Form 10-K Summary, 37132-37138 [2016-13328]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 111 (Thursday, June 9, 2016)]
[Rules and Regulations]
[Pages 37132-37138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13328]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 249

[Release No. 34-77969; File No. S7-09-16]
RIN 3235-AL89


Form 10-K Summary

AGENCY: Securities and Exchange Commission.

ACTION: Interim final rule; request for comment.

-----------------------------------------------------------------------

SUMMARY: We are adopting an interim final amendment to implement 
Section 72001 of the Fixing America's Surface Transportation (``FAST'') 
Act. The interim final amendment provides that a registrant may, at its 
option, include a summary in its Form 10-K provided that each item in 
the summary includes a cross-reference by hyperlink to the material 
contained in the registrant's Form 10-K to which such item relates.

DATES: 
    Effective Date: The interim final rule is effective on June 9, 
2016.
    Comment Date: Comments should be received on or before July 11, 
2016.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/interim-final-temp.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-09-16 on the subject line; or
     Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-09-16. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (https://www.sec.gov/rules/interim-final-temp.shtml). 
Comments are also available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. All comments received will be posted without change; we do 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT:  N. Sean Harrison, Special Counsel, at 
(202) 551-3430, in the Office of Rulemaking, Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting an interim final amendment 
to Form 10-K \1\ under the Securities Exchange Act of 1934.\2\
---------------------------------------------------------------------------

    \1\ 17 CFR 249.310.
    \2\ 15 U.S.C. 78a et seq.
---------------------------------------------------------------------------

I. Introduction

    We are adopting an interim final amendment to Form 10-K that 
implements Section 72001 of the FAST Act,\3\ which became law on 
December 4, 2015. Section 72001 of the FAST Act directs the Commission, 
not later than 180 days after the date of enactment, to issue 
regulations to permit ``issuers'' \4\ to submit a ``summary page'' \5\ 
on Form 10-K, but only if each item on such summary page includes a 
cross-reference (by electronic link or otherwise) to the material 
contained in Form 10-K to which such item relates.
---------------------------------------------------------------------------

    \3\ Public Law 114-94, 129 Stat. 1312 (Dec. 4, 2015).
    \4\ We use the terms ``issuer'' and ``registrant'' 
interchangeably throughout this release to refer to a company that 
is subject to Section 13 [15 U.S.C. 78m] or 15(d) of the Exchange 
Act [15 U.S.C. 78o(d)] and is required to file an annual report on 
Form 10-K.
    \5\ As used in this release, the term ``summary page'' should 
not be construed to mean that the summary needs to be a single page, 
or of any specific length.
---------------------------------------------------------------------------

II. Discussion of Amendment

    Although our current rules do not prohibit a registrant from 
including voluntary information, such as a

[[Page 37133]]

summary, in its Form 10-K,\6\ we are amending Part IV of Form 10-K \7\ 
to add new Item 16. This new item will expressly allow a registrant, at 
its option, to include a summary in the Form 10-K. To implement the 
statutory requirement that each item in the summary be accompanied by 
an electronic or other cross-reference, new Item 16 requires that each 
summary topic be hyperlinked to the related, more detailed disclosure 
item in the Form 10-K.
---------------------------------------------------------------------------

    \6\ Voluntary information included in Exchange Act filings is 
subject to the antifraud provisions of the federal securities laws 
and the officer certifications required by Exchange Act Rules 13a-
14(a) and 15d-14(a) [17 CFR 240.13a-14(a) and 240.15d-14(a)].
    \7\ Part IV of Form 10-K sets forth the requirements for 
financial statement schedules, exhibits and certain supplemental 
information to be furnished to the Commission.
---------------------------------------------------------------------------

    In light of the varied nature of registrants' size and operations, 
we believe that registrants should have the flexibility to determine 
how best to prepare the summary. Accordingly, the amendment does not 
prescribe the length of the summary (other than to state that the 
summary shall be brief), specify the Form 10-K disclosure items that 
should be covered by the summary,\8\ or dictate where the summary must 
appear in the Form 10-K.
---------------------------------------------------------------------------

    \8\ Form 10-K is organized in four parts with each part 
containing distinct disclosure requirements. Part I (Items 1-4) 
contains disclosure requirements that relate to, among other things, 
the registrant's business, risk factors, properties, legal 
proceedings, and mine safety disclosure, if applicable. Part II 
(Items 5-9B) contains disclosure requirements that relate to market 
information, selected financial data, management's discussion and 
analysis of financial condition and results of operations 
(``MD&A''), quantitative and qualitative disclosures about market 
risk, financial statements and supplementary data, a description of 
changes in and disagreements with accountants on accounting and 
financial disclosure, controls and procedures and other information. 
Part III (Items 10-14) contains disclosure requirements that relate 
to directors and executive officers, management remuneration, 
beneficial ownership, related party transactions and principal 
accountants' fees and services and other information. Lastly, Part 
IV (Item 15, signatures and supplemental information) contains 
requirements that relate to financial statement schedules and 
exhibits.
---------------------------------------------------------------------------

