Padgett Case

In: Business and Management

Submitted By davesigman
Words 968
Pages 4
Padgett Paper Products Case Study Solution
Case Solution Outline
-Problem Statement
-Current Capital Structure
-Proposed Capital Structure

Objective: To find a mutually acceptable debt structure that will minimize lender risk while increasing company value.

Constraints: 1) realistic cash flow projections, 2) Bank safety levels
Situation for each Business Group
Bank: Over extended and is in a bad situation. Lending exceeds reasonable levels and is not collateralized or subject to covenants.
An $8 million loan is abnormal for the bank. The company’s management does not appear to understand the unrealistic debt situation, the impact on firm value and impact on the upcoming audit report.
Management: Has unrealistic expectations and a lack of understanding of impact of current structure of firm value.
Company: The Company has considerable levels of equity and is not maximizing its financial structure. It is capable of taking on considerably more debt, however, the debt needs to be more appropriately structured.

Ownership: Closely-held company with owner having little interest in management. Owned for dividend distribution.

Problem Statement: Because of inflation and an acquisition, Padgett's financial needs have risen to a permanent level rather than being merely seasonal in nature. Management at the company's bank must revise Padgett's debt structure in a mutually satisfactory manner.

The Company Background
1. Closely held public company (OTC)
2. MFG stationery including notebooks, loose leaf binders, filler paper
3. 100 years old
4. Management is professional but not finance savvy
5. Customers: 5,000 wholersalers and retailers in US & Canada (not subject to concentrations)
6. Seasonal cash needs - back to school push
7. Minor…...

Similar Documents

Padgett Paper Company

...CASE CONTEXT ➢ Short-term financing was used to acquire Tri-State Tablet Company • There were no substantial preparations and planning done during the time of Tri-State acquisition ➢ Padgett’s management is professional in terms of company operations and marketing but not financially oriented • lack of understanding of current structure of firm value • credit terms (2/10 net 30) were not efficiently working • Padgett and Caslon’s long time banking relationship hindered both party’s opportunity to search for other financial alternatives • Current debt structure doesn’t fit the company’s banking needs ➢ Caslon lends beyond the credit line granted to Padgett’s • Padgett is a significant client and important to its profitability • No protective covenants • No collaterals • Inappropriately debt structure • Caslon is willing to extend loans to 6 years for Padgett; longer than a typical 5-year term loan for a company size like Padgett’s ➢ Libris preferred to have the agreement signed before the end of the fiscal year, April 30, 1997 ➢ Fluctuating interest rates ➢ Phoenix’s entry in the picture ➢ Transformation of inventory valuation from FIFO to LIFO PROBLEM DEFINITION In order to maximize PPPC’s company value and to decrease the lending risk of CTC, they should establish a financing structure that would be beneficial and acceptable to both parties. *company value- profitability *lending risk– for them to be repaid FRAMEWORK FOR......

Words: 1165 - Pages: 5

Funambol Case

...Open Source and Business Model Innovation. The Funambol case Alberto Onetti Department of Economics - Insubria State University Varese, Italy Abstract – A comprehensive theoretical framework about open source business models is still missing, notwithstanding a growing number of contributions. This lack of literature is mainly due to the relative newness of the phenomena. This paper aims at giving a contribution to the ongoing discussion about open source business implications. The research hypothesis is that open source represents a disruptive innovation for the software industry. The purpose is to understand, through case study research, how open source companies can develop successful business models. Funambol provides an interesting example of an optimized business model, able to leverage the open source advantage in an emerging market. The paper is structured in three main parts: the first one aims at outlining the research hypothesis and methodology. The second part identifies the unique competitive factors distinguishing open source business and the main business implications. The final part focuses on the analysis of the Funambol business case. Fabrizio Capobianco Funambol Inc Redwood City, CA, USA Zend engine) and multiple commercial tools around it. - Dual licensing business model: the dual license approach is not based on one integrated license. It is rather a business policy that permits a customer to choose one......

