Index

Abandonment, 75, 76, 130 Angel investors, 193 Accelerated share repurchase (ASR) Apple, 5 program, 90, 91 APQC (American Productivity & Acco Brands, 142 Quality Center), 232, 308 Accounting oversight, 273 Arthur Andersen, 273 Accounts payable, 105, 189, 190, ASR (accelerated share repurchase) 253, 294, 302, 304, 306 program, 90, 91 Accounts receivable, 70, 168, 189, Asset transactions, 139, 247 190, 227, 294, 302, 304 At-the-market (ATM) offering, Accretion/dilution analysis, 10, 114 198, 199 Acquisitions. See Mergers and Auction , 174 acquisitions Auctions, 92, 93, 119–121, 127, Activist shareholders, xv, 21, 142, 128, 136–140, 174 143, 149 Audit committee, 53, 259, 260, 264, Adjacent acquisitions, 100 273–275, 278, 283–287, 296 Adjusted earnings, 8, 266, 267 Auditors ADP (Automatic Data Processing), 159 external. See External auditors Alcoa, 6 independence, 273–275 Alignment of interests,http://www.pbookshop.com 23–29 internal. See Internal audit Alliances, 202, 203 Automation, 242, 252–255, 277, Altria, 6 279, 303, 311 Amazon, 6 Analysts COPYRIGHTEDBank loans,MATERIAL 178, 185, 186, 195, 200 analyst relations, 29–31 Bankruptcy, 49, 168, 182, 183, 201, , 7, 29, 30, 33, 55 287 industry analysts, 30, 31 Barra, 62 , 7, 29–32, 34, 136, Benchmarks/benchmarking, 8, 83, 265–267 95, 112, 212, 214, 229, 234, Anderson, Richard J., 44 301

331

bindex.indd 331 3/3/2012 9:41:56 AM 332 ◾ Index

Bermuda, 237 Business performance, 207–219 Berra, Yogi, 39 Business plan, 119, 122–125, 128, Betas, 61–63 131, 132, 194, 223, 298, 299 Black-Scholes, 29, 84, 85, 173 Business profile, 146 Black swan events, 43, 49 Business sponsors, 100–102, 109, Blackout periods, 90, 256 123, 128, 132, 133 Blink (Gladwell), 21 Business-to-business companies, 210 Bloomberg, 37, 62, 265 Business-to-consumer companies, Board of directors 210 compliance and controls, oversight Business units of, 283–285 budgeting issues, 224, 227 corporate culture, 284, 285 and business analysis, 233 ERM oversight, 53 and business objectives, 4 fiduciary duties, 147, 149, 181 cost reduction strategies, 211–213 and financing strategy, 167 experience in for CFOs, 317 governance policies, 145–146 metrics, 228, 229, 231 risk management, 43. See also and organizational structure, Enterprise Risk Management 294–299 (ERM) partnering with, 209, 210 staggered boards, 146 and transfer pricing, 247 strategic plan, annual review of, 21 Buy side analysts, 7, 29, 30, 33, 55 offer, review of, 146, 147 Bolt-on transactions (tuck-ins), 16, Call options, 172, 173, 179 105, 106 Capital allocation Bonus criteria. See Incentive capital investments. See Capital compensation investments Booz Allen Hamilton, xvi , estimating. See Cost Brand image, 48 http://www.pbookshop.comof capital Breakeven analysis, 73, 219 strategies, xix, 14, 15, 208, 317 Breakup fee, 130, 131 Capital asset pricing model, 12, 59, Bridge financing, 93, 127 154 Budgets, 221–225 Capital budget, 67, 74 Business analysis, 221, 233, 234, Capital charge, 8, 27, 115, 231 296–298, 300, 301, 309 Capital expenditures, 6–8, 14, 15, Business combinations. See Mergers 59, 67–70, 155, 162, 177, 187, and acquisitions 227, 228 Business objectives, xix, 3–5, 7, 16, Capital investments 21, 49, 101, 116, 123, 175, budgeting for, 227, 228 233, 234, 325 categorizing projects, 74, 75

bindex.indd 332 3/3/2012 9:41:56 AM Index ◾ 333

cost of capital, 67, 70, 73, 76 Cash planning, 9, 81, 187 monitoring projects, 75–77 Caterpillar, 5 pension fund contributions, 77, 78 CBS, 107 prioritizing, 67–78 CDOs (collateralized debt project evaluation, 71–74 obligations), 200 and retention of strategic cash, 93 Centers of excellence, 302 Capital leases, 167, 168 Certification of financial statements, Capital One, 6, 127 274–276 management CFO magazine, xv about, 153 CFO Research Services, xvi cost of capital, 153–155, 157, Change of control, 149, 178, 159, 165 247 financing strategies. See Financing Chapter 7 (bankruptcy), 183 strategies Chapter 11 (bankruptcy), 182 investment-grade alternatives, Chart of accounts, 254, 297, 159 299 investor interest in, 162, 163 Checks and balances, 254 leverage criteria, 155, 156 Chicago Mercantile Exchange (CME), leverage ratios, 62, 153–155, 161, 240 177, 179 Chief risk officer, 53 leverage targets, 88, 153–157, Citadel Broadcasting, 142 162 Closing cycle, 252 liquidity, short-term, 185. See also CNBC, 37 Liquidity, short-term Coca Cola, 5 rating agencies, 157–162 Code of conduct, 282, 283 speculative ratings, 159, 160 Colgate-Palmolive, 5 Captive insurance companies, 236, Collateralized debt obligations 237 http://www.pbookshop.com(CDOs), 200 Career development. See Talent Commercial paper, 94, 185, 186, Carve-outs, 143, 171 188 Cash flow Committee of Sponsoring discounted, 8, 12, 64, 76, 109– Organizations of the Treadway 111, 114 Commission (COSO), 44, 286, . See Free cash flow 287 management incentives, 189 Commodity Futures Trading from operations, 8, 68, 69, 154 Commission (CFTC), 288 projections, 67, 68, 226, 227 Commodity risks, 241, 242 Cash investment policies, 95, 96 Common stock, 10, 112, 171, 194, Cash management, 95, 191 202

