In Case You Missed It - Interesting Items for Corporate Counsel - June 2016

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July 13, 2016
  1. The SEC adopted a rule required by the FAST Act, here, that, we guess, confirms that an Annual Report on Form 10-K may include a summary. The SEC prescribes no rules about where a summary might appear or what it may look like, other than that it be “brief,” which some might argue is the sine qua non of summary. The rule does require that any summary include a hyperlink to the material summarized
     
  2. And speaking of rules that will have no effect on most, the SEC approved, here, Nasdaq’s “golden leash” rules, here, which require that a company make annual disclosure about the material terms relating to compensation or other payments between a person other than the issuer and a director or nominee. “No effect on most” because non-exempt third-party payments to directors are uncommon and the rule requirements are met if disclosure is made in a company’s proxy statement, which it often already is.
     
  3. After several warning shots across the bow of the SS Look-How-Much-Better-I-Am-If-You-Adjust-These-GAAP-Numbers, the SEC published new and revised CDIs about impermissible non-GAAP financial measures, here. A redline that identifies the changes to prior CDIs is here. Among other things, the SEC makes clear that cherry-picking exclusions from GAAP and tailoring your presentation to make yourself look better may be misleading even if not specifically prohibited by Regulation G or Item 10(e) of Regulation S-K. Some additional color on the CDIs, from Corp Fin Chief Accountant Mark Kronforst, is here, and SEC Chair Mary Jo White could not be more clear in her speech, here, that high on the SEC Staff’s (non-existent, we are always told) checklist of review focus items are non-GAAP financial measures.
     
  4. In other non-GAAP financial measure news, a PCAOB paper discussing the auditor’s role regarding non-GAAP measures, and whether auditors should be responsible for information outside the financial statements, is here. (Auditors are already responsible to ensure the accuracy of other information in documents containing audited financial statements under AU Section 550, including reviewing MD&A in annual reports to ensure presented information is consistent with the audited financial statements.) A Center for Audit Quality publication on questions Audit Committees should be asking about the use of non-GAAP measures is here. A general expression of frustration with the resurgence (see here) of non-GAAP numbers is here.
     
  5. The SEC also issued new CDIs about:
    • Rule 701, here (a summary of the CDIs, which are mostly M&A-related, is here).
       
    • A/B Exchanges and Form S-4, here (CDI 111.02) and here (CDI 125.13).
       
  6. In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:
    • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
       
    • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
       
    • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
       
  7. SEC Chair White foreshadowed, in a speech titled “Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability,” here, that:
    • The SEC will likely propose amended rules to require “more meaningful board diversity disclosures on . . . board members and nominees where that information is voluntarily self-reported by directors.” Recall that Item 407(c) of Regulation S-K requires that a company disclose whether, and if so how, it considers diversity when identifying director nominees and, if it has a policy, a description of the policy and how its effectiveness is measured.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • “There is . . . more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided.”
       
  8. Two recent reviews of the 2016 proxy season are here and here.
     
  9. Finally, a brief foray into litigation:
    • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
July 13, 2016
  1. The SEC adopted a rule required by the FAST Act, here, that, we guess, confirms that an Annual Report on Form 10-K may include a summary. The SEC prescribes no rules about where a summary might appear or what it may look like, other than that it be “brief,” which some might argue is the sine qua non of summary. The rule does require that any summary include a hyperlink to the material summarized
     
  2. And speaking of rules that will have no effect on most, the SEC approved, here, Nasdaq’s “golden leash” rules, here, which require that a company make annual disclosure about the material terms relating to compensation or other payments between a person other than the issuer and a director or nominee. “No effect on most” because non-exempt third-party payments to directors are uncommon and the rule requirements are met if disclosure is made in a company’s proxy statement, which it often already is.
     