    We recognize that it might not be practicable or necessary to 
summarize every Form 10-K disclosure item. The amendment is principles-
based and affords a registrant choosing to include a summary the 
flexibility to decide which items to summarize,\9\ as long as the 
information is presented fairly and accurately.
---------------------------------------------------------------------------

    \9\ The flexible and non-prescriptive nature of new Item 16 is 
similar to other principles-based requirements under our rules, such 
as Item 503 Regulation S-K [17 CFR 229.503] and Item 1001 of 
Regulation M-A [17 CFR 229.1001]. As set forth below in the Request 
for Comment, we solicit and encourage comment on whether further 
guidance on preparing the summary should be provided.
---------------------------------------------------------------------------

    We are also including an instruction in Item 16 of Form 10-K that 
addresses information incorporated by reference into the Form 10-K that 
a registrant may choose to summarize. Exchange Act Rule 12b-23 allows 
registrants to incorporate information by reference in answer, or 
partial answer, to any item of an Exchange Act registration statement 
or report subject to certain conditions.\10\ Generally, the 
incorporated information must be filed as an exhibit to the 
registration statement or report.\11\ Under General Instruction G to 
Form 10-K, a registrant may incorporate by reference the information 
required by Parts I or II of Form 10-K from the registrant's annual 
report to security holders.\12\ The information required by Part III of 
Form 10-K also may be incorporated by reference from a proxy or 
information statement involving the election of directors, if filed 
within 120 days of the end of the fiscal year.\13\
---------------------------------------------------------------------------

    \10\ 17 CFR 240.12b-23.
    \11\ Rule 12b-23(a)(3)(i) [17CFR 240.12b-23(a)(3)(i)] provides 
an exception that does not require a proxy or information statement 
incorporated by reference in response to Part III of Form 10-K to be 
filed as an exhibit.
    \12\ Information incorporated from the annual report to security 
holders to fulfill the requirements of Part I of Form 10-K must 
contain the information required by Items 1-3 of Part I of Form 10-K 
to the extent applicable. See Note 1 to General Instruction G(2) to 
Form 10-K.
    \13\ See Note 2 to General Instruction G(2) to Form 10-K.
---------------------------------------------------------------------------

    As stated above, the interim final amendment to Form 10-K requires 
the summary to include hyperlinks to the related, more detailed 
disclosure item in the Form 10-K, regardless of whether the more 
detailed disclosure appears in the sections of the Form 10-K that 
follow the summary or in a Form 10-K exhibit. Currently, registrants 
can hyperlink to different sections within the same document, as well 
as to specific sections of exhibits that are part of the same filing.
    Therefore, the interim final amendment requires registrants 
electing to prepare a Form 10-K summary that discusses information that 
is incorporated by reference into the Form 10-K and for which an 
exhibit is filed with the form to include a hyperlink from the summary 
to the discussion in the accompanying exhibit. Under the interim final 
amendment, a registrant choosing to include a summary will only be able 
to summarize information that is included in the Form 10-K at the time 
the form is filed, and will not have to file a Form 10-K amendment to 
summarize Part III information that is incorporated by reference from a 
proxy or information statement that will be filed after the date that 
the registrant files its Form 10-K.\14\ In that case, however, the 
registrant must indicate that the summary omits the Part III 
information.
---------------------------------------------------------------------------

    \14\ See Instruction 1 to new Item 16 of Form 10-K. In addition, 
if the Part III information that is incorporated by reference 
contains a summary, such as commonly provided in proxy statements 
for executive compensation disclosure, that summary need not include 
hyperlinks.
---------------------------------------------------------------------------

Request for Comment

    We request and encourage any interested person to submit comments 
on any aspect of the interim final amendment, other matters that might 
have an impact on the amendment, and any suggestions for further 
revisions. In addition, we seek comment on the following:
    1. Are companies and investors likely to find a Form 10-K summary 
useful? If so, should we propose mandating a summary? \15\
---------------------------------------------------------------------------

    \15\ In 2008, the Advisory Committee on Improvements to 
Financial Reporting issued to the Commission a report that, among 
other things, recommended an executive summary in the forepart of a 
company's annual report on Form 10-K (with material updates in 
quarterly reports on Form 10-Q) that would describe concisely the 
most important themes or other significant matters with which 
management is primarily concerned, along with a page index showing 
where investors could find more detailed information in the 
document. See Final Report of the Advisory Committee on Improvements 
to Financial Reporting to the United States Securities and Exchange 
Commission (Aug. 1, 2008), available at https://www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf.
---------------------------------------------------------------------------

    2. Would it be helpful to EDGAR users for the Form 10-K summary or 
a link to the summary to be displayed on a registrant's EDGAR search 
results landing page? \16\
---------------------------------------------------------------------------

