|
Assignments must be typed and submitted
before the start of class on the due date. You can get much of the required
information from the Bloomberg machine in W404, the GPACT lab. The graduate
assistant on duty there will help you with any difficulties. You may
also want to download and print this
Bloomberg help file as a reference.
Pick a US company that belongs to one
of the following sectors. You should stay with this company for
the assignments that follow as well. You must confirm
your company selection with me before you start your analysis.
|
Materials |
Industrials |
Consumer Discretionary |
Consumer Staples |
Transportation |
You can find companies in these sectors
by using Bloomberg or a similar program. The company that you
choose should satisfy the following conditions:
- Make sure that the market value
of your chosen firm is at least 0.75 billion dollars.
- It should have public debt, preferably
publicly traded.
Write a report on Corporate Governance
at your company. Start your report by providing an executive summary.
Then, a brief description of the company (about half a page), taken
from Yahoo or another source. Use another two to three pages to
present a well-organized report on "Who own/runs your firm."
Make sure to put the important analyses up front; all detailed information,
including tables, particularly if they are long, should go at the end
as an appendix. If the table or the graph is small, then you can
include it up front, particularly if you're going to refer to the contents
of the table in detail. In any case, you should not include any
information in Appendices that you don't refer to at all in the text.
Keep in mind that you are analyzing
the company. Providing a lot of data is not valuable, in and of itself.
Also, using information and "analysis" indiscriminately from
the company's website is also not of much use. Ask yourself regarding
anything that you include in the report -- what is this telling me about
the company's corporate governance, viz. the structure of the company,
broadly defined, and how it affects the optimal working of the company.
And don't forget to use spell check
and grammar check!
Some of the questions that you should
think about in writing up your report:
- Who are the institutions holding
the stock? (Such information can also be found on Yahoo at
http://biz.yahoo.com/hd/m/msft.html for
Microsoft -- msft; replace msft with the symbol for your stock.)
What conclusions would you draw from the quality and number of these
institutions, as well as the proportion of the firm's stock
that they hold? Please don't give lists of names that have
no independent meaning!
- How many analysts follow the stock?
What implications would you draw from the quality and number of analysts?
- Who are the mutual funds that hold
the stock? (Check http://biz.yahoo.com/hd/mf/m/msft.html;
replace msft with the symbol for your stock.) What conclusions
would you draw from this information?
- Are there major conflicts of interest
in the running of the company that have not been addressed by compensation
contracts, etc.?
- Have there been major events in
the life of the company recently that are indications of conflicts
of interest?
- Get information on the covenants/bond
indentures of the company. Can you conclude that the bondholders
are well protected from stockholder aggression?
- How does the company see its role
as a corporate citizen? For example, is it respectful of its
social obligations?
You can use the following analysis
of Disney, Inc. done by Aswath Damodaran, in 1997. Focus on
the first two sections, Corporate Governance Analysis and Stockholder
Composition. This is a very good model to use.
You can use the following general sources:
For company specific information,
- You can search the Wall Street Archive.
- You can use the Lexis-Nexis database
from the Pace Library homepage (go to http://library.pace.edu,
click on Databases, then choose Lexis-Nexis Universe from Complete
Alphabetical Listings) to search for information regarding your company.
You can select Business News, then search using your company name,
as well as other useful keywords, such as executive compensation or
shareholder rights, or other terms that you can come up with based
on your reading of Chapter 2 and my webnotes/slides.
- Search Lexis/Nexis, focusing on
publications such as the Economist, Forbes, Fortune, etc. using appropriate
keywords.
- You can also look at the Annual
Report of the company, which you can find at the company website (you
can find the company website by searching on Google, or by going to
http://biz.yahoo.com).
- Search on Google using the company
name and relevant keywords.
- Use the information on analysts
at http://www.zacks.com
- Use information that you may be
able to find at http://biz.yahoo.com
or at http://www.marketguide.com.
- You can get information from Bloomberg.
Explain the capital structure of a
company satisfying the conditions specified in the Corporate Governance
Project (see above.)
Here are some kinds of information
that you may want to gather in accomplishing this project.
- Use information from Prof.
Damodaran's website (Go to http://pages.stern.nyu.edu/~adamodar/;
click on Corporate Finance on the left-hand-side menu; choose Corporate
Finance (second edition); then pick Chapter 7) and information from
the text
- For how to compute a debt-equity
ratio, you can look at these problems and their accompanying solutions:
Among other sources, you can also use:
Make sure your report is well researched,
well analyzed, based on theory, and written up in a form easy to understand. You
may submit an Excel spreadsheet to accompany your work, but the main
results of the report should be written up in a Word document.
