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)

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)

The Comeback Kid?

Pandora, an online radio service, had a public offering of stock on June 15, 2011. Many are saying that its success in the public offering is part of a new tech bubble in the stock market. As of April had 90 million registered members, which is up from 80 million in February. Its members racked up 3.8 billion hours of listening to Pandora’s song stream at the end of the 2011 fiscal year. But as its audience grows, so does its biggest cost: the royalties it pays for the music it streams. Pandora’s filing said its current rates for royalty payments are good until 2015, after which it will need to renegotiate.

Questions:

1. Pandora was founded in 2000, but it wasn’t known as “Pandora” at the time. What was its original name?

2. Who are Pandora’s competitors? What are the problems with Pandora’s business strategy?

3. The video mentioned Zip Car (http://www.zipcar.com/) as a new IPO.  What is an IPO?  Look up Zip Car.  What is the focus of this business? 

4.  Compare the Pandora product and the Zip Car product.  Which do you think will be more successful and why?

5.  Pandora was expecting to raise about $100 million with their stock offering and instead raised $250 million.  What percentage is this over their expectations?

Sources:

Pandora CEO Kennedy (http://video.cnbc.com/gallery/?video=3000027758), June 15, 2011

Siegler, M. (2011). Pandora Puts The “P” In IPO — Our Talk With Them On The Big Day , Tech Crunch, June 15 (Retrievable online at http://techcrunch.com/2011/06/15/pandora-stock-ipo/)

Company Profile: Weight Watchers International Inc.

Weight Watchers’ CEO talks about keeping the company trim and profits healthy. Weight Watchers International, Inc. (WWI) is a consumer company and the provider of weight management services, operating through a network of Company-owned and franchise operations.

Questions:

1.  According to the video, how much do consumers pay for Weight Watcher products? Discuss whether you think the future of the company would be good as an investment and why.

2.  According to the video, what differences has Weight Watchers had to consider to translate its models to different groups of people?

3. What is a mission driven culture that the CEO talks about in this video?

4.  What is the current price of the company’s stock?  What is the company’s P/E Ratio?  How do you interpret that? What is the company’s EPS? Look at Weight Watcher’s March 3, 2011 10-K.   What makes up the majority of the company’s assets and what percentage is that of total assets? Explain why you think this is so important to Weight Watchers.

5.  In the New York Times profile, what is the most interesting article you see about Weight Watchers? Why?

Source:

CNN.com video. (2011) Keeping a Company in Shape, April 19. (Retrievable at www. cnn.com/video/)

The New York Times staff.  Weight Watchers International, Inc. Company Information   (Retrievable online at http://topics.nytimes.com/topics/news/business/companies/weight-watchers-international-inc/index.html)

2011 Prediction

According to William K Black, the FBI and the DOJ will not be likely to prosecute the elite bank officers that ran the enormous ”accounting control fraudss that drove the financial crisis. While over 1,000 elites were convicted of felonies arising from the savings and loan crisis from the 1980′s and 1990′s , there are no convictions of controlling officers of the large nonprime lenders. The only indictment of controlling officers of a far smaller nonprime lender arose not from an investigation of the nonprime loans but rather from the lender’s alleged efforts to defraud the federal government’s TARP bailout program.

Black proposes that the U.S. needs to take three major steps to be effective against the epidemic of accounting control fraud. First, DOJ needs to realize that it is dealing with accounting control fraud. That task is not terribly difficult. The criminology, economics, and regulatory literature — as well as the data on fraud and analytics are all readily available. The FBI must end its “partnership” with the MBA. Second, the regulators need new leadership picked for a track record of success as vigorous regulators and a willingness to hold elites accountable regardless of their political allies. Third, the regulators and the DOJ need to partner with the SEC and the state AGs to share data (where appropriate under Grand Jury rule 6e). The federal regulators need to end their unholy war against state regulatory efforts and the SEC needs to end its disdain for the state AGs.

Questions:

1. According to the author, what is the four-part recipe for maximizing fraudulent accounting income in the short-term?

2. According to the author, what is the downfall of the FBI in the role of successful investigation and prosecution of accounting control fraud?

3. What are liar’s loans and what is their role in the financial crisis? 

4.  How do you see this lack of criminal prosecution affecting the accounting and finance profession? Do you agree with Black’s proposals?

Source: Black, W.K. (2010). 2011 Will Bring More de Facto Decriminalization of Elite Financial Fraud, The Huffington Post.com, December 28 (Retrievable online at http://www.huffingtonpost.com/william-k-black/the-role-of-the-criminal_b_802115.html)

Cooking the Books for Lehman?

