Open the Costco 10-K. The first impression is that it's short. No photography, no value-creation wheels. The SEC's Form 10-K is a standardized questionnaire, and companies answer it item by item. That standardization is a gift, because once you know the item numbers you can navigate any US company blind. Learn them the way you learned your home address.
What are the Parts and Items of a Form 10-K?
The skeleton: four Parts, sixteen Items.
| Item | Name | What it's FOR | The analyst eventually extracts… | Judged in |
|---|---|---|---|---|
| Part I | ||||
| 1 | Business | What the company does, in its own words | Business model, segments, customers, competition, regulation — the raw material of question 1 | M4.01, M8.01–8.02 |
| 1A | Risk Factors | Legal self-protection: disclosed risks can't be "concealed" | The 3–5 specific risks buried among 30 generic ones; changes vs last year | M2.06, M8.01 |
| 1B | Unresolved Staff Comments | Discloses open SEC challenges to past filings | Almost always "None" — anything else is a genuine alarm | M2.06 |
| 1C | Cybersecurity | Risk management & governance for cyber (required since FY2023) | Process maturity; whether incidents are disclosed | context |
| 2 | Properties | Major physical assets | Owned vs leased footprint (Costco: warehouse counts by geography) | M5 sector work |
| 3 | Legal Proceedings | Material litigation | Cases big enough to matter; cross-check with contingencies note | M2.06 |
| 4 | Mine Safety | Statutory oddity | "Not applicable" for most; skip | — |
| Part II | ||||
| 5 | Market for the Stock | Exchange, holders, dividends, issuer share repurchases | The buyback table — how much stock the company bought and at what average price | M3.07 |
| 6 | [Reserved] | A fossil — "Selected Financial Data" was retired in 2021 | Nothing; the empty item confuses beginners, that's all | — |
| 7 | MD&A | Management explains results, liquidity, capital resources, critical accounting estimates | The why behind every big number move; the KPIs management itself watches (Costco: comparable sales, membership renewal rates); critical estimates = where judgment lives | M1.10, M2.05 |
| 7A | Market Risk | Sensitivity to rates, FX, commodities | Quantified exposure ranges | M7 context |
| 8 | Financial Statements & Supplementary Data | The audited core | Auditor's report (with CAMs), the four statements, ALL the notes | M1.02–M1.10, Phases 2–3 |
| 9 | Changes in/Disagreements with Accountants | Did the auditor change or fight? | Auditor exits mid-dispute are five-alarm signals | M2.06 |
| 9A | Controls & Procedures | SOX: management + auditor attest to internal controls | "Material weakness" language | M2.06 |
| 9B/9C | Other / Foreign inspections | Residual disclosures | Rarely material | — |
| Part III | ||||
| 10–14 | Directors, Exec Comp, Ownership, Related Transactions, Auditor Fees | A pointer, not content — "incorporated by reference" to the proxy | Everything here actually lives in the DEF 14A — see Section 5 | M3.07, M8.04 |
| Part IV | ||||
| 15 | Exhibits & Schedules | The document's appendix closet | Exhibit 21: full subsidiaries list; Exhibits 31/32: CEO & CFO personal certifications (SOX); material contracts | M1.09, M2.06 |
| 16 | Form 10-K Summary | Optional summary | Almost never used | — |
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How do you read a Form 10-K item by item?
Now walk it, filling Worksheet B as you go.
Item 1: Business. Costco explains itself in a few admirably plain pages. It runs membership warehouses, about 890 worldwide at FY2024's end and ~615 in the US (illustrative). It offers a deliberately limited selection (~4,000 SKUs vs a supermarket's 30,000+) at deliberately thin markups, sold to members who pay an annual fee for the privilege.
Read the item completely. It is the best business description you'll read this year. Notice that it hands you, in words, the KPIs the company runs on: membership counts, renewal rates, comparable sales. Where management points first is data.
Item 1A: Risk Factors. Twenty-odd pages of lawyer-reviewed worry. Two truths apply. (a) Most of it is boilerplate that appears in every retailer's filing ("we face intense competition"). (b) Buried inside are specific confessions found nowhere else, such as gasoline-driven traffic and geographic concentration. Another is reliance on a single co-branded credit-card partner.
Today, read and classify. Mark each risk G for generic, meaning any company could say it, or S for specific, meaning it names numbers or partners, geographies or mechanisms. Count both. That G/S intuition becomes a speed skill once the teardown is drilled.
Item 7: MD&A. This is the US analogue of India's MD&A, but more standardized. It covers results of operations (this year vs last, explained), liquidity and capital resources, and critical accounting estimates, where the numbers rest on judgment. You'll read that last part like a treasure map once you can read the statements. Costco's is mercifully readable, with comparable sales by geography. It also gives membership-fee income and renewal rates (~92–93% US/Canada; illustrative). Read it fully. Note the split of labour. The industry color an Indian MD&A carries appears in Item 1 here, and Item 7 stays close to the financials.
Item 8: the vault. It opens with the report of the independent registered public accounting firm. Costco's is KPMG, and the tenure line at the bottom, "auditor since 2002," is a PCAOB-required disclosure. The report includes Critical Audit Matters (CAMs), the US cousin of KAMs. Then come the statements.
Presentation differs from India's. Under SEC Regulation S-X you get a balance sheet for 2 year-ends, and an income statement/comprehensive income/equity/cash flows for 3 years. Then come the notes: policies, line-item detail, segments, commitments and contingencies. Find the two revenue lines, net sales and membership fees, and write both down. Worked Example 2 shows that those two lines explain the entire business.
Item 9A: Controls. Post-Enron, Sarbanes-Oxley makes the CEO and CFO personally certify the filing (Exhibits 31/32). It also requires management plus the auditor to attest to internal control over financial reporting. Learn this phrase: "material weakness". It is rare here and serious, as the forensics work will show.
Part III: the pointer trick. Items 10–14 contain almost nothing. Each says the content is "incorporated by reference" from the proxy, which is permitted if the proxy is filed within 120 days of year-end. First-time readers conclude US companies barely disclose governance and pay. They are wrong. It's all in the DEF 14A, and that is why you downloaded it.
Part IV: the closet. Skim the exhibit index. Exhibit 21 lists every subsidiary with its jurisdiction, the US cousin of AOC-1. Exhibits 31/32 are the certifications, and material contracts appear as the Exhibit 10-series. Analysts occasionally strike gold in exhibits. Today, just know the closet exists.
Which other SEC forms go with the 10-K?
The 10-K's siblings. You met these when markets were mapped, and now you can place them:
- 10-Q, the quarterly mini-10-K, unaudited
- 8-K, the event-driven current report (CEO exits, acquisitions, auditor changes)
- DEF 14A, the proxy
- Forms 3/4/5, insider trades
- 13F, institutions' quarterly holdings
- S-1, the IPO document
- 20-F, the annual filing of foreign private issuers
Infosys files one for its NYSE listing. So one company produces an Indian AR and an SEC annual filing, a bridge between your two worlds.