With the end of the third quarter quickly approaching, companies may want to consider the following for their upcoming Quarterly Reports on Form 10-Q:
- Risk related to inflation and interest rates – The Federal Reserve is expected to cut interest rates this week. Companies may want to review their Quantitative and Qualitative Disclosures about Market Risk and Risk Factors in their upcoming Form 10-Q and consider whether any updates are necessary.
- Risk related to Chevron and related decisions – As previously noted, we have observed that life sciences companies are adding risk factor language in response to the U.S. Supreme Court overturning the Chevron Doctrine and related decisions. Companies in life sciences or other highly regulated industries should consider whether it is appropriate to include such disclosure. Please see our alert for an example of such risk factor language.
- Ongoing risk related to CrowdStrike outage - Companies impacted by CrowdStrike’s defective software update should consider updating their risk factors and forward-looking statements about systems downtime and/or reliance on third parties to operate critical business systems. Remember to revise relevant hypothetical language about outages or systems downtime to indicate that such risks have already occurred. Finally, impacted companies should also consider discussing any material impacts (if any) in the management’s discussion and analysis section of their next Form 10-Q.
In addition, software and technology companies that similarly update systems, including automated updates, should ensure their risk factors cover risks associated with errant updates, and that their boards have oversight visibility on how those risks are mitigated where it may be deemed mission critical to the company. Please see our alert for more information.
- Risk related to AI – As a reminder, the EU AI Act entered into force on August 1. Companies should review and update any relevant language in their AI risk factor to reflect this development. Note that the Securities and Exchange Commission (SEC) and the plaintiffs’ bar also continue to focus on AI washing. In a recent video about AI washing, SEC Chair Gary Gensler reminded companies that “any claims about prospects should have a reasonable basis and investors should be told that basis.”
- Risks related to U.S.-China trade tensions – In advance of the upcoming presidential election, some businesses are reportedly increasing their imports from China so they can stockpile inventory of certain components manufactured in China. See Businesses Are Already Girding for Next Phase of the U.S.-China Trade War (The New York Times, August 2024). While reviewing their Form 10-Q, companies should consider whether any of their supply chain disclosure should be updated to reflect new risks, such as the risk of holding excess inventory, or any other developments.
Companies may also want to consider whether their risk factors adequately disclose any risk related to the U.S. government potentially prohibiting or otherwise restricting procurement of key materials/components manufactured outside the United States or by companies domiciled outside the United States.
- Risks related to export controls – On September 5, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) published an interim final rule implementing new export controls on implementing export controls on several semiconductor, quantum computing, and additive manufacturing items, beginning September 6. Companies should consider whether this new rule will have a material impact on their business.
- Presidential election – Companies should continue to monitor developments in connection with the upcoming presidential election and assess whether those may have material impacts on their business.