    \16\ We are considering ways to further enhance the presentation 
and usability of the Form 10-K summary. In this regard, we could 
require registrants to include HTML tags to identify the Form 10-K 
summary in their EDGAR submissions. This would make it possible for 
EDGAR to extract the summary from the Form 10-K, so that the 
information could be included on the registrant's search results 
EDGAR landing page. This could allow investors to more easily access 
the information.
---------------------------------------------------------------------------

    3. Should we impose a length limitation on the summary? If so, what 
limitation would be appropriate (e.g., a page limit, word limit, 
character limit)?
    4. Should we provide further guidance on preparation of the 
summary? For example, should we include language similar to Item 503(a) 
of Regulation S-K, which covers a prospectus summary? \17\
---------------------------------------------------------------------------

    \17\ Among other provisions, Item 503(a) states ``The summary 
should be brief. The summary should not contain, and is not required 
to contain, all of the detailed information in the prospectus. If 
you provide summary business or financial information, even if you 
do not caption it as a summary, you still must provide that 
information in plain English.''

---------------------------------------------------------------------------

[[Page 37134]]

    5. Should we require that the summary appear at the beginning of 
the Form 10-K? Should we require certain content or a specific format 
for the Form 10-K summary? For example, should we propose to require 
registrants choosing to prepare a summary to include specified Form 10-
K items, such as the MD&A? Are there some items that registrants should 
not be permitted to include in a summary? If so, which items should be 
required to be included in, or excluded from, the summary?
    6. Should we require registrants that cannot include a summary of 
the Part III information (because that information will be incorporated 
by reference from a later filed proxy or information statement 
involving the election of directors) to file a Form 10-K amendment to 
update the summary to reflect the Part III information when that 
information is filed with the proxy or information statement?
    7. Are there other cross-reference methods that we should allow in 
lieu of, or in addition to, hyperlinks?
    8. Should we propose to amend other annual reporting forms, such as 
Form 20-F \18\ filed by foreign private issuers, or Form 1-K \19\ filed 
by issuers that have conducted a Regulation A offering,\20\ to 
expressly allow a summary similar to the approach we are adopting for 
Form 10-K? Would such revisions be useful given that our rules do not 
prohibit such registrants from voluntarily including a summary in their 
annual reports?
---------------------------------------------------------------------------

    \18\ 17 CFR 249.220f.
    \19\ 17 CFR 239.93.
    \20\ 17 CFR 230.251-230.263.
---------------------------------------------------------------------------

    With respect to any comments, we note that they are of greatest 
assistance if accompanied by supporting data and analysis of the issues 
addressed in those comments.

III. Procedural and Other Matters

    The Administrative Procedure Act (``APA'') generally requires an 
agency to publish notice of a rulemaking in the Federal Register and 
provide an opportunity for public comment. This requirement does not 
apply, however, if the agency ``for good cause finds . . . that notice 
and public procedure are impracticable, unnecessary, or contrary to the 
public interest.'' \21\ Because the amendment conforms the specified 
form to the requirements of a newly enacted statute, the FAST Act, and 
involves minimal exercise of discretion, the Commission finds that 
notice and public comment are unnecessary.\22\ As discussed above, 
Section 72001 of the FAST Act directs the Commission, not later than 
180 days after the date of enactment, to issue regulations to permit 
issuers to submit a summary page on Form 10-K, but only if each item on 
such summary page includes a cross-reference (by electronic link or 
otherwise) to the material contained in Form 10-K to which such item 
relates. The amendment to Form 10-K that we are adopting revises the 
form to make it consistent with this provision of the FAST Act by 
expressly providing that a registrant may, at its option, include a 
summary in its Form 10-K (subject to certain conditions), something 
that registrants currently are permitted to do under existing rules.
---------------------------------------------------------------------------

    \21\ 5 U.S.C. 553(b)(3)(B).
    \22\ This finding also satisfies the requirements of 5 U.S.C. 
808(2), allowing the amendment to become effective notwithstanding 
the requirement of 5 U.S.C. 801 (if a federal agency finds that 
notice and public comment are impractical, unnecessary or contrary 
to the public interest, a rule shall take effect at such time as the 
federal agency promulgating the rule determines). The amendment also 
does not require analysis under the Regulatory Flexibility Act. See 
5 U.S.C. 604(a) (requiring a final regulatory flexibility analysis 
only for rules required by the APA or other law to undergo notice 
and comment).
---------------------------------------------------------------------------

    For similar reasons, although the APA generally requires 
publication of a rule at least 30 days before its effective date, the 
Commission finds there is good cause for the amendment to take effect 
on June 9, 2016.\23\
---------------------------------------------------------------------------

