True/False, please indicate your answer on the blank answer key provided.

13.      The EU Accounting Regulation requires that all European companies whose securities trade in a regulated securities market must use IFRS as adopted by the EU in their consolidated financials.

14.       Less than100 jurisdictions currently require IFRS for all or most domestic listed companies.

15.       A contingent liability is not recognized in the statement of financial position.

16.       IFRS provides the financial information for public capital markets covering over half of the world’s GDP.

17.       The members of the IASB serve as representatives of the individual accounting standards-setting boards from their home countries.

18.       Under IFRS, all borrowing costs are charged to expense when incurred.

19.       Under IFRS, a company must disclose information about its relationships and transactions with related parties and about compensation of key management personnel.

20.       Under IFRS, the objective of financial reporting is to provide financial information about a company that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the company.

21.       The Conceptual Framework specifies the form and content of the financial statements that a company must present in conformity with IFRS.

22.       Under IFRS, if a non-current asset is held for sale, it must be written down to recoverable amount (fair value less costs to sell), and depreciation stops.

The accountant for Runner Holdings Ltd. has prepared the following table in order to explain to the company’s board of directors the transactions that caused various investment accounts to increase and decrease during the past year. The company uses the fair value through profit or loss model for all held for trading investments, the equity method for investments in associates, and the cost method for equity investments that are not traded actively and have no determinable fair value.

Although each of the amounts in the above table is correct, in determining the balance at the end of the year, the accountant may have included amounts that should not be included and may have added rather than subtracted (or vice versa) amounts.

Prepare a revised table and calculate the correct year-end balances in the three investment accounts. (If an amount reduces the account balance then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Prepare a table showing the amounts that would be reported on the income statement. (If an amount reduces the account balance then enter with negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Kevin is looking to invest his money in a local investment company called Robin Hood financial services. To ensure his investment is safe and has good returns, he randomly surveys people who invested with the company and asks whether they would recommend the company for investment. Of the 474 people surveyed, 277 recommend Robin Hood financial services for investment.

Using this data, Kevin wants to estimate the actual proportion of people who recommend Robin Hood financial services for investment.

What is the estimated standard error of the sample proportion used to calculate a 90% confidence interval? Give your answer to 4 decimal places.

Fast Pizza hires college students who drive their own cars to deliver pizzas to customers. Fast Pizza is concerned that the company may be liable for damages caused by company employees while they are driving their cars on company business.

Part 1: Discuss the loss exposures to both Fast Pizza’s business operation and to the students who are driving their own cars to deliver pizzas.

Part 2: Identify a commercial auto liability coverage that Fast Pizza could purchase to address their exposures.

Part 3: Discuss how the coverage purchased in Part 2 could impact the student drivers.  Use a loss scenario to illustrate.

Pitman Company is a small editorial services company owned and operated by Jan Pitman. On October 31, 2019, the end of the current year, Pitman Company's accounting clerk prepared the following unadjusted trial balance:

The data needed to determine year-end adjustments are as follows:

Required:

Unexpired insurance at October 31, $5,090.

Supplies on hand at October 31, $620.

Depreciation of building for the year, $3,360.

Depreciation of equipment for the year, $2,920.

Unearned rent at October 31, $1,880.

Accrued salaries and wages at October 31, $3,290.

Fees earned but unbilled on October 31, $19,310.

1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense.

2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance. If an amount box does not require an entry, leave it blank.

question 2

Adjusting Entries and Errors

At the end of August, the first month of operations, the following selected data were taken from the financial statements of Tucker Jacobs, an attorney:

In preparing the financial statements, adjustments for the following data were overlooked:

Required:

Unbilled fees earned at August 31, $6,090.

Depreciation of equipment for August, $2,700.

Accrued wages at August 31, $1,950.

Supplies used during August, $1,710.

1. Journalize the entries to record the omitted adjustments.

2. Determine the correct amount of net income for August and the total assets, liabilities, and owner’s equity at August 31. In addition to indicating the corrected amounts, indicate the effect of each omitted adjustment by completing the columnar table below. Use the minus sign to indicate decreases. If an effect is zero, enter "0". Adjustment (a) is presented as an example.

question 3

Adjusting Entries

Good Note Company specializes in the repair of music equipment and is owned and operated by Robin Stahl. On November 30, 2019, the end of the current year, the accountant for Good Note prepared the following trial balances:

Required:

Journalize the seven entries that adjusted the accounts at November 30. None of the accounts were affected by more than one adjusting entry.

