bond pricing
3215
REV: JUNE 21, 2010
WILLIAM J. BRUNS
Lyons Document Storage Corporation:
Bond Accounting
In December 2008 Rene Cook sat in her cubicle trying to remember what she had learned in business school about bonds and bond accounting. Ms. Cook, a new MBA and special assistant in a training assignment with the company president, had just met with David Lyons, president of Lyons
Document Storage Corporation. He had asked her to think about the possible consequences of repurchasing company bonds outstanding using cash that he felt could be obtained by issuing new bonds with a lower interest rate. Mr. Lyons had asked Rene to focus on how much the company's annual interest payments could be reduced, how reported earnings would be affected, and how the refunding would change the company's financial position as referenced on the balance sheet, if at all.
The Company
The Lyons Company was a family business in the stationary supply business until the document storage opportunity appeared in the early 1990s. Lyons Document Storage Corporation was incorporated in 1993 to compete in the emerging and rapidly growing industry that provides secure, off-site storage of documents for other corporate customers. The demand for storage was fueled by the need for corporations to retain records of sales contracts, employment records, compliance records, and other documents. The convenience of secure storage and easy recovery in professionally managed warehouses appealed to corporate clients that wanted to save space in their more expensive office buildings. At the same time, the stationary supply business was growing more competitive with the entrance of Staples, Office Depot, and Office Max.
The 1990s were difficult for Lyons because there were still differences among management about directions and the company's future. A large competitor, Iron Mountain, was expanding rapidly in the United States and internationally. When the decision to focus on document
REV: JUNE 21, 2010
WILLIAM J. BRUNS
Lyons Document Storage Corporation:
Bond Accounting
In December 2008 Rene Cook sat in her cubicle trying to remember what she had learned in business school about bonds and bond accounting. Ms. Cook, a new MBA and special assistant in a training assignment with the company president, had just met with David Lyons, president of Lyons
Document Storage Corporation. He had asked her to think about the possible consequences of repurchasing company bonds outstanding using cash that he felt could be obtained by issuing new bonds with a lower interest rate. Mr. Lyons had asked Rene to focus on how much the company's annual interest payments could be reduced, how reported earnings would be affected, and how the refunding would change the company's financial position as referenced on the balance sheet, if at all.
The Company
The Lyons Company was a family business in the stationary supply business until the document storage opportunity appeared in the early 1990s. Lyons Document Storage Corporation was incorporated in 1993 to compete in the emerging and rapidly growing industry that provides secure, off-site storage of documents for other corporate customers. The demand for storage was fueled by the need for corporations to retain records of sales contracts, employment records, compliance records, and other documents. The convenience of secure storage and easy recovery in professionally managed warehouses appealed to corporate clients that wanted to save space in their more expensive office buildings. At the same time, the stationary supply business was growing more competitive with the entrance of Staples, Office Depot, and Office Max.
The 1990s were difficult for Lyons because there were still differences among management about directions and the company's future. A large competitor, Iron Mountain, was expanding rapidly in the United States and internationally. When the decision to focus on document