2013 CEO Strategy Summit Master - Nelson Mullins Riley ......$1,000,000 $1,500,000 $2,000,000...

2013 CEO Strategy Summit®

®

How Much Are You Really Paying?The Hidden Costs of Investment Management

by Robert M. Balentine

ROBERT M. BALENTINECHAIRMAN & CEO

Robert Balentine is Chairman and Chief Executive Officer of Balentine, a leading provider of investment services for private clients, foundations and endowments. He is a member of Balentine’s Management Committee and Investment Strategy Team, and is a 33-year Wall Street veteran.

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

0 5 10 15 20Year

Long-Term Impact of Fees On Investment Returns

Saving 50 basis points per year on costs adds an additional $346,000 to the value of the portfolio

Ending Value

$3,523,645

* Growth of $1,000,000 portfolio with 7.0% net annual returns.

Registered Investment

Advisor (RIA)

Broker /Dealer

Money Manager Financial Planner

ConsultantOutsourced Chief

InvestmentOfficer (OCIO)

Multi-Family Office

Bank / Trust Company

Types of Financial Advisors

Wall Street’s “Moral Hazard”

Suitability

Fiduciary

Sources of Revenue for Financial Firms

Management / Advisory Fees

Spread & Markups

Margin Interest

Lending Client Securities

Commissions

ProductFees

Spreads

Anatomy of a Stock Transaction

ABC Corp. Shares

BID ASK50 50 ¼

Purchase of 1000 Shares = $50,125

Spread = $125 Sale of 1000 Shares = $50,250

Less $100 (10¢ Per Share)Commission

Plus $100 (10¢ Per Share)Commission

Total Proceeds= $50,025

Total Purchase= $50,350

Euros to Dollars

Spread 1.6

Example: Currency Pairs

EURUSD

USDJPY

GPBUSD

USDQAR

USDMXN

USDRUB

HIGHER VOLUME / HIGH LIQUIDITY LOWER VOLUME / LOW LIQUIDITY

Dollars to Yen

Spread 1.9

Pounds to Dollars

Spread 2.3

Dollars to Riyals

Spread 15

Dollars to Pesos

Spread 55

Dollars to Rubles

Spread 225

Spreads - the gap between bid and ask prices - are higher in markets with less buyers. The FOREX market is an excellent example .

* Spreads measured in PIPs (Points in Percentage). Listed rates via Citibank.

Fixed Income Spreads

High-Yield

Municipal

Corporate

Agency

Treasury

• Class D• Class C

• Class B• Class A

Charges a front-end load (commission) deducted from your initial investment

Charges a fee on redemption;

fee decreases the longer the investor holds

the fund

Hybrid of A,B and C shares;

setup varies from fund to

fund

Charges “level load” fees –fees are deducted per annum

Classes of Mutual Fund Shares

Example: Washington Mutual Investors Fund

Washington Mutual Investors Fund

Class A Shares Class B Shares Class C Shares

Ticker AWSHX WSHBX WSHCX

Expense Ratio 0.62 1.38 1.42

Front-End Load 5.75 0.00 0.00

Back-End Load 0.00 5.00 1.00

12b-1 Fee 0.24 1.00 1.00

0%

25%

50%

75%

100%

DomesticEquity

Real Estate InternationalStocks

EmergingMarkets

Hi-YieldBonds

MunicipalBonds

GovernmentBonds

32%

17%

26%

16%

5%

17%

6%

The Failure of Active ManagementPercent of all funds in category that outperformed the category’s index

For 5-year period ending June 2012. Source: Standard & Poor’s SPIVA

Not All ETFs are Created Equally

IAUiShares Gold

Trust

GLDSPDR Gold

Shares

Net Expense

Ratio0.25% 0.40%

Hedge Fund Fees

Management Fee

Performance Fee

Percent of the fund’s Net Asset Value (NAV), generally 1% to 2% annually

Generally 20% of the fund’s annual profits

Three Things You Can (And Need To) Do Now

#1 Follow The Money Demand full transparency and disclosure of “all-

in” costs. Identify potential conflicts of interest.


#2 Avoid the “Muddy Middle”Consider passive / index investments in highly

efficient markets; don’t pay active manager fees

for index returns.


#3 Trust But VerifyUse SEC.gov and FINRA CRD to perform due

diligence on RIA’s and broker-dealers

respectively.

Q&A Session

How Much Are You Really Paying?The Hidden Costs of Investment Management

by Robert M. Balentine


®

IntroductionAndy Mason

Personal:

Co-founder of VRA Partners, LLC

Formerly Managing Director at SunTrust Robinson Humphrey

Auburn University, Emory University (MBA)

Vistage member since 2007

Company:

Provides M&A Advisory & Capital Raising services

Focus on middle-market companies

Five founders with over 100 years of collective experience

Principals completed over 500 transactions

February 6, 2013

2013 CEO Strategy Summit

Can Private Equity Help You Achieve Your Business Objectives?

