NuWare - Exhibits (1)
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Transcript of NuWare - Exhibits (1)
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Assignment questions
1. In general, what types of issues come to mind when you hear analysts question a firm's
2. Why is Harry Malone concerned about relying on Nuware's reported performance? If N
3. Assume the role of Hereford and restate Nuware's 2003 earnings as if the company had
After such restatement, do Nuware's earnings and earnings growth remain superior to that4. Would you characterize the accounting discretion applied by Nuware management as a
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earnings quality"?
uware follows GAAP, shouldn't the company's reported financial statements be reliable?
used a similar accounting method and assumptions.
of R. P. Stuart?gressive? Do you think the company has been "managing" earnings?
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Exhibit 1
NuWare Inc.
Consolidated Statement of Operations
(in thousands except per share amounts)
2003 2002 2001Net sales 1,754,861 1,709,254 1,611,498
Operating costs and expenses
Cost of sales (including occupancy costs) 1,001,892 1,009,893 919,871
Selling, general and administrative expense 586,124 555,508 565,475
Depreciation and amortization 36,356 32,196 30,229
Operating income 130,489 111,657 95,923
Non-operating (income) and expenses:
Interest and investment income (9,382) (5,784) (5,014)
Interest expense 2,508 2,290 3,048
Income before income taxes 137,363 115,151 97,889
Provision for income taxes 50,784 42,576 36,220
Net income 86,579 72,575 61,669
Earnings per share:
Basic 0.86 0.72 0.62
Diluted 0.82 0.70 0.60
Dividend declared per share 0.16 0.16 0.15
Average shares outstanding during the period:
Basic 100,883 100,883 99,631Diluted 105,823 103,972 102,003
For the fiscal year ended January 31,
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Exhibit 2
NuWare Inc.
Consolidated Balance Sheets
(in thousands except per share amounts)
2003ASSETS
Current assets:
Cash, including AFS investments 192,114
Beneficial interest in securitized receivables 40,538
Accounts receivable, net of reserves 295,888
Inventories 247,502
Prepaid expenses and other current assets 56,179
832,221
Property, net 374,493
Other noncurrent assets 49,411Total Assets 1,256,125
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 393
Accounts payable 176,702
Gift cards, gift certificates and merchandise credits outstanding 117,495
Accrued income taxes payable 35,798
Other accrued liabilities 192,348
Total current liabilities 522,736
Long-term debt 25,007
Other noncurrent liabilities 54,962
Shareholders' equity:
Common stock, $0.10 par, 500 million authorized
100,883,000 shares issued 10,088
Paid-in capital 479,074
Retained earnings 314,124
Cumulative other comprehensive income (loss) (11,210)
Less: 10,045,000 and 7,362,000 common shares in treasury, at cos (138,656)
653,420
Commitments and contingencies -
Total Liabilities and Shareholders' equity 1,256,125
As of Ja
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2002 2003 2002
55,609 AFS investments 59,716 35,076
34,620
363,424 Reserve for doubtful accounts 9,438 16,140
230,911
43,286
727,850
370,262
47,985 1,146,097
356
129,076
139,852
29,738
170,053
469,075
25,356
43,264
10,088
440,190
243,257
(4,702)
(80,521) Treasury stock 138,656,000 80,521,000
608,312 No. of treasury shares 1,004,500 7,362,000
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1,146,007
uary 31,
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Exhibit 3
NuWare Inc.
Selected Excerpts from Notes to Financial Statements
(Source: Notes to Consolidated Financial Statemet, Nuware, Inc. Annual Report)
2003 2002
Use of Estimates
Cash and Receivables
Merchandise Inventories
Valued at the lowest of Cost (LIFO method) or market (Retail method)
LIFO adjustment to ending inventory:
Old method 33,000
New method 35,100Effect of accounting policy change in 2002:
Net income lower by 2,100
basic EPS lower by 0.02
diluted EPS lower by 0.02
Cumulative effect of accounting change Not ascertai
Total charges to cost of sales include:
Occupancy costs 45,000 44,000
If FIFO method of inventory valuation is used,
Value of inventories would have been higher by 29,500 35,100
Plant, Property and Equipment
Furniture and equipment Historic cost SLM 3 - 10
Buildings Historic cost SLM 30
Leasehold improvements Historic cost Min( useful l
Accumulated depreciation - 304,500 268,500
Depreciation expenses 35,698 31,572
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Financial Instruments
fair value
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2001
able
44,000
years
years
ife, term of lease)
26,620
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3,700
58,727
19,044
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Exhibit 4
Sears, Roebuck and Company
Earnings Sensitivity Analysis as example
Receivables and inventory
source 2001 2000 1999
Reported Earnings and non-recurring items
Net sales I/S 41,078 40,937 39,484
Net income before taxes I/S 1,202 2,174 2,357
Tax expense I/S 467 831 904
Net income after taxes I/S 735 1,343 1,453
