Thursday, June 14, 2012

Indiana Smaller Corp 2011 Annual Earnings Up 282% Since 2009 Under Obama

There were 17 Indiana headquartered Corps, with Pretax Income or Pretax Loss of $100 mil or more in any of the most recent three years, and which file with the SEC.

These 17 Largest Indiana Corps generated Total Pretax Income in 2011 which was 38% higher than that of two years earlier in 2009.

Included in these 17 Largest Indiana Corps are two health care giants, which comprised 58% of the Total Pretax Income in 2011 of all of the 17 Largest Indiana Corps combined.

In part, due to the positive health care cost cutting initiatives in the new Affordable Health Care Act, the earnings growth of these two huge health care giants dropped off the cliff in 2011, with Eli Lilly's 2011 Pretax Income being precisely flat with that of two years ago, and WellPoint's 2011 Pretax Income being up only 2% from 2009.  US citizens owe Health and Human Services Secretary Kathleen Sebelius a great deal of gratitude for her accomplishments here in helping to bend down the long-term US health care cost curve.

The remaining 15 Largest Indiana Corps, led by the very well run Cummins, had their Total Pretax Income in 2011 increase by an off-the-charts 182% over that of two years ago in 2009.


Now I wanted to see if these strong earnings also applied to the even smaller Indiana Corps, which file with the SEC.

I found 29 Indiana headquartered Smaller Corps filing with the SEC, which had Pretax Income or Pretax Loss of $20 mil or more in any of the most recent three years, and which weren't included in the 17 Largest Indiana Corps.  Thus, these 29 Smaller Indiana Corps also did not have Pretax Income or Pretax Loss of $100 mil or more in any of the most recent three years.  I used a lower $20 mil Pretax Income and Pretax Loss threshold in order to make sure the number of companies here are of sufficient size to be able to reach a valid conclusion.   

How did they do?  Well, these 29 Smaller Indiana Corps generated total earnings growth in the most recent two years of an even more substantially off-the-charts 282%, or more than 7 times the 38% total earnings growth of the 17 Largest Indiana Corps.

Clearly, Indiana citizens should be very proud of their many superb Indiana companies.

And yeah, the Obama Administration created a very robust US economic environment, which permitted the overwhelming majority of these Indiana companies of all sizes to do just fantastically on the earnings front in the most recent two years.

But a second story here is the earnings results by year.

The 17 Largest Indiana Corps generated Total Pretax Income growth of only 5% in 2011 over 2010, and of a substantially higher 32% in 2010 over 2009.

The 29 Smaller Indiana Corps generated Total Pretax Income growth of a very robust 52% in 2011 over 2010, and of an off-the-charts 151% in 2010 over 2009.

And then in the most recent 1Q 2012, the 17 Largest Indiana Corps had their Total Pretax Income actually decline by 6%, going from $4,947 mil in the 1Q 2011 to $4,635 mil in the 1Q 2012. 


Yeah, that's quite a bit of earnings growth deceleration for Indiana Corps of all sizes, and with the 17 Largest Indiana Corps earnings growth as follows: +32% in annual 2010, +5% in annual 2011, and reversing course to -6% in the 1Q 2012.  That's really ugly and shows that the US economy is struggling now in pause.

So why is it that these Indiana Corps did so much better in 2010 than they did in both 2011 and in the 1Q 2012?  I think you need to look at the political situation.

In both years, the President was the same.....a Moderate Democrat.

However, the US House was under Very Conservative Republican control in 2011, but under Democratic control in 2010.

Also, the US Senate had a lower Democratic majority in 2011 than it did in 2010.

And the State Governors and State Legislatures, all across the country, were clearly more Very Conservative Republican in 2011 than they were in 2010.

So clearly, there was a substantial shift nationally from Moderate Democratic control in 2010 to Very Conservative Republican control in 2011.

How could this change in political control make such a huge difference in Indiana State company earnings?

It is pretty clear to me that in 2010, a Moderate Democratic President, coupled most importantly with a US House in Democratic hands, but also having a US Senate in Democratic hands, and further with having more State Governors and State Legislatures in Moderate Democratic hands, did wonders for corporate earnings growth in 2010.  With this political structure, economic stimulus, both much needed business income tax stimulus and wise, carefully-vetted investment spending, can occur on a robust scale.  And this very strong economic stimulus was in full throttle starting in the 4Q 2009, and did Corporations ever reap the benefit of this by generating exceptionally strong profits.