IntroductionAndy Mason

Personal:

Co-founder of VRA Partners, LLC

Formerly Managing Director at SunTrust Robinson Humphrey

Auburn University, Emory University (MBA)

Vistage member since 2007

Company:

Provides M&A Advisory & Capital Raising services

Focus on middle-market companies

Five founders with over 100 years of collective experience

Principals completed over 500 transactions

IntroductionMike Mondelli

Personal:

Co-founder & CEO of L2C, Inc.

Formerly First Vice President at Morgan Keegan.

University of the South, Georgia State University (MBA).

Vistage member since 2007.

Company:

L2C pioneered the use of alternative data for credit scoring andanalytics solutions.

Identifies creditworthy customers among the millions of peoplewith little or no credit history; complementary to major Bureaus.

Founded in March of 2000.

Raised two rounds of VC financing in 2010 and 2012.

IntroductionKen Goins

Personal:

CEO of Brightwell Payments

Formerly CEO of Prommis Solutions, INFO1, & Caredata.com

University of South Carolina, CPA

Partnered with private equity to acquire Brightwell Payments

Company:

Offers prepaid solutions for corporations & consumers

Prepaid cards for payroll, general purpose reloadable & corporaterewards, incentives and promotions

Founded in 2001

Acquired by Navigation Capital Partners in 2009

Why Private Equity?

• Capital to fund a specific growth initiative.

• Capital to fund losses during period of high growth and internal investment.

• Capital for shareholder liquidity.

• Capital to fund acquisition(s).

• Board level strategic guidance.

• Other capabilities (financing, recruiting, financial analysis, market analysis, project feasibility analysis, guidance with legal issues, exit timing).

• “Credibility” at exit.

Private Equity Funds Raised($ in billions)

$89

$135

$204

$266 $252

$145

$51

$100 $113

$0

$50

$100

$150

$200

$250

$300

2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Pitchbook

Private Equity “Overhang”($ in billions)

$43

$64

$51

$26

$71

$93

$428

$501 $481

$433

$373$348

$0

$100

$200

$300

$400

$500

$600

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

2007 2008 2009 2010 2011 2012

Cum

ulative Overhang

Cur

rent

Ove

rhan

g by

Vin

tage

Yea

r

Current Overhang Cumulative Overhang

Source: Pitchbook

L2C, Inc.History & Background

• Company co-founded by Mike Mondelli in March of 2000. Initial start-up funding from founders and friends.

• Simultaneously recognized the emergence and availability of new types of “alternative” consumer data, and a lack of traditional Credit Bureau data on millions of potentially creditworthy consumers.

• In September 2001, Link2Cell, a credit scoring solution targeting wireless carriers was introduced. This solution allowed carriers to approve more customers, or to reduce or eliminate previously required up-front deposits.

• In 2006, Link2Credit was introduced to address the much larger and growing financial services markets, including credit card companies and lenders.

• In 2007, L2C signed its first Credit Bureau reseller agreement with TransUnion.

• In 2010, raised first round of venture capital from QED Investors in order to fund growth and expansion.

• In 2012, raised second round of venture capital from Core Innovation Capital in order to fund internal data development and Big Data strategy.

Brightwell PaymentsHistory & Background

• Company founded in 2001 as Prepaid Solutions, Inc.

• In 2009, Ken Goins identified the sector as an attractive one

• In 2009, Ken partnered with Navigation Capital Partners (NCP) to help in identifying, underwriting and funding prospective acquisitions.

• In 2009, acquired Prepaid Solutions (renamed Brightwell Payments) as a “platform” for further acquisitions in the sector.

• In 2010, completed first complementary acquisition, Advance Paycard Systems.

• In 2012, completed second acquisition, Directo, Inc.

• NCP and Management have continued to fund growth and acquisitions of the company with subsequent capital contributions.

Brightwell PaymentsCompany Description

• International prepaid card program manager– Payroll cards

• OceanPay International maritime payroll • Powercash Domestic payroll

– General Purpose Reloadable (GPR) cards– Loyalty, Award, and Promotion (LAP) cards

• Manage card issuer, processor, compliance, plastics & fulfillments to create turnkey program for clients

• Create, manage & implement middleware technology• 250+ card programs• Approximately $.5B loaded annually• Clients include Norwegian Cruise Line, Crystal Cruises, Disney Vacation Club, Whole

Foods, Goodwill Industries, Microsoft, Rent.com, Coca-Cola• Prepaid cardholder benefits:

– No credit check or bank account required– Prestige of network branded card– Save time & money– Increased security– Ease of use & convenience features– Only spend what is loaded to the card, unlike credit cards

Audience Q&A

Panelist Q&A

Andy Mason

VRA Partners

Mike Mondelli

L2C, Inc.

