Mickey D’s in the News: Which story is right?

According to the Wall Street Journal, McDonald’s Corp. has warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant workers unless regulators waive a new requirement of the U.S. health overhaul.  However, less than an hour after that release, ABC News  and Reuters reported that McDonald’s and the Obama administration said the claims of the  Wall Street Journal are false, regarding the dropping of its “mini-med” health insurance for hourly workers because of the new health care reform law.

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Question:

1.  Why do you think the stories are so different and why do you think there was such a quick response from McDonalds and the Obama administration?

2.  What is the medical loss ratio in the new legislation?

3. What effects do you think the new legislation will have on the financial statements of companies?

4.  What do you see as the costs and the benefits of this new legislation?

Sources:

 Adamy, J. (2010). McDonald’s May Drop Health Plan, Wall Street Journal, September 30 (Retrieved online at http://online.wsj.com/article/SB10001424052748703431604575522413101063070.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsThird)

Arnall, D. and H. Khan. (2010). McDonald’s Fights Back Against Report It Will Drop Health Care Plan, ABC News, September 30 (Retrieved online at http://abcnews.go.com/Politics/HealthCare/mcdonalds-fights-back-report-drop-health-care-plan/story?id=11764596)

Reuters. (2010). McDonald’s Denies Its Cutting Health Insurance, MSNBC, September 30 (Retrievable online at http://www.cnbc.com/id/39435771)

WSJ Video. (2010). AM Report: McDonald’s May Drop Health Plan, September 30.  (Retrievable online at http://online.wsj.com/public/page/0_0_WP_3001.html?currentPlayingLocation=37&currentlyPlayingCollection=The%20News%20Hub&currentlyPlayingVideoId={088AC31E-1087-428F-AD84-62AA9E6D5EA6})

The Fabulous Fab is Back in the News

Fabrice Tourre, a controversial personality in the Goldman Sachs Group Inc transaction of 2007, asked a judge to throw out a U.S. regulator’s fraud lawsuit against him.  About two and a half months ago, the bank settled its part of the case for $550 million.

In his filing, Tourre asked that the U.S. Securities and Exchange Commission case be dismissed because the 2007 “Abacus” transaction, which involved collateralized debt obligations (CDOs) tied to subprime mortgages, took place outside the United States.

Questions:

1. What are collateralized debt obligations?

2. Where would CDOs appear in the financial statements of the bank that bought them?

3. Do you think he will prevail in his dismissal of the charges?

4.  How do you think the Goldman Sachs Group reported the $550 million settlement in its financial records?  

Source:

Stempel, J. (2010). Goldman’s Tourre says SEC suit should be dismissed, Reuters, September 30 (Retrieved online at http://www.reuters.com/article/idUSTRE68T3L120100930?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FbusinessNews+%28News+%2F+US+%2F+Business+News%29)

Losing a Trademark Battle

Danish toy brick maker Lego Juris A/S has failed in its bid to overturn a European trade mark decision canceling European trade mark protection for its standard 2 by 4 red Lego brick in a September 14 ruling of the European Court of Justice. Lego went to court after a Canadian firm had made blocks that were so like lego blocks that they even fit the real blocks made by Lego. The European judge decided that the design of the lego blocks is not protected by European trademarks and so anyone can make the blocks.  Struggling toy maker Mega Brands Inc. is the winner in this battle as it is attempting to restore the company’s financial health through the introduction of new products.

Questions:

1. Lego patented its design in 1958.  When did those patents expire?  How is a trademark different from a patent? How are they similar? 

2. Lego is the overall world leader in construction blocks for all ages, selling C$1.6 billion worth of the blocks each year, with half the sales located in Europe. It is estimated that MegaBlocks sells about $250 million worth of the plastic blocks annually, with about one-third being bought in Europe.  If you assume that these two companies make up the total market of blocks, what percentage does each control?

3.  What type of journal entries or financial disclosures would either company have in connection with this court decision?  

