Problem - Leases, Pensions, and Recivables Securitization
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SELECTED FINANCIAL DATA AS OF MARCH 31, 2006
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($ millions)
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JDS
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MLS
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Sales
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$21,250,000
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$18,500,000
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Fixed assets
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5,700,000
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5,500,000
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Short-term debt
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1,000,000
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Longterm debt
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2,700,000
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2,500,000
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Equity
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6,000,000
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7,500,000
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Otstanding shares
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250,000,000
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400,000,000
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Stock price ($ per share)
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$51.50
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$49.50
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a. Compute each ratio for both companies.
Price-to-book
Total-debt-to-equity
Fixed-asset-utilization
b. Select the company that better meets Westerfield's criteria.
c. The folllwing information is from these companies' as of March 31, 2006.
(1) JDS conducts a majority of its operations from leased premises. Future minimum leased payments (MLP) on noncancellable operating leases follow ($ millions).
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MLP
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2007
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$259
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2008
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213
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2009
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183
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2010
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160
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2011
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155
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2012 and later
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706
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Total MLP
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$1,676
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Less Int.
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$ (676.00)
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Present Value of MLP
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$1,000
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Interest rate
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10%
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(2) MLS ownes all of its property and stores.
(3) During the fiscal year ended March 31, 2006, JDS sold 800 million pf its accounts receivable with recourse, all of wich was outstanding at year-end.
(4) Substantially all of JDS's employees are enrolled in company-sponsored defined contribution plans. MLS sponsors a defined benefits plan for its employees. The MLS's pension plan assets' fair value is $3,400 million.
No pension cose is accrued on its balance sheet as of March 31, 2006 (note that MLS accounts for its pension plans under SFAS 87). The details of MLS's pension obligations follow:
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($ millions)
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ABO
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PBO
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Vested
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$1,550
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$1,590
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Nonvested
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40
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210
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Total
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$1,590
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$1,800
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Compute all three ratios in part (a) after making necessary adjustments using the note information. Again, select the company that better meets Weswtfield's criteria. Comment on your decision in part (b) relative to the analysis here.