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ANALYSIS: “Factor” in Coronavirus Risks in Company Disclosures

Feb. 25, 2020, 5:05 AM

As of Monday afternoon, the Dow Jones Industrial Average is down nearly three percent based largely on concerns about the COVID-19 coronavirus. Stock prices will likely rebound, but the market stumble demonstrates the potential impact of the outbreak on global financial performance.

Beginning with Levi Strauss & Co.’s filing on January 30, 2020, more than 250 companies have included discussions of the coronavirus in their Form 10-K risk factors (see filings here). Many of these are general in nature, mentioning the virus as part of a larger set of potential disruptive events. For example, Pioneer Natural Resources disclosed that it faced risks from “terrorism, vandalism and physical, electronic and cybersecurity breaches, and global or national health concerns, including the outbreak of pandemic or contagious disease, such as the recent coronavirus.” In contrast, Legget & Platt Inc. described the potential impact of the outbreak on its supply chain, labor sources and product transport services.

Companies should consider whether their coronavirus exposure falls into the “most significant” risks relating to an investment in the company’s securities. Issuers should take care to avoid boilerplate disclosures and present a risk factor discussion that is meaningful to investors, tailored to their specific facts and circumstances.

In January 2020, SEC Chairman Jay Clayton announced that he had asked the staff to monitor coronavirus disclosure concerns, and to provide guidance and other assistance to issuers on these questions. He recognized that it may be difficult to assess or predict the impact of the outbreak on operations with meaningful precision. He cautioned, however, that the question of “how issuers plan for that uncertainty and how they choose to respond to events as they unfold can nevertheless be material to an investment decision.”

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