Monday, March 30, 2020

Calcbench continues to pay heed to what companies are disclosing about covid-19 because, well, it is the most important economic issue in the world right now; and is likely to remain so for quite some time.

Moreover, the Securities and Exchange Commission published guidance on March 25 to help companies understand what they should disclose. As always, the SEC expects companies to disclose any risk that could be material to investment and proxy voting decisions — but this new guidance gave several examples of what Covid-19 risks could include.

Those material concerns might include:

  • Any risks around the company’s results of operations;
  • Possible effect on capital and financial resources, including liquidity risk;
  • Any changes to the value of assets, such as changes to judgment of fair-value assets or impairment to goodwill, credit losses, allowances, and so forth;
  • Any difficulty in implementing work-from-home policies, including possible delays in compiling financial reports;
  • Disruption to your supplies or customers that might have a material effect on your own operations.

That’s a non-exhaustive list, of course. The onus is on each firm to decide what’s material for investors, and then to disclose that.

Which means that corporate reporting teams need to see peer disclosures, so you have at least a rough sense of what others are disclosing; and therefore what your firm should probably disclose, too.

So what have companies been saying lately? Let’s take a look.

Some Examples

Retailer L Brands ($LB), for example, added “significant health hazards or pandemics” to the Risk Factors section of its 10-K filed on March 30. That phrasing wasn’t included one year ago. We used our Add Previous Period feature in our Interactive Disclosures database to check. See Figure 1, below; we highlighted the relevant text in blue.

Further down, L Brands then added a 329-word paragraph devoted to Covid-19. It addressed everything from supply chain disruption, to workforce availability, store closures, consumer spending cutbacks, and even access to cash. Plus, this kicker: “Our actual results could differ materially from our guidance due to this risk, and other uncertainties and factors.”

Home Depot ($HD) did the same with its 10-K filed on March 25. See Figure 2, below; with the “public health” language highlighted in blue. Then Home Depot added a paragraph to that section of disclosure devoted to Covid-19. The company discussed a range of possible issues, including this line: “At this time, there is significant uncertainty relating to the potential effect of COVID-19 on our business and the costs that we may incur as a result.”

A fair statement, but there’s a lot of that going around.

Dell ($DELL) didn’t single out Covid-19 in a headline; rather, the company just warned about “adverse global economic conditions” in a headline from its 10-K on March 27, and then added a paragraph devoted to the virus. Dell also added this analysis in its Management Discussion & Analysis:

Our business operations could be adversely affected by uncertainty and disruption resulting from the global spread of the coronavirus disease 2019 (COVID-19). While we are currently seeing heightened interest in work from home solutions and continuing execution in our global supply chain, we are unable to predict the extent to which the global COVID-19 pandemic may adversely impact our business operations, financial performance and results of operations for Fiscal 2021. We have taken precautionary measures to increase our cash position and preserve financial flexibility. We will continue to monitor global events and respond accordingly to any potential business disruptions that may occur.

Those are just a few of the disclosures we’ve seen lately. You can conduct your own research with our Interactive Disclosures database, searching for “COVID-19” in the text search box on the right-hand side of your page. Typically you’ll see them in Risk Factors and MD&A, and possibly elsewhere.

Stay well, friends.

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