SEC Flash Report - September 2017

September 2017

SEC Staff Guidance Updates

In August, the staff of the SEC’s Division of Corporation Finance (the Division) updated its guidance contained in a recent staff announcement, the Division’s Financial Reporting Manual (FRM),[1] and certain Compliance and Disclosure Interpretations (C&DIs) on Securities Act forms.  
 
The staff supplemented the Division’s June 29, 2017 announcement that it would make the confidential submission process (i.e., submission of a draft registration statement for nonpublic review) available to an expanded class of issuers and transactions.[2]  The supplemented announcement clarifies that:
 
  • The nonpublic review process is available for:
    • Securities Act registration statements prior to the issuer’s initial public offering date;[3]
    • Securities Act registration statements within one year of the IPO; and
    • The initial registration of a class of securities under Exchange Act Section 12(b) on Form 10, 20-F or 40-F.
  • An issuer that has publicly filed its registration statement and otherwise qualifies for the nonpublic review process may switch to the nonpublic review process for future pre-effective amendments to its registration statement (the draft amendments must subsequently be made public, the timing of which is specified in the announcement and depends on the nature of the registration and offering).
  • Issuers may submit any questions about their eligibility to use the expanded processing procedures contained in the announcement to CFDraftPolicy@sec.gov

The staff also updated its C&DIs related to the circumstances in which financial statements may be omitted from registration statements.  Whether financial statements may be omitted depends on whether (1) the registrant is an emerging growth company (EGC) or not, (2) the financial statements are annual or interim financial statements, and (3) the document is a confidential draft submission or a publicly filed registration statement. 
 
  • C&DI 101.04 now states that EGCs may omit interim financial information from draft registration statements that they reasonably believe they will not be required to present separately at the time of the offering.  Previously, EGCs were not permitted to omit interim financial statements from their filed or draft registration statements if the interim period relates to an annual period required at the time of the offering.  
 
For example, under the staff’s new policy, a calendar year-end EGC that submits a draft registration statement in November 2017 and reasonably believes that it will commence its offering in April 2018 (when annual financial information for 2017 will be required) may omit its 2015 annual financial information and the nine-month interim financial statements for 2016 and 2017 because this information will not be required at the time of the offering in April 2018.  However, if this same EGC publicly files the registration statement in January 2018, it must include the nine-month interim financial statements for 2016 and 2017 because they relate to annual periods that will be required at the time of the offering.  The staff made conforming updates to the FAST Act C&DIs to reflect this change (see Question 1).
 
  • C&DI 101.05 now states that non-EGCs may also omit interim financial statements from draft registration statements that they reasonably believe will not be required to be included at the time the registration statement is publicly filed.  Non-EGCs are not permitted to omit any interim or annual financial information at the time the registration statement is publicly filed. 
 
For example, a calendar year-end non-EGC that submits a draft registration statement in November 2017 and reasonably believes it will first publicly file in April 2018 when annual financial information for 2017 will be required may omit from its draft registration statements its 2014 annual financial information and interim financial information related to 2016 and 2017 because this information would not be required at the time of its first public filing in April 2018. 

In summary, based on the staff policies about the required financial statements in draft and publicly filed registration statements:
 
  Draft Registration Statements Publicly Filed Registration Statements
EGCs -May omit annual and interim periods that will not be required to be presented separately at the time of the offering. -May omit annual periods that will not be required at the time of the offering.
-May not omit interim periods that relate to annual periods required at the time of the offering. 
Non-EGCs -May omit annual and interim periods that will not be required to be presented separately at the time of the public filing. -May not omit annual or interim periods at the time of the public filing. 

In addition to the staff guidance above, the staff published an update to the FRM.  The inside cover of the FRM lists a summary of the paragraphs that were updated.  The update:
 
  • Adds a new section to the FRM which precedes the table of contents and describes how registrants may communicate with the Division’s Office of the Chief Accountant (CF-OCA) when requesting reporting relief under S-X Rule 3-13, answers to interpretive letter requests or informal interpretive advice, or help to explain the SEC rules, regulations, forms and guidance. 
  • Amends Section 2065 to clarify that registrants may request permission from CF-OCA to provide abbreviated financial statements in lieu of full financial statements for an acquired business that is identified as a predecessor of the registrant.  Previously, the FRM indicated that Section 2065 of the FRM did not apply if the business acquired represents the predecessor of the registrant. 
  • Conforms paragraphs 10220.1 and 10220.5 of the FRM to the C&DIs discussed above with respect to the omission of certain financial information in draft and filed registration statements.
 

For questions related to matters discussed above, please contact:
 
Jeff Jaramillo
National Partner
SEC Services Practice
Paula Hamric
National Assurance Partner
 
 

[1] The FRM is an internal SEC staff reference document that provides general guidance covering several SEC reporting topics. While the FRM is not authoritative, it is often a helpful source of guidance for evaluating SEC reporting issues.
[2] Further details regarding the initial announcement are available in our BDO flash report.
[3] The “initial public offering date” is the date of the first sale of common equity securities pursuant to an effective registration statement under the Securities Act of 1933.