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SEC Provides COVID-19 Guidance and Relief to Public Companies

The US Securities and Exchange Commission (the “SEC”) has issued guidance and provided certain accommodations to public companies in light of  the coronavirus pandemic (“COVID-19”) and its impact on public company reporting.  In particular:

  • Public Disclosure Guidance.  The SEC Division of Corporation Finance has provided its current views on how COVID-19 has and will impact public company disclosure and the kinds of questions public companies should ask in preparing that disclosure.
  • Non-GAAP Financial Measures.  The SEC Division of Corporation Finance has provided additional flexibility to public companies with respect to disclosing non-GAAP financial measures.
  • 45-Day Grace Period for Filing Deadlines.  The SEC has provided public companies, under certain circumstances, with a 45-day extension for the filing of certain reports that otherwise would have been due between March 1 and July 1, 2020.

This client alert discusses the key accommodations and guidance provided by the SEC in these three areas.

Public Disclosure Guidance

The SEC staff acknowledged in its disclosure guidance, issued on March 25, 2020, that COVID-19 poses unique challenges for public company reporting because circumstances are changing rapidly, and many consequences of the COVID-19 pandemic have yet to become fully realized. In response to this challenge, the SEC staff included in that guidance a series of topics and questions for a public company to consider (both at present and prospectively) when preparing and revising their disclosure, including:

  • Impact on the company’s financial condition and results of operations
  • Impact on the company’s capital and financial resources, including its overall liquidity position and outlook
  • Changes to the value of assets and the company’s ability to account for such changes on a timely basis
  • Material impairments that may impact the company’s financial statements
  • Operational challenges, including challenges in maintaining financial reporting systems, internal control over financial reporting and disclosure controls and procedures
  • Adverse effects on the company’s business continuity plans
  • Changes in demand for the company’s products and services
  • Adverse effects on supply chains, and changes in the relationship between costs and revenues
  • Impact on the company’s employees and productivity
  • The impact of travel restrictions and border closures on operations and achievement of business goals

Public companies will want to focus on these topics and questions as they begin preparing their Quarterly Reports on Form 10-Q for Q1 2020. For instance, companies will need to consider how macroeconomic factors, demand for products, supply chain constraints and operational challenges related to COVID-19 have affected, and may continue to affect, their results of operations. Historical impacts will be reflected in MD&A.  But companies should consider whether this section needs to also include a discussion of any known trends and uncertainties to address the impact of COVID-19 on their future business and/or revise their liquidity discussion to account for changes in their financial position and access to capital. Similarly, companies will need to work carefully with their accounting staff and auditors to properly reflect the impact of any impairments or other charges on their financial statements.  All public companies will also need to revisit their risk factors to consider whether any updates or additions are needed to reflect changed circumstances.

Public companies should continually evaluate their public disclosures with these considerations in mind. The SEC staff reminded public companies that forward-looking statements regarding the impact of COVID-19 can be made in a way to take advantage of the safe harbors provided in Section 27A of the Securities Act and Section 21E of the Exchange Act.  Therefore, companies should also carefully review their safe harbor language to ensure that it adequately covers risks likely to impact their forward-looking statements.

Non-GAAP Financial Information

The SEC staff recognizes that COVID-19 may raise novel or complex accounting issues that could require significant time to resolve, and that public companies may face legitimate challenges in presenting their financial results in a way that properly takes into account the evolving impact of COVID-19 as a result of unexpected, nonrecurring charges and expenses. Driven by these concerns, the Division of Corporation Finance provided important new relief with respect to the inclusion of non-GAAP financial measures in SEC filings.

The SEC staff recognizes that at the time of publication of an earnings release a public company may want to present a non-GAAP financial measure, but may find it difficult to reconcile such measure to a GAAP financial measure because the impact of COVID-19 on certain adjustments may remain uncertain. In such a situation, the SEC staff will not object if a public company reconciles a non-GAAP financial measure to preliminary GAAP results that include provisional amounts based on either (i) a reasonable estimate of the GAAP results or (ii) a range of reasonably estimable GAAP results.

The SEC provided an example of a public company seeking to disclose EBITDA on its earnings call. Under this guidance the public company could provide a reconciliation to:

  • net income;
  • a reasonable estimate of net income including a provisional amount; or
  • a reasonable estimate of a range for net income.

If a public company presents a non-GAAP financial measure that it reconciles to a provisional GAAP amount or an estimated range for a GAAP measure, the company should explain, to the extent possible, why the GAAP item is not final and the additional information or analysis required to complete the accounting. In addition, presentation of non-GAAP financial measures in reliance on the new guidance should, according to the SEC guidance, be limited to the non-GAAP financial measures management is using to report financial results to the company’s Board of Directors. 

In keeping with the SEC’s prior guidance with respect to non-GAAP financial measures, public companies are reminded that if they present a non-GAAP financial measure or performance measure that includes an adjustment intended to address the impact of COVID-19, they should highlight why management finds the measure presented useful, and how it assists investors in understanding how COVID-19 has affected the company.

The SEC’s guidance regarding use of provisional GAAP amounts or estimated ranges of GAAP financial measures applies to earnings releases and earnings calls.  It does not apply to SEC filings, such as Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which continue to require reconciliation to GAAP measures.

Filing Deadline Relief

For Exchange Act filings due on or before July 1, 2020, the SEC has granted an extension of the applicable due date to 45 days from the original due date if certain conditions are met. The filings covered by this relief include, among others, Annual Reports on Form 10-K and 20-F and Quarterly Reports on Form 10-Q (including the 10-Q for the quarter ended March 31, 2020).  The conditions that must be satisfied to rely on this relief are:

  • the company or other filing person must be unable to meet the required deadline as a result of the impact of COVID-19;
  • if the company is unable to meet the required deadline for the report due to COVID-19, it must file a Current Report on Form 8-K (or Form 6-K for foreign private issuers) by the original due date for the report, stating:
    • that the company is relying on this relief;
    • why the company  is unable to meet the required filing deadline;
    • the estimated time the company will be able to make the required filing;
    • company-specific risk disclosure about the impact of COVID-19; and
    • if the report cannot be filed on time because any person, other than the company, is unable to furnish any required opinion, report or certification, the Form 8-K or Form 6-K must attach a statement signed by such person as an exhibit stating the specific reasons why such person is unable to furnish the required opinion, report or certification.

Filing deadline extensions under Rule 12b-25 remain available as well.

Public companies considering relying on this relief will need to weigh the benefit of having more time to prepare the financial statements and complete their Sarbanes-Oxley certifications against the potential costs. Without current disclosure, companies in need of liquidity will, in most cases, be unable to execute a debt offering.  Depending on the language in the company’s credit agreement, a delay in filing the Annual Report on Form10-K or Quarterly Report on Form 10-Q could make it impossible for a company to draw under its revolving credit facility. Without current disclosure companies will also be unable to open the trading window for their directors, officers and other employees who may be aware of material non-public information, thereby preventing individuals from being able to sell equity to satisfy their own potential liquidity needs. Due to these considerations, public companies who need to use this relief should keep in mind these potential negative consequences.

The SEC also granted relief from the obligation to furnish proxy statements, annual reports, and other soliciting materials to shareholders if (i) mail delivery has been suspended at the shareholder’s mailing address due to COVID-19, and (ii) the public company or other person making a solicitation makes a good faith effort to furnish the materials to the shareholder.


The SEC has said that it will continue to monitor the impact of COVID-19 on public company reporting obligations, and companies should stay tuned for further guidance from the SEC in this area.