You may use Damodaran's spreadsheets.
However, it will be your responsibility to explain each of the assumptions
that he explicitly or implicitly makes.
Equity Valuation
To value the stock of the company, Office
Max Incorporated (OMX)
To begin with, go over the slides
on Firm Valuation, which can be found on the class website. You
may also want to read my webnotes
on Valuation.
Then get the firm's 10-K
for the latest year. (Some of this information may also be available
on Yahoo or one of the other sites, as well as on the Bloomberg terminal.)
FCFE = Net Income + Depreciation - Capital Spending - D
Non-cash Working Capital - Principal Repayments + New Debt Issues
Information regarding Net Income can be found from the Income Statement;
Depreciation can be found in the Cash provided by operations part of
the Statement of Cashflows; Capital Expenditures can be found by looking
at the Cash provided by investments portion of the Statement of Cashflows;
Principal Repayments and New Debt Issues can be found from the Cash
provided by financing portion of the Statement of Cashflows; Change
in Noncash Working Capital can be found from the Balance Sheet.
(Historical FCFE can be computed using the information in the Statement
of Cashflows,
FCFE = Cashflow from Operations – Capital Expenditures –
Net Debt paid (short-term and long-term) + Changes in Cash
However, for forecasting purposes, the previous formula is more useful,
since we can forecast each component separately and relatively independently.)
- Compute Cashflow to Equity for OMX for the last four years (2003-2006),
using the formula given above.
- Can you find any stable relationships between between Net Income and
Change in Non-cash Working Capital, Net Income and Capital Expenditures,
Capital Expenditures and Depreciation; and Capital Expenditures and
Change in Non-cash Working Capital?
(You will need 5 years of financial statements to compute FCFE for
4 years. You can get older 10Ks by going to my home page, clicking on
Economics/Finance on the Web from the top menu, then clicking on Filings
with the SEC; then choosing Search for Company Filings, then click on
Companies and Other Filers. Use the ticker symbol, OMX and then you
can retrieve all SEC filings for OMX, since they started filing. If
you put in a date in the cell to the right where it says "Form
Type" etc, you can go directly to the year that you're looking
for. Keep in mind that the 2002 filing will have been done sometime
in the first quarter of 2003.)
Forecast the FCFE for future years.
For your convenience, here are some of the financial statements from
Office Max's 10K for fiscal year 2006
OfficeMax
Incorporated and Subsidiaries
Consolidated Statements of Income (Loss)
|
|
Fiscal Year Ended |
|
|
|
December 30,
2006 |
|
December 31,
2005 |
|
December 31,
2004 |
|
|
|
(thousands,
except per-share amounts) |
|
Sales |
|
|
$ |
8,965,707 |
|
|
|
$ |
9,157,660 |
|
|
|
$ |
13,270,196 |
|
|
Cost
of goods sold and occupancy costs |
|
|
6,656,497 |
|
|
|
6,960,390 |
|
|
|
10,588,824 |
|
|
Gross
profit |
|
|
2,309,210 |
|
|
|
2,197,270 |
|
|
|
2,681,372 |
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
and selling |
|
|
1,641,147 |
|
|
|
1,765,268 |
|
|
|
2,014,546 |
|
|
General
and administrative |
|
|
361,818 |
|
|
|
