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)

How do you lose $1.2 Billion?

Three of MF Global Holdings Ltd.’s top executives said they didn’t know what happened to as much as $1.2 billion in client funds that went missing in the days before the New York-based brokerage filed for bankruptcy. Jon S. Corzine, former chairman and chief executive officer of the broker testified in Congress that he didn’t intend to misuse as much as $1.2 billion in now-missing customer funds and that other employees of the failed brokerage oversaw the money. According to Corzine, a team of people in the cash finance and cash management divisions of the company had the authority to move customer funds from segregated accounts.

Questions:

1. Where does the bankruptcy of MF Global rank among all other U.S. bankruptcies?
2. What was the amount of the quarterly loss that MF Global reported on Sep. 30?
3. Briefly explain why regulators do not think that the auditors could find the problems in MF Global and what transactions were affected.
4. From what you can find out from research about MF Global, what were the weaknesses with the company that led to this crisis?

Source:

Brush, S. (2011) Top MF Global Execs Say They Don’t Know How Funds Went Missing, Dec. 13 (Retrievable online at http://www.bloomberg.com/news/2011-12-13/top-mf-global-execs-say-they-don-t-know-how-funds-went-missing.html)
CNN VIDEO. (2011). No Christmas for Former MF Global Client, CNN, Dec. 8 (retrievable online at www.cnn.com/videos)

Tickets, Anyone?

Ticketmaster’s various fees and surcharges, which sometimes add 40 percent or more to the cost of a ticket, have long infuriated its customers. But next year, thanks to a recent class-action settlement, many of those fans will be able to get some money back.

Questions:

1. According to the article, what are the two types of credits that will be offered to people who bought tickets on the Ticketmaster Web site from Oct. 21, 1999, to Oct. 19, 2011?
2. Are there any limitations to the credits?
3. Explain how Ticketmaster will likely make the journal entries for these claim amounts.
4. What is the minimum payment that Ticketmaster faces per year over the four-year life of the settlement? What happens if individuals do not claim their credits?

Source:

Sisario, B. (2011). Ticketmaster Offers Credits to Settle Lawsuit. The New York Times, Dec. 2 (Retrievable online at http://mediadecoder.blogs.nytimes.com/2011/12/02/ticketmaster-to-offer-redress-for-fees/?scp=2&sq=ticketmaster&st=cse)

The Big Bank of America Settlement

On November 7, 2011, a federal judge gave final approval to a $410 million settlement in a class-action lawsuit affecting more than 13 million Bank of America customers who had debit card overdrafts during the past decade.  The settlement became final a week after Charlotte, N.C.-based Bank of America backed off a plan to charge a $5 monthly fee for debit-card purchases. The outcry prompted other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., to cancel trial tests of their own debit card fees.

 

Questions:

1.  Although the judge awarded $410 Million in the suit, what percentage did Barry Himmelstein, an attorney for customers, anticipate was the actual amount collected by Bank of America for the overdrafts?

2.   Explain how the suit claimed that Bank of America maximized these fees.  Give an example that includes 5 overdraft incidences.

3.  Make the journal entry for Bank of America for the settlement, including amounts to be paid to the class-action lawyers.

Sources:

Associated Press Staff (2011). Judge Approves $410 Million Settlement of Lawsuit Against Bank of America On Overdraft Fees, Nov. 7 (Retrievable online at http://www.washingtonpost.com/national/judge-mulling-over-410-million-settlement-in-bank-of-america-overdraft-lawsuit/2011/11/07/gIQACKjZuM_story.html)

Youtube video (2011). Bank of America Agrees in Overdraft Fee Lawsuit to Pay $410 Million (Retrievable online at http://www.youtube.com/watch?feature=player_embedded&v=1Ov6QBMStt8)

“Gettysburg” Debt

Ron Maxwell, the director of two acclaimed Civil War movies, has not repaid a $300,000 loan from 2002 to Washington County Maryland and county officials aren’t happy with the pace of his repayments. The loan, which came with a 4.5 percent annual interest rate, was supposed to be paid off in 2010. However, the Herald-Mail newspaper of Hagerstown, Maryland reports that Maxwell still owes $263,041 in total. Furthermore, Maxwell hasn’t made a payment on the loan since June 2008, county officials told the paper.

Questions:

1. Based on the article, how much interest would Maxwell owe if he paid off the loan by December 31, 2011, assuming that he last paid on the loan on June 1, 2008?

2. Using the information in question 1, assume that Maxwell completely pays off the debt on December 31, 2011.  What journal entry would he make for his production company?

3. How much principal has Maxwell paid on the loan, based on the information in the article?  Based on your answer, how much has he paid annually toward principal, assuming a straight-line basis?

4. Compare your answer in Question 3 to an estimate of what you think he has made on the films since their release. If you were his accountant, does it seem reasonable that he has not paid the loan back yet?  Explain whether this will help or hinder his lawyers’ positions. What do you believe the outcome will be?

5. Do you think the loan is accounted for using the straight-line or effective interest rate method? Why?

 

Source:

Staff. (2011). Film Director owes Washington Co. Hundreds of Thousands, NBC News, Oct. 15 (Retrievable online at http://www.nbcwashington.com/news/local/131920608.html)

YouTube.com Video. Gettysburg And Gods and Generals Trailer. (Retrievable online at http://youtu.be/WFLH6wwGbdE)

Huge job cuts – Bank of America

Bank of America, trying to break free from a pile of bad mortgages and a sagging stock price, announced plans to lay off 30,000 employees over the next few years.

In a statement Monday, the bank said its goal is “not a given number of job reductions,” but to focus “all of its resources on serving individuals, companies, and institutional investors.”

The Charlotte, N.C.-based bank, the largest in the U.S. by deposits, said it will cut $5 billion in costs.  The bank, which has a workforce of 288,000, has already said it plans to cut 6,000 jobs by the end of the year.

According to analyst Paul Miller of FBR Capital Markets & Co., “we knew they were shrinking the balance sheet and cutting costs. Today, there is just an exact plan. If the bank got rid of Countrywide’s litigation expenses and liabilities, it could have a $10 to $12 stock price overnight,” Miller told ABC News.  But Miller added that he did not think bankrupting Countrywide would be politically and legally feasible.

Warren Buffett, CEO of Berkshire Hathaway, announced plans on Aug. 25 to buy $5 billion of Bank of America shares.

Questions:

1.  How will the plans presented in the article shrink the balance sheet?  Be specific.  Based on the video, where does the Wall Street analyst think that the money from the cuts will go?

2. Explain the recording of Countrywide’s litigation expenses and liabilities.  What specific types of liabilities will be affected?

3.  What do you understand Bank of America’s strategy to be at this point and what is Berkshire Hathaway’s role?  What is Bank of America’s current stock price and what has happened to it during 2011?

4.  What percent of jobs is the bank cutting this year as a percentage of its total workforce?  If you compare the 30,000 job cut against their current workforce, what percentage is this?

Source:

Kim, Susanna (2011) Bank of America Confirms 30,000 Layoffs. ABC News.com, September 12 (Retrievable online at http://abcnews.go.com/Business/bank-america-layoff-30000-workers/story?id=14500577)

 Gogoi, P. (2011). Bank of America will cut 30,000 jobs. Associated Press, Sep. 12 (Retriveable online at  http://abcnews.go.com/Business/wireStory?id=14500592)

Fox News video, Bank of America to Cut 30K Jobs, Sep. 12 (Retrievable online at  http://video.foxnews.com)

Who’s Next?

The struggling town of Central Falls Rhode Island filed a bankruptcy petition on Monday, August 1. A Boston bankruptcy judge held the first hearing on Wednesday August 3, stressing that the court is in “unchartered waters” as it sorts through the $80 million in unfunded pension and benefits liabilities and a $5 million budget deficit.

Questions:

1. Central Falls filed a Chapter 9 bankruptcy.  What is the difference between Chapter 9 and a Chapter 11 bankruptcy?

2.  The Acting Auditor General of Rhode Island, Dennis Hoyle stated that the “At $2.4 billion, the newly disclosed unfunded liability for other post-employment benefits provided by municipalities overshadows the collective unfunded liability for all locally administered pension plans which now totals $1.9 billion. Based on this statement, explain the term “unfunded liability” in terms of pension accounting.

3.  What is the difference between post-employment benefits and pension plans?

4. Explain unfunded pension benefits, using a journal entry or entries to illustrate your answer.

Sources:

CNN video. (2011). Bankrupt town a “cautionary tale,” August 4 (Retrievable online at www.cnn.com/video)

Johnson, D. (2011). Fiscal Disasters Like Central Falls’ Are Being Replicated In Cities Across The U.S., Business Insider, Aug. 4 (Retrievable online at http://www.businessinsider.com/fiscal-disasters-like-central-falls-are-being-replicated-in-cities-across-the-us-2011-8)

Rubenstein, J. (2011). Central Falls Bankruptcy Triggers CU Ads, Credit Union Times, August 4 (Retrievable online at http://www.cutimes.com/2011/08/04/central-falls-bankruptcy-triggers-cu-ads)

Negotiating Down Student Loans

According to these experts, it is possible that you can negotiate down your student loans. Outstanding student loan debt is a major problem for many graduates. It is possible to negotiate with your creditors and possibly reduce or even eliminate your student loan debt. If you’re not up to the negotiations yourself, you can hire a company to negotiate with creditors on your behalf. However, if you fully intend and have the ability to pay your debt, it’s usually better to contact your creditors yourself. If you reach the stage where you can’t keep up with the repayments, it’s vital that you contact your creditors as soon as possible and explain your situation.

Questions:

1. What are the key issues to consider in the negotiations? What is the difference between consolidation and forgiveness?  From the loaning entity’s point of view, would the accounting be different for these two options?  

2.  What percentage of student loans did these experts indicate were in default?

3.  Which types of student loans did these experts suggest were easier to negotiate?

 

Source:

CNN.com Video. Negotiating Down Student Loans, July 13, 2011

Staff. (2009). Negotiate your Student Debt. Tidbits and Stuff.com, November 4, 2009 (Retrievable online at http://www.tidbitsandstuff.com/money-matters/credit-debt/82-negotiate-your-student-loan-debt/)

Way to go Detroit!

Chrysler has turned its first profit since leaving bankruptcy two years ago. The company reported first-quarter net income of $116 million and revenues of $13.1 billion on Monday. The profit is a milestone in Chrysler’s long road back to health after its 2009 bankruptcy. It last reported a profit in 2007.

Questions:

1. What percentage of revenues is Chrysler’s profit?

2.  According to the article, what factors led to this profit?

3. The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

3. (a) According to the article, Fiat SpA gave Chrysler a vote of confidence when it said it will spend $1.3 billion to raise its stake in the American company. That will increase Fiat’s holdings from 30 percent to 46 percent. Based on this information, how much is Fiat paying for each percent of Chrysler that it buys?

(b) The U.S. government remains a part owner of Chrysler.  What percentage does it hold?

(c) Based on your answer in 3(a) and 3(b), what is the current market value of the U.S. holdings in Chrysler?  

Source:

Durbin, Dee-Ann (2011). Chrysler Posts First Profit Since Bankruptcy, Huffington Post, May 2 (Retrievable online at http://www.huffingtonpost.com/2011/05/02/chrysler-profit_n_856215.html)

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