Transcript Using S.E.C. Documents - Ithaca College Library

Using S.E.C. Documents
Reasons S.E.C. Documents are Important to
Investors
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Give financial information (annual and quarterly).
Identify principal products, services, markets, distribution, patents,
licenses, etc.
Alert to major material events & changes in the company
Discussion by management of current & future plans, explanations of
current state of the company & opportunities & threats.
Information about alliances, joint ventures, stakes in other companies,
etc.
Insiders (Board of Directors, management) compensation and
sales/buying of shares.
Legal proceedings involving the company.
Tender offers, Mergers & Acquisitions, Divestitures,
Registration and offering of both equity & debt
Major S.E.C. Documents
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10-K –Comprehensive Yearly Analysis of the Company
10-Q –Unaudited Quarterly Report updating the 10-K
20-F -Filed by foreign companies trading on U.S. Exchanges.
8-K -report filed announcing events investors should know
about.
Proxy Statements
S- 3,4, 5 Statements
Shelf Registrations, Prospectuses
Tender Offer/Acquistion Documents
10-K
• Comprehensive summary , more than annual report. 60 days from year
end if >$750 million, 75 days for less.
• Detailed financials. Balance sheet, income statement, cash flow
statement.
• Business summary describes operations, business segments, history, real
estate, marketing, R&D, competition , employees, trademarks/patents,
international trade/operations
• MD&A (Management Discussion and Analysis)-explanation of the
company’s operations and financial outlook.
• Discussion of management team and legal proceedings (if any).
• Quantitative/Qualitative disclosures about market risk
• Changes in and disagreements with accountants on accounting and
financial disclosure.
20-F
• Required to be filed by foreign companies trading on U.S.
exchanges.
• Within 6 months of financial year end.
• Do not have to file 10-Q’s.
10-Q
• Unaudited quarterly reports.
• Filed within 40 days of quarter end.
• Updates the 10-K.
8-K
• Notifies investors of any unscheduled material event. Very
broad. Filed within 4 business days of the event.
• Updates both the 10-Q and 10-K documents.
• Examples:
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Financial information, completion of acquisition/divestiture
Results of operations & financial conditions, accounting changes
Appointments or departures of executives
Creation/triggering of events that accelerate or increase a direct
financial obligation
– Entry/termination of material definitive agreement,
bankruptcy/receivership
– Securities & Trading-delisting, unregistered sales of equity
Proxy Statements/DEF14A
• The SEC requires that shareholders of a company receive a proxy
statement prior to a shareholder meeting, whether an annual or special
meeting.
• Must be filed with the SEC before soliciting a shareholder vote on the
election of directors and the approval of other corporate action.
• Solicitations, whether by management or shareholders, must disclose all
important facts about the issues on which shareholders are asked to vote.
• Lists Officers, Directors, Members of the Board & information about
compensation.
• May be issued in response to shareholder vote on possible
merger/acquistion by either the company or an outside party.
Forms 3,4,5
• Who are "Insiders" ? Corporate officers, directors, and 10% owners
• What is "Insider Trading" Corporate insiders buy and sell stock in their
own companies
• Insider Trading Law
– Short-swing profits (profits realized in any period less than six months)
by corporate insiders in their own corporation's stock are prohibited
– Insider transactions must be reported to the SEC by filing a FORM 4
within two business days of the date the transaction occurred (2002
Sarbanes-Oxley Act)
What Does Research Say About Insider Trading?
• When executives bought shares in their own companies, the stock tended
to outperform the total market by 8.9% over the next 12 months. When
they sold shares, the stock underperformed the market by 5.4% (Nejat
Seyhun, a professor and researcher in the field of insider trading at the
University of Michigan)
• Insider trading is significantly correlated with stock price run-ups implying
that insider (i.e., informed) trades affect price discovery differently than
non-insider (i.e., uninformed) trades (Chakravarty and McConnell 1997,
Financial Management, 26, p. 18-34)
• A positive relationship is observed between insider transactions and
future stock returns (Iqbal and Shetty 2002, Quarterly Review of Economics
and Finance, 42 (1) p. 41-57)
How to Use Insider Trading
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Key executives buying stock it is usually a good sign. Look out
for single purchases.
A corporate officer selling shares may/may not tell you
something. If you see several key executives selling at the same
time it might be worth taking a close look at the company's
fundamentals again .
It makes a difference which company insiders are making the
buys. Top executives are the most informed, followed by officers and
directors, with large shareholders being the least informed.
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Look for messages in insider data:
How large was the trade (shares or $ value)?
How much of an insider's holdings were included in the trade?
Is there more than one insider in the company making the same
trade?
Which officers in the company are making the trade?
Shelf Registration (S-1), Prospectus (424B3,
• Listing of intent to offer securities (both equity & debt
instruments)
• Prospectus-details about instrument being offered, shares
and $ amount, how the business operates, history,
management, financial condition and insight into risk.
Tender Offers/Acquisition Statements
• Schedule 13-D (commonly referred to as a “beneficial ownership report.”
Includes any person /group of persons who directly or indirectly shares
voting power or the power to sell the security).
• Person or group of persons acquires beneficial ownership of > than 5% of
a voting class of a company’s equity securities.
• Schedule 13D reports the acquisition and other information within ten
days after the purchase to both the company and the exchanges where
traded.
• Gives background information on the owner including criminal
misbehavior, type of relationship this owner has with the company.
• Explanation of why transaction is taking place and where the $ is coming
from for the purchase.
Tender Offers/Acquisition Statements
14-D1 & 14-D9
• 14-D1 Tender offer filing with the SEC at time when offer is made to
shareholders of a target company, if acceptance of offer would give the
bidder over 5% ownership of the subject securities.
• Gives identity and background information of the company soliciting the
equity shares including past contacts, transactions or negotiations with
the subject company.
• Explanation of purpose of the transaction and plans or proposal of the
bidder and where the $ is coming from for the purchase. Also included are
legal opinion on tax consequences & persons retained, employed to be
compensated.
• 14-D9 –solicitation/recommendation submitted to equity holders and filed
with SEC by the management of company being subject to the tender
offer. Made within 10 days of the initial tender offer.
Where Do We Find SEC Documents?
• United States Securities and Exchange Commission Website
www.sec.gov, Formerly called SEC/EDGAR.
Search Company Filings, http://idea.sec.gov/
Interactive Data Electronic Applications (IDEA)
• SECInfo-private site which reformats documents http://www.secinfo.com
• SEC Filings on Yahoo. http://biz.yahoo.com/reports/edgar.html
Other Sites of Interest
• Footnoted.org -Each day, the site takes a closer look at the things that
companies try to bury in their routine SEC filings. Some posts are simply
quirky little factoids,while others tend to focus on more serious issues, like
aggressive accounting, excessive compensation or the type of
questionable self dealing that can often be indicative of more serious
problems at a company.
• 10Qdetective -Investors often overlook SEC filings, and it is the job of the
10Q Detective to dig through businesses’ 8-K and 10-Q SEC filings, looking
for financial statement ‘soft spots,'(depreciation policies, warranty
reserves, and restructuring charges, etc.)that may materially impact
Quality of Earnings.