A person in power has the authority and control over the people at departmental, group or the whole organization. In my previous job, I worked as an office secretary. The chain of command was from the Chief executive officer to other managers. However, in my case, the head of the department had the authority to delegate duties and make prompt follow up over us.   One notable concern while working as an office secretary was the departmental politics and the politics between the technical manager and operations manager. Ideally, an impact in the behavior evident with this coercive power type (Fleming, & Spicer, 2014). The clash between duties between the technical manager and operations manager was often. The conflict between the two leaders was based on power superiority. Each leader was superior to the other. An impact was felt in the organization as each leader had his group to work with leading to conflicts when delegating duties. From my perspective, the power conflict was destructive as there was the division between groups of people. It led to a feeling among some employees who believed to control crucial tasks within the organization. The feeling of superiority among departments was created.

In responding to the above post, respectfully comment on the conflicts they have described. Do you agree with their assessment of the constructive or destructive nature of the conflict? Why or why not? Encourage further elaboration by asking questions, offering alternative viewpoints, and/or including additional research that you have obtained from the internet.

YOU ARE A STAFF ACCOUNTANT AUDITING A “PRIVATE COMPANY” AND FIND A MISREPRESENTATION DURING REVENUE RECOGNITION TESTING. WHO IS THE FIRST PERSON YOU SHOULD INFORM ABOUT YOUR FINDING. WHO ARE THE OTHER PARTIES YOU WILL INFORM ABOUT THE MISREPRESENTATION IF THE FIRST PARTY DOES NOTHING ABOUT THE MISREPRESENTATION.

7. FX Exposure Management at BMW

BMW Group, owner of the BMW, Mini and Rolls-Royce brands, has been based in Munich since its founding in 1916. But by 2011, only

17 per cent of the cars it sold were bought in Germany. In recent years, China has become

BMW’s fastest-growing market, accounting for 14 per cent of BMW’s global sales volume in

2011. India, Russia and eastern Europe have also become key markets.

The rapid globalization of its operations posed several new financial challenges. Despite rising sales revenues, BMW was conscious that its profits were often severely eroded by changes in exchange rates.   The company’s own calculations in its annual reports suggest that the negative effect of exchange rates totalled C2.4bn between 2005 and 2009. BMW did not want to pass on its exchange rate costs to consumers through price increases. Its rival Porsche had done so at the end of the 1980s in the US and sales had plunged.

To address the issues, BMW took a two-pronged approach to managing its foreign exchange exposure.   One strategy was to use a “natural hedge” – meaning it would develop ways to spend money in the same currency as where sales were taking place, meaning revenues would also be in the local currency. However, not all exposure could be offset in this way, so BMW decided it would also use formal financial hedges.   To achieve this, BMW set up regional treasury centres in the US, the UK and Singapore.

BMW implemented its new FX risk management strategy in several ways.   Regarding the natural hedge strategy it again followed a two-pronged implementation strategy.   The first involved establishing factories in the markets where it sold its products. The second involved making more purchases denominated in the currencies of its main markets. BMW now has production facilities for cars and components in 13 countries. In 2000, its overseas production volume accounted for 20 per cent of the total. By 2011, it had risen to 44 per cent. In the 1990s, BMW had become one of the first premium carmakers from overseas to set up a plant in the US – in Spartanburg, South Carolina. In 2008, BMW announced it was investing $750m to expand its Spartanburg plant. This would create 5,000 jobs in the US while cutting 8,100 jobs in Germany. This also had the effect of shortening the supply chain between Germany and the US market. The company boosted its purchasing in US dollars generally, especially in the North American Free Trade Agreement region. Its office in Mexico City made $615m of purchases of Mexican auto parts in 2009, expected to rise significantly in following years.

