I recently wondered about the ongoing results for Force Protection . The news on the products sounds great, they are a fast growing company in S Carolina providing armored vehicles for Iraq, but they have not turned a profit. all that changed this week with the quarterly release of their earnings, click on the hyper link to take a look. 

Click on the hourly chart at the left to see just what a difference positive earnings can make for a company.  After climbing to 8 and then backing off, the stock immediately shot to nine bucks.  Apparently the market sighed with relief and then bought like crazy.  This is why we study cash flow and earnings, that is what it takes to make a company.  This could be quite  a growth prospect.

DLE

Here is a link to the finance.yahoo site for Force Protection. Click and note the glowing reviews for the company in the articles mentioned.  And no wonder, click here for a link to the FRPT.OB website.  As you will see their specialty is the production of armored vechiles to withstand IED Improvised Explosive Device blasts.  And the armed services have ordered some of them. 

Sound like a good investment opportunity? Well the stock is up from a buck or two to over $8 in a year.  So explore the profile and statistics for yourself.  The financial statements are on Yahoo but oddly absent from the corporate website.  Instead the corporate website refers one to the SEC site where we are told we can find their statements,  funny I didn’t find any.

What’s going on here?  Would you invest in this company?

The WSJ has been chronicling the journey of pen again. From start up on the net to their Big Break, it’s all here.  There are links to the articles on their website, the latest of which is in Monday Nov 13 WSJ.  I was intrigued by their contract to make the pens in China, then get them shipped here, and meet the packaging requirements of retailers.  The accounting angle is trying to finance and budget for all this. 

It is an interesting story about all the difficulties of bringing a new product to market, a true capstone business experience, take a look! Oh the inspiration for the product came to one of the guys while he was in detention hall, finally a positive outcome for detention hall.

We are studying budgeting in Chapter 9 in the cost class.  Suppose you are Omega , long time Swiss rival of Rolex. Neither is a watch but a high priced fashion accessory.  Omega got some mileage years ago by getting the US Astronauts to wear them into space. Rolex sponsors sporting events and has had many athletes promoting the brand.  Another more recent tactic is to embed the product in a popular movie.

Two Bond movies back, 007 eschewed the BMW to return to Aston Martin.  Haley Berry drove a Ford Thunderbird in that movie, even the bad guy was in a Jaguar, all Ford products. Revlon put on a gigantic campaign for make up products featuring Ms. Berry at that time.   Ford products are also featured in the popular 24 television series. 

Now Bond has traded his Rolex which in fact he wore in the original book series for an Omega.  The entire movie is a generation shift in one of the most successful and long running movie series in history.  The producers face the question of how to introduce a younger audience and keep the franchise so to speak running. 

The answer is to introduce a new, younger Bond. Craig was born the year I was a junior in college, now that’s young!   Indeed Casino Royale was in fact the first book in the Fleming series and the only one not made into a ‘serious’ movie, Woody Allen did a spoof of it decades back.  So the idea is to introduce the audience to Bond and explain how he came to the double O section.  And it is done amid current tensions, right down to creating a new background for the spy.  He has come up through the ranks in a series of British adventures in the Mid East and other high risk spots.  Fleming’s Bond had risen to the rank of Commander in the HMS Royal Navy before being drawn into the ranks of what is now MI6. 

Well all of this is great fun and I have seen the movie trailer and it looks like much of the original much grittier Bond has been re introduced to the film, Roger Moore is a nice guy but hardly a gritty one.  The original Bond was a chain smoking hard drinking gambler who carried a load of scars from his misadventures.  But the question is, will this sell more Omega watches if Omega had not spent the money to promote the watch in this manner.  How would you recommend that Omega determine whether its investment in the Bond film paid off?   Gee didn’t think I could tie all this back to accounting, did you?