Ken Goins

Brightwell Payments


®

LEADERSHIP.

Vistage CEO Confidence Index, Q4 2012

Vistage CEO Confidence Index

For internal use only. ©2009 Vistage International. All rights reserved. 41

Vistage Confidence Index and Year-to-Year Changes In GDP

GDP

Confidence

GDP

Vistage Employment Expectations Index and Year-to-Year Changes In Employment

Employment

Employment Expectations

Employment(Y-Y %Change)

Q4 2012 Highlights (Survey of 1,601 CEOs of Small and Medium Sized Businesses, December10-19 2012)

63% of CEOs anticipated revenue growth, down from 73% last year.

49% of CEOs expected increased profits, down from 52% last quarter and 55% last year.

35% of CEOs reported improving economic conditions, down from 60% at the start of 2012.

Planned hiring fell to 45% in the fourth quarter of 2012, down from 55% in the fourth quarter of 2011.



U.S. Georgia

Economy will improve in next year 26% 26%

Expect increase in revenues 63% 68%

Expect increase in profits 49% 51%

Plan to hire in next 12 months 45% 55%

Small Business CEOs surveyed: United States—1,601 State - 53



Vistage Atlanta

• Vistage In Atlanta:475 Members (>10% from last year)•260 CE Members in 18 Groups•130 Key/Vistage Inside in 11 Groups•85 TA Members in 8 Groups

14 Chairs



®

Patrick A. Ungashick• CEO of White Horse Advisors, LLC

• Business Owners• Investment Committees• Consumer Investors

• 20+ years in the field of exit planning• Author of Dance in the End Zone• Vistage member and speaker• Graduate of Georgetown University

February 7, 2013WWW.WHITEHORSEADVISORS.COM

TheseRemaining5 Years

Patrick A. Ungashick

7 to 10

2008 White Horse Advisors Exit Planning Survey.444 CEOs/owners responded. 4.5% margin of error.

Percent of Business Owners by Age Who Want to Exit within the Next Ten Years

“5 Years” May be Shorter, or Longer

• Others may put you into play

• Market conditions may be disadvantageous

• Change happens: health, happiness, profits,customers, technology, goals, interests, etc.

These Remaining Five Years

Time Waits for Nobody

• 5 years equals 60 months



• 90 days from today, you will have 5% less timeremaining to prepare



• 90 days from today, you will have 5% less timeremaining to prepare

• Estimated 1500 hours to get ready for exit(300 hours per year…6.25 hours per week)*

* The Monarch Group, 2011

12 Issues that Cannot Wait

1. Considering tax implications of operating entity(ies)




2. Developing intellectual property





3. Reducing customer concentration






4. Achieving (and documenting) strong customerloyalty and retention







5. Eliminating dependency on Owner Employee(s)







5. Eliminating dependency on Owner Employee(s)

6. Cleaning up and auditing financialstatements



7. Normalizing earnings




8. Tracking how big you have to grow to get what youwant to net




8. Tracking how big you have to grow it to get whatyou want to net

9. Hiring, developing and incentivizing your team






10.Growing profits and market share







11.Building barriers to competition







11.Building barriers to competition

12.Aligning co owners’ goals


Questions that Should Not Wait

• “What will be my life after exit?”




• “How will I take care of my top people?”





• “Are we ready for a surprise buyer?”






• “Are our decisions creating value in the companythat somebody will pay for?”







• “Are we co owners on the same page?”







• “Are we co owners on the same page?”

• “How can I reduce financial dependencyon the business before my exit?”


Resources

• Exit Planning Scorecard

• www.theseremainingfiveyears.com

– Coming Soon!


Patrick Ungashick, CEOWhite Horse Advisors, LLC

www.whitehorseadvisors.com678.322.3000


®

Charlie Crawford

Experience

Education

Community Involvement

Business Lending after the Election

Presented byCharlie Crawford

Overview

• State of Banking Industry• State of Mortgage Industry• Regulatory Environment • Recent Credit Extensions• Summary• Tips When Requesting a Loan

Banking in Georgia

Bank Failures in Georgia

In 2010 In 2011 In 2012

National Trend

Signs of Stabilization

Unbalanced Growth

Deposit Growth vs. Loan Growth

Deposit Growth

Loan Growth

Net Interest Margin

• How low will it go?

