The following is an alphabetical list of all of the footnotes that may appear in the Accounting Notes section of the Financial Statements 1 screen of the Stock Detail. A brief description and the source of the information are listed below each footnote.
Acquisition of Assets
Source is a press release or the papers. This footnote is used when Purchase method is used and NOT used when the transaction is a "merger of equals" (the "Merger Pending footnote is used in such cases). Rather it is used when one company is clearly the acquirer and is larger than its target. Automatically deleted when next year's data is entered.
Actively Seeking to be Acquired
Source is press releases or company documents. A footnote in the 10-Q or 10-K may state this, although M* does not actively search for such footnotes.
Additional Stock Offering
Sources are news releases or Investors Business Daily. Manually entered, deleted when shares show up on 10-Q. Automatically deleted when new year's data is entered.
A Development Stage Company
Usually relates to biotechnology companies. Put in and taken out manually. Source is 10-K or 10-Q, which will state "development stage" right on the face of the financial statements.
Cash Dividends Increased
Source is WSJ dividend section. Footnote automatically deleted when quarter is advanced.
Cash Dividends Omitted
Source is WSJ dividend section. An "X" in the dividend overlay indicates that the company no longer is paying a dividend. Automatically deleted when the next quarter rolls.
Change in Accounting Method - Current Year
Source is company documents. Morningstar only uses this footnote when an adjustment is made on the income statement or balance sheet. The change would be more fully described in the company's footnotes.
Change of Control of Company
Sources are news releases or a proxy statement. Used when new entity takes control of 50% or more of the stock. Usually a new Board of Directors would result.
Chapter 11 Reorganization
Very important for NYSE and AMEX companies. Less important for NASDAQ because the fifth character of the ticker is a "Q", which means company is in Chapter 11. Source is balance sheet. Rather than long-term debt, it will say "Subject to Compromise", which Morningstar puts into other liabilities (NOT long-term debt, because there is no interest on it). Another source would be seeing it in the papers, or noticing it in footnotes. Take footnote out when company emerges from bankruptcy. We'll know from either a news story in the papers, or when the number of shares outstanding per the 10-K or 10-Q jumps, or from the balance sheet where "long-term debt" replaces "Subject to Compromise", so we'd look in notes and verify that company has emerged.
Common Stock Buy Back
Source is press release. Footnote would probably last only one or two quarters and would manually be taken out when a significant drop in shares outstanding occurs. Put in manually, automatically deleted when new year's data is entered, if not manually deleted before.
Company Uses Unclassified Balance Sheet
NOT used for financial institutions (SIC beginning with 6), but used for all others whenever they have unclassified balance sheets. Current assets and current liabilities are not completely broken down in such situations. Put in and taken out manually.
Converted From Foreign Currency
Very important for NYSE and AMEX. Tells the user that Morningstar is doing the currency translation (database contains native currency numbers which are converted). Less important for NASDAQ, because if the fifth ticker character is an F or a Y, it means that the company is foreign. Put in and taken out manually. For income statements, average exchange rates for the last 13 months. (includes beginning and ending months) of the fiscal year are taken. For balance sheets, the exchange rates as of the date of the balance sheet are taken.
CPA Enters Amended/Qualified Opinion on 10-K
Source is auditor's report in 10-K or annual report. Morningstar reviews that report if the company has sustained a large loss in the current year or if the company has had several years of losses in a row. Check to see whether auditor's report has a fourth paragraph, and if so, what it says.
Debt Redemption
Main source is press releases. Manually entered, manually deleted when shows up on balance sheet. Automatically deleted when new year's data is entered.
Disposition of Assets
Sources are press release or a company whose revenues go way down in preliminary earnings or 10-Q. Automatically deleted when next year's data is entered.
Dividends Reduced
Source is WSJ dividend section. Put new dividend in the next quarter. Footnote automatically deleted when quarter is advanced.
Earnings Includes Preferred Stock Requirements
Either the $ amount or % are listed in one of the following sources: 1) income statement 2) exhibits 3) shareholders equity statement 4) cash flow statement 5) footnotes.
Emerged from Chapter 11
Inserted when a company emerges from bankruptcy. Pre and post bankruptcy data may not be comparable. This is especially true if "fresh start" accounting adjustments are made - when the post bankruptcy assets and liabilities are adjusted to fair market value. This footnote to be deleted when all five years worth of data is on a post-bankruptcy basis.
Financial Data Filing Delayed
We would know about the delay after running our 'problems' report. Important for NYSE and AMEX, less important for NASDAQ which assigns the 5th ticker character E to such stocks. Manually entered but automatically deleted when next year's data is input.
Financial Statements are not reported in US GAPP
To be entered for foreign cos. and ADR's that report financial statements that are consistent with the accounting standards of their home country. Ex. Fiat
FYE Change – Extra months____
Used when more than 12 months are included in the period. Put in and taken out manually.
FYE Change - Partial Year ____
Used when fewer than 12 months are included in the period. Put in and taken out manually.
General & Limited Units in Shares Outstanding
A few partnerships do not break out general partners units from limited partner units. Put in and taken out manually.
In Default on Obligations
Sources are news releases and company referring to notes on its financial statements.
