Public companies have a series of things to look out for, from possible shifts in accounting methods to short-term strains from corporate growth, panelists advised at the Business Journal’s briefing event on the region’s 50 largest public companies. The Oct. 12 event featured Moss Adams LLP CPA Jason Lawson, Chartis’ national vice president and regional executive of executive liability Ziad Kubursi and Sport Chalet’s chief financial officer Howard Kaminsky. After reviewing possible accounting changes for public companies by the Financial Accounting Standards Board, Lawson warned local public company representatives that they may need to start preparing for a possible shift by the Securities and Exchange Commission to a new financial reporting method. The SEC plans to decide in 2011 whether to incorporate the International Financial Reporting Standards, or the IFRS, into the United States’ financial reporting system, which would replace the United States Generally Accepted Accounting Principles, or the U.S. GAAP. The earliest that SEC registrants would need to start using the new method, if it is approved, would be from 2015 to 2016, Lawson said. However, that does not mean companies should wait until then to start preparing, he added. “If you’re implementing this in 2015, you would go back three years,” he said. “So, it’s not something that you want to tuck into your deal with your 2015 memory bank. It’s something that you definitely want to think about in terms of who’s going to scope it out for your company in the next year or two.” Trends in lawsuits Another issue for public companies to deal with is that of class action lawsuits, Kubursi said. He said his organization is involved with paying out claims for companies, including public companies, and he notices certain trends in the types of lawsuits that are occurring. He said the class action lawsuit trend is stabilizing, though the nature of those lawsuits is changing. Derivatives class action lawsuits have increased dramatically. Meanwhile, the SEC is stepping up its enforcement with more autonomy and subpoena-issuing power going to smaller branches of the organization. “It’s going to increase the activity level significantly,” he said, adding that these branches now have the power to file lawsuits against companies and conduct investigations. Looking ahead Another challenge for public companies is how to narrow the definition of shareholder value, especially during times of growth when short-term costs might drive down short-term value, said Kaminsky, chief financial officer of La Cañada-based Sport Chalet. Sport Chalet, which became a public company in 1992, experienced a growth spurt just before the recession. The company opened 25 new stores within five years. “The growth tends to have a negative effect on profitability in the short-term, especially in retail operations like ours,” Kaminsky said. “It takes time to build a customer base per store, so when you’re opening stores, you tend to be less profitable. And the more stores you open, the bigger impact that has.” The costs of opening stores, in addition to the costs for infrastructure and technology, are examples of some of the necessary drains on earnings that come with expansion. For those reasons, shareholders need to think of what timeframe they are using when evaluating shareholder value, he said, adding that those managing the company are considering the long term. “That’s really the challenge for anyone thinking about shareholder value – everyone has a different time frame,” he said. “As a growing company, I can tell you we’re looking 10 and plus years out as to where we want to be and where we want to go.” Some tactics Sport Chalet has used to try to add to shareholder value have been keeping a focus on expert employee training, maintaining close working relationships with suppliers and conducting charity efforts such as its “Soles4Souls” shoe drive that led to the collection of 1.2 million pairs of gently used shoes for people in Haiti.
Public Company Experts Outline Top Issues of the Day
