SEC

OFFICE of INVESTOR

EDUCATION and ADVOCACY

Investor Bulletin: How to Read a 10-K

If you want to follow or invest in a U.S. public company, you can find a wealth of information in the 

company’s annual report on Form 10-K. Among 

other things, the 10-K offers a detailed picture of a 

company’s business, the risks it faces, and the operating and financial results for the fiscal year. Company 

management also discusses its perspective on the business results and what is driving them.

Most U.S. public companies are required to produce 

a 10-K each year and file 

it with the U.S. Securities 

and Exchange Commission 

(SEC). (Non-U.S. public 

companies usually file their 

annual reports with the SEC on different forms.) 

SEC rules require that 10-Ks follow a set order of 

topics.

SEC rules also require companies to send an annual 

report to their shareholders when they are holding 

annual meetings to elect members of their boards of 

directors. There is a lot of overlap in the requirements 

for the 10-K and the annual report to shareholders, 

but there are also important differences. The 10-K 

typically includes more detailed information than the 

annual report to shareholders. The annual report to 

shareholders, unlike the 10-K, sometimes appears as a 

colorful, glossy publication. A number of companies, 

however, simply take their 10-K and send it as their 

annual report to shareholders. In those cases, the 10-K 

filed with the SEC and the annual report to shareholders are the same document. 

The Roles of Companies and the SEC

The company writes the 10-K and files it with the 

SEC. Laws and regulations prohibit companies from 

making materially false or misleading statements in 

their 10-Ks. Likewise, companies are prohibited from 

omitting material information that is needed to make 

the disclosure not misleading. In addition, the Sarbanes-Oxley Act requires a company’s CFO and CEO 

to certify the accuracy of the 10-K. 

The SEC neither writes the 10-K nor 

vouches for its accuracy. The SEC sets 

the disclosure requirements – the topics 

that all companies must cover in their 

10-Ks, and how the information should 

be presented. 

The SEC staff reviews 10-Ks to monitor and enhance 

companies’ compliance with the requirements. Both 

the SEC and the staff also provide interpretive advice 

about the disclosure requirements. The SEC staff 

reviews 10-Ks and may provide comments to a company where disclosures appear to be inconsistent with 

the disclosure requirements or deficient in explanation 

or clarity. 

The Sarbanes Oxley Act requires the SEC to review 

every public company’s financial statements at least 

once every three years. The SEC staff may review the 

10-Ks of certain companies more frequently. 

All 10-Ks filed with the SEC are available to the public 

on the SEC’s EDGAR website. Most companies also 

post their 10-Ks on their own websites. 

The “Business” section is a good 

place to start to understand the 

company.

Investor Assistance (800) 732-0330 www.investor.gov

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Items in the Annual Report on Form 10-K

Part I

Item 1 “Business” requires a description of the 

company’s business, including its main 

products and services, what subsidiaries 

it owns, and what markets it operates 

in. This section may also include information about recent events, competition the company faces, regulations that 

apply to it, labor issues, special operating costs, or seasonal factors. This is a 

good place to start to understand how 

the company operates.

Item 1A “Risk Factors” includes information 

about the most significant risks that 

apply to the company or to its securities. Companies generally list the risk 

factors in order of their importance. 

In practice, this section focuses on the 

risks themselves, not how the company 

addresses those risks. Some risks may 

be true for the entire economy, some 

may apply only to the company’s industry sector or geographic region, and 

some may be unique to the company. 

Item 1B “Unresolved Staff Comments” requires 

the company to explain certain comments it has received from the SEC 

staff on previously filed reports that 

have not been resolved after an extended period of time. Check here to see 

whether the SEC has raised any questions about the company’s statements 

that have not been resolved.

Item 2 “Properties” includes information 

about the company’s significant properties, such as principal plants, mines and 

other materially important physical 

properties.

Item 3 “Legal Proceedings” requires the company to include information about 

significant pending lawsuits or other 

legal proceedings, other than ordinary 

litigation. 

