(2) Reflects the adjustments to assets and liabilities to estimated fair value, or
other measurements specified by FASB ASC 805, in conjunction with the
adoption of fresh start accounting. Significant adjustments are summarized as
follows and all are considered a Level 3 fair value measurement with the
exception of the land values which are Level 2 fair value measurements.
• Deposits and other assets—note receivable—An adjustment of approximately
$7.4 million was recorded to the book value of a note receivable to its $8.4 million
estimated fair value, which was determined based on the discounted cash flow
method over the life of the note.
• General liability and workers compensation—An adjustment of approximately
$5.1 million was recorded to adjust the value of the general liability and workers
compensation accruals for future receipts from deposits and payments for claims
discounted at a weighted average debt rate on emergence from Chapter 11 of 7%.
• Deferred revenue—An adjustment of approximately $1.3 million was recorded to
adjust the book value of deferred revenue attributable to season pass and other
advance ticket sales to the fair value using appropriate profit margins and cost of
service associated with related guest visitation.
The Predecessor Company recognized a loss of $178.5 million, before income
taxes, related to the fresh start accounting adjustments as follows (in
thousands):
Loss on fresh
start accounting
adjustments
Establishment of Holdings’ goodwill . . . . . . . . . . . . . . . . . . . . . . . . . $ 630,248
Elimination of SFI’s goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,051,089)
Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,146)
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78,304)
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,324
(3) The following represent the methodologies and significant assumptions used
in determining the fair value of the significant intangible assets, other than
goodwill and all are considered a Level 3 fair value measurement. Certain long-
lived intangible assets which include trade names, trademarks and licensing
agreements were valued using a relief from royalty methodology. Group-sales
customer relationships were valued using a multi-period excess earnings
method. Sponsorship agreements were valued using the lost profits method.
Certain intangible assets are subject to sensitive business factors of which only
a portion are within control of the Company’s management. A summary of the key
inputs used in the valuation of these assets are as follows:
• The Company valued trade names, trademarks and its third party licensing
rights using the income approach, specifically the relief from royalty method.
Under this method, the asset values were determined by estimating the
hypothetical royalties that would have to be paid if the trade name was not
owned or the third-party rights not currently licensed. Royalty rates were
selected based on consideration of several factors, including industry practices,
the existence of licensing agreements, and importance of the trademark, trade
• Sponsorship agreements were valued using the lost profits method, also
referred to as ‘‘with or without’’ method. Under this method, the fair value of the
• The Company valued group sales customer relationships using the income
approach, specifically the multi-period excess earnings method. In determining
the fair value of the group-sales customer relationships, the multi-period excess
(4) Fresh start accounting eliminated the balance of goodwill and other
unamortized intangible assets of the Predecessor Company and records
Successor Company intangible assets, including reorganization value in excess
of amounts allocated to identified tangible and intangible assets, also referred to
as Successor Company goodwill. The Successor Company’s April 30, 2010
consolidated balance sheet reflects the allocation of the business enterprise
value to assets and liabilities immediately following emergence as follows (in
thousands):
Enterprise value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,301,369
Add: Fair value of non-interest bearing liabilities
Analysis Case 1
Students may look up any one of a number of companies that have emerged
recently from bankruptcy reorganization. The type of results that will be found
will be based on the specific company. One company, for example, that has
emerged from reorganization is Constar International. Here is a press release
obtained at www.constar.net:
Philadelphia, PA – June 1, 2009 — Constar International Inc., a leading global
producer of PET (polyethylene terephthalate) plastic containers for food
and beverages, announced that the Company and its affiliated debtors
Michael Hoffman, President and Chief Executive Officer of Constar,
commented, “On behalf of our Board and the management team, I want to
thank our unsecured bond holders for their support and their willingness to
innovation and service they have come to expect from Constar.”
As required by the Plan approved by the Bankruptcy Court, Constar’s old
common stock (which has recently traded with the symbol CNSTQ) was
cancelled in connection with the emergence from Chapter 11. Holders of
the old common stock will not receive a distribution of any kind and no
further transfers will be recorded on the Company’s books.