368,265 |
|
|
|
365,466 |
|
|
Other
operating, net |
|
|
140,343 |
|
|
|
54,045 |
|
|
|
(370,609 |
) |
|
Operating
income |
|
|
165,902 |
|
|
|
9,692 |
|
|
|
671,969 |
|
|
Debt
retirement expense |
|
|
— |
|
|
|
(14,391 |
) |
|
|
(137,137 |
) |
|
Interest
expense |
|
|
(123,082 |
) |
|
|
(128,504 |
) |
|
|
(151,939 |
) |
|
Interest
income |
|
|
89,723 |
|
|
|
97,272 |
|
|
|
14,093 |
|
|
Timber
notes securitization |
|
|
— |
|
|
|
— |
|
|
|
(19,000 |
) |
|
Other
income (expense), net |
|
|
39,335 |
|
|
|
(1,685 |
) |
|
|
1,456 |
|
|
Income
(loss) from continuing operations before income taxes and minority
interest |
|
|
171,878 |
|
|
|
(37,616 |
) |
|
|
379,442 |
|
|
Income
tax expense |
|
|
(68,741 |
) |
|
|
(1,226 |
) |
|
|
(142,291 |
) |
|
Income
(loss) from continuing operations before minority interest |
|
|
103,137 |
|
|
|
(38,842 |
) |
|
|
237,151 |
|
|
Minority
interest, net of income tax |
|
|
(4,083 |
) |
|
|
(2,370 |
) |
|
|
(3,026 |
) |
|
Income
(loss) from continuing operations |
|
|
99,054 |
|
|
|
(41,212 |
) |
|
|
234,125 |
|
|
Discontinued
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss |
|
|
(17,972 |
) |
|
|
(24,416 |
) |
|
|
(32,095 |
) |
|
Write-down
of assets |
|
|
— |
|
|
|
(28,243 |
) |
|
|
(67,841 |
) |
|
Income
tax benefit |
|
|
10,639 |
|
|
|
20,109 |
|
|
|
38,869 |
|
|
Loss
from discontinued operations |
|
|
(7,333 |
) |
|
|
(32,550 |
) |
|
|
(61,067 |
) |
|
Net
income (loss) |
|
|
91,721 |
|
|
|
(73,762 |
) |
|
|
173,058 |
|
|
Preferred
dividends |
|
|
(4,037 |
) |
|
|
(4,378 |
) |
|
|
(11,917 |
) |
|
Net
income (loss) applicable to common shareholders |
|
|
$ |
87,684 |
|
|
|
$ |
(78,140 |
) |
|
|
$ |
161,141 |
|
|
Basic
income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations |
|
|
$ |
1.30 |
|
|
|
$ |
(0.58 |
) |
|
|
$ |
2.55 |
|
|
Discontinued
operations |
|
|
(0.10 |
) |
|
|
(0.41 |
) |
|
|
(0.70 |
) |
|
Basic
income (loss) per common share |
|
|
$ |
1.20 |
|
|
|
$ |
(0.99 |
) |
|
|
$ |
1.85 |
|
|
Diluted
income (loss) per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations |
|
|
$ |
1.29 |
|
|
|
$ |
(0.58 |
) |
|
|
$ |
2.44 |
|
|
Discontinued
operations |
|
|
(0.10 |
) |
|
|
(0.41 |
) |
|
|
(0.67 |
) |
|
Diluted
income (loss) per common share |
|
|
$ |
1.19 |
|
|
|
$ |
(0.99 |
) |
|
|
$ |
1.77 |
|
|
OfficeMax
Incorporated and Subsidiaries
Consolidated Balance Sheets
|
|
December 30,
2006 |
|
December 31,
2005 |
|
|
|
(thousands
except share and
per-share amounts) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
|
$ |
282,070 |
|
|
|
$ |
72,198 |
|
|
Receivables,
net |
|
|
556,733 |
|
|
|
596,724 |
|
|
Related
party receivables |
|
|
5,795 |
|
|
|
3,520 |
|
|
Inventories |
|
|
1,071,486 |
|
|
|
1,114,570 |
|
|
Deferred
income taxes |
|
|
129,496 |
|
|
|
105,820 |
|
|
Other |
|
|
51,264 |
|
|
|
49,217 |
|
|
Total
current assets |
|
|
2,096,844 |
|
|
|
1,942,049 |
|
|
Property
and equipment: |
|
|
|
|
|
|
|
|
|
Land
and land improvements |
|
|
36,195 |
|
|
|
38,537 |
|
|
Buildings
and improvements |
|
|
359,481 |
|
|
|
359,481 |
|
|
Machinery
and equipment |
|
|
794,010 |
|
|
|
685,545 |
|
|
Total
property and equipment |
|
|
1,189,686 |
|
|
|
1,083,563 |
|
|
Accumulated
depreciation |
|
|
(610,061 |
) |
|
|
(548,118 |
) |
|
Net
property and equipment |
|
|
579,625 |
|
|
