The Secret Life of 10-K Risk Factors
This is a guest blog post from Nick Mazing, Director of Research for Sentieo, a Workiva partner that provides a financial and corporate research platform.
Do the "Risk Factors" that appear in companies' quarterly and annual SEC filings have lives of their own? Do they roam around EDGAR and settle in different companies' 10-Ks? You bet they do. Here are some examples I've come across.
After the U.S. Department of Justice proposed revising Section 230 (which I'll broadly describe as an immunity provision for internet platforms), my team at Sentieo looked at the related risk factor disclosures at Facebook. In their last 10-K for fiscal 2019, Facebook noted "there have been various Congressional efforts to restrict the scope of the protections available to online platforms under Section 230."
On a whim, we decided to use the AI-powered search capabilities of the Sentieo platform to quickly look for this exact sentence across all risk factors from all 10-K filers. Here is what we saw:
- This sentence first appeared in Facebook’s fiscal 2017 10-K "Risk Factors"
- By the time the most recent 10-Ks came in, this exact sentence was in the "Risk Factors" of not just Facebook but also Snap, Pinterest, and Etsy
- Searching across the entire 10-K (not just the "Risk Factors" section), we also saw the sentence used by Yelp
Not the time to be a unique snowflake
To be sure, “the secret life” of risk factors is not just limited to very specific instances like Section 230. We were reading the 10-K Risk Factors of global snacking giant Mondelez when we came across the following general language: "In addition, our success in maintaining and enhancing our brand image depends on our ability to anticipate change and adapt to a rapidly changing marketing and media environment.”
Searching across all filers’ 10-K Risk Factors, we tracked the journey of this sentence:
- It was first used by Mondelez in their FY 2017 10-K, and then in every year since
- It was then adopted by BellRing Brands, the parent of Premier Protein and PowerBar, in their inaugural 10-K, filed for their FY 2019
“The secret life” of risk factors is also not limited just to the industries where they first appear, especially when there are emerging threats, as we saw earlier this year with the emergence of COVID-19 in 10-K Risk Factors.
In their February 2020 10-K, United Airlines stated, “An outbreak of disease or similar public health threat, such as the coronavirus, could have a material adverse impact on the Company's business, operating results and financial condition.”
A filer in the industrials space, Fuel Tech, filed their 10-K in early March, stating that, you guessed it, “An outbreak of disease or similar public health threat, such as the coronavirus, could have a material adverse impact on the Company's business, operating results and financial condition.”
No one wants to be an outlier with SEC disclosures. Taking a minute to research the risks peers have identified and how they're addressing them can provide a valuable benchmark and give you more confidence in your narrative as you prepare your next 10-K.
Sentieo is a Workiva partner. To see how you can use Sentieo to quickly research peers' filings and disclosures, request a demo.
About the Author
Nick Mazing is Director of Research for Sentieo, a financial and corporate research platform for executives, investment analysts, and researchers. His career also includes having worked on both the buy side and on the sell side at Lehman Brothers. He holds an MBA from Columbia Business School and is based in Sentieo’s New York City office.