With H1N1 (aka Swine influenza A) making headlines, and the filing deadline for Form 10-Q rapidly approaching for most companies, issuers need to quickly consider whether they need to add swine flu as a risk factor in their 10-Q risk factor update.
“Responsible companies as part of the disclosure process at least want to think about whether it’s relevant,” says Michael Littenberg, a partner in the law firm Schulte Roth & Zabel.
Whether a company should include a risk factor disclosure depends on whether the swine flu outbreak would be or would become material to the company’s business if it were to get significantly worse, he says. Littenberg notes that some companies have a general risk factor dealing with pandemics, so they may be adequately covered by their 10-K disclosure and may not need to update their risk factor disclosures. However, he says others may want to add something more specific.
The outbreak is more likely to impact the disclosures of companies in certain industries, such as those in the retail, hospitality, travel, restaurant, or gaming sectors, as well as cruise ship, theme park, and mall operators, says Littenberg. For some companies, the pandemic could potentially affect customer traffic, while for others it could affect their ability to staff their own locations or their supply chain.
“While everybody hopes for a variety of reasons that this isn’t going to become a bigger issue, nobody knows how big an issue it’s going to be,” says Littenberg. “When the dust settles, I think we’ll see a fair number of companies disclose this.”
Many companies have already made they judgment they should disclose. Footnoted.org blogger Michelle Leder notes that some issuer issuers have already included warnings about swine flu in their 10-Qs.
While companies are supposed to avoid boilerplate language and tailor their risk factor disclosures to their particular organization, Littenberg says that may pose a challenge in this instance, “because we’re dealing with an evolving set of facts.”
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