Public companies are not generally required to publicly disclose all material information at all times. But there are so many “triggers” of mandatory disclosure that it can seem like it! Mandatory disclosures must be made:

• In any 1933 Act registration statement, beginning with an IPO prospectus on Form S-1 and later in a Form S-3 or other forms;
• In every 1934 Act annual or quarterly report (Form 10-K or 10-Q);
• For every event for which Form 8-K (the 1934 Act “current” report) requires disclosure;
• Any time a company is in the marketplace to buy or sell its stock (referred to as the “disclose or abstain” rule);
• When a company needs to confirm or correct a rumor that began with information leaked from the company, causing unusual trading activity likely to impact the marketplace;
• When required by stock exchange requirements (Chapters 9 and 10 describe how the NYSE and Nasdaq call on companies to promptly release material information and dispel unfounded rumors); and
• To update prior statements that the market considers current or “evergreen,” but which the passage of time has rendered inaccurate or incomplete.

Specific SEC regulations and interpretations cover three key categories:

• Regulation G, Item 10(e) of Regulation S-K and SEC Compliance and Disclosure Interpretations (referred to as SEC interpretations or C&DIs) cover the disclosure of non-GAAP financial measures;
• Regulation FD covers the intentional or inadvertent disclosure of material nonpublic information; and
• Regulation M-A requires target companies and acquirers in mergers and acquisitions to file all their written communications on the date of first use.

Virtually all other communications, both formal and informal, by a public company – such as holding earnings calls, attending analyst conferences, posting information on a company website or social media account, and discussions with analysts, investors or the press – are voluntary.

For example, non-GAAP financial measures include adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), adjusted free cash flow, net debt or other similar measures. Where business or operational performance metrics – often known as key performance indicators or KPIs – are calculated on a non-GAAP basis, they are considered non-GAAP metrics for purposes of Regulation G and Item 10(e) of Regulation S-K. However, metrics that are based on operating and statistical data alone, such as same-store sales or the number of employees, will not be considered non-GAAP measures. Similarly, ratios calculated using only GAAP financial measures are not included in the definition of non-GAAP measures.

Non-GAAP financial measures have in recent years been the most frequent subject of SEC comment letters, largely due to their increased use and prominence. While non-GAAP measures can provide valuable information, the SEC has sought, through its interpretations and comment letters, to establish guardrails limiting the risk that such measures mislead investors.

• Reconcile to GAAP. In any release of non-GAAP financial information, and usually when incorporating by reference a document that contains non-GAAP financial information, companies must present the most directly comparable GAAP information and a reconciliation of the non-GAAP information to the GAAP information.

• Comply with Regulation S-K Requirements for “Filed” Information. In any disclosure of non-GAAP financial information that is filed (as opposed to furnished) with the SEC, companies must comply with the stricter Regulation S-K requirements under Item 10(e).

• Prominence. Companies must present the comparable GAAP financial measure with prominence that is equal to or greater than that given to the non-GAAP financial measure. (For example, headers of earnings releases that contain a non-GAAP number should also contain the comparable GAAP number.)
• Explanation. Management must disclose the reasons it believes the non-GAAP financial measure is useful and, to the extent material, any additional purposes for its use of the non-GAAP financial measure.

And Item 10(e) of Regulation S-K prohibits:

• Other Than EBIT or EBITDA, Liquidity Measures Excluding Charges or Liabilities Requiring Cash Settlement. Companies may use earnings before interest and taxes (EBIT) and earnings before interest, taxes, depreciation and amortization (EBITDA), but otherwise should not present liquidity measures that exclude charges or liabilities requiring settlement of these amounts in cash.
• Smoothing. Companies should not adjust non-GAAP performance measures to smooth nonrecurring or unusual items when the nature of the charge or gain is reasonably likely to recur within two years or a similar charge or gain occurred in the previous two years. However, even when an item meets the “within two years” criteria, companies can produce a non-GAAP financial measure that adjusts for a nonrecurring or unusual charge or gain if appropriate, as long as the company does not describe it as nonrecurring, infrequent or unusual.
• Non-GAAP Financial Statements on Face. Companies should not present non-GAAP financial measures on the face of financial statements, notes to financial statements or pro forma financial statements.
• Confusingly Similar Titles. Companies should use titles or descriptions for non-GAAP financial measures that are clearly different from titles or descriptions used for GAAP financial measures.

