Law Firm Intelligence: Researching the Economy

In the December, 2008, issue of Marketing the Law Firm, we began a series entitled “Researching the Economy.” Our discussion continues this month with a look at client-potential research.

Wouldn't it be a happy world if the graph below were of a firm's annual profits, in ten thousand increments? Regrettably, it isn't. The graph shows quarterly business bankruptcies nationwide, as reported by the American Bankruptcy Institute. Between the first quarter of 2006 and the fourth quarter of 2008 (the most recent quarter for which data was available), bankruptcies have soared 316%.

Sadly, news of our economy grows bleaker every day, and we have been told by countless economists, pundits, and even our new President, to expect more of the same in the coming months. Many are asking, “Where does this leave my firm? How are our clients handling the myriad problems of the credit market, lower consumer spending, and fluctuating oil prices?” While the first article in this series addressed the former question, this article seeks to provide strategies for investigating how clients and potential clients are weathering the economy, as well as how to find opportunities in the gloom.

Researching Companies' Financial Health

Company Financial Statements

The first stop in researching company finances should be the company's financial statements, available in the Investor Relations section of the company's Web site. The SEC requires all publicly held companies to update the public on their finances quarterly, in a 10Q, and annually, in a 10K. Succinct highlights from these statements can be found in the relevant press releases, while the full document will provide full disclosure of its income statement, balance sheet and cash flows, as well as management's discussion of key points.

Additionally, a company may choose to release an annual report, which is marketing collateral aimed at informing shareholders of the company's performance. These usually have a chairman's statement, which can provide more details on how the company plans to mitigate risks in the current and future economy.

Last, earnings conference calls offer excellent insight into a company's financial health. These are usually posted in the Investor Relations section of the Web site as Webcasts. Here, the company will provide an overview of the 10Q and 10K, as well as details on special projects, such as a restructuring or entry into a new market.

Analyst and Ratings Reports

Another vehicle for studying a company's finances are analysts' and ratings reports. There are hundreds of analysts monitoring companies' financial health. Most fall into two categories: Those monitoring stocks, and those monitoring bonds and credit ratings. Both types of analysts' reports are valuable tools for understanding the financial health of a company, yet there are significant differences between the two.

Analyzing Stocks

Financial analysts study the fundamentals of a company ' its finances, management, industry and markets, amongst other things ' to determine an opinion on the investment quality of a company's stock. Although the goal of the analyst report is the overall rating ' buy, sell, outperform, etc. ' of the stock, their usefulness to the researcher lies in the report's narrative. Analyst reports add value to client and potential client monitoring through the depth of understanding of the clients' business and business environment, as well as the myriad details presented succinctly and in laymen's terms.

For example, there is a dearth of information pertaining to Citibank in the media. As a researcher, it is very difficult to filter the important news from the noise. An analyst report can provide some insight, as the analyst has already done much of the work. One such report, available through WestLaw, lists and describes several specific initiatives Citibank has implemented to de-leverage, reduce risk and split the company.

Credit Rating Agencies

Credit Rating Agencies, such as Moody's, Fitch and (to an extent) Dun & Bradstreet act much in the same way as consumer credit bureaus: The agency studies a company and judges how able the company is to pay off a debt, usually an interest payment on a bond. In fact, the last warning sign before a company files for bankruptcy is to miss an interest payment. As companies credit worthiness deteriorates, so too, should their credit ratings (although there has been some controversy related to Fitch and Moody recently).

Researching Bankruptcies

When researching companies in a down economy, the research can be divided into two discrete tasks: monitoring the financial health of companies and indicators of problems, and monitoring actual bankruptcy filings. Both can be useful for marketing purposes. For example, your client may be fine but could be concerned about their accounts receivable. Keeping track of your clients' customers will, in turn, give you an idea of how positively ' or negatively ' your client's revenues are forecasting.

As an example: GM is JCI's most valued customer. Compare JCI's revenues and GM's demand for services, and it isn't surprising why JCI recently had its worst quarter in the company's entire history. At best, monitoring the health of your client's income could provide the firm's creditors' rights group with an opportunity, and, at worst, provide insight into future troubles.

The Troubled Company Prospector

The Troubled Company Prospector is a traditional tool of bankruptcy attorneys monitoring their marketplace. According to its Web site, bankrupt.com, the Prospector “identifies and profiles United States and Canadian companies with assets of more than US$10 million showing signs of financial strain.” In addition to providing targets for bankruptcy counsel, the Prospector also provides data on companies' debts, liabilities and the professional services firms advising the companies. The lists are updated weekly and sent via e-mail to paid subscribers.

