Blogs

Over the Cliff – Increasing Disclosure of the Fiscal Cliff

11.30.12

Much has been recently written regarding the impending “fiscal cliff” facing the U.S. economy if the President and Congress do not act before the end of the year to strike a deal.  Pundits predict that scheduled tax increases and spending cuts, if allowed to occur, will materially and adversely affect the U.S. economy.  And now, public companies are taking notice.

Beginning even prior to the results of the 2012 U.S. presidential election, reporting companies have increasingly included disclosure in their public filings about the projected impact of the fiscal cliff on their operations.  The disclosures also reflect the general uncertainty about future economic conditions, despite generally modest improvement in operating results during 2012.  For example, The Blackstone Group L.P.’s most recently filed Form 10-Q states:

“In the U.S., the macroeconomic outlook remains uncertain, and investors remain cautious. While there has been some increased confidence regarding the European sovereign debt situation, investors remain concerned about the upcoming fiscal cliff in the U.S. as well as slowing growth in emerging markets.”

Most companies are choosing to disclose the proposed effects of the fiscal cliff in sections related to economic overviews of their business or as general risk factors.  Some are choosing to reference general economic uncertainty caused by the fiscal cliff in the “forward-looking statements” disclaimer contained in their public filings.

OUR TAKE:  Absent any clear indication from Washington that a compromise will be reached regarding scheduled tax increases and spending cuts, issuers must increasingly be mindful of the effects of this situation on their business and industry.  That is especially so for public companies in certain sectors, like defense, healthcare and insurance, who have the greatest potential to be negatively affected if we go over the cliff.   

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