    \23\ See 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------

IV. Economic Analysis

    As discussed above, we are amending Form 10-K to implement Section 
72001 of the FAST Act. The interim final amendment will provide that a 
registrant may, at its option, include a summary in its Form 10-K 
provided that each item in the summary includes a cross-reference by 
hyperlink to the material contained in the registrant's Form 10-K to 
which such item relates. Under the amendment, a registrant will have 
the flexibility to determine the content of the summary and its length.
    We are sensitive to the costs and benefits of the amendment.\24\ In 
this economic analysis, we examine the existing baseline, which 
consists of the current regulatory framework and market practices, and 
discuss the potential benefits and costs of the amendment, relative to 
this baseline, and its potential effects on efficiency, competition, 
and capital formation. We also consider the potential costs and 
benefits of reasonable alternatives to the amendment.
---------------------------------------------------------------------------

    \24\ Exchange Act Section 23(a)(2) requires us, when adopting 
rules, to consider the impact that any new rule would have on 
competition. In addition, Section 3(f) of the Exchange Act directs 
us, when engaging in rulemaking that requires us to consider or 
determine whether an action is necessary or appropriate in the 
public interest, to consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, 
and capital formation.
---------------------------------------------------------------------------

    Where practicable, we attempt to quantify the economic effects of 
the amendment; however, in certain cases, we are unable to do so 
because we lack the necessary data. We do, however, provide a 
qualitative assessment of the likely economic effects.

A. Introduction

    As discussed above, new Item 16 to Form 10-K provides that a 
registrant may, at its option, include a summary in its Form 10-K 
provided that each item in the summary includes a hyperlink to the 
detailed information in the registrant's Form 10-K to which such item 
relates. In light of the varied nature of registrants' size and 
operations, the amendment will provide registrants with flexibility in 
preparing the summary. The amendment does not prescribe the length of 
the summary, specify the Form 10-K disclosure items that should be 
covered in the summary, or dictate where the summary must appear in the 
Form 10-K.
    A registrant may decide which items to summarize as long as the 
information is presented fairly and accurately. A summary should 
provide more information than a table of contents, which is often 
included in Form 10-K and generally shows the complete organizational 
structure of Form 10-K by listing each disclosure item without a 
summary of the disclosure. A summary with hyperlinked cross-references 
will allow users to easily locate the corresponding items in Form 10-K 
where the disclosure is fully presented, with the potential effect of 
enhancing the ability of investors and other users of the disclosure to 
process relevant information and/or reducing their processing time and 
search costs.

B. Baseline and Affected Parties

    The amendment will potentially affect all registrants subject to 
Section 13 or 15(d) of the Exchange Act that are required to file an 
annual report on Form 10-K. However, given that current rules do not 
prohibit a registrant from voluntarily including a summary in its Form 
10-K, the amendment likely will not have a substantial impact on the 
disclosure practices of registrants and on the information processing 
ability of investors and other users of the disclosure.
    In particular, we expect that registrants that do not currently 
include a summary in their Form 10-Ks will not

[[Page 37135]]

be likely to begin doing so in response to the amendment. Also, 
registrants that currently include a summary in their Form 10-K with a 
hyperlink for each disclosure topic in the summary to the related 
material contained in their Form 10-K will not be affected by the 
amendment because this practice will be in compliance with the 
hyperlink requirement. Among the registrants that are required to file 
a Form 10-K, the amendment will affect registrants that currently 
include a summary in their Form 10-Ks and that (1) do not cross-
reference items; (2) use cross-references other than hyperlinks; or (3) 
use hyperlinks but not for all disclosure topics included in the 
summary. Under the amendment, if these registrants chose to continue to 
include a summary in their Form 10-K, they will be required to include 
hyperlinks to each disclosure topic that is mentioned.
    We estimate that, in calendar year 2015, we received 7,844 Form 10-
K filings. To draw a baseline indicative of the current disclosure 
practices among Form 10-K filers, we selected a random sample of 150 of 
these filings to review. Although small, the random sample was 
representative of the overall 2015 population of Form 10-K filers and 
consisted of 42 large accelerated filers, 29 accelerated filers, 27 
non-accelerated filers, and 52 smaller reporting companies. None of the 
filings in the sample included a summary. A large majority (70%) of the 
150 sampled filings included a table of contents that was fully 
hyperlinked to the corresponding items.
    Due to the greater complexity of their operations, larger 
registrants generally have more extensive disclosures that are 
reflected in lengthier Form 10-Ks and may be more inclined to include a 
summary to assist investors and other users in navigating their 
filings.\25\ Since we did not find any registrants in the random sample 
that included a summary in their Form 10-K, we also reviewed the most 
recent Form 10-K filed by each of the companies on the Fortune 100 
list, which includes the largest 100 U.S. companies.\26\ Of these 
companies, we found one large accelerated filer that included a summary 
in its Form 10-K. This summary provided an overview of several 
disclosure topics with cross-references, but not hyperlinks, to the 
more detailed discussion contained in the Form 10-K. While we found 
only one registrant that included a summary in its most recent Form 10-
K, we found that a large majority of the companies (87%) included a 
table of contents that was fully hyperlinked to the corresponding 
items.
---------------------------------------------------------------------------

