A Step-by-Step Approach to Earnings Releases Under New SEC Regulations

Transcription

1 T O O U R F R I E N D S A N D C L I E N T S July 2, 2003 A Step-by-Step Approach to Earnings Releases Under New SEC Regulations For U.S. public companies, the quarterly ritual of publicly announcing and discussing their financial results must comply with technical disclosure requirements under SEC rules. Regulation G and the related amendments to Regulation S-K and Form 8-K became effective on March 28, In addition, on June 13, 2003, the staff of the SEC published various "Frequently Asked Questions" (the "FAQ") with respect to these rules. 2 Under these rules, companies that disclose material non-public information regarding their results of operations or financial condition for a completed annual or quarterly fiscal period are required to: furnish the text of the public announcement or release on a Form 8-K; and provide additional disclosure regarding any non-gaap financial measures used in the announcement or release. Prior to adoption of the new rules, many companies would issue an earnings release and shortly thereafter sponsor a conference call, webcast, or other oral presentation. In light of the new rules, companies are strongly encouraged to furnish their earnings release on a Form 8-K before their earnings conference call and to hold the call within 48 hours of issuing the press release, in order to avoid having to file a second Form 8-K regarding the conference call itself. The procedure that may be utilized under the new rules can be divided into the following six steps: 1 See "Final Rule: Conditions for Use of Non-GAAP Financial Measures," Release No (the Adopting Release ), at See also, "SEC Implements Conditions for the Use of Non-GAAP Financial Measures" (January 29, 2003), available at 2 See "Frequently Asked Questions Regarding the Use of Non-GAAP Financial Measures" which can be accessed at A Partnership Including Professional Corporations New York One New York Plaza New York, NY Washington, DC 1001 Pennsylvania Avenue, NW Washington, DC Los Angeles 350 South Grand Avenue Los Angeles, CA London 99 City Road London EC1Y 1AX United Kingdom Paris 5, boulevard de la Tour Maubourg Paris France Copyright July 2, 2003 Fried, Frank, Harris, Shriver & Jacobson

2 Step 1: Announce Details of Pending Earnings Release The company should issue a press release announcing: the proposed date of release of the earnings results; and the details of any accompanying oral, telephonic, webcast, broadcast or similar presentation, including: the date and time of the presentation; the call-in number; and the web address. If material non-public information, whether or not containing a non-gaap financial measure, will be provided as part of the oral presentation, then: any financial and other statistical information contained in the oral presentation will need to be provided on the company s web site prior to or at the time the presentation is made, in order to avoid having to furnish this information on a Form 8-K; and the press release announcing the earnings call (and the subsequent oral presentation) should include the location of this information on the company s web site. The press release should also include logins, passwords or other special instructions for accessing the financial and other statistical information. Step 2: Issue Earnings Release If the earnings release includes a non- GAAP financial measure, the company must provide the following in the release: Fried, Frank, Harris, Shriver & Jacobson 2 July 2, 2003

3 a presentation of the most directly comparable GAAP financial measure (giving equal or greater prominence to the GAAP measure to which the non- GAAP measure relates); and a reconciliation of the disclosed non- GAAP financial measure to the most directly comparable GAAP financial measure. Although not required (if included in alternative locations), companies may wish to include in the release the disclosures as to their purposes for using non-gaap measures. Step 3: Post on Web Site the Financial/Statistical Information That Will be Provided in the Oral Presentation To avoid being required to furnish on Form 8-K information provided as part of the oral presentation, a company must provide on its web site, at or prior to commencement of the oral presentation, the financial and other statistical information contained in the oral presentation. If the company elects not to or is unable to provide this information on its website, a Form 8-K would need to be furnished within five days of the oral presentation. Although Item 12 of Form 8-K does not specify precisely when the information must be provided on the web site, in the FAQ the SEC staff clarified that the required information must appear on the website "at the time the oral presentation is made." In addition, the FAQ clarified that in the case of information that is not provided in a presentation itself but, rather, is disclosed unexpectedly in connection with the question and answer session that was part of the oral presentation, the information must be posted on the company's website "promptly after it is disclosed." A webcast Fried, Frank, Harris, Shriver & Jacobson 3 July 2, 2003

4 of the oral presentation would be sufficient to meet this requirement. If any non-gaap financial measure is included in the financial and other statistical information, the additional disclosures relating to this information required by Regulation G must be provided, including: a presentation of the most directly comparable GAAP financial measure; and a reconciliation of the non-gaap financial measure to the most directly comparable GAAP financial measure. The FAQ states that the financial and statistical data may be provided by posting the slides or any similar presentation on the website. Alternatively, the FAQ clarifies that the requirement to place the data on the website can be satisfied by including an audio replay of the oral presentation on the website so long as investors can access it and replay it through the website and it includes all material financial and other statistical information included in the presentation that was not previously disclosed. The SEC recommends that the information should remain available on the web site for at least 12 months. 3 Step 4: Furnish Earnings Release on Form 8-K (Before the Conference Call or Oral Presentation) Upon issuing the earnings release, the company should promptly furnish the text of the release to the SEC under Item 12 of Form 8-K. 3 See Footnotes 28 and 61 of the Adopting Release for the 12-month retention recommendation. Companies should consider how the 12-month retention requirement may impact the format of the information which is provided on the web site. For example, if the company expects to convey information through a webcast, the company needs to consider whether it is prepared to keep the webcast available on the web site for 12 months. Fried, Frank, Harris, Shriver & Jacobson 4 July 2, 2003

