Chapter 9 - CHAPTER NINE Liabilities Equity and Corporate...

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CHAPTER NINE 9 Chapter Introduction: Accounting For the Right-Hand Side of the Balance Sheet Liabilities, Equity, and Corporate Groups 9.1 NEL H enry Woo, CEO of Thornton Cunliffe Inc. (TCI), and Sebastien Cruz, CEO of West Pass Industries Ltd. (WPIL) announced today that TCI has agreed to acquire the outstanding voting shares of WPIL. The combined strengths will position TCI to be first in Canada in serving its valued customers and will create a dynamic vehicle for investors. Both companies’ boards of directors voted unanimously for this combination of two strong and highly regarded businesses. Henry Woo will remain CEO of TCI, and Sebastien Cruz will become chairman of the board. Donna Gladred will become CEO of WPIL, which will continue to operate under its own name. To achieve the operating efficiencies envisaged, some WPIL units will be merged with TCI units, and the TCI Logistics Group will be transferred to WPIL. Gaining such efficiencies will require the elimination of some jobs at both companies, but normal attrition and turnover should provide for this so that no layoffs are expected. Under the terms of the acquisition agreement, owners of WPIL shares will receive an immediate cash dividend of $1.20 per share and will exchange their shares for newly issued voting shares of TCI on a 2.4 to 1 ratio. At current share prices on the Toronto Stock Exchange, this values WPIL at C$319 million. The fair values of WPIL’s net assets are estimated to be C$233 million, therefore goodwill on acquisition is valued at C$86 million. This represents the value of the WPIL name and expertise, as well as the synergies that will be achieved in the combined businesses. TCI will guarantee certain of WPIL’s debts and will under- write the revision of WPIL’s pension plans to make them consis- tent with TCI’s. Managers and directors of both companies will be eligible for a new stock option plan, under which benefits are contingent on increases in TCI’s share price looking forward three to five years. Contact Zoe Duran at TCI for a press kit with full details. News Release Thornton Cunliffe Inc. For release to all media at 4:00 p.m. Eastern Standard Time, November 22
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Chapter 8 was about the “left- hand side” of the balance sheet (assets). This chapter is about the “right-hand side” ( liabilities and equity ), and, because Chapter 10 covers analysis of the financial statements, is the final step in meeting the book’s overall objective that you be able to pick up a company’s set of financial statements and understand their contents. As has happened sometimes already, meeting this objective requires brief attention to some issues that are very complex and that are dealt with more thor- oughly in advanced accounting courses. Most sections in this chapter are not detailed, for two reasons: we have encountered many of the issues already when considering asset and income accounting, and the accounting practices for many liabilities and equity items are very complex, beyond what this introduc- tory book can sensibly cover. The intent is that you will learn
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Chapter 9 - CHAPTER NINE Liabilities Equity and Corporate...

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