Goldman Outshines Forecasts

Goldman Sachs Group Inc. on Tuesday reported a 2.2 percent increase in fiscal fourth-quarter net income, bolstered by investment gains that apparently offset prickly market conditions. The Wall Street behemoth posted net income of $7.01 a share, clearly out swimming the $6.61 a share estimate that Thomson averaged from analysts’ forecasts.
 
But don’t think for a moment that all that glitters is a sign for better times ahead for the financial services sector. According to analysts, about 75 cents of the net gain in earnings per share came from sales of equity investments and electricity plants. That means Goldman’s clients aren’t necessarily trading stocks because of new-found faith in the economy. On the contrary, it points to the lack of faith Goldman has in the economy as it tries to fatten up in anticipation of what could be a rather fruitless period ahead.

 

Evan Pondel, Senior Associate, epondel@pondel.com
 
 

Wall Street’s Dress Code

From Brooks Brother’s and Armani pin stripes to those who found True Religion, it’s hard to tell  whether Wall Street’s dress code is changing again. Along the trail of PW’s last 2007 roadshow—this one exclusively with institutional investors—business casual still rules. 
 
While observing 23 portfolio managers and buy-side analysts from firms as large as $800 billion under management in Boston (guess which one) and as small as $50 million:  five, equal to 21.7%, were dressed in denim, including the only female; 11, or 47.8%, donned slacks and open collar shirts; and seven, or 30.5 %, were of the old school vintage, wearing ties.  Of the presenting executives, 100% wore suits and ties.
 
Other roadshow observations … 
 
Less than two hours from bustling Manhattan, money managers abound.  In a day, we visited firms in Greenville, DE, just outside of Wilmington, plus West Conshohocken, Malvern, Berwyn and Radnor, PA, all within a stone’s throw of Philadelphia.
 
And what to eat? Picks from the trip: Oceanairre in Philadelphia; Luca in the North End of Boston; Town in the always hip Chambers Hotel on West 56th Street in Manhattan. Try the lamb.

 

Roger Pondel, President, rpondel@pondel.com
 
 

To Audit IC or Not to Audit IC

That is the question.
 
Small public companies with less than $75 million of public equity may get another one-year reprieve from having to comply with one of the provisions of the 2002 Sarbanes-Oxley Act.  The Wall Street Journal (December 13, 2007, page C4) reports that SEC Chairman Christopher Cox is considering submitting a formal proposal in early 2008 that would exempt such companies from the rule requiring that they have their internal accounting controls audited and reported on by an outside auditing firm.  Meanwhile, the SEC will continue conducting a study on the estimated costs of complying with the external-auditor review provision to determine whether to phase in that requirement for small public companies in 2009, or propose a further delay or modification to the Act. 
 
The chairwoman of the House Small Business Committee has gone on record in favor of the delay, pending results of the study.  If the delay is approved, most small public companies will likely breath a sigh of relief, while shareholder advocacy groups will likely express their angst at what they perceive to be yet another move to undermine the important shareholder protections called for by Sarbanes-Oxley. 
 
Of course, voluntary compliance with the internal control review provisions remains an option for any small business and can help the board and management convey to investors their strong governance values.  A thorough assessment of the costs and benefits (both real and intangible) should precede any such decision.  PondelWilkinson is uniquely qualified, together with legal counsel, to assist your board and management in weighing the available options. 

 

PondelWilkinson, investor@pondel.com
 
 

It’s a Go for Murdoch

It’s official.  Shareholders of Dow Jones & Co. approved the sale of the publishing company to News Corp., a deal that was bemoaned by media but lauded by shareholders. The question is whether News Corp. is able to run the Journal without compromising the quality of its content.  Of course, News Corp. Chairman and CEO Rupert Murdoch has pledged to keep the Journal’s reputation fully intact as a go-to source for business news.  But how could he say otherwise?  Only time will tell whether another monolith of a media conglomerate will force the ink to fade and yellow.

 

Evan Pondel, Senior Associate, epondel@pondel.com
 
 

XBRL – SEC Asks for Public Comment

The SEC’s office of Interactive Disclosure began asking for public comment on the use of eXtensible Business Reporting Language, commonly known as XBRL, in public company financial statements.  Several large, well-known companies have voluntarily adopted XBRL in their EDGAR filings with the SEC and the agency has committed more than $50 million to make its public company disclosure system compatible with XBRL, according to the National Institute of Investor RelationsXBRL International, a not-for-profit consortium of approximately 550 companies and agencies worldwide working together to build the XBRL language and promote and support its adoption, reports that XBRL is an open standard, free of license fees that promotes the interactive sharing of financial data.
 