Words: 3853 - Pages: 16

Case Study

...Case Study Shawn Padgett Kaplan University Case Study The statute referred to in the case of Texas vs. Johnson, 491 U.S. 397 (1989) is 42.09 (a) (3) in the Texas Penal Code. This statute, 42.09 (a) (3), created by the executive branch, prohibits the desecration of a venerable object”, (a) a person commits an offense if he knowingly or intentionally desecrates; (3) a state or national flag. To desecrate a venerable object is to destroy, deface, or physically mistreat in a way that the one doing the action will seriously offend one or more persons observing the action. This statute was inconsistent with the first amendment. (Texas vs. Johnson, 491 U.S. 397 (1989)) The parties involved in this case are the state of Texas and Gregory Lee Johnson. The citation for the United States Supreme Court’s decision on this case is, Texas vs. Johnson, 491 U.S. 391 (1989) (Burning of the flag at political protest rally.). There was three court that heard Johnsons case before reaching the United States Supreme Court. Ranking from the highest court to the lowest for this case is the Texas Criminal Court of Appeals, Texas Court of Appeals (5th District), and the Dallas County Criminal Court. Creating a law is done by Congress, which are called statutes, or court-made, also called case law. Laws can also be by anyone that wants to propose to Congress of an adoption of new law. Case laws are based on the judicial opinions, including decisions that interpret statutes. ......

Words: 543 - Pages: 3

Case Study Zzzz

...CASE 1.9 ZZZZ Best Company, \nc. On May 19,1987, a short article in The Wall Street Journal reported that ZZZZ Best Company, Inc., of Reseda, California, had signed a contract for a $13.8 million insurance restoration project. This project was just the most recent of a series of large restoration jobs obtained by ZZZZ Best (pronounced "zee best"). Located in the San Fernando Valley of southern California, ZZZZ Best had begun operations in the fall of 1982 as a small, door-ta-door carpet cleaning operation. Under the direction of Barry Minkow, the extroverted 16-year-old who founded the company and initially operated it out of his parents' garage, ZZZZ Best experienced explosive growth in both revenues and profits during the first several years of its existence. In the three-year period from 1984 to 1987, the company's net income surged from less than $200,000 to more than $5 million on revenues of $50 million. When 72ZZ Best went public in 1986,Minkow and several of his close associates became multimillionaires overnight. By the late spring of 1987,the market value of Minkow's stock in the company exceeded $100 million, while the total market value of 72ZZ Best surpassed $200 million. The youngest chief executive officer in the nation enjoyed the "good life;which included an elegant home in an exclusive suburb of Los Angeles and a fire-engine red Ferrari. Minkow's charm and entrepreneurial genius made him a sought-after commodity on the television talk show circuit and......

Words: 3832 - Pages: 16

Case Study

...WorldCom Case Study1 By Dennis Moberg (Santa Clara University) and Edward Romar (University of Massachusetts-Boston) (The original of this document can be found at the Santa Clara University website at An update for this case is available at . Note that this update is not part of the syllabus for the PRM or Associate PRM exam. It is included for reference and explanation only.) 2002 saw an unprecedented number of corporate scandals: Enron, Tyco, Global Crossing. In many ways, WorldCom is just another case of failed corporate governance, accounting abuses, and outright greed. But none of these other companies had senior executives as colorful and likable as Bernie Ebbers. A Canadian by birth, the 6 foot, 3 inch former basketball coach and Sunday School teacher emerged from the collapse of WorldCom not only broke but with a personal net worth as a negative nine-digit number.2 No palace in a gated community, no stable of racehorses or multi-million dollar yacht to show for the telecommunications giant he created; only debts and red ink--results some consider inevitable given his unflagging enthusiasm and entrepreneurial flair. There is no question that he did some pretty bad stuff, but he really wasn't like the corporate villains of his day: Andy Fastow of Enron, Dennis Koslowski of Tyco, or Gary Winnick of Global Crossing.3 Personally,......

