Maurice Tutor
$15/per page/Negotiable
THE RETAIL MOVER
This case represents an actual retail company. The dates and format have been changed.
Required
a. Compute and comment on the following for 2005, 2006, and 2009:
1. Working capital
2. Current ratio
b. Comment on the difference between net income and net cash outflow from operating activities for the year ended December 31, 2006, and December 31, 2009.
c. This company reported a loss of $177,340,000 for 2010. Reviewing the balance sheet data, speculate on major reasons for this loss.
d. Considering (a), (b), and (c), comment on the wisdom of the short-term bank loan in 2010. (Consider the company’s perspective and the bank’s perspective.)
1.
|
Selected  Balance Sheet Data |
31-Dec-06 |
31-Dec-05 |
|
Total  current assets |
$719,478,441 |
$628,408,895 |
|
Total  current liabilities |
458,999,682 |
366,718,656 |
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|
THE RETAIL MOVER |
|
|
Net cash  flow from operating activities: |
 |
|
Net  income |
$39,577,000 |
|
Noncash  expenses, revenues, losses, and gains included in income: |
 |
|
Increase  in equity in Zeller’s Limited |
2,777,000 |
|
Depreciation  and amortization |
9,619,000 |
|
Net  increase in reserves |
74,000 |
|
Increase  in deferred federal income taxes |
232,000 |
|
Net  increase in receivables |
51,463,995 |
|
Net  increase in inventories |
38,364,709 |
|
Net  increase in prepaid taxes, rents, etc. |
209,043 |
|
Increase  in accounts payable |
9,828,348 |
|
Increase  in salaries, wages, and bonuses |
470,054 |
|
Increase  in taxes withheld from employees’ compensation |
301,035 |
|
Decrease  in taxes other than federal income taxes |
659,021 |
|
Increase  in federal income taxes payable |
4,007,022 |
|
Increases  in deferred credits, principally income taxes related to installment sales  (short-term) |
14,045,572 |
|
Rounding  difference in working capital |
520 |
|
Net cash  outflow from operating activities |
15,319,217 |
|
Cash  flows from investing activities: |
 |
|
Investment  in properties, fixtures, and improvements |
16,141,000 |
|
Investment  in Zeller’s Limited |
436,000 |
|
Increase  in sundry accounts (net) |
48,000 |
|
Net cash  outflow from investing activities |
16,625,000 |
|
Cash  flows from financing activities: |
 |
|
Sales of  common stock to employees |
5,219,000 |
|
Dividends  to stockholders |
20,821,000 |
|
Purchase  of treasury stock |
13,224,000 |
|
Purchase  of preferred stock for cancellation |
948,000 |
|
Retirement  of 4 3/4% sinking fund debentures |
1,538,000 |
|
Increase  in short-term notes payable |
56,323,016 |
|
Increase  in bank loans |
7,965,000 |
|
Net cash  inflow from financing activities |
32,976,016 |
|
Net  increase in cash and short-term securities |
$1,031,799 |
2.