    \25\ In addition to structural complexity, there may be other 
reasons for the length of disclosure documents. One study argues 
that firms may try to obscure mandated earnings-relevant information 
by burying the results in longer documents. Additionally, litigation 
risk may create an incentive to disclose information whether it is 
useful or not. See Tim Loughran & Bill McDonald, Measuring 
Readability in Financial Disclosures, 69 J. of FIN. 1643-1671 
(2014).
    \26\ Eight entities included in the Fortune 100 list are 
privately-held companies; therefore, no Form 10-K was available for 
them.
---------------------------------------------------------------------------

    There may be several reasons why a summary is not widely used in 
Form 10-Ks. As with any other voluntary disclosure, registrants 
presumably weigh the potential incremental disclosure costs, including 
any liability considerations, against the potential benefits associated 
with including a summary in a Form 10-K. Among other factors, the 
perceived net benefit will depend on the presence of alternative 
disclosures that serve a similar purpose as a summary and on investor 
interest in such summary. For example, a table of contents may already 
provide an outline of the Form 10-K and indicate where investors can 
find additional information in the document.
    In conclusion, based on our analysis of two relatively small 
samples of Form 10-K filings, it appears that the use of a summary in 
Form 10-Ks is currently extremely limited. While we cannot draw 
definite conclusions on the current use of a summary or on the current 
use of hyperlinks in summaries for the entire population of Form 10-K 
filers due to the size of the samples in our analysis, we believe that 
the amendment is likely to affect a limited number of Form 10-K filers 
that currently opt to include a summary in their Form 10-K. As a result 
of the hyperlink requirement, these filers will need to include a 
hyperlink for each disclosure topic that is not currently hyperlinked.

C. Potential Economic Effects

    As noted above, Section 72001 of the FAST Act directs the 
Commission to issue regulations to permit registrants to submit a 
summary on Form 10-K with cross-references to the related discussion in 
the report. In implementing this mandate, the amendment will provide 
that registrants may include a summary in their Form 10-K if each item 
in the summary includes a hyperlink to the related material contained 
in the Form 10-K to which such item relates. Relative to cross-
references that supply users with only a page reference to the specific 
Form 10-K items, hyperlinks will not only supply the location but also 
allow users to reach that location more easily and quickly.
    By presenting an overview of the information contained in Form 10-
K, a summary with hyperlinks could make disclosure more effective by 
enhancing the ability of investors and other users to process relevant 
information and/or by reducing their processing time and search costs. 
A summary can be particularly useful to investors and other users in 
the case of more complex \27\ and larger \28\ Form 10-Ks. Academic 
literature has examined the readability of Form 10 Ks and suggested 
that concisely written documents are more likely to be read, and their 
information more effectively incorporated into stock prices, compared 
to longer Form 10 Ks.\29\ To the extent that a summary contains a 
concise overview of the information included in the more detailed 
disclosure items, the usefulness of the summary for investors may 
translate into potential positive effects on allocative efficiency and 
capital formation for registrants who opt to include it.\30\ This, in 
turn, may have positive effects on competition for registrants, 
relative to, for example, registrants who do not opt to include a 
summary. For example, a summary could increase investors' interest in 
the business of a registrant because it may attract investors who 
otherwise would not be inclined to read the more detailed and lengthy 
information in the full Form 10-K. We

[[Page 37136]]

note that, if users were to rely only on the summary to make investment 
decisions without considering the more extensive disclosure provided 
elsewhere in the Form 10-K or other disclosure documents of the 
registrant, this could lead to less informed investment decisions with 
a corresponding decrease in allocative efficiency. Overall, relative to 
the current baseline, we expect that the amendment will have 
incremental positive effects on efficiency, competition, and capital 
formation, although, for the reasons discussed above, we do not expect 
these effects to be particularly significant.
---------------------------------------------------------------------------

    \27\ See Feng Li, Annual Report Readability, Current Earnings, 
and Earnings Persistence, 45 J. of ACCT. & ECON. 221-47 (2008). 
Using the Fog index and word count of Form 10 Ks, the author found 
that firms with annual reports that are easier to read have more 
persistent positive earnings and argues that firm managers may try 
to hide poor future earnings from investors by increasing the 
complexity of their written documents. The Fog index is a commonly 
used measure of the readability of a document.
    \28\ See Loughran & McDonald, supra note 25. While word count 
and file size are highly correlated, the authors found there is 
evidence that Form 10-K file size (in megabytes) is a better inverse 
proxy for readability than a commonly used metric of readability 
like the Fog index. Larger Form 10-Ks are significantly associated 
with high return volatility, earnings forecast errors, and earnings 
forecast dispersion, after controlling for other variables such as 
firm size, book-to-market, past volatility, industry effects, and 
prior stock performance.
    \29\ See Haifeng You & Xiao-jun Zhang, Financial Reporting 
Complexity and Investor Under-Reaction to 10-K Information, 14 REV. 
of ACCT. STUD. 559-86 (2009). Using the number of words in a Form 
10-K as a measure of financial reporting complexity, the authors 
found that firms above the annual median word count have a delayed 
stock market reaction over the following 12 months.
    \30\ See Alastair Lawrence, Individual Investors and Financial 
Disclosure, 56 J. of ACCT. & ECON. 130-47 (2013). Using detailed 
data of individual investors, this study shows that, on average, 
individuals invest more in firms with clear and concise financial 
disclosures.
---------------------------------------------------------------------------

