Abigail Leon began working with New River, Inc. as an intern during her final year of college. The atmosphere at the small supplier of copiers and document management systems was exhilarating. A recent breakthrough in research and development provided the company with an edge over its competitors, and the company began expanding operations into Europe. When the CFO offered Abigail full-time employment upon her graduation, she accepted the position, eager to be part of the company's globalization.
Shortly after graduation, Abigail's boss, Dave Boone tasked her with a new assignment. New River would like to obtain a $100 million 15-year bank note to finance further expansion into Europe and Asia. In recent phone conversations, the bank's loan managers had referenced the performance of Océ N.V, the company's closest competitor in the European and Asian markets. In an email, Dave asked Abigail to analyze New River's 2006 financial performance in comparison to that of Océ.
By spending a little time on the internet, Abigail learned Océ filed with the U.S. Securities and Exchange Commission as a foreign private issuer and prepared its financial statements in accordance with International Financial Reporting Standards. Abigail questioned Dave about the best method of comparing New River's US GAAP financial statements with Océ's IFRS statements. He told Abigail he was not an expert in IFRS, but had heard the two sets of standards were converging. He asked her to first perform ratio analysis using amounts directly from the financial statements; then, she could perform any additional analysis she deemed appropriate.
Abigail remembered one of her professor's mentioning that, until recently, foreign firms were required to reconcile financial statements to US GAAP if they were prepared using a foreign GAAP. She wondered if the reconciliation requirement was still in effect for the 2006 financial statements. If so, that should provide her with the necessary information to compare the two companies using US GAAP numbers. She wanted to make sure her analysis was accurate. Since this was her first big assignment as a full-time employee, she wanted to make a good impression!
Requirements:
- Obtain Océ's 2006 20-F from the Edgar database on the Securities and Exchange Commission website www.sec.gov and answer the following questions:
- How do you know what set of generally accepted accounting principles were used to prepare the annual report?
- The company presents selected information in both Euros and US Dollars. What exchange rate does it use to translate currency?