Since BMW’s fastest growing markets are in Asia it also had to rethink its Asian strategy in light of risk management needs. A joint venture with Brilliance China Automotive was set up in Shenyang, China, where half the BMW cars for sale in the country are now manufactured. The carmaker also set up a local office to help its group purchasing department to select competitive suppliers in China. By the end of 2009, Rmb 6bn worth of purchases were from local suppliers. Again, this had the effect of shortening supply chains and improving customer service. At the end of 2010, BMW announced it would invest 1.8bn rupees in its production plant in Chennai, India, and increase production capacity in India from 6,000 to 10,000 units. It also announced plans to increase production in Kaliningrad, Russia.

Meanwhile, the overseas regional treasury centres were instructed to review the exchange rate exposure in their regions on a weekly basis and report it to a group treasurer, part of the group finance operation, in Munich. The group treasurer team then consolidates risk figures globally and recommends actions to mitigate foreign exchange risk.

Using operating strategy to address FX risk brought other benefits. By moving production to foreign markets the company not only reduces its foreign exchange exposure but also benefits from being close to its customers. In addition, sourcing parts overseas, and therefore closer to its foreign markets, also helps to diversify supply chain risks.

(a) What is the nature of BMW’s FX exposure?   What fundamental financial principle should BMW use to neutralize the impact of FX rate movements on their results?

(b) How did BMW decide to tackle the problem? Do you see any problems with BMW’s approach and implementation?

(c) What differences if any exist in BMW’s approach to FX exposure management in North

America and Asia?

(d) Why did BMW decide to consolidate FX risk management globally in its Munich group treasury?   What principle are they implementing and what are its advantages for the group?

(e) BMW’s and Western Mining’s pursued to very different strategies to address FX expo- sure. What are their respective FX risk management strategies? Why did each company choose their respective strategy?

Ben & Jerry’s Homemade

JERRY: What’s interesting about me and my role in the company is I’m just this guy on the street. A person who’s fairly conventional, mainstream, accepting of life as it is.

BEN: Salt of the earth. A man of the people.

JERRY: But then I’ve got this friend, Ben, who challenges everything. It’s against his nature to do anything the same way anyone’s ever done it before. To which my response is always, “I don’t think that’ll work.”

BEN: To which my response is always, “How do we know until we try?”

JERRY: So I get to go through this leading-edge, risk-taking experience with Ben—even though I’m really just like everyone else.

BEN: The perfect duo. Ice cream and chunks. Business and social change. Ben and Jerry.

—Ben & Jerry’s Double-Dip

As Henry Morgan’s plane passed over the snow-covered hills of Vermont’s dairy land, through his mind passed the events of the last few months. It was late January 2000. Morgan, the retired dean of Boston University’s business school, knew well the trip to Burlington. As a member of the board of directors of Ben & Jerry’s Homemade for the past 13 years, Morgan had seen the company grow both in financial and social stature. The company was now not only an industry leader in the super-premium ice cream market, but also commanded an important leadership position in a variety of social causes from the dairy farms of Vermont to the rainforests of South America.

Increased competitive pressure and Ben & Jerry’s declining financial performance had triggered a number of takeover offers for the resolutely independent-minded company. Today’s board meeting had been convened to consider the pending offers. Morgan expected a lively debate. Cofounders Ben Cohen and Jerry Greenfield knew the company’s social orientation required corporate independence. In stark contrast, chief executive Perry Odak felt that Ben and Jerry’s shareholders would be best served by selling out to the highest bidder.

Ben & Jerry’s Homemade

Ben & Jerry’s Homemade, a leading distributor of super-premium ice creams, frozen yogurts, and sorbets, was founded in 1978 in an old gas station in Burlington, Vermont. Cohen and Greenfield recounted their company’s beginnings:

One day in 1977, we [Cohen and Greenfield] found ourselves sitting on the front steps of Jerry’s parents’ house in Merrick, Long Island, talking about what kind of business to go into. Since eating was our greatest passion, it seemed logical to start with a restaurant. . . . We wanted to pick a product that was becoming popular in big cities and move it to a rural college town, because we wanted to live in that kind of environment. We wanted to have a lot of interaction with our customers and enjoy ourselves. And, of course, we wanted a product that we liked to eat. . . . We found an ad for a $5 ice- cream-making correspondence course offered through Penn State. Due to our extreme poverty, we decided to split one course between us, sent in our five bucks, read the material they sent back, and passed the open-book tests with flying colors. That settled it. We were going into the ice cream business.