    Permitting registrants to determine the content, length, and 
location of a summary will enable them to tailor the format and 
presentation of the summary to best suit the specific aspects of their 
business and operational and financial results. It also will enable 
registrants to focus on topics or items they consider important to 
communicate to investors, subject to the overall requirement to present 
the summary fairly and accurately.
    While a summary is potentially useful for investors and 
registrants, registrants who include a summary in their Form 10-Ks will 
incur increased disclosure costs to prepare the summary. As discussed 
above, given that Form 10-K filers can already voluntarily include a 
summary, we expect that, as a result of the amendment, registrants will 
not significantly change their disclosure practices by electing to 
include a summary if they currently do not.
    Relative to the current baseline, we expect the potential benefits 
and costs stemming from the amendment to be limited and primarily 
related to those registrants--and their investors--who already include 
a summary in their Form 10-K but do not currently hyperlink or 
hyperlink only in part. Registrants that have voluntarily included a 
summary in the past and have not hyperlinked the items in the summary 
to the relevant sections in the Form 10-K will incur compliance costs 
to add hyperlinks.
    There are potential benefits from adding cross-references to the 
Form 10-K summary. A summary that briefly discusses items in the Form 
10-K without any type of cross-references may disconnect the 
information in the summary from the disclosure contained in other parts 
of Form 10-K. The required hyperlinks will serve not only as a reminder 
for investors that a summary complements the more extensive disclosure 
presented in other parts of the document, but also as a compass for 
users to navigate the document more easily and quickly. The required 
hyperlinks will easily direct users to a particular item, allowing 
users to avoid searching the Form 10-K in its entirety, thereby 
significantly reducing their search costs.
    Relative to other types of cross-references that registrants may 
currently use, such as a footnote or plain text that points to a 
certain page number or location in the document, the inclusion of 
hyperlinks should direct users to relevant parts of Form 10-K more 
easily and quickly. To the extent that hyperlinks are implemented 
properly, they are able to automatically take the reader to that 
document or section. Cross-referencing through hyperlinks should make 
it easier for users to navigate the disclosure and decrease their 
search time and costs.
    Finally, requiring hyperlinks for all topics in a summary that 
currently has only partial hyperlinks will prevent registrants from 
selectively steering investors and other users toward particular 
sections in the Form 10-K.

D. Alternatives

    We considered three alternatives to the amendment. First, instead 
of providing registrants with the option of including a summary in 
their Form 10-K, we could have required all registrants to include a 
summary. By requiring a summary, investors and users could more 
extensively benefit from the potential usefulness of the summary. In 
particular, as discussed above, a summary could enhance investors' 
ability to process relevant material information in the filing. To the 
extent that a required summary contains useful and concise information, 
it could translate to potential positive effects on allocative 
efficiency for a greater number of registrants than under a voluntary 
approach. These potential benefits could be particularly relevant in 
the case of registrants with more complex operations that typically 
file larger reports that investors may find more time-consuming to 
read. They may be less relevant in the case of smaller registrants that 
typically have simpler operations and shorter Form 10-Ks. Consequently, 
requiring a mandatory summary for all registrants may impose additional 
compliance costs that are not justified by the overall benefits to 
investors and registrants, although the flexibility to determine the 
format of the summary could mitigate these additional compliance costs.
    Second, instead of providing registrants with the flexibility to 
determine length, content, and location of the summary in Form 10-K, we 
could have prescribed a specific format of the summary. This could 
achieve consistency across filings and may enable users to compare the 
summaries of multiple registrants more efficiently. A specific format 
may also ease the preparation of a summary for some registrants, 
thereby encouraging them to provide a voluntary summary in their Form 
10-Ks. At the same time, prescribing a specific format may discourage 
registrants from including a summary in their Form 10-K if they find 
the format not useful for their specific circumstances. Further, if the 
prescribed format includes sections that are unnecessary to effectively 
assess the registrant, it could detract from, rather than facilitate, 
investors' ability to process information efficiently.
    Third, instead of requiring hyperlinks, we could have required 
registrants to use any type of cross-references, electronic or 
otherwise, to the extent that it would serve the function of locating 
the corresponding material in the Form 10-K.\31\ This alternative would 
allow greater flexibility to registrants to use either hyperlinks or 
non-electronic cross-references, such as footnotes or plain text that 
points to a certain page number or other location in the document, or a 
combination of the two types in the summary. However, to the extent 
that registrants choose to use non-electronic cross-references under 
this alternative, the ability of investors to navigate the disclosure 
contained in the Form 10-K would be diminished relative to the 
proposal.
---------------------------------------------------------------------------