In Process of Liquidation
Very important. Will state liquidation right on the financial statements. Footnote is put in manually. We'll then watch for the ticker to be deleted from the exchange and make the company inactive when that occurs.
Interim Balance Sheet from prior quarter
Always shown as top footnote priority! Automatically added when a new quarter is entered and automatically deleted when equity is entered for that quarter.
Issuing New Preferred Stock
Triggered from review of WSJ. Deleted when the preferred stock shows up on the balance sheet, or automatically deleted when new year's data is entered.
Lawsuit Lost-Significant Damages
Source is news releases. Loss must be of a material amount. Ex. Exxon, Union Carbide
Long-Term Debt Includes All Obligations of Subsidiary
Used for operating (non-financial) companies which have financial (SIC beginning with 6) subsidiaries. In the database Morningstar puts all the obligations of the financial subsidiary into long-term debt, but since a portion of these obligations could be current, this footnote is required. Put in and taken out manually.
Major Irregularities Discovered
Source is news releases. Recent examples: Mercury Finance, Cendant
Merged in fiscal ____
Used when a pooling occurs. We store this information for at least two years. More important for banks, which often won't give restated revenue and total asset numbers for five years. "NA" the rest and add footnote.
Merger Pending
Used for "merger of equals" transactions. Generally used for pooling of interest transactions between companies of reasonably similar size.
Merger Terminated
Replaces Merger Pending footnote for failed transactions. Automatically deleted when next year's data is input.
New Debt Issued
Source is WSJ or news releases. Would only include if amount of offering is significant. Manually entered, automatically deleted when new year's data entered.
Proxy Contest for Control
Source is a proxy received which describes the contest for control.
Very rare. Mainly used with debt-for-equity type transactions, which we'd learn about via press release or the papers.
Redemption of Preferred
Source is mainly company press release or if noticed in the paper. Manually entered, manually deleted if preferred disappears on the 10-Q, automatically deleted when new year's data is entered.
Reported EPS in conformance with FASB 128
As of January 1998, all EPS numbers collected by Morningstar are Diluted EPS (as per FASB 128). Diluted EPS is calculated by dividing operating income(plus convertible-preferred dividends and after-tax amount of interest recognized in the period, associated with any convertible debt) by the sum of the weighted-average shares outstanding, and any additional common shares that would have been outstanding if the dilutive potential common shares had been issued. In the past, Morningstar has used Primary EPS on a consistent basis.
Restatement of Prior Years' Financials
Often discovered when the 10-Q's previous year-end balance sheet does not agree with last year's 10-K balance sheet. If restatement has occurred, enter footnote then wait for next 10-K. Restate the appropriate numbers from the new 10-K and the footnote is deleted automatically.
Revenues include interest or other income
Used when a portion of the total revenues are clearly labeled as "other" or "interest income" (for non-manufacturing companies). Returns and allowances, freight out, and excise taxes that might have been included with the revenues are not to be considered "other" income and are excluded.
Significant 10K-A Filed
Very important. Used only when company changes its financials. We would see the 10K-A on Edgar. We would restate the numbers and manually add the footnote, which is automatically deleted when the next year's financials are entered.
Special distribution in the most recent FYE
Source is WSJ, ComStock, a division of Interactive Data Corporation. and financial documents. Should be inserted whenever a company pays a special one-time dividend, which is generally much higher than the regular cash dividend. It could be for one of the following reasons:
Discontinuing operations
In process of liquidation
Company wants to get rid of extra cash, etc…
Stock is Paired - Combined Data Given
Two separate companies file separately with the SEC, but both show a "combined" set of financials in their reports. Currently one company has this Starwood Lodging Trust and Starwood Loding Corp. There is one stock, one ticker, one price, so only the one company appears in the product. Put in and taken out manually.
Stock Split/Dividend Announced
Source is WSJ. Footnote put in manually, and internal footnote added which shows the amount of the split. When split is performed, this footnote is automatically deleted and the Stock Split/Dividend – Per Share Data Adjusted footnote is automatically added.
Stock Split/Dividend - Per Share Data Adjusted
This footnote is automatically put in when a split is performed. It can also be manually entered when a prospectus indicates that the company had been a NASDAQ small cap stock, then split, then entered our universe. Automatically deleted when next year's data is entered.
Subsidiary Spinoff
Sources are 10-K, 10-Q, press releases and the WSJ dividends section for stock dividends.
Suspending Payments on Obligations
Source is news releases. Company discloses for the first time that it won't be meeting its obligations.
Tax status changed from S to C corporation
Subchapter S of the Internal Revenue Code gives a corporation that 35 or fewer shareholders and meets certain other requirements the option of being taxed as if it were a partnership. Chapter S companies can distribute their income directly to shareholders and avoid corporate incmoe taxes. When a small companies goes public (and increases the number of shareholders), its tax status changes from S to C corporation.
Tender Offer Made for Company
Source is usually news releases.
Unsolicited Offer Rejected
Used when company president or board says "no" to an unsolicited acquisition offer.
US IPO in calendar ____
Rank at the bottom of footnotes when more that two exist. Put in for all IPO's. Put in and taken out manually.