Tables can be very helpful

Before

Potential problem bonds are fully current but judged by management to have certain characteristics that increase the likelihood of problem classification. ABC Insurance had $69 million of potential problem bonds, including amounts attributable to policyholder contracts as of December 31, 2004, compared with $63 million as of December 31, 2003. These amounts are net of $14 million and $10 million of cumulative write-downs, respectively. Potential problem bonds attributable to policyholder contracts represented 35% and 45% of total potential problem bonds at December 31, 2004, and 2003, respectively.

ABC Insurance considers bonds that are delinquent or restructured as to terms, typically interest rate and, in certain cases, maturity date, problem bonds. As of December 31, 2004, and 2003, ABC Insurance had problem bonds, including amounts attributable to policyholder contracts of $119 million and $137 million, net of related cumulative write-downs of $19 million and $30 million, respectively. Problem bonds attributable to policyholder contracts represented 29% and 24% of total problem bonds at December 31, 2004 and 2003, respectively.

Before, with commentary

Potential problem bonds [this isn’t helpful when the definition of “problem bonds” doesn’t appear until the next paragraph] are fully current but judged by management to have certain characteristics that increase the likelihood of problem classification. ABC Insurance had $69 million of potential problem bonds, including amounts attributable to policyholder contracts as of December 31, 2004, compared with $63 million as of December 31, 2003. These amounts are net of $14 million and $10 million of cumulative write-downs, respectively. [Okay, so I have to go back to the previous sentence to match up the write-downs for two years.] Potential problem bonds attributable to policyholder contracts represented 35% and 45% of total potential problem bonds at December 31, 2004, and 2003, respectively. [I have to go back to the first sentence to give this any meaning.]

ABC Insurance considers bonds that are delinquent or restructured as to terms, typically interest rate and, in certain cases, maturity date, problem bonds. [Aha! Here’s the definition I need.] As of December 31, 2004, and 2003, ABC Insurance had problem bonds, including amounts attributable to policyholder contracts of $119 million and $137 million, net of related cumulative write-downs of $19 million and $30 million, respectively. Problem bonds attributable to policyholder contracts represented 29% and 24% of total problem bonds at December 31, 2004 and 2003, respectively. [As in the first paragraph, there are three sets of numbers a reader would like to be able to match up and compare, but that isn’t easily done with this presentation.]

After

A “problem bond” is either delinquent or restructured—typically to reduce the interest rate or extend the maturity date.

“Potential problem bonds” are fully current, but management believes they have certain characteristics that make them likely to become “problem bonds.”

The table below provides information about the potential problem bonds and problem bonds in ABC Insurance’s investment portfolio as of December 31:

Type of bond Year Amount (in millions) … … net of cumulative write-downs of … (in millions) Portion of total attributable to policyholder contracts
Potential problem 2004 $69 $14 35%
2003 $63 $10 45%
Problem 2004 $119 $19 29%
2003 $137 $30 24%