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FEI Newsletter Archive

In This Issue:
Equity Markets Update from Bank of America Securities
Share Repurchase Study
Survey on EITF Issue 00-10 "Accounting for Shipping and Handling Fees and Costs"
IRS Town Hall Meetings
Computers as Taxable Income
WSJ Front Page!
Data Warehousing Project
New Member Welcome
Free Loan Pricing Grid
Job Opportunity

Greetings from Morristown, NJ!! I had the pleasure of hearing Gov. George W. Bush speak last week. New Jersey Gov. Whitman introduced Bush after short speeches by what seemed like an endless parade of short appearances by local politicians. Bush focused on the federal surplus in his comments. Seems to be shaping up as the central campaign issue. Reduce taxes or reduce the national debt? Bush wants to bet on the team that got us to this point and reduce taxes. Just the fact that we can talk about greatly reducing the national debt or the tax burden is a tremendous achievement and a heartening message for the future.

Here's what's up around FEI. By the way, we ended our year June 30th with a tremendous membership gain year over year. More details to follow, but welcome to all our new members and thanks to everyone who helped us achieve this growth.

Equity Markets Update from Bank of America Securities
Kent Penwell of BofA Securities forwarded their latest summary of the state of the equity capital markets. He'll present an even more current update during an August 2nd conference call for all FEI members (Sign up for the teleconference here.)

Key points on market conditions are:

• New issue volume decreased approximately 40% in Q2 2000 - IPO volume off 31%; follow-on volume off 51%
• New issue market becoming more active but limited to certain sectors and less receptive to financing "concept stories"
• Pipeline is crowded - $41 billion in 378 transactions, including 354 IPOs, on file with SEC
• Fewer Internet-related IPOs priced - only 28 completed in Q2 2000 vs 74 in Q1 2000 - or expected to price
• 183 Internet-related IPOs on file (52% of total) results in excess supply, given current market demand
• Increasing number of postponed IPOs
• New issue market will continue to be characterized by "windows of opportunity"

Share Repurchase Study
Our research foundation put together a concise report on the reasons why companies undertake repurchase programs and their impact on EPS and share price after undertaking such programs. Here are a couple of snippets from the work. It's all available at: http://www.ferf.org/. It's only 15 pages in total. Check it out.

• Both small (market capitalization less than $500 million) and large (market capitalization exceeding $500 million) firms show substantial increases in earnings per share (EPS) growth after shares are repurchased. But firms in their industries exhibit even greater increases in EPS growth rates in the post-repurchase period. Thus repurchasing firms are able to reduce the gap (i.e., mitigate dilution) between their EPS growth rates and the EPS growth rates of non-repurchasing firms in their industries.
• Distributions to shareholders via share repurchases are not a replacement for dividend payouts. Dividend payout ratios exhibit marginal increases after shares are repurchased by both small and large capitalization firms.
• Share repurchases are funded by excess cash flow, i.e., cash flow from operations adjusted for capital expenditures, rather than by increases in debt. Repurchasing firms exhibit marginal changes in leverage ratios but substantial reductions in the excess cash flow ratio after shares are repurchased.
• Firms whose profitability was below their industry average enjoy greater share price growth after shares are repurchased (adjusted for industry-wide share price changes) than firms whose profitability was above their industry average.
• Firms whose sales growth was below their industry average enjoy greater share price growth after shares are repurchased (adjusted for industry-wide share price changes) than firms whose sales growth was above their industry average.

Survey on EITF Issue 00-10 "Accounting for Shipping and Handling Fees and Costs"
The EITF is considering an issue related to the classification of freight and distribution costs. The preliminary view is that freight and distribution that is billed to customers should be classified as revenue. The EITF also believes that freight and distribution costs (whether billed separately or not) should be classified as cost of sales. We're attempting to see what current practice is in this area. There seems to be diversity in practice. Please fill out the questionnaire (return via fax or e-mail) and include any other thoughts on this and respond by July 20. Also, here's a link to the EITF issue summary.

IRS Town Hall Meetings
The IRS is hosting several "town hall" meetings this summer to introduce corporate leaders and tax professionals to the new Large and Mid-Size Business Division, which will be responsible for auditing and providing guidance to all corporations with more than $5 million in assets. The programs, which will be eligible for CPE, will feature presentations by top LMSB officials, including Division Commissioner Larry Langdon, who formerly worked for Hewlett-Packard. These meetings began last week and will continue until August 18. For a complete calendar and additional information, click here.

Computers as Taxable Income
More employers are providing computers, peripheral devices and Internet access to employees. Under current law, these benefits would likely be interpreted as taxable income to the employee. Congressmen Weller and Lewis and Senator Ashcroft have introduced legislation that would make these benefits tax-free. Here's a summary of the issue.

WSJ Front Page!
FEI hit the front page of The Wall Street Journal last week with its quarterly economic conditions survey. We do the survey in conjunction with the Fuqua School of Business at Duke. Really appreciate all of you that participate in the survey! Each quarter a short questionnaire is faxed to all CFOs and Vice Presidents. Here is the blurb that the WSJ ran on page 1. The full details of the survey can be obtained here.

July 6, 2000 - WSJ - Business Bulletin

GOING UP? More companies expect to raise prices in the months ahead.

Nearly 75% of corporations plan to raise prices an average 4.7% in the next 12 months, says a survey by the Financial Executives International, Morristown, N.J., and Duke University's Fuqua School of Business, Durham, N.C. Their June poll of 221 companies shows a progressive willingness to raise prices. A year ago, 60% of firms said they planned to raise prices by 1.3%; six months ago, 71% expected to raise prices by 3.1%.

Firms with extensive overseas sales plan to raise prices less than half as much as those doing business primarily in the U.S., indicating a less-robust global economy, says John Graham, an associate professor of finance at Duke. The biggest increases are expected in the transportation, energy and high-tech industries.

Data Warehousing Project
Our Research Foundation also just concluded a large project on data warehousing. The full contents of the project are available on the site. Here is a link to this important topic.

New Member Welcome
Congratulations to Anthony Esposito, controller, United Parcel Service, in Maspeth, NY, and to Randall Steward, EVP and CFO, Rayovac Corporation, in Madison, WI.

Free Loan Pricing Grid
This month's free Fintranet spreadsheet employs S&P default statistics to construct a loan pricing grid and discusses the reasons real-world loans are often over- or under-priced relative to the borrower's credit risk. Click here to access.

Job Posting - CFO & Senior VP
Multi-billion-dollar company in the Northwest is seeking a candidate with a proven successful track record in leading multiple subs. and departments including international component, e-commerce, corporate strategy, IT, finance and treasury. Manage VC group for strategic investments and new growth areas. Experienced in developing and executing IPO strategies. Please respond to Gene Horne, Horne/Brown International, at ghh@rmci.net.

To view more jobs, please visit the FEI Career Center.

That's all for now,

Phil