Form 10-K

What is a Form 10-K?

Form 10-K is an annual filing that publicly traded companies in the United States are required to submit to the SEC as part of being listed. This document contains detailed information about a company’s business operations, financial performance, risks, and governance. It’s one of the most important tools available to investors for evaluating a company’s financial health and making informed investment decisions. The level of detail in a Form 10-K goes beyond what is typically provided in an annual report to shareholders, offering a deeper dive into the company’s financial statements and other critical information.

How to Find the Form 10-K Filing?

The most direct way to find a Form 10-K filing is through the U.S. Securities and Exchange Commission’s (SEC) EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database or by using Felix by Financial Edge Training. Felix holds current and historic filings for over 7,000 firms globally and instruction to find them can be followed here:

• Go to https://felix.fe.training/

• Enter the Ticker or name you want to find

The 10K report will appear in the Financials, which are listed in chronological order starting with the most recent report. This may be a 10Q if midway through a company’s fiscal year, but the latest 10K will be available near the top of this list.

What is the Structure of the 10-K Filing Report?

10-K filings tend to have a standard format so despite their size, it can be relatively easy to navigate through the information once analysts are familiar with the documents. They can be split into these information categories:

1. Part I: Business Overview and Risk Factors

• Item 1. Business: this section provides a detailed description of the company’s business operations, including its principal products or services, the markets in which it operates, and the competitive landscape.
• Item 1A. Risk Factors: here, the company outlines the significant risks that could adversely affect its business, financial condition, or results of operations. This section is critical for investors to understand the potential downsides of investing in the company.
• Item 1B. Unresolved Staff Comments: this section addresses any significant comments or issues raised by the SEC staff that remain unresolved from previous filings.
• Item 2. Properties: the company provides information about its principal physical properties, such as manufacturing plants, office buildings, or retail locations.
• Item 3. Legal Proceedings: details of any significant ongoing legal proceedings involving the company are disclosed here.
• Item 4. Mine Safety Disclosures: if applicable, this section includes information on mine safety violations and other regulatory matters concerning mining operations.

2. Part II: Financial Information

• Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities: this section discusses the company’s stock performance, dividend policy, and stock repurchase activities.
• Item 6. Selected Financial Data: this section presents a five-year financial summary that highlights key financial metrics and trends.
• Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A): the MD&A offers management’s perspective on the financial results, significant trends, and future outlook. It also discusses the company’s liquidity, capital resources, and critical accounting policies.
• Item 7A. Quantitative and Qualitative Disclosures About Market Risk: this section addresses the company’s exposure to market risk, such as interest rate risk, foreign exchange risk, and commodity price risk.
• Item 8. Financial Statements and Supplementary Data: this critical section includes the company’s audited financial statements, such as the balance sheet, income statement, and cash flow statement, along with the accompanying notes. It also includes supplementary financial information required by the SEC.
• Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure: any changes in or disagreements with the company’s auditors regarding accounting practices or financial disclosures are reported here.
• Item 9A. Controls and Procedures: This section covers the company’s internal controls over financial reporting, including any identified weaknesses or changes in internal controls.
• Item 9B. Other Information: Any additional information not covered in other parts of the report but deemed material by the company may be included here.

3. Part III: Corporate Governance

• Item 10. Directors, Executive Officers, and Corporate Governance: this section provides information about the company’s directors, executive officers, and key corporate governance policies, including the audit committee and code of ethics.
• Item 11. Executive Compensation: detailed information about the compensation of top executives, including salaries, bonuses, stock options, and other forms of remuneration, is provided here.
• Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters: this section discloses the ownership of the company’s common stock by its directors, executive officers, and significant shareholders.
• Item 13. Certain Relationships and Related Transactions, and Director Independence: here, the company discusses any related-party transactions and evaluates the independence of its directors.
• Item 14. Principal Accountant Fees and Services: this section provides details on the fees paid to the company’s independent auditors for audit and non-audit services.