Industry Warming up to Technology

• Mobile Deposit– High rate of adoption

• Mobile Payments– Slower to move

Economic Outlook

Regulatory Environment

• Dodd-Frank Act is over 2 years old– Still a work in progress (60% of the rules completed)

• Basel III and “Too Big to Fail”– Expect additional debates

• Housing Finance Reform

Recent Bank Credits

• $500,000 Permanent Working Capital for food distribution business– SBA 7 A loan– Prime plus 2.00% floating

Recent Bank Credits

• $2,500,000 SBA 504 construction/perm loan to open new restaurant in Midtown Atlanta– Fixed rate of 5.25% for first five years; then re-adjusting

every 5 years thereafter. 25 year fully amortizing term.

Recent Bank Credits

• $1,680,000 Term loan to refinance for gas stations/convenience stores– 6.00% fixed for 5 years

Recent Bank Credits

• $3,770,000 term loan to acquire 212 unit apartment complex.– Prime plus 1% floating with a floor of 4.25%

Recent Bank Credits

• $400,000 Line of credit for RE investment purposes– Prime plus 0.75%

Mortgage Update

• Number of homes listed for sale at the end of 2012 stood at the lowest level in more than five years

Mortgage Update

Mortgage Update

• Progress is being made by mortgage lenders and servicers to help Georgians keep their homes

Recent Mortgage Credits

• $814,500 5/1 Jumbo ARM – 2.875% Interest Rate

Recent Mortgage Credits

• $750,000 Financing at the Sovereign– Non Warrantable, mixed use

building– Purchase – 80% CLTV

Summary

• Disconnect between supply and demand of loans– Borrowers appetite for loans is less– Banks appetite for risk is less

• Banks want to lend

Tips on requesting a loan

• Find a bank that fits you

• Plan to establish a full banking relationship

• Clearly articulate your need

• Come prepared with full financial information

• Be prepared to offer collateral

• Plan to give your personal guaranty

What borrowing may look like for you today

• Healthy banks want / need to make more loans• Expect to have more equity in your transaction and

an emphasis on multiple sources of repayment• You will be rewarded if you are willing to establish

a relationship beyond the loan transaction

Questions?

Presented byCharlie Crawford


®

Nelson MullinsFounded in 1897Among the largest U.S. law firmsMore than 470 attorneysOffices in 13 citiesMore than 45 practices – litigation& corporate

Rhys [email protected]

Co-Leader of the Firm's National Mergers & Acquisitions GroupSelected by peers as a Georgia Super Lawyer® in M&AMember, Vistage 155 (1996 - )Former Senior Executive of a Private Equity Firm and President of a Staffing Firm

EducationLL.M. in Taxation 1985 Emory School of Law J.D. 1979 cum laudeUniversity of Georgia School of LawA.B. 1976 cum laudeDuke University

Practice AreasMergers & AcquisitionsPrivate CompaniesTaxation Venture Capital & Private Equity

Death & Taxes:the Post-Election Outlook

for Income and Estate Taxes

Rhys T. Wilson, Esq.Nelson Mullins Riley & Scarborough LLP

201 17th Street, N.W., Suite 1700Atlanta, GA 30363

Phone: [email protected]

www.NelsonMullins.com/RhysWilson

American Taxpayer Relief Act of 2012 (the "New Tax Act")

Post-Election Surprise!

Congress did NOT "kick the can down the road"Lame Duck Congress did something!Act passed on Jan. 2; signed into law Jan. 3What does this mean for you?What does this mean for business owners

looking to sell their business?

Before the New Tax ActFederal Estate & Gift Taxes

($ in Millions) 2012 2013+Estate & Gift Tax Rate(Top Marginal Rate) 35% 55%

Life-Time Exclusion(for Gifts) $5.1 $1.0

Estate Tax Credit(*Carryover b/n spouses) $5.1* $1.0

40%

$5.1

$5.1*

After

2012 Window Extended!Estate & Gift Tax Exclusion

($ in Millions) EstateTax

GiftTax

Life-Time Exclusion(for Gifts & Bequests) $5.1 $5.1

If Married, Can Combine with Spouse $10.2 $10.2

Talk to Your Advisers About Estate and Business Succession Planning Opportunities

2012, 2013 & BeyondOrdinary Income Tax Rates

2012Taxable Income over $388,350 35%State of Georgia Income Tax Rate 6%Federal & State Top Rate 41%

39.6%2013+

6.0%

45.6%

New Top Rate Added

$450,000*

(TI > $450K*)

Other Tax Increases Medicare Surtax (per 2010 Health Care Law)• 0.9% surtax (on top of 1.45%) on wages

and self-employment income > $250,000*Cutback in itemized deductions• Reduced by 3% of AGI over $300,000*• Cap on cutback of 80% of total deductions,

and some exemptions Can effectively add over 1% to top rate.

Also New for 2013+

Other Tax Increases Loss of personal exemptions• Adds as much as 1% per lost exemption• Phase-out starts at $300K* of AGI • Exemptions disappear once AGI exceeds

$422K*Net Effect of these other tax increases? Almost everyone with AGI >$250K gets a federal tax increase in 2013 and beyond.

