PondelWilkinson Turns 40

Firm Spreads Insight with Formal Launch of Blog
 
In 1968, when Mel Rifkind launched his then eponymous specialty public relations firm on April fool’s day, some of his friends looked askance.
 
Mel may have been a bit nervous that day, but he was no fool. He opened his doors in a small office on mid-Wilshire, with a goal of building a firm that would stick to several guiding principles:  operate with the highest degree of integrity; provide thoughtful counsel; hire smart people; take on quality clients slowly and selectively; and always deliver results—guidelines that the firm continues steadfastly to follow today.
 
More than half of the current staff, including Principals Roger Pondel and Rob Whetstone, were students when Mel founded the company—Roger was in high school, Rob was finishing kindergarten. The other half were either in diapers or not yet born. One of Mel’s first clients, Bell Industries, is still active with us today.
 
In commemoration of the firm’s anniversary, we are launching pwinsight.com, our new blog that will focus on items of relevance for those who are employed by, and advise, publicly traded companies. We hope you find some of the items useful in the months to come and that you will click on the Subscribe button to automatically receive new postings.
 
To all of our clients and friends, thank you.  We deeply appreciate your business, are grateful for your friendship and support, and will continue to work diligently to maintain your loyalty and trust.

 

Roger Pondel and the entire team at PondelWilkinson
 
 

Know Your NAICS/SIC Code

You may not be aware that in 1997, the North American Industry Classification System (NAICS) was adopted as the standard for classifying business establishments.  Developed jointly by the United States, Canada, and Mexico, NAICS provides new comparability in statistics about business activity across North America.  NAICS replaced the old Standard Industrial Classification (SIC) system.
 
Each company’s code is determined by that company’s primary business activity – the one that generates the most revenue for the company.  This code is then used by various government agencies to collect, tabulate, analyze, and disseminate statistical data describing the economy of the United States. Generally, a company’s code is derived from information that the company has provided on administrative, survey or census reports.
 
This methodology can be somewhat challenging if your business model and revenue generating activities change, as your company will likely continue to be classified according to old data provided to the Census Bureau.
 
While there is currently no official procedure for having a company’s SIC or NAICS code changed, if you strongly disagree with your company’s classification, you can contact the agency that has assigned your code.  Various government agencies maintain their own lists of business establishments and assign classification codes based on their own programmatic needs.

 

Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

Auditor Changes – More Common Than You Think

Since 2002, more than 6,500 public companies have changed auditors.  Of these, 79 percent were public companies with a market cap under $75.0 million.  The CPA Journal recently revealed a study that looked at the impact of these changes to determine whether the historical stigma surrounding them has disappeared.
 
Over the past two years, more than 1,000 companies who changed auditors did not disclose a reason for the change (the SEC does not mandate disclosure for this type of event).  The two most common reasons cited, when companies did disclose the reason for the change, were audit firms’ mergers and the public company’s change in control.
 
Not surprisingly, it was found that the biggest switch has been to smaller accounting firms, given their lower cost and often better fit with the issuer.  However, it was also discovered that in 2006, companies audited by smaller firms had a restatement rate of 13 percent versus 9 percent for those audited by the Big Four.
 
What does this all mean for investors?  Changing auditors can provide investors with a fresh look at the company by a new set of eyes.  In 2006, 27 percent of the issuers that changed auditors restated their financials within one year, compared with 10 percent of all public companies that restated their financial results.
 
Whatever the reason or outcome, transparency should be the ultimate goal of all public companies.  So, when changing auditors, consider telling investors why you made the switch.

 

Laurie Berman, Senior Vice President, lberman@pondel.com
 
 

Spritzer, anyone?

The stock market is up and perhaps rightly so as a colleague pointed out that the Federal Reserve announced plans to expand its securities-lending program to $200 billion.  But I think the stock market is up for a different reason.
 
I think “Client 9” has something to do with it.
 
Could it be that the folly of one of the most feared critics of corporate America has spurred a modest rally in one of the worst markets in months?  Could it be that the man responsible for holding swashbuckling research firms accountable and issuing more than $1 billion in fines is finally on the fritz?  And could it be that the grass is finally greener for Dick Grasso now that his nemesis looks cheaper than a scantily clad Chia Pet?
 
Sadly, it looks like Superman has lost his cape, and all of Wall Street’s Lex Luthers are rejoicing and drinking spritzers, raising their glasses to Spitzer.  Oh, what a pitzer.
 
The truth is, Eliot Spitzer did a heck of a lot more for investors than a paltry rally in mid-March. In many respects, he reformed the way Wall Street does business, and by doing so, he saved myriads of investors from losing the very crystal they are raising today to celebrate Spitzer’s demise.
 
It’s a sad day for Wall Street.  It’s a sad day for New York.  But for every supposed great man who has philandered with id instead of super-ego, their legacies, in many cases, are still alive and well.  The problem is, their ability to pave a yellow-brick road to righteousness is forever lost.

 

Evan Pondel, Senior Associate, epondel@pondel.com
 
 

Quarterly Earnings Release Practices

The National Investor Relations Institute (NIRI) recently completed a survey on quarterly release practices among publicly traded companies and shared the results with the SEC Advisory Committee of Improvements to Financial Reporting (CIFiR).  The committee was convened by the SEC in June 2007 with the goal of reducing unnecessary complexity and making information more useful and understandable for investors.  Based on its findings and presentation to the CIFiR, NIRI is currently preparing best practice guidelines for quarterly earnings releases.
 
According to NIRI:
 

  • Added disclosure in quarterly earnings releases has resulted from investor demand and management team philosophy, among others.
     

  • While companies of all sizes use non-GAAP measures in their earnings releases, small cap companies tend to do so less often (31% for companies with a market cap below $100 million versus 70-74% of companies with a market cap in excess of $500).
     

  • Quiet periods surrounding a company’s earnings release average four weeks or more.
     

  • 96% of survey respondents include an income statement as part of their quarterly earnings release and 91% include a balance sheet.  The percentages are much lower for cash flow statements (58%) and segment financial information (61%).

 
In my opinion, the best quarterly earnings releases are those that report a company’s financial results in a clear and concise manner, while providing investors with the color necessary to make an informed investment decision.  I’m betting that NIRI’s best practice guidelines will mirror that thought.

 

– Laurie Berman, Senior Vice President, lberman@pondel.com