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Changes and Considerations for the 2018 Form 10-K

Below are select developments to keep in mind when preparing the Annual Report on Form 10-K this year. Registrants will need to update their disclosure in the upcoming 2018 Form 10-K as a result of recent rulemaking by the Securities and Exchange Commission (the "SEC") and new SEC guidance and accounting rule changes, as well as to reflect new and developing risk areas that the SEC or investors have identified. 

SEC Disclosure Update and Simplification

The table below highlights changes to keep in mind when preparing the 2018 Form 10-K as compared to the 2017 Form 10-K as a result of certain changes to Regulation S-K adopted by the SEC effective November 5, 2018.  For more details, please read our client alert dated August 27, 2018 (available h​ere) and the SEC final rules release (available here).

Item 1. Business

Segment Financial Information — S-K 101(b)*

  • No longer required to disclose three years of segment level financial information (for example, revenues from external customers, a measure of profit or loss and total assets)

R&D — S-K 101(c)(1)(ix)*

  • No longer required to disclose amounts spent on research and development activities

Financial Data by Geography — S-K 101(d)*

  • No longer required to disclose financial information by geographic area
  • No longer required to disclose risks associated with foreign operations and a segment's dependence on foreign operations
  • No longer required to discuss facts indicating why performance in certain geographic areas may not be indicative of current or future operations (but see Item 7 below)

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  • ​​Stock Prices — S-K 201(a)
    • Must now disclose trading symbols for each class of common equity traded
    • No longer required to state the high and low sales prices for the equity over the last two fiscal years, so long as common equity trades on an established trading market such as NYSE or Nasdaq​
  • Dividend History — S-K 201(c)(1)*
    • No longer required to disclose the frequency and amount of cash dividends declared
  • Dividend Restrictions — S-K 201(c)(1)*​
    • No longer required to disclose restrictions that currently or are likely to materially limit a company's ability to pay dividends on its common equity (including restrictions on subsidiaries to transfer funds)​
​Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
  • Geographic Area — S-K 303
    • Must now discuss changes in financial condition and results of operations based on geographic area, if material to understanding the business​
​Item 8. Financial Statements and Supplementary Data

  • Selected Quarterly Financial Data — S-K 302
    • Must now disclose the following for each full quarter within the two most recent fiscal years: net sales; gross profit; income (loss) from continuing operations (as well as per share data); net income (loss) (as well as per share data); and net income (loss) attributable to the company
    • ​No longer required to refer to extraordinary items
​Item 15. Exhibits — S-K Financial Statement Schedules
  • Ratio of Earnings to Fixed Charges — S-K 503(d)* and 601(b)(12)*
    • No longer required to provide as an exhibit the ratio of earnings to fixed charges
* As a result of the amendments, these items of Regulation S‑ K have been deleted.


Key Topics for Updating MD&A, Risk Factors and Business

Companies preparing their 10-K should consider new and developing risks that may require updated disclosure in the MD&A, risk factors and business sections of the 2018 Form 10-K.  We recommend careful consideration of the following risk areas, some of which the SEC has identified: [1]

  • Cybersecurity
  • U.S. Trade Relations
  • Rising Interest Rates
  • Brexit
  • Commodity Prices
  • Elimination of LIBOR

1.    Cybersecurity

Cybersecurity risks and incidents continue to be areas of focus for the SEC and the capital markets.  The SEC published interpretive guidance in February 2018 (available here) to assist public companies in preparing cybersecurity disclosures and making timely disclosure about cybersecurity events.

Companies should consider cybersecurity risk factors and, in the words of the SEC Chairman, home in on "the aspects of the company's business and operations that give rise to material cybersecurity risks and the potential costs and consequences of such risks, including industry-specific risks and third party supplier and service provider risks" while not providing such detail that would "compromise cybersecurity efforts – for example, by providing a 'roadmap' for those who seek to penetrate a company's security protections." 

2.    U.S. Trade Relations

Changes in U.S. trade relations, particularly the impositions of tariffs by the U.S. and China, have had and are expected to have material effects on the performance of many companies.  Companies should provide robust disclosure about these issues, including how they have affected or may affect:

  • demand for products and revenues;
  • supply chains;
  • manufacturing, input and other costs;
  • cash flows; and business and growth plans.
3.    Rising Interest Rates

The U.S. Federal Reserve raised interest rates four times in 2018 and may raise interest rates in 2019.  Companies should assess and disclose risks and expectations about the direct and indirect effects of higher interest rates, for example:
  • rising costs of debt financing;
  • tighter capital markets, including reduced access to debt financing;
  • reduced consumer spending and changing consumer behavior;
  • falling inflation or inflation expectations;
  • currency fluctuations; and
  • effects on derivative agreements.
​​4.    United Kingdom's Exit from the European Union​

The United Kingdom is scheduled to exit the European Union on March 29, 2019 (commonly referred to as "Brexit").  There remains significant uncertainty about the effects of Brexit.  Companies operating in or selling into Europe and the United Kingdom should consider disclosures about the potential risks and effects of Brexit, including with respect to:

  • ​the imposition of UK/EU trade barriers and costs;
  • changes in manufacturing and operating capacity;
  • employee retention and movement;
  • currency fluctuations; and effects on derivative agreements.
5.    Commodity Price Exposure

Oil prices dropped more than 30% during 2018 and more than 40% during the fourth quarter of 2018.  Companies in industries impacted by commodity prices, such as oil and gas producers, midstream companies, refiners and certain financial institutions, should consider whether their risk factor and MD&A disclosure appropriately captures the risks and impacts of lower prices and declines in prices on results of operations, financial condition and access to capital.

