February 21, 2017

Earnings Calls: Technical Difficulties – Please Stand By. . .

Last week, I blogged about problems retail investors have had with the use of company websites to distribute earnings releases.  Here’s a different type of problem – technical snafus on the earnings call itself. Hey, it happens – so what should you do if it does?  Sysco experienced technical problems that prevented some listeners from hearing its recent earnings webcast. Check out this 8-K filing to see how Sysco addressed that problem.  Other companies have dealt with technical problems too – these recent 8-K filings by Devon Energy and Premier addressed similar situations.

The short answer in these situations seems to be to furnish an 8-K under Items 2.02 (Results of Operations & Financial Condition) and 7.01 (Reg FD Disclosure), and attach a copy of your earnings call transcript and any other relevant communications to investors about the glitch.

Sysco’s 8-K also includes upfront references to the GAAP information that’s most comparable to the non-GAAP information that it used during its conference call.  Although this information is already included in the presentation slides, my guess is that the decision to put it in the body of the 8-K itself represents an effort to conform to Item 10(e) of S-K’s “equal or greater prominence” requirement – which wouldn’t have applied to the conference call, absent the decision to file the materials in response to the glitch.

Earnings Calls: The Trump Factor

This WSJ article notes that there’s a new “elephant in the room” during corporate earnings calls – the President of the United States:

Of the 242 companies in the S&P 500 index that held conference calls or other investor events in January, half mentioned Mr. Trump directly or indirectly, according to a Wall Street Journal analysis of transcripts.

When CEOs or analysts discussed Mr. Trump on conference calls, indirect references were more common. Mr. Trump’s name was used about a third of the times that participants mentioned him or his administration. Half the time, participants simply invoked the “new administration.”

The article says that most references to the new president were full of praise, and criticism was muted. That shouldn’t come as a surprise – after all, as this article points out, nobody wants their company to be on the receiving end of one of POTUS’s tweetstorms.

By the way, if your company does find itself in the cross-hairs of the leader of the free world’s Twitter account, don’t despair – this Cleary memo provides advice on how to deal with the situation.

Delaware: Decision on Supermajority Bylaw May Have Broad Implications

I recently blogged about the Delaware Chancery Court’s decision in Frechter v. Zier – where it invalidated a bylaw requiring a supermajority stockholder vote to remove a director.  This K&L Gates memo says that the Court’s decision may have an impact on other bylaws purporting to require a supermajority vote for shareholder action:

This decision also has broader implications for any bylaw provision requiring supermajority stockholder votes to take action for which the DGCL provides a specific voting threshold.  Post-Frechter, some examples of potentially problematic bylaw provisions include bylaws providing for a supermajority stockholder vote for the approval of mergers, significant asset sales and dissolutions, all of which explicitly require a simple majority vote of a corporation’s stockholders under the DGCL.  Corporations should consider moving any such supermajority voting requirements from bylaws to the certificate of incorporation.

However, the memo notes that bylaw provisions requiring a supermajority vote to amend the bylaws themselves are likely still valid following Frechter.

Update: This Weil blog points out that an earlier Delaware bench ruling suggests that similar provisions in the certificate of incorporation may also be unenforceable.

John Jenkins