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Examples of CARES Act Disclosures in SEC Filings

By | April 5, 2020

The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, is a little bit over a week old and public companies have begun to make disclosures regarding its impact in SEC filings.

Perhaps the most frequent disclosures relate to the tax provisions of the CARES Act:

Frontier Communications Corporation 10-K:  On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that the NOL carryback provision of the CARES Act would result in a material cash benefit to us.

Sequential Brands Group Inc.10-K: On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law. Certain provisions of the CARES Act impact the 2019 income tax provision computations of the Company and will be reflected in the first quarter of 2020, or the period of enactment. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification would significantly increase the allowable interest expense deduction of the Company and result in significantly less taxable income for the year-ended 2019, resulting in less utilization of net operating losses in that year. The change in the interest expense limitation pursuant to the CARES Act will not have an impact to the first quarter of 2020, other than an increase in the net operating loss deferred tax asset. As a result of the CARES Act, it is anticipated that the Company will fully utilize all interest expense that was deferred beginning in 2018 with no additional disallowed interest expense in 2020.

Some discuss the CARES Act in risk factors:

RH 10-K:  In recognition of the significant threat to the liquidity of financial markets posed by COVID-19, the Federal Reserve and Congress have taken dramatic actions to provide liquidity to businesses and the banking system in the U.S. For example, on March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a sweeping stimulus bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals. There can be no assurance that these interventions by the government will be successful, and the financial markets may experience significant contractions in available liquidity. While the Company may receive financial, tax or other relief and other benefits under and as a result of the CARES Act, it is not possible to estimate at this time the availability, extent or impact of any such relief. In addition, store closures and other operational difficulties faced by the Company may negatively affect the Company’s financial condition and restrict the availability of liquidity for its operational needs, including due to, among other reasons, increased and unforeseeable liquidity needs and limited flexibility to control expenses in line with potential decreases in revenue. If the Company is not able to arrange financing to repay its debt obligations, or to extend the maturities of existing debt or otherwise refinance the Company’s obligations as needed, we may experience a material adverse effect on our business and operations . . .

Others discuss the executive compensation provisions of the CARES Act in the event the issuer decides to avail itself to applicable assistance in the CARES Act:

MGM Resorts International 8-K:  The Hornbuckle Employment Agreement provides that, to the extent required by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act), in connection with the Company becoming eligible for or entering into a loan, loan guarantee or other form of financial assistance from a governmental entity, Mr. Hornbuckle will agree to such limitations or reductions with respect to compensation and severance pay as may be required to comply with the CARES Act.

 

Contact Steve Quinlivan for more information.