Charter Communications' profile is typical of the information found on the Troubled Company Prospector. The Jan. 26, 2009 edition lists Charter Communications as in default, and notes that Bloomberg News reported the company has hired Kirkland & Ellis LLP to advise on a possible bankruptcy. Charter Communications actually has three entries in the Prospector, as it was also listed when Fitch and Standard & Poor's downgraded the company's ratings. The profile continues on to list all of the company's notes, and states that Charter defaulted on a scheduled interest payment due on Jan. 15, 2009.

PACER

Ever wonder where CourtLink gets its information? The data comes from PACER, which stands for Public Access to Court Electronic Records. It is one of the most-used databases in every law firm library. PACER is the go-to source for federal litigation filings, including bankruptcy documents. When searching for raw data and court filings on bankruptcies for an individual company, PACER will provide the necessary information. It will not, however, aggregate, collate, or massage the data.

Bastien Financial Publications

Bastien Financial Publications offers The Bankruptcy Report and Troubled Business Report on a daily or weekly schedule. They are both subscription-based and sent via email. The Association of Insolvency and Restructuring Advisers provide links to sample reports at http://www.airacira.org/aira/benefits/bastien_financial.php. The sample reports give a narrative of each company, the actions it has taken to address its financial problems, and some commentary.

Blogs & RSS Feeds

As has been shown in the legal industry by sites such as Above the Law and the WSJ, news of bankruptcies, layoffs, and other indicators of distress are often first reported to blogs by tipsters. The American Bankruptcy Institute maintains a list of bankruptcy blogs at http://blogs.abiworld.org/, and aggregators such as Technorati can be used to find blogs that focus on a specific industry or geographic area.

Other options for real-time bankruptcy court monitoring are the countless RSS feeds for bankruptcy filings and opinions. There are dozens, if not hundreds, of feeds available. The Illinois District Court's bankruptcy opinions RSS feed, for example, is at http://www.ilnb.uscourts.gov/opinions.rss.

[IMGCAP(1)]

Shannon Sankstone, a member of this newsletter's Board of Editors, is the Marketing Research Analyst at Quarles & Brady, where she is responsible for the marketing and competitive intelligence research function. She can be reached at [email protected] or at 312-715-5251.

In the December, 2008, issue of Marketing the Law Firm, we began a series entitled “Researching the Economy.” Our discussion continues this month with a look at client-potential research.

Wouldn't it be a happy world if the graph below were of a firm's annual profits, in ten thousand increments? Regrettably, it isn't. The graph shows quarterly business bankruptcies nationwide, as reported by the American Bankruptcy Institute. Between the first quarter of 2006 and the fourth quarter of 2008 (the most recent quarter for which data was available), bankruptcies have soared 316%.

Sadly, news of our economy grows bleaker every day, and we have been told by countless economists, pundits, and even our new President, to expect more of the same in the coming months. Many are asking, “Where does this leave my firm? How are our clients handling the myriad problems of the credit market, lower consumer spending, and fluctuating oil prices?” While the first article in this series addressed the former question, this article seeks to provide strategies for investigating how clients and potential clients are weathering the economy, as well as how to find opportunities in the gloom.

Researching Companies' Financial Health

Company Financial Statements

The first stop in researching company finances should be the company's financial statements, available in the Investor Relations section of the company's Web site. The SEC requires all publicly held companies to update the public on their finances quarterly, in a 10Q, and annually, in a 10K. Succinct highlights from these statements can be found in the relevant press releases, while the full document will provide full disclosure of its income statement, balance sheet and cash flows, as well as management's discussion of key points.

Additionally, a company may choose to release an annual report, which is marketing collateral aimed at informing shareholders of the company's performance. These usually have a chairman's statement, which can provide more details on how the company plans to mitigate risks in the current and future economy.

Last, earnings conference calls offer excellent insight into a company's financial health. These are usually posted in the Investor Relations section of the Web site as Webcasts. Here, the company will provide an overview of the 10Q and 10K, as well as details on special projects, such as a restructuring or entry into a new market.

Analyst and Ratings Reports

Another vehicle for studying a company's finances are analysts' and ratings reports. There are hundreds of analysts monitoring companies' financial health. Most fall into two categories: Those monitoring stocks, and those monitoring bonds and credit ratings. Both types of analysts' reports are valuable tools for understanding the financial health of a company, yet there are significant differences between the two.