Once we’d decided on an ice cream parlor, the next step was to decide where to put it. We knew college students eat a lot of ice cream; we knew they eat more of it in warm weather. Determined to make an informed decision (but lacking in technological and financial resources), we developed our own low-budget “manual cross-correlation analysis.” Ben sat at the kitchen table, leafing through a U.S. almanac to research towns that had the highest average temperatures. Jerry sat on the floor; reading a guide to American colleges, searching for the rural towns that had the most college kids. Then we merged our lists. When we investigated the towns that came up, we discovered that apparently someone had already done this work ahead of us. All the warm towns that had a decent number of college kids already had homemade ice-cream parlors. So we threw out the temperature criterion and ended up in Burlington, Vermont. Burlington had a young population, a significant college population, and virtually no competition. Later, we realized the reason why there was no competition. It’s so cold in Burlington for so much of the year, and the summer sea- son is so short, it was obvious (to everyone except us) that there was no way an ice cream parlor could succeed there. Or so it seemed.

By January 2000, Cohen and Greenfield’s ice cream operation in Burlington, Ben & Jerry’s Homemade, had become a major premium ice cream producer with over 170 stores (scoop shops) across the United States and overseas, and had developed an important presence on supermarket shelves. Annual sales had grown to $237 mil- lion, and the company’s equity was valued at $160 million (Exhibits 1 and 2). The company was known for such zany ice cream flavors as Chubby Hubby, Chunky Monkey, and Bovinity Divinity. Exhibit 3 provides a selected list of flavors from its scoop-shop menu.

Ben & Jerry’s Social Consciousness

Ben & Jerry’s was also known for its emphasis on socially progressive causes and its strong commitment to the community. Although unique during the company’s early years, Ben & Jerry’s community orientation was no longer that uncommon. Companies such as Patagonia (clothing), Odwalla (juice), The Body Shop (body-care products), and Tom’s of Maine (personal-care products) shared similar visions of what they termed “caring capitalism.”

Ben & Jerry’s social objective permeated every aspect of the business. One dimension was its tradition of generous donations of its corporate resources. Since 1985, Ben & Jerry’s donated 7.5% of its pretax earnings to various social foundations and community-action groups. The company supported causes such as Greenpeace International and the Vietnam Veterans of America Foundation by signing petitions and recruiting volunteers from its staff and the public. The company expressed customer appreciation with an annual free cone day at all of its scoop shops. During the event, customers were welcome to enjoy free cones all day.

Although the level of community giving was truly exceptional, what really made Ben & Jerry’s unique was its commitment to social objectives in its marketing, operations, and finance policies. Cohen and Greenfield emphasized that their approach was fundamentally different from the self-promotion-based motivation of social causes supported by most corporations.

At its best, cause-related marketing is helpful in that it uses marketing dollars to help fund social programs and raise awareness of social ills. At its worst, it’s “greenwashing”—using philanthropy to convince customers the company is aligned with good causes, so the company will be seen as good, too, whether it is or not. . . . They understand that if they dress themselves in that clothing, slap that image on, that’s going to move product. But instead of just slapping the image on, wouldn’t it be better if the company actually did care about its consumers and the community?

An example of Ben & Jerry’s social-value-led marketing included its development of an ice cream flavor to provide demand for harvestable tropical-rainforest products. The product’s sidebar described the motivation:

This flavor combines our super creamy vanilla ice cream with chunks of Rainforest Crunch, a cashew & Brazil nut buttercrunch made for us by our friends at Community Products in Montpelier, Vermont. The cashews & Brazil nuts in this ice cream are harvested in a sustainable way from tropical rainforests and represent an economically viable long-term alternative to cutting these trees down. Enjoy!

—Ben & Jerry

Financing decisions were also subject to community focus. In May of 1984, Ben & Jerry’s initiated its first public equity financing. Rather than pursue a broad traditional public offering, the company issued 75,000 shares at $10.50 a share exclusively to Vermont residents. By restricting the offering to Vermonters, Cohen hoped to offer those who had first supported the company with the opportunity to profit from its success. To provide greater liquidity and capital, a traditional broad offering was later placed and the shares were then listed and traded on the NASDAQ. Despite Ben & Jerry’s becoming a public company, Cohen and Greenfield did not always follow traditional investor-relations practices. “Chico” Lager, the general manager at the time, recalled the following Ben Cohen interview transcript that he received before its publication in the Wall Street Transcript:

TWST: Do you believe you can attain a 15% increase in earnings each year over the next five years?

