Large Language Models#
I didn’t have time to write a short letter, so I wrote a long one instead - Mark Twain
We introduce large language models (LLMs) through a financial natural language processing (NLP) task: summarizing the Quantitative and Qualitative Disclosures About Market Risk sections of 10-K reports. To assess performance, we compare the overlap and readability of summaries generated by GPT-4o-mini, a proprietary closed-source model, and DeepSeek-R1-14B, an open-source model that can be downloaded and run locally. Small language models, particularly those trained using techniques like distillation, can closely approximate the performance of larger models while offering lower latency and reduced memory requirements.
# By: Terence Lim, 2020-2025 (terence-lim.github.io)
import numpy as np
import pandas as pd
from pandas import DataFrame, Series
import textwrap
from pprint import pprint
from rouge_score import rouge_scorer
from tqdm import tqdm
from finds.database import SQL, RedisDB
from finds.unstructured import Edgar
from finds.structured import BusDay, CRSP, PSTAT
from finds.readers import Sectoring
from secret import paths, credentials
VERBOSE = 0
sql = SQL(**credentials['sql'], verbose=VERBOSE)
user = SQL(**credentials['user'], verbose=VERBOSE)
bd = BusDay(sql)
rdb = RedisDB(**credentials['redis'])
crsp = CRSP(sql, bd, rdb, verbose=VERBOSE)
pstat = PSTAT(sql, bd, verbose=VERBOSE)
ed = Edgar(paths['10X'], zipped=True, verbose=VERBOSE)
OpenAI GPT models#
Large language models are built using transformer-based deep learning architectures and pre-trained on massive text corpora. GPT models, short for Generative Pre-trained Transformers, use an autoregressive approach to learn the structure of language by predicting the next token given the previous ones. The transformer architectures allows these models to capture long-range dependencies in text, making them particularly powerful for understanding context and generating fluent text. Modern LLMs extend this base with techniques like instruction tuning and reinforcement learning from human feedback (RLHF), which improve their usability and alignment with human intent.
Pre-training teaches the model general language patterns from large amounts of raw text data. This process builds a foundational base that can be fine-tuned for specific tasks later.
Instruction tuning guides the model to follow specific types of tasks or instructions.
RLHF improves output quality by training the model to reflect human preferences.
BERT (Bidirectional Encoder Representations from Transformers), released by Google in October 2018 not long after the seminal “Attention is All You Need” paper, pioneered transformers-based models for NLP tasks.
OpenAI’s GPT series, from GPT-2 to GPT-o3, demonstrated increasingly powerful capabilities due to the scale of their parameters and training data, containing billions and now trillions of adjustable weights in their deep neural networks. GPT-3 represented a fundamental shift in AI, demonstrating how scaling models alone could achieve generalization. It also introduced In-Context Learning, allowing models to learn from examples in the prompt without fine-tuning. GPT-4 expanded the context length to 128K tokens (which are how LLMs represent the fundamental units of text, which can be as small as single characters or as large as whole words), significantly improving its ability to understand and summarize long documents. These models, however, are only available through proprietary APIs.
LLM |
Number of Parameters |
Context Length |
|---|---|---|
BERT-Base |
110 million |
512 |
BERT-Large |
340 million |
512 |
GPT-2 |
1.5 billion |
1K |
GPT-3.5 |
175 billion |
4K |
GPT-4 |
~1 trillion |
128K |
gpt_name = "gpt-4o-mini"
LangChain framework#
A modular framework for building applications with language models, such as LanChain simplifies the process of integrating language models with external data sources and other AI tools. It abstracts over the underlying LLM API (OpenAI, Ollama, etc.) and allows users to create chains of prompts, tools, and logic for custom NLP workflows.
# Initializes an OpenAI model using LangChain. temperature=0 ensures deterministic outputs
from langchain_openai import ChatOpenAI
gpt_model = ChatOpenAI(model_name=gpt_name, temperature=0, **credentials['openai'])
pprint(gpt_model.to_json())
{'id': ['langchain', 'chat_models', 'openai', 'ChatOpenAI'],
'kwargs': {'model_name': 'gpt-4o-mini',
'openai_api_key': {'id': ['OPENAI_API_KEY'],
'lc': 1,
'type': 'secret'},
'temperature': 0.0},
'lc': 1,
'name': 'ChatOpenAI',
'type': 'constructor'}
Temperature controls randomness in generation: lower values yield more deterministic responses, while higher values lead to more creative or diverse outputs.
Open and closed models#
A large language model consists of three key components:
Architecture: The structure of the model (e.g., Transformer-based).
Weights: The learned parameters that define the model’s behavior.
Training code & data: The scripts and datasets used to train the model.
LLMs are categorized as:
Closed models: API-only, no access to weights or training data (e.g., GPT-4).
Open models: Model weights are available, but full training details are not (e.g., LLaMA, Qwen).
Open-source models: Full transparency including architecture, code, data, and weights (e.g., DeepSeek-R1).
DeepSeek-R1 model#
DeepSeek-R1 is a powerful open-weight language model released by DeepSeek in January 2025, with size ranging from from 1.3B to 236B parameters across different variants. Supporting a context length up to 128K tokens with a GPT-style transformer decoder-only architecture, it was trained with 6-10T tokens from multilingual internet sources. Furthermore, DeepSeek-R1 was fine-tuned to implement chain-of-thought reasoning without explicit prompting. Its training process included:
synthetic dataset of thousands of long-form CoT examples
group relative policy optimization, a reinforcement learning that improved its ability to solve challenging problems
fine-tuning using a final round of reinforcement learning to boost its reasoning accuracy, helpfulness and harmlessness.
The model exposes its reasoning during inference, a departure from the typical black-box approach of other models, allowing users to witness the model’s “thinking process” as it works through problems.
Distilled models#
Distillation compresses LLMs by transferring knowledge from a large teacher model to a smaller student model.
Knowledge Distillation (KD): Student learns from the teacher’s output probabilities (soft targets) in addition to true labels (hard targets).
Intermediate Layer Distillation: Transfers information from internal layers.
Data Augmentation: Uses teacher-generated samples to expand the training set.
LLM distillation is expected to become an even more important practice in the AI world. Examples include GPT-4o distilled into GPT-4o-mini, or DeepSeek-R1 variants trained on Llama and Qwen to preserve reasoning capabilities with fewer parameters.
Distilled versions of DeepSeek-R1 are available in various sizes, including 1.5B, 7B, 14B, 32B, and 70B parameters. These models used DPO (Direct Preference Optimization) or supervised fine-tuning on synthetic highly-curated datasets generated by the larger R1 models, retaining 90–95% of teacher model performance with lower latency.
https://ollama.com/library/deepseek-r1
# model name in Ollama
model_name = "deepseek-r1:14b"
Small language models#
Small language models (SLMs) are smaller in scale and scope than large language models (LLMs), with number of parameters ranging from a few million to a few billion. Requiring less memory and computational power, they can be deployed in resource-constrained environments such as edge devices, mobile apps and off-line situations where AI inferencing (when a model generates a response to a user’s query) must be done without a data network.
Ollama server#
Ollama simplifies running open-source LLMs locally. After installing the Ollama runtime and pulling a model (e.g., deepseek-r1:14b), it can serve requests on localhost.
It provides a simple API for creating, running, and managing models, as well as a library of pre-built models. This allows experimentation with high-performance LLMs, improving accessibility, privacy, and latency.
Install Ollama (https://ollama.com/)
curl https://ollama.ai/install.sh | shls -ltrawhich ollama``ollama --version
Pull a model (stored in /usr/share/ollama/.ollama/models/)
ollama pull deepseek-r1:14bollama list
Serve an LLM
ollama run deepseek-r1:14b# uses GPUollama ps
or Linux service
sudo systemctl status ollama # service statussudo systemctl disable ollama # disable so it does not start up again upon rebootsudo systemctl stop ollama # stop servicesudo systemctl restart ollama # restart servicesudo rm /etc/systemd/system/ollama.service # delete service filesudo rm $(which ollama) # remove ollama binary
Endpoint
curl http://localhost:11434/api/generate -d '{"model": "deepseek-r1:14b", "prompt":"Why is the sky blue?"}'
# Initializes a local LLM (DeepSeek-R1) using Ollama
from langchain_ollama.llms import OllamaLLM
model = OllamaLLM(model=model_name, temperature=0)
pprint(model.to_json())
{'id': ['langchain_ollama', 'llms', 'OllamaLLM'],
'lc': 1,
'name': 'OllamaLLM',
'repr': "OllamaLLM(model='deepseek-r1:14b', temperature=0.0)",
'type': 'not_implemented'}
Text summarization#
Summarization condenses lengthy documents into concise outputs. LLMs can perform abstractive summarization, generating summaries in their own words rather than extracting sentences. Summarization is a core NLP benchmark, critical for a wide variety of applications.
Natural language processing (NLP) tasks#
These tasks play a crucial role in the field of natural language processing, challenging research and applications that have enhanced how machines understand and interact with human language. The performance of LLM’s on these tasks are commonly evaluated using large benchmark datasets, such as MMLU (undergraduate level knowledge), GSM-8K (grade-school math), HumanEval (coding), GPQA (graduate-level questions), and MATH (math word problems). However, the intepretation of these results should be tempered by the inadvertent risk that some benchmark examples found their way in the data set used for training models.
Natural Language Inference (NLI), also known as textual entailment, is the task of determining the relationship between two sentences, i.e. predict whether one sentence (the hypothesis) logically follows from another sentence (the premise).
Named Entity Recognition (NER) involves identifying and classifying named entities within a text into predefined categories such as person names, organizations, locations, dates, etc.
Text Generation is the process of generating coherent and contextually relevant text given a certain input or prompt.
Machine Translation (MT) is the task of automatically translating text from one language to another.
Text Summarization involves creating a concise summary of a longer text while preserving its key information and meaning.
Reading comprehension requires models to read a passage of text and answer questions about it, demonstrating understanding of the text. Some challenges when developing and evaluating reading comprehension models include:
Artifacts, which refer to incorrect or misleading information generated by models that do not reflect the true content of the text but rather exploit patterns in the training data
Adversarial attacks, which are instances where models fail due to intentional manipulation or perturbation of the input, aiming to mislead or deceive the model.
Multihop reasoning, which refers to the ability of a model to connect multiple pieces of information or “hops” across the text to arrive at an answer.
Question-Answering (QA) systems that automatically answer questions posed by humans in natural language, either based on a given context or dataset (known as closed-QA) or diverse topics from any domen (open-QA).
Sentiment Analysis is the task of determining the sentiment or emotional tone expressed in a piece of text, such as positive, negative, or neutral.
10-K Market risk disclosures#
We focus on Item 7A of the 10-K reports: Quantitative and Qualitative Disclosures About Market Risk. After retrieving and filtering disclosures from the SEC’s EDGAR database, only the largest firms with sufficiently long reports are retained. One representative document per sector is selected for summarization.
# Retrieve universe of stocks
beg, end = 20240101, 20240331
univ = crsp.get_universe(bd.endmo(beg, -1))
# lookup company names
comnam = crsp.build_lookup(source='permno', target='comnam', fillna="")
univ['comnam'] = comnam(univ.index)
# lookup sic codes from Compustat, and map to FF 10-sector code
sic = pstat.build_lookup(source='lpermno', target='sic', fillna=0)
industry = Series(sic[univ.index], index=univ.index)
industry = industry.where(industry > 0, univ['siccd'])
sectors = Sectoring(sql, scheme='codes10', fillna='') # supplement from crosswalk
univ['sector'] = sectors[industry]
# Load Disclosure about Market Risk text from 10-K's
item, form = 'qqr10K', '10-K'
rows = DataFrame(ed.open(form=form, item=item))
found = rows[rows['date'].between(beg, end)]\
.drop_duplicates(subset=['permno'], keep='last')\
.set_index('permno')
# Keep largest decile of stocks
found = found.loc[found.index.intersection(univ.index[univ['decile'] == 1])]
# Require minimum length of text
docs = {permno: ed[found.loc[permno, 'pathname']].lower()
for permno in found.index}
permnos = [permno for permno, doc in docs.items() if len(doc)>2000]
found = found.join(Series(docs, name='item').reindex(permnos), how='inner')
docs = univ.loc[found.index].groupby('sector').sample(1)
Generation#
A LangChain pipeline is used to apply two models (DeepSeek-R1 via Ollama and GPT-4o-mini via OpenAI) to generate summaries. Model endpoints are configured with deterministic settings (temperature = 0). A prompt template and output parser are defined to extract core content, looping through each 10-K document. Summaries are generated and collected for analysis.
summary = {} # to collect generated summaries
Define Langchain input prompt template
from langchain_core.prompts import ChatPromptTemplate
prompt_template = """
{role}.
Please summarize this risk report in about 300 words in prose form:
{text}
"""
prompt = ChatPromptTemplate.from_template(prompt_template)
Select Langchain output parser
from langchain_core.output_parsers import StrOutputParser
parser = StrOutputParser()
def collect_summaries(model, role="You are a helpful AI assistant."):
"""Helper to iterate over companies and generate summaries of risk reports"""
summ = {}
for i, permno in enumerate(docs.index):
print(f'===== {i+1}/{len(docs)}.', univ.loc[permno, 'comnam'], '=====')
chain = prompt | model | parser
response = chain.invoke({"role": role, "text": found.loc[permno, 'item']})
print("\n".join([textwrap.fill(s, width=80) for s in response.split('\n')]))
print()
summ[permno] = response.split('</think>')[-1] # remove model's "thinking"
return summ
Generate summaries with DeepSeek-R1-14b model
summary[model_name] = collect_summaries(model)
===== 1/10. PACCAR INC =====
<think>
Okay, so I need to summarize this risk report into about 300 words. Let me read
through it carefully first.
The report is about market risks and derivative instruments, focusing on
interest rates, currencies, and commodities. It mentions that the figures are in
millions. The company uses hedging programs to manage these risks, as described
in Note P.
Starting with interest-rate risk: They measure this by estimating how a 100
basis point increase would affect fair values. In 2023, assets like cash
equivalents and fixed rate loans show potential losses, while liabilities such
as fixed rate term debt and swaps show gains. The total for 2023 is a loss of
$17.7 million, which is better than the previous year's $1.1 million loss.
Next, currency risk: They hedge against several currencies like CAD, EUR, GBP,
etc. A 10% unfavorable change in exchange rates would cause losses of $259.7
million in 2023 and $216.6 million in 2022. But these are offset by changes in
the underlying exposures.
Then, commodity price risk: They use forward contracts to hedge against price
fluctuations for production inputs. A 10% unfavorable change would lead to
losses of $3.3 million in 2023 and $2.5 million in 2022, which are also offset
by hedged exposures.
I should structure the summary to cover each risk category with their respective
figures and explanations. Make sure it's concise, around 300 words, and flows
well.
</think>
The risk report outlines a company's strategies and exposures related to market
risks, including interest rates, currencies, and commodities, as of December 31,
2023, and 2022. The company employs hedging programs to mitigate these risks.
**Interest-Rate Risk:**
The company assesses the impact of a 100 basis point increase in interest rates
on the fair value of its assets and liabilities. In 2023, cash equivalents and
marketable debt securities showed potential losses of $29.2 million, while
fixed-rate loans indicated a $146.5 million loss. On the liability side, fixed
rate term debt and swaps resulted in gains of $156.8 million and $1.2 million,
respectively. The net interest-rate risk for 2023 was a manageable $17.7 million
loss, an improvement from the previous year's $1.1 million loss.
**Currency Risk:**
To manage exchange rate fluctuations, the company hedges against major
currencies like the Canadian dollar and Euro. A 10% unfavorable change in these
rates could lead to losses of $259.7 million in 2023 and $216.6 million in 2022.
These potential losses are largely offset by corresponding changes in the value
of hedged exposures, indicating effective risk management.