Also New for 2013+

2012, 2013 & BeyondDividend & Cap Gains Rates

Before New Tax Act 2012 2013+New Top Income Tax Rate 35% 39.6%

Long-Term Capital Gains 15% 20.0%

Qualified Dividends 15% 39.6%

(TI > $450K*)

(TI > $450K*)

(TI > $450K*) 20.0%

After

Unearned Income Medicare Tax 3.8% surtax on the lesser of "net

investment income" or excess of AGI over $250,000* (per 2010 Health Care Law)Includes Capital Gains & Dividends• Raises new 20% top rate to 23.8%Generally will not apply to S corporation stock or LLC interest sales or distributions• But must be an "active business"

New for 2013+

Top Rates Differ Top Income Tax Rate for C Corporations did not change = 35%Owners of LLCs and S Corporations paytax on business income at their ordinary income rates (top rate = 39.6%)Thinking about converting from S Corp. to C Corp. to save difference?Don't do it – if you plan to sell!

Also New for 2013

Exit Planning: Rule #1

Goodwill (for Tax Purposes)Amortized (deducted) over 15 yearsBut only if Assets Purchased(or "Deemed Purchased" for Tax Purposes)

If Stock Purchased, Purchase Price all allocated to Tax Basis of Stock

*R. Wilson, Why Buyers Prefer Taxable Asset Purchases and What this Means for Your M&A Transaction (Amazon.com 2012).

Buyers Prefer Asset Deals*

Asset Sale (Seller)

If Seller is an S CorporationNo Corporate Level Taxwith some exceptions (e.g., built-in gains)

Shareholders pay tax on long-term capital gains (FMV of assets less tax bases of assets)

with some exceptions (e.g., A/R & Inventory)Total 2012 tax rate (in GA) = 21%In 2013+, Total Tax Rate = 26%

Taxes Depend on Tax Status

Asset Sale (Seller)If Seller is a C Corporation

Train Wreck!Company pays taxes on sale,

but No Corporate Capital Gains RateCompany pays 35% federal + state (41%)

Shareholders pay tax on any distributions of the sale proceeds at dividend ratesTotal Tax Rate = 58.6%!Even if Stock Sale, Rate = 29.8%

Taxes Depend on Tax Status

C Corporation?

Check Eligibility (Arcane Rules)No Entity (except some Trusts) or Foreign Owners

Company Taxable on Built-In Gains for only 5 Years

Current FMV of Assets Minus Tax BasisConvert now (start 5 years running)

All Future Appreciation under S Corp. RulesPotentially Huge Tax Savings on Exit!

If Planning to Sell, Convert from C to S

S Corporation?Company Can Lose Its S Status

errors in the S election filingimpermissible shareholders “second class of stock”

Review S Status Now; if Lost:Can apply to IRS for reliefMay be able to file a new S election, but will be subject to BIG Rules

Don't Wait Until You Are Ready to Sell!It will be too late to fix and if S Status blown:

Can Hold Up or Kill a DealMay Require Special Escrow Arrangements

Check Your S Status

LLC?

Depends on the LLC's Tax StatusLLCs (depending on ownership) can be taxed as a Partnership, Disregarded Entity, S Corp. or C Corp.

If Taxed as Partnership or Disregarded Entity Sitting PrettyIf Taxed as an S Corporation (e.g., to save Self-Employment Taxes)

Check your S Status (see previous slide)If Taxed as a C Corporation

Convert to S Corp. (per earlier slide)

If Planning to Sell, Stand Pat?

American Taxpayer Relief Act

If your 2013+ AGI> $250K, your taxes went upBut less than without the Act (e.g., dividends)

$5+ million Unified Gift/Estate tax credit retainedWith spousal carryover = $10+ millionHuge win for family business succession

S Corp/LLC clear choice if planning to sellNo Medicare Surtax (3.8%) on sale

Bottom Line?

DisclaimerTo ensure compliance with the requirements imposed by the IRS, we inform you that any U.S. federal tax information contained in this communication is not intended or written to be used for the purpose of (a) avoiding penalties under the Internal Revenue Code or (b) promoting, marketing or recommending to another party any transaction or tax-related matter. To provide you with a communication that could be used to avoid penalties under the Internal Revenue Code, we must first form an attorney/client relationship with you and then any advice would necessarily entail additional investigations, analysis and conclusions on our part. This presentation is based on general principles of taxation and may not apply to your individual situation. This presentation does not create an attorney/client relationship. None of the statements made in this presentation are or are intended to be legal or tax advice.

