Dr. David Young

GLG News by Dr. David Young, Managing Director

GLG News is now G+ Insights

G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.

Coming to terms with fair value accounting

December 26, 2007

Analysis of:The Finer Points of Fair Value | www.aicpa.org

This article is the best summary to date of the FASB's new standard on fair value accounting.  FAS 157 is an important standard.  First, it allows (but doesn't require) companies to abandon historical cost for a broad range of financial assets and liabilities.   It also reflects a change in the FASB's philosophical approach towards a more balance-sheet oriented approach to standards setting, in contrast to the earnings measurement approach that used to dominate.  Also of interest is the principles-based nature of the standards.  In both of these ways, FAS 157 is close to what one might expect from the IFRS.  This standard is just one more step on the road to GAAP-IFRS congruence.  The article is also useful in pointing out the key issues that analysts need to understand to avoid being blindsided by reporting entities.

The sub-prime meltdown has far reaching accounting effects

December 26, 2007

Analysis of:Accounting consequences of the credit crunch | ifrs.pwc.com

The article shows why the recent problems in global credit markets can have accounting effects that go far beyond the banks and other players directly touched by the crisis.  It also highlights the areas that financial statement readers should be wary of when accessing the possible effects of the crisis on companies of interest.  For example, recent market turmoil could lead to significant asset impairment charges, even for companies with no direct involvement in subprime loans.

Wendy's Buyback is a Good Move

October 20, 2006

Analysis of:Wendy’s Launching Aggressive Buyback | www.cfo.com

The article focuses on Wendy's recent announcement to buy back up to 35 million shares (around $800 million) over the next 18-24 months.  The company says that the move is motivated by the desire to "return value" to shareholders, although the author speculates that the company may have decided on buyback as a defensive move against a particular hedge fund manager who has taken a position in Wendy's.

Do buybacks really create value?

September 21, 2006

Analysis of:Stock Buybacks at 'Unprecedented Level' | www.cfo.com

The article discusses a recent surge in share buybacks, focusing on Applied Materials and Cigna.  It quotes an analyst who says that buybacks offer two advantages: short-term price support and higher EPS.  The article goes on to say that buyback levels, both in number of transactions and dollar value, have never been higher.

A Possible Downside to Share Buybacks

June 13, 2006

Analysis of:Buybacks as merger fuel? | www.cfo.com

The article is really just a comment from a blogger.  It addresses the staggering levels of share buybacks in the U.S.  More specifically, he claims that the recent spate of buybacks may be a precursor to some big M&A activity.  Here's the logic:  When U.S. companies buy shares, they tend to transfer them to corporate treasury, instead of canceling them (which many countries require).  The shares can then be reissued as employees exercise stock options, etc.  The key point is that some companies don't like keeping treasury shares for very long, implying that they are itching to reissue them.  One way for them to do this is to use the shares for M&A.  He also notes that there are tax advantages to share-based (as opposed to cash-based) takeover activities.

Big U.S. retailers cut back on key non-GAAP disclosure

June 9, 2006

Analysis of:Retailers discount statistic on same-store sales | online.wsj.com

In a little noticed, but important gesture, large U.S.-based retailers, including Home Depot, have decided to stop disclosing same-store-sales figures (also known as "comps").  This is the figure that reports sales for stores that have been open for at least a year, and is considered by a many investors as an important indicator of underlying sales growth (given that large retailers also grow through acquisitions).  Other key retailers will continue disclosing the statistic, but less frequently than before (quarterly vs. monthly, for example).

The motive, not entirely convincing according to the article, is that investors are allegedly reacting too strongly to the signal, inducing increased share price volatility.  Although the article doesn't say so, it implies that much of this volatility may be induced by short-term, scalper-type traders. 

This move runs counter to the long-run trend of companies increasing non-GAAP disclosures in the interest of providing investors with more clues on future profit growth than are available from official GAAP numbers.