COHEN: I got no idea.

TWST: Umm-hmm. What do you believe your capital spending will be each year over the next five years?

COHEN: I don’t have any ideas as to that either.

TWST: I see. How do you react to the way the stock market has been treating you in general and vis-à-vis other companies in your line?

COHEN : I think the stock market goes up and down, unrelated to how a com- pany is doing. I never expected it to be otherwise. I anticipate that it will continue to go up and down, based solely on rumor and whatever sort of manipulation those people who like to manipulate the market can accomplish.

TWST : What do you have for hobbies?

COHEN : Hobbies. Let me think. Eating, mostly. Ping-Pong.

TWST : Huh?

COHEN : Ping-Pong.

Solutions to corporate operating decisions were also dictated by Ben & Jerry’s interest in community welfare. The disposal of factory wastewater provided an example.

In 1985, when we moved into our new plant in Waterbury, we were limited in the amount of wastewater that we could discharge into the municipal treatment plant. As sales and production skyrocketed, so did our liquid waste, most of which was milky water. [We] made a deal with Earl, a local pig farmer, to feed our milky water to his pigs. (They loved every flavor except Mint with Oreo Cookies, but Cherry Garcia was their favorite.) Earl’s pigs alone couldn’t handle our volume, so eventually we loaned Earl $10,000 to buy 200 piglets. As far as we could tell, this was a win-win solution to a tricky environmental problem. The pigs were happy. Earl was happy. We were happy. The community was

happy.

Ben & Jerry’s social orientation was balanced with product and economic objectives. Its mission statement included all three dimensions, and stressed seeking new and creative ways of fulfilling each without compromising the others:

Product: To make, distribute, and sell the finest quality all-natural ice cream and related products in a wide variety of innovative flavors made from Vermont dairy products.

Economic: To operate the company on a sound financial basis of profitable growth, increasing value for our shareholders, and creating career opportunities and financial rewards for our employees.

Social: To operate the company in a way that actively recognizes the central role that business plays in the structure of society by initiating innovative ways to improve the quality of life of the broad community—local, national, and international.

Management discovered early on that the company’s three objectives were not always in harmony. Cohen and Greenfield told of an early example:

One day we were talking [about our inability to make a profit] to Ben’s dad, who was an accountant. He said, “Since you’re gonna make such a high-quality product . . . why don’t you raise your prices?” At the time, we were charging fifty-two cents a cone. Coming out of the ’60s, our reason for going into business was that ours was going to be “ice cream for the people.” It was going to be great quality products for everybody— not some elitist treat. . . . Eventually we said, Either we’re going to raise our prices or we’re going to go out of business. And then where will the people’s ice cream be? They’ll have to get their ice cream from somebody else. So we raised the prices. And we stayed in business.

At other times, management chose to sacrifice short-term profits for social gains. Greenfield tells of one incident with a supplier:

Ben went to a Social Ventures Network meeting and met Bernie Glassman, a Jewish-Buddhist former nuclear-physicist monk. Bernie had a bakery called Greyston in inner-city Yonkers, New York. It was owned by a nonprofit religious institution; its purpose was to train and employ economically disenfranchised people [and] to fund low-income housing and other community-service activities. Ben said, “We’re looking for someone who can bake these thin, chewy, fudgy brownies. If you could do that, we could give you some business, and you could make us the brownies we need, and that would be great for both of us.” . . . The first order we gave Greyston was for a couple of tons. For us, that was a small order. For Greyston, it was a huge order. It caused their system to break down. The brownies were coming off the line so fast that they ended up getting packed hot. Then they needed to be frozen. Pretty soon, the bakery freezer was filled up with these steaming 50-pound boxes of hot brownies. The freezer couldn’t stay very cold, so it took days to freeze the brownies. By the time they were frozen, [they] had turned into 50-pound blocks of brownie. And that’s what Greyston shipped to us. So we called up Bernie and we said, “Those two tons you shipped us were all stuck together. We’re shipping them back.” Bernie said, “I can’t afford that. I need the money to meet my payroll tomorrow. Can’t you unstick them?” And we said, “Bernie, this really gums up the works over here.” We kept going back and forth with Greyston, trying to get the brownies right. Eventually we created a new flavor, Chocolate Fudge Brownie, so we could use the brownie blocks.