Rhys T. Wilson, Esq.201 17th Street, N.W., Suite 1700

Atlanta, GA 30363Phone: 404.322.6269

Fax: [email protected]

www.NelsonMullins.com/RhysWilson


®

Patrick Ungashick Charlie Crawford Rhys Wilson


®

www.itreconomics.com

Alan Beaulieu

CEO ITR Economics InternationalChief Forecaster European Power TransmissionDistributors AssociationSenior Economic Advisor National Association ofWholesalersChief Economist Heating, Air Conditioning,Refrigeration Distributors International

President of ITR, an Economic forecasting firm providingforecasts with 94.7% accuracy.The business community’s most informed economists.Featured speaker at over 2,000 corporate and tradeassociation meetings across the globe in regards tomanufacturing, healthcare, distribution, real estate,construction, and technology.He is co author of Make Your Move, a book on how toincrease profits through business cycle changes.Contributing editor for Industry Week, and his works haveappeared in many trade journals.

Recent Acknowledgements:Vistage Speaker Impact AwardAntoine Laurent LavoisierVistage 500 Club AchievementAwardMember of the National SpeakerAssociation

Make Your Move

Alan BeaulieuITR Economics™


CEO SummitFebruary 2013


Duration Forecast EstimatesGDP 12 $13.593 $13.648 0.4%US Ind Prod. 31 98.0 (12MMA) 97.2 0.8%EU Ind. Prod. 12 100.4 (12MMA) 98.9 1.5%CA Ind. Prod. 8 96.7 96.7 0.0%Retail Sales 30 $2.186 Trillion $2.131 2.5%Housing 6 743 Ths Units 772 3.9%Employment 33 143.9 million 142.5 1.0%CPI 9 2.8% 2.1%

* End of year 12-month index estimate

2012 Forecast Results 133


134Global Industrial Production Indices

12/12 Rates-of-Change

-30

-20

-10

0

10

20

-30

-20

-10

0

10

20

'00 '02 '04 '06 '08 '10 '12 '14 '16

3.9 Mexico

3.7 US

1.9 SE Asia

-0.5 Japan

-1.9 Europe

-2.5 Brazil


2.4%

-16

-12

-8

-4

0

4

8

12

-16

-12

-8

-4

0

4

8

12

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

GDP US IP

135

US Industrial Production toGross Domestic Product

-14.6%

-5.3%-3.1%

-7.1%

Year-over-year Quarter to Quarter (3/12)


136

US, Georgia and the Southeast AnnualGSP Growth Rate

-8

-6

-4

-2

0

2

4

6

8

'98 '00 '02 '04 '06 '08 '10 '12U.S. Georgia Southeast


137Georgia Leading Index

-50

-25

0

25

50

75

100

-50

-25

0

25

50

75

100

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

12/123/12

4.495.28


Real Gross Domestic Product 138

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

10.5

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

'07 '08 '09 '10 '11 '12 '13 '14 '15

Trillions of $

2.1% 2.7% -0.5%


139

• Leading indicators pointing up• Liquidity is not an issue• Exports are up• Stimulative monetary policy• Employment rising (companies right sized)• Banks are lending• Retail Sales• Construction spending is improving

Recovery


140Delinquency Rates on Consumer Loans

3MMA Data Trends

Lenders are increasing the amount of credit available for consumer installment loans.

Consumer demand has risen for the second quarter in a row.

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Consumer Loan Delinquency RateConsumer Credit Card Delinquency Rate

Percentage Percentage

10 Year Average

10 Year Average


141Mortgage Rates to Federal Funds

Raw Data

-2

2

6

10

14

18

22

-2

2

6

10

14

18

22

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Mortgage RatesFederal Funds


60 60 58 57 51 49 45 41

2005 2006 2007 2008 2009 2010 2011 20120

50

% % % % % % % %

U.S. Dependence on Foreign Oil DecliningNet imports as a share of domestic consumption

Source: Energy Information Administration


143

• Europe’s financial troubles …• China recession? …• Massive legislative changes…• Oil prices could break through $120 …• Fiscal Cliff…• Tax Hikes…• Massive deficit and growing nat’l debt

Areas of Concern


-45

-30

-15

0

15

30

45

60

75

-12

-8

-4

0

4

8

12

16

20

1975 1980 1985 1990 1995 2000 2005 2010 2015

OrdersExpenditures

ExpendituresOrders

National Defense Expenditures toDefense Capital Goods N.O.

