Researching a U.S. Company’s Annual Statement

The most useful document for a researcher investigating a publicly traded company is the annual statement, also known as the 10-K. The annual statement includes a detailed overview of everything the company is doing, everywhere it operates or has significant property, and its risks such as conflicts with the S.E.C. and ongoing litigation.

Background: a publicly traded company (which essentially meaning that it sells stock) in the U.S. has to submit certain forms to the Securities and Exchange Commission. The S.E.C. makes those documents available to the public in a database known as E.D.G.A.R. This database is where you can find a company’s most recent Form 10-K.

Background on the 10-K: This form is an annual report required by the government and it provides in depth information about the status of the company. Keep in mind that while the S.E.C. sets the requirements for information in the form, it is the company that actually writes it. Therefore the report provides a biased outlook in favor of the company. For more info about the S.E.C. requirements for the report, read the S.E.C.’s guide for investors on how to read the 10-K.

As previously noted, there are several key topics in the report that are useful to an investigator. The key topics are:

  • Overview of the business
  • Subsidiaries
  • Major properties
  • Unresolved SEC Staff Comments
  • Legal Proceedings
BUSINESS OVERVIEW

Overview of the business: Located in section Part 1 in subsection Item 1, under the title “Business.” If you want to find out everything a company does and where it does it, this is the best resource. Also, company websites often only provide the “face” of the company and do not identify complex supply lines or webs of subsidiaries. As a followup, a researcher may want to look at the section on the overall financial condition of the company, which is usually in Part 2 Section 7. Similarly, upcoming risk factors for the company are acknowledged usually in Part 1 Section 1A.

SUBSIDIARIES

This section (Business Overview, Part 1 Item 1) also often identifies the company’s subsidiaries, which are great avenues for further research. Do a quick search if local news sources for mentions of these subsidiaries. Each subsidiary will likely be registered separately, so you can look up each subsidiary’s registration for additional names. Plus, you can look up the registered addresses on the registration and then lookup the subsidiaries’ property deeds (note that they may rent the property or it might even just be a P.O. box). Company-owned significant properties are also listed in Part 1 Item 2, which should provide more opportunities to look up property records.

See previous posts on how to lookup Company Registrations and Property Records.

COURT CASES

Companies are obligated to disclose ongoing legal proceedings and this is often located in Part 1 Item 3. The company will describe the case in a manner that portrays itself positively. Therefore, a researcher can use this section as a jumping off point for further research into the case. Local news and public court records will almost certainly provide additional information about the case that is not included in the 10-K. If the court case is in the U.S., public records will be available if the case involves the U.S. government prosecuting the company or if the case is in a federal court. Court files are often available for county courts as well. See the post on Researching a Company’s Court Records for more information about how to research these records.

LEADERSHIP

A researcher may note, and disregard, the sections in Part 3 that describe the company’s leadership. These sections do have a lot of information on leadership but this often overlaps with the proxy statement. The main difference between the proxy statement (form DEF14A) and the 10-K is that the 10-K is filed a little earlier so many people believe the proxy statement is a better source of information related to the leadership.

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