**Commodity Price Risk:**
The company uses forward contracts to stabilize earnings against adverse
commodity price movements, particularly for truck production inputs. A 10%
unfavorable change in commodity prices could result in $3.3 million and $2.5
million losses in 2023 and 2022, respectively. These figures reflect the
company's ability to mitigate risks through hedging.
In summary, the company demonstrates a structured approach to managing market
risks, with effective use of derivatives and hedging strategies to minimize
potential financial impacts across interest rates, currencies, and commodities.
===== 2/10. PHILLIPS 66 =====
<think>
Okay, so I'm trying to understand all these risks mentioned in the document. Let
me start by reading through them carefully.
First, there are market conditions like fluctuations in prices and margins for
NGLs, crude oil, natural gas, and refined products. That makes sense because
energy prices can be really volatile due to things like supply and demand
changes or geopolitical events.
Then there's government policies affecting pricing, regulation, taxation,
especially exports. I know that export policies can have a big impact on supply
and demand, so this is an important factor.
Capacity constraints in pipelines, storage, and fractionation facilities are
another risk. If these infrastructure issues arise, it could limit how much
product they can transport, leading to bottlenecks or higher costs.
OPEC and non-OPEC actions influence supply and demand, which affects prices. I
remember that OPEC's decisions can cause significant shifts in the market.
The success of DCP LP integration is mentioned, including achieving synergies.
This probably refers to a business strategy where they're combining operations,
so if this doesn't go as planned, it could hurt their performance.
Unexpected technical difficulties or cost increases during construction or
operation are risks too. Construction delays can be costly and disrupt
production.
Drilling and production volumes around midstream assets are another point. If
the wells aren't producing as expected, it affects the company's revenue from
those assets.
Permits and regulations compliance are also risks. They need to get permits for
projects, and if they can't or if regulations change, it could delay things or
require more spending.
Savings and cost reductions from business transformation initiatives might not
happen as planned. If they don't achieve these savings, their financial goals
could be at risk.
Renewable fuels policies and climate change regulations are factors too. Changes
in these areas could affect demand for traditional fuels or require new
investments.
Economic and political developments like the Russia-Ukraine war can impact
markets. Also, things like inflation, interest rates, and expropriation of
assets pose risks.
Public health crises, like pandemics, can disrupt operations and reduce demand
for their products. The recovery after such events is also uncertain.
Capital projects might not be completed on time or within budget. Delays here
can lead to cost overruns and project failures.
Asset dispositions or acquisitions could face challenges if they don't complete
them successfully. This includes both the sale of assets and buying new ones.
Litigation or government actions could disrupt operations, leading to legal fees
or operational changes.
Accidents, weather events, civil unrest, etc., can damage facilities and
interrupt operations, causing financial losses.
Meeting sustainability goals is another risk. If they don't reduce GHG emissions
as planned or develop new technologies, it could affect their reputation and
operations.
New products might not be accepted by the market, leading to wasted investments.
Monetary conditions and exchange controls can impact international trade and
profitability.
Environmental regulations requiring significant investments or reducing demand
for their products are risks. They might have to spend a lot on compliance or
face reduced sales.
Liability from environmental issues like cleanup costs is another concern.
Changes in laws and regulations, including alternative energy mandates, could
force them to adapt their business models.
Climate change concerns might lead to changes in how they operate or increase
expenses through litigation or other costs.
Impairment charges could occur if the value of assets decreases due to market
conditions or strategic decisions.
Access to capital is crucial; if it's limited or more expensive, they might not
be able to fund their operations effectively.
Counterparties going bankrupt could lead to financial losses from unpaid debts
or obligations.
Cybersecurity incidents can compromise sensitive data and lead to legal
liabilities or operational disruptions.
Joint ventures that the company doesn't control could make decisions that
negatively impact their own business.
Lastly, all these factors are generally described in Item 1A of the risk factors
in the report.
I think I've covered all the points. Now, how do I summarize this? Maybe by
categorizing them into market risks, regulatory risks, operational risks,
financial risks, and environmental/sustainability risks. That way, it's easier
to understand and address each category separately.
</think>
The document outlines a comprehensive list of risks that could impact the
company's performance and operations. These risks can be categorized as follows:
1. **Market Risks**:
- Volatility in energy prices (NGLs, crude oil, natural gas, refined
products).
- Fluctuations in margins and demand for refining and petrochemical products.
- Impact of OPEC and non-OPEC actions on supply and demand.
2. **Regulatory and Policy Risks**:
- Changes in government policies affecting pricing, regulation, taxation, and
exports.
- Compliance with environmental regulations (GHG emissions, renewable fuels).
- Influence of international monetary conditions and exchange controls.
3. **Operational Risks**:
- Capacity constraints in transportation infrastructure (pipelines, storage).
- Delays or cost overruns in construction and capital projects.
- Challenges in permit acquisition and regulatory compliance.
- Risks from joint ventures not under the company's control.
4. **Financial Risks**:
- Failure to achieve expected savings from business transformation
initiatives.
- Impairment charges due to asset value declines.
- Limitations in accessing capital or increased funding costs.
- Counterparty risks (e.g., bankruptcy leading to financial losses).
5. **Environmental and Sustainability Risks**:
- Meeting sustainability goals and adapting to climate change regulations.
- Development of new technologies and products that may not gain market
acceptance.
6. **Geopolitical and Public Health Risks**:
- Impact of geopolitical events (e.g., Russia-Ukraine war) on markets.
- Disruptions from public health crises (e.g., pandemics).
7. **Legal and Reputational Risks**:
- Litigation risks and potential liabilities from environmental issues.
- Cybersecurity threats leading to data breaches or operational disruptions.
By categorizing these risks, the company can better manage and mitigate
potential challenges across different areas of its operations.
===== 3/10. MASTERCARD INC =====
<think>
Okay, so I need to summarize this risk report from MasterCard's 2023 Form 10-K
about market risks, specifically items related to quantitative and qualitative
disclosures. The user wants a summary in around 300 words, written in prose
form.
First, I'll read through the provided text carefully to understand the key
points. It seems like the report is divided into sections on foreign exchange
risk and interest rate risk.
Under foreign exchange risk, MasterCard uses derivative contracts to manage
currency exposures from transactions and asset/liability fluctuations. They
mention a hypothetical 10% adverse change leading to potential losses of around
$414 million in 2023 and $94 million in 2022. There's also something about
short-term settlement activities limiting their exposure to a few days, so the
impact isn't material even with a 10% change. Additionally, they talk about net
investment hedges for foreign subsidiaries but didn't have any as of December
31, 2023.
For interest rate risk, MasterCard has available-for-sale debt investments and
fixed-rate debt. They mention that a 100 basis point adverse change wouldn't
cause material losses in either year. They use derivative contracts to hedge
some of their fixed-rate debt exposure.
I need to structure this summary clearly, probably starting with an overview of
market risk, then breaking down into foreign exchange and interest rate risks
separately. I should highlight the strategies they use, like derivatives for
hedging, and mention the hypothetical losses but also note that these are before
considering offsets from hedged activities. It's important to convey that their
exposure is managed effectively through these measures.
I'll make sure to keep it concise, around 300 words, using clear and
professional language without getting too technical. I should avoid jargon where
possible and ensure each section flows logically into the next.
</think>
The risk report outlines Mastercard's approach to managing market risks,
including foreign exchange and interest rate risks, which can lead to financial
losses due to adverse changes in currency values or interest rates. The company
actively monitors these risks and employs strategies such as derivative
financial instruments to mitigate potential impacts.
**Foreign Exchange Risk:**
Mastercard manages foreign exchange risk through derivative contracts aimed at
hedging currency exposures from transactions and asset/liability fluctuations.
These contracts help reduce transaction gains or losses resulting from currency
fluctuations against the U.S. dollar and euro. A hypothetical 10% adverse change
in currency values could result in fair value losses of approximately $414
million (2023) and $94 million (2022). However, Mastercard's short-term
settlement activities typically limit exposure to a few days between
transactions and settlements, minimizing material impacts from such changes.
Additionally, the company may use derivatives to hedge its net investment in
foreign subsidiaries, though no such hedges were designated as of December 31,
2023.
**Interest Rate Risk:**
The company's available-for-sale debt investments include fixed and variable
rate securities sensitive to interest rate fluctuations. A hypothetical 100
basis point adverse change in interest rates would not result in material losses
for its investments or derivative contracts used to hedge fixed-rate debt as of
December 31, 2023 and 2022.
Overall, Mastercard employs robust risk management strategies, including the use
of derivatives, to effectively mitigate market risks and safeguard against
potential financial losses.
===== 4/10. BRISTOL MYERS SQUIBB CO =====
<think>
Okay, so I need to summarize this risk report into about 300 words. Let me read
through it carefully first.
The report is about market risks the company faces, specifically from currency
exchange rates and interest rates. They use derivatives like forwards and swaps
to hedge these risks but don't trade with them.
Looking at foreign exchange risk: a lot of their revenue and cash flows are
affected by changes in Euro and Japanese Yen. They use forward contracts and put
options to manage this. There's also transaction risk from non-functional
currencies, which they offset with forwards not designated as hedges. They hedge
net investments with affiliates using these contracts too.
They estimate that a 10% appreciation in the hedged currencies would decrease
the fair value of their FX contracts by certain amounts, reducing earnings.
Cross-currency swaps are used for long-term debt and foreign subsidiaries; here,
a 10% change affects the swap values differently.
For interest rate risk: they use fixed-to-floating swaps to balance their debt.
They also analyze how changes in rates affect their marketable securities and
long-term debt. A 1% increase in rates doesn't have a big impact on earnings but
does decrease the fair value of long-term debt.
Credit risk is managed by investing only with high-quality institutions,
diversifying derivatives across counterparties to reduce default risks.
I need to condense all this into a coherent summary without getting too
technical. Make sure to mention each type of risk (FX and interest rate), how
they hedge, the impact of currency appreciation/depreciation, and their credit
risk management strategies.
</think>
The company faces market risks primarily from fluctuations in foreign exchange
rates and interest rates. To mitigate these risks, it employs derivative
financial instruments such as forwards, swaps, and put options, which are used
for hedging rather than trading.
**Foreign Exchange Risk:**
A significant portion of the company's revenue, earnings, and cash flows are
exposed to changes in Euro and Japanese Yen exchange rates. The company uses
foreign currency forward contracts and purchased local currency put option
contracts to manage risks from intercompany transactions. Additionally, these
forwards are used to hedge net investment exposures in international affiliates.
Cross-currency swaps are employed to manage long-term debt denominated in Euros.
The impact of a 10% appreciation in hedged currencies is estimated to decrease
the fair value of foreign exchange contracts and increase/decrease cross-
currency swap values, affecting earnings over time.
**Interest Rate Risk:**
The company uses fixed-to-floating interest rate swaps to balance its debt
structure. Sensitivity analysis shows that a 1% increase in short-term or long-
term interest rates would not significantly impact earnings but could decrease
the fair value of long-term debt.
**Credit Risk Management:**
Investments are limited to high-credit-quality institutions, and derivatives are
diversified across counterparties to mitigate default risks.
In summary, the company effectively manages market risks through strategic use
of financial instruments while adhering to conservative credit policies.
===== 5/10. CARRIER GLOBAL CORP =====
<think>
Okay, so I need to summarize this risk report about market risks for a company.
The user provided the entire section under item 7a, which includes foreign
currency exposures, commodity price exposures, and interest rate exposures. They
also mentioned that there's been no significant change in their market risk
exposure for the year ended December 31, 2023.
First, I should read through each part carefully to understand what each section
is talking about.
Starting with foreign currency exposures: The company operates internationally,
so they're exposed to exchange rate fluctuations. Their non-U.S. operations have
different functional currencies, which affects their reported results when the
U.S. dollar strengthens or weakens against those currencies. They manage
material currency exposures at the legal entity level but don't hedge
translation risk. However, for specific acquisitions like VCS and TCC, they used
financial instruments like window forward contracts and cross-currency swaps to
mitigate risks related to paying in foreign currencies.
Next, commodity price exposures: The company is affected by volatile commodity
prices and uses fixed-price contracts when appropriate. They also face fuel
costs for shipping but don't have any hedges in place as of December 31, 2023.
Interest rate exposures: Most of their long-term debt has fixed rates, so they
don't expect much impact from interest rate fluctuations.
I need to condense all this into about 300 words. I should structure it by first
introducing the overall market risks (currency, commodities, interest rates),
then go into each category with key points, and conclude without significant
changes in exposure.
I should make sure to mention their strategies for managing these risks, like
using swaps and contracts, but also note where they don't hedge, such as
translation risk. I'll need to keep the language clear and concise, avoiding too
much jargon so it's accessible.
Let me outline the summary:
1. Introduction: Briefly state that the company faces market risks from
currency, commodities, and interest rates, with no significant change in 2023.
2. Foreign Currency Exposures: Explain their international operations leading to
exchange rate risks. Mention active management at entity level but no hedging of
translation risk. Highlight specific actions taken for VCS and TCC acquisitions
using financial instruments.
3. Commodity Price Exposures: Discuss volatility in commodity prices, use of
fixed-price contracts, and absence of hedges for fuel costs.
4. Interest Rate Exposures: Note that most debt is fixed-rate, so minimal
expected impact from rate changes.
5. Conclusion: Reiterate no significant change in overall market risk exposure.
I should ensure each section flows logically into the next, providing a
comprehensive yet concise overview without getting bogged down in details. Also,
I need to watch the word count to stay around 300 words, so I'll aim for about
6-7 sentences per main point.
</think>
The company faces market risks primarily from fluctuations in foreign currency
exchange rates, commodity prices, and interest rates, with no significant
changes in exposure during 2023.
**Foreign Currency Exposures:** The company's global operations expose it to
exchange rate risks, particularly affecting its U.S. dollar reporting. While
they manage material currency exposures at the entity level without hedging
translation risk, specific strategies were employed for acquisitions. For
instance, window forward contracts were used for the VCS acquisition to mitigate
euro-denominated risks, and cross-currency swaps were utilized for the TCC
acquisition to hedge yen-denominated investments.
**Commodity Price Exposures:** The company deals with volatile commodity prices
by using fixed-price contracts where appropriate. However, they lack hedges
against fuel cost fluctuations impacting shipping expenses.
**Interest Rate Exposures:** With most long-term debt having fixed rates, the
company anticipates minimal impact from interest rate changes.
In conclusion, the company's market risk management remains consistent, focusing
on strategic hedging for specific risks while acknowledging areas where exposure
is accepted without mitigation.
===== 6/10. LULULEMON ATHLETICA INC =====
<think>
Okay, so I need to summarize this risk report into about 300 words. Let me read
through it carefully first.
The report starts with market risks, specifically foreign currency exchange and
translation risks. It mentions that their international subsidiaries use local
currencies as functional currencies, which are then converted to USD for
consolidated financial statements. Exchange rate fluctuations affect reported
revenues, expenses, assets, and liabilities. In 2023, revenue was lower by $89.8
million compared to 2022 due to exchange rates.
They also talk about translation risk where foreign currency differences are
recorded in other comprehensive income (OCI). They have a Canadian subsidiary
with significant net assets, so they use forward contracts to hedge part of this
exposure. The impact on OCI was an increased loss of $9 million, including hedge
gains.
Then there's transaction risk from intercompany transactions and inventory
purchases in non-functional currencies. They hold cash and other monetary assets
in different currencies and have forward contracts to hedge these. The
sensitivity analysis shows that a 10% depreciation in the USD would affect
derivative fair values by $29.8 million, but this is offset by changes in hedged
items.
They plan to use more derivatives in the future for additional currency pairs
but won't trade them for profit. There's also mention of interest rate risk from
their revolving credit facility, which has a variable rate. As of now, there are
no borrowings except for $6.3 million in letters of credit. They don't do any
hedging yet but might in the future.
Cash and cash equivalents are held in short-term deposits and money market
funds, totaling $2.2 billion. Interest rates affect the interest generated on
these balances. Credit risk is managed by dealing with reputable institutions,
though some deposits exceed insured limits. They monitor counterparties' credit
standing to minimize risks.