Reagan Bush Clinton BushCarter Obama


144


Tax Revenue and Top Marginal Rates Compared,1930 2012 145

Source: Tax Policy Center; Historical Tables, OMB; CBO Alternative Scenario.Produced by Veronique de Rugy, Mercatus Center at George Mason University

40-Year Average


Year-Over-Year Growth Rates %

146

Western Europe Industrial Production


Global Leading Indicators


0.2

-1.7-0.6

-80

-64

-48

-32

-16

0

16

32

48

64

80

-10

-8

-6

-4

-2

0

2

4

6

8

10

'07 '08 '09 '10 '11 '12 '13 '14

R-O-C

OECD Total

EU Manufacturing PMI

JP Morgan Global MFG PMI

147


International Comparison of Spending on Health,1980 2008 148


Costs by Age Categories 149


150Total U.S. Public Debt

(% of GDP)

0

20

40

60

80

100

120

140

0

20

40

60

80

100

120

140

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

120.0


3/12 Rate-of-Change

=

=

RawJan 10 1.4Feb 10 1.5Mar 10 1.5Apr 10 1.4

May 10 1.5Jun 10 1.3Jul 10 1.3

Aug 10 1.6Sep 10 1.6Oct 10 1.5Nov 10 1.7Dec 10 1.6Jan 11 1.7Feb 11 1.7Mar 11 1.7Apr 11 1.6

May 11 1.7Jun 11 1.5Jul 11 1.5

Aug 11 1.9Sep 11 1.7Oct 11 1.7Nov 11 1.9Dec 11 1.7

3MMT

4.44.44.44.24.24.34.64.84.84.84.94.95.05.05.04.94.74.95.15.35.35.3

12MMT

18.018.318.518.618.819.019.219.419.619.820.020.120.3

12/12

12.7%

12/12 Rate-of-Change

=

=

3/12

14.1%13.6%13.2%15.1%13.5%14.1%11.3%11.5%10.1%10.5%

Phase 1 – Data Preparation 151


10

5

0

5

10

15

40

20

0

20

40

60

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

IndicatorSales

Sales

Indicator

152Phase 2 – Accumulate the Inputs


Phase 3 – Generatethe Quantitative Forecast 153

ITR Long Term Business Cycle Theory

News and Market Observations

Leading Economic Indicators

Internal Trends


Year-Over-Year Growth Rates %

154World Countries Industrial Production


Unemployment Rate With andWithout the Recover Plan


156Unemployment Rates

2

3

4

5

6

7

8

9

10

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14US Georgia


0.1

0.2

0.3

0.4

0.5

0.6

0.7

-32

-24

-16

-8

0

8

16

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMAR-O-C

-3.3

0.140

-1.3

GeorgiaConstruction Industry Employment

3/12

12/12

3MMA12MMA

Millions of Units

157


75

100

125

150

175

200

225

250

-40

-32

-24

-16

-8

0

8

16

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMAR-O-C

-3.7

87.150

-4.0

AtlantaConstruction Industry Employment

3/12

12/12

3MMA

12MMA

Thousands of Units

158


Employment – Private Sector

Annual Data Trend

159

85

90

95

100

105

110

115

120

85

90

95

100

105

110

115

120

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Employment Mils of Jobs

Atlanta Prof/Bus Services 3.5%Atlanta Private Sector 1.4%National Private Sector1.8%


10

12

14

16

18

10

12

14

16

18

'88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

160

3MMA

11.0%

12.2%

US Manufacturing as a % of GDP (Value Added)