N.Y. Attorney General Cuomo filed charges against Ernst & Young on December 21, 2010, alleging that the firm helped Wall Street Investment bank Lehman Brothers conceal its deteriorating financial condition before the bank’s historic collapse in the fall of 2008.  The civil lawsuit, which seeks more than $150 million, is the first law enforcement action to stem from Lehman’s failure. The bankruptcy of the firm, which was an important cog in the machinery of the capital markets, caused immense collateral damage. The allegations center on sham trades that allowed Lehman to window-dress its balance sheet before filing quarterly financial reports, making it seem like it had more cash than it actually did. Cuomo’s lawsuit aims to hold accountable one of the less-mentioned players in the saga – Ernst & Young, Lehman’s auditor, which allegedly turned a blind eye to the accounting machinations. The case does not resolve the fate of senior Lehman executives, such as former chief executive Richard Fuld, who have been under investigation by the Securities and Exchange Commission.

Questions:

1.  Explain the boomerang trade referred to as “Repo 105″ that is at the heart of the allegations.

2.  Explain leverage and what impact it played in the scenario.

3. Based on what you know about the Lehman situation, do you think they should have been included in the government bailout?  Why or why not?

4.  Read Matthew Lee’s letter  and critique it. Do you agree with the way he handled the situation as a whistleblower?  Based on what you know, would you have handled it any differently? 

Source:

Goldfarb, Zachary A. (2010). N.Y. Attorney General Cuomo Sues Ernst and Young, alleging Lehman Accounting Fraud, The Washington Post, December 22 (Retrievable online at http://www.washingtonpost.com/wp-dyn/content/article/2010/12/21/AR2010122103973.html?sid=ST2010122106931)

Lee, Matthew. (2010). The Lehman Whistleblower Letter Everyone Ignored. Hereisthecity.com, December 21, 2010 (Retrievable online at http://news.hereisthecity.com/news/business_news/10215.cntns)  

The Alyona Show,  The Next Arthur Andersen?, Dec. 22, 2010. (Retrievable at http://www.youtube.com/watch?v=5B_esTl9FS8&feature=related) 

Mortgage Buybacks

Mortgage Buybacks

According to Standard & Poor’s, the top U.S. banks could face up to $31 billion in losses from buying back bad mortgages. Bank of America Corp and JPMorgan Chase & Co have the most exposure to such potential repurchase obligations, followed by Wells Fargo & Co, Citigroup Inc, US Bancorp and PNC Financial Services Group, according to S&P analyst Vandana Sharma. In partcular, analysts believe that Bank of America has lost so much credibility with investors that the stock’s decline might start feeding on itself.

Question:

1. According to the article, what percentage of losses from mortgage buybacks have the six companies already accounted for?
2. Besides the losses, what reason do analysts propose will lead to decreases in net interest income?
3. Based on Weil’s article, how did Bank of America record the transaction when it purchased Countrywide? 
4. Rewrite Weil’s 1^st paragraph after the “Tipping Point” subtitle, in simple terms, as if you were explaining it to your grandmother or your roommate.

Source:

Staff. (2010). Banks Face $31 Billion Loss on Mortgage Buybacks: Report, Reuters, November 8. (Retrievable online at http://www.huffingtonpost.com/2010/11/04/banks-face-31-billion-los_n_779115.html)
Youtube.com (2010). BofA Under Pressure to Buy Back $47B in Debt (Retrievable online at http://www.youtube.com/watch?v=apMyLwOJ7nU)

Weil, J (2010). Bank of America Edges Closer to Tipping Point: Jonathan Weil, Bloomberg News, Nov. 3.

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})

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)

Can Debt Ruin Your Relationship?

When Allison Brooke Eastman’s fiancé found out four months ago just how high her student loan debt was, he broke off their engagement within three days. Although she had told him early in their relationship that she had over $100,000 of debt, when she found that the amount was actually about $170,000, he accused her of lying and walked away from their impending nuptials.

 
Questions:
1. The article mentions that Ms. Eastman pays $1,100 a month for her student loan debt. Assuming that no interest is involved, how many years will it take her to pay off the $170,000?

 
2. Assume that Ms. Eastman must pay 6% interest on the declining balance of the loan. Based on this assumption, how many years will it take her to pay off the $170,000?

 
3. Do you agree with New York divorce law that advanced degrees acquired during the marriage, as well as the earnings power they bring, should be treated as assets to be divided in case of divorce? Why or why not?

 
Source:

 
Lieber, R. (2010). How Debt Can Destroy A Budding Relationship. The New York Times, September 3 (Retrievable at http://www.nytimes.com/2010/09/04/your-money/04money.html?ex=1299643200&en=297c3a5871503c4b&ei=5087&WT.mc_id=BU-D-I-NYT-MOD-MOD-M166-ROS-0910-L2&WT.mc_ev=click)

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