April 20, 2020

First Quarter Reporting: Put On Your Game Face

Management teams and their advisors always have plenty to think about when preparing for any quarter’s financial reporting, but when it comes to this one, well. . . like they say on “Rick & Morty” – “Wubba lubba dub dub!” If you’re waist deep in this process, you should take a look at this Weil memo, which provides in-depth checklists addressing issues to think about when preparing this quarter’s earnings release & Form 10-Q. Here’s an excerpt:

At the risk of stating the painfully obvious, the just-completed quarter has not been “normal” for public companies by any stretch of the imagination. As they turn from addressing complex operational matters and mitigation efforts to disclosure decision-making, corporate management, audit committees and boards are grappling with such questions as: Should the earnings release and conference call be delayed to give the company more time to come to grips with any number of novel or complex accounting issues generated by the “perfect storm” of the COVID-19 pandemic, global economic turmoil, and the rapid-fire pace of federal and state legislative and regulatory responses?

If it has not already done so, should the company withdraw or otherwise modify earnings guidance made early in Q1? What is the impact on the company of the Coronavirus Aid Relief and Economic Security Act (CARES Act) and its regulatory progeny? Will the company need to recognize impairments? And finally, given the uncertainty about when and how the economy will reopen and whether certain industries will undergo lasting structural change, the ultimate question: what insight can be given into what the future may hold for the company?

The checklists addresses these and other disclosure issues and includes a discussion of the relevant SEC and/or staff-level disclosure guidance that has been provided during the Covid-19 crisis. The checklists identify key action items and conclude with suggestions about “what to do now” in navigating this quarter’s disclosure challenges.

Listing Standards: Nasdaq Provides Temporary Relief from Price-Based Standards

On Friday, the SEC approved an immediately effective Nasdaq rule change that would allow listed companies more time to return to compliance with price-based continued listing standards, which relate to the minimum bid price and market value of publicly held shares. Here’s an excerpt from this Steve Quinlivan blog with a summary of the rule:

Under the approved rule Nasdaq will permit companies that are out of compliance with the Price-based Requirements additional time to regain compliance by tolling the compliance periods through and including June 30, 2020. However, throughout the tolling period, Nasdaq will continue to monitor these requirements and companies will continue to be notified about new instances of non-compliance with the Price-based Requirements in accordance with existing Nasdaq rules. Companies that are notified about non-compliance are required by Nasdaq rules to make a public announcement disclosing receipt of the notification by filing a Form 8-K, where required by SEC rules, or by issuing a press release.

Starting on July 1, 2020, companies will receive the balance of any pending compliance period in effect at the start of the tolling period to come back into compliance with the applicable requirement. Similarly, companies that were in the delisting hearings process would return to that process at the same stage they were in when the tolling period began. Companies that are newly identified as non-compliant during the tolling period will have 180 days to regain compliance, beginning on July 1, 2020.

According to this Reuters article, the NYSE has proposed to provide similar relief from its own price-based continued listing standards, but its initial proposal was rejected. The Exchange was reportedly “in talks” with the SEC about the rule proposal, but that was two weeks ago – and I haven’t seen anything more on this since then.

Cheat Sheet: Covid-19 Quick Reference

I’m a sucker for “cheat sheets” that I can use to get up to speed quickly & fake my way through a conference call, and Simpson Thacher’s 37-page “Covid-19 Quick Reference Guide” fits the bill when it comes to the Covid-19 crisis. It provides a bullet-point overview of securities, corporate, M&A, commercial finance and other considerations associated with the crisis, and also provides an overview of the CARES Act and other governmental responses.

John Jenkins