirements for human capital management disclosures and disclosed only the number and location of their employees, a brief description of their relationships with employees and/or general employee diversity data. While companies that included fulsome HCM disclosures in their Form 10-Ks do not appear to be the target of these SEC comments, the comments signal that the SEC is paying attention to this area and that companies should continue to assess their disclosures in 2022 to ensure they are rule compliant.
7 For information on the human capital measures companies were disclosing in their Form 10-Ks prior to the effectiveness of the rule change, see our prior alert "ESG Disclosure Trends in SEC Filings."
8 Companies may also find that certain material social and/or governance information from their sustainability reports, company websites and/or investor presentations, such as on board diversity, is better suited for their proxy statement (which incorporates by reference Part III information in the Form 10-K). 
9 Larry Fink's letter is further discussed in our alerts, "SEC Focuses on ESG and Climate Disclosure" and "A Survey and In-Depth Review of Sustainability Disclosures by Small- and Mid-Cap Companies."
10 See our alert, "A Survey and In-Depth Review of Sustainability Disclosures by Small- and Mid-Cap Companies." 
11 For a table summarizing the amendments, please see page 8 of the adopting release, available here.
12  Smaller reporting companies ("SRCs") are not required to provide Item 301 information and emerging growth companies need not present selected financial data for any period prior to the earliest audited financial statements presented.
13 See adopting release here.
14  The SEC provided the following non-exhaustive list of examples of the type of "retrospective change" that may trigger Item 302(a) disclosure, if material: a correction of an error, the disposition of a business that is accounted for as discontinued operations, a reorganization of entities under common control, or a change in an accounting principle. Companies should therefore consider ahead of this Form 10-K filing whether a "retrospective change" has occurred that triggers the Item 302 requirements. If triggered, the amendments require registrants to: (i) provide an explanation of the reasons for any such material retrospective changes and (ii) disclose, for each affected quarterly period and the fourth quarter in the affected year, summarized financial information related to the statements of comprehensive income and earnings per share reflecting such changes
15  The adopting release related to these amended requirements is available here.
16 For example, to the extent not material for a company, it may remove from its Form 10-K Business section: "the year in which the registrant was organized and its form of organization" and "the dollar amount of backlog orders". For more information, see our prior alert "SEC Adopts Amendments to Modernize Disclosures and Adds Human Capital Resources as a Disclosure Topic: Key Action Items and Considerations for US Public Companies."

17 For example, Holdings included a subsection in the forepart of the MD&A section of its 2020 10-K captioned "Non-GAAP Financial Measures."  The Staff's comment letter asked the company to revise the table to disclose the comparable GAAP measures with greater prominence and, to avoid giving undue prominence to its non-GAAP financial measures, to move this section so that it followed the results of operations section.
18 For more information, see our prior alert, "SEC Releases New Guidance on KPIs."
19 The adopting release related to these amended requirements is available here.
20 For example, in September 2019, a major pharmaceutical company agreed to pay a $30 million penalty to the SEC for using hypothetical language. After a government agency informed the company that it had misclassified its most profitable product as a generic drug, the company's risk factor disclosures in its annual reports continued to state that a government entity "may" take a position that is contrary to that classification. The SEC concluded that using the term "may" was materially misleading because the company knew at the time that a government agency had in fact taken a contrary position. For more information, see "Press Release 2019-194, Mylan to Pay $30 Million for Disclosure and Accounting Failure Relating to EpiPen" (Sept. 27, 2019), available here.
21 For more information, see our prior alert, "Time to Revisit Risk Factors in Periodic Reports."

22 In August 2021, the SEC settled with an educational publishing and services company over its failure to adequately disclose a material cybersecurity breach and for making misleading statements in its SEC filings. Specifically the SEC found that: (i) several months after the breach, the company issued a Form 6-K that referenced a general risk of data breach/cybersecurity incident, but did not specifically reference the breach that had occurred; and (ii) the company's press statement referred only to "unauthorized access" and "expos[ure of] data" which "may [have] include[d]" birthdates and emails, even though the company knew that significant personal data had been downloaded, and made no mention of the volume of breached data nor of the other critical vulnerabilities in the system. 
In June 2021, the SEC settled with a real estate settlement services company for its alleged failure to adequately disclose a security vulnerability that could be used to compromise the company's computer systems. In May 2019, the company was notified of a software vulnerability that exposed personal and financial data, after which it issued a statement and furnished a Form 8-K, stating it had taken "immediate action" to terminate external access to the data. However, the executives responsible for the statement and Form 8-K were not informed that the company's information security personnel had been aware of the vulnerability since January 2019 or that the company had failed to timely remediate that vulnerability in accordance with its policies. According to the SEC, the January 2019 findings "would have been relevant to management's assessment of the company's disclosure response…and the magnitude of the resulting risk" and the company failed to maintain disclosure controls and procedures to ensure that management had all available relevant information prior to making its disclosures. 
23 With respect to cybersecurity, the SEC found that Yahoo's risk factor disclosures in its annual and quarterly reports were materially misleading in that they claimed the company only faced the "risk of potential future data breaches" that might expose the company to loss and liability "without disclosing that a massive data breach had in fact already occurred." The SEC's action is available here. For more information, see our prior alert, "SEC Fines Yahoo $35 Million for Failure to Timely Disclose a Cyber Breach."

24 LIBOR is an indicative measure of the average interest rate at which major global banks could borrow from one another and is quoted for multiple currencies and time frames. It is used extensively in the US and globally as a "benchmark" or "reference rate" for various commercial and financial contracts. See SEC guidance available here.
25 Such as the notional value of contracts referencing LIBOR and extending past December 31, 2021 or June 30, 2023, as applicable.
26 For more information, see our prior alerts, " COVID-19 Legal Issues and Considerations", "SEC Takes Additional Actions Helping Public Companies Address Impact of COVID-19", "Practical Tips for Preparing Upcoming Quarterly Disclosures" and "SEC Emphasizes Importance of Robust Forward-Looking Disclosure for Q1 to Address COVID-19."
27 See COVID-19 Vaccination and Testing ETS | Occupational Safety and Health Administration.
28 COVID-19 disclosures have also led to several shareholder derivative suits. According to the Stanford Law School Securities Class Action Clearinghouse, available here, as of January 20, 2021, 21 securities class action lawsuits had been filed by shareholders accusing companies of failing to disclose or downplaying the risks related to the COVID-19 pandemic, failing to disclose or misrepresenting the extent to which it has affected the company's operations or financial results, or making false statements about or products related to COVID-19.  In addition, there has been at least one high-profile SEC administrative action against a company under Section 13(a) of the Exchange Act in which the SEC found that the company's filings were misleading when the company disclosed that it was "operating sustainably", while the company's own internal documents at the time showed that the company was losing significant cash each week and that the company only had four months of cash remaining. See the SEC's order against The Cheesecake Factory, available here. See the SEC's press release, available here. Former SEC Chairman Jay Clayton noted that "it is important that issuers continue their proactive, principles-based approach to disclosure, tailoring these disclosures to the company and industry-specific effects of the pandemic on their business and operations.

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