    \31\ Section 72001 of the FAST Act requires that each item on 
the summary page include a ``cross-reference'' to the material 
contained in the Form 10-K, but the statute does not mandate any 
particular type of cross-reference.
---------------------------------------------------------------------------

V. Paperwork Reduction Act

A. Background

    Certain provisions of Form 10-K that will be affected by the 
interim final amendment contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\32\ The Commission is submitting the interim final amendment 
to the Office of Management and Budget (``OMB'') for review in 
accordance with the PRA.\33\ The title for the collections of 
information is:
---------------------------------------------------------------------------

    \32\ 44 U.S.C. 3501 et seq.
    \33\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.

---------------------------------------------------------------------------
    ``Form 10-K'' (OMB Control No. 3235-0063).

    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information requirement unless it 
displays a currently valid OMB control number. Compliance with the 
information

[[Page 37137]]

collections is mandatory. Responses to the information collections are 
not kept confidential and there is no mandatory retention period for 
the information disclosed. Form 10-K was adopted under the Exchange Act 
and sets forth the disclosure requirements for annual reports filed by 
registrants to help investors make informed investment decisions. The 
hours and costs associated with preparing and filing Form 10-K 
constitute reporting and cost burdens imposed by each collection of 
information.

B. Summary of the Amendment

    As described in more detail above, we are adopting an interim final 
amendment to Form 10-K to implement Section 72001 of the FAST Act. We 
are amending Form 10-K to add new Item 16. This new item will 
explicitly allow a registrant, at its option, to include a summary in 
the Form 10-K. Each disclosure topic included in the summary is 
required to contain a hyperlink to the related, more detailed 
disclosure item in the Form 10-K. Under the interim final amendment, a 
registrant has the flexibility to determine the content and the length 
of the summary.

C. Burden and Cost Estimates Related to the Amendment

    We anticipate that new Item 16 of Form 10-K will increase the 
burdens and costs for companies that elect to prepare a summary. We 
derived our burden hour and cost estimates by estimating the average 
amount of time it would take a registrant to prepare and review the 
summary, as well as the average hourly rate for outside professionals 
who assist with such preparation. In addition, our burden estimates are 
based on several assumptions.
    First, we assumed that registrants that elect to prepare a summary 
will not summarize every item in the Form 10-K. Therefore, to estimate 
the average burden hours of the interim final amendment, we have looked 
to the burden estimates carried internally by registrants for Form 
10,\34\ an Exchange Act registration form that requires many of same 
item disclosures as does Form 10-K. For purposes of the PRA, we have 
estimated the total burden per response for preparing and filing Form 
10 to be 215 hours and that 25% of that burden (53.75 hours) is carried 
internally by the registrant. We estimate that the burden to prepare 
the Form 10-K summary would be less than that required to prepare the 
Form 10 because the summary would call for less information than 
required by Form 10. We estimate that the average incremental burden 
for a registrant to prepare the summary would be 50 hours. This 
estimate represents the average burden for all registrants, both large 
and small. In deriving our estimates, we recognize that the burdens 
will likely vary among individual registrants based on a number of 
factors, including the size and complexity of their operations. We 
believe that some registrants will experience costs in excess of this 
average in the first year of compliance with the amendments and some 
registrants may experience less than the average costs.
---------------------------------------------------------------------------

    \34\ 17 CFR 249.210.
---------------------------------------------------------------------------

    Second, we assumed that 10% of Form 10-K filers would elect to 
prepare a summary. The number of registrants that would choose to do a 
summary, however, is uncertain. We request comment and supporting 
empirical data, for purposes of the PRA, on the number of registrants 
that are expected to prepare a summary as a result of the interim final 
amendment.
    The table below shows the total annual compliance burden, in hours 
and in costs, of the collection of information resulting from the 
interim final amendment.\35\ The burden estimates were calculated by 
multiplying the estimated number of responses by the estimated average 
amount of time it would take an issuer to prepare and review a Form 10-
K summary. The portion of the burden carried by outside professionals 
is reflected as a cost, while the portion of the burden carried by the 
issuer internally is reflected in hours. For purposes of the PRA, we 
estimate that 75% of the burden of preparation of Form 10-K is carried 
by the registrant internally and that 25% of the burden of preparation 
is carried by outside professionals retained by the registrant at an 
average cost of $400 per hour.\36\
---------------------------------------------------------------------------

    \35\ For convenience, the estimated hour and cost burdens in the 
table have been rounded to the nearest whole number.
    \36\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis we estimate that 
such costs will be an average of $400 per hour. This estimate is 
based on consultations with several registrants, law firms and other 
persons who regularly assist registrants in preparing and filing 
periodic reports with the Commission.

