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Robert K. Ranum

Robert K. Ranum Securities

rranum@fredlaw.com
612.492.7050
Printable Version

Announcing Annual and Quarterly Results Under the New Rules

By: ROBERT K. RANUM

September 2003

Recognizing that earnings information is often the most important information released by a public company, the SEC has in recent years adopted rules to ensure prompt, broad disclosure. As a result, public companies must comply with a somewhat confusing combination of rules, including:

  • Regulation FD adopted in August 2000;
  • Form 8-K filing requirements adopted in January 2003; and
  • Audit committee obligations to review annual or quarterly results consistent with good corporate governance practices.

In order to comply, public companies must carefully develop and release communications regarding quarterly and annual results.

Regulation FD

In general, Regulation FD (Full Disclosure) prohibits selective disclosure to analysts and other market professionals. Broad public dissemination of material information is required. This includes:

  • issuing a press release through major news outlets, or
  • filing the information with the SEC on Form 8-K.

Most companies have ceased individual conference calls with analysts and replaced them with conference calls announced in advance and open to any interested participant.

Information submitted to the SEC pursuant to Item 9 of Form 8-K will satisfy Regulation FD and has the added benefit of being deemed "furnished" to the SEC and not "filed," thereby avoiding some potential securities law liabilities. Posting information on a company website will generally not be deemed sufficient to comply with the Regulation.

SEC interpretations regarding Regulation FD permit the disclosure of earnings information in a conference call open to the general public or accessible through webcasting. Public companies must give adequate advance notice of their conference calls, including time, date and dial-in information. Many public companies each quarter issue a press release detailing when and how earnings will be announced. On the appointed date, the company issues another press release announcing its quarterly results and then holds the conference call during which those results are discussed. A webcast of the conference call often is available on the company web site for the next week or two.

Form 8-K Filing Requirements

Even before the January 2003 rules requiring public companies to file annual and quarterly results on Form 8-K, many did so as a conservative means of complying with Regulation FD. Effective March 28, 2003, all public companies must file within five business days of any public announcement or release disclosing material non-public information about the company's results of operations or financial condition for an annual or quarterly fiscal period that has ended. The information will be deemed "furnished" and not "filed" with the SEC, thereby avoiding some of the liability risk of filed materials.

In order to avoid submitting one 8-K for the press release and a second, largely duplicate, 8-K for the conference call, the SEC provides an exception from the filing requirement for the latter if:

  • The conference call occurs within 48 hours after the related, written press release or announcement regarding the results;
  • The related, written press release or announcement has been furnished to the SEC on Form 8-K prior to the conference call;
  • The conference call is broadly accessible to the public by dial-in call, webcast or similar technology;
  • The financial and statistical information contained in the conference call is provided on the company's web site; and
  • The conference call was announced by a widely disseminated press release that included instructions on when and how to access the presentation and the location on the company's web site where the information would be available.

In practical terms, these rules require that public companies file 8-K forms almost simultaneously with the release of quarterly or annual results. Filing must take place before the conference call, which must occur within 48 hours following the press release.

Audit Committee Review

Every public company should have an independent audit committee charged with the duty of developing, maintaining and overseeing its financial reporting process. As the individuals with final responsibility for the financial reporting process, members of the audit committee should review and approve each release of financial information and each Form 10-Q or Form 10-K filed with the SEC. They should meet with the company's financial officers and its independent auditors and evaluate any judgments that are material to the presentation.

Given the practical difficulties involved in assembling the members, many companies struggle with the question of when and how often the audit committee should meet. The committee should meet to review preliminary earnings results at least several days before the scheduled release of results. This allows for time to resolve any issues raised by the audit committee. The audit committee should also review the Form 10-Q or Form 10-K, either at the same time as the draft press release or at a second, later meeting.

Conclusion

Public companies need to be more careful than ever in releasing annual and quarterly financial information. Management should work with the audit committee to create a consistent process that will ensure compliance with all the rules and regulations affecting these important communications. Your business attorney can help create a process that works for your particular situation.