Acc Model 5 and 6

-1.  .

1. Compute the following liquidity, solvency and coverage ratios for both years.

1. What is your overall assessment of the company’s credit risk?  Explain.  What differences do you observe between the two years?
2. 
   

3. 2.   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?

5. 3.   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.)

   4.   (10 points)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.

    

   a)      List at least 3 limitations of this method from financial reporting perspective.

    

   5.   (15 points)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.

    

    

   6.   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.

    

   a.     Compute the average number of days that the receivables were outstanding in each year.

    

    

   a.     Does the number of days to collect receivables seem appropriate for Leggett & Platt?