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The disclosure presented earlier in Exhibit 3.1 provided a restatement of the as-reported net income of Panera Bread Company. This restatement removed the effects of items considered by Panera to be nonrecurring and was disclosed in Panera‟s MD&A. An additional example of the disclosure of nonrecurring items from the MD&A of H.J. Heinz Company is presented in Exhibit 3.20. This schedule is not a comprehensive list of nonrecurring items, but is focused on the effects that exiting certain businesses has had on specific business segments. As a result of the finalization of the strategic reviews related to the portfolio realignment, certain noncore businesses and product lines were sold in fiscal 2006 or are anticipated to be sold in fiscal 2007, and, accordingly, the relevant gains (losses) or noncash asset impairment charges have been recorded in continuing operations during fiscal 2006. The presentation within the MD&A of information on nonrecurring items in schedules is still a fairly limited practice, but some companies list items that affect time series comparability. Conagra Foods, Inc., provided the following list in its May 2008 MD&A: Items of note impacting comparability for fiscal 2008 included the following: Reported within Continuing Operations • charges totaling $45 million ($28 million after tax) related to product recalls, • charges totaling $26 million ($16 million after tax) under the Company‟s restructuring plans, and • net tax benefits of approximately $19 million related to changes in the Company‟s legal entity structure, favorable settlements, and changes in estimates. Items of note impacting comparability for fiscal 2007 included the following: Reported within Continuing Operations • charges totaling $103 million ($64 million after tax) under the Company‟s 2006-2008 restructuring plan, • charges totaling $66 million ($41 million after tax) related to the peanut butter recall, • gains of approximately $21 million ($13 million after tax) related to the divestiture of an oat milling business and other non-core assets,
• benefits of $13 million ($8 million after tax) resulting from favorable legal settlements, • a benefit of approximately $7 million ($5 million after tax) resulting from a favorable resolution of franchise tax matters, • net tax charges of approximately $6 million related to unfavorable settlements and changes in estimates, and • a gain of approximately $4 million resulting from the sale of an equity investment in a malt business, and related income tax benefits of approximately $4 million, resulting in an after tax gain of approximately $8 million. 26 Though helpful in locating nonrecurring items, such schedules must be viewed as useful complements to, but not substitutes for, a complete search and restatement process. The discussion to this point has taken us through the first six steps in the nonrecurring items search process that was outlined in Exhibit 3.4. This last step illustrates how additional nonrecurring items may be located in other selected notes to the financial statements. Nonrecurring Items in Other Selected Notes Typically, most material nonrecurring items will have been located by proceeding through the first six steps of the search sequence outlined in Exhibit 3.4. However, additional nonrecurring items or further details may be located in other notes. In fact, nonrecurring items can surface in virtually any note to the financial statements. Three selected notes that frequently contain other nonrecurring items are now discussed. These include notes on foreign currency exchange, restructuring, and quarterly and segment financial data. Recall that inventory, income tax, and other income and expense notes were discussed in steps 3 to 5. Foreign Currency Exchange Notes Foreign exchange gains and losses can result from both transaction and translation exposure. Transaction gains and losses result from either unhedged or partially hedged foreign currency exposure. 27 This exposure is created by items such as accounts receivable and accounts payable that are denominated in foreign currencies. These foreign currency balances result from sales and purchases denominated in foreign currencies. As foreign currency exchange rates change, the value of the foreign currency assets and liabilities will expand and contract. This results, in turn, in foreign currency transaction gains and losses. This is the essence of the concept of currency exposure. Translation gains and losses result from either unhedged or partially hedged exposure associated with foreign subsidiaries. Translation exposure depends on the mix of assets and liabilities of the foreign subsidiary. In addition, the character of the operations of the foreign subsidiary and features of the foreign economy are also factors in determining both exposure and the translation method applied. There are two possible statement translation methods, and of the two only one results in translation
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Table of Contents Title Page Copyri
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Chapter 6 - Planning Capital Expend
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For Further Reading Part IV - Manag
Page 7 and 8:
Successful Postmerger Implementatio
Page 10 and 11:
This book is printed on acid-free p
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Syllabus How Chapter Topics in This
Page 14 and 15:
Some of these experts are full-time
Page 16 and 17:
About the Contributors Richard T. B
Page 18 and 19:
Advances in Quantitative Analysis o
Page 20 and 21:
enterprise development. Dr. Zachara
Page 22 and 23:
The left side shows Nutrimin‟s in
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Gail, let‟s go over this balance
Page 26 and 27:
Gail, do you have any questions abo
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11. Not all expenses are cash outfl
Page 30 and 31: Financial Statements: Who Uses Them
Page 32 and 33: profitability to keep investing for
Page 34 and 35: Financial Accounting Standards It i
Page 36 and 37: Downloadable Resources for this cha
Page 38 and 39: Next, we explain each of these thre
Page 40 and 41: liquidity. Or, more simply, achievi
Page 42 and 43: If these ratios are seriously defic
Page 44 and 45: The debt-to-equity ratio is evaluat
Page 46 and 47: year 1 to year 3. The net effect wa
Page 48 and 49: to rate of return on the equity. Th
Page 50 and 51: Other types of comparisons of finan
Page 52 and 53: income/sales), asset turnover (sale
Page 54 and 55: successful businesspeople should ha
Page 58 and 59: More than a decade ago, a special c
Page 60 and 61: companies is used for illustration.