5 The Form 8-K must be furnished within five business days after the earnings release. 4 However, in order to take advantage of the rule permitting the information provided as part of the oral presentation not to be furnished on a separate Form 8-K: the Form 8-K must be furnished prior to the start of the oral presentation 5 and the oral presentation must occur within 48 hours after the earnings release. In addition, as to each non-gaap financial measure used in the earnings release, the company must disclose: the reasons why the company believes that presentation of the non-gaap financial measure provides useful information to investors regarding the company s financial condition and results of operations; and any material additional purposes, for which the company s management uses the non-gaap financial measure. The rules permit this disclosure to be made: in the earnings release itself, which is furnished as an exhibit to the Form 8- K; 4 This period may be reduced from five to two business days if the SEC adopts pending proposals regarding the acceleration of Form 8-K reporting. 5 In the FAQ, the SEC staff clarified that if the company files its earnings release as an exhibit to its Form 10-Q prior to holding its conference call, the company does not also need to furnish an Item 12 Form 8-K in order to rely on the Item 12 exemption for the conference call. Fried, Frank, Harris, Shriver & Jacobson 5 July 2, 2003

6 in the body of the Form 8-K; or in the most recent annual report on Form 10-K or in a subsequent filing (provided this disclosure is updated if necessary to ensure accuracy). Step 5: Oral Presentation or Conference Call (Within 48 Hours After Issuing the Press Release) Step 6: File A Second Form 8-K (when applicable) The company should initially give the oral presentation within 48 hours after the related press release is issued and furnish the Item 12 Form 8-K before the oral presentation begins. The presentation must be broadly accessible to the public by dial-in conference call, by webcast, by broadcast or by similar means. During the oral presentation, the company must communicate the location of the web site where any non-gaap financial measure would be available. If (1) the conference call is more than 48 hours after the issuance of the earnings press release, or (2) the Item 12 Form 8-K is not submitted prior to the oral presentation, or (3) the financial and statistical information contained in the presentation is not provided on the company s web site, or (4) the oral presentation is not complementary to the earnings release, the company must furnish a second Form 8-K containing the text of any announcement or release (or an update of an earlier announcement or release) disclosing material non-public information regarding the company s results of operations or financial condition for a completed quarterly or annual fiscal period that is included in the oral presentation. To the extent a Form 8-K is required, it should include: the "text of that announcement or release"; Fried, Frank, Harris, Shriver & Jacobson 6 July 2, 2003

7 the financial and statistical information not previously furnished on the first Form 8-K, if any, which contained the earnings release; and information relating to any non-gaap financial measure used in the announcement or release or the financial and other statistical information, including: a presentation, with equal or greater prominence, of the most directly comparable GAAP financial measure; a reconciliation of the non-gaap measure disclosed with the most directly comparable GAAP measure; and, if not already included in the company s most recent Form 10-K or a more recent filing: the reasons why the company s management believes that presentation of the non-gaap financial measure provides useful information to investors regarding the company s financial condition and results of operations; and any material additional purposes for which the company s management uses the non-gaap financial measure. In the FAQ, the staff clarified what a company needs to file in the event that it cannot rely on the exception for oral presentations. The FAQ states that the company must furnish the material, previously non-public, financial and other statistical information required to be Fried, Frank, Harris, Shriver & Jacobson 7 July 2, 2003

8 furnished on Item 12 of Form 8-K as an exhibit to a Form 8-K. The staff takes the position that a transcript of the portion of the conference call or slides or a similar presentation including such information will satisfy this requirement. In such case, all material, previously undisclosed financial and other statistical information, including that provided in connection with any questions and answers, must be provided. For foreign private issuers that file on Form 20-F or 40-F and are not required to make Form 8-K filings, the above procedure is not applicable. These issuers, however, need to continue to comply with Regulation G with respect to their earnings releases. Please see our memorandum, "SEC Implements Conditions for the Use of Non-GAAP Financial Measures" (January 29, 2003), available at For further information, please contact your Fried Frank contact person or any of the following: New York Valerie Ford Jacob Kenneth R. Blackman Stuart H. Gelfond Michael A. Levitt Washington, DC Richard A. Steinwurtzel Andrew P. Varney Vasiliki Tsaganos London Daniel J. Bursky Timothy E. Peterson Fried, Frank, Harris, Shriver & Jacobson 8 July 2, 2003