Assignment
I.
|
(in millions)
|
2014
|
2012
|
|
Cash
|
$ 1,483.36
|
$ 1,536.73
|
|
Accounts receivable
|
735.30
|
1,097.16
|
|
Current assets
|
2,918.33
|
3,913.56
|
|
Current liabilities
|
6,157.95
|
3,385.39
|
|
Long-term debt
|
3,611.63
|
17,620.81
|
|
Short-term debt
|
4,568.83
|
1,033.96
|
|
Total liabilities
|
26,363.17
|
23,218.42
|
|
Interest expense
|
1,338.29
|
1,566.90
|
|
Capital expenditures
|
211.50
|
1,545.48
|
|
Equity
|
-7,152.90
|
4,587.67
|
|
Cash from operations
|
185.98
|
110.89
|
|
Earnings before interest and taxes
|
1,902.84
|
1,594.84
|
1. Compute the following liquidity, solvency and coverage ratios for both years.
2. What is your overall assessment of the company's credit risk? Explain. What differences do you observe between the two years?
II. Following is information concerning Gilgen Brothers, a residential home builder (all amounts in millions):
|
|
Oct. 31, 2014
|
Oct. 31, 2013
|
Oct. 31, 2012
|
|
Current assets
|
$7,010.45
|
$7,632.02
|
$8,091.30
|
|
Current liabilities
|
2,211.28
|
2,419.23
|
2,812.11
|
|
Total assets
|
7,986.84
|
8,620.32
|
8,983.54
|
|
Total liabilities
|
4,749.18
|
5,093.08
|
5,567.61
|
|
Shares outstanding
|
158.88
|
157.01
|
153.90
|
|
Retained earnings
|
3,053.11
|
3,398.93
|
3,363.27
|
|
Stock price per share
|
23.15
|
24.12
|
30.20
|
|
Sales
|
4,158.21
|
5,646.98
|
7,123.45
|
|
Earnings before interest and taxes
|
-300.53
|
-3.10
|
1,125.59
|
Compute and compare the Altman Z-score for the three years provided, what trend appears? Is Gilgen Brothers more or less likely to go bankrupt given the Z-score in 2012 or 2014?
III. Following are income statements for Life Technologies Corporation and Affymetrix Inc., competitors in the life sciences and clinical healthcare industry. Use these financial statements to answer the required.
|
LIFE TECHNOLOGIES CORPORATION
Consolidated Statements of Operations
|
|
(In thousands)
|
|
|
|
|
For the Years Ended December 31,
|
2012
|
2011
|
2010
|
|
|
|
|
|
|
Revenues
|
$3,798,510
|
$3,775,672
|
$3,588,094
|
|
Cost of revenues
|
1,372,277
|
1,356,967
|
1,188,199
|
|
Purchased intangibles amortization
|
291,756
|
308,728
|
293,754
|
|
Gross profit
|
2,134,477
|
2,109,977
|
2,106,141
|
|
|
|
|
|
|
Selling, general and administrative
|
1,054,616
|
1,008,973
|
1,023,179
|
|
Research and development
|
341,892
|
377,924
|
375,465
|
|
Purchased in-process research and development
|
---
|
--
|
1,650
|
|
Business consolidation costs
|
72,732
|
75,324
|
93,450
|
|
Total operating expenses
|
1,469,240
|
1,462,221
|
1,493,744
|
|
Operating income
|
665,237
|
647,756
|
612,397
|
|
Other income (expense):
|
|
|
|
|
Interest income
|
2,401
|
3,932
|
4,266
|
|
Interest expense
|
(123,915)
|
(162,073)
|
(152,322)
|
|
Loss on early extinguishment of debt
|
---
|
--
|
(54,185)
|
|
Gain on divestiture of equity investments
|
---
|
--
|
37,260
|
|
Other income (expense), net
|
(11,898)
|
(10,913)
|
(5,864)
|
|
Total other expense, net
|
(133,412)
|
(169,054)
|
(170,845)
|
|
Income before provision for income taxes
|
531,825
|
478,702
|
441,552
|
|
Income tax provision
|
(101,376)
|
(100,868)
|
(63,694)
|
|
Net income
|
430,449
|
377,834
|
377,858
|
|
Net loss attributable to noncontrolling interests
|
406
|
658
|
437
|
|
Net income attributable to Life Technologies
|
$430,855
|
$ 378,492
|
$ 378,295
|
|
AFFYMETRIX INC.
Consolidated Statements of Operations
|
|
(In thousands)
|
|
|
Year Ended December 31,
|
2012
|
2011
|
2010
|
|
|
|
|
|
|
Product sales
|
$266,063
|
$241,273
|
$277,743
|
|
Services
|
29,560
|
26,201
|
33,003
|
|
|
|
|
|
|
Total revenue
|
295,623
|
267,474
|
310,746
|
|
Cost of product sales
|
116,261
|
97,815
|
117,384
|
|
Cost of services and other
|
15,874
|
13,137
|
15,822
|
|
Research and development
|
57,881
|
63,591
|
67,934
|
|
Selling, general and administrative
|
142,853
|
109,572
|
114,773
|
|
Restructuring charges
|
1,845
|
--
|
--
|
|
|
|
|
|
|
Total costs and expenses
|
334,714
|
284,115
|
315,913
|
|
|
|
|
|
|
Loss from operations
|
(39,091)
|
(16,641)
|
(5,167)
|
|
Interest income/(expense) and other, net
|
(265)
|
(6,302)
|
(1,487)
|
|
Interest expense
|
7,193
|
3,813
|
7,706
|
|
Gain from repurchase of convertible notes
|
---
|
--
|
6,297
|
|
Loss before income taxes
|
(46,549)
|
(26,756)
|
(8,063)
|
|
Income tax provision (benefit)
|
(35,853)
|
1,405
|
2,170
|
|
Net loss
|
$(10,696)
|
$ (28,161)
|
$ (10,233)
|
a. How do Life Technologies and Affymetrix account for R&D expenditures?
a. Life Technologies and Affymetrix R&D expense includes many different types of costs. List three specific costs included in R&D expense on the income statement.
a. Compare R&D expenses of the two companies. (Hint: prepare common-size R&D expenses. Consider both direct R&D expenses as well as acquired R&D.)
