Public Company Disclosures After the Natural Disasters in Japan

16 March 2011 Publication
Authors: Mark T. Plichta Patrick G. Quick

Legal News Alert: Transactional & Securities

While Japan and the world are still trying to assess the impact of the catastrophic earthquake and tsunami that struck parts of Japan last week, including the terrible human and economic toll that is still unfolding, a U.S. public company should consider whether it should publicly disclose the effects or potential effects on it. A company should assess such effects and their materiality and consider disclosure regarding, among other things, any of the following located in Japan and related impacts on its balance sheet and results of operations (including guidance):

  • Company manufacturing, servicing, distribution, or other facilities
  • Key suppliers of products, components, materials, technology, or services
  • Key customers or material sources of sales
  • Other key contractual counterparties

For nuclear utilities and companies involved in constructing, supplying or servicing nuclear power facilities, the disaster’s potential impact on the nuclear power industry and its regulation in the United States and the world might be another disclosure item. Casualty insurers and companies that sold buildings or equipment that may have failed during or as a result of the earthquake or tsunami also may have special disclosure considerations.

A company may be required to disclose such effects, including prospective effects, in the management’s discussion and analysis (MD&A) section of its next Form 10-Q or Form 10-K, and earlier disclosure in the company’s next regular financial press release may be appropriate. However, if the effects are likely to be material, the company should consider disclosing information on a more current basis in a press release or Form 8-K, even though SEC rules generally do not require such an update between quarterly filings. Aside from providing useful information to investors and analysts, such current disclosure of material information would allow the company to discuss the disaster’s effects with investors or analysts without the risk of violating Regulation FD and would remove any questions as to whether the company should close its trading window, if it is open. Finally, if a company is using forward-looking statement disclaimers in a press release or for some other purpose prior to filing its next Form 10-Q or Form 10-K, it should consider updating the disclaimers in respect of this subject, and similarly, it should consider updating its risk factors in its next Form 10-Q or Form 10-K. If a company concludes that the effects on the company are not significant, depending on the company’s business, the company may find it beneficial to disclose that conclusion to allay investor concerns.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this alert or would like to discuss the topic further, please contact your Foley attorney or the following individuals:

Mark T. Plichta
Milwaukee, Wisconsin

Patrick G. Quick
Milwaukee, Wisconsin

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