|
535,445 |
|
|
Goodwill |
|
|
1,216,032 |
|
|
|
1,218,200 |
|
|
Intangible
assets, net |
|
|
201,304 |
|
|
|
205,232 |
|
|
Investments
in affiliates |
|
|
175,000 |
|
|
|
175,000 |
|
|
Timber
notes receivable |
|
|
1,635,000 |
|
|
|
1,635,000 |
|
|
Restricted
investments |
|
|
22,292 |
|
|
|
22,377 |
|
|
Deferred
charges |
|
|
40,439 |
|
|
|
52,810 |
|
|
Other
non-current assets |
|
|
249,512 |
|
|
|
486,029 |
|
|
Total
assets |
|
|
$ |
6,216,048 |
|
|
|
$ |
6,272,142 |
|
|
OfficeMax
Incorporated and Subsidiaries
Consolidated
Balance Sheets
|
|
December 30,
2006 |
|
December 31,
2005 |
|
|
|
(thousands
except share and
per-share amounts) |
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
|
Short-term
borrowings |
|
|
$ |
— |
|
|
|
$ |
18,666 |
|
|
Current
portion of long-term debt |
|
|
25,634 |
|
|
|
68,648 |
|
|
Accounts
payable: |
|
|
|
|
|
|
|
|
|
Trade |
|
|
965,218 |
|
|
|
949,287 |
|
|
Related
parties |
|
|
32,482 |
|
|
|
42,166 |
|
|
Accrued
expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
Compensation
and benefits |
|
|
172,632 |
|
|
|
147,184 |
|
|
Other |
|
|
317,434 |
|
|
|
352,537 |
|
|
Liabilities
related to assets held for sale |
|
|
15,503 |
|
|
|
9,838 |
|
|
Total
current liabilities |
|
|
1,528,903 |
|
|
|
1,588,326 |
|
|
Long-term
debt: |
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion |
|
|
384,246 |
|
|
|
407,242 |
|
|
Timber
notes securitized |
|
|
1,470,000 |
|
|
|
1,470,000 |
|
|
Total
long-term debt |
|
|
1,854,246 |
|
|
|
1,877,242 |
|
|
Other
long-term obligations: |
|
|
|
|
|
|
|
|
|
Compensation
and benefits |
|
|
287,122 |
|
|
|
538,830 |
|
|
Deferred
gain on sale of assets |
|
|
179,757 |
|
|
|
179,757 |
|
|
Other
long-term obligations |
|
|
350,491 |
|
|
|
324,853 |
|
|
Total
other long-term obligations |
|
|
817,370 |
|
|
|
1,043,440 |
|
|
Minority
interest |
|
|
29,885 |
|
|
|
27,455 |
|
|
Commitments
and contingent liabilities |
|
|
|
|
|
|
|
|
|
Shareholders’
equity: |
|
|
|
|
|
|
|
|
|
Preferred
stock—no par value; 10,000,000 shares authorized; |
|
|
|
|
|
|
|
|
|
Series D
ESOP: $.01 stated value; 1,216,335 and 1,216,335 shares outstanding |
|
|
54,735 |
|
|
|
54,735 |
|
|
Common
stock—$2.50 par value; 200,000,000 shares authorized; 74,903,220
and 70,804,612 shares outstanding |
|
|
187,226 |
|
|
|
176,977 |
|
|
Additional
paid-in capital |
|
|
893,848 |
|
|
|
747,805 |
|
|
Retained
earnings |
|
|
941,830 |
|
|
|
898,283 |
|
|
Accumulated
other comprehensive loss |
|
|
(91,995 |
) |
|
|
(142,121 |
) |
|
Total
shareholders’ equity |
|
|
1,985,644 |
|
|
|
1,735,679 |
|
|
Total
liabilities and shareholders’ equity |
|
|
$ |
6,216,048 |
|
|
|
$ |
6,272,142 |
|
|
OfficeMax
Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
|
|
Fiscal Year Ended |
|
|
|
December 30,
2006 |
|
December 31,
2005 |
|
December 31,
2004 |
|
|
|
(thousands) |
|
Cash
provided by (used for) operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
|
|
$ |
91,721 |
|
|
|
$ |
(73,762 |
) |
|
|
$ |
173,058 |
|
|
Items
in net income (loss) not using (providing) cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from affiliates |
|
|
(5,873 |
) |
|
|
(5,460 |
) |
|
|
(6,311 |
) |
|
Depreciation
and amortization |
|
|
127,812 |
|
|
|
151,145 |
|
|
|
354,982 |
|
|
Minority
interest, net of income tax |
