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Strategic Business/Financial Communications Review

Strategic Business/Financial Communications Review. Kevin M. Brett J410 May 23, 2013. America’s New Investor Class. 54 percent of Americans own stocks, mutual funds and bonds; 73 percent college graduates; 83 percent post grads Internet Trading Tools; IRAs, 401Ks;

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Strategic Business/Financial Communications Review

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  1. Strategic Business/Financial Communications Review Kevin M. Brett J410 May 23, 2013

  2. America’s New Investor Class • 54 percent of Americans own stocks, mutual funds and bonds; 73 percent college graduates; 83 percent post grads • Internet Trading Tools; IRAs, 401Ks; • Longer life spans; higher health care costs; college tuition

  3. 24-Hour Financial News? • Wall Street Journal, Financial Times, Investor’s Business Daily • Fortune, Forbes, Business Week, Barron's • CNBC, Fox Business, Bloomberg TV • The “Money Honey” and “Mad Money” • AP, Dow Jones, Reuters, Bloomberg, TheStreet.com • Bloggers, Social Media and Chat rooms • PR Newswire, Business Wire, Internet Wire

  4. 24-Hour Global Markets • NYSE-NASDAQ; US • FTSE (“Footsie”) UK • DAX (Germany) • CAC-40 (France) • Nikkei (Japan) • Hang Seng (Hong Kong)

  5. Introducing the NYSE • NYSE – Founded 1817 • “The Big Board” • $14.2 trillion market cap • 2,304 listings • Venerable Companies • Ringing the Bell • Pounding the Gavel

  6. Introducing the NASDAQ • Founded in 1971 • “Electronic Exchange” • $4.45 trillion market cap • 2,784 listings

  7. SEC Disclosure Rules • Annual Report to Shareholders (10K) • Quarterly Earnings Reports (10Q) • Major Unplanned Announcements (8K) • Upside / Downside Guidance Variations • Mergers and Acquisitions • Restructurings • Annual Meeting of Shareholders • Prospectus for Planned IPO (S1) • Selling Additional Shares (S4)

  8. Asking the Obvious Question “…Sometimes the most obvious question really is the question. In Enron’s case: How do you make money?” – Bethany McLean, Fortune Magazine

  9. How Did ENE Make Money?

  10. How Does AMZN Make Money?

  11. How Does NKE Make Money?

  12. How Does JWN Make Money?

  13. How Does SBUX Make Money?

  14. Bull Market / Bear Market • Bull Market: Stocks Advancing (2010-2013) • Bear Market: Stocks Retreating (2007-2009) • Stocks are a Leading – Rather than a Trailing – Indicator • Market Hates FUD (Fear, Uncertainty, Doubt)

  15. How Do We Determine “Market Cap” or “Market Value?” • Why Do We Care?

  16. Quick Market Definitions • GAAP: Generally Accepted Accounting Principles • EPS: Earnings Per Share • IPO: Initial Public Offering • Market Capitalization: Share price x Number of Shares Outstanding = Value • SEC: Securities Exchange Commission

  17. What Does Wall Street Really Care About? • Top Line • Bottom Line • Gross Margin • Year-over-Year • Cash • EPS • Dividends

  18. Apple Q2 2013 Results • Revenues: $43.6 billion • Cost of Sales: $27.25 billion • Gross Margin: $16.34 billion • R&D: $1.11 billion • SG&A: $2.67 billion • Operating Income: $12.35 billion • Taxes: $3.35 billion • Net Income: $9.54 billion • EPS: $10.09 per share (946,035 Shares) • Cash Dividend: $2.65 per share

  19. How Do We Compute EPS? • Why is this metric important?

  20. Amazon Q4 2012 Balance Sheet • Cash/Short-Term: $8.08 billion • Accounts Receivable: $3.81 billion • Inventories: $6.03 billion • Current Assets: $21.29 billion • PPE: $7.06 billion • Total: $32.55 billion • Accounts Payable: $13.31 billion • Current Liabilities: $19.00 billion • Long-Term Debt: $3.08 billion • Total Liabilities: $24.06 billion • Equity (Stock): $8.19 billion • Total Liabilities/Equity: $32.55 billion • 500 million shares

  21. What is P/E Ratio What is the “Multiple” • Company Stock Price Divided by Earnings Per Share • How Many Times Earnings is the Stock Price? – The “Multiple” • $60 price/$2.50 EPS = 24 Multiple

  22. What is P/E Ratio? • Ratio Used by Investors to Examine Performance of a Company Stock • AAPL Share Price: $441.80 • AAPL EPS: $41.89* • AAPL P/E: 10.5x* • *TTL (Trailing Twelve Months)

  23. Institutional vs. Retail Investors • Buy Side: Major mutual funds (Fidelity, Janus, Putnam etc.); public employee retirement systems; “Institutional Investors” • Sell Side: Investment firms (JP Morgan, Morgan Stanley) • Retail Investors: Charles Schwab, TD Waterhouse, E-Trade

  24. Doing Well vs. Doing Good Fiduciary Responsibility Corporate Social Responsibility Multiple Stakeholders Giving Back Heightened Trust Benefit of the Doubt Creative Capitalism Counter to NGOs No “Greenwashing” No “Pinkwashing” • ERISA Mandate • Investors Expect Returns • Employees Expect Returns • Need to Stay in Business • Board Oversight • Potential Securities Litigation

  25. Sarbanes-Oxley Act 2002 ● Public Company Accounting Oversight Board (PCAOB) ● Auditor Independence ● CEO and CFO Certification of Results ● Criminal Offenses for Fraud/Records Tampering

  26. SEC Fair Disclosure • Regulation FD provides that when a company discloses “material” nonpublic information to certain individuals or entities — such as stock analysts or shareholders — the company must make public disclosure of that information. In this way, the new rule aims to promote the full-and-fair disclosure. • (Media Exempted)

  27. GAAP vs. Pro Forma • GAAP Greater or Equal Prominence to Pro Forma – SEC Reg. G • GAAP: Generally Accepted Accounting Principles • Pro Forma, Non-GAAP or Earnings Before Special Items • Pro Forma: “For The Sake of Form” • Pro Forma: Results from Continuing Operations

  28. GAAP: Q1 Income StatementMallard.com (DUCK: NASDAQ) • Revenues: $2 million • COGS: $1 million • Gross Margin: $1 million • SG&A: $250,000 • R&D: $250,000 • Amortization: $1 million • Operating Margin: ($500,000) • Taxes: $200,000 • Net Loss: ($700,000)

  29. Pro Forma: Q1 Income StatementMallard.com (DUCK: NASDAQ) • Revenues: $2 million • COGS: $1 million • Gross Margin: $1 million • SG&A: $250,000 • R&D: $250,000 • Operating Margin: $500,000 • Taxes: $200,000 • Net Income (Loss): $300,000

  30. Common Questions on Deals • Size of Deal? • Financing? $20.1 billion? • How many are going to be laid off? • Is the deal accretive or dilutive to EPS? • Is there any product or customer overlap? • How will you integrate the two companies? • Anti-Trust Issues? • Will you report the deal on a Pro Forma basis?

  31. Financing the Deal?Paying a “Premium?” • Cash from Balance Sheet • Stock (1 for 1 or Ratio) • S4 (Issue More Stock) • LBO (Leveraged Buyout): Combo of Cash/Stock and Debt

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