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A recent SEC comment letter contained an exchange in which the Staff, in connection with a 10-K review, reminded the registrant to give equal prominence to the comparable margins computed on a GAAP basis wherever EBITDA margin and adjusted EBITDA margin were disclosed.

As a reminder, in the SEC’s Adopting Release titled “Conditions for Use of Non-GAAP Financial Measures” (Release No. 33-8176), the SEC states, “An example of a ratio that would not be a non-GAAP financial measure would be a measure of operating margin that is calculated by dividing revenues into operating income, where both revenue and operating income are calculated in accordance with GAAP. Conversely, an example of a ratio that would be a non-GAAP financial measure would be a measure of operating margin that is calculated by dividing revenues into operating income, where either revenue or operating income, or both, were not calculated in accordance with GAAP.”

This comment exchange, which is repeated below for reference, is a helpful reminder to our blog readership that non-GAAP continues to a focus of the Staff and that a margin number which is itself derived from one or more adjusted numbers will itself be a non-GAAP financial measure in many cases.Continue Reading EBITDA Margins Are Non-GAAP Measures Also

For public companies and for market participants generally, the impacts of the coronavirus (COVID-19) pandemic have been unpredictable, swift, and universal.  In a groundbreaking joint statement entitled “The Importance of Disclosure – For Investors, Markets and Our Fight Against COVID-19,” issued on April 8, Jay Clayton, the Chairman of the U.S. Securities and Exchange Commission (SEC), and William Hinman, Director of the SEC’s Division of Corporation Finance, tackled the question of how public companies should approve their disclosures in the coming weeks when they are issuing earnings releases and conducting analyst and investor calls.

In summary, Chair Clayton and Director Hinton request companies to provide as much information as is practicable regarding their current status and plans for addressing the effects of COVID-19.Continue Reading SEC Chair Clayton and Corp Fin Director Hinman Issue a Joint Statement Requesting More Forward-Looking Disclosures on COVID-19 Impacts in Upcoming Earnings Calls

The Staff of the various Securities Exchange Commission (SEC) divisions, including the Division of Corporation Finance, issued an announcement on March 24, 2020, which provides some flexibility to registrants seeking to satisfy the record retention requirement in Rule 302(b) of Regulation S-T that the registrant retain the manually signed documents.

Rule 302(b) of Regulation S-T requires that each signatory to documents electronically filed with the SEC “manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing.”  Such documents must be executed before or at the time the electronic filing is made.  Further, electronic filers must retain such documents for a period of five years and furnish copies to the SEC or its staff upon request.Continue Reading SEC Staff Provides Relief to “Manual Signature” Retention Requirement in Light of COVID-19 Concerns

One thing to appreciate about the SEC comment letter process is that it gives real life examples to what is often discussed hypothetically.  Take, for example, cybersecurity and steps management should take when a data incident occurs.  How quickly should a public company make its public disclosure of a data incident?  What should it say?  What should the process look like?

In 2018, the SEC issued helpful interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.  This was in addition to the Division of Corporation Finance’s 2011 guidance regarding disclosure obligations relating to cybersecurity risks and incidents.  In addition, our friends at corporatecounsel.net ran a helpful blog post on February 18 related to cyber response plan testing.

It is clear there is no single playbook for a data incident response, and the appropriate response is driven by the facts and circumstances of the situation.  One size does not fit all.  However, it is helpful when preparing a response plan to analyze a real life example.  That is why the SEC comment exchange recently made public between the Staff and Chegg, Inc. last fall is particularly insightful.Continue Reading SEC Staff Comments on Chegg’s Data Breach Disclosure and Response; A Real Life Example 

This is a friendly reminder to our clients and friends that 2020 is a leap year, which means there is an extra day in the calendar: February 29, 2020.

Therefore, when updating your internal SEC reporting and proxy calendars, please keep this added day in mind.  For example, instruction G(3) of Form 10-K provides that the information required by Part III (Items 10, 11, 12, 13 and 14) may be incorporated by reference from the registrant’s definitive proxy statement, if such definitive proxy statement is filed with the Commission no later than 120 days after the end of the fiscal year covered by the Form 10-K.

In typical years, that 120-day date is April 30 for December 31 fiscal year end companies.  However, this year the cut-off date is Wednesday, April 29, 2020, as a result of leap day.Continue Reading Don’t Forget: Update SEC Filing and Proxy Calendars for Leap Year 2020

Given the high profile nature of Boeing’s ongoing saga with the grounding of its 737 MAX aircraft, perhaps it should come as no surprise that the Securities Exchange Commission (SEC) Staff was particularly focused on the company’s disclosure of this issue in its recent review of Boeing’s SEC filings.