  3. After several warning shots across the bow of the SS Look-How-Much-Better-I-Am-If-You-Adjust-These-GAAP-Numbers, the SEC published new and revised CDIs about impermissible non-GAAP financial measures, here. A redline that identifies the changes to prior CDIs is here. Among other things, the SEC makes clear that cherry-picking exclusions from GAAP and tailoring your presentation to make yourself look better may be misleading even if not specifically prohibited by Regulation G or Item 10(e) of Regulation S-K. Some additional color on the CDIs, from Corp Fin Chief Accountant Mark Kronforst, is here, and SEC Chair Mary Jo White could not be more clear in her speech, here, that high on the SEC Staff’s (non-existent, we are always told) checklist of review focus items are non-GAAP financial measures.
     
  4. In other non-GAAP financial measure news, a PCAOB paper discussing the auditor’s role regarding non-GAAP measures, and whether auditors should be responsible for information outside the financial statements, is here. (Auditors are already responsible to ensure the accuracy of other information in documents containing audited financial statements under AU Section 550, including reviewing MD&A in annual reports to ensure presented information is consistent with the audited financial statements.) A Center for Audit Quality publication on questions Audit Committees should be asking about the use of non-GAAP measures is here. A general expression of frustration with the resurgence (see here) of non-GAAP numbers is here.
     
  5. The SEC also issued new CDIs about:
    • Rule 701, here (a summary of the CDIs, which are mostly M&A-related, is here).
       
    • A/B Exchanges and Form S-4, here (CDI 111.02) and here (CDI 125.13).
       
  6. In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:
    • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
       
    • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
       
    • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
       
  7. SEC Chair White foreshadowed, in a speech titled “Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability,” here, that:
    • The SEC will likely propose amended rules to require “more meaningful board diversity disclosures on . . . board members and nominees where that information is voluntarily self-reported by directors.” Recall that Item 407(c) of Regulation S-K requires that a company disclose whether, and if so how, it considers diversity when identifying director nominees and, if it has a policy, a description of the policy and how its effectiveness is measured.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • “There is . . . more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided.”
       
  8. Two recent reviews of the 2016 proxy season are here and here.
     
  9. Finally, a brief foray into litigation:
    • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
This update is a publication of Stoel Rives LLP for the benefit and information of our clients and friends. This update is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended for informational purposes only. Copyright 2016.

July 13, 2016
  1. The SEC adopted a rule required by the FAST Act, here, that, we guess, confirms that an Annual Report on Form 10-K may include a summary. The SEC prescribes no rules about where a summary might appear or what it may look like, other than that it be “brief,” which some might argue is the sine qua non of summary. The rule does require that any summary include a hyperlink to the material summarized
     
  2. And speaking of rules that will have no effect on most, the SEC approved, here, Nasdaq’s “golden leash” rules, here, which require that a company make annual disclosure about the material terms relating to compensation or other payments between a person other than the issuer and a director or nominee. “No effect on most” because non-exempt third-party payments to directors are uncommon and the rule requirements are met if disclosure is made in a company’s proxy statement, which it often already is.
     
  3. After several warning shots across the bow of the SS Look-How-Much-Better-I-Am-If-You-Adjust-These-GAAP-Numbers, the SEC published new and revised CDIs about impermissible non-GAAP financial measures, here. A redline that identifies the changes to prior CDIs is here. Among other things, the SEC makes clear that cherry-picking exclusions from GAAP and tailoring your presentation to make yourself look better may be misleading even if not specifically prohibited by Regulation G or Item 10(e) of Regulation S-K. Some additional color on the CDIs, from Corp Fin Chief Accountant Mark Kronforst, is here, and SEC Chair Mary Jo White could not be more clear in her speech, here, that high on the SEC Staff’s (non-existent, we are always told) checklist of review focus items are non-GAAP financial measures.
     
  4. In other non-GAAP financial measure news, a PCAOB paper discussing the auditor’s role regarding non-GAAP measures, and whether auditors should be responsible for information outside the financial statements, is here. (Auditors are already responsible to ensure the accuracy of other information in documents containing audited financial statements under AU Section 550, including reviewing MD&A in annual reports to ensure presented information is consistent with the audited financial statements.) A Center for Audit Quality publication on questions Audit Committees should be asking about the use of non-GAAP measures is here. A general expression of frustration with the resurgence (see here) of non-GAAP numbers is here.
     