DLE

MY Oct 31 post mentioned the Ferrari strategy of limiting production to just seventeen cars a day, the waiting lines just get longer. Now Toyota has decided to do the same thing with its Scion Brand.  Devised as a car to appeal to younger buyers, it has been a smash hit.  The article on page B1 of Nov 10 WSJ details that they are moving the marketing focus from MYSpace to Secondlife.com, Myspace is seen as too mainstream.  Another company with this strategy has  been Harley Davidson.  But having trounced Henderson and Indian as imitators, it is full speed ahead with production there these days.

Interestingly  Scion  has its own website, it is not listed on the toyota website.  Clearly Toyota has gone the extra mile to disassociate it from products that we, ahem, older folks, might by.  Click on the link and note the exclusive use of younger models in the ads, no accident that.

My point is that there are many paths to success but nothing succeeds like the allure of exclusivity.  And so the Scion will focus on production and sales of about  150,00 vehicles next year.  Gee GM and Ford should have such problems.  Nothing makes the point about the difference in Toyota and GM Ford better than this example.  One is limiting output, the others are closing plants and paying workers to quit. 

DLE

Ahead of the Tape on page C1 Nov 10 WSJ reports that MSO only makes money on merchandising, publishing and broadcasting are losing money.  Yet the shares are trading at a pricey 82 times earnings, remember the P/E ratio?  Google by contrast trades for 38, other media companies for much less.  There is some speculation of a possible takeover, the stock has shot up on the lack of earnings.  Again, we study accounting to learn the tools to make evaluations about such companies.   Speaking of which

I have mentioned how fierce competition is and how stock prices can fall on good earnings that are not good enough.  Such has been the case for DELL, the darling of our author in the Fin Statement Class.  Their latest travails are on the same page.  Second quarter profit plunged 51%; so now Dell is going to focus on profitability instead of sacrificing price for attempted market share. Well no wonder as HP is inching ahead as both have about 17.2% of the market, but HP is up from a year ago at 16.2%.  A change in such small percentages can mean a big change in firm strategy, and stock price. 

Friday Nov 1 WSJ has a good deal worth reading.  first off a front page article suggest that regulators will be easing Sec 404 requirements of SARBOX.  We will be studying this next fall in auditing but it is worth reading now.  At issue is also the claim that IPOs initial public offering have gone overseas in response to costly regulations here.  See the graph on page one.

An old phrase that comments on a job shoddily done is, well that was good enough for government work, ie, you could not sell it as a product to the public.  Page C 3 of the same issue reports that the PCAOB has yet to issue its required report on auditors. They claim they need the audit reports to do that.  But the point is, that was one of the reasons of their creation. Recall I pointed out the symposium article in an earlier post this week, where the auditors are calling   for new reporting standards and some cover from firm collapsing lawsuits.

DLE

If you notice I am continually pointing out new designs and strategies on the Blog. For example I posted the story about two guys in Sulphur Springs Tx creating Legend Aircraft, as sideline business.

My point is that for all the talk about research and development, big companies rarely come up with the truly innovative.  The iPod is an exception but perhaps not as the Apple Culture really promotes individuality and initiative.  Remember the Google article about Chaos, they are trying the same thing though a lot of the efforts don’t pay off like the singles site that is popular in Iran and Brazil. 

Anyway, if you link to this Folger Site , you can get a free sample of their new ‘gourmet’ coffee.  And you will note on the survey that they are well aware of the competition.  My question is, what took them so long to get around to getting into the market?  Again big companies do not innovate they follow and then only when it is clear a new product is for real.

This next week MSFT finally comes out with ZUNE, their competitor to iPod. I read Walt Mossberg’s review in  the WSJ and believe I will still buy and iPod.  iTunes has 3.5 M songs, MSFT has 2M. MSFT makes you put up 5 bucks whether you buy five songs or not, they sit on your money in the meantime.  Check out his review on page B1 of the Nov 9 edition.

The examples are legion.  Starbucks was begun by a guy who went to Italy to learn about the coffee shops there, he imitated their success in Seattle WA, a trendy city. 

