Lyons Case Study
Background
Lyons Company began as a family stationary supply business. In the early 1990’s, document storage opportunities began to emerge. In 1993, Lyons Document Storage Corporation was incorporated and emerged into the competitive industry of off-site document storage. At this time also, the stationary supply business began to grow more competitive with big box giants like Office Max, Office Depot and Staples. Aside from these two factors, the Lyons Company had management difficulties regarding the direction of the company. The decision to focus on document storage was made and management quickly moved into expanding to meet the needs of the document storage demands.
Issues
In December 2008, Rene Cook was a new MBA and special assistant at the Lyons Document Storage Corporation. David Lyons asked Rene to come up with the possible consequences of repurchasing company bonds using cash and reissuing new bonds with a lower interest rate. Rene was tasked with focusing on how much the company’s annual interest payments could be reduced and the effect on the company’s reported earnings. She was also tasked with providing information on how the refunding would change the company’s financial position on the balance sheets. Rene gathered all useful documentation regarding the company’s financing and accounting and began her research. After an internet search, she found that to repurchase each $1, 000 bond would cost $1,154 leaving the company to spend $11.54 Million to retire bonds that were listed on the balance sheet as $9.3 million causing the 2009 projected earnings to shrink by $2.24 million and slow the growth rate of earnings. Knowing that this was not the outcome Mr. Lyons had figured, Rene determined that the lower interest payments on the new bonds would help reduce cash outflow in the future years.
Recommendations
After much data collection and analysis, and the development of new balance sheets, it is shown that there is not significant
Lyons Company began as a family stationary supply business. In the early 1990’s, document storage opportunities began to emerge. In 1993, Lyons Document Storage Corporation was incorporated and emerged into the competitive industry of off-site document storage. At this time also, the stationary supply business began to grow more competitive with big box giants like Office Max, Office Depot and Staples. Aside from these two factors, the Lyons Company had management difficulties regarding the direction of the company. The decision to focus on document storage was made and management quickly moved into expanding to meet the needs of the document storage demands.
Issues
In December 2008, Rene Cook was a new MBA and special assistant at the Lyons Document Storage Corporation. David Lyons asked Rene to come up with the possible consequences of repurchasing company bonds using cash and reissuing new bonds with a lower interest rate. Rene was tasked with focusing on how much the company’s annual interest payments could be reduced and the effect on the company’s reported earnings. She was also tasked with providing information on how the refunding would change the company’s financial position on the balance sheets. Rene gathered all useful documentation regarding the company’s financing and accounting and began her research. After an internet search, she found that to repurchase each $1, 000 bond would cost $1,154 leaving the company to spend $11.54 Million to retire bonds that were listed on the balance sheet as $9.3 million causing the 2009 projected earnings to shrink by $2.24 million and slow the growth rate of earnings. Knowing that this was not the outcome Mr. Lyons had figured, Rene determined that the lower interest payments on the new bonds would help reduce cash outflow in the future years.
Recommendations
After much data collection and analysis, and the development of new balance sheets, it is shown that there is not significant