  5. The SEC also issued new CDIs about:
    • Rule 701, here (a summary of the CDIs, which are mostly M&A-related, is here).
       
    • A/B Exchanges and Form S-4, here (CDI 111.02) and here (CDI 125.13).
       
  6. In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:
    • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
       
    • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
       
    • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
       
  7. SEC Chair White foreshadowed, in a speech titled “Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability,” here, that:
    • The SEC will likely propose amended rules to require “more meaningful board diversity disclosures on . . . board members and nominees where that information is voluntarily self-reported by directors.” Recall that Item 407(c) of Regulation S-K requires that a company disclose whether, and if so how, it considers diversity when identifying director nominees and, if it has a policy, a description of the policy and how its effectiveness is measured.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • “There is . . . more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided.”
       
  8. Two recent reviews of the 2016 proxy season are here and here.
     
  9. Finally, a brief foray into litigation:
    • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
July 13, 2016
  1. The SEC adopted a rule required by the FAST Act, here, that, we guess, confirms that an Annual Report on Form 10-K may include a summary. The SEC prescribes no rules about where a summary might appear or what it may look like, other than that it be “brief,” which some might argue is the sine qua non of summary. The rule does require that any summary include a hyperlink to the material summarized
     
  2. And speaking of rules that will have no effect on most, the SEC approved, here, Nasdaq’s “golden leash” rules, here, which require that a company make annual disclosure about the material terms relating to compensation or other payments between a person other than the issuer and a director or nominee. “No effect on most” because non-exempt third-party payments to directors are uncommon and the rule requirements are met if disclosure is made in a company’s proxy statement, which it often already is.
     
  3. After several warning shots across the bow of the SS Look-How-Much-Better-I-Am-If-You-Adjust-These-GAAP-Numbers, the SEC published new and revised CDIs about impermissible non-GAAP financial measures, here. A redline that identifies the changes to prior CDIs is here. Among other things, the SEC makes clear that cherry-picking exclusions from GAAP and tailoring your presentation to make yourself look better may be misleading even if not specifically prohibited by Regulation G or Item 10(e) of Regulation S-K. Some additional color on the CDIs, from Corp Fin Chief Accountant Mark Kronforst, is here, and SEC Chair Mary Jo White could not be more clear in her speech, here, that high on the SEC Staff’s (non-existent, we are always told) checklist of review focus items are non-GAAP financial measures.
     
  4. In other non-GAAP financial measure news, a PCAOB paper discussing the auditor’s role regarding non-GAAP measures, and whether auditors should be responsible for information outside the financial statements, is here. (Auditors are already responsible to ensure the accuracy of other information in documents containing audited financial statements under AU Section 550, including reviewing MD&A in annual reports to ensure presented information is consistent with the audited financial statements.) A Center for Audit Quality publication on questions Audit Committees should be asking about the use of non-GAAP measures is here. A general expression of frustration with the resurgence (see here) of non-GAAP numbers is here.
     
  5. The SEC also issued new CDIs about:
    • Rule 701, here (a summary of the CDIs, which are mostly M&A-related, is here).
       
    • A/B Exchanges and Form S-4, here (CDI 111.02) and here (CDI 125.13).
       
  6. In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:
    • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
       
    • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
       
    • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
       
  7. SEC Chair White foreshadowed, in a speech titled “Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability,” here, that:
    • The SEC will likely propose amended rules to require “more meaningful board diversity disclosures on . . . board members and nominees where that information is voluntarily self-reported by directors.” Recall that Item 407(c) of Regulation S-K requires that a company disclose whether, and if so how, it considers diversity when identifying director nominees and, if it has a policy, a description of the policy and how its effectiveness is measured.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • “There is . . . more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided.”
       
  8. Two recent reviews of the 2016 proxy season are here and here.
     
  9. Finally, a brief foray into litigation:
    • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
This update is a publication of Stoel Rives LLP for the benefit and information of our clients and friends. This update is not legal advice or a legal opinion on specific facts or circumstances. The contents are intended for informational purposes only. Copyright 2016.