The worse thing that can happen after a financial meltdown, and near depression, is a US government that just waits for the free markets to correct themselves.....a laissez-faire approach, so favored by so many RepublicansFortunately for the country, the exact opposite to that wisely happened in 2009 and 2010.

But then in 2011 and the first half of 2012, the US government was unfortunately forced into a laissez-faire economic approach, due to an uncompromising Very Conservative US Congress stopping nearly every economic initiative of the Obama Administration.  The focus of the US Congress was almost singularly on austerity, when the improving, but still clearly struggling, US economy was shouting out for more economic stimulus, wisely designed

Thus, things stopped to a walk on the US economic front when the US House switched to Very Conservative Republican control with the 2010 election, coupled with the US Senate Democratic majority rule being significantly reduced, and with many US States switching from Moderate Democratic Control to Very Conservative Republican Control.

Case in point is Business Income Tax Reform, which the Obama Administration strongly supports, and which nearly all Republicans say they are behind.  If the President's Framework for Business Income Tax Reform, presented more than three months ago, is strengthened by the US Congress and passed, I am pretty certain that all of the US economic problems, including US real GDP growth, US unemployment, US underemployment, and the US Deficit....would all be substantially improved, and on an ongoing sustainable basis over the long run.

However, the US House Ways and Means Committee must initiate the legislation on this critically needed Business Income Tax Reform.  And what have they done so far?  Absolutely nothing.  I'm not kidding.  On the other hand, if the US House was under Democratic control, I am pretty certain that this Business Income Tax Reform would have gotten out of the US House Ways and Means Committee by now and been placed on the US House Floor.

Instead, the Very Conservative Republicans in the US House are focused on attempting to pass an extension of the much lower Bush income tax rates on the wealthy, which increases the US Deficit by more than a trillion dollars over the next decade, and creates almost no US jobs.  This continual off-focus approach to governing by the Very Conservative Republicans in the US House shows that they are clearly unfit to be reelected, due to either their gross incompetence on US economic issues, or to their only be interested in governing for the top 1% of the country.

On the other hand, when the President is a Moderate Democrat and the US House is in Democratic control, economic initiatives move forward, and they clearly did very robustly in 2009 and 2010.


While substantial US job creation doesn't necessarily result from substantially higher corporate earnings, I can clearly tell you one thing.....lower corporate earnings will undoubtedly result in a significant loss of US jobs.  When corporate earnings absolutely tanked in late 2008 and in 2009, corporations were very quick to dramatically cut US full-time employees.  And to give a recent illustration, when Hewlett Packard recently announced down earnings, it also announced it will be cutting 27,000 jobs, or 8% of its workforce.  And I have seen so many large Restructuring Charges, where significant job cuts always result, made by Corporations in their 1Q 2012 Earnings Statements, and made in the same quarter where their earnings growth has fallen off the cliff.


In deriving Pretax Income, I start with Pretax Income under Generally Accepted Accounting Principles (GAAP), and then exclude several clearly unusual very large items relative to Pretax Income, such as Asset Impairments, and Gains and Losses on both Debt Retirements and Asset Dispositions.

I use Pretax Income rather than After-tax Net Income, since so much of the change in effective income tax rates just happens due to financial engineering.

I excluded Corps in the Development Stage, and ones generating losses for many years.

Let me first show each of the 17 Largest Indiana Corps, where they are Headquartered, and their Industry Sector.


Indiana Largest Corps Indiana HQs Sector



Allison Transmission Indianapolis Manufacturing: Motor Vehicle Parts
Biomet Warsaw Health Care: Orthopedic, Prosthetic and Surgical Appliances
CNO Financial Carmel Health and Life Insurance
Cummins Columbus Manufacturing: Engines and Turbines
Eli Lilly Indianapolis Health Care: Pharmaceuticals
Finish Line Indianapolis Retail: Shoes
Hillenbrand Batesville Manufacturing: Miscellaneous
Hill-Rom Holdings Batesville Health Care: Surgical and Medical Instruments
ITT Educational Carmel Educational Services
KAR Auction Svcs Carmel Vehicle Auction Services
Mead Johnson Nutrition Evansville Foods
Old National Bancorp Evansville Banking
Simon Property Group Indianapolis Real Estate Investment Trust
Springleaf Finance Evansville Personal Credit Institution
Steel Dynamics Fort Wayne Manufacturing: Steel
WellPoint Indianapolis Health Insurance
Zimmer Holdings Warsaw Health Care: Orthopedic, Prosthetic and Surgical Appliances

And below here is the Pretax Income (PTI) or Pretax Loss of each of these 17 Largest Indiana Corporations for each of the most recent three years, along with the related percentage changes in earnings.






