You might recall that in the FAST Act Modernization and Simplification of Regulation S-K, adopted last year, the SEC amended Item 303 of Reg S-K to provide that, where a company includes in the filing financial statements covering three years, the company may omit "discussion about the earliest of the three years…if such discussion was already included in the registrant's prior filings on EDGAR…, provided that registrants electing not to include a discussion of the earliest year must include a statement that identifies the location in the prior filing where the omitted discussion may be found." (See this PubCo post.) Notably, there was no specific condition in the new amendment that discussion of the earliest year not be material, although MD&A continued to be subject to an overarching materiality analysis. Corp Fin has now issued threenew CDIs that address omission of the earliest year, summarized below.

110.02 Where a discussion of the earliest of three years is omitted from MD&A, the required statement identifying the location of the discussion in a prior filing does not incorporate that disclosure into the filing unless the registrant expressly states that the information is incorporated by reference.

110.03 Can a company omit discussion of the earliest year if it believes the discussion is necessary? Uh, no, the company may not rely on Instruction 1 to Item 303(a) to omit a discussion of the earliest of three years from its current MD&A if it believes a discussion of that year is necessary. Item 303(a) requires the company to "provide such information that it believes to be necessary to an understanding of its financial condition, changes in financial condition and results of operations. A registrant must assess its information about the earliest of three years and, if it is required by Item 303(a), include it in the current disclosure or expressly incorporate by reference its discussion from a previous filing."

SideBar

If this one seems like a bit of a headscratcher—i.e., isn't the answer kinda obvious?—the staff may have included this CDI as a way to reinforce the SEC's statement in the adopting release that "[m]ateriality remains, as always, the primary consideration." The SEC had originally proposed to eliminate discussion of the earliest year on the condition that "(i) that discussion is not material to an understanding of the registrant's financial condition, changes in financial condition, and results of operations…." However, a number of commenters questioned how the "material to an understanding" condition would be interpreted and applied in practice, and suggested that the uncertainty (and potential litigation risk) would cause some companies to be reluctant to omit the discussion of the earliest year "for fear that their judgment would be challenged." As a result, the SEC eliminated that condition, characterizing the change as a recognition "that the language of the proposed condition was superfluous and never intended to modify, supplement, or alter the overarching materiality analysis that management must undertake with respect to the information it provides investors in MD&A." While a discussion of the prior year could, under some circumstances, be material,

"in many cases the entirety of the discussion of the earliest year that was presented in the MD&A of a prior filing would not need to be reiterated if, in management's view, that discussion is not necessary to understand the financial condition, changes in financial condition, and results of operations. This is the standard that applies to all of MD&A, and our amendments do not change that standard. A registrant's obligation is to provide investors with all material information, customized in light of the company's particular circumstances, and presented in a manner that best reflects the discussion and analysis of the business as seen through the eyes of those who manage that business. We continue to encourage registrants to take the opportunity to reevaluate their disclosure in light of these amendments and determine whether a discussion of the earliest year's information remains material. We believe these amendments underscore the continuing relevance of the Commission's guidance in the 2003 MD&A Release that 'it is increasingly important for companies to focus their MD&A on material information. In preparing MD&A, companies should evaluate issues presented in previous periods and consider reducing or omitting discussion of those that may no longer be material or helpful, or revise discussions where a revision would make the continuing relevance of an issue more apparent.'"

110.04 Once a company with an effective registration statement (that incorporates its Form 10-K by reference) incorporates a new Form 10-K that excludes a discussion of the earliest year from its MD&A, the filing of the new Form 10-K will operate as a Section 10(a)(3) update, establishing a new effective date for the registration statement. As of the new effective date, the registration statement incorporates by reference only the new Form 10-K, which does not contain the company's discussion of results for the earliest year (unless, as indicated in Question 110.02, the information is expressly incorporated by reference).

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