Alternative Approaches To Building And Managing Equity Capital

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Alternative ApproachesTo Building And Managing
Equity Capital
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FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT
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FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT

• Understand why you have equity in the first place

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FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT

• Understand why you have equity in the first place
• Is it a sustainable model in your current and
  future business environment?

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM
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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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EARNINGS GROWTH NEEDED TO SUSTAIN A PATRONAGE
PROGRAM

• Assumptions
• Growth must be internal without adding additional
  equity through mergers, debt through financing,
  etc.
• All sales are considered to be patronage based
  sales
• The company is a 50 million company in year 1
  and pays 30 cash patronage and 20 of earnings
  in retirement.

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FACE THE COLD, HARD FACTS OF EQUITY MANAGEMENT

• Understand why you have equity in the first place
• Is it a sustainable model in your current and
  future business environment?
• If it is not a sustainable model in your
  situation, what can be done about it?

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IDENTIFY YOURGOALS / PRIORITIES
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IDENTIFY YOURGOALS / PRIORITIES

• What will you sacrifice to revolve equity?

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IDENTIFY YOURGOALS / PRIORITIES

• What will you sacrifice to revolve equity?

Growth Profit Patronage Refunds Equipment
Price Selection People Facilities Local
Ownership
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IDENTIFY YOURGOALS / PRIORITIES

• What will you sacrifice to revolve equity?
• Retire old equity while minimizing future
  liability

Growth Profit Patronage Refunds Equipment
Price Selection People Facilities Local
Ownership
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IDENTIFY YOURGOALS / PRIORITIES

• What will you sacrifice to revolve equity?
• Retire old equity while minimizing future
  liability
• Get the support and understanding of the board
  and key staff

Growth Profit Patronage Refunds Equipment
Price Selection People Facilities Local
Ownership
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KNOW WHAT YOU AREUP AGAINST
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KNOW WHAT YOU AREUP AGAINST

• Run reports on equity by year and age

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KNOW WHAT YOU AREUP AGAINST

• Run reports on equity by year and age
• Run reports on members with no birth dates in the
  system

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KNOW WHAT YOU AREUP AGAINST

• Run reports on equity by year and age
• Run reports on members with no birth dates in the
  system.
• Rationalize your best way to retire the equity
  and minimize future liabilities

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KNOW WHAT YOU AREUP AGAINST

• Run reports on equity by year and age
• Run reports on members with no birth dates in the
  system.
• Rationalize your best way to retire the equity
  and minimize future liabilities

• Age of patron vs. yearly retirement plan
• Estates

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WARNING

• Most, if not all, equity management plans do not
  conform with the IRS rules. Its where on the
  risk curve you want to be.

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QUALIFIED vs.NON QUALIFIED EQUITY
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QUALIFIED vs.NON QUALIFIED EQUITY

• Definition Tax liability to member vs. co-op

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QUALIFIED vs.NON QUALIFIED EQUITY

• Definition Tax liability to member vs. co-op
• Identify N, P, B and Non Patronage Customers

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QUALIFIED vs.NON QUALIFIED EQUITY

• Definition Tax liability to member vs. co-op
• Identify N, P, B and Non Patronage Customers
• Example

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QUALIFIED vs.NON QUALIFIED EQUITY

• Definition Tax liability to member vs. co-op
• Identify N, P, B and Non Patronage Customers
• Example

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• Example

In both examples the member would still have
7,000 in equity
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Retirement I only want my stock
back!
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Retirement I only want my stock
back!

• Old Policy was about 77 years old for retirement

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Retirement I only want my stock
back!

• Old Policy was about 77 years old for retirement
• This year Premier will be at age 69

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Retirement I only want my stock
back!

• Old Policy was about 77 years old for retirement
• This year Premier will be at age 69
• Receive 100 of the qualified equity earned prior
  to 2002

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Retirement I only want my stock
back!

• Old Policy was about 77 years old for retirement
• This year Premier will be at age 69
• Receive 100 of the qualified equity earned prior
  to 2002
• Rule of 72
  Total
  Equity 67,154
  Pre-2002 62,926

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Retirement I only want my stock
back!

• Old Policy was about 77 years old for retirement
• This year Premier will be at age 69
• Receive 100 of the qualified equity earned prior
  to 2002
• Rule of 72
  Total
  Equity 67,154
  Pre-2002 62,926
• Invest 62,926 at age 69 at 9 ROI

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Retirement I only want my stock
back!

• Old Policy was about 77 years old for retirement
• This year Premier will be at age 69
• Receive 100 of the qualified equity earned prior
  to 2002
• Rule of 72
  Total
  Equity 67,154
  Pre-2002 62,926
• Invest 62,926 at age 69 at 9 ROI
• At age 77 125,852 vs. receiving 67,154
  at age 77

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PATRONAGE vs. NON PATRONAGE
SALES / PROFITS
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PATRONAGE vs. NON PATRONAGE
SALES / PROFITS

• Build your unallocated reserve

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PATRONAGE vs. NON PATRONAGE
SALES / PROFITS

• Build your unallocated reserve
• Cash (unidentified), Non patronage, lt1,500

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THANK YOU
Presented by Andy Fiene
General Manager Premier
Cooperative