Move to




More More




Republican Democratic Obama




Control Control Bump




PTI(L) PTI(L) Two Year




% % %




Change Change Change

Total Total Total 2011 2010 2011

PTI(L) PTI(L) PTI(L) vs vs vs

2011 2010 2009 2010 2009 2009

mils $s mils $s mils $s


Indiana Largest Corps





The Health Care Giants





Eli Lilly 6,139 6,767 6,141 -9% 10% 0%
WellPoint 3,958 4,354 3,874 -9% 12% 2%







The Rest





Cummins 2,671 1,617 640 65% 153% 317%
Zimmer Holdings 1,141 1,154 1,099 -1% 5% 4%
Simon Property Group 951 717 612 33% 17% 55%
Mead Johnson Nutrition 722 634 587 14% 8% 23%
ITT Educational 508 614 491 -17% 25% 3%
Steel Dynamics 424 213 (18) 99% 1283% 2456%
CNO Financial 379 294 174 29% 69% 118%
Allison Transmission 208 83 (93) 151% 189% 324%
Hill-Rom Holdings 207 162 94 28% 72% 120%
Hillenbrand 158 146 161 8% -9% -2%
KAR Auction Services 144 130 34 11% 282% 324%
Finish Line 135 110 72 23% 53% 88%
Old National Bancorp 100 43 (7) 133% 714% 1529%
Biomet (124) (142) (369) 13% 62% 66%
Springleaf Finance (323) (253) (889) -28% 72% 64%





Total all 15 Rest 7,301 5,522 2,588 32% 113% 182%







Total all 17 17,398 16,643 12,603 5% 32% 38%

Now let me show each of the 29 Smaller Indiana Corps, where they are Headquartered, and their Industry Sector or SEC Standard Industrial Classification. 


Indiana Smaller Corps Indiana HQs Sector or SEC Standard Industrial Classification



1st Source South Bend Banking
Accuride Evansville Manufacturing: Motor Vehicle Parts
Angie's List Indianapolis Technology: Advertising
Baldwin & Lyons Indianapolis Property & Casualty Insurance
Berry Plastics Evansville Manufacturing: Plastics
Brightpoint Indianapolis Wholesale: Electronic Parts and Equipment
CalumetSpecialtyProductsPartners Indianapolis Petroleum Refining
Cardinal Ethanol Union City Industrial Organic Chemicals
Celadon Group Indianapolis Trucking
CTS Group Elkhart Printed Circuit Boards
Duke Realty Indianapolis Real Estate Investment Trust
ExactTarget Indianapolis Prepackaged Software
First Financial Corp Terre Haute Banking
First Merchants Muncie Banking
Franklin Electric Bluffton Manufacturing: Motors and Generators
German American Bancorp Jasper State Commercial Banks
Haynes Intl Kokomo Manufacturing: Steel
HHGregg Indianapolis Retail: TV and Consumer Electronics
Interactive Intelligence Group Indianapolis Prepackaged Software
Lakeland Financial Warsaw Banking
Mainsource Financial Group Greensburg State Commercial Banks
Remy Intl Pendleton Manufacturing: Motor Vehicle Parts
Republic Airways Indianapolis Air Transportation
Shoe Carnival Evansville Retail: Shoes
Skyline Corp Elkhart Mobile Homes
SS&C Technologies Evansville Technology: Software
Symmetry Medical Warsaw Orthopedic, Prosthetic & Surgical Appliances
Vera Bradley Fort Wayne Leather Products
Wabash National Lafayette Manufacturing: Truck Trailers

And below here is the Pretax Income (PTI) or Pretax Loss of each of these 29 Smaller Indiana Corporations for each of the most recent three years, along with the related percentage changes in earnings. 