Page 62 and 63: The identification of nonrecurring
Page 64 and 65: The Dow Chemical single-step income
Page 66 and 67: is a pretax measure, but income fro
Page 68 and 69: Sources: Companies‟ annual report
Page 70 and 71: Exhibit 3.11 Examples of discontinu
Page 72 and 73: amortization purposes, the Company
Page 74 and 75: Examples of nonrecurring items disc
Page 76 and 77: During Fiscal 2006, inventory quant
Page 78 and 79: The nonrecurring items of Boston Sc
Page 82 and 83: gains or losses that appear as part
Page 84 and 85: ecurring as for Kimberly-Clark, the
Page 86: Summarizing Nonrecurring Items and
Page 89 and 90: This example of using the SEB works
Page 92 and 93: Exhibit 3.27 Other income (expense)
Page 97 and 98: Source: Pfizer, Inc., annual report
Page 99 and 100: Exhibit 3.30 Acquisitions note: Pfi
Page 101 and 102: Source: Pfizer, Inc., annual report
Page 103 and 104: Exhibit 3.33 Cost-reduction initiat
Page 105 and 106: Exhibit 3.36 Share-based payment no
Page 107: The Pfizer Worksheet Analysis: Down
Page 110 and 111: Some Further Points on the Pfizer W
Page 112 and 113: • It is common to treat items as
Page 114 and 115: FedEx Corporation (2007) First Sola
Page 116 and 117: 1 The American Institute of Certifi
Page 118 and 119: 28 These alternative translation me
Page 120 and 121: If you need some instruction in Exc
Page 122 and 123: To solve using Excel, open your Exc
Page 124 and 125: As you can see from the previous ex
Page 126 and 127: C6 = 5 • Now enter the “=” si
Page 128 and 129: Ordinary Annuity An ordinary annuit
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To confirm that the number of payme
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The FV of this first payment into t
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Exhibit 4.15 Finding the future val
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Exhibit 4.18 Finding the present va
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From Exhibit 4.20, we see that as t
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Exhibit 4.22 Amortization schedule
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Exhibit 4.25 Regular cash flows wit
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Internet Links For Further Reading
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Investors who are risk averse will
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considering the risk of a single as
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Portfolio Risk Stand-alone risk is
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In spite of unique or diversifiable
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If a particular stock is highly sus
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The formula tells us that, to begin
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for the entire market of stocks sin
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The dividend per share for preferre
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If you are able to determine the cu
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Debt finance is the lower-cost meth
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We don‟t observe many firms whose
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Capital Structure in Practice Finan
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are able to observe regularities in
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dividends and capital gains. We wil
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where EBIT is earnings before inter
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Since long-term debt holders have a
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accept more investment projects. Re
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A beer company is considering build
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accounts receivable, and tabulates
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profit by the tax rate determines t
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Accounting profit often mixes varia
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The concept that future cash flows
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Like project A, project C also cost
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The after-tax interest rate is the
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equal mix of debt and equity, its d
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The payback period rule stipulates
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The IRR rule is appealing in that i
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complete with its real options is g
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What does it matter that one invest
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Exhibit 7.3 Time line in dollars an
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There are a number of countries in
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eturn of 10% on its investments in
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Exhibit 7.12 Summary of exchange ra
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and so will the value of the liabil
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Source: CIA, World Factbook, availa
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Exhibit 7.18 Net present value of c
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equired interest payments to be pai
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So if the assistant treasurer was r
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This theory is far from perfect, as
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The Consulting Firm Jennifer, Jean,
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part by a statute, the Uniform Limi
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formation in Delaware (or any state
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purpose of requiring qualification.
