Michelle Leder: SEC Filings And Three-Card Monte

Michelle Leder: SEC Filings And Three-Card Monte
By U.S. Government [Public domain], <a href="https://commons.wikimedia.org/wiki/File%3AUnited_States_Securities_and_Exchange_Commission.svg">via Wikimedia Commons</a>

SEC Filings at a glance:

Michelle Leder: SEC Filings And Three-Card Monte

  • Companies use all sorts of tricks to get you to ignore their routine SEC filings and instead pay attention to the things they want you to focus on (investor days, conference calls, etc)
  • Some of these tricks seem downright silly, and yet they still happen every day.
  • Remember: filings are written by lawyers who get paid by the word!
  • After 10 years of reading filings, we’ve pretty much seen it all!

Strategy: Same filing/same day

  • On June 5, Thermo-Fisher announced a $2.2 billion secondary offering, in part to finance its $15.8 billion purchase of Life Technologies
  • In an 8-K talking about the proceeds, the company also disclosed that it was likely to receive a “second request” from the FTC related to the merger.
  • Two days later (at 5:17 pm on a Friday), Life Technologies filed its own 8-K noting that it had received the “second request”.

Strategy: Multiple filings/same day

  • On April 18, Microsoft Corporation (NASDAQ:MSFT) announced record earnings shortly after the market closed.
  • Release noted that CFO would be leaving, but provided no details.
  • A few minutes later (at 4:07) Microsoft files its 10-Q
  • One hour later, company files resignation agreement with Peter Klein that pays him $1 million
  • Total pages filed over course of 1 hour: 85

Strategy: flood the zone

One day flood:

  • On June 17, Weyerhauser filed 4 separate 8-Ks and 2 other filings and did a “special presentation” for investors
  • Total page count: >350 pages

Multiple flooding incidents:

  • In month of May, Meritor Inc (NYSE:MTOR) filed 6 8-Ks, an amended 10-K, a 10-Q and a few other things.
  • During the prior 2 Mays, it filed just 1 8-K!
  • Total page count: >500 pages

The Friday Night Dump

  • Last Friday (June 14), there were 101 8-Ks filed
  • 44 of them were filed after 4 pm
  • Typical number is 9% of all 8-Ks filed in any given week are filed after 4 pm on a Friday
  • Pre-holiday weekends even worse.

The Monday morning dump

  • The SEC electronic window closes at 5:30:59 on a Friday. Anything filed after that is automatically held until first-thing Monday morning
  • We’ve seen companies filing at 8 or 9 pm on a Friday, so the filing date reflects Monday.
  • On May 31, Tutor Perini filed this 8-K at 7:07 pm.

The forward-looking statement dump

  • We’ve noticed a growing trend of companies dumping significant information in their forward-looking statements that are part of earnings.
  • On Feb. 21, as part of its 509-word forward-looking statements section, Hewlett-Packard Company (NYSE:HPQ) inserted language about “risks associated with HP’s international operations” for the first time.
  • These can be difficult to catch, but can provide good insight into something that may “graduate” to a risk factor.

Some other tricks

  • Using different exhibit numbers, which makes it harder to find and compare various changes in a document (i.e: an 8-K with a 10-Q or an exhibit marked 10.x with a similar exhibit marked 99.1)
  • Using different word to describe the same thing
  • Burying something in an amended filing (10-K/A, 10-Q/A, 8-K/A)
  • Dumping a bunch of amended filings on the same day
  • Announcing limited details about an executive departing and then burying separation agreement in next Q (or, depending on timing, not at all)
  • Spelling out numbers!

Parting words

  • When you dive into SEC filings, think about this guy and don’t let him fleece you!

Michelle Leder: SEC Filings And Three-Card Monte

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By Michelle Leder, Footnoted.com

SEC Filings And Three-Card Monte

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I was born and raised in Murmansk, Russia (the home for Russia’s northern navy fleet, think Tom Clancy’s Red October). I immigrated to the US from Russia in 1991 with all my family – my three brothers, my father, and my stepmother. (Here is a link to a more detailed story of how my family emigrated from Russia.) My professional career is easily described in one sentence: I invest, I educate, I write, and I could not dream of doing anything else. Here is a slightly more detailed curriculum vitae: I am Chief Investment Officer at Investment Management Associates, Inc (IMA), a value investment firm based in Denver, Colorado. After I received my graduate and undergraduate degrees in finance (cum laude, but who cares) from the University of Colorado at Denver, and finished my CFA designation (three years of my life that are a vague recollection at this point), I wanted to keep learning. I figured the best way to learn is to teach. At first I taught an undergraduate class at the University of Colorado at Denver and later a graduate investment class at the same university that I designed based on my day job. Currently I am on sabbatical from teaching for a while. I found that the university classroom was not big enough for me, so I started writing and, let’s be honest, I needed to let my genetically embedded Russian sarcasm out. I’ve written articles for the Financial Times, Barron’s, BusinessWeek, Christian Science Monitor, New York Post, Institutional Investor … and the list goes on. I was profiled in Barron’s, and have been interviewed by Value Investor Insight, [email protected], BusinessWeek, BNN, CNBC, and countless radio shows. Finally, my biggest achievement – well actually second biggest; I count quitting smoking in 1992 as the biggest – I’ve authored the Little Book of Sideways Markets (Wiley, 2010) and Active Value Investing (Wiley, 2007).

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