​6.    Elimination of LIBOR

The UK Financial Conduct Authority has announced that the London Interbank Offered Rate ("LIBOR") will be phased out in 2021.  Companies should assess their current exposure to LIBOR, such as via floating rate debt and commercial paper, and consider disclosure about any expected risks, uncertainties or other effects that may arise when LIBOR is no longer published.  For example, disclosure about whether existing financing arrangements will need to be amended may need to be included.

Effects of 2017 Tax Cuts and Jobs Act

The 2017 Tax Cuts and Jobs Act (the "Tax Act") was signed into law on December 22, 2017, leaving calendar year filers little time to complete their assessments of some or all of its effects prior to filing their 2017 Form 10‑K.  The SEC provided companies with a one year measurement period expiring December 22, 2018, to complete the accounting for the effects of the Tax Act. [2]  As such, registrants should consider the following in preparing their 2018 Form 10-K:

  • The 2018 Form 10-K will be the first annual report for which calendar year filers will have completed their accounting for the effects of the Tax Act, including final measurements of the mandatory one-time tax on accumulated earnings of foreign subsidiaries and changes in deferred tax assets and liabilities.  MD&A should discuss any material changes to financial position, results of operations or management's planning as a result of these changes.
  • In light of the end of the measurement period, companies should remove or update risk factors about the uncertain effects of the Tax Act on a company's financial statements.
  • Companies should disclose and discuss any other historical or expected future material effects of the Tax Act.  For example, companies should consider the effects of recent Internal Revenue Service guidance as to the global intangible low-taxed income ("GILTI"). [3]

New Lease Accounting Standard

​Calendar year filers generally were required to adopt Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) on January 1, 2019. [4]  Adoption is expected to result in significant changes to the balance sheets of lessors, including the recognition of lease assets and liabilities for operating leases with terms of more than 12 months.  If the impact of implementation of the new standard is expected to be material, then the 2018 Form 10‑K should discuss progress toward implementation of the new standard and the expected effects of adoption, including whether it will be difficult or impossible to comply with existing debt covenants and whether existing debt agreements will need to be amended.


Due to the SEC's changes to Regulation S-K and the new and developing risk areas identified above, registrants will need to revise their disclosure practices and compliance checklists for the upcoming 2018 Form 10-K.  Additionally, as always, companies should review comment letters issued by the SEC staff over the past year, paying particular attention to peers and other companies with similar operations.  In particular, companies may wish to review comment letters addressing the new revenue recognition standards that went into effect this past year to determine whether any enhancements to their own disclosures are appropriate. 

Further, companies should remember to reevaluate their filer status, emerging growth company ("EGC") status and loss corporation status each year, which is particularly important in 2019 in light of the SEC's expanded smaller reporting company ("SRC") definition and the requirement that companies reflect their SRC status in the first fiscal quarter.  To assist public companies in keeping track of the various filing deadlines, we have prepared a desktop reference calendar that sets forth filing deadlines for many SEC reports, available here. Additionally, our prior post summarizes the expanded SRC definition and summarizes disclosure accommodations available to these companies. Registrants should expect additional changes in the future as part of the SEC's ongoing efforts to clean up and modernize disclosure requirements under the SEC's Disclosure Effectiveness Initiative.

[1]      In a recent speech (available here), SEC Chairman Jay Clayton identified three risks the SEC is monitoring: (1) the impact to reporting companies of the United Kingdom's exit from the European Union, or "Brexit"; (2) the transition away from LIBOR as a reference rate for financial contracts; and (3) cybersecurity.

[2]      Staff Accounting Bulletin No. 118 ("SAB 118") allowed companies to use provisional estimates to record the effects of the Tax Act and also provided a measurement period (not to exceed December 22, 2018) to complete the accounting for the impacts of the Tax Act.  The Financial Accounting Standards Board codified SAB 118 when it issued Accounting Standards Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (SAB 118).

[3]      See "Guidance Related to the Foreign Tax Credit, Including Guidance Implementing Changes Made by the Tax Cuts and Jobs Act" available at         

[4]      Topic 842 has been updated, including by ASU No. 2018-11, Target improvements, which added a transition option and a practical expedient for lessors.  The transition option allows lessors to not apply the new leases standard in the comparative periods they present in their financial statements in the year of adoption.  The practical expedient provides lessors with an option to not separate non-lease components from the associated lease components when certain criteria are met and requires them to account for the combined component in accordance with the new revenue standard if the associated non-lease components are the predominant components.  See Ernst & Young LLP, To the Point: FASB adds transition option and practical expedient for lessors to new leases standard.

Special appreciation to Eric Scarazzo, Of Counsel, and David Korvin and Monika Kluziak, Associates, for assistance with this post.

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