Other critical matters

Companies report other important corporation matters that don't fall under the topic of financial results in Part II of the 10-Q. This section contains several possible items, but companies need to include only the items relevant to the particular quarter being reported. Following are the items in Part II:

✓ Item 1 — Legal proceedings: Events involving legal proceedings must be reported only during the quarter in which they first became material and in any future quarters when information related to material developments is available. Material developments are proceedings that may have a significant impact on a company's finances.

✓ Item 1A - Risk factors: This section reviews the risks disclosed related to a company's business, financial condition, and cash flows, as well as results of operations that may be materially adversely affected by any of these risks. The trading price of the company's common stock may decline due to these risks.

✓ Item 2 — Changes in securities and use of proceeds: Anytime a corporation makes changes to the rights of holders of its registered securities (stocks and bonds sold on the public markets), the changes must be reported. These changes include changes to working capital and restrictions and limitations on the payment of dividends.

✓ Item 3 — Defaults upon senior securities: If a company defaults on its payment of principal or interest on company debt and the default isn't cured within 30 days, the company must report it. The only type of default that doesn't need to be reported is one between a parent company and one of its subsidiaries.

✓ Item 4 — Submissions of matters to a vote of security holders: Anytime a company takes a vote of the shareholders during the quarter being reported, it must report the date and place of the meeting, as well as whether the meeting was annual or special. The company must give a brief description of all matters voted on at the meeting and also detail the votes cast for or against and report the number of abstentions and nonvoters. If the company elects directors at the meeting, it must list those elected, as well as those who remain on the board and their terms of office.

✓ Item 5 — Other information: This item is a catchall for any issue that hasn't been previously reported on Form 8-K but needs to be reported. I discuss the requirements of Form 8-K in a later section called "Uncovering the Ways Companies Keep in Compliance." A company doesn't have to file an 8-K for an issue reported on a 10-Q.

✓ Item 6 — Exhibits and reports on Form 8-K: Any compliance reports filed during the quarter must be attached as an exhibit (additional pages that provide this information) on the 10-Q.

Introducing the 10-K

Form 10-K is the official annual report form required by the SEC, and it's the report you're most likely to see as part of the glossy annual report that companies send out to investors. The 10-K includes four parts, which I discuss in this section.

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