Move to




More More




Republican Democratic Obama




Control Control Bump




PTI(L) PTI(L) Two Year




% % %




Change Change Change

Total Total Total 2011 2010 2011

PTI(L) PTI(L) PTI(L) vs vs vs

2011 2010 2009 2010 2009 2009

mils $s mils $s mils $s


Indiana Smaller Corps





Remy Intl 96 59 14 63% 321% 586%
Vera Bradley 95 52 44 83% 18% 116%
Franklin Electric 87 55 35 58% 57% 149%
SS&C Technologies 79 49 29 61% 69% 172%
Calumet Specialty Products 79 41 34 93% 21% 132%
1st Source 74 60 32 23% 88% 131%
HHGregg 68 81 64 -16% 27% 6%
Brightpoint 57 52 27 10% 93% 111%
First Financial Corp 52 40 25 30% 60% 108%
Haynes Intl 49 16 (17) 206% 194% 388%
Lakeland Financial 45 37 28 22% 32% 61%
Shoe Carnival 42 42 25 0% 68% 68%
First Merchants 34 3 (69) 1033% 104% 149%
German American Bancorp 28 19 16 47% 19% 75%
Mainsource Financial Group 28 15 4 87% 275% 600%
Cardinal Ethanol 26 20 (1) 30% 2100% 2700%
CTS Group 26 28 13 -7% 115% 100%
Berry Plastics 24 (75) (46) 132% -63% 152%
Celadon Group 23 11 8 109% 38% 188%
Interactive Intelligence Group 22 23 15 -4% 53% 47%
Wabash National 15 (20) (72) 175% 72% 121%
Republic Airways 10 55 57 -132% -4% -82%
Symmetry Medical 6 22 29 -73% -24% -79%
Accuride (7) (56) (97) 88% 42% 93%
ExactTarget (25) (18) (3) -39% -500% -733%
Skiyline Corp (27) (28) (18) 4% -56% -50%
Baldwin & Lyons (45) 35 64 -229% -45% -170%
Angie's List (49) (27) (12) -81% -125% -308%
Duke Realty (60) (32) (5) -88% -540% -1100%







Total all 29 852 559 223 52% 151% 282%

This massive earnings growth deceleration in these Indiana Corps, which has also occurred all throughout the country, is shouting out that the US economy desperately needs an economic jolt.

I do think US companies, the US economy, and US job creation would all be helped immensely if the recalcitrant, uncompromising, Very Conservative Republican part of the US Congress would start working with the Obama Administration on much needed, bold, targeted like a laser, quick-hitting, highly effective, short-term economic stimulus, which is also wisely designed to get the maximum bang for the buck.

I think the key to bringing down dramatically and quickly the US unemployment and US underemployment rates, and which is sustainable in the long run, is for the US Government to give extremely explosive tax incentives to all US businesses, preferably some form of super-charged combination of the old, and a very substantial, investment tax credit and also substantially accelerated first-year tax depreciation, including 100% first-year tax depreciation on all equipment and computer software investments.  And to really spur the US economy and also move the US job creation needle upwardly and dramatically so, I think that building and building remodeling investments should also be eligible for both the investment tax credit and for substantially accelerated first-year tax depreciation.  But the key to insure that explosive US job creation results from these very lucrative tax incentives to all US businesses, I think it is critical that these businesses be eligible for this investment tax credit and accelerated first-year tax depreciation only if they also add, and retain for a reasonable number of years based on a very simplified system of total US full-time payroll counts, a sufficient number of US full-time jobs.

As we unfortunately found out in the most recent two years, US businesses were quick to take the economic benefit of the lucrative tax incentives, but selfishly did very little in sharing these benefits with those trying to get to the US middle class by refusing to add much in the way of US full-time jobs.  That's not playing fair.  And it's also ineffective US Government legislation, which instead should be carefully crafted for the entire country to benefit from, not just the US business community.

And it's also clear that the US Government should not continue to rely on the anticipated US economic effects of proposed legislation provided by extremely bright, well-intentioned, abstract-thinking, academic economists with no real-world business experience.  Relying on their assessments have cost the country dearly.....not US businesses, but the substantially depleted middle class, the many jobless, and the many underemployed.  Very lucrative tax incentives were granted to all US businesses, but it didn't trickle down to US job creation.  Where have we heard that before? 

There are a few exceptions like visionary Starbucks' CEO Howard Schultz, but to simplify the way the overwhelming majority of corporations think, no matter what they say publicly, it's all about making decisions which positively impact their profits, which also will positively impact their company's stock price.

When corporations are given a very lucrative tax incentive with no strings attached, they will take advantage of the lucrative tax incentive and hire no one.  That decision maximizes their profits.