Words: 5193 - Pages: 21

Case 1.9

...Knapp Case 1.9- ZZZZ Best Company, Inc. 1. A review consists of an auditor performing analytical procedures and inquiries to provide a reasonable basis for obtaining limited assurance. In a review, the auditor does not give an opinion on the financial statements. He/she merely looks over the statements for any material misstatements or modifications that need to be made. Contrarily, in terms of the level of assurance, during an audit an auditor obtains a high level of assurance, expresses an opinion on accuracy and level of assurance, and tests for misstatements and the client’s internal controls. 2. The occurrence assertion is very important, especially in this case, to ensure that the financial statements of a company faithfully represent actual transactions, assets, and liabilities of the company. There were certain limitations of the evidence gathered by the procedures performed in the ZZZZ Best case with regard to the assertion of occurrence: a. Confirmations- The information obtained through George Greenspan’s confirmation seems invaluable to me based on the fact that the confirmation was only sent to Tom Padgett, especially since Tom Padgett was paid by Minkow to confirm contracts. Even though there was no way for Mr. Greenspan to know that Mr. Padgett was being paid off, I believe that he should have found more valuable information through his confirmations by sending them out to more than one person involved in the company. b. Analytical......

Words: 918 - Pages: 4

Case to Case

...CASE STUDY 2 I. THE ARALIN TEACHER Mrs. Boots De Vola was assigned to teach the first section in third year level. She assumed that she is an effective and efficient teacher in Araling Panlipunan because of that. There are many teachers qualified and much deserving to teach the star section. Now, the students are complaining of the expenses regarding projects, special projects and the way she behave in classroom. II. HISTORY AND BACKGROUND OF THE FACTS Mrs. Boots De Vola have underwent the process of being LSB teacher, PSB teacher, before she was declared as regular teacher in Banana National High School. It has been five years that she handled Aralin in section one. There are congruency on each year complaint but since the students are afraid of failing her subject they remained quiet. I seldom hear news about her projects and the money she collected from her advisory class. Every single mistake has an specified amount to be collected as fine, but the students don’t know where these money will be spent. Another concern about Mrs. Boots De Vola is the way she handled and treated her students. She always nag and shout to students, for her it’s the way of disciplining her students. Some of the students chose to dropped schooling because they felt being degraded and they do not have money for everyday fine. Lately, a mother asked her about the special project of her son amounting one hundred thirty pesos. The project was properly discussed, but we found out that......

Words: 699 - Pages: 3

Zzzz Best Company Case

... ZZZZ Best Company, Inc. Shiqi Hu, Lin Ding, Trang Mai, Yi Wang ACCT3309 Audit, O’Hara 11/03/2014 Background Barry Minkow, who is a young entrepreneur with history of credit card fraud as a teenager, was convicted on 57 counts of securities fraud. He started ZZZZ Best Company in carpet cleaning business in 1982 when he was only 16 years old. ZZZZ Best Company was turned into insurance restoration business that Minkow recognized the benefits with his own “innovative” way to finance his business. Minkow used fake restoration contracts to generate the paper profits and fake information to convince bankers to loan him money with help from his friend, Tom Padgett. The company focused on insurance restoration business and went public in 1986. First full-scope audit was completed by George Greenspan in April 1986. Ernst & Whinney was hired in 1987 after George was dismissed by Minkow. Larry Gary, auditor from Ernst & Whinney, required to visit a restoration site in a multimillion-dollar contract but was discouraged by Minkow. Minkow also required auditors to sign a confidentiality agreement that not to make any follow-up phone calls to any contractors and owners of the buildings before the visit to these phony sites. In May 1987, the Los Angeles Times published article on ZZZZ Best Company fraud accusations. Audit firms resigned after confirmations of the fraud and Ernst & Whinney received an anonymous letter that contains several allegations of fraudulent......