Item 4 This item has no required information, 

but is reserved by the SEC for future 

rulemaking.

Part II

Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and 

Issuer Purchases of Equity Securities” 

requires information about the company’s equity securities, including market 

information, the number of holders of 

the shares, dividends, stock repurchases 

by the company, and similar information.

Item 6 “Selected Financial Data” provides 

certain financial information about the 

company for the last five years. You 

can find much more detailed financial 

information on the past three years in 

a separate section – Item 8, “Financial 

Statements and Supplementary Data.” 

Item 7 “Management’s Discussion and Analysis of Financial Condition and Results 

of Operations” gives the company’s 

perspective on the business results of 

the past financial year. This section, 

known as the MD&A for short, allows 

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Items in the Annual Report on Form 10-K

company management to tell its story 

in its own words. The MD&A presents:

•	 The company’s operations and financial 

results, including information about the 

company’s liquidity and capital resources 

and any known trends or uncertainties 

that could materially affect the company’s 

results. This section may also discuss management’s views of key business risks and 

what it is doing to address them. 

Discussion of Risk in the MD&A

Here are examples of how an MD&A 

may discuss risks that the company 

faces.

•	 A consumer company might discuss 

ways in which it seeks to meet changing tastes. 

•	 A manufacturing company that relies 

on natural resources may discuss how 

it assesses commodity risks and conducts resource management programs. 

•	 A financial institution may discuss 

ways that management monitors 

liquidity and assures adequate capital 

under various scenarios, such as a rise 

in interest rates or a ratings downgrade. 

•	 A global company may discuss how it 

handles exchange rate risks. 

•	 Companies may discuss how they 

handle competition, build their brands, 

or manage in an economic downturn. 

•	 Companies also may discuss how they 

ensure compliance with laws and 

regulations, or how they are addressing 

the impact of new or anticipated laws 

and regulations. 

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•	 Material changes in the company’s 

results compared to the prior period, as 

well as off-balance sheet arrangements 

and the company’s contractual obligations. 

•	 Critical accounting judgments, such 

as estimates and assumptions. These 

accounting judgments – and any 

changes from previous years – can have 

a significant impact on the numbers in 

the financial statements, such as assets, 

costs, and net income.

Item 7A “Quantitative and Qualitative Disclosures about Market Risk” requires 

information about the company’s exposure to market risk, such as interest rate 

risk, foreign currency exchange risk, 

commodity price risk or equity price 

risk. The company may discuss how it 

manages its market risk exposures. 

Item 8 “Financial Statements and Supplementary Data” requires the company’s 

audited financial statements. This includes the company’s income statement 

(which is sometimes called the statement of earnings or the statement of 

operations), balance sheets, statement of 

cash flows and statement of stockholders’ equity. The financial statements are 

accompanied by notes that explain the 

information presented in the financial 

statements.

U.S. companies are required to present 

their financial statements according to a 

set of accounting standards, conventions 

and rules known as Generally Accepted 

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Items in the Annual Report on Form 10-K

Accounting Principles, or GAAP. An 

independent accountant audits the 

company’s financial statements. For 

large companies, the independent accountant also reports on a company’s 

internal controls over financial reporting. 

The auditor’s report is a key part of 

the 10-K. Most audit reports express 

an “unqualified opinion” that the 

financial statements fairly present the 

company’s financial position in conformity with GAAP. If, however, an 

auditor expresses a “qualified opinion” 

or a “disclaimer of opinion,” investors 

should look carefully at what kept the 

auditor from expressing an unqualified 

opinion. Likewise, investors should 

carefully evaluate material weaknesses 

disclosed on internal controls over 

financial reporting. 

In addition, the Sarbanes-Oxley Act 

of 2002 requires the company’s CEO 

and CFO to certify that the 10-K is 

both accurate and complete. These are 

called Sections 302 and 906 certifications, and you can usually find them in 

Exhibits 31 and 32.