In monitoring SEC comment letters, we came across this SEC comment letter exchange with Boeing made public this week where the Staff questions the company about its commitments and contingencies footnote disclosures as required by Accounting Standards Codification (ASC) 450 – Contingencies.

Staff Requests More Disclosures in Contingency Footnote

In its Form 10-Q for the quarterly period ended June 30, 2019, Boeing discloses that it recorded in the second quarter an earnings charge of $5.6 billion, net of insurance recoveries of $500 million, in connection with “estimated potential concessions and other considerations to customers for disruptions related to the 737 MAX grounding and associated delivery delays.”Continue Reading SEC Staff Comments on Boeing’s 737 MAX Contingency Disclosure

In June of this year, the SEC issued a concept release that reviews the framework for exempt offerings, including several exemptions from registration under the Securities Act of 1933 that facilitate capital raising.  The concept release seeks comment on possible ways to simplify, harmonize and improve this exempt offering framework to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.

To date, approximately 161 commentators have submitted letters to the SEC, and the SEC has posted memos related to seven meetings between SEC officials and outside parties concerning the rulemaking.  As a former Staffer that did a stint in the Office of Rulemaking, I can appreciate the hard work that is involved in summarizing all these letters and meetings.  (I actually had the job of summarizing comment letters in connection with a rulemaking I was involved with while on Staff.  It is actually very beneficial for the Staff to hear various viewpoints and expertise on any rulemaking, but it is also a tedious task that takes a lot of Staff hours and, for me at least, a very large spreadsheet!)Continue Reading ABA Securities Committee Comments on SEC’s Concept Release on Private Offerings Harmonization

On September 26, 2019, the SEC voted to adopt a new rule that extends a “test-the-waters” accommodation—currently a tool available only to emerging growth companies (EGCs)—to all issuers.  The rule will become effective 60 days after publication in the Federal Register.

The new rule and related amendments under the Securities Act of 1933 would enable all issuers (and its authorized representatives, including underwriters) to engage in test-the-waters communications with certain institutional investors regarding a contemplated registered securities offering prior to, or following, the filing of a registration statement related to such offering. These communications would be exempt from restrictions imposed by Section 5 of the Securities Act on written and oral offers prior to or after filing a registration statement and would be limited to qualified institutional buyers (QIBs) and institutional accredited investors (IAIs).

New Rule 163B

New Securities Act Rule 163B will permit any issuer, or any person authorized to act on its behalf, to engage in oral or written communications with potential investors that are, or are reasonably believed to be, QIBs or IAIs, either prior to or following the filing of a registration statement, to determine whether such investors might have an interest in a contemplated registered securities offering.  The rule is non-exclusive and an issuer may rely on other Securities Act communications rules or exemptions when determining how, when, and what to communicate about a contemplated securities offering.Continue Reading SEC Adopts New Rule to Allow All Issuers to “Test-the-Waters”

It’s not too often we see Dick Clark and Ryan Seacrest mentioned in SEC comments, so this recent SEC comment letter issued to Planet Fitness caught our attention.  The Staff’s letter to Planet Fitness indicates that it performed a full review on the company’s Annual Report on Form 10-K, which included its definitive proxy statement incorporated by reference.

(You can tell it was a full review (legal and accounting) because the first sentence of the letter says, “We have reviewed your filing and have the following comments.”  In contrast, a limited review (or monitor) would have said something like “We have limited our review of your filing to the financial statements and related disclosures and have the following comments.”)Continue Reading “Dick Clark’s Rockin’ Eve with Ryan Seacrest” Gets a Billion TV Viewers? SEC Staff Says Prove It

Yesterday, the SEC charged TherapeuticsMD Inc., a pharmaceutical company headquartered in Boca Raton, Florida, with violations of Regulation FD based on its sharing of material, nonpublic information with sell-side research analysts without also disclosing the same information to the public.  The SEC’s order finds that on two separate occasions in 2017, TherapeuticsMD selectively shared material information with analysts about the company’s interactions with the U.S. Food and Drug Administration (FDA).

As detailed in the SEC’s order, on June 15, 2017, one day after a publicly-announced meeting with the FDA about a new drug approval, TherapeuticsMD sent private messages to sell-side analysts describing the meeting as “very positive and productive.”  TherapeuticsMD’s stock price closed up 19.4% on heavy trading volume the next day.  At that time, the company had not issued a press release or made any other market-wide disclosure about the meeting.Continue Reading Recent SEC Enforcement Action Drives Home the Importance of Regulation FD Policies and Training

From the Bass, Berry & Sims Blog Network
From the Bass, Berry & Sims Blog Network

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