bindex.indd 333 3/3/2012 9:41:56 AM 334 ◾ Index

Communications Conoco, 241 analyst relations, 29–31 Conoco Phillips, 142 company website, 35, 36 Consolidations, 6, 16, 103–106, coordinating, 39 127, 178 earnings call, 261–266 Contingency planning, 9, 51, 185, earnings guidance, 267–271 187, 188, 217 handwritten notes, 324, 325 Contingent financing, 121, 127, interviews, 39, 40 129–131, 139–140 investor presentations, 31–35 Continuous improvement, 218, 301, with investors, 4, 8, 17, 20, 23, 308, 326 24, 29, 35–38, 162, 163, 266, Continuous learning, 304, 312, 319, 267 320 media relations, 37–40 Contract terms, 119, 129–131, 139 media training, 40, 41 Control deficiencies, 277, 278 with rating agencies, 25, 160, Control environment, 282, 283 161, 265 Controls. See Internal controls role of CFO, 23–25, 31, 37, 38 Convertibles (convertible debt and SEC regulations, 35, 36, 38, 275 convertible preferred securities), social media, use of, 36 126, 165, 171, 172, 194, 202 Company website, 35, 36 Corporate social responsibility, 48 Comparable companies, 14, 65, Corporate venture funds, 194 109–111 COSO framework, 44, 286, 287 Compensation Cost accounting, 209, 233, 234 disclosures, 54 Cost allocations, 125, 211–214, expense, reducing, 215, 216 224, 225, 234, 236 incentive compensation, 8, 11, 14, Cost of capital 23, 25–29, 44, 53, 85, 89, 131, acquisitions, 65, 66, 114, 115 176, 189, 223,http://www.pbookshop.com 227, 229, 232 assumption, 153, 154 Compensation committee, 25, 27– betas, 61–63 29, 53 and business unit capital charge, Compensation discussion and 231 analysis (CD&A), 28, 258 calculation, 60 Competitive auctions, 93, 119, 121, and capital investments, 67, 70, 127, 128, 136, 138 73, 76 Compliance committee, 285. See also and capital structure Risk committee management, 153–155, 157, Conference calls, 35, 86, 261–266 159, 165 Conflicts of interest, 140, 143, 149, in analysis, 158, 273–275 12, 64, 66

bindex.indd 334 3/3/2012 9:41:56 AM Index ◾ 335

estimating, 59–66 Days of sales outstanding, 189 and financing strategies, 166, DBRS (Dominion Bond Ratings 176, 177 Service), 157 high yield securities, 201 Deal dynamics, 128, 196, 197 hurdle rates, 63, 64 Debt financing private companies, 227 about, 167 risk premiums, 63–65 alternatives, 171–174 updating and validating, 60, 61 debt covenants, 126, 136, 154, venture capital, 194 160, 177–179, 202 weighted-average cost of capital debt maturity structure, 168, 169, (WACC), 59–61, 114, 154, 159, 187 231 fixed rate, 169, 170 Cost of compliance, 288, 289 floating rate, 169, 170 Cost of debt, 60, 66, 88, 111, 114, foreign currency debt, 167, 170, 190 171 Cost reduction, 6, 9, 39, 70, 73, long-term, 93, 127, 173 211–219, 225, 301 refinancing, 127, 169, 179, Covenants. See Debt financing 180 Credit lines, 92, 185, 186, 188, 240 types of debt, 167, 168 Credit ratings, 156–158, 178, 185, and warrants, 173 200. See also Debt ratings Debt for equity swaps, 180–182 Credit ratios, 161 Debt leverage, 61–63, 66, 88, 148, Currencies 153–157, 160, 161, 179, 180 foreign debt financing, 167, 170, Debt ratings, 16, 19, 82, 126, 153, 171 155, 159–162, 177, 179, 181, non-U.S. operations, performance 182, 200, 201, 238, 265. See metrics, 27 also Rating agencies risks and opportunities,http://www.pbookshop.com 226, Debt ratios, 62, 63, 111, 154, 161, 239–241 177 Current ratio, 189 Debt refinancing, 127, 169, 179, Customer relationships, 100, 106, 180 156, 210, 211, 260 Debtor in possession (DIP) financing, Cyber security risks, 48, 52 182 Decision tree analysis, 72, 76, 77, Danaher, 6 173 Dashboards, 228–230. See also Deep dive reviews, 233, 234 Scorecards Deferral Data security, 47, 48 capital projects, 74, 76 Days of payables outstanding, 189 taxes, 68, 244

