Table of Contents
List of Figures xi
List of Tables xiii
Preface xix
Part 1 Basic Issues
Chapter 1 Introduction to Corporate Renewal 3
Chapter Organization and Content 3
Change and Survival 4
The Three Levels of Corporate Renewal 4
Turnaround Management 6
Who Are Turnaround Managers? 10
The Failure Record 11
Survey Results 16
Measuring Performance: Net Income and Cash Flow 19
Chapter 2 Understanding Bankruptcy Law and Its Application 23
A Short Overview of Chapter 11 23
U.S. Bankruptcy Laws 24
Comparing the Bargaining Power of Debtors and Creditors 55
Secured Transactions 58
Bankruptcy Laws in Industrialized Countries 62
Bankruptcy in the European Union 69
Bankruptcy among Insolvent Nations 70
Bankruptcy Laws in Emerging Countries 70
Questions 72
Chapter 3 Failure Prediction 75
Failure Prediction with Financial Ratios 77
Financial and Operating Leverage 86
Failure Prediction Models 89
Applying EWS Models in a Turnaround 98
Break-Even Analysis 104
Additional Funds Needed and Sustainable Growth 106
The Alternative to Growth 116
Measuring Performance with EVA 117
EVA/MVA and the Privately Held Firm 120
Exercise 120
Chapter 4 Ethical and Legal Considerations in Financial Distress 121
Consumer Fraud 121
Business Fraud 122
Accounting Frauds and Near Frauds 123
Director Liability and Responsibility in Financially Troubled Companies 128
Liabilities Arising from the Board Itself 130
Corporate Organizational Form: Introducing the Limited-Liability Company 131
Pension Benefits in Distressed and Bankrupt Companies 133
Part 2 Implementation
Chapter 5 Turnaround Analysis 139
Is a Turnaround Possible? 139
Promoting Organizational Change 145
Questions 151
Compensation Systems 151
Sources of Finance for a Distressed Business 160
The Role of the Board of Directors during Corporate Renewal 168
Negotiations 170
Questions 177
Procurement Options and Transfer Pricing 177
Outsourcing and Insourcing 183
Auctions 190
Accounting as a Management Tool 191
Chapter 6 Employee Downsizing 201
Economic Considerations 201
Practical Downsizing Issues 209
Empirical Evidence on Downsizing 211
The Downsizing Message 212
Management Structure and Task-Based Layoffs 224
Questions 242
Pension Plan Changes That Induce Retirement 242
Layoffs: Rehiring Fired Workers 245
Questions 248
Part 3 Advanced Issues
Chapter 7 Crafting a Plan of Reorganization 253
Strategic Changes 253
Determining the Treatment of Obligations 254
Finding Excess Cash 257
Crafting the Plan 257
Valuation Issues 259
Using the Threat of Bankruptcy 262
Continental Airlines and the Denver International Airport 263
Reforming the Bankruptcy Laws 264
Questions 267
Exercise: Developing a Plan of Reorganization: Seaman Furniture Company 268
Student Assignment 273
Classes of Claims 279
Questions 281
Chapter 8 Business Process Reengineering 291
An Overview of Reengineering 291
An Elementary Example 294
Reengineering Details 295
The Rethinking Phase 297
The Redesign Phase 303
A More Complete Example 305
Process Reengineering: Summary 315
Chapter 9 Deming and the Quality Revolution 317
Total Quality Management 320
ISO 9000, a Worldwide Standard of Quality 324
Product Innovation 326
Chapter 10 Tax Considerations: Protecting Tax Attributes 327
Net Operating Loss 327
Debt Forgiveness 330
The Stock-for-Debt Exemption 333
Distressed Investing: Buying into a Troubled Situation 334
Chapter 11 Advanced Accounting Issues 339
The Interview in Activity-Based Cost Systems 343
Fresh-Start Accounting 344
Writing off Goodwill 356
Fudging Net Income with Inventory Overvaluation 357
Conclusion 359
Acronyms 361
Notes 363
Glossary 383
References 389
Index 399
