Diving into the
10-K
Michelle Leder
editor/founder footnoted
mleder@footnoted.com
@footnoted
Photo by flickr user TauchSpo...
POLL QUESTION #1
How often do you at least skim a 10-K?
•I’ve never read one.
•Once or twice
•Periodically for companies I...
So what is a 10-K anyway?
• Think of it as the annual report – on steroids!
• At its heart, it’s the audited financial
sta...
We don't mean to scare you, but:
• The largest 10-K filed so far this
year was over 2,300 pages!
• Five companies, includi...
If only every
10-K were
more like this!
Facebook’s 2012 10-K
• They filed 134-page annual report on Feb. 1, 2013.
• Unfortunately, it looked like most other annua...
Do you really need to read all 100
(or 1,000) pages?
• No, no, and no!
• But you do need a system that helps you
figure ou...
For those who read 10-Ks regularly, what
section do you always read first?
•Risk factors
•Legal issues
•Financial statemen...
Focus on a few key sections:
Section 1: Business description
Section 1A: Risk factors
Section 2: Properties
Section 3: Leg...
Go straight to the table of contents
Exercise #1
The short letter that follows was attached to a
312-page 10K that Marsh & McLennan filed in
February 2013. Bri...
Some of our favorite finds in 10-Ks
in 2012
• The New York Times Co. disclosed that the $4.5 million in
consulting fees it...
New disclosures are the rare white
truffle!
There are several ways to find new disclosures:
• Subscription services like A...
Section 1: Business description
This is where companies provide a
narrative about what they do:
• how they make money
• th...
Section 1A: Risk Factors
• More narrative, but on the
risks the company faces in the
company's own words (or at
least thei...
Section 2: Properties
While it's very rare you'll find a smoking gun in this
section, you may just find some interesting t...
Section 3: Legal issues or
proceedings
• Some companies have lots to say here;
others are much more circumspect
• Patterns...
Section 8: Financial statements
• Footnotes, footnotes and more footnotes
• Unless you're really digging in, it's hard to
...
Section 15: Exhibits
• Pay close attention to any
exhibit that begins with the
number 10, the number for
"material contrac...
Amended 10-Ks
• Companies often file amended
filings. For a 10-K, it has the
designation 10-K/A.
• The amendment can be
re...
Your assignment:
• Take a closer look at the 10-K that HPQ filed on Dec. 27, 2012:
http://www.sec.gov/Archives/edgar/data/...
SEC Filings Master Class - Form 10Ks by Michelle Leder
SEC Filings Master Class - Form 10Ks by Michelle Leder
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SEC Filings Master Class - Form 10Ks by Michelle Leder

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Michelle Leder, founder of Footnoted.com, presents "Diving into the 10-K" as part of the free, three-part, investigative business journalism webinar, "SEC Filings Master Class."

For more information about how to use SEC Filings in your reporting, please visit http://bit.ly/secfilings2013.

For more information about free training for business journalists, please visit http://businessjournalism.org.

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SEC Filings Master Class - Form 10Ks by Michelle Leder