Regulation FD promotes fair play by requiring issuers to widely share information that would otherwise be disclosed selectively to a mere handful of market professionals. Specifically, Regulation FD requires a company to inform the public when the company, or a person acting on its behalf, voluntarily discloses material nonpublic information to securities market professionals or to security holders when it is reasonably foreseeable that the holders will trade on the basis of that information.

The timing of the company’s required public disclosure depends on whether its voluntary selective disclosure was intentional or unintentional.

• If intentional, the company must make public disclosure of material information simultaneously with any selective In practice, companies publicly distribute material information prior to disclosing it to a limited audience.
• If unintentional, the company must make public disclosure promptly after the inadvertent disclosure of material information. Promptly means by the later of:
  • 24 hours after the unintentional disclosure; or
  • If the next trading day does not begin for more than 24 hours, prior to the beginning of the next trading day.

(The SEC’s 24-hour clock begins at the moment a senior official of a company learns of the unintentional disclosure and recognizes the disclosed information to be both material and nonpublic.)

SAB 99 notes that stock price volatility may be an indicator of materiality. SEC enforcement actions demonstrate that the SEC will assess materiality in hindsight by looking at a company’s stock price and trading volume in the period immediately following a selective disclosure of nonpublic information.

• Recognized Channel for Distribution? Is the company’s website or social media account recognized as a channel for distribution of information to the market? What steps has the company taken, if any, to alert the market to its intent to use its website or social media account to distribute information? Do investors and market professionals know to look to the company’s website or social media posts for this kind of information?

• Broad Dissemination? Does posting information on the website or social media account disseminate the information so as to make it available to the securities marketplace in general? Is the website designed to lead investors to the disclosures? Is the social media profile one that can be followed or accessed by the general public?
• Time to Absorb? Did the posting give investors and the marketplace enough time to absorb and react to the information? The length of time before information may be considered public for Regulation FD purposes depends on the facts and circumstances of the release and the company. These may include the size and market following of the company, the steps taken to alert investors to information on the website and relevant social media accounts, the nature and complexity of the information, and the efforts made by the company to disseminate the information.

Companies should caution employees and directors that posting material information on a personal social media account may violate Regulation FD if the company has not laid the appropriate groundwork to prepare investors. For example, when the SEC investigated Netflix for a post by the CEO on his personal Facebook page containing material performance metrics (without any other disclosure from Netflix), the SEC questioned not the use of social media generally but whether investors knew to monitor the CEO’s personal account for new material information.

Before relying on a company website or social media account to communicate with the marketplace, make sure that these outlets have become recognized channels for distribution. Do this by including a cautionary legend in your Form 10-K or 10-Q filings that describes the company’s intent to disclose material information by website or social media, as well as which social media channels the company intends to use.

• Discussions with persons who agree expressly to maintain the information in confidence. For example, a company may bring one or a small number of investors “over the wall” to pre-market a securities offering. In that case, the nondisclosure agreement may be either written or verbal and may be made before or after the disclosure. It must be more than an implicit agreement or a mere belief on the issuer’s part that there is an agreement.
• Discussions with the press. But in practice, most companies treat disclosures to the press as equivalent to disclosures to an analyst. Some journalists will agree to “embargo” news temporarily and sign a nondisclosure agreement to that effect. Otherwise, make the statements Regulation FD–compliant.
• Ordinary course of business disclosure to customers and suppliers.
• Disclosure made by foreign private issuers. (Chapter 15 discusses the qualifications necessary for a non-U.S. company to qualify as a foreign private issuer.)
• Disclosure to persons who owe a duty of trust or confidence to the company (e.g., lawyers, bankers, financial advisors and accountants).
• Communications – such as a road show – made in connection with most 1933 Act registered offerings. Most, but not all, 1933 Act registrations are exempt from Regulation FD. For example, both a shelf offering to employee optionees on Form S-8 and a Form S-3 resale registration statement are fully subject to Regulation FD. 

Rating Agencies

Disclosures made to nationally recognized statistical rating organizations (NRSROs), such as Moody’s and Standard & Poor’s, are not subject to Regulation FD. While rating agencies are no longer explicitly exempt from Regulation FD, NRSROs have regulatory obligations that prevent them from using the information to trade or to advise others on trading, and so are not “covered persons.” A cautious issuer may wish to ask a smaller non-NRSRO to sign a nondisclosure agreement prior to sharing confidential information as part of the rating review process.

