Pressure Packages

Pressure from financial  institutions and Treasury officials undermined an effort to  limit executive pay at seven companies rescued with taxpayer  money, a new government audit showed on Tuesday.  The official overseeing executive pay for bailout firms  limited cash compensation and made some reductions in pay, but  still approved compensation packages in the millions, the TARP  (Troubled Asset Relief Program) inspector general said in the  report. Former U.S. pay czar Kenneth Feinberg approved pay packages  worth $5 million or more from 2009 to 2011 for 49 top earners,  the report said.

Questions:

1. What was the significant leverage that the article said the companies had over Feinberg?  Do you agree that this would be significant enough to compromise?  Why or why not?

2. What was Feinberg’s title? What does TARP stand for?

3. Who were the companies involved? Which of these have exited the TARP program?

Source:

Reuters Staff. (2012). Bailed-out Companies Pressured TARP Pay Czar to Keep Executive Pay High: Report, Jan. 24 (Retrievable online at  http://www.huffingtonpost.com/2012/01/24/tarp-executive-pay_n_1226485.html?ref=business)

 

Verizon Posts New Numbers

Verizon Communications on Tuesday reported a net loss of $212 million in the fourth quarter of 2011, despite rising iPhone sales and revenue growth in its wireless business, compared with net income of $4.65 billion in the same quarter a year ago, the company said Tuesday. The loss was primarily because of the impact of previously announced noncash pension charges, the company said.

Questions:
1. What percentage drop in net income existed between 4th quarter 2011 and 4th quarter 2010?

2. What are noncash pension charges?

3. Discuss how the deal that Verizon made with cable companies will advance its offerings strategically.

4. What percentage increase of new wireless subscribers did Verizon gain over the last quarter of 2011?

Source:

Chen, B.X. (2012) Verizon Posts Loss on Pension Charges, Jan. 24 (Retrievable online at http://www.nytimes.com/2012/01/25/technology/verizon-posts-loss-on-pension-charges.html?_r=1&ref=business)

Insulting Discounts: The Costa Concordia Saga

The owners of the Costa Concordia are offering survivors of the disaster a 30 percent discount off future cruises as they battle to stave off law suits expected to cost hundreds of millions of pounds. As the body of a 12th victim was found inside the hull of the £370 million, 1,000 ft vessel, survivors call the discount offer “insulting.” The most recent victim was found wearing a life jacket on the fourth deck, close to a muster station.

 

Question:

1.  What was the difference between net income for Carnival from 2010 to 2011?

2.  What did Carnival attribute this drop in income to?

3.  What is Carnival’s connection with the Concordia and why is Carnival seeing a downturn in bookings this year?

 

CNN Video. (2012). Carnival Cruise Lines Takes Financial Hit, Jan. 16 (Retrievable online at http://www.cnn.com/video/#/video/world/2012/01/16/pkg-boulden-cruise-ship-business-after-concordia.cnn)

 

Duffin, C., R. Mendick, N. Squires, and V. Ward (2012). Costa Concordia: ‘Insulting’ Cruise Offer to Survivors, The Telegraph, Jan. 24 (Retrievable online at http://www.telegraph.co.uk/news/worldnews/europe/italy/9030212/Costa-Concordia-insulting-cruise-offer-to-survivors.html)

Kraft Cuts Jobs

Kraft Foods Inc. will cut 1,600 positions in North America as it prepares to split its business in two. The company announced in August that it would split into two independent companies: a global snacks business and North American grocery business. Kraft said the moves are needed to help the businesses run more effectively.

Questions:

1. Based on the article, what percentage of its workforce is Kraft cutting? In what area will most cuts take place?
2. Based on the article, calculate Kraft’s most current P/E ratio.
3. How does this P/E ratio compare with other companies in the industry and how would you interpret it?

Source:
Associated Press Staff. (2012). Kraft Foods to Cut Up to 1,600 Positions, The New York Times, Jan. 17 (Retrievable online at http://www.nytimes.com/aponline/2012/01/17/business/AP-US-Kraft-Jobs.html?ref=business)

Bonuses, Anyone?

Alan Johnson is among a small group of behind-the-scenes information brokers who help determine how Wall Street firms distribute billions of dollars to their workers. He operates as a compensation consultant in an obscure corner of the management consulting industry and in the shadows of high finance.

Questions:

1. What was the most interesting thing that you learned in this article?
2. How do this year’s bonuses compare to 2008?
3. What do Wall Street pay packages routinely include? Discuss how these bonus items are accounted for.
4. How does Mr. Johnson research his recommendations?

Source:

Roose, K. (2012).The Invisible Hand Behind Bonuses on Wall Street, The New York Times, Jan. 16 (Retrievable online at http://www.nytimes.com/2012/01/17/business/the-invisible-hand-behind-wall-street-bonuses.html?_r=1&ref=business)

Watch that Password!

Zappos began emailing its 24 million customers Sunday, advising them that its site had been hacked, and some customers’ personal details and account information likely stolen. Despite Zappos’ data breach notification to consumers, the company hasn’t yet answered several key questions, such as detailing when the data breach occurred, the length of time for which attackers may have had access to its systems, or how the breach was finally detected. Zappos also hasn’t indicated whether it will offer identity theft monitoring services to affected customers.

