Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 8 pages in length and its case teaching package is 10 pages.

Abstract

This case requires extensive cash flow projections and financial analysis of Southland Corporation subsequent to the company's 1987 leveraged buyout.

Linkages to Textbooks or Journal Articles/Fit Within a Course

This case provides an in-depth look at the difficult cash flow realities that occur as a result of the issuance of so much debt used to create a very highly leveraged capital structure. It illustrates the substantial risks, even for profitable companies, associated with excessive debt.

Study Questions

1. Will Southland be able to repay its long-term debts (primarily the "Permanent Financing Facility" and the Junk Bonds/Notes) as they come due? Prepare an executive summary and be sure to consider the following questions. Can Southland grow its way out of the debt burden? Was the corporate raider buyout a "kill-em-at-birth" deal? Was the unqualified audit opinion given for Southland's December 13, 1988 financial statements appropriate?
2. Prepare a schedule of long-term debt maturities for Southland as the debt comes due.
3. Prepare at least three pro-forma (budgeted) Statements of Cash Flows for Southland: 1989, 1990, and 1991/after.
4. Prepare a summary of Southland's prospects for repaying its long-term debt.
5. Using the 1988 cash flow from operations, prepare several cash flow ratios to help assess the going concern prospects of Southland as of December 31, 1988. The weighted average number of shares outstanding is 199,830,000.

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

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