bindex.indd 335 3/3/2012 9:41:56 AM 336 ◾ Index

Deficiency in internal controls, 277, from international , 278 239 Defined benefit plans, 27, 243. See and investment styles, 18 also Pension funds investor perspective on, 92, 94 Deloitte, xvii, 50 payout ratio, 14, 80, 81, 83, 84 Deming, W. Edwards, 217 policy on, 80–85 Development objectives, 316–320 preferred stock, 173 Development plans, 318, 320, 321, private companies, 85 323 reinvestment programs, 89 Development tools, 298, 320–325 retention of cash as alternative to, Disaster recovery plan, 51 92–94 Disclosure committee, 54, 276 special, 85, 148 Disclosures tax consequences, 67, 173 Fair Disclosure rule (Regulation token dividend, 80 FD), xv, 29, 31–34, 38, 161, and total shareholder return, 266, 268 10–13 fair value, 258 and “trapped cash” from SEC filings, 256 international operations, 191 tax, 258 yield, 11, 14, 18, 27, 80, 81, Discounted cash flow, 8, 12, 64, 66, 83–86, 88, 171, 174 76, 109–111, 114 DMAIC (define, measure, analyze, Discounted payback period, 73 improve, and control), 218 Disney, 142 Documentation requirements, 170, Disruptive technologies, 47 253, 277, 279 Diversifiable risk, 52 Dodd-Frank Act, 48, 146, 287, 288 Diversity, 325 Dribble out offering, 199 Divestitures, 35, 62, 63, 90–92, 107, Driscoll, Mary, 232 135–143 http://www.pbookshop.comDual classes of stock, 171 Dividends Due diligence, 110, 116, 119–123, about, 79 132, 138, 148, 275, 281, alternatives, 79, 92–94 286 announcement, 86 Dun & Bradstreet, 157 auction preferred stock, 174 DuPont, 241 cash planning, 9, 81, 187 Duration convertible preferred stock, 172 debt maturity objective, 169 declarations, 85, 86 of liabilities owned to pensioners, dividend discount model, 84 matching securities to, 243, dividends received deduction, 173 244 and free cash flow, 68, 69 Dutch auction , 92

bindex.indd 336 3/3/2012 9:41:56 AM Index ◾ 337

Earnings announcements, 29, 90, Enterprise Risk Management (ERM), 256, 259, 263, 265, 269 xv, 9, 43–56, 191 Earnings before interest and taxes , 8 (EBIT), 8, 154 Equity carve-outs, 143, 171 Earnings before interest taxes and Equity financing, 171–174, 198– amortization (EBITA), 267 200 Earnings before interest taxes Equity multiples, 8, 10, 13, depreciation and amortization 18, 111, 268 (EBITDA), 8, 70, 71, 110–112, ERM. See Enterprise risk 115, 154, 161, 177, 180, 231, management (ERM) 267 Ernst & Young, 40 Earnings growth rate, 9–11, 13, 18, Escheatment, 248 83, 84 ETFs (exchange traded funds), 19, 20 Earnings guidance, 267–271 Exchange listing, 126, 196 Earnings per share growth rate, 13, Expansion 87 acquisitions versus growth, 100 Earnouts, 106, 128, 129, 137, 187 funding, 156, 157, 198 EBIT, 8, 154 growth strategies, 207–211 EBITA, 267 as real option, 76 EBITDA, 8, 70, 71, 110–112, 115, small companies, 156 154, 161, 177, 180, 231, 267 Experience, 316–318 Economic profit, 8, 231. See also Expertise, 316, 317 (EVA) eXtensible Business Reporting Economic value added (EVA), 114, Language (XBRL), 256, 257 115, 231 External auditors, 254, 256, 259, Economies of scale, 303 260, 263, 264, 273–275, 277, EDGAR (Electronic Data Gather, 278, 283, 284 Analysis, andhttp://www.pbookshop.com Retrieval), 256, ExxonMobil, 6, 52 257 Egan-Jones Ratings, 157 Factoring of receivables, 188 Elevator pitch, 20–21 FactSet, 62 EMC, 143 Fair Disclosure rule (Regulation FD), Emerging markets, 5, 9, 115, 195, xv, 29, 31–34, 38, 161, 266, 211, 242 268 Employee agreements, 129, 131 Fair value, 124, 129, 178, 258, 260, Employee stock purchase program, 267, 279 89 , 136 Employees, hiring. See Talent FairPoint Communications, 142 Enron, xv, 89, 175, 273 Fastow, Andrew, xv