In accordance with the Plan, holders of the $175 million of Constar’s pre-
Petition Subordinated Notes will convert 100% of their face amount into
Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all information in this news release
consists of forward-looking statements within the meaning of the federal
securities laws, including statements regarding the intent, belief or current
expectations of the Company and its management which are made with
A second source of information is the Securities and Exchange Commission.
According to the SEC website, using an EDGAR search, Constar International
filed a Form 8-K on the same date as the above press release that made public
the following:
Item 1.01 Entry into a Material Definitive Agreement.
On May 29, 2009 (the “Effective Date”), Constar International Inc. (the
“Company”), together with certain of its affiliates (each, a “Debtor” and
collectively, the “Debtors”) consummated the transactions contemplated
In connection with the consummation of the Plan, on the Effective Date, the
Company’s existing Senior Secured Super-Priority Debtor in Possession
and Exit Credit Agreement, dated as of December 31, 2008 (the “Credit
Agreement”) was converted into exit financing in accordance with its
terms. For a description of the Credit Agreement, reference is made to the
description of such agreement in the Company’s Current Report on Form
Item 1.02 Termination of a Material Definitive Agreement.
In connection with the Company’s reorganization and emergence from
bankruptcy, all existing shares of the Company’s capital stock were
canceled pursuant to the Plan. In addition, in the same connection, all of
the Company’s Senior Subordinated 11% Notes Due 2012 were canceled
In addition, upon the Effective Date, the following incentive plans were
terminated (and any and all awards granted under such plans were
terminated and will no longer be of any force or effect): (1) the 2007 Non-
Employee Directors’ Equity Incentive Plan; (2) the 2007 Stock-Based
June 1, 2009.
Finally, a search of on-line journals finds a number of articles discussing the
bankruptcy reorganization of Constar International including:
“Constar International Inc – CNSTQ: Completes Restructuring and
Emerges from Chapter 11 Bankruptcy,” Market News Publishing, June 1,
2009.
Analysis Case 2
While a company is going through bankruptcy reorganization, creditors,
investors, employees, and other interested parties all want to know the current
status of the process. This assignment was designed simply to help students
determine what information can be readily gained from a company’s website
Ann Arbor, Mich. Feb. 16, 2011 —“It has become increasingly clear that in light of
the environment of curtailed customer spending, our ongoing discussions with
publishers and other vendor related parties, and the company’s lack of liquidity,
Borders Group does not have the capital resources it needs to be a viable
competitor and which are essential for it to move forward with its business
“In this regard, operating under Chapter 11, Borders has received commitments
for $505 million in Debtor-in-Possession (DIP) financing led by GE Capital,
Restructuring Finance. This financing should enable Borders to meet its
The company said that it is serving customers in the normal course, including
honoring its Borders Rewards program, gift cards and other customer programs.
Additionally, the company expects to make employee payroll and continue its
benefits programs for its employees.
Borders said that it has many strengths upon which to build a solid plan of
reorganization and implement a new business model for Borders to address the
changing needs of the American reader. “For decades, Borders has been a
The company noted that, among other initiatives and subject to court approval,
Borders plans to undertake a strategic Store Reduction Program to facilitate
reorganization and its repositioning. Borders has identified certain
underperforming stores — equivalent to approximately 30 percent of the
“We are confident that, with the protection afforded under Chapter 11 and with
“We are very pleased to be able to make this commitment to Borders as support
for their plan to reorganize the company,” said Tim Tobin, Managing Director,
Retail Restructuring, GE Capital, Restructuring Finance.
The Chapter 11 petition for relief was filed in the U.S. Bankruptcy Court, Southern
Communications Case 1
A study of almost any large bankrupt organization can lead to a considerable
degree of speculation as to the reasons for the company’s decline. For example,
the following articles provide a few examples of the discussions surrounding the
struggles of Borders Group. Because the company was widely known, its
bankruptcy has been closely followed by the press.
“Today’s Corporate Restructuring Requires a NEW Approach,” Financial
Executive, April 2011.
COMMUNICATIONS CASE 2
This assignment is designed so that the student can work with several practical
accounting journals such as the CPA Journal and the Journal of Accountancy.