- - Thursday, March 22, 2012


As quarterly earnings reports slow to a trickle and economic data in any given week are light, most professional investors use the downtime to catch up on what’s afoot in various industries, sifting through that daunting pile of reading that tends to accumulate. That pile can include newspaper and magazine articles, press releases, third-party reports and studies, and one of my personal favorites — corporate filings with the Securities and Exchange Commission.

One of the more well-known filings a company makes with the SEC is a 10-Q, which recaps a company’s performance on a quarterly basis throughout the fiscal year. These reports generally compare last quarter to the current quarter and last year’s quarter to this year’s quarter, which often means greater detail as to the health of the business, as well as what is driving its performance, for good or ill.

Generally speaking, a company’s 10-Q needs to be filed within 45 days after the end of a fiscal quarter. In between 10-Qs, a company must file a Form 8-K in order to notify investors of any “material” events that occur. That notification includes a description of the event, which can range from a change in directors or the departure of a CEO to the acquisition or sale of a significant asset.

From my perspective, one of the most useful documents a company files with the SEC is its 10-K. For people who are first learning about a company — and by that I mean rolling up their sleeves to understand in depth the different businesses a company has and the industries in which it competes — the 10-K is a treasure trove of information.

The 10-K includes information such as an overview of the business; risk factors; company history; organizational structure; legal proceedings; consolidated financial data; management’s discussion and analysis of the company’s operations; and audited financial statements, among other information. This annual filing with the SEC is different from the glossy annual report that companies mail to shareholders, but, given their respective natures, the glossy annual report may incorporate some or all of the 10-K filing.

I find a 10-K to be a great primer on a company because of the amount of information and the degree of detail it contains. It allows you to do your homework and really understand where the company competes — on an industry, product and geographic basis; where and in what businesses it generates the majority of its profits; and how that has evolved over the past few years. More importantly, companies not only spell this out, but there are tables of information that allow you to put the data into perspective and draw some interesting conclusions.

For example, Dick’s Sporting Goods’ most recent 10-K filing, filed with the SEC on March 16, reveals the vast majority of the company’s sporting-goods stores — nearly 78 percent — are east of the Mississippi River. Checking the Sherwin-Williams 10-K for 2012, we find that titanium dioxide and other petrochemicals are key ingredients for the company’s paints and coatings and that strong global demand for those inputs, alongside capacity constraints, has resulted in tight supplies and significant price increases.

While those are illuminating in terms of those businesses, 10-Ks can also provide information that helps assess growth prospects over the next few years. This is illustrated in the 10-K filed recently by GNC Holdings, in which the company cites data from the Nutrition Business Journal’s Supplement Business Report 2011 showing the vitamin and supplement industry is poised to grow at an annual average rate of approximately 3.7 percent through 2017.

Given that most companies end their fiscal year on Dec. 31 and have to file their 10-K within 75 days after the end of the company’s fiscal year, there is no shortage of reading material these days. Better yet, you can access it all for free at www.sec.gov.

Pick a company or two, roll up your sleeves and have fun.

Chris Versace is editor of the PowerTrend Brief and PowerTrend Profits newsletters. Visit them at ChrisVersace.com, or follow him on Twitter @chrisjversace. At the time of publication, Mr. Versace had no positions in companies mentioned; however, positions can change.

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