bindex.indd 337 3/3/2012 9:41:56 AM 338 ◾ Index

Fat tail events, 49 consolidated, 299 FCPA (Foreign Corrupt Practices filing requirements, 256 Act), 285, 286 material misstatements, 278 Federal Sentencing Guidelines, 281 restated, 125 FedEx, 5 Financing conditions, 131, 139, 140 Fimalac, 157 Financing, long-term Finance committee, 53 about, 193 Finance transformation corporate venture funds, 194 about, 293 high yield securities, 201, 202 financial analysis, 308, 309 initial public offerings (IPOs), organizational structure, 293–298 195–197 outsourcing, 303–308 investment grade securities, 159, process reengineering, 301–303 160, 162, 179, 200–201 technology systems, 298–300 , 194, 195. See also Financial Accounting Standards (FAS) Private equity FAS 141R, 129 reverse mergers, 197 FAS 159, 182, 267 sovereign wealth funds, 195 Financial Accounting Standards special purpose acquisition Board Interpretations (FIN) companies (SPACs), 197, 198 FIN 46, 174 strategic alliances, 202, 203 FIN 48, 258 subsequent equity offerings, Financial analysis, 308, 309 198–200 Financial metrics, 26, 229 syndicated bank loans, 178, 195, , 7–10, 12, 147, 200 222, 223, 229 term loans, 170, 200 Financial planning and analysis venture capital, 90, 172, 193– (FP&A), 294–297. See also 195, 198 Planning andhttp://www.pbookshop.com analysis Financing strategies Financial projections, 124–126, about, 165, 166 219, 222, 223 bankruptcy, 182, 183. See also Financial reporting, 251–255 Bankruptcy Financial risks, 47, 53, 156, 157, debt covenants, 126, 136, 154, 235, 238, 239, 242 160, 177–179, 202 Financial statements debt financing. See Debt financing accuracy and timeliness of, 252, debt for equity swaps, 180–182 277 and debt rating, 177, 179, 181 certification, 274–276 debt refinancings, 179, 180 comparable companies, equity financing, 171–174 normalized, 110 fiduciary duties, 181

bindex.indd 338 3/3/2012 9:41:56 AM Index ◾ 339

flexibility, 166, 167 COSO report on corporate fraud, and incentive compensation, 176, 286, 287 177 Foreign Corrupt Practices Act, long-term financing. See 285, 286 Financing, long-term prevention, 287 off balance sheet financing, 174– in reverse mergers, 197 177, 274 risk assessment, 45, 284 outsourcing contracts, 176 travel and entertainment expenses, private equity refinancings, 180 283 rating agency reaction to, 181, Free cash flow, 6, 8, 10, 68, 69, 75, 182 81, 82, 86, 90, 92, 110, 111, short-term liquidity. See Liquidity, 115, 189, 227, 231, 244 short-term Frigo, Mark L., 44 Fitch Ratings, 157, 158 Fully distributed stock, 112 Fixed assets, 168, 188, 240 Futures, 240, 241 Fixed charge coverage ratio, 177 Fixed costs, 175, 219, 229, 279 GAAP, 8, 10, 258, 266, 267, 269 Fixed rate debt, 169, 170 GARP investors, 18 Floating rate debt, 169, 170 Gatekeeper, 133 Follow-on offerings, 198, 199 , 18 Ford, 6 General Ledger, 122, 299 Forecasts, 225, 226 Generally accepted accounting Foreign Corrupt Practices Act principles (GAAP), 8, 10, 258, (FCPA), 285, 286 266, 267, 269 Foreign currency debt, 167, 170, Gladwell, Malcolm, 21 171, 239 Glass Lewis, 146 Form 8-K, 197 Going private transaction, 149, 150 Form 10-K, 47, 256,http://www.pbookshop.com 257, 259 Goodwill, 124, 125, 258, 260 Form 10-Q, 47, 256, 259 Google, 5, 37, 94, 171 Form DEF 14A, 256. See also Proxy Google Finance, 37 statements Governance Fortuna Advisors, 71 and cost reduction strategies, 213 Fortune Brands, 142 policies, 145, 146 Forwards, 241 risk management. See Enterprise 401(k) plans, 215, 243 Risk Management (ERM) Fox Business, 37 Government regulatory risk, 43–45, Fraud 48, 49, 55 anti-fraud provisions, securities Green shoe option, 197 law, 38 Growth and income investors, 18, 84

