10-K Tip of the Week – Annual Report to Shareholders vs Form 10-K

In sort of a lighthearted way this week’s Tip is a “versus” tip. With big boxing matches coming up next week, or perhaps just remembering old movies with aliens and monsters, the issue of how the Form 10-K works versus how the Annual Report to Shareholders (ARS) works seems appropriate.

This question frequently comes up in our workshops, and many folks don’t know whether or not the ARS is actually required or where to find the ARS requirements. The ARS is actually a very distinct and separate document from the Form 10-K.

The Form 10-K is the Annual Report to the SEC. It is required by the rules of the SEC and is filed with the SEC. As such, it is not a document furnished directly to shareholders, although they clearly have an opportunity to use the information as it is publicly accessible.

The ARS is actually required by the proxy rules. Rule 14a-3, which deals with information that must be furnished to shareholders in the proxy solicitation process says:

“(b) If the solicitation is made on behalf of the registrant, other than an investment company registered under the Investment Company Act of 1940, and relates to an annual (or special meeting in lieu of the annual) meeting of security holders, or written consent in lieu of such meeting, at which directors are to be elected, each proxy statement furnished pursuant to paragraph (a) of this section shall be accompanied or preceded by an annual report to security holders …….”

When a company is having its annual meeting and will elect directors at this meeting, it must furnish each shareholder with the proxy statement containing information about the election and officers and directors, and also must furnish each shareholder the ARS.

The next logical question is what must be included in the ARS? Rule 14a-3 enumerates the requirements and they include, among lots of other information:

Financial statements
MD&A
Selected financial data

“a brief description of the business done by the registrant and its subsidiaries during the most recent fiscal year which will, in the opinion of management, indicate the general nature and scope of the business of the registrant and its subsidiaries”

For a complete list of all the required information in the ARS check out Rule 14a-3. It is on page 890 of our 2015 SEC Handbook and you can also find it here:

www.ecfr.gov/cgi-bin/text-idx?SID=8e0ed509ccc65e983f9eca72ceb26753&node=17:4.0.1.1.1&rgn=div5#se17.4.240_114a_63

Way back many years ago most companies did a separate ARS which was mailed in paper form to all shareholders along with the proxy statement. To see an example of this kind of traditional ARS check out this one from American Woodmark, a cabinet manufacturer:

files.shareholder.com/downloads/AMWD/107569654x0x673718/998BA1D0-743B-4BEC-A32F-8B7197D3B622/LowRes-13-10246_AWC-2013.pdf

The above link is to the ARS American Woodmark prepared for 2013, and it has wonderful photography and nicely typeset financial statements and MD&A. It is almost elegant in its presentation of information about the company. It is also a very expensive document to produce!

Because this kind of ARS is so expensive, many companies use a more cost effective ARS called the “10-K wrap”. This version of the ARS is actually a cover and perhaps a few pages of financial and company background “wrapped” around the Form 10-K. This approach works well because all the information required by rule 14a-3 that must be furnished to shareholders is in the Form 10-K.

American Woodmark switched to the 10-K wrap approach in 2014. You can find their 2014 ARS at:

files.shareholder.com/downloads/AMWD/107569654x0x766550/DAD863ED-7D03-468B-BCCE-E5117F2C1E43/LowRes-14-10531-FSC_AWC-FinalPDF.pdf

It would be interesting to know how much money American Woodmark saved going from the “pretty picture” ARS to the “10-K wrap” ARS!

To summarize, the Form 10-K is the formal annual report filed with the SEC as part of complying with the 34 Act, while the ARS is not filed with the SEC, it is actually furnished to shareholders.

(The proxy rules do require that copies of the ARS be sent to the SEC, one of the few paper filings companies still have to make.)

Lastly, if you are focusing on the words filed versus furnished in the above sentence, yes, they are very important and mean very different things! We will discuss that difference in our next post!

As always, your comments and thoughts are welcome and appreciated!

3 thoughts on “10-K Tip of the Week – Annual Report to Shareholders vs Form 10-K

  1. Great Post George!! Just in time as we just filed our Proxy Statement on the last possible day for 12/31 year end companies. You mentioned the ARS is still one of the paper copies companies must submit. 7 copies must be sent to the SEC, but they also put the ARS filing type on EDGAR. Can companies furnish the ARS directly via Definitive Additional Materials vs. sending paper copies?

  2. Hi Bill! The proxy rules actually require this paper submission for the furnished ARS. Kind of an anachronism, but check out rule 14a-3 (c):

    (c) Seven copies of the report sent to security holders pursuant to this rule shall be mailed to the Commission, solely for its information, not later than the date on which such report is first sent or given to security holders or the date on which preliminary copies, or definitive copies, if preliminary filing was not required, of solicitation material are filed with the Commission pursuant to Rule 14a-6, whichever date is later. The report is not deemed to be “soliciting material” or to be “filed” with the Commission or subject to this regulation otherwise than as provided in this Rule, or to the liabilities of section 18 of the Act, except to the extent that the registrant specifically requests that it be treated as a part of the proxy soliciting material or incorporates it in the proxy statement or other filed report by reference.

    Pretty Old School!

  3. OK mailed them their seven copies… Is it true someone at the SEC used to scan the Glossy Annual Report so it was seen on EDGAR? See this press release: http://www.sec.gov/corpfin/announcement/cfannouncement-annual-reports-security-holders-website.html#.U1lZ48ovk5W/. Why not just have Registrants post the PDF. We can do that now. The SEC needs to speed up that Disclosure Effectiveness project and revamp Regulation S-K, S-X, 14A, etc… to be more current with today.

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