In Summary, few takers for SEC’s new Item 16 on Form 10-K

On June 1, 2016 the Securities and Exchange Commission released an interim rule that allows registrants, at their option, to include a summary of the information in their 10-K in a new Item 16.

The option to include a summary of the 10-K under Item 16 seems to be intended to improve the overall ability of investors and others who review information in registrants 10-Ks and seamlessly map their way to related disclosures locked up in the body of the filing. The move appears to be in lockstep with the SEC’s direction associated with its Disclosure Effectiveness initiatives aimed at streamlining the reporting process.

To date, only a few registrants have submitted a true summary of the 10-K using Item 16. There are examples of 10-K summary submissions, like United States Steel Corps FY 2015 10-K filed 2/29/2016. While Item 16 is not being used, the issuer does provide a lengthy and colorful summary at the beginning of the filing.

Also covering FY 2015, General Electric Co submitted a 10-K that continues to generate interest and curiosity. While not technically a summary, the filing represents a clear departure from the traditional 10-K structure that incorporates specific and clearly labeled Items and parts. With an abundance of pictures, graphics and flow charts, the filing looked more like an Annual Report to Shareholders (AR/S) than Form 10-K, yet carried the wealth of information associated with a 10-K filing.

Some registrants have included the new Item 16 in their recent 10-Ks but have opted to indicate that that the summary is “not applicable” or that the registrant has “elected not to supply a summary”. Noble Energy Inc’s FY 2016 10-K filed 2/14/17 showcases an issuer taking a different approach. Noble Energy included an Item 16 10-K summary that consists of a single hyperlink that takes the reader to Item 7 Management Discussion and Analysis of the 10-K. The Item 7 kicks off with an “executive summary” consisting of numerous graphs and flow charts which appears to represent how Noble Energy approached tackling their summary.

Not to be outdone, 3M Co’s 10-K for FY 2016 filed 2/9/17 includes an Item 16 which states “A Form 10-K summary is provided at the beginning of this document, with hyperlinked cross-references.” The summary is presented in the form of detailed Item 1 Business reporting. In an added twist, 3M has elected to include a thorough breakdown of its executive officers within Item 1 Business for the purposes of added summary information.

Although the SEC may not have many Item 16 10-K summaries to review at the present time, there are telltale signs that examiners are carefully looking over the few examples that have come across their table. SEC Comment Letters associated with United States Steel Corps 2015 10-K specifically zero in on the summary portion with examiners requesting expanded reporting and “more robust, company-specific disclosures.”

General Electric Co’s 2015 10-K also received its fair share of comments from the SEC showcasing that examiners still worked their way through charts, graphs and tables and returned with requests for expanded disclosure and to “please revise your presentations in future filings to use GAAP titles that are consistent with those used on your statements of operations and your other primary financial statements.”

Due to the level of flexibility prescribed to the use of Item 16 10-K Summary it’s anyone’s guess when we will see the first on point submission. Many in the industry are eager for a model to ensure that their own summary conforms to Item 16’s conditions. For now, many are just lining up to see who will be first to make the big catch when the first gold standard example swims through EDGAR.

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