Inflation is another concern, particularly wage increases affecting operating
margins in 2022 and 2023. Higher transportation costs and raw material prices
could hurt margins if selling prices don't rise or cost efficiencies aren't
found.
I need to condense all this into a coherent summary without exceeding 300 words.
I'll structure it by main risk categories: foreign currency, interest rate,
credit, and inflation risks. Highlight the key points like revenue impact,
hedging strategies, sensitivity analysis, current financial status, and future
plans regarding derivatives. Also, mention the effects of inflation on margins.
I should ensure that each section is concise, using bullet points or clear
paragraphs to separate the different types of risk. Make sure to include the
main figures like $89.8 million revenue drop, $2.2 billion cash, and sensitivity
results. Avoid jargon where possible and keep it in prose form as requested.
Let me start drafting:
- Foreign currency exchange and translation risks: Explain how exchange rates
affect financial statements, mention the 2023 revenue drop, their use of forward
contracts to hedge, and the impact on OCI.
- Transaction risk: Discuss intercompany transactions and inventory purchases in
non-functional currencies, their hedging strategies with forward contracts, and
sensitivity analysis results.
- Interest rate risk: Describe the credit facility's variable rates, current
borrowing status, and future plans for hedging if needed.
- Credit risk: Talk about holding cash in reputable institutions, monitoring
counterparties, and minimal losses experienced.
- Inflation: Highlight past impacts on margins due to wages and freight costs,
potential future effects, and reliance on price increases or cost efficiencies.
I need to make sure each section flows logically and stays within the word
limit. Let me check for any redundancies or areas that can be more concise.
</think>
The risk report outlines several key market risks faced by the company,
primarily focusing on foreign currency exchange, translation, transaction,
interest rate, credit, and inflationary risks.
**Foreign Currency and Translation Risks:** The company's international
subsidiaries use local currencies, which are converted to USD for consolidated
financial statements. Exchange rate fluctuations significantly impact reported
revenues, expenses, assets, and liabilities. In 2023, revenue decreased by $89.8
million due to unfavorable exchange rates. To mitigate translation risk, the
company records foreign currency differences in other comprehensive income
(OCI). They also use forward contracts to hedge risks associated with their
significant Canadian subsidiary, resulting in a $9 million increase in OCI
losses, including hedge gains.
**Transaction Risks:** The company faces transaction risks from intercompany
transactions and inventory purchases denominated in non-functional currencies.
To manage these risks, they hold cash and other monetary assets in various
currencies and employ forward contracts for hedging. Sensitivity analysis
indicates that a 10% USD depreciation would affect derivative fair values by
$29.8 million, offset by changes in hedged items.
**Interest Rate Risks:** The company's revolving credit facility exposes it to
variable interest rates. Currently, there are no borrowings except for $6.3
million in letters of credit. While they do not engage in hedging activities at
present, they plan to use derivatives for future currency pairs without trading
for profit.
**Credit Risks:** The company manages credit risks by holding cash in reputable
financial institutions and monitoring counterparty credit standing. Although
some deposits exceed insured limits, they have experienced minimal losses and
maintain investment-grade relationships to mitigate risks.
**Inflation Risks:** Inflationary pressures, such as rising wages and
transportation costs, have impacted operating margins in recent years. Sustained
increases could adversely affect margins if selling prices do not rise or cost
efficiencies are not achieved. The company remains vigilant about these factors
to ensure margin stability.
This structured approach ensures clarity and conciseness, effectively conveying
the key risks and strategies outlined in the report within 300 words.
===== 7/10. AIRBNB INC =====
<think>
Okay, so I need to summarize this risk report about market risks that Airbnb is
facing. The user provided the entire section from item 7a, which talks about
both quantitative and qualitative disclosures regarding market risks. They
specifically mentioned foreign currency risk and investment risk.
First, I should read through the entire text carefully to understand all the
points made. It starts by saying that their global operations expose them to
various market risks, mainly foreign currency and investment risks.
Under foreign currency exchange risk, they mention that they support over 40
currencies, with some key ones like euro, British pound, etc. Their revenue and
costs are in these currencies, which can fluctuate against the US dollar,
affecting their financial results. They have several exposures: revenue and cost
of revenue, funds held, unbilled amounts, and intercompany balances.
They use foreign currency derivatives to hedge these risks but don't eliminate
them entirely. There's a mention that if there was an adverse 10% change in
exchange rates as of Dec 31, 2023, they would lose about $20 million.
Then, investment and interest rate risk: they have a large cash and short-term
investments portfolio, mainly in debt securities. They don't invest for trading
or speculation, so their exposure to interest rate changes is limited because
their investments are short-term. A 100 basis point increase would decrease
their portfolio by $20 million.
I need to condense all this into about 300 words. I should structure it with an
introduction, then sections on foreign currency risk and investment risk,
highlighting the key points like hedging strategies, potential losses from
exchange rate changes, and their approach to managing interest rates through
short-term investments.
I also need to make sure the summary is in prose form, clear and concise,
without using bullet points or technical jargon. I should mention the specific
currencies, the use of derivatives, the amounts at risk, and their investment
strategies.
Wait, let me check if there are any other important details. They talk about how
guests can pay in different currencies, which introduces more currency risks
because hosts might choose a different payment currency. Also, they have
separate funds for bookings, which adds to their foreign exchange exposures.
In the investment section, it's important to note that they focus on preserving
capital and liquidity, so they stick to safe, short-term investments. This
minimizes their exposure to interest rate fluctuations but still, a significant
change could impact them.
I should also include the specific figures: $20 million loss from a 10% exchange
rate change and the same figure for a 100 basis point increase in interest
rates. These numbers show the potential financial impact.
Putting it all together, I'll start with an overview of their market risks, then
break down each type, explain the exposures, their hedging strategies, and the
potential losses. Conclude by summarizing their approach to managing these
risks.
</think>
Airbnb faces significant market risks primarily due to its global operations,
which expose it to foreign currency exchange risk and investment risk.
**Foreign Currency Exchange Risk:**
Airbnb operates in over 40 currencies, with key exposures including the euro,
British pound, Canadian dollar, Australian dollar, Brazilian real, and Mexican
peso. Fluctuations in these currencies against the US dollar can impact its
financial results through various channels: revenue and costs denominated in
foreign currencies, funds held on behalf of customers, unbilled amounts from its
"Pay Less Upfront" program, and intercompany balances. To mitigate this risk,
Airbnb uses foreign currency derivative contracts to hedge forecasted exposures,
though it does not eliminate all risks. A 10% adverse exchange rate change as of
December 31, 2023, could result in a $20 million loss.
**Investment and Interest Rate Risk:**
Airbnb's investment portfolio, primarily consisting of short-term, highly-liquid
debt securities, is managed to preserve capital and meet liquidity needs. As of
December 31, 2023, it held $6.9 billion in cash and cash equivalents, $3.2
billion in short-term investments, and $5.9 billion in funds receivable. The
portfolio's short maturity minimizes sensitivity to interest rate changes. A
hypothetical 100 basis point increase in rates could decrease the investment
portfolio's fair value by $20 million. Airbnb avoids speculative investments and
trading activities, focusing on stability rather than risk.
In summary, while Airbnb employs hedging strategies and conservative investment
practices to manage risks, significant currency fluctuations or interest rate
changes could still impact its financial performance.
===== 8/10. MERCADOLIBRE INC =====
<think>
Okay, so I'm trying to understand this document about MercadoLibre's risks and
sensitivities. It seems like it's part of their financial disclosures, maybe in
their annual report or something similar. Let me break down what each section is
saying.
First, the foreign exchange risk. They have a significant amount of revenue from
Brazil, Argentina, and other Latin American countries. Since they're dealing
with multiple currencies, especially the Brazilian real and Argentine peso,
which can be volatile, this could affect their financials. If the real or peso
weakens against the dollar, their reported revenue in dollars might decrease
because when converted, those currencies would buy fewer dollars. That makes
sense because if you have a lot of revenue in a currency that's dropping, your
overall revenue in USD terms goes down.
Next is interest rate risk. They have long-term debt, which means they're
exposed to changes in interest rates. If rates go up, the value of their
existing debt might decrease, and their borrowing costs could increase if they
need to refinance or take on more debt. I'm not entirely sure how sensitive they
are to rate changes, but it's something to watch, especially with global
interest rates potentially rising.
Then there's commodity price risk. They're exposed to fuel and electricity
prices because these are operational costs. If oil prices go up, their delivery
and logistics costs would increase, affecting their margins. Similarly, higher
electricity prices could impact their operations, especially in countries where
energy is a significant cost. This seems like a manageable risk but could have
noticeable effects if prices spike.
Equity price risk is tied to their LTRP plans. These are long-term retention
programs that pay out based on stock performance. The value of these obligations
is sensitive to the company's stock price. If the stock goes up, the payouts
increase, which could strain their finances. Conversely, a drop in stock price
reduces the payout liability. They've done a sensitivity analysis showing how a
40% change in stock price affects the obligation. That's pretty significant; a
40% drop would reduce the liability from $418 million to about $251 million,
which is a substantial difference.
Inflation risk is another factor, especially in countries like Argentina where
inflation has been high. High inflation can erode purchasing power and affect
consumer behavior. If people have less money due to inflation, they might spend
less online, impacting MercadoLibre's sales. Additionally, rising costs for
goods and services could squeeze margins if the company can't pass these costs
onto customers.
I'm a bit confused about how exactly the equity price affects their obligations.
It seems like it's based on the stock price relative to a fixed average from
previous years. So each payment is tied to whether the current stock price is
higher or lower than that average. If the stock does well, they have to pay
more; if not, less.
I'm also thinking about how these risks interact. For example, inflation could
lead to higher interest rates, which would then affect their debt costs. Or a
weaker currency might make imports more expensive, contributing to inflation.
It's like a web of interconnected risks that could amplify each other in certain
economic conditions.
Another point is the sensitivity analysis for equity price risk. They show a
static present value and how it changes with different stock prices. This helps
investors understand how exposed they are to stock price fluctuations. A 40%
change seems extreme, but it's useful to see the range of possible outcomes.
I wonder if there are any mitigating factors or strategies MercadoLibre uses to
manage these risks. For example, do they hedge their currency exposure? How
flexible are their costs in the face of inflation? And how do they structure
their LTRP plans to balance retention with financial risk?
Overall, this section is highlighting several key areas where MercadoLibre faces
potential volatility and challenges. It's important for investors to consider
these risks when evaluating the company's long-term prospects.
</think>
**MercadoLibre Risk Analysis Summary**
1. **Foreign Exchange Risk:**
- **Exposure:** Significant revenue from Brazil, Argentina, and other Latin
American countries exposed to currency fluctuations, particularly the Brazilian
real and Argentine peso.
- **Impact:** Currency devaluation can reduce reported USD revenue when
converted.
2. **Interest Rate Risk:**
- **Exposure:** Long-term debt subject to interest rate changes.
- **Impact:** Rising rates may decrease debt value and increase borrowing
costs.
3. **Commodity Price Risk:**
- **Exposure:** Operational costs tied to fuel and electricity prices.
- **Impact:** Price spikes can increase operational expenses and reduce
margins.
4. **Equity Price Risk:**
- **Exposure:** Long-term retention programs (LTRP) linked to stock
performance.
- **Impact:** Stock price fluctuations affect payout obligations; a 40% drop
reduces liability from $418 million to $251 million.
5. **Inflation Risk:**
- **Exposure:** High inflation in countries like Argentina affecting
purchasing power and operational costs.
- **Impact:** Could reduce consumer spending and squeeze margins if cost
increases aren't offset.
6. **Interconnected Risks:**
- Inflation may lead to higher interest rates, affecting debt costs and
potentially exacerbating currency issues.
7. **Mitigation Strategies:**
- Consider hedging strategies for currency exposure, flexible cost
structures, and balanced LTRP designs to manage financial risks.
**Conclusion:** MercadoLibre faces multiple interconnected risks that could
impact its financial health. Investors should assess these factors alongside the
company's risk management strategies when evaluating long-term prospects.
===== 9/10. A T & T INC =====
<think>
Okay, so I'm trying to understand this document about AT&T's financial report.
It looks like it's an audit report from their independent registered public
accounting firm. Let me go through it step by step.
First, the report is divided into two main sections: one on the internal control
over financial reporting and another on the consolidated financial statements.
Both have an opinion section, a basis for opinion, and some additional details.
Starting with the opinion on internal control over financial reporting. The
auditors state that they've audited AT&T's internal controls as of December 31,
2023, based on the COSO criteria. They conclude that the company maintained
effective internal control over financial reporting in all material respects.
That sounds positive; it means the auditors think AT&T has good systems in place
to manage their finances properly.
Next, looking at the basis for this opinion. It mentions that management is
responsible for maintaining these controls and assessing their effectiveness.
The auditors' role was to express an opinion based on their audit, which they
did by following PCAOB standards. They obtained an understanding of the internal
controls, assessed risks, tested the design and operation of the controls, and
performed other necessary procedures. Their conclusion is that AT&T's controls
are effective.
Moving on to the report on the consolidated financial statements. The auditors
also express an unqualified opinion here, meaning they didn't find any material
issues with the financial statements. They were prepared in accordance with
GAAP, which is standard for public companies in the U.S.
The basis for this opinion section explains that the auditors are responsible
for expressing opinions on whether the financial statements present fairly, in
all material respects, the company's financial position and results of
operations. They did this by auditing according to PCAOB standards, assessing
risks, testing accounting policies, significant estimates, transactions, and
disclosures.
There are also two specific sections discussing areas where the audit was
particularly complex: internal control over financial reporting and the
impairment evaluations for certain reporting units. The auditors explain that
these areas required a deeper dive because they involve subjective assumptions
and complex methodologies. They tested controls, assessed assumptions against
industry trends, performed sensitivity analyses, and involved specialists to
ensure everything was in order.
The report ends with a note that the auditing firm has been serving AT&T since
1999, which shows a long-standing relationship, likely indicating consistency
and familiarity with the company's operations.
I'm trying to think if there's anything I might be missing. The document seems
comprehensive, covering both the internal controls and financial statements. It
mentions specific areas like impairment evaluations and valuation models, which
are known for being complex and subject to judgment. The auditors' involvement
of specialists in these areas makes sense because it adds depth to their
analysis.
I wonder if there were any material weaknesses or significant deficiencies
mentioned, but from what I can see, the opinions are unqualified, so no major
issues were found. It's also worth noting that the report is dated February 23,
2024, which would typically be around the time when earnings are released, so
it's timely.
Overall, this audit report seems to provide assurance to stakeholders that
AT&T's financial reporting is reliable and their internal controls are
effective. The detailed explanation of the auditing process gives confidence in
the independence and thoroughness of the audit.
</think>
The audit report on AT&T provides a comprehensive assessment of both its
internal control over financial reporting and its consolidated financial
statements, concluding with an unqualified opinion in both areas. Here's a
structured summary:
### Key Findings:
1. **Internal Control Over Financial Reporting:**
- The auditors found that AT&T maintained effective internal controls as of
December 31, 2023, based on the COSO framework.
- The company's systems provide reasonable assurance regarding the
reliability of financial reporting and compliance with GAAP.
2. **Consolidated Financial Statements:**
- The financial statements were prepared in accordance with GAAP and present
AT&T's financial position accurately.
- No material issues were identified, leading to an unqualified opinion.
### Methodology:
- Auditors followed PCAOB standards, assessing risks, testing controls, and
involving specialists for complex areas like impairment evaluations.
- Detailed procedures included testing assumptions against industry trends and
performing sensitivity analyses.
### Areas of Complexity:
- **Impairment Evaluations:** Involved subjective assumptions and complex
valuation methods. The auditors ensured these were sound through thorough
testing and specialist involvement.
- **Internal Controls:** The effectiveness was validated through a comprehensive
audit process, confirming the controls' operational efficiency.
