Ceci Rodgers: Tackling Topics Through Financial Statements and Footnotes


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Northwestern University/Medill School of Journalism's Ceci Rodgers discusses how journalists can dig deeper into a company's financial records by understanding their financial statements and footnotes. The presentation was delivered at the 2011 ASBPE National Conference.

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  • Techniques that can be helpful whether the story you want to tackle is based on data from company financial statements or based on a tip from a source.
  • Federal corporate tax rate = 35 percent Illinois’ corporate income tax rate: 7 percent through 2014 (up from 4.8 percent) But actual or effective corporate tax rates are much different.
  • Occupational licensing boards can tell you whether
  • SEC: corporate filings, regulatory actions FASB: accounting standards, comment letters on proposed changes to standards, etc. FINRA: financial education and calculators: broker check, mutual fund analysis, etc. GSA: Fun stuff, including a procurement database, a list of private contractors. You can cross-check against campaign contributions;
  • Ceci Rodgers: Tackling Topics Through Financial Statements and Footnotes

    1. 1. Investigative Reporting: Tackling topics through financial statements, footnotes ASBPE National Conference Aug. 4, 2011, Chicago, IL Ceci Rodgers [email_address] Lecturer, Business and Economics Northwestern University Medill School of Journalism
    2. 2. B-to-B investigative reporting <ul><li>B-to-B publications are uniquely positioned to dig into the companies in their industries. </li></ul><ul><li>You know your industry – you’re as expert as any stock analyst on what the companies in your industry do, what the competitive landscape is, what the challenges are. </li></ul><ul><li>Your challenge: committing the time and resources to report the stories. </li></ul>
    3. 3. Approaches <ul><li>Data-based business reporting has gained traction due to the ready availability of online data bases of public information. </li></ul><ul><li>Source tips and editorial brainstorming are still the genesis of most investigative stories. </li></ul>
    4. 4. Financial data-based reporting <ul><li>A recent example from the Chicago Tribune, based on publicly traded companies’ earnings statements: </li></ul><ul><li>http://www.chicagotribune.com/business/chi-biz-0702-tax-rates,0,4264464.story </li></ul><ul><li>And from Pensions & Investments earlier this year: </li></ul><ul><li>http://www.pionline.com/article/20110223/DAILYREG/110229983#articleComments </li></ul>
    5. 5. Some likely topics: <ul><li>How much income tax did they pay last year? </li></ul><ul><li>How much cash are they sitting on? </li></ul><ul><li>Are they current on pension funding (if applicable)? Did they make or lose money on their pension investments? </li></ul><ul><li>Pending litigation? </li></ul><ul><li>Definitions of “other” assets or “other” liabilities? </li></ul><ul><li>Channel stuffing and other earnings tricks? </li></ul><ul><ul><li>See “Top 8 Ways Companies Cook the Books” </li></ul></ul>
    6. 6. How? <ul><li>Go straight to the SEC filings. It’s easy. </li></ul><ul><li>Go to finance.yahoo.com, type in stock symbol, click on “SEC filings” or go to the company’s website, find the investor relations section and click on the financial statement you want. </li></ul>
    7. 7. Taken from the headlines: <ul><li>Apple’s massive stash of cash ($76 billion): </li></ul><ul><li>http://tech.fortune.cnn.com/2011/07/29/the-u-s-treasury-has-less-cash-on-hand-than-apple-inc/?section=magazines_fortune </li></ul><ul><li>http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=8049595-14512-19872&type=sect&dcn=0001193125-11-192493 </li></ul>
    8. 8. 10Q’s, 8K’s and 10K’s <ul><li>10Q = Quarterly statement of financial condition. Three components: </li></ul><ul><ul><li>Income statement (how profitable is the company) </li></ul></ul><ul><ul><li>Balance sheet (what is the financial health of the company) </li></ul></ul><ul><ul><li>Statement of cash flows (how much of the company’s cash comes from what it does every day?) </li></ul></ul>