                                         Table 1--Incremental Paperwork Burden Under the Interim Final Amendment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Estimated
                                                     number of       Incremental         Total                              25%           Professional
                                                      affected      burden hours/     incremental      75% company      professional         costs
                                                     responses           form         burden hours
                                                             (A)              (B)                (C) = (A) *(D) = (C) *      (E) = (C) (F) = (E) * $400
                                                                                                               0.75             0.25
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 10-K Summary...............................        \37\ 814               50           40,700           30,525           10,175         $4,070,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Request for Comment
---------------------------------------------------------------------------

    \37\ This number is our estimate of the number of registrants 
that will choose to include a summary in their Form 10-K.
---------------------------------------------------------------------------

    We request comments in order to evaluate: (1) Whether the 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information would 
have practical utility; (2) the accuracy of our estimate of the burden 
of the collection of information; (3) whether there are ways to enhance 
the quality, utility and clarity of the information to be collected; 
and (4) whether there are ways to minimize the burden of the collection 
of information on those who are to respond, including through the use 
of automated collection techniques or other forms of information 
technology.\38\ Specifically, we request comment on the estimated 
number or percentage of registrants that are likely to include a 
summary in their Form 10-K.
---------------------------------------------------------------------------

    \38\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the collection of

[[Page 37138]]

information requirements should direct their comments to the Office of 
Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and send a copy of the comments to Brent J. 
Fields, Secretary, Securities and Exchange Commission, 100 F Street 
NE., Washington, DC 20549-1090, with reference to File No. S7-09-16. 
Requests for materials submitted to the OMB by us with regard to these 
collections of information should be in writing, refer to File No. S7-
09-16 and be submitted to the Securities and Exchange Commission, 
Office of FOIA Services, 100 F Street NE., Washington DC 20549-0213. 
Interested persons are encouraged to send comments to the OMB by July 
11, 2016.

VI. Statutory Authority

    The amendment contained in this release is being adopted under the 
authority set forth in Sections 3, 12, 13, 15(d), and 23(a) of the 
Exchange Act, and Section 72001 of the FAST Act.

List of Subjects in 17 CFR Part 249

    Reporting and recordkeeping requirements, Securities.

Text of the Interim Final Amendment

    For the reasons set out in the preamble, the Commission is amending 
Title 17, Chapter II of the Code of Federal Regulations as follows:

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
1. The authority citation for part 249 is revised to read as follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
    Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745.
    Section 249.240f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 406 and 407, Pub. L. 107-204, 116 Stat. 745.
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and 80a-
37.
    Section 249.308a is also issued under secs. 3(a) and 302, Pub. 
L. 107-204, 116 Stat. 745.
    Section 249.308b is also issued under secs. 3(a) and 302, Pub. 
L. 107-204, 116 Stat. 745.
    Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 
406 and 407, Pub. L. 107-204, 116 Stat. 745.
    Section 249.326(T) also issued under section 13(f)(1) (15 U.S.C. 
78m(f)(1)).
    Section 249.330 is also issued under secs. 3(a), 406, and 407, 
Pub. L. 107-204, 116 Stat. 745.
    Section 249.331 is also issued under 15 U.S.C. 78j-1, 7202, 
7233, 7241, 7264, 7265; and 18 U.S.C. 1350.
    Section 249.617 is also issued under Pub. L. 111-203, Sec.  939, 
939A, 124. Stat. 1376 (2010) (15 U.S.C. 78c, 15 U.S.C. 78o-7 note).
    Section 249.819 is also issued under 12 U.S.C. 5465(e).
    Section 249.1400 is also issued under sec. 943, Pub. L. 111-203, 
124 Stat. 1376.
    Section 249.1800 is also issued under Pub. L. 111.203, Sec.  
922(a), 124 Stat 1841 (2010).
    Section 249.1801 is also issued under Pub. L. 111.203, Sec.  
922(a), 124 Stat 1841 (2010).


0
2. Amend Form 10-K (referenced in Sec.  249.310) by adding new Item 16 
to Part IV to read as follows:

    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

* * * * *

Part IV

* * * * *

Item 16. Form 10-K Summary.

    Registrants may, at their option, include a summary of information 
required by this form, but only if each item in the summary is 
presented fairly and accurately and includes a hyperlink to the 
material contained in this form to which such item relates, including 
to materials contained in any exhibits filed with the form.
    Instruction: The summary shall refer only to Form 10-K disclosure 
that is included in the form at the time it is filed. A registrant need 
not update the summary to reflect information required by Part III of 
Form 10-K that the registrant incorporates by reference from a proxy or 
information statement filed after the Form 10-K, but must state in the 
summary that the summary does not include Part III information because 
that information will be incorporated by reference from a later filed 
proxy or information statement involving the election of directors.
* * * * *

    By the Commission.

    Dated: June 1, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016-13328 Filed 6-8-16; 8:45 am]
 BILLING CODE 8011-01-P