What companies are disclosing about coronavirus risks

By Ken Tysiac

The global coronavirus outbreak has resulted in more than 3,000 deaths worldwide, dramatically depressing stock markets and sending public officials scrambling to contain the virus.

Amid this turmoil, company leaders are facing strategic and operational challenges that likely need to be disclosed in company reporting. But what are they reporting, and how are they reporting it?

Here are some examples from public documents filed with the SEC.

Yum! Brands: In its annual report filed Feb. 20, the operator of brands such as Pizza Hut, Taco Bell, and KFC, Yum! listed health concerns arising from coronavirus among the risk factors that may have an adverse effect on the business.

The company has a significant number of KFC and Pizza Hut restaurants in China operated by its franchisee, Yum China.

“Many of our restaurants located within mainland China have been temporarily closed, have shortened operating hours and/or have otherwise been adversely affected by the impact of the coronavirus, and these developments have also impacted the ability of Yum China’s suppliers to provide food and needed supplies at our Concepts’ restaurants in mainland China,” the company reported.

Other franchisees, including those in Hong Kong and Taiwan, also have experienced significant sales declines, according to the reporting. The company wrote that it is unable to accurately predict how the coronavirus will affect the results of its operations because the disease’s severity and the duration of the outbreak are uncertain.

“However, while it is premature to accurately predict the ultimate impact of these developments, we expect our results for the quarter ending March 31, 2020, to be significantly impacted with potential continuing, adverse impacts beyond March 31, 2020,” the company wrote.

An advertisement promoting KFC's delivery service is seen inside a KFC restaurant as the country is hit by an outbreak of the novel coronavirus, in Beijing, China, February 8, 2020.
An advertisement promoting KFC's delivery service is seen inside a KFC restaurant as the country is hit by an outbreak of the novel coronavirus, in Beijing, China, February 8, 2020.

Apple: In its investor update on quarterly guidance dated Feb. 17, Apple reported that the world’s iPhone supply will be temporarily constrained.

The company explained that its iPhone manufacturing partner sites are located outside the Hubei province, where the disease first flared up, and that those facilities have all reopened. But they are ramping up more slowly than the company anticipated.

“The health and well-being of every person who helps make these products possible is our paramount priority, and we are working in close consultation with our suppliers and public health experts as this ramp continues,” the company wrote. “These iPhone supply shortages will temporarily affect revenues worldwide.”

Apple also reported that demand for its products within China has been affected because the company’s stores in China and many of its partners’ stores have been closed. Stores that were open had reduced hours with low customer traffic.

“We are gradually reopening our retail stores and will continue to do so as steadily and safely as we can,” the company reported. “Our corporate offices and contact centers in China are open, and our online stores have remained open throughout.”

Microsoft: The quarterly revenue guidance for Microsoft’s “More Personal Computing” segment included a wider range than usual to reflect uncertainty related to the public health situation in China, the company reported in a Feb. 26 update.

“Although we see strong Windows demand in line with our expectations, the supply chain is returning to normal operations at a slower pace than anticipated at the time of our Q2 earnings call,” the company reported.

Microsoft said its Windows OEM and Surface products were affected more negatively than anticipated.

GE: The coronavirus outbreak has already disrupted the company’s production facilities and activities in China, the severity of which will depend on how long and widespread the disruption is, GE reported in the risk factors section of its annual report filed Feb. 24.

In its forward-looking statements, GE listed among its uncertainties the length and severity of the coronavirus outbreak, including its impacts across GE’s business on demand, operations in China, and global supply chains.

Nautilus: The risk factors in the fitness machine manufacturer’s annual report filed Feb. 26 stated that the recent spread of the coronavirus and the related quarantines and travel disruptions have disrupted production for some of its products.

“The extent to which these events will affect our results of operations and financial position remains uncertain,” the company reported.

Eli Lilly: Among the risk factors listed in its annual report filed Feb. 19, coronavirus was cited as a possible interruption that could result in regulatory changes or affect the pharmaceutical company’s ability to do business.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

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