Asset Control

The pursuit of a nonprofit-oriented policy required stringent restrictions on corporate control. For Ben & Jerry’s, asset control was limited through elements of the company’s corporate charter, differential stock-voting rights, and a supportive Vermont legislature.

Corporate Charter Restrictions

At the 1997 annual meeting, Ben & Jerry’s shareholders approved amendments to the charter that gave the board greater power to perpetuate the mission of the firm. The amendments created a staggered board of directors, whereby the board was divided into three classes with one class of directors being elected each year for a three-year term. A director could only be removed with the approval of a two-thirds vote of all shareholders. Also, any vacancy resulting from the removal of a director could be filled by two-thirds vote of the directors who were then in office. Finally, the stock- holders increased the number of votes required to alter, amend, repeal, or adopt any provision inconsistent with those amendments to at least two-thirds of shareholders. See Exhibit 4 for a summary of the current board composition.

Differential Voting Rights

Ben & Jerry’s had three equity classes: class A common, class B common, and class A preferred. The holders of class A common were entitled to one vote for each share held. The holders of class B common, reserved primarily for insiders, were entitled to 10 votes for each share held. Class B common was not transferable, but could be converted into class A common stock on a share-for-share basis and was transferable thereafter. The company’s principals—Ben Cohen, Jerry Greenfield, and Jeffrey Furman—effectively held 47% of the aggregate voting power, with only 17% of the aggregate common equity outstanding. Non-board members, however, still maintained 51% of the voting power (see Exhibit 5). The class A preferred stock was held exclusively by the Ben & Jerry’s Foundation, a community-action group. The class A preferred gave the foundation a special voting right to act with respect to certain business combinations and the authority to limit the voting rights of common stockholders in

certain transactions such as mergers and tender offers, even if the common stock-

holders favored such transactions.

Vermont Legislature

In April 1998, the Vermont Legislature amended a provision of the Vermont Business Corporation Act, which gave the directors of any Vermont corporation the authority to consider the interests of the corporation’s employees, suppliers, creditors, and customers when determining whether an acquisition offer or other matter was in the best interest of the corporation. The board could also consider the economy of the state in which the corporation was located and whether the best interests of the company could be served by the continued independence of the corporation.

Those and other defense mechanisms strengthened Ben & Jerry’s ability to remain an independent, Vermont-based company, and to focus on carrying out the threefold corporate mission, which management believed was in the best interest of the company, its stockholders, employees, suppliers, customers, and the Vermont community at large.

The Offers

Morgan reviewed the offers on the table. Discussion with potential merger partners had been ongoing since the previous summer. In August 1999, Pillsbury (maker of the premium ice cream Haagen-Dazs) and Dreyer’s announced the formation of an ice cream joint venture. Under past distribution agreements, Pillsbury-Dreyer’s would become the largest distributor of Ben & Jerry’s products. In response, the Ben & Jerry’s board had authorized Odak to pursue joint-venture and merger discussions with Unilever and Dreyer’s. By December, the joint-venture arrangements had broken down, but the discussions had resulted in takeover offers for Ben & Jerry’s of between $33 and $35 a share from Unilever, and an offer of $31 a share from Dreyer’s. Just yesterday, Unilever had raised its offer to $36, and two private investment houses, Meadowbrook Lane Capital and Chartwell Investments, had made two separate additional offers. The offer prices represented a substantial premium over the pre-offer announcement share price of $21.7 See Exhibit 6 for a comparison of investor-value measures for Ben & Jerry’s and the select competitors.

Dreyer’s Grand Ice Cream

Dreyer’s Grand Ice Cream sold premium ice cream and other frozen desserts under the Dreyer’s and Edy’s brands and some under non-branded labels. The Dreyer’s and

Edy’s lines were distributed through a direct store-delivery system. Total sales were over $1 billion, and company stock traded at a total capitalization of $450 million. Dreyer’s was also involved in community-service activities. In 1987, the company established the Dreyer’s Foundation to provide focused community support, particularly for youth and K–12 public education.