$ per pound, 3MMA

161

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

'06 '07 '08 '09 '10 '11 '12 '13

Copper Price Trend


00

Soft Landing

A

B C

D

162Trends 10

Housing

Production

Medical

New Orders

Soft Landing

FinancialRetail

Wholesale Trade

Foreign

NonresidentialConstruction

Hard Landing


163

US Industrial Production Index toFabricated Metal Products Production


-40

-30

-20

-10

0

10

20

30

-16

-12

-8

-4

0

4

8

12MetalUS IP

US IPMetal Production


US Industrial Production toInformation Technology New Orders


-40

-30

-20

-10

0

10

20

30

-16

-12

-8

-4

0

4

8

12

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

OrdersIndex

IndexOrders

164


US Industrial Productionto Foods Production


165

-12

-9

-6

-3

0

3

6

9

-16

-12

-8

-4

0

4

8

12

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

ProductionUS IP

US IPFood Production


166

US Industrial Production toChemicals & Products Production


-16

-12

-8

-4

0

4

8

12

-16

-12

-8

-4

0

4

8

12

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

ChemicalsUS IP

US IPChemicals


US Industrial Production toPlastics Products Production


167

-24

-18

-12

-6

0

6

12

18

-16

-12

-8

-4

0

4

8

12

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

PlasticsUS IP

US IPPlastics


168

US Industrial Production toEquipment & Software Investment


-32

-24

-16

-8

0

8

16

24

-16

-12

-8

-4

0

4

8

12

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

InvestmentUS IP

US IPInvestment


-5.6

0.6

$762.0

400

600

800

1000

1200

1400

1600

-80

-60

-40

-20

0

20

40

'92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

Nondefense Capital GoodsNew Orders w/o Aircraft

3/1212/12

3MMT

12MMT

Billions of $

169


170

USIP – 12/12Indicator - Monthly

US Industrial Production toITR Leading Indicator

-21

-14

-7

0

7

14

21

-21

-14

-7

0

7

14

21

'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

IndicatorUS IP

Indicator - MonthlyUS IP - 12/12


12/12 Rate-of-Change

University of Michigan ConsumerExpectations Index 171

-45

-30

-15

0

15

30

45

60

-45

-30

-15

0

15

30

45

60

'07 '08 '09 '10 '11 '12 '13 '14

3/1212/12

18.2

29.5


6 Month Moving Average

Chicago Fed National Activity Index 172

-4.7

-3.9

-3.1

-2.3

-1.5

-0.7

0.1

0.9

-4.7

-3.9

-3.1

-2.3

-1.5

-0.7

0.1

0.9

'07 '08 '09 '10 '11 '12 '13

6MMA

-0.4

Feb '12

Sep '11


30

35

40

45

50

55

60

65

70

30

35

40

45

50

55

60

65

70

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Raw

173Purchasing Managers Index

Raw Data


174US Leading Indicator

60

80

100

120

60

80

100

120

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Actual

12MMA

93.1


14.19.3

1402.0

200

1000

1800

2600

3400

4200

-90

-60

-30

0

30

60

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMAR-O-C

Stock Prices Index

1/12

12/12

Actual 12MMA

S&P 500, 1941-43 = 10

175


Corporate Bond Prices

Rates-of-Change

-20

-10

0

10

20

30

40

50

-20

-10

0

10

20

30

40

50

'08 '09 '10 '11 '12 '13 '14

3/12

12/12

Aug '11

Sep '12

26.6

176


2.22.6

$2.131

1.00

1.50

2.00

2.50

3.00

3.50

-21

-14

-7

0

7

14

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

177Retail Sales Excluding Automobiles

3/12 12/12

3MMT

12MMT

Trillions of 82-84$


35.528.1

0.780

0.2

1.2

2.2

3.2

4.2

5.2

-90

-60

-30

0

30

60

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

178Housing Starts

3/12

12/12

3MMT 12MMT

Millions of Units


179Remodeling Market Index

3MMA

15

30

45

60

75

15

30

45

60

75

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16

NortheastMidwestSouthWest

60.9

51.353.656.3


0

75

150

225

300

375

-90

-60

-30

0

30

60

'98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

31.0

24.041

38.63/12 12/12

3MMT 12MMT

Georgia Building Permits

Thousands of Units

180


Georgia Housing Price Index

Year over Year % Change

181

50

100

150

200

250

50

100

150

200

250

Raw

$160.0

$203.6

$145.1


-5

25

55

85

115

145

175

-180

-135

-90

-45

0

45

90

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

68.4

14.394

84.1

3/1212/12

3MMT12MMT

Atlanta Building Permits

Thousands of Units

182


US to Atlanta AreaMedian Home Sale Prices

Annual Data Trends

183

90

110

130

150

170

190

210

230

90

110

130

150

170

190

210

230

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

AtlantaUS

US

Atlanta

$172.4

$97.1$95.6

$171.8


-21

-14

-7

0

7

14

21

-30

-20

-10

0

10

20

30

'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

US IPConstructionPrivate ConstructionUS IP

US Industrial Productionto Private Non Residential Construction


Additions and AlterationCommercial Buildings -4.7% DOffice & Bank Alterations -6.9% AStores & Restaurants -0.4% D

184

2013 3.5% 2014 4.5%


8.310.3

44.1

10

50

90

130

170

210

-120

-90

-60

-30

0

30

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

2013 3.0% Recovery through 2014

Atlanta Office BldgsNet AbsorptionMeager Rent GrowthDeclining VacancyMove to Quality

185Commercial Buildings Construction3/12

12/12

3MMT12MMT

Billions of $


-1.1-0.7

251.7

80

150

220

290

360

430

500

570

-75

-60

-45

-30

-15

0

15

30

'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

MMTR-O-C

186

Total State & LocalGovernment Construction

3/12

12/12

3MMT 12MMT

Billions of $

Total Public Construction2013 2.2%


1872013


1882011 Exports from Georgia to the World

24.8%

12.8%

10.7%9.8%

6.4%

5.9%

29.5%

336--TRANSPORTATIONEQUIPMENT

333--MACHINERY, EXCEPTELECTRICAL

325--CHEMICALS

322--PAPER

334--COMPUTER ANDELECTRONIC PRODUCTS

311--FOOD MANUFACTURES

All Others

Billions of USD


1892014


190

• Concise 4 Page Report

• Excellent Economic “Snap Shot"

• Consists of Current Events, Brief IndustrySegments, Snap Shot Indicators, Readers'Questions, Fed Notes, ITR OpportunityIndex, and more

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