Using S.E.C. Documents

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Using S.E.C. Documents
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Reasons S.E.C. Documents are Important to
Investors

1. Give financial information (annual and
   quarterly).
2. Identify principal products, services, markets,
   distribution, patents, licenses, etc.
3. Alert to major material events changes in the
   company
4. Discussion by management of current future
   plans, explanations of current state of the
   company opportunities threats.
5. Information about alliances, joint ventures,
   stakes in other companies, etc.
6. Insiders (Board of Directors, management)
   compensation and sales/buying of shares.
7. Legal proceedings involving the company.
8. Tender offers, Mergers Acquisitions,
   Divestitures,
9. Registration and offering of both equity debt

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Major S.E.C. Documents

• 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

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10-K

• Comprehensive summary , more than annual report.
  60 days from year end if gt750 million, 75 days
  for less.
• Detailed financials. Balance sheet, income
  statement, cash flow statement.
• Business summary describes operations, business
  segments, history, real estate, marketing, RD,
  competition , employees, trademarks/patents,
  international trade/operations
• MDA (Management Discussion and
  Analysis)-explanation of the companys 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.

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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-Qs.

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10-Q

• Unaudited quarterly reports.
• Filed within 40 days of quarter end.
• Updates the 10-K.

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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
• 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

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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.

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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)

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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)

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How to Use Insider Trading

• 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. 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?

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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.
• Dont Forget to Read the Prospectus!

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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 gt than 5 of a voting class of a
  companys 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.

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Tender Offers/Acquisition Statements14-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.

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Where Do We Find SEC Documents?

• United States Securities and Exchange Commission
  Website
• www.sec.gov, Formerly called SEC/EDGAR. A new
  more interactive system will be called ,
  Interactive Data Electronic Applications (IDEA)
  http//idea.sec.gov/
• SECInfo-private site which reformats documents
  http//www.secinfo.com
• SEC Filings on Yahoo. http//biz.yahoo.com/report
  s/edgar.html

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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.