### Conclusion:
The report assures stakeholders of AT&T's financial integrity and control
systems. The unqualified opinions indicate no significant issues, reflecting
well on the company's financial governance. The long-standing relationship with
the auditing firm underscores consistency and familiarity in their work.
===== 10/10. REPUBLIC SERVICES INC =====
<think>
Okay, so I need to summarize this risk report into about 300 words. Let me read
through it carefully first.
The report starts with Item 7A, which is about quantitative and qualitative
disclosures on market risks. The main areas discussed are interest rate risk,
fuel price risk, and commodities price risk.
Starting with interest rate risk: The company's major exposure is to changes in
U.S. interest rates and fluctuations in SOFR (which I think stands for Secured
Overnight Financing Rate). They manage this by using a mix of fixed and floating
rate debt. Their variable rate debt is valued at fair value because the rates
are current, but this can change over time. They've used swap agreements as
hedges before, but it looks like they might not be doing that anymore or maybe
have changed their strategy.
Looking at the table provided, it shows fixed and variable rate debts across
different years up to 2028. The total fair value is around $9.8 billion. They
also mention having $2.23 billion in floating rate debt and swap contracts with
a notional value of $350 million. If interest rates go up or down by 100 basis
points, their annual interest expense would change by about $20 million. But
this doesn't account for new borrowings or economic impacts.
Next is fuel price risk: Fuel costs are a big part of their operations. They try
to hedge against fuel price changes when it's economically practical, but as of
December 31, 2023, they had no hedges in place. They charge fuel recovery fees
to most customers, but not all. A 20-cent per gallon change in diesel would
affect their fuel costs by about $27 million and the fees by $36 million. They
also mention other petrochemical-based products used in operations, which could
increase costs if prices go up.
Lastly, commodities price risk: They deal with recycled materials like old
corrugated containers and newsprint. Market volatility affects these prices. In
the past, they've used swaps and collars as hedges, but none are currently in
place. A $10 per ton change would impact both revenue and operating income by
about $10 million. Their recycling revenue dropped from $359.1 million in 2022
to $312.3 million in 2023.
Putting this all together, the summary should cover each risk area with key
points: how they're managed, current positions (like hedges), and potential
financial impacts. I need to make sure it's concise, around 300 words, and flows
well.
</think>
The risk report outlines the company's exposure to various market risks,
including interest rates, fuel prices, and commodities.
**Interest Rate Risk:** The company manages this through a mix of fixed and
floating rate debt, with variable rate debt valued at fair value. As of December
31, 2023, their total debt was approximately $9.8 billion, with $2.23 billion in
floating rate debt and swap contracts. A 100 basis point interest rate change
could alter annual interest expenses by about $20 million.
**Fuel Price Risk:** Fuel costs are significant, and while the company charges
recovery fees to most customers, not all are covered. A 20-cent per gallon price
change in diesel would affect fuel costs by $27 million and fees by $36 million.
Additionally, petrochemical-based product costs may rise with fuel prices.
**Commodities Price Risk:** The company markets recycled materials, which face
market volatility. Despite past hedging strategies, no hedges were active as of
the report date. A $10 per ton price change could impact revenue and operating
income by $10 million each. Recycling revenue decreased from $359.1 million in
2022 to $312.3 million in 2023.
In summary, the company faces notable risks from fluctuating interest rates,
fuel prices, and commodities markets, with strategies in place to mitigate some
of these impacts.
Show ollama processes
!ollama ps
NAME ID SIZE PROCESSOR UNTIL
deepseek-r1:14b ea35dfe18182 11 GB 100% GPU 4 minutes from now
Generate summaries with OpenAI GPT-4o-mini model
summary[gpt_name] = collect_summaries(gpt_model)
===== 1/10. PACCAR INC =====
The risk report outlines the company's exposure to market risks, specifically
focusing on interest rate, currency, and commodity price risks, with figures
presented in millions.
In terms of interest rate risks, the company employs hedging programs to
mitigate exposure to fluctuations. The report quantifies the potential impact of
a 100 basis point increase in interest rates on the fair value of interest-
sensitive assets and liabilities. For 2023, the fair value losses for cash
equivalents and marketable debt securities amounted to $29.2 million, while
fixed-rate loans reflected a loss of $146.5 million. Conversely, fixed-rate term
debt showed gains of $156.8 million, and interest-rate swaps contributed a gain
of $1.2 million, resulting in a total net loss of $17.7 million for the year,
compared to a loss of $1.1 million in 2022.
Regarding currency risks, the company utilizes foreign currency exchange
contracts to hedge against fluctuations in various currencies, including the
Canadian dollar and the euro. The sensitivity analysis indicates a potential
loss of $259.7 million from a 10% unfavorable change in exchange rates as of
December 31, 2023, an increase from a loss of $216.6 million in 2022. However,
these losses are expected to be offset by corresponding changes in the values of
the underlying hedged exposures.
Lastly, the report addresses commodity price risks, where the company engages in
commodity forward contracts to stabilize earnings and cash flows against adverse
price movements. The potential loss in fair value from a 10% unfavorable change
in commodity prices is estimated at $3.3 million for 2023, up from $2.5 million
in 2022, with similar offsetting effects from the underlying hedged exposures.
Overall, the report highlights the company's proactive approach to managing
market risks through various hedging strategies.
===== 2/10. PHILLIPS 66 =====
The risk report outlines the market risks faced by the company and its
subsidiaries, primarily stemming from fluctuations in commodity prices, interest
rates, and foreign currency exchange rates. The company is particularly exposed
to the prices of crude oil, refined petroleum products, natural gas liquids
(NGL), natural gas, renewable feedstock, and electric power. To manage these
risks, the company employs derivative contracts, including futures, forwards,
swaps, and options, which help convert fixed-price contracts to floating market
prices and optimize supply chain value.
The report emphasizes the company's policy of remaining exposed to market prices
while using derivatives to balance physical systems, meet refinery requirements,
and manage cash flow risks associated with price fluctuations. A Value at Risk
(VaR) model is utilized to estimate potential losses from adverse market
changes, indicating that the VaR for derivative instruments as of December 31,
2023, was immaterial to cash flows and operations.
Interest rate risk is another significant concern, as the company holds both
fixed-rate and variable-rate debt. Fixed-rate debt can lead to changes in fair
value due to market interest rate fluctuations, while variable-rate debt exposes
the company to short-term interest expense changes. The report provides detailed
tables of the company's debt instruments, highlighting their sensitivity to
interest rate changes.
Additionally, the company faces foreign currency risk from its international
operations but generally does not hedge this exposure. Risk monitoring is
overseen by the CEO and CFO, ensuring that risks related to commodity prices,
interest rates, and foreign exchange rates are effectively managed. The report
concludes with a cautionary note regarding forward-looking statements,
emphasizing the uncertainties and risks that could impact future performance,
including market conditions, regulatory changes, and geopolitical events.
===== 3/10. MASTERCARD INC =====
The risk report outlines the company's exposure to market risk, specifically
focusing on interest rate and foreign currency exchange rate fluctuations.
Market risk refers to potential economic losses from adverse changes in these
factors. The company has limited exposure to such risks, and management actively
monitors and implements policies to govern funding, investments, and the use of
derivative financial instruments to mitigate these risks.
To manage foreign currency risk, the company utilizes foreign exchange
derivative contracts to hedge against anticipated receipts and disbursements in
currencies other than its functional currency. This strategy aims to minimize
transaction gains and losses due to currency fluctuations, particularly against
the U.S. dollar and euro. A hypothetical 10% adverse change in the value of
functional currencies could lead to significant fair value losses on outstanding
foreign exchange derivatives, estimated at approximately $414 million and $94
million for the years ending December 31, 2023, and 2022, respectively, before
considering any offsetting effects.
Additionally, the company faces foreign exchange risk from daily settlement
activities, which it manages through short-duration derivative contracts.
However, a similar hypothetical 10% adverse change would not materially impact
the fair value of these contracts. The company also has exposure related to the
translation of net investments in foreign subsidiaries, although as of December
31, 2023, it had no designated net investment hedges.
Regarding interest rate risk, the company holds both fixed and variable-rate
securities. It maintains a policy of investing in high-quality securities while
ensuring liquidity and diversification. A hypothetical adverse change of 100
basis points in interest rates would not significantly affect the fair value of
these investments or the company's interest rate derivative contracts related to
fixed-rate debt. Overall, the company employs various strategies to manage its
market risk effectively.
===== 4/10. BRISTOL MYERS SQUIBB CO =====
The risk report outlines the company's exposure to market risks, particularly
from fluctuations in currency exchange rates and interest rates. To mitigate
these risks, the company employs various derivative financial instruments,
although these are not used for trading purposes. The report highlights
significant foreign exchange risks, particularly related to the euro and
Japanese yen, which affect the company's revenues, earnings, and cash flow. To
manage these risks, the company utilizes foreign currency forward contracts and
purchased local currency put options, primarily for intercompany transactions.
Additionally, these contracts help hedge against foreign currency exposures
related to net investments in international affiliates.
The report estimates that a 10% appreciation in the currencies being hedged
against the U.S. dollar would lead to a decrease in the fair value of foreign
exchange contracts by $409 million and $782 million as of December 31, 2023, and
2022, respectively. Conversely, cross-currency swap contracts, which are used to
manage risks from long-term debt in euros, would see an increase in fair value
by $46 million in 2023, while decreasing by $73 million in 2022 under similar
currency appreciation scenarios.
Regarding interest rate risk, the company employs fixed-to-floating interest
rate swap contracts to balance its debt portfolio. A sensitivity analysis
indicates that a 1% increase in interest rates would not materially impact
earnings. However, it is estimated that such an increase would decrease the fair
value of long-term debt by $3.0 billion in 2023 and $2.6 billion in 2022.
Lastly, the report addresses credit risk associated with counterparties in
derivative transactions. The company maintains a strict investment policy to
minimize credit risk, ensuring that investments are made only with high-quality
institutions and diversifying counterparties to mitigate potential defaults. For
further details, the report refers to additional financial statements and
supplementary data.
===== 5/10. CARRIER GLOBAL CORP =====
The risk report outlines the company's exposure to market risks, including
fluctuations in foreign currency exchange rates, interest rates, and commodity
prices, which could affect its financial performance. As of December 31, 2023,
there has been no significant change in the company's exposure to these market
risks.
In terms of foreign currency exposure, the company operates globally, which
subjects it to exchange rate fluctuations relative to its reporting currency,
the U.S. dollar. Many of its international operations use currencies other than
the U.S. dollar, meaning that the company's reported results can vary based on
the strength or weakness of the dollar against these currencies. While the
company actively manages material currency exposures related to transactions at
the legal entity level, it does not hedge against currency translation risk.
The report highlights specific transactions, such as the acquisition of the VCS
business, where 80% of the euro-denominated purchase price was paid in cash,
exposing the company to exchange rate risks. To mitigate this risk, the company
utilized window forward contracts, with changes in their fair value reflected in
other income or expense. Similarly, for the TCC acquisition, the company
employed cross currency swaps and a Japanese term loan facility to hedge against
foreign currency translation risks associated with its investments in
subsidiaries operating in yen.
Regarding commodity price exposure, the company faces volatility in the prices
of certain commodities and shipping fuel costs. While it uses fixed-price
contracts to manage some of this exposure, it currently does not have any
commodity hedge contracts in place. Lastly, the report notes that most of the
company's long-term debt carries fixed interest rates, insulating it from
significant impacts due to fluctuations in market interest rates.
===== 6/10. LULULEMON ATHLETICA INC =====
The risk report outlines various market risks faced by the company, focusing on
foreign currency exchange risk, interest rate risk, credit risk, and inflation.
Foreign currency exchange risk is primarily associated with the translation of
financial statements from local currencies of international subsidiaries into
U.S. dollars. In 2023, fluctuations in exchange rates resulted in a revenue
decrease of $89.8 million compared to 2022. The company records foreign currency
translation differences as other comprehensive income (loss) within
stockholders' equity. A significant portion of net assets is held in Canadian
dollars, and the company uses forward currency contracts to hedge against
translation exposure. The translation of Canadian subsidiaries contributed to an
increase in other comprehensive loss of $9 million, despite net investment hedge
gains. Additionally, transaction risk arises from intercompany transactions and
inventory purchases in currencies other than the subsidiaries' functional
currencies. As of January 28, 2024, the company had forward currency contracts
to hedge against foreign currency revaluation gains and losses.
Interest rate risk is linked to the company's revolving credit facility, which
has a variable interest rate. As of January 28, 2024, there were no borrowings
under this facility, but the company may consider using derivative financial
instruments in the future to mitigate potential losses if a significant balance
arises.
Credit risk is minimal, as the company holds cash with reputable financial
institutions and invests in AAA-rated money market funds. The company actively
monitors the creditworthiness of its counterparties to limit exposure.
Lastly, inflation poses a risk to operating results, particularly due to rising
costs in wages, transportation, and raw materials. Increased costs may adversely
affect operating margins if selling prices do not adjust accordingly. The report
emphasizes the importance of managing these risks to maintain financial
stability.
===== 7/10. AIRBNB INC =====
The risk report outlines the market risks faced by the company, primarily
focusing on foreign currency risk and investment risk due to its extensive
global operations. In 2023, the company conducted transactions in over 40
currencies, with significant exposure to the euro, British pound, Canadian
dollar, Australian dollar, Brazilian real, and Mexican peso. This exposure
arises from international revenue and expenses, which are subject to
fluctuations in foreign currency exchange rates against the U.S. dollar.
Consequently, a strengthening U.S. dollar can negatively impact financial
results, while a weakening dollar can be beneficial.
The company faces foreign currency risks related to various aspects, including
revenue from bookings in foreign currencies, funds receivable and payable, and
intercompany balances. To mitigate these risks, the company employs foreign
currency derivative contracts aimed at managing forecasted foreign-denominated
revenue and other related balances. However, these hedges do not completely
eliminate the impact of currency fluctuations, and the company may opt not to
hedge certain exposures due to economic or accounting considerations. A
hypothetical adverse change of 10% in foreign currency exchange rates could lead
to a loss of approximately $20 million.
Additionally, the report addresses investment and interest rate risk,
particularly concerning the company's investment portfolio. As of December 31,
2023, the company held $6.9 billion in cash and cash equivalents and $3.2
billion in short-term investments, primarily in high-quality debt securities.
The company aims to preserve capital and maintain liquidity without
significantly increasing risk, avoiding speculative investments. Due to the
short maturities of its investments, the portfolio is relatively insensitive to
interest rate changes, with a potential $20 million decrease in value
anticipated from a hypothetical 100 basis point increase in interest rates.
===== 8/10. MERCADOLIBRE INC =====
The risk report outlines the market risks faced by the company, primarily
stemming from macroeconomic instability and fluctuations in interest rates and
foreign currency exchange rates, particularly with the Brazilian real, Argentine
peso, and Mexican peso. These factors can significantly impact the value of the
company's financial assets and liabilities. The company also faces risks related
to its long-term retention programs (LTRPs), which involve cash payments to
employees that vary based on the market price of its stock.
With substantial international operations, the company is exposed to foreign
currency risks that can adversely affect its financial results. It engages in
transactions in various foreign currencies and charges its international
subsidiaries for the use of intellectual property and corporate services. To
mitigate these risks, the company employs foreign currency exchange forward
contracts and currency swaps, although these hedges do not completely eliminate
the impact of currency fluctuations.
As of December 31, 2023, the company reported significant cash and cash
equivalents, receivables, and investments in foreign currencies, totaling over
$12 billion. The report highlights a consolidated loss of $615 million due to
foreign currency fluctuations, particularly in Argentina, where government
restrictions on accessing U.S. dollars have exacerbated losses.
Interest rate changes also pose risks to the company's earnings and cash flows,
affecting the cost of financing and the returns on investments. The report notes
that a hypothetical increase in interest rates could lead to increased financial
liabilities.
Additionally, the company’s LTRPs expose it to equity price risk, with a total
contractual obligation fair value of $418 million as of December 31, 2023. The
report includes sensitivity analyses showing how changes in equity prices could
impact the company's financial obligations related to these programs. Overall,
the report emphasizes the complexities and potential financial impacts of market
risks on the company's operations.
