Public companies are required to file three major reports annually with the U.S. Securities and Exchange Commission (SEC): the Annual Report to Shareholders, the 10K Report, and the Proxy Statement. Additional reports are required under particular circumstances but are not discussed here. What constitutes a "public" company is often unclear; generally, companies that sell stock to the general public on the open market may be considered public, however there are many gray areas. Subsidiaries of publicly held companies are not required to file separate disclosure statements; the bigger the parent company the more difficult it is to research a single component of it's operations.

EDGAR SEC Filings and Forms, with a tutorial, is available at http://www.sec.gov/edgar.shtml or http://www.sec.gov/edgar/searchedgar/webusers.htm.

This glossy report, mailed each year to every stockholder, is the best-known disclosure document. It usually contain lots of photos, graphics [often only available in the print format], and narrative, in addition to financial information. The Annual Report is the least complex of the SEC reports and provides a good overview of the company along with audited financial information.

HIGHLIGHTS: often include charts and other graphics presenting basic information including sales and income.

REPORT OR REVIEW OF OPERATIONS: consists of pictures and narrative; this section is frequently slick and public relations-oriented.

FINANCIAL STATEMENTS:

**Report of Independent Auditors: signed statement of an independent CPA attesting to the financial contents. This is sometimes located at the end of the section.

**Consolidated Financial Statements (also called the Statement of Financial Condition):

1. BALANCE SHEETS: typically provide two years of data; shows what a firm is worth.

2. INCOME STATEMENTS: show the results of operations over a 12 month period; measures the earning power of the company; shows what the company has earned.

3. SHAREHOLDERS' EQUITY: shows how the company's capital structure changes from one year to the next, including new issues of stocks and stock buy-backs.

4. STATEMENT OF CASH-FLOWS: shows where the company's year-end cash balance came from; it links one year's balance sheet to the next by showing how cash was generated and used.

NOTES TO FINANCIAL STATEMENTS: sometimes lengthy, these are an important part of the report because they clarify important information not evident from the numbers. Examples of types of information include changes in accounting procedures, pending lawsuits, long-term debt, and extraordinary income.

SUPPLEMENTAL FINANCIAL DATA: segment data, which provides key figures by line of business; note that companies have considerable latitude in how they define segments. Other supplemental information includes quarterly data and financial highlights.

MANAGEMENT DISCUSSION & ANALYSIS: this narrative presentation is one of the most important and informative sections. It presents management's candid comments on results of operations, capital resources, and liquidity. Companies are required to address all material developments affecting these three areas, whether favorably or unfavorably, including the effects of inflation.

The official notice sent to all stockholders prior to the firm's annual meeting contains background on all matters to be voted on at the meeting. Information is prepared by the company, but shareholders' proposals must also be included. This is usually the official source on ownership & management of a company. Biographical information for all directors is provided, together with data on their ages, salaries, benefits, and stock ownership. Briefer data is given for chief executives. A total figure for salaries paid to all executives, and a summary of stock ownership of major stockholders can also be found here. Proxy Statements are also primary documents for background on proposed mergers.

This is the principal financial document public companies must file; it follows a standard format mandated by the SEC. The Annual Report, the 10K, and the Proxy Statement should be used together because as of 1980 the government began to require much more information to be disclosed in the various reports. To offset this burden, companies are permitted to reprint entire sections of one report in the other, instead of listing the same information twice. In other words, what is found in the 10K report for one firm may be incorporated in the proxy or annual report for another. The 10K Report is updated quarterly by the 10Q.

PART 1

1. BUSINESS: principal products & services, markets, distribution channels, competitive factors, backlogs, availability of raw materials, patents & licenses, franchises, cost of research, number of employes, and effects of compliance with environmental law are all discussed here. Financial statements including sales and net income may also be included.

2. PROPERTIES: location and character of plants & properties.

3. LEGAL PROCEEDINGS: any legal proceedings pending are required to be disclosed.

4. MATTERS TO A VOTE OF SECURITY HOLDERS: report of any shareholder's meetings.