JANUARY 2003

The Anatomy of a 10-K Report

Understanding Financial Reporting

A question from NAIC's I-Club-List:

There is a requirement for all Form 10-K's (and other SEC filings) to meet the requirements of Regulation S-X.

Here is a short outline I have from a seminar I did in San Francisco.

A Listing of the Information Required in Form 10-K

Note: The 10-K report is the annual information filed with the SEC 90 days after fiscal year-end.

Part I

Item 1: Description of Business

(a) Development of the business during the last five years. Discussion of organization, acquisitions, dispositions, etc.

(b) Financial information about business segments for the last three years.

(c) Narrative description of the business including:

• Principal products and services
• Principal markets, customers and methods of distribution
• Sources of raw materials
• Seasonality of business
• Backlog of business
• Competitive conditions
• Research and development efforts

(d) Financial information about geographic areas: Revenues and assets by geographic areas. Risks attendant to foreign operations (currency, political situation, etc.)

Item 2: Description of Property

Location, condition and number of plants and other significant physical properties such as oil and gas reserves, timber acreage, etc.

Item 3: Legal Proceedings

Significant details about pending litigation including a description of the charges and the relief sought. A more extensive discussion than what appears in the Annual Report.

Item 4: Submission of Matters to a Vote of Security Holders

Part II

Item 5: Market for Registrant's Common Equity and Related Stockholder Matters. Exchanges where the company's securities trade. Approximate number of holders of each class of common stock. Discussion of dividend policy including any potential restrictions.

Item 6: Selected Financial Data. Often presented as Financial Highlights in the Annual Report. Five years of specified key financial information. The company may "include additional items which they believe would enhance an understanding of and would highlight other trends in their financial condition and results of operation."

Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

(a) Discussion of the results of operations including unusual or infrequent events and their financial impact.

(b) Discussion of internal and external sources of funding including unused lines of credit.

(c) Discussion of current and future capital commitments (plant expansions, acquisitions, etc.) and where funds will come from.

(d) Discussion of trends in capital resources and financial structure (debt and stock offerings, stock buybacks, etc.)

(e) Discussion of known trends or uncertainties that will change the relationship between costs and revenues in the future such as costs of labor, raw materials, interest rates, etc.

(f) Forward-looking information and projections are covered by safe harbor rules.

Item 7A: Quantitative and Qualitative Disclosures About Market Risks. Disclosures of "what-if" scenarios involving changes in interest rates, foreign currencies, commodity prices, etc. Discussion of the potential impact of market risks on future earnings, fair values of assets or cash flows.

Item 8: Consolidated Financial Statements and Supplemental Data. Generally incorporated by reference from the Annual Report or filed as an Exhibit in Item 14. See Section on Annual Reports below.

Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Part III (Generally incorporated by reference to the Proxy Statement- DEF 14A)

Item 10: Directors, Executive Officers, Promoters and Control Persons.

(a) Identification of directors

(b) Identification of executive officers

(c) Identification of certain significant employees

(d) Family relationships

(e) Business experience of each director and officer for the last five years

(f) Involvement in certain legal proceedings

(g) Promoters and control persons

Item 11: Executive Compensation. What key employees get paid presented in a way that usually just meets requirements.

Item 12: Security Ownership of Certain Beneficial Owners and Management (Often disclosed in the Proxy Statement: DEF 14A)

(a) A listing of management's ownership interest

(b) A listing of anyone who has a beneficial interest of 5 percent or more in any class of company security. This would include major bondholders or mutual funds that own more than 5 percent of common shares.

Item 13: Certain Relationships and Related Transactions

(a) Disclosure of transactions with management and other insiders that exceed $60,000

(b) Disclosure of certain business relationships (An example: A Board member works for a significant supplier or customer of the company.)

(c) Disclosure of any management indebtedness to the company exceeding $60,000

Part IV

Item 14: Exhibits, Financial Statements and Reports on Form 8-K Exhibits might include: Certificate of Incorporation, By-Laws, Stock Option and Deferred Compensation Plans, Employment Agreements, Employee Benefit Plans, etc.

Diane Graese was formerly an officer of the Computer Group Advisory Board and a director for the BetterInvesting Las Vegas Chapter. She is an active member of i-club-list and the BetterIinvesting Community at Compuserve. Diane is well known for her seminars on cash flow and interpreting financial statements. Contact Diane at dmg1031@aol.com.