===== 9/10. A T & T INC =====
The risk report outlines AT&T Inc.'s exposure to market risks, primarily from
fluctuations in interest rates and foreign currency exchange rates, which affect
its cost of capital. The company employs a strategic approach to manage these
risks, utilizing derivatives such as interest rate swaps, locks, and cross-
currency swaps, strictly for hedging purposes rather than speculative trading.
The report indicates that there are no anticipated changes to these risk
management strategies in the near future.
A significant factor in estimating postretirement benefit obligations is the
weighted-average discount rate, which has seen increased volatility and is
currently lower than historical averages. This results in higher obligations for
the company, although future increases in discount rates could lead to lower
obligations and improved funded status.
Interest rate risk is managed through a mix of fixed- and floating-rate debt,
with the majority of financial instruments being medium- to long-term fixed-rate
notes. The company has established limits on interest rate risk and closely
monitors its debt and derivatives portfolios. As of December 31, 2023, AT&T had
no interest rate locks but utilized cross-currency swaps to mitigate risks
associated with foreign-denominated debt.
Foreign exchange risk is addressed through contracts that hedge costs and debt
in foreign currencies. The report notes that AT&T's foreign-denominated debt has
been converted to fixed-rate U.S. dollars, effectively eliminating associated
risks. A sensitivity analysis is employed to assess the impact of market risk
exposures on the fair value of financial instruments.
Overall, the report emphasizes AT&T's commitment to maintaining financial
flexibility and managing risks effectively through established policies and
procedures, ensuring the integrity of its financial reporting and internal
controls.
===== 10/10. REPUBLIC SERVICES INC =====
The risk report outlines the company's exposure to market risks, particularly
focusing on interest rate risk, fuel price risk, and commodities price risk.
In terms of interest rate risk, the company is primarily affected by
fluctuations in U.S. interest rates and the Secured Overnight Financing Rate
(SOFR). To manage this risk, the company employs a mix of fixed and floating
rate debt. As of December 31, 2023, the carrying value of its variable rate debt
is close to its fair value, reflecting current market conditions. The company
has also utilized interest rate swap agreements as cash flow hedges to mitigate
the impact of interest rate fluctuations on its variable rate debt. The report
indicates that a 100 basis point change in interest rates could alter annual
interest expenses by approximately $20 million.
Regarding fuel price risk, fuel costs are a significant operational expense for
the company. Although it charges fuel recovery fees to most customers, it cannot
do so universally. As of the end of 2023, the company had no fuel hedges in
place. A 20-cent per gallon change in diesel fuel prices could affect fuel costs
by about $27 million annually, while the corresponding change in fuel recovery
fees could be around $36 million.
Lastly, the report addresses commodities price risk, particularly concerning the
marketing of recycled materials. The company has experienced volatility in
commodity prices due to market supply and demand fluctuations. As of December
31, 2023, it had no hedges in place for recycling commodities. A $10 per ton
change in recycled commodity prices could impact annual revenue and operating
income by approximately $10 million. Revenue from recycling activities decreased
from $359.1 million in 2022 to $312.3 million in 2023. Overall, the report
highlights the company's proactive approach to managing these market risks while
acknowledging the inherent uncertainties.
Evaluation#
ROUGE
Recall-Oriented Understudy for Gisting Evaluation (ROUGE) is a set of metrics used to evaluate the quality of summaries by comparing them to reference summaries or human-generated summaries.
ROUGE-N measures the overlap of n-grams (contiguous sequences of n words) between the system-generated and the reference summaries
ROUGE-L measures the longest common subsequence (LCS).
BLEU Bilingual Evaluation Understudy (BLEU) evaluates n-gram precision with a brevity penalty to discourage overly short outputs. Originally for machine translation, it is also used for summarization.
N-gram Precision measures the overlap of n-grams (typically up to 4-grams) between the system-generated summary and the reference summary.
Brevity Penalty penalizes overly short summaries that do not capture enough information from the reference summaries.
Cumulative BLEU calculates the geometric mean of BLEU scores for 1-gram to n-gram, rewarding systems that produce more accurate translations across longer phrases.
# These metrics compare overlapping n-grams to measure content similarity.
from rouge_score import rouge_scorer
# computes ROUGE-1 and ROUGE-2 scores between model-generated summaries
def collect_rouge(target, prediction):
"""Helper to loop over companies to compute rouge scores of two risk summaries"""
scores = {'rouge1': [], 'rouge2': []}
scorer = rouge_scorer.RougeScorer(scores.keys(), use_stemmer=True)
for permno in docs.index:
score = scorer.score(target=target[permno], prediction=prediction[permno])
for rouge_type in scores.keys():
scores[rouge_type].append(Series(score[rouge_type]._asdict(),
name=univ.loc[permno, 'comnam']))
return scores
# Display and compare rouge metric
def display_rouge(rouge_type, scores):
"""Helper to display rouge scores over the companies"""
df = pd.concat(scores[rouge_type], axis=1)
print(f"{rouge_type.upper()} metric:")
return pd.concat([df, df.T.mean().rename(' average')], axis=1).T # display
# Compute rouge-1 and rouge-2 scores between gpt- and llama-generated summaries
scores = collect_rouge(target=summary[gpt_name], prediction=summary[model_name])
display_rouge("rouge1", scores)
ROUGE1 metric:
| precision | recall | fmeasure | |
|---|---|---|---|
| PACCAR INC | 0.787234 | 0.742475 | 0.764200 |
| PHILLIPS 66 | 0.366142 | 0.324042 | 0.343808 |
| MASTERCARD INC | 0.759184 | 0.628378 | 0.687616 |
| BRISTOL MYERS SQUIBB CO | 0.773913 | 0.585526 | 0.666667 |
| CARRIER GLOBAL CORP | 0.761628 | 0.451724 | 0.567100 |
| LULULEMON ATHLETICA INC | 0.560241 | 0.636986 | 0.596154 |
| AIRBNB INC | 0.720472 | 0.639860 | 0.677778 |
| MERCADOLIBRE INC | 0.467593 | 0.331148 | 0.387716 |
| A T & T INC | 0.393805 | 0.312281 | 0.348337 |
| REPUBLIC SERVICES INC | 0.783410 | 0.553746 | 0.648855 |
| average | 0.637362 | 0.520617 | 0.568823 |
display_rouge("rouge2", scores)
ROUGE2 metric:
| precision | recall | fmeasure | |
|---|---|---|---|
| PACCAR INC | 0.483986 | 0.456376 | 0.469775 |
| PHILLIPS 66 | 0.079051 | 0.069930 | 0.074212 |
| MASTERCARD INC | 0.381148 | 0.315254 | 0.345083 |
| BRISTOL MYERS SQUIBB CO | 0.441048 | 0.333333 | 0.379699 |
| CARRIER GLOBAL CORP | 0.350877 | 0.207612 | 0.260870 |
| LULULEMON ATHLETICA INC | 0.244713 | 0.278351 | 0.260450 |
| AIRBNB INC | 0.367589 | 0.326316 | 0.345725 |
| MERCADOLIBRE INC | 0.116279 | 0.082237 | 0.096339 |
| A T & T INC | 0.097778 | 0.077465 | 0.086444 |
| REPUBLIC SERVICES INC | 0.462963 | 0.326797 | 0.383142 |
| average | 0.302543 | 0.247367 | 0.270174 |
Role prompting#
By adjusting the system prompt (e.g., “You are a patient teacher”), LLMs can be guided to produce more accessible summaries. This technique, known as role prompting, is helpful for tailoring the tone and persona of responses for specific audiences.
# generates simplified summaries for readability
summary['simple_deepseek'] = collect_summaries(
model,
role="You are a patient lower-school teacher, using simple words to explain to your students in the fifth grade.")
===== 1/10. PACCAR INC =====
<think>
Okay, so I need to summarize this risk report for fifth graders. Let me read
through it carefully first.
The report talks about market risks and derivative instruments. It mentions
interest-rate risks, currency risks, and commodity price risks. Each section has
some numbers and explanations.
Starting with interest-rate risks: The company uses hedging programs to manage
how changes in interest rates affect them. They estimate the impact if there's a
100 basis point increase across all yield curves. There are tables showing
potential losses or gains for assets and liabilities in 2023 and 2022.
Next, currency risks: The company hedges against exchange rate fluctuations for
several currencies like Canadian dollar, euro, etc. They mention potential
losses from unfavorable changes in foreign exchange rates, with numbers for 2023
and 2022.
Then, commodity price risks: They use forward contracts to hedge prices of
commodities used in truck production. The report states the potential loss from
a 10% unfavorable change in commodity prices, again giving figures for both
years.
I need to simplify this into prose that fifth graders can understand. I should
avoid jargon and explain terms like "hedging" as strategies to reduce risk.
Maybe use analogies they can relate to, like protecting something with
insurance.
I'll structure it by introducing each type of risk, explain the method used
(hedging), mention the potential losses in simple terms, and note that these are
offset by other changes. I should keep sentences short and clear, avoiding
complex structures.
Let me make sure I cover all three risks: interest rates, currencies,
commodities. For each, a brief explanation of what it is, how they manage it,
and the associated numbers without getting too bogged down in specifics.
I think that's a good plan. Now, let me put it all together in a summary.
</think>
**Understanding Market Risks for Kids**
Imagine you have a big lemonade stand, and you want to protect yourself from
things that might make your profits go down. There are three main risks we talk
about here: interest rates, currencies, and commodity prices.
1. **Interest Rates**: Just like how the bank gives you different rates if you
save or borrow money, companies have to deal with changing interest rates too.
If rates go up suddenly, it can affect how much money they make or owe. The
company uses something called hedging to protect against these changes. They
look at how much their assets and debts might change if interest rates went up
by a full percentage point. In 2023, they saw a small loss, but in 2022, it was
almost no loss.
2. **Currencies**: When you sell lemonade to people from other countries who use
different money, the exchange rate can affect how much you make. The company
uses contracts to protect against changes in these rates for currencies like the
Canadian dollar and euro. If these rates go 10% against them, they might lose
some money, but this was $259.7 million in 2023 and $216.6 million in 2022.
However, other factors balance this out.
3. **Commodity Prices**: Making lemonade needs lemons, right? If the price of
lemons goes up or down a lot, it affects your costs. The company uses forward
contracts to lock in prices for materials they need, like metals and plastics
for making trucks. A 10% bad change in these prices could cost them $3.3 million
in 2023 and $2.5 million in 2022, but again, other changes help reduce this
impact.
So, just like you might save money or buy insurance to protect your lemonade
stand, companies use strategies like hedging to manage these risks and keep
their profits safe.
===== 2/10. PHILLIPS 66 =====
<think>
Okay, so I'm trying to understand all these risks mentioned in the document. Let
me start by reading through them carefully.
First, there are market conditions like fluctuations in prices and margins for
NGLs, crude oil, natural gas, and refined products. That makes sense because
energy prices can be really volatile due to things like supply and demand
changes or geopolitical events.
Then there's government policies affecting pricing, regulation, taxation,
especially exports. I know that export policies can have a big impact on supply
and demand, so this is an important factor.
Capacity constraints in pipelines, storage, and fractionation facilities are
another risk. If these infrastructure issues arise, it could limit how much
product they can transport, leading to bottlenecks or higher costs.
OPEC and non-OPEC actions influence supply and demand, which affects prices. I
remember that OPEC's decisions can cause significant shifts in the market.
The success of DCP LP integration is mentioned, including achieving synergies.
This probably refers to a business strategy where they're combining operations,
so if this doesn't go as planned, it could hurt their performance.
Unexpected technical difficulties or cost increases during construction or
operation are risks too. Construction delays can be costly and disrupt
production.
Drilling and production volumes around midstream assets are another point. If
the wells aren't producing as expected, it affects the company's revenue from
those assets.
Permits and regulations compliance are also risks. They need to get permits for
projects, and if they can't or if regulations change, it could delay things or
require more spending.
Savings and cost reductions from business transformation initiatives might not
happen as planned. If they don't achieve these savings, their financial goals
could be at risk.
Renewable fuels policies and climate change regulations are factors too. Changes
in these areas could affect demand for traditional fuels or require new
investments.
Economic and political developments like the Russia-Ukraine war can impact
markets. Also, things like inflation, interest rates, and expropriation of
assets pose risks.
Public health crises, like pandemics, can disrupt operations and reduce demand
for their products. The recovery after such events is also uncertain.
Capital projects might not be completed on time or within budget. Delays here
can lead to cost overruns and project failures.
Asset dispositions or acquisitions could face challenges if they don't complete
them successfully. This includes both the sale of assets and buying new ones.
Litigation or government actions could disrupt operations, leading to legal fees
or operational changes.
Accidents, weather events, civil unrest, etc., can damage facilities and
interrupt operations, causing financial losses.
Meeting sustainability goals is another risk. If they don't reduce GHG emissions
as planned or develop new technologies, it could affect their reputation and
operations.
New products might not be accepted by the market, leading to wasted investments.
Monetary conditions and exchange controls can impact international trade and
profitability.
Environmental regulations requiring significant investments or reducing demand
for their products are risks. They might have to spend a lot on compliance or
face reduced sales.
Liability from environmental issues like cleanup costs is another concern.
Changes in laws and regulations, including alternative energy mandates, could
force them to adapt their business models.
Climate change concerns might lead to changes in how they operate or increase
expenses through litigation or other costs.
Impairment charges could occur if the value of assets decreases due to market
conditions or strategic decisions.
Access to capital is crucial; if it's limited or more expensive, they might not
be able to fund their operations effectively.
Counterparties going bankrupt could lead to financial losses from unpaid debts
or obligations.
Cybersecurity incidents can compromise sensitive data and lead to legal
liabilities or operational disruptions.
Joint ventures that the company doesn't control could make decisions that
negatively impact their own business.
Lastly, all these factors are generally described in Item 1A of the risk factors
in the report.
I think I've covered all the points. Now, how do I summarize this? Maybe by
categorizing them into market risks, regulatory risks, operational risks,
financial risks, and environmental/sustainability risks. That way, it's easier
to understand and address each category separately.
</think>
The document outlines a comprehensive list of risks that could impact the
company's performance and operations. These risks can be categorized as follows:
1. **Market Risks**:
- Volatility in energy prices (NGLs, crude oil, natural gas, refined
products).
- Fluctuations in margins and demand for refining and petrochemical products.
- Impact of OPEC and non-OPEC actions on supply and demand.
2. **Regulatory and Policy Risks**:
- Changes in government policies affecting pricing, regulation, taxation, and
exports.
- Compliance with environmental regulations (GHG emissions, renewable fuels).
- Influence of international monetary conditions and exchange controls.
3. **Operational Risks**:
- Capacity constraints in transportation infrastructure (pipelines, storage).
- Delays or cost overruns in construction and capital projects.
- Challenges in permit acquisition and regulatory compliance.
- Risks from joint ventures not under the company's control.
4. **Financial Risks**:
- Failure to achieve expected savings from business transformation
initiatives.
- Impairment charges due to asset value declines.
- Limitations in accessing capital or increased funding costs.
- Counterparty risks (e.g., bankruptcy leading to financial losses).
5. **Environmental and Sustainability Risks**:
- Meeting sustainability goals and adapting to climate change regulations.
- Development of new technologies and products that may not gain market
acceptance.
6. **Geopolitical and Public Health Risks**:
- Impact of geopolitical events (e.g., Russia-Ukraine war) on markets.
- Disruptions from public health crises (e.g., pandemics).
7. **Legal and Reputational Risks**:
- Litigation risks and potential liabilities from environmental issues.
- Cybersecurity threats leading to data breaches or operational disruptions.
By categorizing these risks, the company can better manage and mitigate
potential challenges across different areas of its operations.
===== 3/10. MASTERCARD INC =====
<think>
Okay, so I need to explain this risk report to fifth graders. Let me read
through it again and try to understand what it's saying.