bindex.indd 339 3/3/2012 9:41:56 AM 340 ◾ Index

Growth at a reasonable price (GARP) Insider information, 160, 161, 265 investment style, 18 Institutional investors, 17, 18, 29, Growth investors, 18 30, 84, 141, 194, 195, 200, Growth strategies, 207–211 201 Institutional Shareholder Services Health care expense, 131, 214, 215 (ISS), 146 Hedge funds, xv, 18, 19, 30, 34 Insurance, 51, 235–238 Hedging strategies, 170, 171, 238– Intangibles, 114, 124, 258, 260, 243 266, 267 High yield debt, 179, 195, 200–202 Interest rate swap agreements, 170 Hiring freezes, 215, 216 Interest rates Hope, Jeremy, 300 debt financing and refinancing, Hurdle rate, 63, 64 167, 169, 170, 177, 179, 200, Hybrid securities, 172 201, 242, 243 deductibility of interest paid on IBM, 6 high yield securities, 201 IFRS, 258 risk, 238, 239, 243 Implementation Internal audit, 45, 51, 274, 275, of ERM, 44, 45 283, 284, 287, 295, 304, 313, of outsourcing, 305–308 317 Sarbanes-Oxley requirements, Internal controls 273–280 assessment of, 276–279 strategic plan, 3, 21 centers of excellence, 302 Incentive compensation, 8, 11, 14, centralization trend, 294, 396 23, 25–29, 44, 53, 85, 89, 131, control environment, 282, 283, 176, 189, 223, 227, 229, 232 304, 305 Income and growth investors, 18, 84 deficiencies in, 277, 278 Income investors,http://www.pbookshop.com 18 and FCPA requirements, 285, 286 Incurrence covenants, 178 financial reporting, 274 Index funds, 19, 20, 141 information technology, 253 Individual investors, 20, 35, 158, investment policy, 95 173 outsourcing, 304, 305 Industry analysts, 30, 31 role of CFO, xviii, 281 Inflation risk, 238, 242, 243 Sarbanes-Oxley requirements, Information technology (IT), 74, 274, 276–279 253, 298–300 small companies, 279 ING, 127 testing of financial controls, 253, Initial (IPO), 34, 171, 254, 274, 277, 278 194–198, 203, 267 web activities, monitoring, 36

bindex.indd 340 3/3/2012 9:41:56 AM Index ◾ 341

Internal rate of return (IRR), 72–74 Journal of Accountancy, 319 Internal Revenue Code Section 338(h)10 election, 247 Kodak, 6 Section 382 transactions, 247 KPMG, xvi Internal Revenue Service (IRS), Kraft, 6, 142 201 Kroll Bond Ratings, 157 International Financial Reporting Standards (IFRS), 258 Lamoreaux, Matthew G., 319 International operations, 93, 94, Lateral transfers, 311–314 126, 170, 187, 191, 239, 255, Leadership 285, 286, 294, 315–317 brand leadership, 5 International Paper, 6 business sponsor, 101, 102 Interviews, 39–41, 147, 196, 314, as development objective, 316, 315 318, 319, 326 Intrinsic value, 112, 116, 172, 173 market leadership, 5, 9, 15, 16 Inventory, 168, 186, 187, 189–191, top-down, 299 227 Lean manufacturing, 218 Investment banks and bankers, 34, Leases 35, 55, 90, 91, 136–137, 196, capital leases, 167, 168 199 operating leases, 154, 175, 176 Investment budget, 55, 68–72 Leverage ratios, 62, 153–155, 161, Investment grade securities, 159, 177, 179 160, 162, 179, 200, 201 Leverage targets, 88, 153–157, Investment projects, 65, 69, 73, 77, 162 93 (LBO), 110, 111 Investment styles, 18 Liability exposures, 51, 129, 130, Investor communications, 4, 8, 17, 137, 139, 236, 238 20, 23, 24, 29,http://www.pbookshop.com 35–38, 162, LIBOR (London Interbank Offered 163, 266–267 Rate), 200 Investor conferences, 20, 24, 31, 32, Lines of credit, 185, 186 86 Liquidity preference function, 169 Investor day, 31–33, 86 Liquidity ratios, 189 Investor presentations, 31–35, 38, Liquidity risk, 188 90, 199, 266 Liquidity, short-term, 185–191 Investor relations, 19, 20, 29, 34– Lock-up restrictions, 198 37, 86, 146, 266 Lockbox system, 190 IPO (), 34, 171, London Interbank Offered Rate 194–198, 203, 267 (LIBOR), 200 IRR (internal rate of return), 72–74 Long tail events, 47, 49

bindex.indd 341 3/3/2012 9:41:56 AM 342 ◾ Index

Long-term financing. See Financing, acquisition strategies, 15–17, 102, long-term 103 Long-term projections, 222 bolt-on transactions (tuck-ins), 16, 105, 106 Maintenance covenants, 177 and business objectives, 16 Major exposures, 47–50 business plan, 123, 124 Management buyouts, 149, 150, consolidations, 6, 16, 103–106, 217 127, 178 Management discussion and analysis contract terms, 129–131 (MD&A), 257 cost of capital, 65, 66, 114, 115 Marathon, 142, 171 due diligence, 119–123 Mark-to-market accounting, 182, financial projections, 124–126 270. See also Fair value financing, 16, 17, 126, 127 Market capitalization, 60, 61, 154, and growth strategies, 208 199 integration, 132, 133 Market value, 8, 10, 14, 91, 112, merger of equals, 104, 127 141, 154, 169, 179, 182, 247, platform transactions, 16, 103, 258, 260 105, 106 Marketing and advertising, 6, 9, 68, price negotiations, 128, 129 73, 111, 231, 271 rationale for, 99, 100 Material misstatements, 278 takeover offers, 135–150 Material weakness, 278 transformative transactions, 16, Maturities, 95, 167–169, 172, 107 173, 179, 187, 200, 201, types of acquisitions, 103–107 244 Metrics. See Performance measures MBAs, 313, 314, 324 Mezzanine debt, 168, 173, 194 McGraw-Hill, 157 Microsoft, 85, 94 McKinsey, 268 http://www.pbookshop.comMitigation strategies, 45, 50–52, 55, MD&A (management discussion and 125, 188, 235, 240, 243, 244 analysis), 257 Mitsubishi UFJ Financial, 202 Mead-Westvaco, 142 Modification option, 76 Media relations, 37–41 Moody’s Investors Service, 157–159 Media training, 40–41 Morgan Stanley, 202 Mentors/coaches, 323 Morris Trust spinoffs, 142 Motley Fool, 37 acquisition candidates, evaluating, Motorola, 218 109–117 MSCI Barra, 62 acquisition candidates, identifying, Mutual funds, 17, 30, 84. See also 99–107 Institutional investors