    9. 9. 10Q’s, 8K’s and 10K’s <ul><li>8K: Disclosure of information material to the company (anything that could cause an investor to buy or sell the stock), per regulation FD, full disclosure. </li></ul><ul><ul><li>Any announcement, including earnings and other press releases, change in management, etc. </li></ul></ul>
    10. 10. 10K: Annual report, notes, footnotes <ul><li>Management Discussion and Analysis (MD&A) </li></ul><ul><li>Notes, footnotes </li></ul><ul><ul><li>Companies will put “off-balance-sheet” items in footnotes </li></ul></ul><ul><ul><li>In other words, the bad stuff will always be buried. When you see “other” or “special,” get very curious! </li></ul></ul>
    11. 11. 10K: Don’t ignore the annual report <ul><li>The annual report, or 10K, is a treasure trove, compared with the quarterly report (10Q). </li></ul><ul><ul><li>It’s the only audited financial report (10Q’s are not). </li></ul></ul><ul><ul><li>Information that’s not required quarterly is required annually (such as pension data). </li></ul></ul><ul><li>Getting to a company’s 10K is easy. Reading it is not. Most reporters, sadly, do not. </li></ul><ul><li>Be patient; be persistent. </li></ul>
    12. 12. Motivation: Enron <ul><li>Enron’s “special entitites” were hidden in a footnote in the 2000 10K filing: </li></ul><ul><ul><li>Note 16 RELATED PARTY TRANSACTIONS </li></ul></ul><ul><ul><li>http://picker.uchicago.edu/Enron/EnronAnnualReport2000.pdf </li></ul></ul>
    13. 13. Huh? <ul><li>You’re not an accountant, you’re putting out a business publication. </li></ul><ul><li>Business reporters didn’t figure out the significance of Note 16 on their own. </li></ul><ul><li>But that doesn’t mean you can’t get potentially good story material from a 10K on your own. </li></ul>
    14. 14. Example: Caterpillar Inc. <ul><li>The issue is income tax. How much does Caterpillar pay? </li></ul><ul><li>A whistle-blower lawsuit raised the issue of offshore havens and reported versus actual taxes paid. </li></ul><ul><li>CAT’s CEO recently blasted the U.S. corporate tax system and wants the U.S. to eliminate taxes on overseas profit. </li></ul>
    15. 15. CAT Annual Report (10K) <ul><li>http://yahoo.brand.edgar-online.com/DisplayFiling.aspx?dcn=0001104659-11-008938 </li></ul>
    16. 16. CAT Annual Report (10K) <ul><li>Reported $968 million in income tax for 2010. That was 26 percent of pre-tax profit. U.S. corporate tax rate = 35 pct. </li></ul><ul><li>Pensions (A114-A115): Made $919 million in contributions in 2010. </li></ul><ul><li>(A107) Contractual obligations: “postretirement”: $1.7 billion in 2010; $8.5 billion total </li></ul>
    17. 17. Resources on the Web <ul><li>Footnoted.com: http://www.footnoted.com/ </li></ul><ul><li>This site, now owned by Morningstar, does a great job of finding nuggets in company filings </li></ul>
    18. 18. Resources on the Web <ul><li>Occupational licensing boards by industry. In Illinois, it’s the Division of Professional Regulation: www.idfpr.com </li></ul><ul><ul><li>You can look up the current status of a license and find out about any disciplinary actions. </li></ul></ul><ul><li>Secretary of state for privately held companies, LLC’s and non-profit entities registered in your state: </li></ul><ul><ul><li>Correct legal name and status of registration </li></ul></ul><ul><ul><li>Listing of business officers </li></ul></ul><ul><ul><li>Address, phone number </li></ul></ul>
    19. 19. Resources on the Web <ul><li>SEC www.sec.gov </li></ul><ul><li>Fin’l Acntng Standards Bd: www.fasb.org </li></ul><ul><li>Fin’l Ind. Reg. Authority www.finra.org </li></ul><ul><li>Gen’l Services Admin. www.gsa.gov </li></ul><ul><li>U.S. Dept. of Labor (wage and hour enforcement database) www.dol.gov </li></ul><ul><li>EEOC (complaints) www.eeoc.gov </li></ul>
    20. 20. FOIA <ul><li>Freedom of Information Act requests can be frustrating. But not always, and it’s wrong to assume your request will come to naught. Recently, I’ve seen two instances where they were successful and pretty quick: </li></ul><ul><ul><li>Illinois teachers’ pension fund for list of investments and derivatives positions. </li></ul></ul><ul><ul><li>Public universities for athletic coach salary information. </li></ul></ul>