2016年-普华永道全球_SEC_comment_letter_trends_for_the_industrial_products_industry_32页_2mb

2016 SEC Comment Letter Trends for Industrial Products Sector

Core Content

This document provides an analysis of SEC comment letters issued to companies in the industrial products sector from July 1, 2015 to June 30, 2016. It highlights the SEC's focus areas, including non-GAAP financial measures and Management's Discussion and Analysis (MD&A), and offers guidance to ensure compliance with SEC regulations.

Main Trends and Key Areas of Focus

Non-GAAP Financial Measures

• Increased Focus: The use of non-GAAP measures has become a central area of SEC interest, with the number of comment letters related to this topic increasing since the May 2016 update to the Compliance and Disclosure Interpretations (C&DIs).
• Guidance Provided: The SEC emphasized that non-GAAP measures should not exclude normal, recurring, cash operating expenses, should be consistent with GAAP, and should be presented with equal or greater prominence than their GAAP counterparts.
• Prohibited Practices: SEC Item 10(e) of Regulation S-K prohibits adjusting non-GAAP measures to eliminate non-recurring items, excluding cash-related charges, presenting non-GAAP measures on the face of pro forma financial information, and using similar titles to GAAP measures.
• Examples of Comments:
  • Adjusted EBITDA should not include principal payments on finance leases as they are not analogous to depreciation on operating leases.
  • Pension-related adjustments should be clearly explained and quantified.
  • Non-GAAP measures should not use titles similar to GAAP measures.
  • Adjustments should meet the definition of non-recurring as per Regulation S-K.
  • Headlines should not give more prominence to non-GAAP measures without presenting the comparable GAAP measure.

Management's Discussion and Analysis (MD&A)

• Critical Component: MD&A remains a key area of SEC scrutiny, with the focus on providing a narrative explanation of financial statements.
• Main Objectives:
  • Provide a clear understanding of revenue and expense components.
  • Explain events and trends affecting financial performance.
  • Offer context to the financial statements.
  • Help investors assess future performance based on past results.
• Common Comments:
  • Fluctuations in Results: Registrants are expected to quantify the impact of multiple factors (e.g., pricing, volume, acquisitions, currency movements) on financial performance.
  • Consistency: The SEC reviews public information for consistency with disclosures in periodic filings.
  • Segment Analysis: Encouraged to use segment analysis to provide a deeper understanding of consolidated results.
  • Liquidity and Capital Resources: Required to disclose the ability to meet cash needs and the impact of debt covenants and foreign cash restrictions.

Compliance and Disclosure Effectiveness

• SEC's Focus: The SEC has been actively working on improving the effectiveness of disclosures through initiatives like the Disclosure Effectiveness project.
• Key Areas of Review:
  • Financial-related disclosure requirements for non-registrant entities (e.g., acquired businesses, equity investees).
  • Presentation and delivery of information in Regulation S-K, including business information, risk factors, and MD&A.
  • Use of hyperlinks to access exhibits.
  • Elimination or modification of certain SEC disclosure requirements in light of changes in US GAAP and IFRS.
• Expectations for 2017: The SEC is expected to continue its focus on reducing the cost and burden on companies and eliminating duplicative disclosures in MD&A, while potentially increasing transparency.

Best Practices for Registrants

• Robust Disclosures: Ensure that non-GAAP measures are clearly explained, relevant to investors, and include a reconciliation to GAAP measures.
• Quantify Impact: Provide detailed explanations of the factors affecting financial performance, especially when multiple drivers are involved.
• Consistent Presentation: Present non-GAAP measures with equal or greater prominence than GAAP measures and ensure titles are not confusingly similar.
• Liquidity and Capital Resources: Clearly disclose liquidity needs, capital requirements, and the impact of foreign cash and debt covenants on operations.

Conclusion

The SEC continues to emphasize high-quality, transparent, and consistent financial reporting for companies in the industrial products sector. The focus on non-GAAP measures and MD&A reflects a broader effort to ensure that investors receive timely and material information. Companies should review their disclosures to align with the latest SEC guidance and be prepared for continued regulatory attention in the coming year.