It is believed that XBRL will provide investors and analysts with more useful financial disclosures by allowing companies to present their financial information in a format that allows investors and analysts to more easily locate and analyze this information.  It is also anticipated that XBRL will provide greater efficiency, improved accuracy and reliability and cost savings to anyone involved in supplying or using financial data.
 
While there will likely be some growing pains when public companies are required to adopt XBRL in their financial statements, over the longer term its use should make it easier for the investing public to analyze a company’s financial statements and easier for public companies to get their story out into the investing marketplace.
 
The public comment period ends April 4, 2008.

 

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

(Nasdaq: QNET)

On November 27, 2007,  the Nasdaq Stock Market Inc. launched
a new stock market index (Nasdaq: QNET) that tracks Internet-only companies in a broad range of industries, including retail commerce, Web hosting, search engines, Web site design, and access providers, among others.  Companies included in the index are, according to Nasdaq, “at the forefront of Internet technology.”
 
Aha.  That must explain why bloggers are asking why the likes of News Corp. and Microsoft are missing from the list, although both companies operate highly visible web properties (myspace.com and MSN/Live).  My mission for the rest of the day is to find out what parameters Nasdaq is using to classify companies as Internet-related and what metrics an Internet-related company must possess before Nasdaq considers it for inclusion in the Index.  

 

PondelWilkinson, investor@pondel.com
 
 

E-Proxy Solicitations – Navigating the Rules

What’s all the fuss about? After all, the SEC is only trying to provide shareholders with more options to access proxy materials, leverage technology and reduce costs for corporate issuers. While the SEC’s motivation to revise and modernize proxy solicitation procedures is commendable, navigating through the rules and how they apply to corporate issuers takes time.
 
In January 2007, the SEC adopted the Internet Availability of Proxy Materials rule, better known as the “Notice and Access Model,” which became effective March 30, 2007. This was a voluntary rule that leaves it up to the corporate issuer to decide whether or not to adopt e-proxy solicitations.
 
The rule incorporates guidance on a myriad of issues including but not limited to, householding, security and privacy issues, State Law Notices, the role of intermediaries, the mechanics of proxy solicitations, etc. Up to this point, the rule was voluntary
 
Then in June 2007 the SEC adopted additional amendments to the proxy rules under the Exchange Act, as well as approved the Shareholder Choice Regarding Proxy Materials rule. This is a mandatory rule that goes into effect January 1, 2008 for large accelerated filers (LAF) and January 1, 2009 for second tier filers and registered investment companies.
 
The SEC noted that it chose to adopt the proposal to “provide shareholders with enhanced choices without changing significantly the obligations of an issuer or other soliciting person.” In other words, the new rules should be no big deal to implement.
 
So what are a company’s obligations under the Shareholder Choice Regarding Proxy Materials rule? In simple terms, they are:
 

  1. If an issuer is required to furnish proxy materials to shareholders, then the issuer must also post its proxy materials on a specified, publicly-accessible Internet Web site (EDGAR does not apply here) and provide shareholders with a notice informing them that the materials are available as well as explain how to access those materials.NOTE: This rule does not apply to a proxy solicitation related to a business combination transaction.
     

  2. An issuer has two options to make proxy materials available to shareholder:
     

      A – The “notice only option” – requires an issuer to post its proxy materials on an Internet Web site and send a Notice to shareholders to inform them of electronic availability of the proxy materials at least 40 days before the shareholders meeting. If an issuer opts to use this option, it must respond to shareholder requests for paper copies and must offer shareholders the option to permanently request paper or email copies of proxy materials for all shareholder meetings

     

      B – The “full set delivery option” – an issuer can deliver a full set of proxy materials to shareholders, along with the notice. A separate notice does not need to be prepared if an issuer incorporates all of the information required to appear in the Notice into its proxy statement and proxy card. And the issuer does not need to respond to requests for copies as required under the notice only option.

     

  3. Within the “notice only option” and “full set delivery option,” the SEC provides issuers with details related to the timing of when notices need to be sent, what information needs to be included in the notice, the use of plain English, the design of the publicly accessible Web site, the means to vote, how to handle requests for paper or email copies of the proxy, Web site confidentiality, and other details.

 
The SEC should be commended for its work in crafting the new rule, providing corporate counsel with a level of detail to help ensure that issuers understand the new requirements. But conceptually understanding the new rules does not equate to knowing which e-proxy option to follow. While your corporate counsel will be able to navigate you, the issuer, through the legal framework, PondelWilkinson stands ready to guide you through the strategic decision-making that will lead to the right solution for your company.

 

PondelWilkinson, investor@pondel.com