July 13, 2016
  1. The SEC adopted a rule required by the FAST Act, here, that, we guess, confirms that an Annual Report on Form 10-K may include a summary. The SEC prescribes no rules about where a summary might appear or what it may look like, other than that it be “brief,” which some might argue is the sine qua non of summary. The rule does require that any summary include a hyperlink to the material summarized
     
  2. And speaking of rules that will have no effect on most, the SEC approved, here, Nasdaq’s “golden leash” rules, here, which require that a company make annual disclosure about the material terms relating to compensation or other payments between a person other than the issuer and a director or nominee. “No effect on most” because non-exempt third-party payments to directors are uncommon and the rule requirements are met if disclosure is made in a company’s proxy statement, which it often already is.
     
  3. After several warning shots across the bow of the SS Look-How-Much-Better-I-Am-If-You-Adjust-These-GAAP-Numbers, the SEC published new and revised CDIs about impermissible non-GAAP financial measures, here. A redline that identifies the changes to prior CDIs is here. Among other things, the SEC makes clear that cherry-picking exclusions from GAAP and tailoring your presentation to make yourself look better may be misleading even if not specifically prohibited by Regulation G or Item 10(e) of Regulation S-K. Some additional color on the CDIs, from Corp Fin Chief Accountant Mark Kronforst, is here, and SEC Chair Mary Jo White could not be more clear in her speech, here, that high on the SEC Staff’s (non-existent, we are always told) checklist of review focus items are non-GAAP financial measures.
     
  4. In other non-GAAP financial measure news, a PCAOB paper discussing the auditor’s role regarding non-GAAP measures, and whether auditors should be responsible for information outside the financial statements, is here. (Auditors are already responsible to ensure the accuracy of other information in documents containing audited financial statements under AU Section 550, including reviewing MD&A in annual reports to ensure presented information is consistent with the audited financial statements.) A Center for Audit Quality publication on questions Audit Committees should be asking about the use of non-GAAP measures is here. A general expression of frustration with the resurgence (see here) of non-GAAP numbers is here.
     
  5. The SEC also issued new CDIs about:
    • Rule 701, here (a summary of the CDIs, which are mostly M&A-related, is here).
       
    • A/B Exchanges and Form S-4, here (CDI 111.02) and here (CDI 125.13).
       
  6. In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:
    • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
       
    • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
       
    • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
       
  7. SEC Chair White foreshadowed, in a speech titled “Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability,” here, that:
    • The SEC will likely propose amended rules to require “more meaningful board diversity disclosures on . . . board members and nominees where that information is voluntarily self-reported by directors.” Recall that Item 407(c) of Regulation S-K requires that a company disclose whether, and if so how, it considers diversity when identifying director nominees and, if it has a policy, a description of the policy and how its effectiveness is measured.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • “There is . . . more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided.”
       