You may also find “non-GAAP financial measures” in the 10-K. That 

means that the numbers do NOT 

conform to GAAP. While companies 

are permitted to present non-GAAP 

measures, they must also show how 

they differ from the most comparable 

corresponding GAAP financial measure. As an investor, it is up to you to 

decide how much weight to give to 

non-GAAP measures. 

Item 9 “Changes in and Disagreements with 

Accountants on Accounting and Financial Disclosure” requires a company, 

if there has been a change in its accountants, to discuss any disagreements 

it had with those accountants. Many 

investors view this disclosure as a red 

flag. 

Item 9A “Controls and Procedures” includes 

information about the company’s disclosure controls and procedures and its 

internal control over financial reporting.

Item 9B “Other Information” includes any 

information that was required to be 

reported on a different form during 

the fourth quarter of the year covered 

by the 10-K, but was not yet reported.

Part III

These items cover the following topics. 

Item 10 “Directors, Executive Officers 

and Corporate Governance” 

requires information about the 

background and experience 

of the company’s directors and 

executive officers, the company’s code of ethics, and certain 

qualifications for directors and 

committees of the board of 

directors.

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Investor Assistance (800) 732-0330 www.investor.gov
Items in the Annual Report on Form 10-K

Item 11 “Executive Compensation” includes detailed disclosure about 

the company’s compensation 

policies and programs and how 

much compensation was paid 

to the top executive officers of 

the company in the past year.

Item 12 “Security Ownership of Certain 

Beneficial Owners and Management and Related Stockholder 

Matters” requires information 

about the shares owned by the 

company’s directors, officers 

and certain large shareholders, 

and about shares covered by 

equity compensation plans.

Item 13 “Certain Relationships and Related Transactions, and Director 

Independence” includes information about relationships and 

transactions between the company and its directors, officers 

and their family members. It 

also includes information about 

whether each director of the 

company is independent.

Item 14 “Principal Accountant Fees and 

Services” requires companies to 

disclose the fees they paid to 

their accounting firm for various types of services during the 

year.

Although these disclosures are required by the 10-K, 

most companies meet this requirement by providing 

the information in a separate document called the 

proxy statement, which companies provide to their 

shareholders in connection with annual meetings. If 

the information is provided through the proxy statement, the 10-K would include a statement from the 

company that it is incorporating the information from 

the proxy statement by reference – in effect directing 

readers to go to the proxy statement document to find 

this information. Keep in mind that the proxy statement is typically filed a month or two after the 10-K. 

Part IV

Item 15 “Exhibits, Financial Statement 

Schedules” requires a list of the 

financial statements and exhibits 

included as part of the Form 10-K. 

Many exhibits are required, including 

documents such as the company’s 

bylaws, copies of its material contracts, 

and a list of the company’s subsidiaries.

Investor Assistance (800) 732-0330 www.investor.gov

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Additional Resources

•	 For more information on the annual report to 

shareholders, please visit www.sec.gov/answers/

annrep.htm

•	 For information on how to find company proxy 

statements on the SEC’s EDGAR database, 

please visit www.sec.gov/answers/proxyhtf.htm

•	 For our “Researching Public Companies 

Through EDGAR: A Guide for Investors,” 

please visit www.sec.gov/investor/pubs/edgarguide.htm

•	 For the SEC General Instructions for Form 

10-K, please visit http://www.sec.gov/about/

forms/form10-k.pdf

•	 For more information on proxy statements, 

please visit the SEC’s Spotlight on Proxy 

Matters at http://www.sec.gov/spotlight/proxymatters.shtml

•	 For additional educational information for 

investors, see the SEC Office of Investor Education and Advocacy’s website for investors,

www.investor.gov.

The Office of Investor Education and Advocacy has 

provided this information as a service to investors. It 

is neither a legal interpretation nor a statement of 

SEC policy. If you have questions concerning the 

meaning or application of a particular law or rule, 

please consult with an attorney who specializes in 

securities law.

Investor Assistance (800) 732-0330 September 2011

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