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Phil‟s death may terminate the bu
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the transfer. This means that if Br
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These rules extend to tort liabilit
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In the absence of a meeting, stockh
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A more detailed discussion on the b
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Partnerships If possible, the resul
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associated with this arrangement ar
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Partnerships are also not separate
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For most start-up businesses, howev
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form, even at the risk of some unli
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likely that our consultants will be
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Thus, the corporation and LLC, with
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It is not possible to fully describ
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usiness corporation for all purpose
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a cash-basis taxpayer to be taxed a
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The Tax Reform Act of 1986 substant
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limit is the product of the value o
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he would have spent anyway. In fact
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protect Brad from the scenario of h
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paying for the privilege. If the st
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The second tax scenario attaches to
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include that nullity in his taxable
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then the capital gain to be taxed h
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Most relevant to Morris is Section
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To begin with, the ESOP will have t
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general partner of a limited partne
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small businesses) is also subject t
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oth Lisa and Brad would be free to
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Assume that a limited liability com
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corporations, and had been audited
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There is plenty of blame from the c
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• An important study about top ma
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• The federal government made at
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$79.7 million for other services, a
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Budgets offer a variety of benefits
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determine the impact of specific pr
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Exhibit 11.2 Budget variance report
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udget, we just add more to it next
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income statement. The financial bud
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For a manufacturing company, cost o
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C&G‟s Gift Shop has a policy to m
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Meeting cash obligations as they co
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was unusually low, say, due to the
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A fixed budget, sometimes called a
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A large part of the budget selling
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• Centralized resource allocation
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Merewitz, Leonard, and Stephen H. S
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This chapter starts with a discussi
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Interestingly the numbers for quart
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Exhibit 12.4 Scenarion analysis.
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Pitfalls Although this analytic tec
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Exhibit 12.6 Variable cost element
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Variable Cost as a Function of Outp
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If scenario 2 yields a lower profit
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Microsoft certainly does not price
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If it is determined that dumping ha
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Leaving government agencies and not
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transaction processing. Each proces
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Exhibit 13.3 E-commerce transaction
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To summarize the analysis, the busi
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Capacity costs are probably the mos
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which it was, but for the inventory
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They called this strategic cost man
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A closer study, however, revealed s
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the benefits of business planning.
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The last type of plan is called a d
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The Business Plan We will progress
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Hook the Reader That means having t
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Industry The goal of this section i
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upscale suburban client who wants p
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Company and Product Description Com
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Exhibit 14.8 shows the competitive
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Exhibit 14.9a Advertising schedule.
