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Mining your prospective client's 10k for biz-dev jewels.

In today's competitive market, it is more important than ever to know a client's business, and business development professionals expend a significant amount of resources getting to know the client. They gain valuable knowledge from news articles, Hoovers, analysts' reports and other sources, yet one of the richest, cheapest and most often overlooked sources is the client itself.

Public companies are required by the U.S. Securities and Exchange Commission to provide information to the public. There are dozens of types of mandatory SEC filings, such as those for making acquisitions or offering stock options, and they often run into the hundreds of pages. Searching for the right information can be daunting. Fortunately, there are ways to find the right information--and ignore the irrelevant--in a company's annual filing, the 10K.

A 10K Primer

The SEC requires that all publicly held companies, along with some very large private entities, submit their financial information every quarter, in a 10Q form, and annually, in a 10K form. While companies produce a similar annual report that is sent to shareholders, the 10K differs in a few important respects. The annual report is the "glossy" version of the 10K. It usually includes a chairman's statement and provides more narrative on key changes in the company. The 10K, on the other hand, provides significant quantitative information and includes explanatory, rather than anecdotal, information.

A 10K has three main parts: Part I gives an overview of the company, Part II provides financial data and Part III details the company directors and executives. Additionally, there are numerous exhibits, such as contracts and a list of subsidiaries, that can be included as Part IV. When it comes to determining business development opportunities, the most informative parts of the 10K are Part I and Part II.

Business Description

In a 10K, Part I begins with a business description--a company biography. Within the business description are nuggets of information that can be gleaned to further business development efforts. These include business strategies, research and development budgets and regulatory issues.

The contents of the business description vary according to each company; this information is not mandatory, so the company can decide what to include and exclude. At a baseline, most companies provide a narrative that is segmented according to business lines or divisions. The more robust descriptions include information pertaining to strategy, products, markets and competition.

For example, in its 2007 10K filing, Abbott Labs provides a sub-section titled "Patents, Trademarks and Licenses." Patents important to each product line's profitability are discussed, as well as their expiration date.

Like many companies, Halliburton's 10K includes a business description with a sub-section titled "Business Strategy." The current strategy includes reducing costs, retaining top talent and operating ethically in a heavily regulated business climate.

According to its 2007 10K, Modine is currently seeking acquisitions, and specifies that it is interested in new products and potential acquisitions to strengthen its thermal management businesses. The business description also details the importance of exporting to its revenue streams.

Legal Proceedings

While it may sound enticing, the legal proceedings subsection is not a substantive source of business development information. It is not an exhaustive list of the company's litigation. Rather, the legal proceedings section includes only cases and matters that may have a material effect on earnings. They are "bet the company" issues, and management uses this space to update shareholders on the company's perspective. Unfortunately, outside legal counsel and costs are not usually provided. Sometimes this information will be included in the management's discussion (Item 7 of Part II) or in the notes to the financial statements.

Risk Factors

Risk factors are circumstances, usually outside a company's control, that have a material impact on earnings. Companies are not required to list them, but most do, so investors will better understand that some fluctuations in revenue and profitability are caused by external forces and are to be expected. In a 10K, risk factors are stated in broad terms; they are the umbrella under which specific legal needs arise.

While these are business, not legal risks, each itemized risk carries with it a host of legal issues. Law firms are risk managers, hired by clients to manage and mitigate the legal risks their businesses face on both a routine and one-off basis. As trusted advisors, attorneys must be aware of how business risks translate into legal risks. A company's risk factors can be viewed as the framework of many of its legal needs.

For example, Dell lists the following as a risk factor in its fiscal year 2008 10K: "Infrastructure failures and breaches in data security could harm our business." The company goes on to list possible causes of an infrastructure failure and/or breach, including a "computer virus, intentional disruption by a third party, natural disaster, manufacturing failure or telephone system failure. "These translate into dozens of legal issues, such as liability issues related to stolen customer data, government regulations concerning e-commerce and failure to perform under a contract.

There are several ways to obtain a 10K form. The easiest method is to go to a company's Web site. The form, or a link to it on the SEC Web site, can usually be found in the Investor Relations section, under a link titled "SEC Filings" or "Financial Data." You can also go directly to and search for the form, or use one of the many subscription services on the market. The most efficient way to obtain 10K forms, especially if you need several quickly, is to hire an independent researcher. Some can pull a 10K in less than hour for $25 [see sidebar "Obtaining 10K Filings ... Affordably."]

Obtaining 10K Filings ... Affordably

10K filings are public information and are available for free. But they are also large documents, and it may make sense to hire a third party to research them.

* Markus Research Services LLC

Markus Research Services LLC is an independent research consultant firm. They will pull 10K filings for $25. They will also analyze the filings per client requests at an hourly rate.

* Company Web Sites

10Ks, or a link to them, can be found on a company's Web site. Usually these are in the investor relations section. Do not confuse the 10K with the annual report--there are some important distinctions between the two.

* Edgar

The SEC maintains a searchable database called Edgar. Company filings can be found by searching for the company name, ticker symbol or central index key. Results are only available in html or text files, and often the formatting is problematic.

Shannon Sankstone is marketing research analyst at Quarles & Brady. She can be reached at
COPYRIGHT 2008 Legal Marketing Association
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Author:Sankstone, Shannon
Publication:Strategies: The Journal of Legal Marketing
Geographic Code:1USA
Date:Jul 1, 2008
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