|
Selected  Balance Sheet Data |
31-Dec-09 |
|
Total  current assets |
$1,044,689,000 |
|
Total  current liabilities |
661,058,000 |
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|
THE RETAIL MOVER |
|
|
Net cash  flow from operating activities: |
 |
|
Net  income |
$10,902,000 |
|
Noncash  expenses, revenues, losses, and gains included in income: |
 |
|
Undistributed  equity in net earnings of unconsolidated subsidiaries |
3,570,000 |
|
Depreciation  and amortization of properties |
13,579,000 |
|
Increase  in deferred federal income taxes—noncurrent |
2,723,000 |
|
Decrease  in deferred contingent compensation and other liabilities |
-498,000 |
|
Net  receivables increase |
52,737,000 |
|
Merchandise  inventories increase |
51,104,000 |
|
Other  current assets increase |
8,935,000 |
|
Accounts  payable for merchandise decrease |
2,781,000 |
|
Salaries, Â wages, and bonuses decrease |
3,349,000 |
|
Other  accrued expenses increase |
3,932,000 |
|
Taxes  withheld from employees increase |
2,217,000 |
|
Sales  and other taxes increase |
448,000 |
|
Federal  income taxes payable decrease |
8,480,000 |
|
Increase  in deferred income taxes related to installment sales |
4,449,000 |
|
Net cash  flow from operating activities |
93,204,000 |
|
Cash  flows from investing activities: |
 |
|
Investments  on properties, fixtures, and improvements |
23,143,000 |
|
Increase  in other assets—net |
642,000 |
|
Investment  in Granjewel Jewelers & Distributors, Inc. |
5,700,000 |
|
Net cash  outflow from investing activities |
29,485,000 |
|
Cash  flows from financing activities: |
 |
|
Increase  in short-term notes payable to banks |
100,000,000 |
|
Receipts  from employees under stock purchase contracts |
2,584,000 |
|
Short-term  commercial notes |
73,063,000 |
|
Cash  dividends to stockholders |
21,122,000 |
|
Decrease  in long-term debt |
6,074,000 |
|
Purchase  of cumulative preferred stock, for cancellation |
618,000 |
|
Purchase  of treasury common stock |
136,000 |
|
Bank  loans decreased |
10,000,000 |
|
Net cash  inflow from financing activities |
137,697,000 |
|
Net  increase in cash |
$15,008,000 |
3.
|
Income Statement Data related to 2009 and 2010 (in Part) |
||
| Â |
2010 |
2009 |
|
Net  earnings (loss) |
($177,340,000) |
$10,902,000 |
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|
Balance Sheet Data related to 2009 and 2010 (in Part) |
||
| Â |
December  31, 2010 |
December  31, 2009 |
|
Assets |
 |  |
|
Current  assets: |
 |  |
|
Cash  notes |
$79,642,000 |
$45,951,000 |
|
Customers’  installment accounts receivable |
518,387,000 |
602,305,000 |
|
Less: |
 |  |
|
Allowance  for doubtful accounts |
79,510,000 |
16,315,000 |
|
Unearned  credit insurance premiums |
1,386,000 |
4,923,000 |
|
Deferred  finance income |
37,523,000 |
59,748,000 |
| Â |
399,968,000 |
521,319,000 |
|
Merchandise  inventories |
407,357,000 |
450,637,000 |
|
Other  accounts receivable, refundable taxes, and claims |
31,223,000 |
19,483,000 |
|
Prepaid  expenses |
6,591,000 |
7,299,000 |
|
Total  current assets |
$924,781,000 |
$1,044,689,000 |
|
Liabilities |
 |  |
|
Current  liabilities: |
 |  |
|
Bank  loans |
$600,000,000 |
$ — |
|
Short-term  commercial notes |
— |
453,097,000 |
|
Current  portion of long-term debt |
995,000 |
— |
|
Accounts  payable for merchandise |
50,067,000 |
58,192,000 |
|
Salaries, Â wages, and bonuses |
10,808,000 |
14,678,000 |
|
Other  accrued expenses |
49,095,000 |
14,172,000 |
|
Taxes  withheld from employees |
1,919,000 |
4,412,000 |
|
Sales  and other taxes |
17,322,000 |
13,429,000 |
|
Federal  income taxes payable |
17,700,000 |
— |
|
Deferred  income taxes related to installment sales |
2,000,000 |
103,078,000 |
|
Total  current liabilities |
749,906,000 |
661,058,000 |
|
Other  liabilities |
 |  |
|
Long-term  debt |
216,341,000 |
220,336,000 |
|
Deferred  federal income taxes |
— |
14,649,000 |
|
Deferred  contingent compensation and other liabilities |
2,183,000 |
4,196,000 |
|
Total  other liabilities |
218,524,000 |
239,181,000 |
|
Total  liabilities |
$968,430,000 |
$900,239,000 |
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