The report is about market risks that a company faces, specifically MasterCard,
I think. Market risk here refers to the possibility of losing money because of
changes in things like interest rates or foreign exchange rates. The company
talks about how they manage these risks by using derivatives and other financial
instruments.
First, there's something about foreign currency risk. They use derivative
contracts to handle the exposure from transactions that happen in different
currencies. These contracts help them reduce losses if the exchange rate
changes. For example, a 10% change could lead to a loss of around $414 million
in 2023 and $94 million in 2022. But they also mention that these numbers don't
account for the actual transactions they're hedging against.
Then there's interest rate risk. They have investments that are sensitive to
changes in interest rates, but a 1% change wouldn't cause significant losses
because their portfolio is diversified and they invest in high-quality
securities. They also use derivative contracts to hedge some of their fixed-rate
debt.
I need to simplify all this into about 300 words using simple language. I should
avoid jargon and explain concepts like derivatives, exchange rates, and interest
rates in a way that fifth graders can understand. Maybe compare it to something
they know, like saving money or exchanging currencies when traveling.
I'll start by introducing what market risk is, then talk about how the company
manages foreign currency risks using contracts, and then move on to interest
rate risks. I should also mention that these risks are managed through policies
and tools, but even with all that, there's still some potential for loss if
things change unexpectedly.
Let me structure it step by step: introduce market risk, explain foreign
exchange risk with an example, talk about how they manage it, then move to
interest rates, and finally wrap up by saying that while they take steps to
minimize these risks, there are still possible losses.
</think>
**Understanding Market Risks in Simple Terms**
Imagine you have a piggy bank where you save your money. Sometimes, the value of
your savings can change based on things like how much interest you earn or
changes in exchange rates if you're saving different currencies.
Market risk is like the possibility that your piggy bank's value might go down
because of these changes. Companies, just like you, want to protect their money
from losing value.
One way they do this is by using something called derivatives, which are like
special contracts. For example, if a company does business in different
countries and gets money in other currencies, they can use these contracts to
protect against the risk that those currencies might lose value compared to
their home currency, like the US dollar or euro.
They also watch interest rates because if the bank where they keep their money
changes the interest rate, it affects how much they earn. By using more of these
special contracts, they can reduce the chance that their savings will be
affected by these changes.
Even though companies use these tools to protect themselves, there's still a
chance that unexpected changes could cause losses. So, while they take steps to
keep their money safe, they know there are no guarantees in the ever-changing
world of money and exchange rates.
===== 4/10. BRISTOL MYERS SQUIBB CO =====
<think>
Okay, so I need to explain this risk report to fifth graders. Let me read
through it again to make sure I understand the main points.
The report talks about market risks related to currency exchange rates and
interest rates. The company uses derivatives like forwards and swaps to hedge
these risks when it's cost-effective. They mention that all financial
instruments, including derivatives, are subject to counterparty credit risk,
which is part of their fair value measurement. Importantly, they don't use
derivatives for trading purposes.
Looking at foreign exchange risk, a big part of their revenue, earnings, and
cash flow are affected by changes in currency rates, mainly the euro and
Japanese yen. They use forward contracts and put options to manage risks from
intercompany transactions. There's also transaction risk from non-functional
currencies, which they handle with forwards but aren't designated as hedges.
Additionally, cross-currency swaps help manage long-term debt in euros and hedge
net investments.
They estimate that a 10% appreciation in the hedged currencies would decrease
the fair value of their foreign exchange contracts by certain amounts, reducing
earnings. Similarly, cross-currency swaps would have different impacts on their
fair values.
For interest rate risk, they use fixed-to-floating swaps to balance their debt
and analyze sensitivity to rate changes. A 1% increase in rates wouldn't harm
earnings much, but a larger increase in long-term rates would decrease the fair
value of their long-term debt.
Credit risk is managed by investing only with high-quality institutions and
diversifying derivatives across counterparties to reduce default risks.
Now, I need to simplify this into about 300 words. I'll start by introducing
market risks, then break it down into foreign exchange and interest rate risks,
explaining how they use derivatives to hedge. Then touch on credit risk
management. I should avoid jargon and make each part clear for kids.
</think>
Imagine you have a big company that sells things around the world. Sometimes,
when they sell or buy stuff in other countries, the money they get can change
value because of something called exchange rates. It's like if you have dollars
and someone else has euros, and one day those euros might be worth more or less
compared to your dollars.
The company uses special tools called derivatives to protect themselves from
these changes. These tools are kind of like insurance policies that help them
guess what the money will look like in the future so they don't lose too much if
things change.
They also have to worry about interest rates, which are like the cost of
borrowing money. If the interest rates go up, it might make their debts more
expensive. But again, they use these derivative tools to balance things out and
not get hurt too badly.
Lastly, they make sure that the people they deal with (their counterparties) are
trustworthy so that if something goes wrong, they don't lose money because
someone else didn't pay them back.
So, in short, the company is careful about how it handles money changes and
interest rates using special tools to stay safe financially.
===== 5/10. CARRIER GLOBAL CORP =====
<think>
Okay, so I need to explain this risk report to fifth graders. Let me read
through it again and try to understand what it's saying.
The report talks about market risks like foreign currency exchange rates,
interest rates, and commodity prices affecting the company's operations and
financial condition. It says there haven't been significant changes in their
exposure to these risks in 2023.
First part is about foreign currency exposures. They have operations all over
the world, so when currencies change against the US dollar, it affects their
reported results. They manage some currency risks with things like window
forward contracts and cross-currency swaps, especially for big acquisitions. But
they don't hedge translation risk entirely.
Then there's commodity price exposure. They use fixed-price contracts sometimes
but didn't have any hedges at the end of 2023. Fuel costs for shipping are
another concern.
Interest rate exposure is low because most debt has fixed rates, so changes in
market rates won't affect them much.
I need to simplify all this into a summary that's easy for fifth graders to
understand. Maybe use examples they can relate to, like how exchanging money
when traveling can change how much you have, or how prices of things like oil
can go up and down affecting costs.
I should avoid jargon and keep sentences short. Make sure each point is clear
and relatable.
</think>
The company faces risks from changes in foreign exchange rates, interest rates,
and commodity prices, which can affect their profits and financial health. These
risks haven't changed much over the past year.
**Foreign Currencies:**
They operate worldwide, so when other countries' currencies go up or down
against the US dollar, it affects how much money they make. They use strategies
like window forward contracts to manage some of these risks, especially for big
purchases. For example, if they buy something in euros and the euro goes up, it
might cost them more in dollars.
**Commodity Prices:**
They rely on materials whose prices can swing, like oil used for shipping.
Sometimes they lock in fixed prices to avoid sudden jumps, but at the end of
2023, they didn't have any such contracts.
**Interest Rates:**
Most of their loans have fixed rates, so even if market rates change, it won't
affect them much. It's like having a set monthly payment on a loan, no
surprises.
In summary, they manage some risks with smart financial tools but still face
uncertainties from global markets and material costs.
===== 6/10. LULULEMON ATHLETICA INC =====
<think>
Okay, so I need to explain this risk report to fifth graders. Let me read
through it again and try to understand what each part is saying.
First, the report talks about market risks, specifically foreign currency
exchange risk and translation risk. It mentions that their international
subsidiaries use local currencies as functional currencies, but the financial
statements are in US dollars. So when they translate from other currencies to
USD, changes in exchange rates affect the reported amounts. In 2023, their
revenue was lower by $89.8 million compared to 2022 because of this.
They also mention translation risk where differences from translating balance
sheets into USD are recorded as part of comprehensive income. They have a
Canadian subsidiary with significant net assets and use forward contracts to
hedge some of this exposure. The impact on their comprehensive loss was an
increase due to these hedges.
Then there's transaction risk, which comes from transactions in currencies other
than the functional currency—like intercompany transactions or inventory
purchases. They hold cash in different currencies too. As of a certain date,
they had forward contracts to hedge revaluation gains and losses on monetary
assets and liabilities of their subsidiaries.
They did a sensitivity analysis showing that a 10% depreciation in USD would
affect the fair value of derivatives by $29.8 million. But this is offset by
changes in the underlying hedged items. They plan to use more derivatives in the
future for other currency pairs but don't trade them for profit.
Next, interest rate risk: their credit facility has variable rates, so if they
borrow money, changing rates could affect them. As of the date, they didn't have
any borrowings except for some letters of credit. They don't do any hedging now
but might in the future if needed.
They hold cash and equivalents in safe places like money market funds, which are
AAA-rated. Even though some deposits exceed insured limits, they haven't had any
losses. They monitor the financial institutions they deal with to minimize
credit risk.
Lastly, inflation could affect their costs—like wages, freight, and raw
materials—which might hurt their margins if they can't pass these costs onto
customers or find efficiencies.
So, putting this all together, I need to explain it in simple terms for fifth
graders. Maybe start by talking about exchanging money between countries and how
the value of money changes over time. Then explain that when companies do
business internationally, they have to convert currencies, which can lead to
gains or losses based on exchange rates. Use an example with a pretend company
to make it relatable.
I should also mention hedges as a way to protect against these risks, maybe
using the analogy of insurance. Keep each section short and use everyday
language so it's easy to understand.
</think>
**Explaining Market Risks in Simple Terms for Fifth Graders**
Imagine you're a kid who loves to travel and exchange money between countries.
When you go on vacation, you might take some dollars and exchange them into
another country's currency, like Canadian dollars or Euros. Now, companies that
do business all over the world also have to deal with exchanging money, but it
can be tricky because the value of these currencies changes over time.
**1. Foreign Currency Exchange Risk:**
Just like how you might get more or fewer toys when you exchange your money,
companies can end up with more or less "toys" (money) based on how the exchange
rate changes. For example, if a company earns money in Canada but reports it in
US dollars, a change in the value of the Canadian dollar against the US dollar
can make their earnings go up or down. In 2023, this change made their revenue
$89.8 million less than in 2022.
**2. Translation Risk:**
When companies translate their money from one country's currency to another,
like converting Canadian dollars back to US dollars for reports, the value can
change. This is called translation risk. Sometimes, these changes can affect how
much profit or loss a company shows on its financial statements.
**3. Transaction Risk:**
Companies also face risks when they do transactions in different currencies. For
example, if they buy something from another country and pay in that country's
currency, the value of that payment can change by the time it's converted back
to their home currency. To protect against this, companies might use "hedges,"
which are like insurance policies to lock in exchange rates.
**4. Interest Rate Risk:**
Borrowing money is another area where companies face risks. If they take a loan
with an interest rate that changes over time, and if those rates go up, it could
cost them more money to pay back the loan. Companies keep an eye on this so they
can plan for any increases.
**5. Inflation:**
Inflation is when things like food, clothes, and other goods get more expensive
over time. For companies, this means their costs might go up too—like paying
more for materials or worker wages. If a company can't increase its prices
enough to cover these higher costs, it could affect their profits.
**6. Credit Risk:**
When companies deal with banks or other financial institutions, there's always a
chance that the other side might not be able to pay back what they owe. To
minimize this risk, companies work with reliable institutions and keep track of
how much money they're dealing with from each partner.
In summary, just like you have to be careful when exchanging money while
traveling, companies must manage these risks carefully to ensure their profits
aren't affected by changes in currency values, interest rates, or inflation.
Using tools like hedges and working with trustworthy institutions helps them
navigate these challenges smoothly.
===== 7/10. AIRBNB INC =====
<think>
Okay, so I need to summarize this risk report for fifth graders. Let me read
through it carefully first.
The report talks about market risks that Airbnb faces because they operate all
over the world. The main risks are foreign currency risk and investment risk.
Foreign currency risk is when changes in exchange rates affect their financial
results. They accept payments in over 40 currencies, so if the US dollar
strengthens or weakens, it can impact how much money they make or spend. For
example, if the US dollar gets stronger, their revenue from other countries
might decrease because those dollars are worth less.
They also mention that they use foreign currency derivatives to hedge against
some of these risks, but they don't eliminate all the effects. There's a 20
million loss mentioned if exchange rates were to change unfavorably.
Investment risk is related to their investment portfolio. They have a lot of
cash and short-term investments in things like debt securities. If interest
rates go up or down, it can affect how much they earn on these investments. A
100 basis point increase would decrease their portfolio by 20 million. But since
most of their investments are short-term, the risk from interest rate changes
isn't too bad.
I need to explain all this in simple terms for kids. Maybe use analogies they
can understand, like comparing currencies to different types of money and how
exchanging them can be tricky. Also, simplify investment risks by talking about
saving money in a piggy bank or something safe where small changes in interest
rates don't matter much.
I should structure it into two main parts: foreign currency risk and investment
risk. Use everyday language and avoid jargon. Maybe include examples they can
relate to, like traveling abroad and exchanging money.
</think>
**Understanding Airbnb's Market Risks in Simple Terms**
Airbnb faces some financial risks because they operate all around the world,
dealing with many different currencies and investments. Let's break down these
risks into two main parts: foreign currency risk and investment risk.
1. **Foreign Currency Risk:**
- Imagine you have money in one country's currency, like euros from France or
pounds from England. If the value of your home currency (like the US dollar)
changes, it can affect how much money you actually have when you exchange it.
- Airbnb deals with over 40 currencies, which means they are exposed to
changes in exchange rates. For example, if the US dollar becomes stronger, the
money they make from other countries might decrease because those dollars are
worth less.
- To protect against these changes, Airbnb uses something called foreign
currency derivatives, which are like insurance policies to reduce the impact of
bad exchange rate changes. However, even with this protection, there's still
some risk. If exchange rates were to change unfavorably, they could lose about
$20 million.
2. **Investment Risk:**
- Airbnb keeps a lot of money in safe investments, like short-term debt
securities and government bonds. These are similar to putting money in a savings
account where it's secure but doesn't earn a lot.
- If interest rates change, the value of these investments can go up or down.
For instance, if interest rates were to increase by 1%, their investment
portfolio could decrease by about $20 million.
- However, since most of their investments are short-term, they aren't too
affected by small changes in interest rates. It's like having money in a piggy
bank where you don't need it right away, so minor fluctuations won't hurt much.
In summary, Airbnb manages risks from exchanging currencies and investing by
using protective measures, but there are still some uncertainties due to the
global nature of their business.
===== 8/10. MERCADOLIBRE INC =====
<think>
Okay, so I'm trying to understand this document about MercadoLibre's risks and
sensitivities. It seems like it's part of their financial disclosures, maybe in
their annual report or something similar. Let me break down what each section is
saying.
First, the foreign exchange risk. They have a significant amount of revenue from
Brazil, Argentina, and other Latin American countries. Since they're dealing
with multiple currencies, especially the Brazilian real and Argentine peso,
which can be volatile, this could affect their financials. If the real or peso
weakens against the dollar, their reported revenue in dollars might decrease
because when converted, those currencies would buy fewer dollars. That makes
sense because if you have a lot of revenue in a currency that's dropping, your
overall revenue in USD terms goes down.
Next is interest rate risk. They have long-term debt, which means they're
exposed to changes in interest rates. If rates go up, the value of their
existing debt might decrease, and their borrowing costs could increase if they
need to refinance or take on more debt. I'm not entirely sure how sensitive they
are to rate changes, but it's something to watch, especially with global
interest rates potentially rising.
Then there's commodity price risk. They're exposed to fuel and electricity
prices because these are operational costs. If oil prices go up, their delivery
and logistics costs would increase, affecting their margins. Similarly, higher
electricity prices could impact their operations, especially in countries where
energy is a significant cost. This seems like a manageable risk but could have
noticeable effects if prices spike.
Equity price risk is tied to their LTRP plans. These are long-term retention
programs that pay out based on stock performance. The value of these obligations
is sensitive to the company's stock price. If the stock goes up, the payouts
increase, which could strain their finances. Conversely, a drop in stock price
reduces the payout liability. They've done a sensitivity analysis showing how a
40% change in stock price affects the obligation. That's pretty significant; a
40% drop would reduce the liability from $418 million to about $251 million,
which is a substantial difference.
