How to use SEC filings to cover companies

 
By

March 17, 2011

With thousands of publicly traded companies in the United States filing documents with the Securities and Exchange Commission — and thousands more private companies doing the same due to bond issues and a large number of shareholders — knowing how to read an SEC filing is an important tool for anyone looking to report about companies.

Millions of these documents get filed every year, however, so it’s impossible to read every one. And few of these filings have actual news in them anyway. Most are filed with the same boilerplate verbiage that you see in a basic contract.

If you want to be a business journalist, then here’s the six SEC filings that most often have news in them, and what you should be looking for in terms of the news that they might contain.

Form 10-Q

The Form 10-Q is a report filed quarterly by companies. It includes unaudited financial statements and provides a view of its financial position for the previous three months. The report must be filed for each of the first three quarters of the fiscal year and is due within 40 days of the close of the quarter.

What to look for:

  1. Stock purchasing. Has the company increased or decreased how much of its own stock it’s buying? This could be a sign of what the company thinks about its future prospects.
  2. Management’s discussion and analysis. A review of what the company thinks of its recent performance. A bullish or bearish review can sometimes be parsed from this section.
  3. Current litigation. Has the company recently encountered any lawsuits, and has it set aside any money in case it loses the case?
  4. Spending money. A company may disclose that it’s about to spend $200 million to upgrade its computer system, and that the cost will lower its earnings.
  5. M&A update. A company that has recently bought another company may update its shareholders in the filing and tell them whether the deal has actually resulted in the cost savings it promised.

Form 10-K

The Form 10-K is the annual report companies file with the SEC. It provides a comprehensive overview of its business. The report must be filed within 60 to 75 days of the end of the company’s fiscal year.

What to look for: The same things that you are looking for in a 10-Q.

Form 8-K

The Form 8-K report of unscheduled material events or corporate changes that could be of importance to the shareholders or the SEC. It must be filed within four business days of the event.

What to look for:

  1. Bankruptcy or receivership.
  2. Buying or selling a division or another company.
  3. Changing in accounting firm.
  4. Change in control, such as departure of executives or board members.
  5. Market delisting the company stock.
  6. Change in fiscal year.
  7. Financial statements.
  8. Regulation Fair Disclosure information.

Regulation Fair Disclosure is an SEC law that requires companies to disclose information about its performance to all interested individuals — shareholders, analysts, employees, etc. — at the same time. Many times this disclosure is done through an 8-K.

Form S-1

The Form S-1 is a document filed with the Securities and Exchange Commission by a private company that wants to go public. This is also known as the registration statement. The Form F-1 is used by private foreign companies seeking to go public.

What to look for:

  1. Financial performance of the company in recent years.
  2. Risk factors to investing in the stock.
  3. What the company will do with the money raised from the initial public offering.
  4. Largest shareholders and whether they are selling stock.
  5. Prominence of the underwriters. The more prominent the firms, the more likely the stock will sell.
  6. The offering price of the stock and how much higher or lower it is compared to the book value of the company.
  7. How much money is being raised?
  8. Does the company plan to offer a dividend to its investors?

The S-1 is often the first time that a private company widely discloses its financial performance.

DEF 14A, or proxy statement

The DEF 14A is a notice that companies send to stockholders allowing them to vote at the annual meeting that gives them information about shareholder proposals, the board of directors and executives.

What to look for:

  1. How much has executive compensation gone up or down?
  2. Shareholder proposals asking the company to change its operations.
  3. Election of new board members.
  4. Financial relationships between the company and board members.
  5. Largest stock owners.

Form 4

The Form 4 is a document required by the SEC and the appropriate stock exchange to announce changes in the holdings of directors, officers and shareholders owning 10% or more of the company’s outstanding stock.

What to look for:

  1. Large increases or decreases in ownership by directors or executives.
  2. A shareholder buying a significant chunk of stock. The could indicate that they’re dissatisfied with the way the company is run and want more control.

To find a company’s SEC filings, go to sec.gov, and click on “search for company filings” near the middle of the page. Then click on the first button that says “company or fund name.” Type in the name of the company you’re interested in and hit enter. It’s not necessary to type in the full name of the company.

The SEC site also allows you to do a full-text search of company filings for specific phrases such as “personal use of corporate aircraft” or “country club membership.”

Chris Roush is the Walter E. Hussman Sr. Distinguished Scholar in business journalism at UNC-Chapel Hill. He can be reached at croush@email.unc.edu. Tags: economy, financial crisis.

 

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