bindex.indd 342 3/3/2012 9:41:56 AM Index ◾ 343

Natural disaster risks, 49 asset and liability matching, 243, Negotiated transactions, 120, 121, 244 127, 138, 140 buy side analysts, 30 Net operating loss (NOL), 175, 246, contributions, 77, 78, 187 247 defined benefit plans, 27, 243 Net operating profit after tax fair value disclosures, 258 (NOPAT), 189, 231 investment styles, 17 (NPV), 64, 72, 77, performance metrics, 27 109, 113 risk, 243, 244 Netflix, 51 Performance measures, 9, 24–28, Netting systems, 240 31, 110, 221, 228–233, 266, Non-compete agreements, 131 267, 270, 271, 296, 297, Non-financial metrics, 26, 74, 110, 304–306 229, 230 Performance reports, 232, 233 Non-recurring items, 27, 124, 125 Personally identifiable information, 47 Off balance sheet transactions, 162, PIK (pay in kind), 201 174–177, 274 PIPEs (private investments in public Open market purchase program, 79, equity), 195 82, 87, 90, 91, 127 Plain English, 257, 282 Operating leases, 154, 175, 176 Planning and analysis Opportunity costs, 52 budgets, 221–225 Organic revenue growth, 8, 10, 13, business analysis, 221, 233–234, 75, 207–211 296–298, 300, 301, 309 Organizational structure, 293–298 cash flow planning, 226–228 Outsourcing, 39, 48, 51, 52, 74, financial planning and analysis 159, 176, 190, 212, 215, 219, function, 294–297 237, 242, 255,http://www.pbookshop.com 275, 277, 283, forecasts, 225, 226 284, 293, 303–308 long-term planning, 240, 241 performance metrics, 228–231 P/E ratio, 11, 13, 18, 83, 87 performance reports, 232 Pay in kind (PIK) option, 201 skills required, 232 Payback period, 72, 73 strategic planning. See Strategic Payout ratio, 14, 80, 81, 83, 84, 86 plan PCAOB (Public Company Accounting tax planning. See Tax planning Oversight Board), 273, 275, Platform transactions, 16, 103, 105, 277 106 PEG ratio, 83 Point of indifference, 128 Pension funds Poison pill, 146, 147

bindex.indd 343 3/3/2012 9:41:56 AM 344 ◾ Index

Portfolio approach, 101 communications with, 25, 160, Precedent transactions, 109–111 161, 265 Preferred stock, 140, 166, 171, 173, debt for equity recapitalization, 174, 202 treatment of, 181, 182 Premiums debt ratings objective, 155 acquisitions, 99, 100, 104, 109, dividend payments, effect of, 82, 111–114, 116, 129 86 debt refinancing, 179 major agencies, 157, 158 initial public offerings, 197 off balance sheet financing, 174 insurance, 219, 237 pension fund contributions, effect risk premium, 63–65 of, 77 Price/earnings (P/E) ratio, 11, 13, risk management program as 18, 83, 87 rating criteria, 43, 56 Pricing parameters, 119, 128, 129 Rating categories, 158–160 Private equity, 140, 141, 149, 150, Ratings criteria, 56, 161, 162 180 Rationale Private investments in public equity for accounting policies, 260 (PIPEs), 195 for acquisitions, 99, 100, 103, Pro forma analyses, 14, 73, 89, 113– 107, 128 115, 125, 126, 128, 136 for speculative ratings, 160 Process reengineering, 301–303 Raw materials, 241, 242 Project management, 298–300 Real options, 72, 76, 77 Projections. See Cash flow; Financial Recapitalizations, 181–182 projections Recognition and rewards, 323–325 Proxy access, 36, 146 Recruitment strategies, 312–316 Proxy filing, 256, 258 Redundancy, eliminating, 302, Proxy statements, 28, 146, 258 303 Public Company Accountinghttp://www.pbookshop.com Refinancings. See Debt refinancing Oversight Board (PCAOB), 273, Regulation FD (Fair Disclosure rule), 275, 277 xv, 29, 31–34, 38, 161, 266, Put options, 172 268 Regulatory capital, 172, 174, 181 Qualified institutional buyers, Regulatory compliance, 43–45, 48, 201 49, 123, 281–289 Quality programs, 217, 218 Regulatory risk, 43–45, 48, 49, 55 Quick (Acid-Test) ratio, 189 Reinventing the CFO (Hope), 300 Reinvestment rate, 70, 71 Rapid Ratings, 157 Reputation risks, 47, 48, 51, 53, Rating agencies 121, 130, 188, 284, 285, 307