Words: 1473 - Pages: 6

Zzzz Best Case 1.9

...evidence that these procedures provide with regard to the management assertion of occurrence. Even though the procedures were performed in accordance with GAAS, they are still subject to certain limitations outside of the auditor’s control. In this case, the evidence gathered was insufficient to support management’s assertion of the occurrence of the events and transactions. Obtaining third-party confirmations, reviewing paperwork and performing analytical procedures based on information given to the auditor by the company’s management was not reliable enough to prove that the contracts actually occurred. Tom Padgett made the confirmations and management provided the paperwork, yet all the sources were involved in the fraud. 3. In testimony before Congress, George Greenspan reported that one means he used to audit the insurance restoration contracts was to verify that his client actually received payment on those jobs. How can such apparently reliable evidence lead an auditor to an improper conclusion? It is possible for an auditor to come to an improper conclusion because documents, like invoices, could be easily falsified if management originally handles them or if the auditor receives them from management, like in the case of ZZZZ Best and Minkow. The auditor must always confirm payments directly with the third party. 4. What is the purpose of predecessors-successor auditor communications? Which party, the predecessor or successor auditor, has the responsibility for......

Words: 587 - Pages: 3

Case 1.9 Zzzz Best Company

...Case 1.9 ZZZZ Best Company, Inc. 1. A review is similar to an audit but is less in scope and only provides limited assurance in regards to the presentation of the financial statement. This differs with an audit that gives reasonable assurance that no material errors or illegal acts are detected. The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not involve obtaining an understanding of the internal control structure or assess control risk, tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation, and certain other procedures ordinarily performed during an audit. A review mostly involves inquires of client personnel and analytical procedures. In a review an accountant does not give an opinion as to the fair presentation of the financial statements, reasonable assurance. Instead the accountant states that no material modification came to his/her attention in order for the statements to be in conformity with generally accepted accounting principles, limited assurance. 2. As it relates to the assertion of occurrence and existence, third-party confirmations are usually highly reliable and auditors normally seek these out for a complete audit. While these forms of evidence can be reliable this......

Words: 1010 - Pages: 5

Zzzz Best Case 1.9

...Auditing Concepts ZZZZ Best Company, Inc Case Solutions: 1. A review is performed to obtain a reasonable basis for providing limited assurance that the client's financial statements have been prepared in conformity with generally accepted accounting principles. An independent audit is designed to provide a reasonable basis for expressing an opinion concerning whether or not a client’s financial statements have been prepared in accordance with generally accepted accounting principles. There is also a major difference between a review and an audit in terms of the scope of work performed. When a review is done, the main evidence collection techniques are analytical procedures and inquiries of client personnel. Whereas, in an audit, the full range of evidence collection techniques available to an auditor is likely to be used. A review does not assess control risk, tests of accounting records and responses to inquiries by obtaining validating evidence through inspection, observation or any other audit procedure. It can point out significant matters of the financial statements but does not provide assurance of their accuracy. Because reviews are generally not as rigorous as audits, considerably less evidence is typically collected in a review than in a comparable audit engagement. The issue with ZZZZ Best case is that the auditors review was not sufficient enough to review any material misstatements on the financial statements. 2. Third party confirmations......

Words: 1265 - Pages: 6

Cases in Financial Management

...CASES IN FINANCIAL MANAGEMENT SYLLABUS FIN 522 Professor James A. Gentry Cases In Financial Management 343M Wohlers Hall Spring Semester 2009 333-7995 2043 BIF Office Hours: 10:30 a.m. to 11:45 a.m. on Mon. and Wed/. or by Appointment I. Teaching Objectives Financial decision making cases are used to… • Create a highly interactive learning environment; • Learn about the application of financial management and credit analysis concepts; • Discover what you do not know about the practice of financial management; • Show what you have learned; • Highlight the relationships between strategic goals and the creation of firm value; • Develop techniques for interpreting a firm’s financial data and strategic plans; • Enhance your critical thinking and problem solving skills; • Expand your understanding of financial theory and its application; • Improve your listening and cooperative learning skills. II. Learning Promises At the end of this course your will be able to… • Think like a financial manager; • Interpret a company’s financial health by evaluating the......

