Using the 10-K in IR - 01-11-11
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Transcript of Using the 10-K in IR - 01-11-11
Using the 10-K to Enhance the Investor Relations Effort
A Primer on the 10-K’s Elements and How They Serve Investor Needs
Heather J. Wietzel, PrincipalInsuranceIR LLCInsuranceIR.com
Safe Harbor
This presentation is intended to be general in nature I am not an attorney, if you need specific advice, please consult your
legal counsel or accounting firm
Every company and every 10-K is different The regulations allow significant flexibility, leading to wide variations
Examples used today are from published 10-Ks No relationship with selected companies No “inside” insight into their objectives, etc.
Examples primarily drawn from insurance company reports
Enhancing the IR Effort
Why companies should integrate other investor communication tools with the 10-K
Which elements of the 10-K can be leveraged in other materials
How companies can leverage the 10-K to achieve “best-in-class” investor communications
Why?
10-K has management’s attention! Section 302 of SOX: CEO and CFO have direct and personal
accountability, with meaningful penalties for “knowing” misrepresentation
SEC Director of Corporation Finance, Meredith Cross (at 2010 NIRI National): "Companies should tell a consistent story, both inside and outside
their filings."
If it’s in the 10-K, it’s fully disclosed Limits Regulation FD concerns
10-Ks often draw on a depth of resources unavailable to one- and two-person IR teams
… and Investors Read Them!
Example from a Stifel Nicolaus research report: “We’re fine-tuning our earnings model for XXX to incorporate
some of the segment-specific expense data included in its 10-K filings."
Delta Reports from Thomson Reuters StreetEvents: “Quickly review the differences between sequential 10-Ks or
10-Qs with Delta Reports, which highlight all changes in a separate column.”
Overview of 10-K “Items”
Item 1 – Business Description Item 1A – Risk Factors Items 2-5 – Property, Legal and Market Items Item 6 – Financial Data Item 7 – MD&A Item 7A – Market Risk Item 8 – Financial Statements and Notes Items 9 through the Exhibits
Item 1: Comprehensive Look at Business
Highlights of instructions Narrative description of business (by segment, when appropriate) Principal products and services, with detail on product development Backlog and contracts subject to renegotiation Competitive conditions in the business, including principal methods of
competition (e.g., price, service, warranty or product performance) Research and development activities and spending
Full instructions available from the Securities Lawyer’s Deskbook
Example: NYSE:HCC (market cap $3.4 billion)
HCC 2009 10-K
Relative Statistics Provide Useful Insight
Example: NASDAQ: SIGI (Market cap $984 million)
SIGI 2009 10-K
Business Breakdown
Item 1A: Risk Exposure and Insight
Highlights of Instructions Discussion of the most significant factors that make the offering
[issuer] speculative or risky. This discussion must be concise and organized logically. Do not present risks that could apply to any issuer or any offering. Explain how the risk affects the issuer or the securities being offered
“Information reduces risk” Address investor concerns with facts
Example: NYSE:VR (market cap $3.1 billion)
Validus Group 2009 10-K Item 1A
Answer Questions With Facts
Items 2, 3 and 5
Item 2 -- Description of Property Item 3 -- Legal Proceedings
"Material" pending legal proceedings
Item 5 -- Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters
Item 6: Selected Financial Data
Required line items: Net sales or operating revenues Income (loss) from continuing operations Income (loss) from continuing operations per common share Total assets Long-term obligations and redeemable preferred stock; and Cash dividends declared per common share.
“Registrants may include additional items which they believe would enhance an understanding of and would highlight other trends in their financial condition and results of operations”
Example: NYSE:RNR (market cap $3.4 billion)
RNR 2009 10-K
Well Beyond Required Data
Item 7 and 7A: "Analysis"
Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A -- Quantitative and Qualitative Disclosures about Market Risk
SEC on the MD&A
“Management's most important responsibilities include communicating with investors in a clear and straightforward manner. MD&A is a critical component of that communication.”
“… there are circumstances, particularly regarding known material trends and uncertainties, where forward-looking information is required to be disclosed.”
“We also encourage companies to discuss prospective matters and include forward-looking information in circumstances where that information may not be required, but will provide useful material information for investors that promotes understanding
Interpretation: Commission Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operations
SEC on the Executive Summary
“… balanced, executive-level discussion that identifies the most important themes or other significant matters with which management is concerned”
“A good introduction or overview would include economic or industry-wide factors relevant to the company”
“A good introduction or overview also would provide insight into material opportunities, challenges and risks … on which the company's executives are most focused for both the
short and long term, as well as the actions they are taking to address these opportunities, challenges
and risks.”
Interpretation: Commission Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operations
Example: NYSE:PRA (market cap $1.9 billion)
PRA 2009 10-K
Performance Targets AND Drivers
Example: NYSE:THG (market cap $2.1 billion)
THG 2009 10-K
Management’s Decision Process
Item 8: The Details
Financial statements – the foundation of all corporate reporting
Notes – the basis on which the financial statements are calculated
Item 9 to the End
Item 9 -- Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A -- Controls and Procedures and Internal Control over Financial Reporting
Other exhibits and information normally incorporated by reference to the proxy
Using the 10-K as a Resource
Earnings release Conference call Presentations Annual report Fact sheets and others Website
Can (or Should) IR Participate in 10-K?
SEC Director of Corporation Finance, Meredith Cross (at 2010 NIRI National): “Investor relations is key in this process. I think it would be very
useful if companies, when preparing disclosure documents, would more effectively pool their resources.”
IR understands needs of audience Investor feedback can refine message
Create efficiencies Using news release/script as draft for Executive Summary of MD&A Treating “Business Description” as “Company Profile” Sharing tables and data between financial supplement, release, script
and 10-K (sequential vs. year-over-year)
Using the 10-K to Enhance the Investor Relations Effort
A Primer on the 10-K’s Elements and How They Serve Investor Needs
Heather J. Wietzel, PrincipalInsuranceIR LLCInsuranceIR.com