Analyzing Stocks

Financial analysts study the fundamentals of a company ' its finances, management, industry and markets, amongst other things ' to determine an opinion on the investment quality of a company's stock. Although the goal of the analyst report is the overall rating ' buy, sell, outperform, etc. ' of the stock, their usefulness to the researcher lies in the report's narrative. Analyst reports add value to client and potential client monitoring through the depth of understanding of the clients' business and business environment, as well as the myriad details presented succinctly and in laymen's terms.

For example, there is a dearth of information pertaining to Citibank in the media. As a researcher, it is very difficult to filter the important news from the noise. An analyst report can provide some insight, as the analyst has already done much of the work. One such report, available through WestLaw, lists and describes several specific initiatives Citibank has implemented to de-leverage, reduce risk and split the company.

Credit Rating Agencies

Credit Rating Agencies, such as Moody's, Fitch and (to an extent) Dun & Bradstreet act much in the same way as consumer credit bureaus: The agency studies a company and judges how able the company is to pay off a debt, usually an interest payment on a bond. In fact, the last warning sign before a company files for bankruptcy is to miss an interest payment. As companies credit worthiness deteriorates, so too, should their credit ratings (although there has been some controversy related to Fitch and Moody recently).

Researching Bankruptcies

When researching companies in a down economy, the research can be divided into two discrete tasks: monitoring the financial health of companies and indicators of problems, and monitoring actual bankruptcy filings. Both can be useful for marketing purposes. For example, your client may be fine but could be concerned about their accounts receivable. Keeping track of your clients' customers will, in turn, give you an idea of how positively ' or negatively ' your client's revenues are forecasting.

As an example: GM is JCI's most valued customer. Compare JCI's revenues and GM's demand for services, and it isn't surprising why JCI recently had its worst quarter in the company's entire history. At best, monitoring the health of your client's income could provide the firm's creditors' rights group with an opportunity, and, at worst, provide insight into future troubles.

The Troubled Company Prospector

The Troubled Company Prospector is a traditional tool of bankruptcy attorneys monitoring their marketplace. According to its Web site, bankrupt.com, the Prospector “identifies and profiles United States and Canadian companies with assets of more than US$10 million showing signs of financial strain.” In addition to providing targets for bankruptcy counsel, the Prospector also provides data on companies' debts, liabilities and the professional services firms advising the companies. The lists are updated weekly and sent via e-mail to paid subscribers.

Charter Communications' profile is typical of the information found on the Troubled Company Prospector. The Jan. 26, 2009 edition lists Charter Communications as in default, and notes that Bloomberg News reported the company has hired Kirkland & Ellis LLP to advise on a possible bankruptcy. Charter Communications actually has three entries in the Prospector, as it was also listed when Fitch and Standard & Poor's downgraded the company's ratings. The profile continues on to list all of the company's notes, and states that Charter defaulted on a scheduled interest payment due on Jan. 15, 2009.

PACER

Ever wonder where CourtLink gets its information? The data comes from PACER, which stands for Public Access to Court Electronic Records. It is one of the most-used databases in every law firm library. PACER is the go-to source for federal litigation filings, including bankruptcy documents. When searching for raw data and court filings on bankruptcies for an individual company, PACER will provide the necessary information. It will not, however, aggregate, collate, or massage the data.

Bastien Financial Publications

Bastien Financial Publications offers The Bankruptcy Report and Troubled Business Report on a daily or weekly schedule. They are both subscription-based and sent via email. The Association of Insolvency and Restructuring Advisers provide links to sample reports at http://www.airacira.org/aira/benefits/bastien_financial.php. The sample reports give a narrative of each company, the actions it has taken to address its financial problems, and some commentary.

Blogs & RSS Feeds

As has been shown in the legal industry by sites such as Above the Law and the WSJ, news of bankruptcies, layoffs, and other indicators of distress are often first reported to blogs by tipsters. The American Bankruptcy Institute maintains a list of bankruptcy blogs at http://blogs.abiworld.org/, and aggregators such as Technorati can be used to find blogs that focus on a specific industry or geographic area.

Other options for real-time bankruptcy court monitoring are the countless RSS feeds for bankruptcy filings and opinions. There are dozens, if not hundreds, of feeds available. The Illinois District Court's bankruptcy opinions RSS feed, for example, is at http://www.ilnb.uscourts.gov/opinions.rss.

[IMGCAP(1)]

Shannon Sankstone, a member of this newsletter's Board of Editors, is the Marketing Research Analyst at Quarles & Brady, where she is responsible for the marketing and competitive intelligence research function. She can be reached at [email protected] or at 312-715-5251.