On June 30, 2020, Securities and Exchange Commission (“SEC”) Chair Jay Clayton moderated a roundtable concerning pandemic-related disclosure considerations. The roundtable included Gary Cohn, former Director of the National Economic Council, Glenn Hutchins, co-founder of Silver Lake Partners, Tracy Maitland, President of Advent Capital Management, and Barbara Novick, the Vice Chair of BlackRock. The Director of the Division of Corporation Finance, William Hinman also participated. Chair Clayton noted that the SEC remains focused on encouraging public companies to provide company-specific disclosure and forward-looking statements relating to the effects on their businesses and prospects of the global COVID-19 pandemic.
The private sector participants provided the following disclosure suggestions for the SEC and public companies to consider in connection with preparing and reviewing upcoming second quarter periodic reports:
- 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.
- Disclose the impact to the company’s business operations from the COVID-19 pandemic but avoid a one size fits all approach. Instead, companies should provide qualitative disclosures regarding their operational challenges and resiliency.
- Be as transparent as possible on the wide range of outcomes that may result as the COVID-19 pandemic continues to unfold.
- Consider providing a monthly breakdown of the second quarter and provide a summary of the expectations, cash flow and results for each month.
- 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.
- Provide forward-looking statements and trend guidance especially in connection with capital raising transactions. Disclosures can expressly assume a particular operational scenario given the unknown future impact of the pandemic.
- Describe any material supply chain interruptions. Explain the impact that current travel restrictions are having on the company’s supplies and workers.
- 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.
- Identify if the company has applied or received aid from government programs relating to the pandemic.
- Describe the pandemic’s impact on the company’s consumers and competitors.
- Describe the effect of recent social unrest on the company and its employees. Include standardized disclosure of a company’s racial and gender diversity, including a description of applicable hiring practices.
Division Director Hinman noted that the Staff will review closely disclosures from registrants, and will consider providing additional guidance, as it has with respect to LIBOR transition and Brexit matters, to registrants, relating to the pandemic, human capital disclosures and other matters. Director Hinman also noted that the Staff might consider providing examples of the types of disclosures that are considered helpful to investors. It is noteworthy that the participants spent considerable time during the program addressing the human capital and social issues, and highlighted the significance of these matters to institutional investors.