bindex.indd 344 3/3/2012 9:41:56 AM Index ◾ 345

Research and development, 5, 9, 68, mitigation strategies, 45, 50–52, 70, 71, 73, 100, 111, 231, 247 55, 125, 188, 235, 240, 243, Reserves, 190, 195, 260 244 Restricted stock, 27, 29, 89, 323 and opportunities, 52, 123, 226 Restructuring, 27, 180, 216, 217, pension fund liabilities, 243, 244 231, 266, 267 premiums, 63–65 Retention agreements, 138, 139 quantification, 45–47, 49 Return on capital, 8, 9 raw materials, 241, 242 Return on equity, 8, 84, 115 rewarded versus unrewarded, 51, Return on investment, 72, 73, 135 52 Revenue growth, 207–211. See also tax planning strategies, 244, 245 Mergers and acquisitions tolerance, 3, 156, 157 Revenue recognition, 260 Risk committee, 53, 284, 285 Reverse mergers, 197 Role of CFO, overview, xv, xvi, xvii Reverse Morris Trust, 142 Roll-ups, 103, 106 Reviews Rule 10b5, 256 business plan, 132 Rule 144a, 201 deep dive, 233, 234 earnings call draft materials, 263 S corporations, 125 of facility locations, 237 Sale/leaseback transactions, 168, 247 talent, 320–323 Sales commissions, 190 Revlon obligation, 148 Sarbanes-Oxley Act (SOX), xv, 43, Revolving credit lines, 186 54, 123, 253, 255, 273–279, Rights offerings, 198–200 281 Risk Say on pay, 146, 288 acquisitions, 116, 117 Scenario analysis, 217 capital investment projects, 74 Scorecards, 69, 177, 228, 285. See commodity risks,http://www.pbookshop.com 241, 242 also Dashboards factors (Form 10-K), 257 SEC. See Securities and Exchange financial, 235–244 Commission (SEC) foreign currency, 239–241 Secondary offerings, 198 identification, 43–45, 50, 54, Section 338(h)10 election, 247 55 Section 382 transactions, 247 inflation risk, 238, 242, 243 Secured debt, 167, 168 interest rate, 238, 239, 243 Securities and Exchange Commission liquidity risk, 188 (SEC) major exposures, 47–49 at-the-market offerings, 199 management. See Enterprise risk communications, regulation of, management (ERM) 35–36, 38, 275

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Securities (continued) Seller financing, 140 compensation disclosures, 54 , 167, 168. See also cyber security guidelines, 48 Unsecured debt debt for equity swaps, 181 Sensitivity analyses, 9, 10, 12, 27, disclosures, xv, 29, 31–34, 38, 54, 64, 72, 117, 219, 238 161, 256–258, 266, 268 Share repurchases electronic filings, 256, 257 about, 79, 86 filings, 35, 255–258 accelerated share repurchase Form 8-K, 197 (ASR) programs, 90, 91 Form 10-K, 47, 256, 257, 259 advantages of, 87–89 Form 10-Q, 47, 256, 259 and capital allocation strategies, Form DEF 14A, 256 14, 15, 68–70 fraud investigations, 286, 287 cash planning, 187 GAAP and non-GAAP reporting cash retention as alternative to, measures, 266, 267 92–94 initial public offerings (IPOs), 195, change of control provisions, 178 196, 267 and cost of capital, 59 internal controls, reporting and debt rating, 162 requirements, 276–279 dividends compared, 81, 82, 85 open market share repurchases, and incurrence covenants, 178 90 open market programs, 90, 91 plain English requirement, 257 private companies, 89, 90 proxy statements, 28, 36, 146, tender offers, 92 256, 258 and total shareholder return, 11 qualified institutional buyers, 201 , 146, 147 Regulation FD (Fair Disclosure Shareholder value, 4, 7, 8, 10, 24, rule), xv, 29, 31–34, 38, 161, 25, 67, 72, 76, 79, 99, 101, 266, 268 http://www.pbookshop.com102, 104, 115, 128, 132, 135, reverse mergers, 197 145, 149, 181, 231, 235. See Rule 10b5, 256 also Total shareholder return Rule 144a, 201 (TSR) whistleblower reports, 288 Significant deficiency, 278 Securities Exchange Act of 1934, Six Sigma, 218 256 Social media, 36, 314 Securitizations, 175 Sovereign wealth funds, 195 Seeking Alpha, 37 SOX. See Sarbanes-Oxley Act (SOX) Self insurance, 235–237 SPAC (special purpose acquisition Sell side analysts, 7, 29–32, 34, 136, company), 197, 198 265–267 Spare parts, 191