  1. 1. Diving into the 10-K Michelle Leder editor/founder footnoted mleder@footnoted.com @footnoted Photo by flickr user TauchSport_Steininger
  2. 2. POLL QUESTION #1 How often do you at least skim a 10-K? •I’ve never read one. •Once or twice •Periodically for companies I follow •It’s my favorite hobby.
  3. 3. So what is a 10-K anyway? • Think of it as the annual report – on steroids! • At its heart, it’s the audited financial statements* – the only time all year that a company does this. • Extensive footnotes. • Often has numerous exhibits • Details on all sorts of other things critical to the business – from its competitors to its tax rate. *But don’t be fooled by the auditor's letter
  4. 4. We don't mean to scare you, but: • The largest 10-K filed so far this year was over 2,300 pages! • Five companies, including Coach Inc. filed 10-Ks that were over 1,000 pages! • Not uncommon for a typical-sized K to run over 100 pages. Google’s 10-K, for example, was 106 pages. • Because many companies operate on a calendar year, it’s common to get a lot of Ks around same time! Photo by flickr user manoftaste.de
  5. 5. If only every 10-K were more like this!
  6. 6. Facebook’s 2012 10-K • They filed 134-page annual report on Feb. 1, 2013. • Unfortunately, it looked like most other annual reports (no status updates or like buttons or cute baby pictures). • It was the first annual report for the company, which went public in May 2012. • How many people who own Facebook stock do you think actually read even a portion of that filing?
  7. 7. Do you really need to read all 100 (or 1,000) pages? • No, no, and no! • But you do need a system that helps you figure out the most important parts to read. • Keep in mind that 10-Ks are highly organized. Let's take a closer look… Photo by Flickr user Vectorportal
  8. 8. For those who read 10-Ks regularly, what section do you always read first? •Risk factors •Legal issues •Financial statements •Management’s Discussion and Analysis •Other: ______ POLL QUESTION #2
  9. 9. Focus on a few key sections: Section 1: Business description Section 1A: Risk factors Section 2: Properties Section 3: Legal issues Section 8: Financial statements Section 15: Exhibits, especially exhibits that start w/the number 10
  10. 10. Go straight to the table of contents
  11. 11. Exercise #1 The short letter that follows was attached to a 312-page 10K that Marsh & McLennan filed in February 2013. Brian Duperreault is the retiring CEO. Come up with a tweet based on the letter and type it in the chat pod.
  12. 12. Some of our favorite finds in 10-Ks in 2012 • The New York Times Co. disclosed that the $4.5 million in consulting fees it was paying to former CEO Janet Robinson didn’t require her to work a specific number of hours. • Whole Foods breaks its customers into four key groups: Conscionables, Organics, Foodies and Experientials. • CenturyLink said that legislative changes under MAP-21 would save the company $1 billion in pension costs over the next 5 years.
  13. 13. New disclosures are the rare white truffle! There are several ways to find new disclosures: • Subscription services like Alpha-Sense, Factset Blackline, Morningstar Document Research (formerly 10KWiz) • Microsoft Word (involves lots of cutting and pasting) • Textdiff site None is totally foolproof, but they're better than doing it manually!
  14. 14. Section 1: Business description This is where companies provide a narrative about what they do: • how they make money • the competition they face • key customers • number of employees Tip: Look for any significant changes in language from year to year Photo by flickr user Images_of_Money
  15. 15. Section 1A: Risk Factors • More narrative, but on the risks the company faces in the company's own words (or at least their lawyer's own words) • Be on the lookout for economic issues, competition, and new legal issues in particular. My all-time favorite risk factor was in February 2004, when Halliburton disclosed that Dick Cheney was a risk factor!
  16. 16. Section 2: Properties While it's very rare you'll find a smoking gun in this section, you may just find some interesting trends.
  17. 17. Section 3: Legal issues or proceedings • Some companies have lots to say here; others are much more circumspect • Patterns are important. • So is anything new • This is where it really pays to use a comparison tool. • Some companies handle this section in a footnote, but they'll guide you to that footnote in this section.
  18. 18. Section 8: Financial statements • Footnotes, footnotes and more footnotes • Unless you're really digging in, it's hard to get through every footnote • Footnotes vary depending on the type of company. A mining company will have very different footnotes from a bank or retailer • My single favorite footnote is the tax footnote because it's a quick gut-check.
  19. 19. Section 15: Exhibits • Pay close attention to any exhibit that begins with the number 10, the number for "material contracts." • Also, pay attention to exhibits that begin with a 99 -- a catch-all category. • Some companies attach the whole annual report here, including footnotes.
  20. 20. Amended 10-Ks • Companies often file amended filings. For a 10-K, it has the designation 10-K/A. • The amendment can be relatively minor, or it could be significant. • Some companies file an amended 10-K with proxy- related info, if they can't make the proxy-statement deadline.
  21. 21. Your assignment: • Take a closer look at the 10-K that HPQ filed on Dec. 27, 2012: http://www.sec.gov/Archives/edgar/data/47217/000104746912 011417/a2211959z10-k.htm • What’s the first thing that jumps out at you? (Hint: Don’t overthink.) • Now, read pages 16-26 of the risk-factors section carefully. • Compare it to the same section for the 10-K filed in 2011. • Write a short paragraph on what you found. • Email to: cassandra.nicholson@businessjournalism.org by noon ET Wednesday, Oct. 9. • For more info on SEC documents, see our 10-Q and proxy guides.

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