4.  Do you think the court was right in its decision?  Discuss.  Why or why not?

Source:

CNN Video. (2010). Lego loses big battle, September 15 (Retrievable online at http://www.cnn.com/video/)

Gordon, M. (2010). EU Court: Lego Red Brick Trademark Not Registrable, Wall Street Journal, September 14 (Retrievable online at http://online.wsj.com/article/BT-CO-20100914-707120.html)

What a Tale!

During the boom, Wachovia banker Robert Verrone made money by slicing and dicing billions of dollars in commercial real estate loans. After the crash, he made money by restructuring those loans before they blew up. As Wachovia’s No. 1 underwriter of securitized commercial real estate debt between 2002 and 2007, Verrone resigned just months before Wachovia nearly collapsed and was acquired by Wells Fargo at the fire sale price of $15.1 billion.

 Questions:

 1.  Why is/was he called “Large Loan” Verrone?

2.  What does his company called Iron Hound Management do? What is your opinion of his ethics as portrayed in the article?

3.  In the article, he says “”We sold every penny of cash flow to anybody in the world who wanted to buy it.”  What is he referring to?

 Source:

 Leonard, D. (2010). The Ballad of “Large Loan” Verrone, BusinessWeek, September 9 (Retrievable online at http://www.businessweek.com/magazine/content/10_38/b4195070500566.htm)

Saving for the Future

Did you know that roughly 50 percent of employees have no retirement savings at all?  In an effort to increase the number of Americans who are saving for retirement, a bill known as the Automatic IRA Act of 2010 has been introduced in the Senate by Sen. Jeff Bingaman (D-NM) and in the House by Rep. Richard Neal (D-MA). The bill establishes IRA accounts for all employees and sets up automatic payroll deductions. The rationale for the legislation is based on the success of the automatic enrollment in 401(k) plans of a few years ago. When these accounts were established by law, there was a dramatic increase in participation, by about 90 percent of eligible employees. The belief is that, by establishing automatic IRA accounts, tens of millions of workers will be eligible for these plans, and an expected $15 billion will be added to savings annually.

 

Questions:

1.  According to the article, will there be any exemptions for the new Act, if passed?

2. According to the article, will there be any incentives for businesses to promote this?  Do you see this as a weak or a robust plan? Explain.

3. Based on the article, what types of journal entries will accountants have to make with respect to the features of this legislation, if passed?

 

Source:

 

Staff (2010) Democrats seek to legislate retirement savings, AccountingWeb, August 31.

(Retrievable at http://www.accountingweb.com/topic/accounting-auditing/democrats-seek-legislate-retirement-savings)

What’s up with Hulu?

According to the New York Times, Hulu is approaching investment banks to underwrite an IPO this fall valuing the company at $2 billion. What is Hulu? Hulu is an online video service that offers a selection of hit shows, clips, movies, and more at Hulu.com and numerous destination sites online and across four screens — PCs, TVs, mobile phones and tablets.
Questions:

1. Based on Yarrow’s article, draft a simplified income statement for Hulu in 2009. Assume a year-end of December 31.

 
2. What is an IPO? Why does Atkinson see problems ahead with this?

 
3. How does Hulu generate revenue? What accounts do you think would be associated with this business model?

Source:
Yarrow, J. (2010). Hulu Wants To IPO At A $2 Billion Valuation, Business Insider SAI, August 16. (Retrievable at http://www.businessinsider.com/hulu-ipo-2010-8)

Atkinson, Claire. (2010). Hulu Faces Hurdles to Stock Offering. New York Post, August 17. (Retrievable online at http://www.nypost.com/p/news/business/hulu_faces_hurdles_to_stock_offering_2O1mh3F3PhtbXXbyrQ7QoO)

Who are the most trustworthy companies and why?

Who can you trust? 

In a recent examination by Audit Integrity, an independent financial analytics company in Los Angeles, the company assessed the true quality of corporate accounting and management practices by looking at more than 100 factors beyond the balance sheet and income statement. Their aim was to identify the measures most highly associated with fraud and to quantify the risks of drops in stock prices, that could force managers to restate financials or could potentially result in securities lawsuits. Audit Integrity has back-tested its proprietary metrics to 1996 to establish correlations between corporate behavior and negative events. Audit Integrity’s measures have been used over the past seven years by institutional investors, insurers, auditors, regulators and corporations to identify risk.