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Scope of Operations What is the pro
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Development Time Line A development
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By law, most organization types req
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As mentioned in the development pla
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that can be depreciated, you should
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1 Special thanks to Matt Feczko, Mi
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For better or worse, the business e
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Leeson bet and lost. Japanese stock
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Between February and April 1994, Da
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LTCM could be picky when it came to
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An investor who wished to invest in
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Similarly, the swaps market has rev
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speculator would suffer losses equa
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American manufacturer will suffer l
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The ease with which futures facilit
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Exhibit 15.1 Call option payoff dia
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Exhibit 15.2 Payoff diagram for a w
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Notice that the put option payoff r
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Bank, owns a large block of NASDAQ
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can be tailored so that the money r
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Finally, the last step is to choose
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3 Fischer Black, who co-invented th
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not include assets that the firm ha
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Thus, a business valuation will usu
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Negative • Acme is highly depende
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Exhibit 16.3 Acme Manufacturing, In
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Profitability ratios reflect the re
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When we talk about the value of a b
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This example illustrates that with
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Income Approach: Discounted Cash Fl
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Exhibit 16.5 Acme Manufacturing, In
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Victoria explains that the second p
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Victoria analyzes Acme‟s audited
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In summary, the discounted cash flo
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Adjustment for Illiquidity As previ
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51% position sells for a higher pri
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examples. The proper application of
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The subject of this chapter is grow
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Finally, an acquisition can be effe
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M&A activity has been the focus of
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companies continue to make the same
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equals was taking on a distinctive
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Anatomy of a Successful Acquirer: T
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employees kept their original jobs
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where ΔCF t is the incremental cas
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where it‟s ultimately buried. Suc
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The following example summarizes th
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make sure that you are at least awa
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acquisition, there is no immediate
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its vascular business, which was so
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While all employees should be part
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makes strategic and financial sense
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Bhagat, Sanjai, Ming Dong, David Hi
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The 2008 financial crisis underscor
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Source: Plunkett’s Outsourcing &
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To summarize: Trends • Large numb
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Companies are becoming increasingly
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What steps should a company follow
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• Results of meetings with vendor
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• Breach of contract and remedies
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Assuming the project or service rev
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The answer is: profits. The company
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19 Information Technology and You D
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People‟s lives have been turned u
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its self-contained rechargeable bat
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Random-Access Memory (RAM) Random-a
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On laptop computers and PDAs, the s
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Operating System An operating syste
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the spreadsheet software together w
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Exhibit 19.5 Pro forma sales and in
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Database Software A database is a c
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Internet e-mail addresses often con
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Personal Finance Software There are
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There are several different approac
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One of the major attractions of the
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While not a new version of the Web
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industrial revolution, and has occu
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Dummies Inc. has a series of books
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organization. This chapter is desig
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As technology has evolved, the term
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While the software mentioned earlie
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Most of the focus of the investor c
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Data Access and OLAP Before the lat
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Exhibit 20.5 illustrates a differen
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Productivity Tools Workers expect t
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Client-server technology is based o
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Today, most programmers write in C+
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Exhibit 20.6 is a model of a typica
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No treatment of relational database
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Online analytical processing (OLAP)
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server) and the rest on the users
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the other operational departments w
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The world of business has changed d
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Chaffey, Dave, E-Commerce and E-Com
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According to the results of the sur
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understand the financial situation
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MBA graduates who are hoping to ent
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Summary Financial services opportun
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Let‟s begin with the “I left it
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MBA student: “Well, I go to [Grea
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Aiming for Your Goals For career ch
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Networking is generally regarded as
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Let‟s begin with some key assumpt
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like, or moving ahead in the compan
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Accrual accounting: An accounting m
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Cash flow: Cash that is spent or re
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Distribution channel: A chain of in
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Goodwill: As it relates to valuatio
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Management’s discussion and analy
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Ordinary annuity: An annuity that p
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Securities and Exchange Commission
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Vertical merger: A merger in which
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about activity-based costing progre
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Application systems ARPAnet Arthur
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Bell Labs Benefit measurement Beta
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goal orientation legal and contract
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segment information note share-base
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process of purpose of real world us
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uy/build decision capital budget in
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written resume Careers in corporate
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Cell Center for Research in Securit
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Compensation and ownership Competit
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Corporate culture Corporate debt in
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profit planning from an internal pe
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Data Data access and OLAP Database
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Askin Capital Management Barings Ba
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market approach publicly traded gui
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Electronic data interchange (EDI) E
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Extensible markup language (XML) Ex
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short term liquidity users and uses
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Fourth generation programming (4GL)
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Going private Going private transac
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Hypertext links Hypertext markup la
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Information technology and the firm
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International Accounting Standards
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Last-in-first out (LIFO) vs. curren
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Long call option payoff Longer-term
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Market risks Market size and struct
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Motivation to outsource Multiple IR
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Nonrecurring items defined disclosu
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Operational complexity Operational
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Outsourcing metrics Overhead Over-t
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Personal end game Personal expense
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Price competition Price decreases P
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Projected cash flow statements Proj
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Relevant range Relevant range assum
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Risk sharing Risk transfer Risk vs.
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Short call option payoff Short part
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Spot price Spreadsheet software Spr
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Summarizing nonrecurring items and
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acquisition the business dividends
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Timmon‟s Model of Opportunity Rec
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U.S. immigration quotas U.S. Intern
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discounting with discount rate form
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