The Future of Sarbanes-Oxley

May 19, 2006

Analysis of:SEC's Cox says Sarbanes-Oxley tricky in practice | www.marketwatch.com

The commentary below addresses the issue of what changes we can expect from Sarbanes-Oxley in future, and what effect these changes might have on the Big 4.

Blockbuster is not out of the woods yet

May 18, 2006

Analysis of:Blockbuster can escape danger | online.barrons.com

The major theme of the article is that Blockbuster is making something of a comeback.  Profitability is improving (or at least the company is making smaller losses), and the cash flow situation is improving. 

Through aggressive cost cutting, store closures, the online rental business, and the closing of smaller competitors, the longer-term picture is looking better than it has in a long time.  With a 42% drop in share price since early last year, the stock may be looking cheap. 

Corporate Jets: What Analysts Should Know

May 11, 2006

Analysis of:When top guns fly, shareholders pay | www.iht.com

This article discusses the trend toward increased use of corporate jets.  Several interesting cases of executives using, and abusing, corporate jets are cited, including those of Robert Wright, GE’s vice chairman, and Richard Parsons, Time Warner CEO.  Companies try to justify the practice by claiming that executive time is used more efficiently and that security is improved. 

One particularly distressing aspect of this trend is that it continues, despite unfavorable changes in U.S. tax law that severely limit the ability of companies to deduct the expenses.  The practical effect is that shareholders are bearing a larger burden than ever.  Not only are senior executives using jets more than ever, but the net-of-tax cost to shareholders is also higher than ever.      

Possible M&A Activity in European Drugs Distribution

May 8, 2006

Analysis of:Cardinal puts Europe on its drugs radar | news.ft.com

Cardinal Health, the number 2 drugs distributor and hospital supply group, announced that they are hunting for acquisitions in Europe.  They are currently considering several opportunities. 

Although the article doesn't say so, the move is likely motivated, in part, by the lack of interesting targets in the U.S.  A second motive, which is mentioned in the article, is that the U.S. and European drug and hospital supply markets are converging.  For example, European hospitals are under increasing price pressure, just as their American counterparts have been.  This has led to the increase in large bulk, a trend that is likely to favor the big players on the distribution side.

Funding status is not the whole story

May 6, 2006

Analysis of:FASB to Move Pension Accounting From Footnotes to Balance Sheets | online.wsj.com

The article focuses on the FASB's proposed change to pension accounting.  The change would require companies to report the over- or underfunded status directly on the balance sheet, and not just in the notes. 

Dissent on the FASB/IASB Convergence Project

May 6, 2006

Analysis of:PwC opposes IASB proposals | news.ft.com

A draft version of a confidential report prepared by the PwC (UK) is questioning the wisdom of the IASB's convergence project with its U.S. counterpart.  The PwC partners believe that the IASB should focus on improving IFRS, instead of seeking convergence.  The implication is that the Board seeks convergence for its own sake, not necessarily because it's convinced that corporates and investors will be better.

The firm is also concerned that the "rules-based" approach of U.S. GAAP will contaminate IFRS, reducing the role of professional judgment.

U.S.-based analysts need to know IFRS too

April 28, 2006

Analysis of:Europe's Transition to IFRS | news.ft.com

This article was written for the Financial Times' Managing Uncertainty series.  It argues that the pricing effects of European companies switching to IFRS from their national GAAPs have been rather modest, mainly because most of the financial statement effects were anticipated by the markets.  The important lesson for analysts is that they have to be able to isolate IFRS impacts with the potential to surprise from those, however large, that are already reflected in equity prices.

The article also discussed the three main effects of IFRS transition on European financial statements--expanded disclosure, higher levels of reported debt, and increased earnings volatility.  It is the latter effect that has corporates most nervous. 

Pensions Costs in the U.K. and what it means for U.S. stocks

April 27, 2006

Analysis of:Pension Crisis "Overstated" | news.ft.com

A prominent U.K. fund manager argues that the pension crisis is overstated.  A combination of immigration and competition from low-wage countries means that future pension benefits will be lower than expected.  Companies with the biggest current  deficits may be the ones to benefit most from this trend. 

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