As a service to our public company clients we routinely perform an extensive review of the other information included in their annual report.\u00a0 While\u00a0 completing a large number of such reviews recently for our clients with December 31 year-ends we became aware of opportunities that are regularly over-looked by issuers.\u00a0 In preparing Management’s Discussion and Analysis there are some critical elements that will make them more effective.<\/p>\n
Attitude <\/strong>– your MD & A is an opportunity<\/em> to tell the story of the company in a positive way. \u00a0\u00a0 As is your web page, your SEC filings are the ‘face’ of the company to potential shareholders, investors and others considering doing business with you.\u00a0 Do not minimize this opportunity by viewing it primarily as an obligation.\u00a0 We all have a tendency to spend less time on things we view as ‘necessary evils’ as opposed to ‘opportunities’.<\/p>\n Approach <\/strong>– the primary purpose of the MD & A is to allow the reader to “look at the company through the eyes of management by providing both a short and long-term analysis of the business of the company” (SEC Financial Reporting Policies sec. 501). \u00a0\u00a0 The MD & A is intended to be entirely prospective<\/em>, not historical.\u00a0 Too frequently we see comments like “As of 12\/31\/x1 revenues declined $xxx,xxx which was a reduction of x% over revenues of $xxx,xxx as of 12\/31\/x0”.\u00a0 That’s historical, not prospective, and anyone could calculate it from the financials.\u00a0 It provides no additional information of any value to the reader.<\/p>\n \u00a0<\/strong>Executive Level Overview – <\/em>Sec. 501.12 is a gift from the SEC that most issuers don’t open.\u00a0 This is a chance to tell your story.\u00a0 Because many companies have become larger, global and more complex, and the disclosure rules correspondingly so,\u00a0 MD & A has\u00a0 become lengthy and complex and correspondingly, boring and so not read as thoroughly as it should be. \u00a0 In an effort to improve clarity and understandability many company’s are incorporating an Executive Level Overview (ELO) as an introductory section\u00a0 summarizing the most significant areas of the MD & A that management wants to emphasize.\u00a0 Typically this includes:\u00a0 economic or industry wide factors; how the company earns revenues and generates cash; lines of business, locations, principle products, services; and provide insight into material opportunities, challenges and risks which management is most focused on.<\/p>\n It is a ‘highlight’ of those things that are important to the company, reported elsewhere as well (e.g. Risk Factors, or Business Description).<\/p>\n Liquidity, Capital Resources, Results of Operations – <\/em>You must address each of these areas specifically. \u00a0 When drafting these comments keep in mind that you should address three questions for the reader: (1) What happened? (2) Why did it happen? and most importantly (3) Is it expected to continue?\u00a0 That last one is the crux of the MD & A.\u00a0 Remember – the reader is entitled to assume that “past performance is indicative of future performance” unless you tell him different.<\/p>\n Other Tips <\/strong>– (1) If you’ve previously discussed it in your Form 10k you don’t need to keep beating it to death unless it applies to new information in the current interim filing .\u00a0 Most companies over disclose information that they’ve previously discussed numerous times.\u00a0 The unwelcome result is that the points you want to make get buried in the irrelevant.\u00a0 (2)\u00a0 Discussion for interim reports should be limited to material changes occurring subsequent to the last annual report.\u00a0 Over disclosure, again,\u00a0 can result in burying relevant information in the minutiae.\u00a0 (3) The SEC requires that it be “presented in clear and understandable language”.\u00a0 That means you need to lose the ‘legalese’. \u00a0 (4)\u00a0\u00a0 In the words of an internationally recognized securities attorney with whom we’ve worked – “Disclosure is too important to leave up to only the attorneys”.\u00a0 While their focus is compliance, as it should be, this is more than a compliance document.\u00a0 It is\u00a0 the public face of your company.\u00a0 Remember it is an opportunity to ‘sell’ to investors, financiers and those people you want to do business with.\u00a0 (5)\u00a0 Finally, sentence structure,\u00a0 grammar and spelling are critical.\u00a0 If your MD & A is sloppy, those reading it will assume the company is run the same way.<\/p>\n You have a great company with a great business plan and outlook for the future.\u00a0 Tell the world in your MD & A.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" As a service to our public company clients we routinely perform an extensive review of the other information included in their annual report.\u00a0 While\u00a0 completing a large number of such reviews recently for our clients with December 31 year-ends we became aware of opportunities that are regularly over-looked by issuers.\u00a0 In preparing Management’s Discussion and … Continue reading “MD & A Are You Blowing an Opportunity?”<\/span><\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[44,46,63,11],"tags":[],"class_list":["post-586","post","type-post","status-publish","format-standard","hentry","category-board-corner","category-directors-corner","category-governance","category-sec-compliance"],"_links":{"self":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/586","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=586"}],"version-history":[{"count":0,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/586\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.excelsisaccounting.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}