4. Part IV: Exhibits and Financial Statement Schedules

• Item 15. Exhibits, Financial Statement Schedules: the final section includes a list of all exhibits, such as material contracts, bylaws, and other significant documents. It also includes any additional financial statement schedules required by the SEC.
• Item 16. Form 10-K Summary (Optional): companies may choose to provide a summary of the information included in the Form 10-K, highlighting key sections and financial data for easier reference.

How Do I Read a Form 10-K?

To read a Form 10-K effectively, start by examining the Business Overview (Item 1) to understand the company’s operations and market. Review the Risk Factors (Item 1A) to identify potential challenges that could impact the business. Check the Legal Proceedings (Item 3) for significant legal issues. Focus on the Financial Statements (Item 8), including the balance sheet, income statement, and cash flow statement, to assess financial health. Finally, read the Management’s Discussion and Analysis (MD&A) (Item 7) for insights into financial results, trends, and future outlook. This approach will help you grasp the company’s performance, risks, and strategic direction.

10-K Filings and Deadlines

The deadlines for filing Form 10-K depend on the size of the company. Large Accelerated Filers, which are companies with a public float of $700 million or more, are required to file their 10-K within 60 days after the end of their fiscal year. Accelerated Filers, with a public float between $75 million and $700 million, have 75 days to file. Smaller companies, classified as Non-Accelerated Filers, have 90 days to submit their 10-K. Meeting these deadlines is crucial, as late filings can signal potential financial distress or internal control issues, which could negatively affect investor confidence.

Purpose of Form 10-K

The primary purpose of a Form 10-K is to provide transparency and protect investors by ensuring they have access to comprehensive and reliable information about a company’s financial performance. By requiring detailed disclosures, the SEC helps create a level playing field where all investors, regardless of size, have access to the same information. This transparency is vital for maintaining trust in the financial markets and ensuring that investment decisions are based on accurate and up-to-date data.

Who Files a Form 10-K?

All publicly traded companies in the United States are required to file Form 10-K with the SEC. This includes large multinational corporations as well as smaller companies listed on major stock exchanges. Companies that fail to file their 10-K on time, or file incomplete or inaccurate reports, can face serious consequences, including fines, delisting from stock exchanges, and legal action. Additionally, failure to comply with these filing requirements can erode investor trust and potentially lead to a decline in stock price.

Penalties for Form 10-K Non-Compliance

Non-compliance with Form 10-K filing requirements can result in significant penalties. Companies that do not file on time, or submit incomplete or misleading information, may face fines imposed by the SEC. In severe cases, the SEC can take legal action against the company or its executives. Furthermore, companies that fail to comply with filing requirements risk being delisted from stock exchanges, which can have a devastating impact on their stock price and investor relations. Beyond these formal penalties, the reputational damage of noncompliance can be significant, leading to a loss of investor confidence and market value.

Limitations of a Form 10-K

While Form 10-K is an invaluable resource, it has its limitations. The information presented is historical, meaning it may not fully reflect the company’s current financial condition or future prospects at the time of publishing. Additionally, while the form provides a lot of data, interpreting this information requires financial literacy and understanding of accounting principles. The document can also be overwhelming due to its length and complexity, making it challenging for less experienced investors to extract the most relevant information. Moreover, while the financial statements are audited, other sections like the MD&A are based on management’s perspective, which could be subjective.

Form 10-K vs. Annual Report

It’s important to distinguish between Form 10-K and the Annual Report to shareholders. The Annual Report is often more visually appealing and designed for a broader audience, including marketing elements like glossy photos and charts that highlight the company’s achievements. In contrast, Form 10-K is a much more detailed and technical document, mandated by the SEC, that provides in-depth financial data, disclosures, and legal information. While both documents serve to inform shareholders, the Form 10-K is the more comprehensive and legally significant of the two.

Conclusion

Understanding the intricacies of Form 10-K is essential for investors and stakeholders to make informed decisions about a company’s financial health and future prospects. By thoroughly analyzing the key sections and adhering to filing deadlines, companies can ensure transparency and maintain investor confidence. Noncompliance, on the other hand, can lead to severe penalties and reputational damage.