Q2 Reporting: Investors Focus on Liquidity & Human Capital Disclosure
On June 30th, the SEC held a roundtable on 2nd quarter reporting and COVID-19 disclosure. The panelists included a bunch of big shots from private equity firms and asset managers. A Mayer Brown blog summarizes the panel’s recommendations on Q2 and COVID-19 disclosure. Many of these recommendations focused on liquidity and human capital-related issues. Here are some of them:
– Provide specific and forward-looking guidance on the company’s liquidity position, including its expected cash burn and upcoming capital expenditures. Companies should consider including a best, middle and worst case liquidity scenario.
– Separately disclose the company’s short-term and long-term liquidity plans. Identify the company’s primary use of cash during the second quarter as compared to prior quarters.
– Specify, in a standardized format, the amount of liquidity that is currently available under the company’s existing financing facilities and if financial covenants prevent the company from accessing or drawing down from a disclosed financing source. Identify the time period that the company can expect to continue to operate with limited or no cash revenue.
– Explain management’s rationale for implementing announced executive compensation or staff reductions. Disclose changes to the company’s work force and expected impact on the company’s operations.
– Disclose the impact of the pandemic on the company’s human capital. Explain if the company’s employees will be able to work remotely and disclose the company-specific challenges. Estimate costs if the company expects to spend significantly on personal protective equipment in order to safely reopen.
The panelists said that investors also want to see qualitative disclosures addressing a company’s operational challenges and resiliency, as well as forward-looking disclosures and trend guidance, particularly around capital raising activities. In addition, investors are looking for companies to address the effect of recent social unrest on their business and employees, along with standardized disclosure about their racial and gender diversity, including a description of applicable hiring practices.
-John Jenkins, TheCorporateCounsel.net July 6, 2020
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