|
|
4,083 |
|
|
|
2,370 |
|
|
|
3,026 |
|
|
Pension
and other postretirement benefits expense |
|
|
13,239 |
|
|
|
25,877 |
|
|
|
83,261 |
|
|
Discontinued
operations |
|
|
5,973 |
|
|
|
8,862 |
|
|
|
36,457 |
|
|
Gain
on sales of assets |
|
|
(1,004 |
) |
|
|
(410 |
) |
|
|
(387,218 |
) |
|
Non-cash
asset write-downs |
|
|
9,543 |
|
|
|
23,062 |
|
|
|
1,582 |
|
|
Other |
|
|
24,602 |
|
|
|
38,384 |
|
|
|
22,027 |
|
|
Changes
other than from acquisition of business |
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
|
29,126 |
|
|
|
47,517 |
|
|
|
(490,168 |
) |
|
Inventories |
|
|
43,001 |
|
|
|
32,809 |
|
|
|
(39,630 |
) |
|
Accounts
payable and accrued liabilities |
|
|
8,662 |
|
|
|
(142,582 |
) |
|
|
(15,867 |
) |
|
Current
and deferred income taxes |
|
|
58,683 |
|
|
|
(136,629 |
) |
|
|
69,431 |
|
|
Pension
and other postretirement benefits payments |
|
|
— |
|
|
|
— |
|
|
|
(288,772 |
) |
|
Other |
|
|
(33,871 |
) |
|
|
(28,881 |
) |
|
|
32,993 |
|
|
Cash
provided by (used for) operations |
|
|
375,697 |
|
|
|
(57,698 |
) |
|
|
(451,149 |
) |
|
Cash
provided by (used for) investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for property and equipment |
|
|
(174,769 |
) |
|
|
(152,450 |
) |
|
|
(290,600 |
) |
|
Expenditures
for timber and timberlands |
|
|
— |
|
|
|
— |
|
|
|
(7,642 |
) |
|
Investments
in affiliates |
|
|
— |
|
|
|
— |
|
|
|
(174,901 |
) |
|
Acquisition
of businesses and facilities, net of cash acquired |
|
|
(1,500 |
) |
|
|
(34,803 |
) |
|
|
— |
|
|
Proceeds
from sale of (purchase of) restricted investments |
|
|
— |
|
|
|
93,259 |
|
|
|
(113,000 |
) |
|
Proceeds
from sales of assets |
|
|
12,333 |
|
|
|
— |
|
|
|
2,225,561 |
|
|
Discontinued
operations |
|
|
— |
|
|
|
— |
|
|
|
(9,388 |
) |
|
Other |
|
|
— |
|
|
|
(3,343 |
) |
|
|
15,078 |
|
|
Cash
provided by (used for) investment |
|
|
(163,936 |
) |
|
|
(97,337 |
) |
|
|
1,645,108 |
|
|
Cash
provided by (used for) financing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock |
|
|
(43,509 |
) |
|
|
(49,817 |
) |
|
|
(51,874 |
) |
|
Preferred
stock |
|
|
(4,037 |
) |
|
|
(4,379 |
) |
|
|
(12,211 |
) |
|
|
|
|
(47,546 |
) |
|
|
(54,196 |
) |
|
|
(64,085 |
) |
|
Short-term
borrowings (repayments), net |
|
|
(18,666 |
) |
|
|
8,266 |
|
|
|
5,121 |
|
|
Proceeds
from timber notes securitized |
|
|
— |
|
|
|
— |
|
|
|
1,470,000 |
|
|
Additions
to long-term debt |
|
|
— |
|
|
|
— |
|
|
|
246 |
|
|
Payments
of long-term debt |
|
|
(65,610 |
) |
|
|
(206,933 |
) |
|
|
(1,570,504 |
) |
|
Purchase
of Series D preferred stock |
|
|
— |
|
|
|
(7,229 |
) |
|
|
(123,233 |
) |
|
Purchase
of common shares |
|
|
(33 |
) |
|
|
(780,417 |
) |
|
|
— |
|
|
Proceeds
from exercise of stock options |
|
|
129,966 |
|
|
|
24,747 |
|
|
|
37,823 |
|
|
Proceeds
from adjustable conversion-rate equity security units |
|
|
— |
|
|
|
— |
|
|
|
172,500 |
|
|
Other |
|
|
— |
|
|
|
453 |
|
|
|
(4,164 |
) |
|
Cash
used for financing |
|
|
(1,889 |
) |
|
|
(1,015,309 |
) |
|
|
(76,296 |
) |
|
Increase
(decrease) in cash and cash equivalents |
|
|
209,872 |
|
|
|
(1,170,344 |
) |
|
|
1,117,663 |
|
|
Balance
at beginning of the year |
|
|
72,198 |
|
|
|
1,242,542 |
|
|
|
124,879 |
|
|
Balance
at end of the year |
|
|
$ |
282,070 |
|
|
|
$ |
72,198 |
|
|
|
$ |
1,242,542 |
|
|
|
|