Inflation risk is another factor, especially in countries like Argentina where
inflation has been high. High inflation can erode purchasing power and affect
consumer behavior. If people have less money due to inflation, they might spend
less online, impacting MercadoLibre's sales. Additionally, rising costs for
goods and services could squeeze margins if the company can't pass these costs
onto customers.
I'm a bit confused about how exactly the equity price affects their obligations.
It seems like it's based on the stock price relative to a fixed average from
previous years. So each payment is tied to whether the current stock price is
higher or lower than that average. If the stock does well, they have to pay
more; if not, less.
I'm also thinking about how these risks interact. For example, inflation could
lead to higher interest rates, which would then affect their debt costs. Or a
weaker currency might make imports more expensive, contributing to inflation.
It's like a web of interconnected risks that could amplify each other in certain
economic conditions.
Another point is the sensitivity analysis for equity price risk. They show a
static present value and how it changes with different stock prices. This helps
investors understand how exposed they are to stock price fluctuations. A 40%
change seems extreme, but it's useful to see the range of possible outcomes.
I wonder if there are any mitigating factors or strategies MercadoLibre uses to
manage these risks. For example, do they hedge their currency exposure? How
flexible are their costs in the face of inflation? And how do they structure
their LTRP plans to balance retention with financial risk?
Overall, this section is highlighting several key areas where MercadoLibre faces
potential volatility and challenges. It's important for investors to consider
these risks when evaluating the company's long-term prospects.
</think>
**MercadoLibre Risk Analysis Summary**
1. **Foreign Exchange Risk:**
- **Exposure:** Significant revenue from Brazil, Argentina, and other Latin
American countries exposed to currency fluctuations, particularly the Brazilian
real and Argentine peso.
- **Impact:** Currency devaluation can reduce reported USD revenue when
converted.
2. **Interest Rate Risk:**
- **Exposure:** Long-term debt subject to interest rate changes.
- **Impact:** Rising rates may decrease debt value and increase borrowing
costs.
3. **Commodity Price Risk:**
- **Exposure:** Operational costs tied to fuel and electricity prices.
- **Impact:** Price spikes can increase operational expenses and reduce
margins.
4. **Equity Price Risk:**
- **Exposure:** Long-term retention programs (LTRP) linked to stock
performance.
- **Impact:** Stock price fluctuations affect payout obligations; a 40% drop
reduces liability from $418 million to $251 million.
5. **Inflation Risk:**
- **Exposure:** High inflation in countries like Argentina affecting
purchasing power and operational costs.
- **Impact:** Could reduce consumer spending and squeeze margins if cost
increases aren't offset.
6. **Interconnected Risks:**
- Inflation may lead to higher interest rates, affecting debt costs and
potentially exacerbating currency issues.
7. **Mitigation Strategies:**
- Consider hedging strategies for currency exposure, flexible cost
structures, and balanced LTRP designs to manage financial risks.
**Conclusion:** MercadoLibre faces multiple interconnected risks that could
impact its financial health. Investors should assess these factors alongside the
company's risk management strategies when evaluating long-term prospects.
===== 9/10. A T & T INC =====
<think>
Okay, so I'm trying to understand this document about AT&T's financial report.
It looks like it's an audit report from their independent registered public
accounting firm. Let me go through it step by step.
First, the report is divided into two main sections: one on the internal control
over financial reporting and another on the consolidated financial statements.
Both have an opinion section, a basis for opinion, and some additional details.
Starting with the opinion on internal control over financial reporting. The
auditors state that they've audited AT&T's internal controls as of December 31,
2023, based on the COSO criteria. They conclude that the company maintained
effective internal control over financial reporting in all material respects.
That sounds positive; it means the auditors think AT&T has good systems in place
to manage their finances properly.
Next, looking at the basis for this opinion. It mentions that management is
responsible for maintaining these controls and assessing their effectiveness.
The auditors' role was to express an opinion based on their audit, which they
did by following PCAOB standards. They obtained an understanding of the internal
controls, assessed risks, tested the design and operation of the controls, and
performed other necessary procedures. Their conclusion is that AT&T's controls
are effective.
Moving on to the report on the consolidated financial statements. The auditors
also express an unqualified opinion here, meaning they didn't find any material
issues with the financial statements. They were prepared in accordance with
GAAP, which is standard for public companies in the U.S.
The basis for this opinion section explains that the auditors are responsible
for expressing opinions on whether the financial statements present fairly, in
all material respects, the company's financial position and results of
operations. They did this by auditing according to PCAOB standards, assessing
risks, testing accounting policies, significant estimates, transactions, and
disclosures.
There are also two specific sections discussing areas where the audit was
particularly complex: internal control over financial reporting and the
impairment evaluations for certain reporting units. The auditors explain that
these areas required a deeper dive because they involve subjective assumptions
and complex methodologies. They tested controls, assessed assumptions against
industry trends, performed sensitivity analyses, and involved specialists to
ensure everything was in order.
The report ends with a note that the auditing firm has been serving AT&T since
1999, which shows a long-standing relationship, likely indicating consistency
and familiarity with the company's operations.
I'm trying to think if there's anything I might be missing. The document seems
comprehensive, covering both the internal controls and financial statements. It
mentions specific areas like impairment evaluations and valuation models, which
are known for being complex and subject to judgment. The auditors' involvement
of specialists in these areas makes sense because it adds depth to their
analysis.
I wonder if there were any material weaknesses or significant deficiencies
mentioned, but from what I can see, the opinions are unqualified, so no major
issues were found. It's also worth noting that the report is dated February 23,
2024, which would typically be around the time when earnings are released, so
it's timely.
Overall, this audit report seems to provide assurance to stakeholders that
AT&T's financial reporting is reliable and their internal controls are
effective. The detailed explanation of the auditing process gives confidence in
the independence and thoroughness of the audit.
</think>
The audit report on AT&T provides a comprehensive assessment of both its
internal control over financial reporting and its consolidated financial
statements, concluding with an unqualified opinion in both areas. Here's a
structured summary:
### Key Findings:
1. **Internal Control Over Financial Reporting:**
- The auditors found that AT&T maintained effective internal controls as of
December 31, 2023, based on the COSO framework.
- The company's systems provide reasonable assurance regarding the
reliability of financial reporting and compliance with GAAP.
2. **Consolidated Financial Statements:**
- The financial statements were prepared in accordance with GAAP and present
AT&T's financial position accurately.
- No material issues were identified, leading to an unqualified opinion.
### Methodology:
- Auditors followed PCAOB standards, assessing risks, testing controls, and
involving specialists for complex areas like impairment evaluations.
- Detailed procedures included testing assumptions against industry trends and
performing sensitivity analyses.
### Areas of Complexity:
- **Impairment Evaluations:** Involved subjective assumptions and complex
valuation methods. The auditors ensured these were sound through thorough
testing and specialist involvement.
- **Internal Controls:** The effectiveness was validated through a comprehensive
audit process, confirming the controls' operational efficiency.
### Conclusion:
The report assures stakeholders of AT&T's financial integrity and control
systems. The unqualified opinions indicate no significant issues, reflecting
well on the company's financial governance. The long-standing relationship with
the auditing firm underscores consistency and familiarity in their work.
===== 10/10. REPUBLIC SERVICES INC =====
<think>
Okay, so I need to summarize this risk report for fifth graders. Let me read
through it carefully first.
The report talks about market risks the company faces, specifically interest
rate risk, fuel price risk, and commodities price risk. Hmm, I should break each
section down into simpler terms.
Starting with interest rate risk: The company has both fixed and variable debt.
Fixed rates don't change, while variable ones do based on market rates. They use
swaps to manage this risk. If rates go up or down by 100 basis points, their
interest expense changes by about $20 million. I should explain what a swap is
in simple terms, maybe like an agreement to balance out the risks.
Next, fuel price risk: Fuel costs are a big part of their expenses. They try to
hedge against price changes but currently have no hedges in place. A 20-cent
change per gallon affects both their costs and what they charge customers.
Petrochemical products used in operations also cost money, so higher prices
there would increase their costs too.
Lastly, commodities price risk: They sell recycled materials, and market
fluctuations affect their revenue. Previously, they used derivatives like swaps
to hedge this, but none are active now. A $10 per ton change affects both
revenue and operating income by about $10 million.
I need to make sure I explain terms like "hedging" in a way fifth graders can
understand, maybe as strategies to protect against price changes. Also, I should
avoid jargon and keep sentences short and clear.
Let me structure the summary with each risk as a separate point, using simple
language and examples they can relate to, like how changing fuel prices affect
their daily lives or school budget.
</think>
**Summary of Market Risks in Simple Terms**
The company faces several risks related to market changes that could impact its
financial health. Here's a breakdown of these risks explained in a way fifth
graders can understand:
1. **Interest Rate Risk:**
- The company borrows money through loans with both fixed and variable
interest rates.
- Fixed rates stay the same, while variable rates change based on market
conditions.
- To manage these changes, they use something called "swaps," which are
agreements to balance out potential losses or gains from rate changes.
- If interest rates go up or down by a certain amount (100 basis points),
their yearly interest expense would change by about $20 million. This is like
how a school might adjust its budget if the cost of supplies goes up or down.
2. **Fuel Price Risk:**
- Fuel costs are a major expense for the company, similar to how a school
might spend money on transportation.
- They try to protect against fuel price changes by using strategies called
"hedging," but currently, they don't have any such strategies in place.
- A 20-cent change in diesel price per gallon would affect both their costs
and what they charge customers. For example, if diesel goes up by 20 cents,
their expenses increase, and they might need to charge more to cover this cost.
3. **Commodities Price Risk:**
- The company sells recycled materials like cardboard and newspaper.
- Market changes can cause prices of these materials to go up or down,
affecting both revenue and how much money they make.
- They used to use tools like "swaps" and "collars" to manage these price
changes, but currently, they aren't using any such tools.
- A $10 per ton change in recycled material prices would impact their yearly
revenue and profits by about $10 million. This is similar to how a lemonade
stand might adjust its prices if the cost of lemons fluctuates.
In summary, the company deals with risks from changing interest rates, fuel
prices, and recycled materials markets. They use strategies like swaps to manage
some of these risks but are currently exposed to others. Understanding these
risks helps them make better financial decisions, much like how planning for
price changes helps a school manage its budget effectively.
scores = collect_rouge(target=summary[gpt_name], prediction=summary['simple_deepseek'])
display_rouge("rouge1", scores)
ROUGE1 metric:
| precision | recall | fmeasure | |
|---|---|---|---|
| PACCAR INC | 0.397394 | 0.408027 | 0.402640 |
| PHILLIPS 66 | 0.366142 | 0.324042 | 0.343808 |
| MASTERCARD INC | 0.371681 | 0.283784 | 0.321839 |
| BRISTOL MYERS SQUIBB CO | 0.331731 | 0.226974 | 0.269531 |
| CARRIER GLOBAL CORP | 0.502674 | 0.324138 | 0.394130 |
| LULULEMON ATHLETICA INC | 0.317172 | 0.537671 | 0.398983 |
| AIRBNB INC | 0.391304 | 0.440559 | 0.414474 |
| MERCADOLIBRE INC | 0.467593 | 0.331148 | 0.387716 |
| A T & T INC | 0.393805 | 0.312281 | 0.348337 |
| REPUBLIC SERVICES INC | 0.414439 | 0.504886 | 0.455213 |
| average | 0.395393 | 0.369351 | 0.373667 |
display_rouge("rouge2", scores)
ROUGE2 metric:
| precision | recall | fmeasure | |
|---|---|---|---|
| PACCAR INC | 0.133987 | 0.137584 | 0.135762 |
| PHILLIPS 66 | 0.079051 | 0.069930 | 0.074212 |
| MASTERCARD INC | 0.066667 | 0.050847 | 0.057692 |
| BRISTOL MYERS SQUIBB CO | 0.053140 | 0.036304 | 0.043137 |
| CARRIER GLOBAL CORP | 0.134409 | 0.086505 | 0.105263 |
| LULULEMON ATHLETICA INC | 0.052632 | 0.089347 | 0.066242 |
| AIRBNB INC | 0.093458 | 0.105263 | 0.099010 |
| MERCADOLIBRE INC | 0.116279 | 0.082237 | 0.096339 |
| A T & T INC | 0.097778 | 0.077465 | 0.086444 |
| REPUBLIC SERVICES INC | 0.150134 | 0.183007 | 0.164948 |
| average | 0.097753 | 0.091849 | 0.092905 |
Generate simple summaries with GPT-4o-mini
summary['simple_gpt-4o'] = collect_summaries(
gpt_model,
role="You are a patient lower-school teacher, using simple words to explain to your students in the fifth grade.")
===== 1/10. PACCAR INC =====
The risk report talks about how a company manages different types of financial
risks, especially related to market changes. It focuses on three main areas:
interest rates, currency exchange rates, and commodity prices.
First, for interest-rate risks, the company looks at how changes in interest
rates can affect the value of its assets and debts. They estimate what would
happen if interest rates suddenly went up by 1%. In 2023, the company faced
losses of $29.2 million from cash and marketable securities and $146.5 million
from fixed-rate loans. However, they also had gains from fixed-rate debts and
interest-rate swaps, leading to a total loss of $17.7 million, which was worse
than the previous year’s loss of $1.1 million.
Next, the report discusses currency risks. The company uses contracts to protect
itself from changes in foreign currency values, especially with currencies like
the Canadian dollar and the euro. If the value of these currencies drops by 10%,
the company could lose $259.7 million in 2023, compared to $216.6 million in
2022. However, these losses would be balanced out by changes in the value of the
things they are protecting.
Lastly, the company also deals with commodity price risks. They use contracts to
lock in prices for materials needed to make trucks. If commodity prices drop by
10%, they could lose $3.3 million in 2023, up from $2.5 million in 2022. Again,
these losses would be offset by changes in the value of the materials they are
buying.
Overall, the report shows how the company tries to manage risks to protect its
finances from sudden changes in the market.
===== 2/10. PHILLIPS 66 =====
The risk report discusses the various market risks that our company and some of
its subsidiaries face. These risks come from changes in prices of crude oil,
natural gas, and other energy products, as well as fluctuations in interest
rates and foreign currency exchange rates. To manage these risks, we use special
financial contracts called derivatives.
Our main strategy is to stay connected to the market prices of these
commodities. We use derivatives to switch from fixed prices in our contracts
back to floating market prices. This helps us balance our supply and demand
needs and take advantage of market opportunities, like moving products to where
they can be sold for more money or storing them for better prices later. We also
use derivatives to protect our cash flow from price changes.
The use of these financial tools is carefully controlled by rules set by our
board of directors. We monitor our risks daily to ensure we stay within safe
limits. We use a method called Value at Risk (VaR) to estimate potential losses
from market changes, and as of the end of 2023, these risks were not significant
to our cash flow.
Additionally, we face interest rate risks from our debts. Fixed-rate debts can
lose value if interest rates rise, while variable-rate debts can lead to higher
interest costs. We provide detailed information about our debts and their
interest rates.
Lastly, we are also exposed to foreign currency risks due to our international
operations, but we generally do not take steps to protect against these risks.
Our CEO and CFO keep a close eye on all these risks to ensure the company
remains stable and successful.
===== 3/10. MASTERCARD INC =====
The risk report discusses market risk, which is the chance of losing money due
to changes in things like interest rates and foreign currency exchange rates.
The company, Mastercard, has a limited exposure to these risks and keeps a close
watch on them. They have rules in place to manage their funding, investments,
and the use of special financial tools called derivatives to help reduce these
risks.
One type of risk they face is foreign exchange risk, which happens when they
deal with money in different currencies. To manage this risk, Mastercard uses
foreign exchange derivative contracts. These contracts help them handle expected
payments and receipts in currencies that are not their main currency, which is
usually the U.S. dollar or the euro. If the value of these currencies changes by
10%, it could lead to a loss of about $414 million on their contracts as of
December 31, 2023. However, they also have activities that can offset these
losses.