Questions:

1. How many public companies typically make Audit Integrity’s Most Trustworthy Companies list?

2. What industry or region of the country has a concentration of the most trustworthy companies?

3.  Who are the companies with the most impressive records and why?

4.  Speculate on what metrics are used by Audit Integrity and list at least 10 factors that would be important to include.

Source:

Weinberg, N. (2010). The Most Trustworthy Companies. Forbes.com, August 6 (Retrievable online at http://www.forbes.com/2010/08/05/most-trustworthy-companies-personal-finance-audit-integrity.html?partner=daily_newsletter)

Risky Medicine for Hospital Financing

In a last-minute change to the financial reforms bill, Congress allowed Wall Street to continue to sell interest-rate swaps directly, rather than isolating these derivatives in separate units. The thinking behind this move is that the interest-rate securities are benign, or at least less dangerous than credit default swaps, which the legislation requires banks to detach from their main operations.

Questions:

1. What is an interest-rate swap?  Do you think that Congress’ action regarding interest-rate swaps was a good idea?  Why or why not?

2. What is an auction-rate security?

3.  How was the hospital industry harmed by these financial instruments?  What other entities took a hit from these financial instruments?

Source:

Sherter, A. (2010). Financial Reform: How Supposedly Safe Derivatives Make Hospitals Sick, BNET, July 8. (Retrievable online at http://industry.bnet.com/financial-services/100010474/financial-reform-how-supposedly-safe-derivatives-make-hospitals-sick/)

Scrushy Back in the News

The U.S. Supreme Court on Tuesday ordered a new review of the convictions in the government corruption case against former Alabama Gov. Don Siegelman and ex-HealthSouth CEO Richard Scrushy.

Questions:

1. What is the “honest services” fraud law?

2. What is a “quid pro quo” agreement?

3. A judge issued a $2.9 billion civil judgment against Scrushy. According to the opinion, what did Mr. Scrushy do and why?

 

Sources:

Johnson, B. (2010). Court Orders New Review of Siegelman, Scrushy Case, Associated Press, June 29 (Retrievable online at http://www.google.com/hostednews/ap/article/ALeqM5gEFj4h2WLTpKm2g7jltY0N0opHMgD9GL1FQO1

Memorandum Opinion in the 2002 Derivative Litigation for Jefferson County Alabama Circuit Court Case of Wade Tucker, et.al. versus Richard M. Scrushy, et. Al., June 18, 2009. (Retrievable online at http://www.hwnn.com/images/stories/files/Scrushy%20Memorandum%20Opinion.pdf)

Settlement for FCPA violation

The SEC announced that it had reached a settlement with Technip for multiple violations of the Foreign Corrupt Practices Act (FCPA). The SEC allegations focus on  Technip’s role as  a global engineering, construction and services company based in Paris, France in bribing Nigerian government officials over a 10-year period in order to win construction contracts in Nigeria worth more than $6 billion. The SEC also charged that Technip engaged in books and records and internal controls violations related to the bribery.

Questions:

1. Go to the U.S. Department of Justice website (www.justice.gov) and briefly summarize the the Foreign Corrupt Practices Act?

2. Why would the SEC have any jurisdiction over a French firm doing business in Nigeria? Who is one of Technip’s joint venture partners?

3. What did the company do in February 2010 to prepare its shareholders for this potential settlement?

Sources:

Worthington, C. (2010) Technip’s €245 Million FCPA Charge, The FCPA Blog, Feb. 12 (Retrievable online at http://www.fcpablog.com/blog/2010/2/12/technips-245-million-fcpa-charge.html)

Black, B. (2010) Technip Settles FCPA Charges with SEC and DOJ, Securities Law Prof Blog, June 28 (Retrievable online at http://www.lawprofessors.typepad.com/securities/)

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