Yesterday, SEC Chair Jay Clayton and Corp Fin Director Bill Hinman issued a joint statement urging companies “to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning” in light of the impact of the COVID-19 pandemic. The statement covers a lot of ground, but this excerpt is probably the key takeaway for companies preparing for their upcoming Q1 earnings releases and analyst calls:
Speaking for ourselves, and recognizing the challenges inherent in our request, we urge our public companies, in their earnings releases and analyst calls, as well as in subsequent communications to the marketplace, to provide as much information as is practicable regarding their current operating status and their future operating plans under various COVID-19-related mitigation conditions. Detailed discussions of current liquidity positions and expected financial resource needs would be particularly helpful to our investors and markets.
Beyond the income statement and the balance sheet effects, we recognize that COVID-19 may significantly impact operations, including as a result of company efforts to protect worker health and well-being and customer safety. The impact of company actions and policies in this area may be of material interest to investors, and we encourage disclosures that address that interest.
In addition, companies and financial institutions may be receiving financial assistance under the CARES Act or other similar COVID-19 related federal and state programs. Such assistance may take various forms and is intended to mitigate COVID-19 effects for companies and their workers. If these or other types of financial assistance have materially affected, or are reasonably likely to have a material future effect upon, financial condition or results of operations, the affected companies should provide disclosure of the nature, amounts and effects of such assistance.
Throughout the statement, Clayton and Hinman repeatedly encourage companies to make forward-looking statements about a wide variety of topics related to their COVID-19 responses:
This quarter, earnings statements and calls will not be routine. In many cases, historical information may be substantially less relevant. Investors and analysts are thirsting to know where companies stand today and, importantly, how they have adjusted, and expect to adjust in the future, their operational and financial affairs to most effectively work through the COVID-19 health crisis.
For a lot of companies, the call for voluntary forward-looking disclosure about these and other matters is likely to be a big ask — even with assurances that “good faith attempts to provide appropriately framed forward-looking information” won’t be second guessed by the SEC. Their businesses have just been hit by the financial equivalent of a nuclear bomb. My guess is that most of them are going to have a tough enough time just trying to work through the forward-looking “known trends” disclosure they’re required to make in MD&A.
We’d all like some clarity about how companies “expect to adjust their operational and financial affairs to most effectively work through the COVID-19 health crisis.” In fact, I’d wager that nobody would like to know the answer to that question more than the boards and management teams who are trying to figure it out for their own companies. But, in the short term, I doubt that many companies will be able to provide a lot of meaningful disclosure in this area — and I’m not at all sure that it’s in their best interests to try.
-John Jenkins, TheCorporateCounsel.net April 9, 2020