• Regulation FD is not an antifraud rule – an issuer may be liable only for knowing and reckless conduct (not for good faith mistakes in making materiality judgments); and
• Regulation FD does not create private rights of action. Outside Regulation FD, liabilities imposed under Rule 10b-5 under the 1934 Act for selective disclosure continue unchanged. For example, an issuer’s failure to make a public disclosure might give rise to liability under a duty-to-correct or duty-to-update theory.

While not a separate antifraud rule, Regulation FD compliance is actively monitored by the SEC. The SEC closely follows corporate disclosure and continues to bring enforcement actions in the challenging area of one-on-one discussions of earnings guidance with analysts.

Written Forward-Looking Statements

Sections 21E and 27A incorporate a caselaw concept known as the “bespeaks caution” doctrine, which provides that a reader or listener needs to take any forward-looking statement in context. If the context provides fair warning of future uncertainties, the reader cannot fairly ignore them. To fall within the safe harbor, the forward-looking statements must be accompanied by:

• Meaningful cautionary language that identifies the forward-looking statements; and
• In the case of written statements, the important factors that could cause actual results to differ Boilerplate disclaimers are insufficient for this purpose.

Oral Forward-Looking Statements

For oral forward-looking statements, meaningful cautionary language must include a declaration that additional information concerning factors that could cause actual results to vary materially is contained in a readily available written document, such as a recent Form 10-K or 10-Q. As with written forward- looking statements, boilerplate disclaimers are insufficient.

Regulation M-A is a series of rules that fashion safe harbors permitting companies to communicate freely about planned business combination transactions (both before and after a registration statement is filed) so long as the company files its written communications with the SEC.

What communications must a company file with the SEC? It must file any written communication made in connection with, or that relates to, a business combination transaction that is provided to the public or to persons not a party to the transaction (e.g., written information about the transaction that is provided to a company’s employees generally).

In contrast, a company does not need to file:

• Factual business information that relates solely to ordinary business matters;
• Internal communications that are provided solely to parties to the transaction; and
• Oral communications (but if a company posts an audio or video clip or slides of a conference call on its website, then it must file a transcript of the recording with the SEC).

Regulation M-A’s filing requirement begins from the first public announcement of the transaction and continues until the transaction closes. During that period, information subject to Regulation M-A must be filed with the SEC on or before the “date of first use.” Each Regulation M-A written communication must include a prominently displayed legend that advises investors to read the relevant registration statement, proxy statement or tender offer statement and that directs investors to the SEC’s website for copies of the relevant documents.

1. Non-GAAP Measures. When disclosing non-GAAP measures, make sure that the presentation is not misleading and that all non-GAAP measures are reconciled to the most directly comparable GAAP measure.
2. Spokespersons. Designate procedures for drafting, reviewing, approving and distributing all material communication. This includes specifying which individuals (e.g., the chairman, CEO, CFO and IRO) can act as spokespersons for the company to analysts and investors.
3. Materiality and Need for Disclosure. Have a process for determining, with company counsel as necessary, whether information is material and whether it needs to be disclosed.
4. Cautionary Language. For all oral and written communications, include a legend cautioning against reliance on forward-looking statements.
5. Earnings Calls. Adhere to the procedures suggested earlier in this chapter to conduct earnings calls that comply with non-GAAP financial measures and with Regulation FD.

6. One-on-One Calls or Meetings.

   Timing. Limit the timing of conversations with analysts and/ or investors to the period following an earnings call up until a blackout period.

   Subject Matter. Consider preparing a script or responses to anticipated questions. Limit responses in these conversations to elaboration of previously disclosed or generally known information.

7. Analyst Projections and Previous Earnings Guidance. Do not comment on or confirm previous earnings guidance or individual analyst projections. Addressing the “street” consensus in your guidance is okay, but take care to comply with Regulations FD and G.
8. Extraordinary Transactions or Unusual Market Activity. Unless required by law, do not respond to questions about potential financings, restructurings, acquisitions, mergers or other transactions or unusual market activity.
9. Interviews with News Media. Treat communications with the media as if they were subject to Regulation FD.
10. Merger and Acquisition Transactions. File with an appropriate legend all written communications that relate to a business combination transaction before publicly disclosing the information.