This article addresses the impact of the coronavirus-2019 pandemic (COVID-19) on your company’s SEC reporting obligations and provides disclosure considerations that your company may wish to implement in the near-term as the fiscal quarter draws to a close.

Your Real-Time Reporting Requirements

  •  Absent a specific triggering event, COVID-19, in and of itself, does not require that your company file a Form 8-K.
  •  When an event occurs that triggers disclosure on Form 8-K and COVID-19 is the primary cause or is a material driver of such event, your company should specifically disclose the role that COVID-19 played in the occurrence of the triggering event.
  •  Furthermore, if your management team is interfacing with analysts, shareholders and other interested parties because of the impact of COVID-19 on your company, your management team must comply with Regulation FD and its prohibition on disclosing material nonpublic information in a non-compliant manner. Accordingly, if your company anticipates that it will or may communicate material, non-public information to analysts, shareholders and other interested parties, compliant methods of disseminating such information include the filing of Forms 8-K and/or the issuance of press releases.

Your Earnings Release, Earnings Guidance and Earnings Call

  •  Your company has undoubtedly been impacted by COVID-19 to some degree; accordingly, you should begin considering now how best to address the impact, if material, of COVID-19 on your company in its upcoming earnings release. In particular, depending upon how severely your company has been impacted by COVID-19, the earnings release should discuss your company’s financial condition and liquidity, cash management practices, intention to continue dividend payments and share repurchase activities, ability to meet its short- and long-term liquidity needs, recent or planned draws on lines of credit, and other potential sources of liquidity and capital strength.
  •  With respect to the timing of your company’s upcoming earnings release, to the extent you are comfortable with the numbers and metrics, you could either move up your release date or issue an interim or preliminary set of results and guidance. Doing so may help manage analyst and investor expectations and bridge any disconnect that may exist between management and the public regarding disparate views of company performance and the trading price of its stock. This is especially important given the rapid pace at which the market is changing each day. Additionally, an interim or preliminary release of financial and operational information may “cleanse” the company and its insiders of material non-public information (if all such information is publicly disclosed) and provide your company and its insiders with an earlier opportunity to commence stock repurchase and other trading activity given the recent precipitous drops in the stock markets.
  •  Unless your company is currently conducting a securities offering, is conducting buybacks, or has previously undertaken to update its guidance, you generally have no duty to update the previously issued earnings guidance. If your company has previously provided earnings guidance, you should consider whether the impact of COVID-19 requires your company to reaffirm the prior guidance (likely with the qualification that it does not account for the impact of COVID-19), update the prior guidance or advise investors not to rely on the prior guidance because it has materially changed. Earnings guidance should be crafted so that it comes within the protection of the forward-looking statement safe harbor of the federal securities laws and should be accompanied by a statement disclaiming any affirmative duty to update such statements. By doing so, your company can feel comfortable issuing new guidance or updating prior guidance as may be dictated by evolving circumstances.
  •  In addition to the questions your company routinely fields on earnings calls, your management team should also be prepared to answer analysts’ specific questions relating to COVID-19’s impact on your earnings call. We strongly advise anticipating the content of those questions, scripting answers and practicing responses in advance of the call so that management’s answers are delivered in a manner that instills confidence and displays a command over the situation at issue.

Your Upcoming Annual or Quarterly Report or Registration Statement

  •  As a public filer, your next periodic report or registration statement provides a myriad of opportunities to address the impact of COVID-19 on your company. In particular, the following sections of your periodic report or registration statement should be reviewed in light of COVID-19:

Risk Factors

  •  You should review the last set of risk factors that your company disclosed and consider whether they need to be updated for any material changes, including any changes related to COVID-19, which have occurred in the interim.
  •  Risk factors are intended to discuss the material risks that threaten your company and the impact that any of those risks would likely have were they to occur. Conversely, risk factor disclosure is not intended to be an exercise of creating a “parade of horribles” or hypotheticals that may or may not ever affect your company.
  •  However, if you determine that a particular risk relating to COVID-19 has materially impacted or is reasonably expected to impact (i.e., not could or might possibly impact) your company such that it should be disclosed in real time, your company may consider disclosing that risk factor in a Form 8-K.

