At today’s Practising Law Institute program, the Securities Regulation Institute, the Director of the Division of Corporation Finance of the Securities and Exchange Commission joined a panel discussion on capital markets related developments. The Director provided brief remarks. Mr. Higgins noted that IPO issuers are taking advantage of the ability to make confidential submissions and noted that since the enactment of the JOBS Act about 1,000 confidential submissions have been made.
Mr. Higgins focused his remarks on a number of the areas on which the Staff of the Division of Corporation Finance is focused in the context of its disclosure reviews. In this regard, Mr. Higgins highlighted the following issues, among others:
Predecessor issuer accounting issues: he noted that questions continue to arise in the context of IPOs as to which financial statements should be included in an IPO registration statement in instances where there has been a spin-off or a discontinue business or similar type of transaction. He noted that it is often difficult to parse the definition of “predecessor issuer” and recommended that counsel consider a pre-filing conference with the Office of Chief Accountant where there is a lack of clarity on the requirements.
Metrics: he noted that the Staff is focused on how companies present their financial and operating results and that an IPO is the first time that a company is developing its key performance indicators. He noted that the Staff in its review focuses on ensuring that the company is clearly defining metrics, the limitations associated with those metrics, any assumptions that are used by the company in its calculations of these metrics, whether the metrics used by the company differ significantly from those used by companies in similar businesses, and the rationale for using the particular metrics.
Non-GAAP Measures: he noted that generally the use of non-GAAP measures has not posed any recent disclosure issues, but, that, of course, a company’s disclosures must be clear and complete and provide an explanation of how and why the non-GAAP measures are used.
Recent financial results (“flash numbers”): he noted that the SEC Staff will look carefully at any preliminary financial results that are presented in order to ensure that the presentation is balanced and does not omit information that would make the presentation misleading.
Trend information: he noted that the Staff places significant emphasis on trend related disclosures in the MD&A, including appropriate forward-looking statements.
Issuer websites: he noted that the SEC Staff reviews issuer websites when reviewing IPO (and other) filings.