IV. On December 31, 2014, State Construction Inc. signs a contract with the state of West Virginia Department of Transportation to manufacture a bridge over the New River. State anticipates the construction will take three years. The company's accountants provide the following contract details relating to the project:
|
Contract price
|
$520 million
|
|
Estimated construction costs
|
$400 million
|
|
Estimated total profit
|
$120 million
|
During the three-year construction period, Tri-State incurred costs as follows:
|
2015
|
$ 40 million
|
|
2016
|
$240 million
|
|
2017
|
$120 million
|
a) Compute the revenue recognized, construction costs expensed, and income earned for each year using the percentage of completion method.
List at least 3 limitations of this method from financial reporting perspective.
V. The asset side of the 2013 balance sheet for Leggett & Platt is below. The company reported cost of sales of $2,998.8 million in 2013 and $2,959.4 million in 2012. Use this information to answer the requirements.
|
LEGGETT & PLATT, INCORPORATED
|
|
Consolidated Balance Sheets
|
|
December 31
|
2013
|
2012
|
|
(in millions)
|
|
|
|
Cash and cash equivalents
|
$ 272.7
|
$ 359.1
|
|
Trade and other receivables, net of allowance of $15.2 and $19.2
|
467.4
|
446.2
|
|
Inventories
|
|
|
|
Finished goods
|
270.5
|
275.7
|
|
Work in process
|
59.3
|
55.0
|
|
Raw materials and supplies
|
239.4
|
229.4
|
|
LIFO reserve
|
(73.3)
|
(71.1)
|
|
Total inventories, net
|
495.9
|
489.0
|
|
|
|
|
|
Other current assets
|
45.7
|
44.8
|
|
Total current assets
|
1,281.7
|
1,339.1
|
|
Machinery and equipment
|
1,184.5
|
1,161.7
|
|
Buildings and other
|
612.2
|
603.2
|
|
Land
|
44.5
|
45.3
|
|
Total property, plant and equipment
|
1,841.2
|
1,810.2
|
|
Less accumulated depreciation
|
1,266.6
|
1,237.4
|
|
Net property, plant and equipment
|
574.6
|
572.8
|
|
Goodwill
|
926.8
|
991.5
|
|
Other intangibles, less accumulated amortization
|
203.4
|
206.3
|
|
Sundry
|
121.6
|
145.2
|
|
TOTAL ASSETS
|
$3,108.1
|
$3,254.9
|
Required:
a. Calculate common-sized inventories for both years and comment on any differences that you note. Given that the company is in the furniture manufacturing industry, does this ratio seem appropriate?
b. Compute inventory turnover for both years and interpret any change. At December 31, 2011, Total inventories, net were $441 million.
c. Leggett & Platt uses LIFO for at least some of its inventory method. What would the company have reported as inventory in 2013 and 2012 if the company had used the FIFO method? At December 31, 2011, the LIFO reserve was $(85.7) million.
VI. The asset side of the 2013 balance sheet for Leggett & Platt (a furniture manufacturer) is below. The company reported net sales of $3,746.0 million in 2013 and $3,706.1 million in 2012. Use this information to answer the requirements:
|
LEGGETT & PLATT, INCORPORATED
|
|
Consolidated Balance Sheets
|
|
December 31
|
2013
|
2012
|
|
(in millions)
|
|
|
|
Cash and cash equivalents
|
$ 272.7
|
$ 359.1
|
|
Trade and other receivables, net of allowance of $15.2 and $19.2
|
467.4
|
446.2
|
|
Inventories
|
|
|
|
Finished goods
|
270.5
|
275.7
|
|
Work in process
|
59.3
|
55.0
|
|
Raw materials and supplies
|
239.4
|
229.4
|
|
LIFO reserve
|
(73.3)
|
(71.1)
|
|
Total inventories, net
|
495.9
|
489.0
|
|
|
|
|
|
Other current assets
|
45.7
|
44.8
|
|
Total current assets
|
1,281.7
|
1,339.1
|
|
|
|
|
|
Machinery and equipment
|
1,184.5
|
1,161.7
|
|
Buildings and other
|
612.2
|
603.2
|
|
Land
|
44.5
|
45.3
|
|
Total property, plant and equipment
|
1,841.2
|
1,810.2
|
|
Less accumulated depreciation
|
1,266.6
|
1,237.4
|
|
Net property, plant and equipment
|
574.6
|
572.8
|
|
Goodwill
|
926.8
|
991.5
|
|
Other intangibles, less accumulated amortization
|
203.4
|
206.3
|
|
Sundry
|
121.6
|
145.2
|
|
TOTAL ASSETS
|
$3,108.1
|
$3,254.9
|
Required:
a. Compute the accounts receivable turnover for 2013 and 2012. At December 31, 2011, accounts and other receivables, gross were $503.6 million.
b. Compute the average number of days that the receivables were outstanding in each year.
c. Does the number of days to collect receivables seem appropriate for Leggett & Platt?