March 27, 2013
The 2013 annual reporting season is drawing to a close, and regardless of where your company is in the process of filing its Form 10-K, several noteworthy trends have emerged that may have a significant impact on future filings.
Companies are getting specific about government uncertainties. From controversial legislation like the Affordable Care Act and the American Taxpayer Relief Act, to the fiscal cliff and finally sequestration, it comes as no surprise that companies have disclosed concerns about these regulatory issues.
What is different this year is how specific companies have been in their language about each of these events. Companies across several industries, including Deere & Co, Northrop Grumman Corp and Rite Aid Corp are using direct language to pinpoint how they expect specific aspects of their businesses, bottom lines and competitive environments to be affected by the looming consequences of Washington’s actions.
Companies are hedging their bets. The SEC doesn’t require companies to go into detail about the business risks related to civil unrest, but many companies are providing the information anyway, covering their bases amid the threat of heightening civil unrest in key geographies around the world like Africa, Central America and the Middle East.
In the absence of a specific materiality threshold in the SEC’s new 13(r) disclosure obligations, many companies are disclosing even minimal levels of profits and revenues attributed to their activity in these areas.
Conflict mineral rules are having an unexpectedly broad impact. The final rules on conflict minerals are a hot topic among public companies, and disclosures related to this issue are appearing with surprising frequency in 10-Ks. According to Business Law Currents, companies have been disclosing issues related to conflict minerals in their annual reports even though the rules state that the first disclosure forms are not due until May 31, 2014.
With the 10-K filing season drawing to a close, it is important to note the trends that have emerged in companies’ disclosures – particularly those that could persist in the coming years. But the biggest question of every securities lawyers mind is, of course, whether the SEC will require companies to provide even more detailed information in their risk disclosures in the years to come.