Friday, February 17, 2012

Netflix and how last minute filings can bite you

Filings, like any other piece of finished work, have a tendency to go to the last minute but in the case of your 10-K it's a mistake to let that happen.

Case in point - Netflix last week. They filed their 10-K just 36 seconds before the Friday night SEC deadline and so Michelle Leder - the author of the footnoted.org blog - went digging for dirt. She has an assumption, often proven to be correct, that last minute filings are last minute precisely because they are contentious in some way. She calls them the "Friday night dump".

In this case the gem she found was Netflix' stated need to "“repair the damage to our brand”. Ouch. From a fantastic, positive, much-loved brand to having to file that their business results may be negatively impacted from their self-inflicted wounds. And it's an unusual risk that Michelle was not able to find in any other 10-K's

You can see the web spikes caused by Netflix' fateful decision to split their service and dump DVDs - and then reverse the decision - below. What a PR nightmare.

Of course, the gem Michelle found was in the Risk Factors section of the 10-K - and this section is written by their lawyers as a CYA against shareholder lawsuits. But the addition of new risks usually gives you insight into what senior management is worrying about (or being told to worry about by their outside council).

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