8.4.1 Annual Reports
The annual report has two parts: (1) the issuer’s most recent audited financial statements, and (2) “financial information and operating data” for the issuer for the prior fiscal year of the type contained in the final OS, as specified in the undertaking. Some issuers include the latter information in their annual financial reports. SEC Rule 15c2-12 requires the issuer or obligor to specify a date in the undertaking (not more than 1 year after the end of the fiscal year being reported) by which the annual report must be submitted to EMMA. Issuers should take care to set a date that allows sufficient time for preparation and receipt by the governing board of the audited financial statements.
The description in any undertaking of other financial information and operating data to be provided should be specific (as opposed to a general statement requiring the issuer to provide information “of the type included in the OS”), and the issuer should, to the extent possible, limit the requirement to information that the issuer already updates each year and plans to continue to update. The issuer does not have to update original OS information that was obtained from other parties, and it does not have to update projections or forecasts; it must only report the actual results from the prior fiscal year. It is also helpful to be consistent so that the annual reporting requirements do not vary from one issue of securities to the next.
If the audited financial statements are not completed by the time the annual report is due, the SEC has provided guidance saying that the issuer should file unaudited financial statements with its annual report, and then file the audited statements as soon as they are available. Filing unaudited financial statements with an annual report could present a SEC Rule 10b-5 problem if the final audited financial statements are materially different than the unaudited versions that are filed.
Because the annual report is a document intended to be read by existing or future bondholders, it is subject to SEC Rule 10b-5 standards. An issuer must, therefore, be mindful to report unless otherwise addressed in an OS or a voluntary filing any material developments since the date of the last financial statements.