Unilever

Unilever manufactured branded consumer goods, including foods, detergents, and other home- and personal-care products. The company’s ice cream division included the Good Humor, Breyers, Klondike, Dickie Dee, and Popsicle brands, and was the largest producer of ice cream in the world. Good Humor-Breyers was headquartered in Green Bay, Wisconsin, with plants and regional sales offices located throughout the United States. Unilever had a total market capitalization of $18 billion.

Meadowbrook Lane Capital

Meadowbrook Lane Capital was a private investment fund that portrayed itself as socially responsible. The firm was located in Northampton, Massachusetts. The Meadowbrook portfolio included holdings in Hain Foods, a producer of specialty health- oriented food products. Meadowbrook proposed acquiring a majority ownership interest through a tender offer to Ben & Jerry’s shareholders.

Chartwell Investments

Chartwell Investments was a New York City private-equity firm that invested in growth financings and management buyouts of middle-market companies. Chartwell proposed investing between $30 million and $50 million in Ben & Jerry’s in exchange for a convertible preferred-equity position that would allow Chartwell to obtain majority representation on the board of directors.

Morgan summarized the offers as follows:

Bidder                         Offering Price             Main Proposal

Dreyer’s Grand           $31 (stock)                 • Maintain B&J management team

• Operate B&J as a quasi-autonomous business unit

• Encourage some social endeavors

Unilever          $36 (cash)                   • Maintain select members of B&J management team

• Integrate B&J into Unilever’s frozen desserts division

• Restrict social commitments and interests

Meadowbrook Lane    $32 (cash)       • Install new management team

• Allow B&J to operate as an independent company controlled under the Meadowbrook umbrella

• Maintain select social projects and interests

Chart well        Minority interest          • Install new management team

• Allow B&J to continue as an independent company

Conclusion Henry Morgan doubted that the social mission of the company would survive a takeover by a large traditional company. Despite his concern for Ben & Jerry’s social interests, Morgan recognized that, as a member of the board, he had been elected to represent the interests of the shareholders. A financial reporter, Richard McCaffrey, expressed the opinion of many shareholders: Let’s jump right into the fire and suggest, depending upon the would-be acquiring company’s track record at creating value, that it makes sense for the company [Ben & Jerry’s] to sell. Why? At $21 a share, Ben & Jerry’s stock has puttered around the same level, more or less, for years despite regular sales and earnings increases. For a company with a great brand name, about a 45% share of the super-premium ice cream market, successful new- product rollouts, and decent traction in its international expansion efforts, the returns should be better. Some of the reasons for underperformance, such as the high price of cream and milk, aren’t factors the company can control. That’s life in the ice cream business. But Ben & Jerry’s average return on shareholders’ equity, a measure of how well it’s employing shareholders’ money, stood at 7% last year, up from 5% in 1997. That’s lousy by any measure, although it’s improved this year and now stands at about 9%. This isn’t helped by the company’s charitable donations, of course, but if you’re an investor in Ben & Jerry’s you knew that going in—it’s an ironclad part of corporate culture, and has served the company well. Still, Ben & Jerry’s has to find ways to create value.8 The plane banked over icy Lake Champlain and began its descent into Burlington as Morgan collected his thoughts for what would undoubtedly be an emotional and spirited afternoon meeting.

Provide a two page report on asset control devices utilized by Ben & Jerry’s. Be certain to discuss the impact these devices have on a company. Include your opinion on whether these controls should be used by Ben & Jerry’s and provide explanation. What is the company’s Return on Assets and Return on Equity? Calculate an expected rate of return.

Strategy Exercise: Read the following vignette and develop some suggestions for the company based on the material you read in this chapter.

Twisted is a small company with big dreams. The shopping mall-oriented hot pretzel company has successfully grown its revenues by a rate of 10 percent annually over the last 10 years. Twisted wants to sustain its growth rate in the years ahead. The company has traditionally hired new store managers from outside of the company. However, in the last few years, it has had a difficult time recruiting enough of these people. The CEO feels that there are probably a large number of employees who might make good managers. However, the company has no good internal assessment systems in place to identify them. The CEO asks your group to help the firm identify internal managerial talent so it can continue to pursue its growth strategy. What methods would you suggest for doing so?