Words: 5389 - Pages: 22

Case Case

...Case Analysis - FPL Energy FPL Energy is one of the nation’s leading independent generators of electricity. Dedicated to generating clean energy, 80 % of its capacity is fueled by clean and renewable resources. The United States is the nation with the largest generator of wind energy, and it operates the two largest solar fields in the world. FPL Group, with annual revenues of more than $8 billion, is one of the nation's largest providers of electricity-related services. Its principal subsidiary, Florida Power & Light Company, serves approximately 3.9 million customer accounts in Florida. FPL Energy, LLC, and FPL Group energy-generating subsidiary, is a leader in producing electricity from clean and renewable fuels. 2. Historical Overview FPL Group is a far different company today than the one Jim Broadhead joined in January of 1989 when he became president and chief executive officer. FPL Group was then engaged in a number of businesses unrelated to its core electric skills, including insurance and financial services, real estate, cable television, and agriculture. The company's principal subsidiary, Florida Power and Light, was considered a well-managed utility with an emphasis on quality. However, the utility's spiraling costs had resulted in electric rates among the highest in the Southeast. Today, FPL Group is nationally known as a high quality, efficient, and customer-driven organization focused on energy-related products and services. With a......

Words: 3471 - Pages: 14

Zzz Best Case obtaining corroborating evidence through inspection, observation or any other audit procedure. It can point out significant matters of the financial statements but does not provide assurance of their accuracy.  A review service provides a moderate amount of assurance on the financial statements, and less evidence is necessary to support this level of assurance. Whereas audit provides a high level of assurance. 2. The Limitations of Management assertion of existence: First ZZZ Best auditor George Greenspan performed audit for 12 months ended April 30, 1986. According the case: He confirmed the existence of ZZZ Best major insurance contracts by contacting Tom Padgett. He not only confirmed their existence but also obtained and reviewed copies of all key documents regarding those jobs. However, Greenspan did not inspect any of the insurance restorations. As I understood from the case, If auditor satisfied that these jobs exist by different sources (existence according the paper documents) he is not required to conduct personal on-site inspection. Or if physical observation is not relevant or too costly auditors obtain the next best evidence available. This is the one of limitations of management assertion of existence The next auditor of ZZZ Best Larry Grey (Ernst and Whinney) besides getting evidence in paperwork, he conducted on-site inspection of one of the biggest restoration site contracts of ZZZ Best. But Ernst and Whinney didn’t corroborate the evidence......

Words: 1512 - Pages: 7

Case 5-1  “America's Cuban Conundrum”

...Assignment 2:  Case 5-1  “America's Cuban Conundrum” International Marketing 505 1.) Analyze the key issue that prompted the EU to take the Helms-Burton dispute to the WTO. The EU took the Helms-Burton dispute to the WTO because they felt that it violated international rules dealing with trade. The EU had a dispute with the U.S. regarding testing agriculture, trade and investments and biotechnology issues which were brought to the attention of the WTO found the following: The EU, concerned about the effect of the North American Free Trade Agreement (NAFTA), proposed a Transatlantic Free Trade Agreement (TAFTA) in 1994, and the U.S.-somewhat reluctantly-went along. There was to be no TAFTA to complement NAFTA, however: only a renewed political gesture in the form of the 1995 New Transatlantic Agenda (NTA) ("EU/US Summit,”). Its main lasting effect was the Transatlantic Business Dialogue (TABD), the first transatlantic lobby, which brought about agreements on testing and certification as a step toward defining a new trade agenda. It also envisioned the creation of a New Transatlantic Marketplace (NTM) within which trade barriers between the U.S. and EU would be largely dismantled.(Padgett,2009) Continuously diluted, in 1998 the NTM became today's Transatlantic Economic Partnership (TEP), a limited agreement slighting key issues, particularly agriculture, audiovisual services, and culture. This failure to develop substantive transatlantic regulations means reliance...

Words: 1282 - Pages: 6