The weed eater was invented by an individual in Houston TX, not by the existing lawnmower industry.

Wozniak invented the Apple II computer while working for H-P, H-P rejected the idea.

Western Union stated they saw no need for the telephone when it was offered to them.

Trans Texas airlines floundered for decades in Texas before Herb Kelleher drew a triangle on a napkin in a bar and started SW Airlines realizing that all you had to do was lower the price till you filled up all the seats.  Well duh, Trans Texas derisively referred to at Tree Top Air went out of business I guess as did Eastern and Braniff that fought SW Air.

Community Colleges are an American invention begun in the Midwest in the 1920s, other countries are just now emulating the idea.

Colonel Sanders went on the road to promote his KFC franchises when he was 65, a new high way was built away from his location and his restaurant was not going to make it. Whoops, he sold out for a measly $1.5 M instead of taking stock in 1965.

Keep thinking, there are plenty of undiscovered ideas, or old ideas made new again.

DLE

Check out this article on William McGuire  at UNH.  In last Thursday’s Nov 9 WSJ page B1, these two guys finally gave back some $390 M in stock options.  This is the largest voluntary forfeiture so far but ht en consider how many he kept from the first article.  IF they are admitting to backdating the options given them to cherry pick the best date, do they deserve any of this money ?

In their latest UNH news release , these two forgo some of these ill gotten gains. but they still get options, just tied to the highest price during the period instead of the lowest.  Is this an ethical reward?  If these guys had held up a convenience store they would be in prison, hold up the stockholders and you become a philanthropist in MN!   Read this news release  and see how smoothly they dance away from the real issue here.  I have a definite ethical problem with retaining folks that so readily fed at the corporate greed trough.  Remember how RSH fired their CEO for lying about a non existent college degree?  Yet this sort of stunt is OK?   And note they did not offer to return anything until the investigation proved that they had done wrong, Gee, no mea culpa from this bunch! 

Expect a lot more investigations in the new Congress on this sort of thing.  Okay McGuire turned the company around and made a big success of it, but how much reward is enough. I see that he gave a few million for park projects in MN, gee, I would hope so, for this kind of money he could own Minneapolis.  Read the articles and tell us what you think!

DLE

Another reason to read the WSJ is that the major figures in policy issues often print their views on the op ed page.  Last Wed  Nov 8, see pages A22  and C 3. I will put these in the library.

On A 22 the CEOS of the four major firms and Grant Thornton and BDO Seidman are submitting a paper at the Global Public Policy Symposium in  Paris, France  (www.globalpublicpolicysymposium.com).  They are calling for further standardizing of procedures keeping with the global economy. Please click on the hyper link and look over their program agenda.  You will of course also want to print out their guide to Paris restaurants for your next visit, I don’t see the prices so be sure to take your platinum credit card….I will print out the paper and put it on reserve. We will certainly be taking a more in depth look at it in the systems and audit courses.

Several of you did read one of Jim Rogers two books, Investment Biker and Adventure Capitalist, if you read one I urge you to read th other for next semester, a truly unique look at the world.

I continually mention globalization  in class, their points are

Harmonize reporting and audit standards around the world
the new Ind Forum of Intl Audit Regulators should bring regulatory regimes into harmony
A New business reporting model to make information less complex and more useful, including more non financial information. what about customer loyalty, employee knowledge, brand value and reputation, IE the intangible assets are worth more than land and buildings
Auditors need greater room for judgment
an honest assessment of the expectations gap relating to fraud

on page C 3

The weekly column on accounting also discusses these issues.  And another issue raised by the firms is some sort of cap on auditor liability.  The Fed govt collapsed Arthur Andersen but in hindsight I think sincerely regrets that.  And so KPMG was spared a collapse.  The six firms make the point that the entire firm should not be at risk over the wrongdoing of a few auditors.