As calendar-year public companies are beginning to prepare their Quarterly Report on Form 10-Q (Form 10-Q) for their first quarter, the novel coronavirus (COVID-19) pandemic and the related societal and economic impact continues to evolve. One important item that companies will need to consider as part of their Form 10-Q preparation is whether any new (or expanded) risk factors relating to COVID-19 should be included in their Form 10-Q.

Form 10-Q requires companies to disclose any material changes to the risk factors that were included in their Annual Report on Form 10-K (Form 10-K). Absent merger and acquisition activity or other material developments, it is not unusual for companies to determine no material changes have occurred since their Form 10-K was filed (and as a result no new risk factor disclosure is required).

However, given the significant impact of COVID-19 on businesses so far this year, we expect most companies will update their existing risk factor disclosure. Investors and other stakeholders are paying particular attention to COVID-19 disclosures, and the risks that COVID-19 poses to a company may not always be obvious to such stakeholders absent robust disclosure.


Continue Reading Reevaluating Risk Factors in Response to COVID-19

In a previous blog post, we discussed certain high-level considerations for first-quarter 2020 earnings releases and guidance in the context of the macroeconomic uncertainty brought about by the novel coronavirus (COVID-19) pandemic.  We indicated our expectation that a significant number of registrants would elect to withdraw guidance in light of this uncertainty.

To get a more comprehensive view of how registrants have approached financial guidance, we analyzed disclosures in earnings releases by off-calendar year-end companies furnished with the Securities and Exchange Commission (SEC) on or after March 16, 2020.  As noted in greater detail below, a majority of companies issuing earnings releases during this period have withdrawn or suspended guidance.  This post presents the results of our analysis.


Continue Reading COVID-19: Bass, Berry & Sims’ Survey of Earnings Release Guidance Practices in the Wake of the Pandemic

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

On March 23, the Division of Enforcement of the Securities and Exchange Commission (SEC) issued a Statement warning against insider trading during the ongoing COVID-19 pandemic.  In particular, the SEC cautioned that insiders are “regularly learning” new material non-public information (MNPI) that may “hold an even greater value than under normal circumstances.”  The SEC also noted that unique circumstances mean more people may have access to MNPI than may typically be the case.  This is particularly true for companies that delay earnings releases and SEC filings due to the pandemic.

Recognizing the heightened risk of illegal securities trading as a result of these and other factors, the SEC urged publicly traded companies to be mindful of their established controls and policies to protect against the improper dissemination and use of MNPI.

Proactive Steps for Public Companies

In light of the SEC’s Statement and the unique circumstances that companies are facing during the pandemic, publicly traded companies should take affirmative steps to mitigate insider trading risks.


Continue Reading Heightened Insider Trading Risk Due to COVID-19

Please join the Bass, Berry & Sims Corporate & Securities Practice Group for a series of complimentary webinars exploring various public company-related securities law issues. These programs are an extension of our Securities Law Exchange Blog and feature timely and practical guidance to SEC disclosure counsel on key topics of interest.

The COVID-19 global pandemic

The Securities Exchange Commission (SEC) recently issued interpretive guidance, effective February 25, 2020, regarding the disclosure of key performance indicators and metrics (KPIs) in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

While this guidance may not have been an area of significant focus for many companies in the recent periodic reporting cycle given that the effective date of this guidance was after the time that many calendar-year public companies filed their Annual Reports on Form 10-K, this guidance will need to be considered in connection with the preparation of upcoming Quarterly Reports on Form 10-Q.

Overview of the Staff’s Recent Guidance Regarding KPIs in MD&As

The MD&A is generally required to contain discussion of a company’s financial condition, changes in financial condition, and results of operations. Also, according to Item 303(a) of Regulation S-K, the MD&A is also required to contain discussion of information not specifically referenced in the item that the company believes is necessary to an understanding of its financial condition, changes in financial condition, and results of operations. Instruction 1 to Item 303(a) also provides that the MD&A should include a discussion and analysis of other statistical data that in the company’s judgment enhances a reader’s understanding of MD&A.


Continue Reading SEC Interpretive Guidance on Key Performance Indicators and Metrics in MD&A, and a Recent KPI Comment Letter

As companies continue to evaluate the impact of the novel coronavirus (COVID-19) pandemic on their business, public companies will be facing challenging disclosure considerations in connection with their upcoming first-quarter earnings calls and earnings releases.

As a backdrop, a significant number of public companies, concentrated in industries which have felt the strongest immediate impact of the crisis (such as companies whose business is tied to the travel industry), have either updated (e.g., Mastercard) or withdrawn (e.g., Hyatt Hotels, MGM Resorts, Twitter) their 2020 guidance due to the economic fallout and the uncertainty surrounding this pandemic.

Whether or not a public company has updated or withdrawn its 2020 guidance based on COVID-19 considerations, public companies will face challenging disclosure decisions as they approach their first-quarter (for calendar year-end companies) earnings releases and earnings calls.  A key reference point in this regard is CF Disclosure Guidance, Topic No. 9, issued by the Division of Corporation Finance on March 25, which highlights the perspective of the Staff regarding various disclosure considerations related to the COVID-19 pandemic.


Continue Reading High-Level Considerations for First-Quarter 2020 Earnings Releases and Guidance in Uncertain Times

The COVID-19 pandemic has created a disclosure nightmare for public companies.  The Securities and Exchange Commission (SEC) has recognized this challenge and, to its credit, has provided relief to public companies by, among other things, extending the deadline for companies to file certain disclosure reports.  Nonetheless, companies are faced with the challenge of crafting disclosures regarding the risks presented by the coronavirus crisis to their business and operations and their plans for addressing those risks.  This challenge is made all the more difficult by the looming presence of securities class action firms, which already have sued companies over coronavirus-related disclosures.  In addition, the SEC in the recent past has charged companies for allegedly insufficient disclosures made in reaction to crisis situations.

The COVID-19 pandemic is wreaking havoc on the world economically.  Businesses are being harmed in a myriad of ways, from losing customers, to supply chain disruptions, to employee layoffs.  Many businesses and industries will change their operations in the short term and possibly permanently, while others will cease to exist.  Public companies have a unique responsibility under federal securities laws to disclose information to the public, including assessments and plans relating to their business and operations and related risks.  Such assessments and disclosures become thorny in the face of volatile markets, unprecedented events, and colossal business uncertainty.


Continue Reading COVID-19: Mitigating Enforcement and Litigation Disclosure Risks for Public Companies

Jay Knight (far right) discusses disclosure challenges for public companies at the 2020 Securities Regulation Institute.

The Bass, Berry & Sims Corporate & Securities Practice Group kicked off the new year by participating as a sponsor of the 47th Annual Securities Regulation Institute, which is held annually in San Diego by Northwestern University. Jay Knight, head of the firm’s Capital Market Subgroup, was featured as a speaker in a well-attended panel discussing recurring disclosure challenges faced by public companies and their advisors. Each year, the conference draws SEC staffers and many of the leading practitioners of the public company industry, and the keynote speaker for this year’s conference was SEC Commissioner Jay Clayton.

Our key takeaways from the conference follow:
Continue Reading Five Key Takeaways from the 2020 Securities Regulation Institute

One thing I 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