Management’s Discussion and Analysis

  •  The “Management’s Discussion and Analysis” (“MD&A”) portion of your next periodic report or registration statement (if applicable) must discuss your financial condition, changes in financial condition and results of operations and any other information that you believe to be necessary to an understanding of your company’s condition and operations.
  •  To the extent that COVID-19 has had a material impact upon your company’s financial condition and results of operations, your management team should discuss those effects in the MD&A. We recommend that your management team tailor this discussion to your company’s business and the industry in which it operates and discuss with specificity the impact that COVID-19 has had on your company’s financial condition and results of operations.
  •  The MD&A is not only intended to be historical in nature but also prospective in its focus. Accordingly, your management team should also address known trends (whether favorable or unfavorable), commitments and events and uncertainties that are reasonably expected to have a material impact on your company.
  •  From a historical perspective, we recommend discussing the impact of COVID-19 on your company since the beginning of the outbreak until the date of the periodic report or registration statement. From a forward-looking perspective, we recommend that you discuss the reasonably anticipated material consequences that COVID-19 may have on your company in the short- and long-term, including those affecting your employees, supply chain, operational contracts, insurance coverage, financing arrangements, capital expenditures and access to additional sources of liquidity and capital.

Forward-Looking Statements

  •  Throughout your periodic report or registration statement, you’ll want the protection of the federal securities law safe harbor when making any forward-looking statements. In light of the rapidly changing nature of COVID-19 and the potential for new disclosures in your Risk Factors and MD&A, taking advantage of the safe harbor is particularly important.
  •  When making forward-looking statements, we recommend that you properly phrase these discussions through the use of words like “expect,” “anticipate,” “intend,” “hope,” or “believe” to clearly signal their prospective focus. Additionally, in the actual forward-looking statements disclaimer located within your periodic report or registration statement, you should advise readers not to unduly rely on forward-looking statements and caution them that these statements and the results and effects that they discuss or imply may be materially different from those actually realized. You should also include COVID-19 in your list of factors that could affect your actual results.

Business

  •  If your periodic report or registration statement requires a description of your business, then you should similarly consider the need to discuss the impact of COVID-19 on your business.
  •  Although the “Business” section of your periodic report or registration statement is primarily historical in its focus, you may wish to apply the prospective disclosure principles discussed above under the caption “Management’s Discussion & Analysis” equally to your “Business” section if material to a reader’s understanding of your company’s business.

Litigation

  •  If your annual or quarterly report or registration statement requires a description of any material pending legal proceedings to which your company is a party, then you should disclose any such litigation that your company is involved in that is related to COVID-19. Notably (and unfortunately), the first wave of stock price drop class action lawsuits have been filed as of the date of this article.

Footnotes to the Financial Statements

  •  When appropriate, you should discuss with your accounting firm whether COVID-19 requires disclosure pursuant to ASC 450 as a potential loss contingency (e.g., you are involved in pending litigation) or whether it requires disclosure in a “Subsequent Event” footnote.

Disclosure Controls and Procedures

  •  In light of the complications caused by COVID-19, including the potential for inconvenience and delay due to remote working arrangements, you should immediately evaluate your disclosure controls and procedures to ensure that all COVID-19 related information that may be required to be disclosed is accumulated and communicated to your management team to allow timely decisions regarding required disclosure.
  •  You should also consider whether your disclosure committee (if your company has one), as well as the employees involved in producing your public disclosure, should meet more frequently than usual in light of any remote working arrangements and social distancing.
  •  Lastly, with respect to your certification and sub-certification processes (e.g., the Sarbanes-Oxley Act Section 302 and Section 906 certifications), you should consider whether any changes are needed in those processes to ensure that such certifications can be made.

The Relief Granted by the SEC in Response to COVID-19

  •  The SEC recently issued conditional relief to public companies that cannot timely satisfy their filing deadlines as a result of COVID-19. The relief provides an additional 45 days to file certain reports and statements, including Forms 10-K, 10-Q, 8-K, and proxy statements, that are due between the date of this article and April 30, 2020, provided that certain conditions are satisfied. In addition, subject to the satisfaction of certain other conditions, the SEC relief also provides that a company may be excused from furnishing a physical proxy statement and other soliciting materials to its shareholders if mail delivery is not possible. For more information regarding this relief, please see the Waller blog post titled: “Coronavirus (COVID-19): SEC issues dilatory relief for issuers affected by the coronavirus.”
  •  The SEC has also granted relief to companies that may choose to transition from in-person annual meetings to virtual or hybrid annual meetings. For more information regarding this relief, pleases see the Waller article titled: “Public companies may consider virtual annual meetings in light of coronavirus.”
  •  Finally, the SEC has granted a modicum of leniency with respect to the requirement that every signatory to an electronic filing also manually sign the filing and the requirement that the company retain the manual signature for five years and produce it upon request to the SEC. Although the SEC still expects signatories and companies to comply with its requirement to the greatest extent possible during this period of time, subject to the satisfaction of certain requirements, the SEC will not recommend enforcement action if a signatory or company does not immediately comply in full with the requirement as a result of the impact of COVID-19.

If you have any questions or need assistance navigating your company’s SEC reporting obligations, please contact any of the Related Professionals, any other member of Waller’s Capital Markets & Securities practice or your regular Waller contact at (615) 244-6380.