However, if the US Government wisely crafts legislation which has very lucrative tax incentives to corporations, but corporations can't get these lucrative tax incentives unless they hire and retain a sufficient number of US full-time workers, then corporate profit maximization depends on the upside from the lucrative tax incentive, not just the tax benefits but also the resultant increase in sales and gross margins, versus the downside from the higher employee and employee benefit costs from the required new hires.

Thus for there to be a win to both the corporations and to US job creation, the tax incentives offered have to be so incredibly explosive in order for the corporations to see it in their best economic interests to hire and retain employees.

I suggest that something similar to the above supercharged combination of substantial investment tax credits and substantially accelerated first-year tax depreciation, with a requirement for payroll count increases, will effectively do the trick.

The accelerated first-year tax depreciation doesn't directly yield additional corporate reported earnings, although it does give a significant economic value to a corporation due to it getting the income tax benefit of the tax depreciation much earlier.  And when interest rates rise, this economic value is enhanced dramatically.  And if President Obama's Framework for Business Reform passes, and US corporate income tax rates are reduced in future years starting in 2013, the 2012 first-year substantially accelerated tax depreciation, which gets a higher income tax benefit from the higher tax rate in 2012, will actually result in additional corporate earnings to the corporation in 2013.

However, the investment tax credit does increase corporate reported earnings.

Let's say that the tax legislation is wisely designed so that a corporation must retain the payroll count increase for three years in order to earn the investment tax credit and not have to have it recaptured.  In that case, the best accounting would be to spread the investment tax credit to the income statement over a three-year period.  Thus it effectively works like a corporate income tax rate reduction to a corporation's income statement over a three-year period.  This is an effect on their companies' bottom line that smart CEOs and CFOs find highly desirable.

But most important of all to the entire country, this payroll count increase and retention requirement clearly and directly increases US full-time jobs.

If the US Government remains in gridlock for a long time, the US unemployment rate will continue to hover around 8%, and for a very long time, and perhaps even move up some, somewhat similar to what happened in Japan.  That is why it is so critical that there be a complete makeover of the US Congress in the upcoming November 2012 election.  This is the only way the US economy will be great again.

On the other hand, if the investment tax credit is passed on new equipment, computer software, and building and building improvement investments and is set high enough, I think the US unemployment rate will drop quickly and sharply.

Let me stick my neck out and put some numbers out here.

Let me assume this ideal scenario:

  • Investment tax credit is set at 15% for all US capital investments made in the remainder of 2012, and then reduced a bit to 10% for capital investments made in 2013
  • First-year 100% tax expensing on new US equipment purchases and computer software investments made, and with extremely accelerated first-year tax depreciation on new building and all building remodeling investments, both made in the remainder of 2012 and all of 2013
  • A reasonable requirement for a sufficient number of new hires to be added in the same period the capital investments are made
  • The number of US full-time payroll counts remain at least at the year-end level when the new hires are made, for a three-year period, or else the investment tax credit and accelerated tax depreciation benefits both get recaptured
Under the above scenario, I think you would see the US unemployment rate drop to under 6% by December 2013, and continue on a downward path under 6% for many years.

And you would also see US real GDP growth substantially above 4% for the remainder of 2012 and for all of 2013, and continue above 3% for many years.

And you would also see a dramatic drop in the US Government Annual Deficits.  The main driver of the US Government Deficits are tepid US real GDP growth and very high US Unemployment and US Underemployment.  By far the best way to put a major dent in the US Debt problem is by substantially increasing US real GDP growth and by also substantially reducing US unemployment and US underemployment.  Short-term austerity actions are of minor consequence, and in fact actually make the US Deficit worse.

Given the present very fragile state of the US economy, if Mitt Romney is the next President, along with both the US House and the US Senate being in Republican control, I am pretty certain that the country will see a US unemployment rate which will average in the very low double digits during the last three years of his four-year Presidential term.  And the middle class will be substantially depleted.

Romney, and his US Congressional allies, want a huge, no-strings-attached reduction in the corporate income tax rate.  What that would do is to dramatically increase the After-tax Net Income of all corporations, and by a gigantic amount.  And how many US jobs are created by just reducing the corporate income tax rate?  Absolutely none, directly.  And very few, if any, indirectly.  To argue that a reduction in the corporate income tax rate would either directly or indirectly create a lot of US jobs is being either intellectually dishonest, or having a complete lack of competence on economic issues.