Journalists Can Find Story Idea Gold Mines in SEC Filings

Can there actually be an upside to the business and accounting scandals that have dominated headlines over the past few years? For business journalists -- even those who have never written about Enron or Tyco or WorldCom -- the answer is a resounding yes.

Publicly traded companies, in their zeal to prove that they're not another poster child for bad corporate behavior, are now packing their routine Securities and Exchange Commission filings with all sorts of interesting details. It's their way of saying: Look how honest we are! The irony is that many of these disclosures often reveal the same sort of self-dealing that was rampant (but not as readily apparent) before the scandals became front-page news.

For business journalists, these detail-rich filings can be a gold mine for story ideas. While this does require a bit of digging, once you know where to look, the stories will virtually write themselves. Even better, because reading these filings is still pretty rare, even among investors who own the stock, business journalists have a real opportunity to provide a valuable public service to their readers.

So what types of stories can you find? Here are a few examples of things I've uncovered for my daily blog, www.footnoted.org, which looks at some of the things companies try to hide in their routine SEC filings:

•  The former Stanley Works chairman and CEO, who resigned at the end of last year, will receive $243,750 a month through December 2005 under his consulting and retirement agreement. After that, it drops to a paltry $113,742 a month. He'll also receive company-paid health insurance, as well as office space and secretarial help. This is the same CEO who tried to move the company to Bermuda in order to save money on corporate taxes.

•  When Cincinnati-based Roto-Rooter acquired Vitas, a Ft. Lauderdale-based for-profit hospice chain earlier this year, it inked a 7-year $25 million consulting contract with Vitas' CEO.

•  Ikon Office Solutions, which expanded its board of directors from eight members to 12 last year, added one director who is under formal investigation by the SEC for insider trading at the company where he works as the chief financial officer.

•  Hovnanian Enterprises, the large residential real estate company, revealed plans to purchase nearly $60 million in land from companies owned by relatives of its top management.

•  Gannett, a company many journalists know well because it provides their regular paycheck, has agreed to pay its former chief financial officer $600,000 a year under a consulting contract that requires him to work part-time and that automatically renews every July.

Needless to say, companies aren't putting out press releases on these types of deals. Instead, they're burying them in the fine print in their SEC filings. Just think of reading one of these thick documents as a type of treasure hunt. But instead of some silly prize, the payoff will be in providing your readers with information they're unlikely to find anywhere else.

To find these sorts of things for a company that you cover, head straight for the 10-K, the annual report that is filed with the SEC. Because it follows a specific format, it is relatively easy to apply these skills to all of the publicly traded companies in your coverage area. For example, the lucrative retirement packages and consulting agreements are always buried at the very end of the 10-K, in the exhibits section of the filing and always start with the number 10 (or X). Other important places to mine for information include Item 3 (Legal Proceedings), Item 7 (Management's Discussion and Analysis) and Item 8 (Financial Statements and Supplementary Data), which contains the all-important footnotes, detailed information that gives you the story behind the company's numbers. The 10-Q, which is the quarterly SEC filing, isn't as highly formatted, but is still worth getting into the habit of skimming.

In the proxy statement, a document that many business journalists are already familiar with because it contains the juicy pay and bonus information, look at the section called "Related Party Transactions," or sometimes "Certain Transactions," to get a sense of whose relatives are the beneficiaries of corporate largesse. There's more information about reading SEC filings here: www.footnoted.org/how_to.html.

Once you find something interesting, all you really have to do is add some perspective and call the company for a comment. Do the SEC filings reveal that the CEO received a huge bonus even though the company laid off hundreds of local workers? Do they show that former executives and board members are getting lucrative consulting contracts even though the stock has been tanking? Is the company diluting shareholder value by giving away too much of its stock to its top executives and directors?

Your readers deserve to know. You can help them. So pull out your reading glasses, get a fresh cup of coffee and start diving into that sea of black ink.

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism