Chapter 1, Introductory Cases Dublin Small Animal Clinic, Inc. 1 page; introductory
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- 35 pages (estimate—incomplete); intermediate
- U.S. GAAP vs. IFRS financial statements
- Chapter 5, Financial Statement Analysis
- Debt capacity Accruals
35 pages; advanced to very advancedBankruptcy/acquisition out of bankruptcyBusiness combinationsBusiness valuation and fair valueDepositionsThis is a fascinating but complex case that covers Barclays’ acquisition of the U.S. operating assets of Lehman Brothers. The case provides background information on the collapse of the sub-prime mortgage market and its effect on firms such as Bear Stearns, Citigroup, Merrill Lynch, AIG, Fannie Mae, and Freddie Mac. The case then describes Barclays’ emergency acquisition of Lehman Brothers over a few days time, including the note that describes how Barclays’ recorded the acquisition of Lehman Brothers. For comparison purposes, that note is followed by notes that describe how JP Morgan recorded its acquisitions of Bear Stearns, Washington Mutual Bank, and Bank One. From those four notes, students can argue that Barclays obtained Lehman for as much as $10-$20 billion below its fair value. On the other hand, at the time there were only four financial institutions in the world that might have been capable of acquiring Lehman Brothers: Barclays, J.P. Morgan, BankAmerica, and Wells Fargo Bank. J.P. Morgan was acquiring Washington Mutual, BankAmerica was acquiring Merrill Lynch, and Wells Fargo Bank was acquiring Wachovia and all three of those acquired firms were in serious financial difficulty. The case then considers a lawsuit filed by Lehman Brothers charging Barclays with fraud in its acquisition of Lehman Brothers. The claims seem to indicate that Barclays did engage in fraud. However, the lawsuit also includes Barclays’ response, which seems to contradict everything in the Lehman lawsuit. Both the business combination reporting and the lawsuit are complex but interesting. The case can also include Deposition of Harvey R. Miller Examination by David M. Boies (Chapter 4) as background reading. Mr. Miller is one of the nation’s two leading bankruptcy and restructuring attorneys whereas Mr. Boies is perhaps the leading U.S. corporate litigator. Many students will be deposed in their careers. This is one of the most vigilantly crafted and penetrating set of questions and one of the most careful and precise set of responses a reader is ever likely to encounter. Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA Financial accounting Financial reporting Financial statement analysis Valuation
Use with:Business Combinations (Chapter 7) 30.Deposition of Harvey R. Miller Examination by David M. Boies 35 pages (estimate—incomplete); intermediateDepositionsLawsuitsBankruptcyBusiness valuationFair valueMany students will be deposed in their careers. This case is exceptional background reading of the types of questions to expect in a deposition, although rarely are the questions this vigilantly crafted or so penetrating, and rarely are the responses this careful or precise. Mr. Boies is probably the nation’s leading corporate litigator; Mr. Miller is one of the nation’s two leading bankruptcy and restructuring attorneys. Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA Financial accounting Financial reporting Financial statement analysis Valuation
13 pages; advancedU.S. GAAP vs. IFRS financial statementsNon-U.S. GAAP and non-IFRS financial statementsAdjustments for changes in exchange ratesAlthough it is a German company, SAP reports using U.S. GAAP in Euros, so its financial statements are comparable to its primary competitors, who all report using U.S. GAAP. For various reasons, SAP also reports results in non-U.S. GAAP in Euros because it disagrees with some U.S. GAAP rules, and reports in non-U.S. GAAP using constant currency in Euros (same exchange rate as the previous year) because it believes that for some purposes, that is more reflective of the firm’s year-to-year performance. SAP also reports non-U.S. GAAP using constant currency in U.S. dollars for comparison with U.S. firms. Because it will be required to report using IFRS next year, SAP then reports results using IFRS in Euros, and reports non-IFRS in Euros (same changes it makes to correct for U.S. GAAP rules it disagrees with). The case provides explanations for all of the different reports listed above and an overview of the remaining significant differences between U.S. GAAP and IFRS reporting rules. Although the case is relatively technical, it does provide an opportunity for students to consider whether there is even close to a correct answer as to what are the best accounting policies. Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA Financial accounting Financial reporting Financial statement analysis Valuation
20 pages; advancedEffect of the sub-prime loan crises on the securitization marketInability to securitize receivablesEffect of inability to securitize receivables on a firm’s valueDebt capacityAccrualsRetiree fund lossesHarley-Davidson had long been one of the nation’s most profitable firms and had one of the world’s most recognizable and valuable brand names. For years Harley-Davidson reacquired its own stock because its cash flow exceeded its capital needs by so much. Harley-Davidson financed most of its retail motorcycle sales through Harley-Davidson credit. Harley-Davidson customers are highly loyal, so credit defaults were rare, and the firm easily securitized its high-quality motorcycle receivables. Buyers paid 10-12% interest but were so reliable that Harley-Davidson could contribute $1 billon of receivables and $35 million in cash to a securitization trust, and the trust could then issue $1 billion of 6% notes. In early 2008, the sub-prime mortgage crises led to a complete collapse of the securitization market. If Harley-Davidson wanted to finance its retail sales, it would need to obtain funds by issuing long-term debt. It did issue debt throughout 2008, but by the end of 2008, Harley-Davidson was near its debt capacity. As a result, it could not continue to finance customer receivables at the same level as in the past. The case also includes information on several accrual accounts. In the past, the accrual account balances were highly conservative. In some instances, balances seemed to be at least double what would be needed to meet liabilities. As Harley-Davidson’s financial conditions worsened the accruals became less conservative, to the point that in some instances they seemed lower than estimated liabilities. Despite all this, Harley-Davidson’s financial disclosures remained clear and comprehensive, making it easy for students to see how Harley-Davidson’s financial condition worsened as the recession deepened. The case also includes Harley’s disclosures about major investment losses in its pension and retiree health benefit fund investments. A table compares Harley’s investment losses with lower losses for other pension funds because Harley invests a higher percentage of its retiree funds in equities than most other funds.
Best uses:Undergraduate intermediate accounting First-year MBA/Executive MBA Financial accounting Financial reporting Financial statement analysis Valuation
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