I read the news that companies reporting write-downs due to Obamacare were being called to testify in front of Congress with frustration, but in the end it wasn’t surprising. It was predictable that the first reaction from both the administration and Congress would be to treat the announcements as a political attack.
Having worked for most of the last three decades in the finance organizations of really big American companies, I have some familiarity with SEC reporting, though I am far from an expert. I’m going to guess this puts me ahead of everyone in the Obama White House, as well as Henry Waxman.
An 8K has to be filed whenever an event occurs that in the companies judgment would be important to the investment community. So asset impairments, changes to senior executive management or the board of directors, plant closings, etc., are all things that would trigger an 8K. There’s an actual list of events, but as with any long list there’s a category called ‘other events’ that is intended to pick up everything the list makers didn’t think of, such as a Healthcare law that takes away a tax benefit related to reimbursed Medicare expenses, which seems like such a MINOR thing unless you have a lot of retirees, like ATT for instance.
Would a reasonable investor care about a $1B non-cash charge against earnings that the company is required to take to conform to accounting rules? Most probably would – I guess some wouldn’t, but this is one of those situations where prudence comes to the top. If you are a senior finance officer of a company and you’re responsible for SEC reporting, your current recurring nightmare goes something like this:
SEC Auditors: So….this new healthcare law is going to reduce your tax benefits by $1B over the measurable future. Did you take this into account in your last public earnings release?
Senior Finance Exec: Uh, no. You know, we just didn’t know for sure, and I voted for the president and all, so I just decided to kinda let it ride.
SEC Auditors: We see. Do you believe that perhaps a reasonable investor would have considered this useful information?
Senior Finance Exec: Well, I guess it depends on who they voted for….
SEC Auditors: Of course, regulation FD is pretty clear on this. It was a known tax change. You should have disclosed it via a form 8K.
Senior Finance Exec: Uh, sorry about that?
SEC Auditors: We’d like to introduce you to our tailor, Mr Smith.
Senior Finance Exec: Oh, that’s okay. You know, we went business casual a few years back and ever since then for me it’s been you know, nice slacks, a dress shirt, maybe a blazer every so often. My guy handles it just great.
SEC Auditors: Mr Smith makes only one item of clothing. It’s a jumpsuit. In orange.
(Mr Smith whips out a tape measure)
Mr Smith: The inseam first, if you don’t mind…..
Sr Finance Exec: Oh, no!
All kidding aside, I don’t know that ATT and CAT really have much of a choice, no matter who they voted for. A change in the tax law is a known and measurable thing, and while I’m sure there’s some actuarial estimate embedded in the number, it’s not a question of whether or not there’s a cost, it’s just a question of ‘how much’. If the impact is material, which is another estimate that can get a little fuzzy, then making the knowledge publicly available is not a viable option.
It would surprise me if these things don’t happen a lot more often – 8K announcements from public companies as the impacts of Obamacare become better known, followed by a summons from Congress. It’s too bad Congress doesn’t realize the law they just passed has a financial impact. Or maybe they do.