Donald W. Reynolds National Center For Business Journalism

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Finding stories in financial filing footnotes

January 23, 2018

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The footnotes in public companies' SEC filings are full of great leads for business journalists. (Wall Street Subway Station image by Michael Daddino via Flickr, CC BY 2.0)
The footnotes in public companies’ SEC filings are full of great story leads for business journalists. (Wall Street Subway Station image by Michael Daddino via Flickr, CC BY 2.0)

As a business journalist, you know that the public financial filings of corporations are vital to your reporting. And you’re aware of the importance of digging through the footnotes in those documents. The material available is astounding:

• Details of how voting rights are allotted to shareholders

• Assumptions made in how pension payments are calculated to be large enough for future obligations

• Specifics of executive compensation that might be missed in the tables

• The twists and turns of legal wrangling

Footnotes are also the place where corporations often stash information they are forced to disclose by statute or regulation, but which they’d rather see fade quickly from consciousness. Here are a few examples that show the sorts of things you can learn and report on.

Who holds the power

People who closely follow corporate governance, high-tech IPOs, or Google and its parent, Alphabet, are likely familiar with that company’s unusual voting setup: Investors have little to no voice.

The specifics lie in a footnote. Turn to page 31 in a recent proxy statement, read the section, Common Stock Ownership of Certain Beneficial Owners and Management, and you see that co-founders Larry Page, currently CEO, and Sergey Brin hold 51.1 percent of all voting power between them. They hold tiny amounts of Class A common stock. Instead, they are heavily vested in Class B shares, owning 83.6 percent in total.

Footnote 1 explains that Class B shares get 10 votes, while Class A shares have 1 vote. The deck is stacked to allow Page and Brin dictate what the company will do.

How much directors are paid

Snap Inc., owner of social chatting system Snapchat, was under fire in February for paying its sole female board director far less than her male counterparts. The figures came from its SEC S-1 filing for the then-upcoming IPO. The next week came an amended S-1. As the New York Times explained, a footnote in the document said that a new four-year contract signed the previous month awarded more stock:

In the amended prospectus on Thursday, Snap disclosed the 2017 compensation for Ms. Coles, who, in her day job, is the chief content editor for Hearst Magazines. The filing is intended to refute the notion that Ms. Coles was earning less—primarily through differences in the size of stock grants—than the other nonfounder directors, who are all men.

You might ask why an agreement signed the previous month wasn’t addressed in the original S-1. That could be another story.

Where overhead is hiding

A recent piece in the Financial Times looked at whether the combination of e-commerce, robotics and artificial intelligence in the retail world, nicknamed the “Amazonification” of the economy, was as pervasive as one might think.

The analysis includes a look at Amazon’s recent financials and its claim of $7.7 billion outstanding long-term debt. But journalist Izabella Kaminska looked to “other long-term liabilities” of $16.4 billion, including, as a footnote shows, $6.9 billion in “capital lease obligations.” She found part of the company’s overhead that might not be clear if she hadn’t dug deeply into the footnotes.

It’s always worth taking that extra step. At the very least, you’ll have a better knowledge of a company you follow. At best, you may just find a great story.

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