How to Read and Understand a SEC Form 8-K as a Shareholder

Publicly reporting companies must fill in an SEC Form 8-K—also known as a “current report”—disclosing any major events of shareholder interest. These current reports are in addition to the obligatory quarterly (Form 10-Q) and annual (Form 10-K) reports.

Form 8-Ks must usually be filed within 4 days of any significant event that triggers the filing requirement.

How to easily read and understand a Form 8-K as a shareholder

All SEC Form 8-K disclosures are of a “material” nature, meaning that any reasonable investor should be interested in their contents.

All SEC Form 8-Ks can be found on the SEC’s EDGAR[1] database, which contains all of a publicly-traded company’s public filings.

Here are the most common categories of events that can be considered “material”:

Item 1.01 – Entry into a Material Definitive Agreement

This section is for any definitive agreement[2] that has not been made in the course of ordinary business.

1.02 – Termination of a Material Definitive Agreement

Any material agreements that have been terminated must be reported here.

1.03 – Bankruptcy or Receivership

If a court decides that a company is bankrupt, the company must fill in this section with its reorganization plan and the court’s confirmation of the plan.

2.01 – Completion of Acquisition or Disposition of Assets

If the acquisition or disposal of the assets is significant, the company must file a Form 8-K.

2.02 – Results of Operations and Financial Condition

Form 8-Ks typically summarize any quarterly or yearly filings.

2.03 – Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

Any material financial obligations must be reported. This includes long-term debt, capital leases, operating leases, or any short-term debt that is outside the course of ordinary business.

2.04 – Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement

This can include defaults on loans or any event that can accelerate a financial obligation.

2.05 – Costs Associated with Exit or Disposal Activities

Any restructuring that will bring about material charges must be reported here.

2.06 – Material Impairments

In accounting, impairments are also known as “write-downs”—the permanent reduction of an asset’s value to less than its carrying value. Such impairments are also reflected on the assets section of a balance sheet, and the expense section of an income statement.

These must be reported in a Form 8-K.

3.01 – Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing

If a company no longer meets listing[3] requirements—the minimum requirements to have one’s stocks listed on a stock exchange—it must report this on a Form 8-K. If it is given a grace period, then it must report any steps it plans on taking to avoid being delisted.

3.02 – Unregistered Sales of Equity Securities

If a company sells more than 1 percent of its outstanding shares in a private sale, it must disclose that in a Form 8-K. For smaller companies, it is 5 percent of outstanding shares.

3.03 – Material Modification to Rights of Security Holders

Any material change to shareholders’ rights must be disclosed. This material change could be a result of changing a company’s governing documents or through the issuance of a new class of shares.

4.01 – Changes in Registrant’s Certifying Accountant

If an independent auditor changes for any reason—resignation, declining to stand for reappointment, or dismissal—this must be disclosed. The reasons for the change must be examined thoroughly as this point can often be a point of concern.

Important points for investors to consider are:

• Did the previous auditor stick with GAAP when preparing financial reports?
• Did the company disagree with the auditor over any specific accounting principles?
• Did the auditor have any irresolvable conflicts with management over allegedly poor internal controls?
• Are there any other disagreements from the auditor that put doubts on the fiscal integrity of management?

Each of these points must be fully disclosed in section 4.01 of the Form 8-K.

4.02 – Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review

If the company or auditor believe that any previously released financial reports contained errors, or if they had any other reasons for doubting these reports, they must report this here.

This is a crucial point for investors to consider. Even if the doubt is disclosed here, it could take much longer before a restatement of the financial reports is made.

5.01 – Changes in Control of Registrant

Any change of control of the company must be reported. The new owners must be identified, as well as the percentage of voting securities they own.

5.02 – Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

The following events must be reported:

• Board member resignation
• Board member refusal to stand for re-election due to a disagreement with the company
• Removal by the board of a director for cause (policy violation)

All details of each change must be provided. If the director provides a letter, it must be included.

High-level executive officer changes—retiring, resignation, termination—must be disclosed.

New appointments must be disclosed.

Changes in compensation for existing high-level officers must also be disclosed.

5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

The following changes must be reported:

• Amendments to articles of incorporation
• Changes to bylaws
• Change in a company’s fiscal year

However, if these changes were announced in a proxy statement or information statement, then there is no need to announce it again in a Form 8-K. Investors should therefore always study proxy statements as well.

5.05 – Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics

Changes in a code of ethics that apply to the following positions must be reported:

• CEO
• CFO
• Chief Accounting Officer or Controller
• Any person performing similar functions

Code of ethics waivers should be looked upon as a red flag by investors!

Important Investor Note: If a company discloses this on its website, it does not have to file a Form 8-K. So investors should monitor the company’s website regularly as well.

5.07 – Submission of Matters to a Vote of Security Holders

Any matter voted on by shareholders at an annual or special meeting must be reported. Because Form 8-Ks must generally be filed within 4 days of the material event, sometimes companies must file preliminary results. In this case, the final results must also be reported in a Form 8-K once they are known.

7.01 – Regulation FD

Regulation FD—or “Fair Disclosure”—exists to ensure that any material information must be made known to the public at the same time that it is disclosed to others.

This section covers a broad spectrum of potential filings, including dividend announcements and sales figures.

8.01 – Other Events

If a company feels it has undergone a material event that is not covered elsewhere in the Form 8-K, this is the place to report it.

9.01 – Financial Statements and Exhibits

Under 9.01, companies must file financial transactions or exhibits relating to earlier items. For example, if a company reported earlier that it had entered into a material agreement, the agreement might be filed here as an exhibit. Similarly, financial statements relating to any earlier points would be filed here as well, such as the financial statements of any acquired companies.

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