TheCorporateCounsel.net

We have entered that part of the economic cycle where every morning brings news of a significant corporate layoff. In the latest issue of The Corporate Counsel, we address the steps that you can take to get your disclosure controls in shape for reporting on material layoffs under Item 2.05 of Form 8-K.

As we note in the article, Item 2.05 of Form 8-K is not just limited to reporting layoff scenarios, but rather contemplates a wider range of events that are often referred to by companies as restructurings or write-offs that trigger the accounting for related costs under applicable GAAP. Timing is a particularly sensitive topic in the context of layoff announcements, as companies seek to carefully choregraph the notice to affected employees and to the markets. One particular concern is that the commitment to a course of action involving a plan of termination could start the Form 8-K deadline clock ticking before the company has an opportunity to communicate with employees. The SEC Staff addressed this concern in Exchange Act Form 8-K CDIs Question 109.02, which provides that if, in connection with an exit activity, the company is terminating employees as part of a plan to exit an activity that is covered by ASC 420, then the company is not required to disclose the commitment to the plan on Form 8-K until it has informed affected employees.

The article notes the steps that you can take now to prepare for a layoff disclosure, including:

– Coordinate with your accounting and financial reporting colleagues to understand the range of potential triggering events contemplated by ASC 420 and the process for committing to a course of action.

– Discuss and document the analysis for determining whether material charges will be incurred under GAAP based on the various
potential triggering events.

– Determine who within the organization will be providing the cost estimates that must be disclosed and how quickly those estimates can be provided.

– Coordinate with those in the organization who will be communicating with affected employees.

– Coordinate with the broader disclosure group so that the overall communications plan regarding the layoffs can be aligned within the timeframe contemplated for the Form 8-K filing.

To get access to the practical guidance offered in The Corporate Counsel, you can subscribe online or email sales@ccrcorp.com.