Mastercard also deals with foreign exchange risk when they have investments in
other countries. They may use contracts to protect these investments, but as of
December 31, 2023, they did not have any contracts specifically for this
purpose. In 2022, a similar 10% change in the U.S. dollar could have led to a
loss of about $203 million.
Another risk is interest rate risk, which affects their investments in bonds.
Mastercard aims to invest in high-quality bonds and manage their risks
carefully. A change in interest rates by 1% would not significantly impact the
value of their investments. They also use interest rate derivatives to protect
against changes in the value of their fixed-rate debt, and similar to foreign
exchange, a 1% change would not have a major effect on their contracts. Overall,
Mastercard actively manages these risks to protect their financial health.
===== 4/10. BRISTOL MYERS SQUIBB CO =====
The risk report discusses how a company faces market risks related to changes in
currency exchange rates and interest rates. To protect itself from these risks,
the company uses certain financial tools called derivatives, but only when they
are cost-effective. These derivatives are not used for trading but to manage
risks.
One major risk is foreign exchange risk, which happens when the value of money
in different countries changes. The company earns a lot of its money in euros
and Japanese yen, so it uses contracts called foreign currency forwards to help
manage this risk. These contracts help protect the company from losing money
when it buys or sells things in different currencies. However, these contracts
are not always perfect hedges, meaning they don’t cover all risks completely.
The report estimates that if the euro and yen become stronger against the U.S.
dollar by 10%, the company could lose a significant amount of money on its
foreign exchange contracts. Additionally, the company uses cross-currency swaps
to manage risks from long-term debts in euros and to protect its investments in
foreign businesses.
The report also talks about interest rate risk, which is the risk of losing
money when interest rates change. The company uses interest rate swaps to
balance its debts. If interest rates go up by 1%, the impact on the company’s
earnings would not be very large, but it could still affect the value of its
long-term debt.
Lastly, the company is careful about credit risk, which is the risk of losing
money if someone it does business with doesn’t pay. It only invests in high-
quality institutions and spreads its investments to reduce risk. Overall, the
company takes steps to manage these financial risks to protect its earnings and
investments.
===== 5/10. CARRIER GLOBAL CORP =====
The risk report discusses the market risks that our company faces, which include
changes in foreign currency exchange rates, interest rates, and commodity
prices. These risks can affect how well we perform financially. For the year
ending December 31, 2023, there have not been any major changes in our exposure
to these market risks.
One important area is foreign currency exposure. Since we operate in many
countries, we deal with different currencies. Our main reporting currency is the
U.S. dollar, and when other currencies change in value compared to the dollar,
it can affect our financial results. We manage some of these currency risks
related to our sales and purchases, but we do not protect against all risks from
currency changes.
Recently, we made an acquisition and paid a large part of the purchase price in
euros. To protect ourselves from changes in the euro's value compared to the
U.S. dollar, we used special contracts called window forward contracts. These
contracts help us manage the risk of losing money due to currency fluctuations.
For another acquisition, we used cross currency swaps and a loan in Japanese yen
to help manage the risks related to the yen. These financial tools help us keep
track of changes in currency values and their impact on our investments.
We also face risks from the prices of commodities, which are materials we use to
make our products. We sometimes use fixed price contracts to help manage these
costs, but as of December 31, 2023, we do not have any contracts in place to
protect against changes in commodity prices.
Lastly, most of our long-term debt has fixed interest rates, so changes in
interest rates are not expected to significantly affect our financial results.
Overall, we are actively managing these risks to protect our company.
===== 6/10. LULULEMON ATHLETICA INC =====
The risk report discusses various financial risks that the company faces,
particularly related to foreign currency exchange, interest rates, credit, and
inflation.
**Foreign Currency Exchange Risk**: The company has international subsidiaries
that operate in local currencies, but its financial statements are in U.S.
dollars. This means that when the value of the U.S. dollar changes, it affects
how much revenue and expenses are reported. In 2023, the company reported $89.8
million less in revenue compared to 2022 due to these currency fluctuations. The
company uses forward currency contracts to protect itself from these risks,
especially with its Canadian subsidiary, which saw a loss of $9 million from
currency translation.
**Transaction Risk**: The company also faces risks when its subsidiaries conduct
transactions in currencies different from their main currency. They hold cash
and other assets in various currencies and use forward contracts to manage these
risks. As of January 28, 2024, the company had a liability of $2.2 million from
these contracts, and a 10% drop in the U.S. dollar could lead to a $29.8 million
decrease in value.
**Interest Rate Risk**: The company has a credit facility that allows it to
borrow up to $400 million at variable interest rates. If it borrows a
significant amount, it could be affected by changes in interest rates.
Currently, they have no borrowings but may consider hedging against interest
rate risks in the future.
**Credit Risk**: The company keeps cash with reputable banks and invests in
high-rated money market funds. They are cautious about credit risk, which is the
risk of losing money if a bank fails to meet its obligations. They have not
faced any losses and believe this risk is low.
**Inflation**: Rising costs for products, wages, and transportation can hurt the
company's profits. In recent years, increased wages and shipping costs have
affected their operating margins. If these costs continue to rise without a
corresponding increase in product prices, it could impact their financial
health.
===== 7/10. AIRBNB INC =====
The risk report discusses the market risks faced by a company with global
operations, focusing on foreign currency risk and investment risk.
**Foreign Currency Risk:** The company operates in over 40 currencies, with key
currencies including the euro, British pound, Canadian dollar, Australian
dollar, Brazilian real, and Mexican peso. This means that when the value of
these currencies changes compared to the U.S. dollar, it can affect the
company's financial results. For example, if the U.S. dollar strengthens, the
company could lose money on its international sales. The company has various
sources of foreign currency risk, such as revenue from bookings made in other
currencies, funds held for customers, and payments to hosts. To manage this
risk, the company uses foreign currency derivative contracts, which help protect
against changes in exchange rates. However, these contracts do not completely
eliminate the risk, and the company may choose not to hedge certain exposures
due to costs or accounting reasons. If there were a significant change in
exchange rates, it could lead to substantial losses.
**Investment and Interest Rate Risk:** The company also faces risks related to
interest rates, which can affect the earnings from its investments. As of
December 31, 2023, the company had significant cash and short-term investments,
primarily in safe, liquid assets like government bonds and corporate debt. The
goal of these investments is to keep the money safe while ensuring it is
available when needed. Because the investments are mostly short-term, they are
not very sensitive to changes in interest rates. A hypothetical increase in
interest rates could lead to a small decrease in the value of the investment
portfolio, but the company does not expect to face major risks from interest
rate changes.
===== 8/10. MERCADOLIBRE INC =====
The risk report discusses the various market risks that our company faces due to
its business operations. These risks mainly come from changes in the economy,
interest rates, and currency exchange rates, especially with currencies like the
Brazilian real, Argentine peso, and Mexican peso. These changes can affect the
value of our financial assets and liabilities.
We also have long-term retention programs for employees, which involve cash
payments that depend on our stock price. This means that if our stock price
changes, the amount we pay to employees can also change.
Since we operate in many countries, we deal with different currencies, which
exposes us to foreign currency risk. This can impact our financial results
because we earn money and spend money in various currencies. To manage this
risk, we use contracts that help protect us from unfavorable changes in currency
exchange rates. However, these contracts do not completely eliminate the risk.
As of December 31, 2023, we had significant amounts of cash and investments in
local currencies. Our subsidiaries mostly earn and spend money in their local
currencies, except for our Argentine subsidiaries, which use the U.S. dollar due
to high inflation. We also experienced a loss of $615 million in foreign
currency due to changes in the Argentine market.
Interest rates also affect our earnings and cash flow. Changes in interest rates
can impact the costs of loans and the income we earn from our investments. As of
December 31, 2023, we had various loans and investments that are sensitive to
interest rate changes.
Lastly, our long-term retention programs for employees are linked to our stock
price, meaning that if our stock price goes up or down, it affects how much we
owe to employees. Overall, these market risks can significantly impact our
financial performance.
===== 9/10. A T & T INC =====
The risk report discusses how AT&T Inc. manages market risks, particularly those
related to interest rates and foreign currency exchange rates. These risks can
affect the company's costs and financial stability. To handle these risks, AT&T
uses various financial tools called derivatives, such as interest rate swaps and
foreign currency contracts. These tools help the company control its financial
risks and maintain flexibility without engaging in risky trading practices.
One important aspect of the report is the company's approach to estimating its
future obligations for employee benefits, which relies on a discount rate. This
rate is influenced by the returns on high-quality corporate bonds. Recently,
these rates have been lower and more unstable than in the past, which means that
the company's obligations could be higher. If rates increase in the future, it
could lower these obligations and improve the company's financial health.
The report also highlights interest rate risk, as most of AT&T's financial
instruments are fixed-rate notes. Changes in interest rates can significantly
affect their value. To manage this risk, AT&T monitors its debt structure and
uses interest rate swaps to balance fixed and floating rates.
Additionally, AT&T addresses foreign exchange risk by converting foreign debt
into U.S. dollars through cross-currency swaps. This helps eliminate risks
related to currency fluctuations. The report includes details about the
company's financial instruments and their fair values as of December 31, 2023.
Overall, AT&T is committed to managing its market risks carefully to ensure
long-term financial stability and flexibility. The company regularly assesses
its financial strategies and maintains effective internal controls to support
accurate financial reporting.
===== 10/10. REPUBLIC SERVICES INC =====
The risk report discusses the financial risks related to interest rates, fuel
prices, and commodity prices that the company faces.
**Interest Rate Risk:** The company is mainly affected by changes in interest
rates in the United States. To manage this risk, they use a mix of fixed and
variable interest rate debts. As of December 31, 2023, the company had a total
of about $10.4 billion in fixed-rate debt and around $2.6 billion in variable-
rate debt. They also use financial agreements called swap contracts to help
protect against changes in interest rates. If interest rates go up or down by
1%, the company’s interest expenses could change by about $20 million each year.
**Fuel Price Risk:** Fuel costs are a significant expense for the company. They
may use fuel hedges, which are contracts to lock in fuel prices, but as of the
end of 2023, they had no such contracts in place. A change of 20 cents per
gallon in diesel fuel prices could affect their fuel costs by about $27 million
annually. They charge some customers for fuel recovery fees, but not all, which
can impact their revenue. In 2023, their fuel costs were $541.6 million, which
was lower than in 2022.
**Commodity Price Risk:** The company also deals with the prices of recycled
materials, like old cardboard and newspapers. Changes in supply and demand can
cause these prices to fluctuate. They have previously used financial tools to
manage this risk but had no hedges in place as of December 31, 2023. A $10
change in the price of recycled materials could affect their revenue and
operating income by about $10 million. In 2023, they earned $312.3 million from
recycling, down from $359.1 million in 2022.
Overall, the report highlights how the company is working to manage these
financial risks to protect its operations and profitability.
scores = collect_rouge(target=summary[gpt_name], prediction=summary['simple_gpt-4o'])
Display rouge-1 scores for simple GPT-4o-mini summary
display_rouge("rouge1", scores)
ROUGE1 metric:
| precision | recall | fmeasure | |
|---|---|---|---|
| PACCAR INC | 0.653571 | 0.612040 | 0.632124 |
| PHILLIPS 66 | 0.551971 | 0.536585 | 0.544170 |
| MASTERCARD INC | 0.560261 | 0.581081 | 0.570481 |
| BRISTOL MYERS SQUIBB CO | 0.550000 | 0.542763 | 0.546358 |
| CARRIER GLOBAL CORP | 0.551155 | 0.575862 | 0.563238 |
| LULULEMON ATHLETICA INC | 0.576577 | 0.657534 | 0.614400 |
| AIRBNB INC | 0.658621 | 0.667832 | 0.663194 |
| MERCADOLIBRE INC | 0.553333 | 0.544262 | 0.548760 |
| A T & T INC | 0.665480 | 0.656140 | 0.660777 |
| REPUBLIC SERVICES INC | 0.650794 | 0.667752 | 0.659164 |
| average | 0.597176 | 0.604185 | 0.600267 |
Display rouge-2 scores for simple GPT-4o-mini summary
display_rouge("rouge2", scores)
ROUGE2 metric:
| precision | recall | fmeasure | |
|---|---|---|---|
| PACCAR INC | 0.336918 | 0.315436 | 0.325823 |
| PHILLIPS 66 | 0.244604 | 0.237762 | 0.241135 |
| MASTERCARD INC | 0.241830 | 0.250847 | 0.246256 |
| BRISTOL MYERS SQUIBB CO | 0.257525 | 0.254125 | 0.255814 |
| CARRIER GLOBAL CORP | 0.231788 | 0.242215 | 0.236887 |
| LULULEMON ATHLETICA INC | 0.243976 | 0.278351 | 0.260032 |
| AIRBNB INC | 0.359862 | 0.364912 | 0.362369 |
| MERCADOLIBRE INC | 0.254181 | 0.250000 | 0.252073 |
| A T & T INC | 0.257143 | 0.253521 | 0.255319 |
| REPUBLIC SERVICES INC | 0.382166 | 0.392157 | 0.387097 |
| average | 0.280999 | 0.283933 | 0.282281 |
Readability#
Readability scores such as Flesch-Kincaid and Gunning-Fog assess how easy a summary is to read. These metrics are calculated based on sentence length, word complexity, and syllable count, and correspond to U.S. grade levels. Simpler summaries which score lower are suitable for broader audiences.
# applies Flesch-Kincaid and Gunning-Fog readability indexes to measure how complex each summary is
from readability import Readability
fog = {permno: {name: Readability(summary[name][permno]).flesch_kincaid().grade_level
for name in ['simple_deepseek', 'simple_gpt-4o', model_name, gpt_name]}
for permno in summary[gpt_name].keys()}
DataFrame(fog).T # display grade-level
| simple_deepseek | simple_gpt-4o | deepseek-r1:14b | gpt-4o-mini | |
|---|---|---|---|---|
| 60506 | 7 | 9 | 13 | 15 |
| 13356 | 12 | 10 | 12 | 17 |
| 91233 | 10 | 10 | 16 | 16 |
| 19393 | 9 | 10 | 15 | 15 |
| 19285 | 8 | 10 | 17 | 16 |
| 92203 | 9 | 11 | 15 | 15 |
| 20190 | 9 | 12 | 15 | 17 |
| 92221 | 12 | 10 | 12 | 16 |
| 66093 | 16 | 12 | 16 | 16 |
| 86228 | 9 | 8 | 10 | 12 |
fog = {permno: {name: Readability(summary[name][permno]).gunning_fog().grade_level
for name in ['simple_deepseek', 'simple_gpt-4o', model_name, gpt_name]}
for permno in summary[gpt_name].keys()}
DataFrame(fog).T # display grade-level
| simple_deepseek | simple_gpt-4o | deepseek-r1:14b | gpt-4o-mini | |
|---|---|---|---|---|
| 60506 | 9 | 12 | college_graduate | college_graduate |
| 13356 | college | college | college | college_graduate |
| 91233 | 12 | 12 | college_graduate | college_graduate |
| 19393 | 12 | college | college_graduate | college_graduate |
| 19285 | 11 | college | college_graduate | college_graduate |
| 92203 | 12 | college | college_graduate | college_graduate |
| 20190 | 12 | college | college_graduate | college_graduate |
| 92221 | 12 | college | 12 | college_graduate |
| 66093 | college_graduate | college | college_graduate | college_graduate |
| 86228 | 12 | 12 | college | college |
References:
Greg Durrett, 2021-2024, “CS388 Natural Language Processing course materials”, retrieved from https://www.cs.utexas.edu/~gdurrett/courses/online-course/materials.html
Philipp Krähenbühl, 2020-2024, “AI394T Deep Learning course materials”, retrieved from https://www.philkr.net/dl_class/material and https://ut.philkr.net/deeplearning/
Philipp Krähenbühl, 2025, “AI395T Advances in Deep Learning course materials”, retrieved from https://ut.philkr.net/advances_in_deeplearning/