  8. Two recent reviews of the 2016 proxy season are here and here.
     
  9. Finally, a brief foray into litigation:
    • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
       
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
       
    • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
  1. The SEC adopted a rule required by the FAST Act, here, that, we guess, confirms that an Annual Report on Form 10-K may include a summary. The SEC prescribes no rules about where a summary might appear or what it may look like, other than that it be “brief,” which some might argue is the sine qua non of summary. The rule does require that any summary include a hyperlink to the material summarized
  2. And speaking of rules that will have no effect on most, the SEC approved, here, Nasdaq’s “golden leash” rules, here, which require that a company make annual disclosure about the material terms relating to compensation or other payments between a person other than the issuer and a director or nominee. “No effect on most” because non-exempt third-party payments to directors are uncommon and the rule requirements are met if disclosure is made in a company’s proxy statement, which it often already is.
  3. After several warning shots across the bow of the SS Look-How-Much-Better-I-Am-If-You-Adjust-These-GAAP-Numbers, the SEC published new and revised CDIs about impermissible non-GAAP financial measures, here. A redline that identifies the changes to prior CDIs is here. Among other things, the SEC makes clear that cherry-picking exclusions from GAAP and tailoring your presentation to make yourself look better may be misleading even if not specifically prohibited by Regulation G or Item 10(e) of Regulation S-K. Some additional color on the CDIs, from Corp Fin Chief Accountant Mark Kronforst, is here, and SEC Chair Mary Jo White could not be more clear in her speech, here, that high on the SEC Staff’s (non-existent, we are always told) checklist of review focus items are non-GAAP financial measures.
  4. In other non-GAAP financial measure news, a PCAOB paper discussing the auditor’s role regarding non-GAAP measures, and whether auditors should be responsible for information outside the financial statements, is here. (Auditors are already responsible to ensure the accuracy of other information in documents containing audited financial statements under AU Section 550, including reviewing MD&A in annual reports to ensure presented information is consistent with the audited financial statements.) A Center for Audit Quality publication on questions Audit Committees should be asking about the use of non-GAAP measures is here. A general expression of frustration with the resurgence (see here) of non-GAAP numbers is here.
  1. The SEC also issued new CDIs about:
    • Rule 701, here (a summary of the CDIs, which are mostly M&A-related, is here).
    • A/B Exchanges and Form S-4, here (CDI 111.02) and here (CDI 125.13).
  1. In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:
    • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
    • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
    • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
  2. SEC Chair White foreshadowed, in a speech titled “Focusing the Lens of Disclosure to Set the Path Forward on Board Diversity, Non-GAAP, and Sustainability,” here, that:
    • The SEC will likely propose amended rules to require “more meaningful board diversity disclosures on . . . board members and nominees where that information is voluntarily self-reported by directors.” Recall that Item 407(c) of Regulation S-K requires that a company disclose whether, and if so how, it considers diversity when identifying director nominees and, if it has a policy, a description of the policy and how its effectiveness is measured.
    • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
    • “There is . . . more work and thinking to be done on sustainability reporting at the SEC, and by companies and investors, including on whether, when, where, and how to provide disclosure and what precisely should be provided.”
  3. Two recent reviews of the 2016 proxy season are here and here.
  4. Finally, a brief foray into litigation:
  • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
  • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
  • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here. - See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
  • The challenge by Montana and Massachusetts to the SEC’s exemption of Tier 2, Regulation A offerings from state regulation failed, here.
     
  • The SEC is “poised to act [on non-GAAP financial measure presentations] through the filing review process, enforcement and further rulemaking if necessary.”
     
  • The U.S. Supreme Court unanimously held in Merrill Lynch v. Manning, here, that exclusive federal jurisdiction over a securities law claim arises only if the claim “arises under” the Securities Exchange Act or if the state law complaint, as in Manning, necessarily raises a disputed and substantial issue about the Exchange Act’s meaning. If you, like we, are thinking “duh,” note that the decision resolves a circuit court split. The decision will make removal of securities claims to federal court more difficult, if well pleaded.
  • - See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:

  • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
     
  • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
     
  • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpuf
In addition to adoption of some seemingly unimportant disclosure rules and its CDI activity, the SEC has taken a host of other actions in the last few weeks, including:

  • Proposed rules, here, to re-define “smaller reporting companies” as those with a public float of up to $250 million, rather than $75 million. Companies that fall into the expanded category would benefit from scaled (i.e., “less”) disclosure.
     
  • Final rules, here, requiring disclosure of payments by resource extraction companies. (Recall the prior final rule was stricken by the D.C. Circuit Court.)
     
  • Proposed updates, here, to Item 102 of Regulation S-K regarding disclosure by mining companies. The proposed revisions would replace Industry Guide 7 and “modernize” and consolidate disclosure requirements relating to mine reserves and other items, and generally align disclosure with the standards embodied in the Committee for Mineral Reserves International Reporting Standards.
- See more at: http://www.stoel.com/in-case-you-missed-it-interesting-items-for#sthash.MGnJr2jW.dpu

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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