Average effective tax rate compute 38.9% 38.2% 38.4%
Non-recurring charges before tax I/S 1,064 251 41Adjusted Net income after tax compute 1,386 1,498 1,478
Accounts Receivable Analysis
Reported Values:
Gross receivables B/S 29,321 21,108 21,937
Reserve for uncollectibles B/S 1,166 686 760
Net receivables B/S 28,155 20,422 21,177
Bad debt expense I/S 1,866 884 871
Write-offs footnotes 1,386 958 1,085
Inferred values and computed ratios
Reserve / Accounts Receivable 3.98% 3.25% 3.46%
Change in reserve / Accounts receivable 0.73% -0.21% -0.73%
Accounts receivables turnover 1.69 1.97 1.82
Days receivables turnover 216 185 201
Effect of 0.73% shift in Reserve / Acc. Rec. 131.00 95.00 99.00
As a % of NI (with nonrecurring items) 17.8% 7.1% 6.8%
As a % of NI (without nonrecurring items) 9.5% 6.3% 6.7%
Inventory Analysis
Reported Values:
Inventory (LIFO) B/S 4,912 5,618 5,069
LIFO Reserve footnotes 591 566 595
Cost of goods sold (LIFO) I/S 26,322 26,899 25,627
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Inferred values and computed ratios
Inventory (FIFO) 5,503 6,184 5,664
Cost of goods sold (FIFO) 26,297 26,928 25,711
Inventory Turnover (LIFO) 5.00 5.03 4.93
Inventory Turnover (FIFO) 4.50 4.55 4.41
Days Inventory Turnover (LIFO) 73.01 72.51 74.00Days Inventory Turnover (FIFO) 81.11 80.30 82.80
Effect of LIFO on Reported Earnings -15.3 17.9 51.8
As a % of NI (with nonrecurring items) -2.1% 1.3% 3.6%
As a % of NI (without nonrecurring items) -1.1% 1.2% 3.5%
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1998
41,575
1,838
766
1,072
41.7%
23,240
974
22,266
1,287
4.19%
5,322
679
27,444
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6,001
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Exhibit 5
R. P. Stuart Company
Consolidated Statement of Operations
(in thousands except per share amounts)
2003 2002 2001
Net sales 567,411 525,697 502,292
Cost of sales (including occupancy costs) 352,682 316,500 305,401
Gross profit 214,729 209,197 196,891
Selling, general and administrative expenses 164,550 156,942 149,884
Store preopening expenses 4,603 5,371 4,584
Income from operations 45,576 46,884 42,423
Non-operating (income) and expenses:
Interest and investment income (883) (1,294) (1,180)Interest expense 4,884 4,999 5,238
Income before income taxes 41,575 43,179 38,365
Provision for income taxes 16,214 16,836 14,956
Net income 25,361 26,343 23,409
Earnings per share:
Basic 0.80 0.85 0.78
Diluted 0.77 0.83 0.75
Dividend declared per share
Average shares outstanding during the period:
Basic 31,649 31,105 30,064Diluted 32,960 31,876 31,199
For the fiscal year ended January 31,
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Exhibit 6
R. P. STUART COMPANY
Consolidated Balance Sheets
(in thousands except per share amounts)
2003
ASSETS
Current assets:
Cash and Cash equivalents 45,420
Credit receivables, net of allowances 269,115
Merchandise inventories 131,344
Other current assets 16,789
Total current assets 462,668
Property and equipment, gross 430,256
Accumulated depreciation (135,692)
Goodwill 4,178
Other assets 9,287
Total Assets 770,697
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 4,809
Accounts payable 73,990Accrued income taxes payable 15,082
Accrued compensation 8,305
Other accrued liabilities 28,986
Total current liabilities 131,172
Long-term debt 13,216
Other noncurrent liabilities 55,091
Shareholders' equity:
Preferred stock, $0.01 par value: 6,500,000 shares authorizednone issue and outstanding -
Common stock, $0.01 par, 80 million shares authorized
Issued and outstanding: 31,649,743 and 31,105,437 shares 316
Additional Paid-in capital 275,089
Retained earnings 295,813
Cumulative other comprehensive income (loss) -
As of Ja
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571,218
Less: common shares in treasury, at cost -
Commitments and contingencies -
571,218
Total Liabilities and Shareholders' equity 770,697
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2002 2003 2002
111,815
217,123 Allowances for card receivable 12,650 10,327
109,829
11,107
449,874
356,096
(116,092)
4,340
10,080
704,298
3,468
81,59229,993
18,506
18,251
151,810
15,498
44,035
-
311
220,056
272,588
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uary 31,
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492,955
-
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492,955
704,298
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Exhibit 7
R. P. STUART COMPANY
Selected Excerpts from Notes to Financial Statements
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Exhibit 8
Miscellaneous Profitability Sta
Nuware, Inc.
2003 2002 2001
Net income USD 86,579 USD 72,575 USD 61,669
Net income per diluted share USD 0.82 USD 0.70 USD 0.60
Return on Assets
Return on Equity 13.72% 11.93%
Average effective tax rate 37.0% 37.0% 37.0%
EPS growth 17.2% 15.5%
Sales growth 2.7% 6.1%
Gross profit margin 42.9% 40.9% 42.9%
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tistics
R. P. Stuart Company
2003 2002 2001
USD 25,361 USD 26,343 USD 23,409
USD 0.77 USD 0.83 USD 0.75
4.8% 5.3%
39.0% 39.0% 39.0%
-6.9% 10.1%
7.9% 4.7%
62.2% 60.2% 60.8%