Source:

Hartman, C. (2012). Zappos Hacked, 24 Million Accounts Exposed, 5min LifeVideopedia, January 16 (Retrievable at http://www.5min.com/Video/Zappos-Hacked-24-Million-Accounts-Exposed-517248590)

Schwartz, M. (2012) Zappos Hack Exposes Passwords, InformationWeek, Jan. 17 (Retrievable online at http://www.informationweek.com/news/security/attacks/232400441)

Questions:

1. According to the video, what is Zappos known for?
2. What advice is being given to the compromised account holders? Does it sound like the accounting information system was breached?
3. Who owns Zappos and what industry are they in? What type of contingent liabilities could this breach expose Zappos to?

BANKING ERRORS: Foreclosure, Without Missing a Payment?

Christine Jackson’s three-bedroom wood-frame home in Indianapolis is in danger of foreclosure. It’s not because she can’t afford her mortgage, but because of a bank error, she said. Jackson is among thousands of homeowners from all walks of life who have complained that the major banks that service their mortgages have made frequent errors in calculating their loans. These errors include slapping unnecessary inspection fees onto accounts, misapplying payments in violation of Fannie Mae and Freddie Mac guidelines and “force-placing” expensive insurance on homes that are already insured.

Questions:

1. Summarize what happened to Jackson.
2. What is an escrow account and how are they suppose to work?
3. In November, the biggest banks and independent servicers agreed in a consent order with federal regulators to allow homeowners to do what?

Source:

Hallman, B. (2012). Foreclosure Lawyer Could Lose Her Home Because of Alleged Bank Error. The Huffington Post.com, January 6 (Retrievable online at http://www.huffingtonpost.com/2012/01/06/foreclosure_n_1189367.html?ref=business)

First-Class Travel Has Never Been So Good, For Those Who Can Afford It!

Though first class represents less than 5 percent of all seats flown on long-haul routes, and business class accounts for 15 percent, those seats combined to generate 40 to 50 percent of airlines’ revenue, according to Peter Morris, the chief economist at Ascend, an aviation consulting firm. After its merger with Continental last year, United Airlines kept its first-class cabin only on some international routes that used to be served by United but not on those flown by Continental. It is also installing new flat-bed seats across its fleet in business class.

Questions:

1. According to the video, what was the price of a coach seat versus a business class seat versus a 1st class seat on a flight from the U.S. to Zurich, Switzerland?
2. Based on your answer in #1, assume that a plane going to Zurich has 230 coach, 50 business seats, and 20 first-class seats? What would be the gross revenue?
3. Based on your answer in #2, what would the expenses be in order to achieve a 50 percent net revenue?
4. How many times more is a first-class seat as compared to a coach seat, based on your answer in #1?
5. Discuss how you think an airline decides to configure its seating options. What is the linkage between this type of decision and cost or managerial accounting?

Source:
Mouawad, J. (2011). Taking First-Class Coddling Above and Beyond, The New York Times, Nov. 20 (Retrievable online at http://www.nytimes.com/2011/11/21/business/taking-first-class-coddling-above-and-beyond.html?pagewanted=1)

Video. (2011). In First Class, A World Apart, New York Times Video (Retrievable online at http://video.nytimes.com/video/2011/11/21/business/100000001182807/in-first-class-a-world-apart.html)

No More “Neither Admit or Deny”

The Securities and Exchange Commission, in a fundamental policy shift, said Friday, January 6, that it would no longer allow defendants to say they neither admit nor deny civil fraud or insider trading charges when, at the same time, they admit to or have been convicted of criminal violations. This has been a longstanding practice of allowing companies to settle fraud charges by paying a fine without admitting wrongdoing.

Questions
1. In what types of cases will “neither admit or deny” still be allowed?
2. According to the article, who at the SEC decides whether to use relevant facts from the criminal case in its own court documents for the civil case?
3. In November, what high-publicity case was critical of the “neither admit or deny” settlements and who was the judge that made that point?

Source:

Wyatt, E. (2012). S.E.C. Changes Policy on Firms’ Admission of Guilt, The New York Times, Jan. 6 (Retrievable online at http://www.nytimes.com/2012/01/07/business/sec-to-change-policy-on-companies-admission-of-guilt.html?_r=2&hp)

Sears and Kmart Close Stores

Sears Holding Corp. is ending the year on a bitter note. The company, which earlier this week posted a list of 79 out of the up to 120 Sears and Kmart stores it plans to close and was then downgraded by Fitch Ratings, is now watching its stock bleed out to a new low.

In mid-day trading in New York, the beleaguered retailer’s stock was down to $32.20, heading for its fourth straight daily drop and less than half of the year-earlier price of $74.15.

Questions:

1. Why did Fitch downgrade the company? Specifically, what was the downgrade?

2. Explain what Sears may have to restructure, besides closing stores.

3. Based on the article, what are the projections for the 4th quarter earnings?

4. Calculate the percentage drop in the stock price.

Source:

Staff (2011). Sears, Kmart Closings: Shares Slide To New Low On Fitch Downgrade, Los Angeles Times, Dec. 30 (Retrievable online at http://latimesblogs.latimes.com/money_co/2011/12/sears-kmart-closings-shares-slide-to-new-low-on-fitch-downgrade.htmlhttp://latimesblogs.latimes.com/money_co/2011/12/sears-kmart-closings-shares-slide-to-new-low-on-fitch-downgrade.html)

NBC Video (2011). More than 100 Sears and Kmart Stores to Close, Dec. 27.

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