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Special dividends, 79, 85, 148 leverage targets, 155, 156 Special meetings, 146 role of CFO, 3, 4 Special purpose acquisition company strategic purpose, 15, 94, 102, (SPAC), 197, 198 103 Special purpose entities, 174, 175 strategic themes, 5, 6 Speculative debt, 159, 160 and takeover offers, 147, 148 Spinoffs, 10, 107, 141–143, 241 target shareholders, 17–20 Split-ups, 142, 143 total shareholder return, 7, 10– Standalone values, 104, 110, 112, 14, 26, 71, 79, 80 113 Strategic purpose, 15, 94, 102, Stapled financing, 139 103 Statement of work, 304–306 Strategic themes, 4–6 Statements on Auditing Standards The Street, 37 (SAS) , 140, 167, 168, SAS 5, 277 173, 174, 195 SAS 70, 305 Succession plans, 320, 322 SAS 115, 277 Sullivan, Scott, xv Stern Stewart, 231 Sunk costs, 76 Stock options, 27, 29, 33, 55, 84, Sustainability, 48, 230 85, 89 Swaps, 170, 180–182, 188, 240 Stock transactions, 85, 104, 111, Swaptions, 240 116, 130 Swartz, Mark, xv Strategic alliances, 202, 203 Syndicated bank loans, 178, 195, Strategic cash, 92–95 200 Strategic CFO, xvi, xvii Synergies, 16, 100, 101, 103–106, Strategic plan 109–110, 112, 113, 115, 122, acquisition strategies, 15–17, 102, 124, 129, 132, 135, 141 103 http://www.pbookshop.com and alignment of interests, 23 Takeover offers, responding to, annual review of, 21 145–150 business objectives, 3–5, 7, 16 Talent capital allocation strategies, 14, assessments, 320–323 15. See also Capital investments; competition for, 254, 255, 311, Cost of capital; Dividends 312 elevator pitch, 20, 21 continuous learning, 304, 312, ERM program, coordination with, 319, 320 53, 54 development, 298, 311, 312, financial models, 7–10 316–325 growth, 208 diversity, 325

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Talent (continued) 360 reviews, 322, 323 evaluation of candidates, 314, Tone at the top, 282, 288 315 Total Quality Management (TQM), future requirements, planning for, 217, 218 325, 326 Total shareholder return (TSR), 7, international operations, 315, 316 10–14, 26, 71, 79, 80 recruitment strategies, 312–316 Toyota, 5 retention, 133, 254 Tracking stock, 171 soft skills, 315 Training and education, 40, 41, 51, Target shareholders, 17–20, 29, 84 283, 324 Targeted stock, 171 Transaction exposures, 170, 239, Tax accounting, 255, 378 240 Tax compliance, 248 Transfer pricing, 247, 248 Tax consequences Transformative transactions, 16, cash retained in international 107 subsidiaries, 93, 94 Translation exposures, 170, 239, dividends, 67, 87, 173 240 high yield securities, interest Transparency, 24, 25 payments on, 201 Trapped cash, 191, 246 pension fund contributions, 77 Travel and entertainment (T&E) share repurchases, 87 expenses, 283 and tax planning, 244–248 Trump, Donald, 186 Tax credits, 191, 244, 247, 248 Tuck-ins (bolt-on transactions), 16, Tax-free spinoffs, 141, 142 105, 106 Tax planning, 244–248 Tyco International, xv, 273 Tax rates, 60, 62, 87, 88, 173, 174, 244, 247, 248, 270 U.K. Bribery Act, 286 Tax reform, 248 http://www.pbookshop.comUnderwriters, 34, 196–198, 200, Tax returns, consolidated, 124, 125, 201 143 fee (spread), 196, 197 Technology systems, 103, 105, 124, Unrewarded risks, 51, 52 214, 260, 293, 297–300 Unsecured debt, 168, 173 Technology tools, 252–254, 277, 303 Valuation Term loans, 170, 200 acquirer’s , 116 , 72, 111 acquisition candidates, 109–117, Testing of financial controls, 253, 123–129 254, 274, 277, 278 convertibles, 172 Thomson Reuters, 62 debt, 267

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divestitures, 136 Wal-Mart, 6 and dividend growth, 84 Warranties, 52, 121, 130, 133, 139 fair value, 124, 129, 178, 258, Warrants, 166, 171, 173, 199 260, 267, 279 Webcasts, 31, 32, 264, 265 investment projects, impact of, 73 Websites measures, 8, 14 code of conduct, 282 methodologies, 109–111 and communications to investors, multiples, 8, 10, 13, 18, 111, 268 20, 24, 35, 36, 38, 266 normalization, 13 company website, 35, 36, 266, private companies, 89 282 standalone value, 104, 110, 112, financial information, 37 113 government investment policies, stock options, 29, 84, 85, 172, 95, 96 173 marketing metrics, 230 stock price, 227 Weighted-average cost of capital synergies, 112, 113. See also (WACC), 59–61, 114, 154, 159, Synergies 231. See also Cost of capital targeted , 171 Westinghouse, 107 and transparency, 24 Whistleblowers, 274, 287, 288 Value investors, 18, 84 Working capital, 7, 68, 70, 133, Variable costs, 219, 229 189–191, 227 Variance analysis, 232 WorldCom, xv, 273 Venture capital, 90, 172, 193–195, 198 XBRL mandate, 256, 257 Verizon, 142 Vermont, 237 Yahoo Finance, 37 VMware, 143 Yield investors, 84 http://www.pbookshop.com WACC. See Weighted-average cost of Zero tolerance, 282, 283 capital (WACC) Zone of insolvency, 181

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