Aurora.xls

Copyright (C) 2007, by the University of Virginia Darden School Foundation.

This spreadsheet supports STUDENT analysis of the case, "Aurora Textile Company" (Case 21)

Consolidated Statement of Operations for the Fiscal YearsEnding December, 31 1999-2002($ thousands)

1999 2000 2001

Pounds shipped (000's) 187,673 190,473 151,893Average selling price / lb 1.3103 1.2064 1.2045Conversion Cost / lb 0.4447 0.4421 0.4465Average Raw Material Cost / lb 0.7077 0.6429 0.6487

Net Sales $245,908 $229,787 $182,955Raw Material Cost 132,812 122,461 98,536Cost of Conversion 83,454 84,212 67,822Total costs 216,267 206,673 166,358 Gross Margin 29,641 23,114 16,597SG&A Expenses 14,603 14,218 11,635 Depreciation & Amortization 15,241 13,005 11,196Operating Profit (203) (4,109) (6,234)Interest Expense 6,777 6,773 5,130 Other Income (Expense) 1,143 (1,232)Asset Impairments* 4,758 Earnings Before Income Tax Provision (6,980) (9,739) (17,354)Income Tax Provision (Benefit) @ 36% tax rate (2,513) (3,506) (6,247)Net Earnings ($4,467) ($6,233) ($11,106)

* Costs associated with the shut down of plants

Consolidated Statement of Operations for the Fiscal YearsEnding December, 31 1999-2002

2002

144,1161.02350.42960.4509

$147,50364,98261,912

126,89420,609

10,305 9,859

445 3,440 (409)

7,564 (10,968)(3,949)($7,020)

Consolidated Balance Sheets for the Fiscal YearsEnding December, 31 1999-2002

($ thousands)

1999 2000 2001 2002AssetsCash and cash equivalents $1,144 $5,508 $2,192 $1,973 Accounts receivable, net 17,322 11,663 20,390 26,068 Inventories 34,778 33,155 31,313 33,278 Other current assets 2,774 1,922 712 2,378 Total Current Assets $56,018 $52,247 $54,608 $63,697

Property and Equipment Land 2,654 2,594 2,516 2,505 Buildings 32,729 31,859 30,308 30,427 Machinery and equipment 230,759 220,615 197,889 190,410 Gross PP&E 266,142 255,068 230,713 223,342 Less accumulated depreciation (147,891) (147,104) (146,302) (154,658)Net PP&E 118,250 107,964 84,411 68,684 Goodwill 1,180 1,180 1,180 1,180 Other non-current assets 3,516 3,499 2,824 2,430 Total Assets $178,965 $164,890 $143,023 $135,991

LiabilitiesAccounts payable 12,236 7,693 9,667 10,835 Accrued compensation and benefits 4,148 3,712 4,176 4,730 Accrued interest 1,830 1,090 961 929 Other accrued expenses 4,083 3,914 3,881 3,657 Current portion of long-term debt 1,009 1,730 0 0 Total Current Liabilities $23,306 $18,139 $18,685 $20,151Long-term debt 66,991 66,991 58,000 58,000 Other long-term liabilities 16,566 14,081 11,776 10,297 Total Liabilities $106,863 $99,211 $88,461 $88,448

Shareholder's equityCommon stock, par $0.01 50 50 50 50Capital surplus 15,868 15,678 15,668 15,668Retained earnings 56,184 49,951 38,845 31,825 Total Shareholders' Equity $72,102 $65,679 $54,563 $47,543Total Liabilities and Shareholders' Equity $178,965 $164,890 $143,023 $135,991

(595,955)

Plant Production Capability

Plant Technology Product Mix Count Range CapacityHunter Ring 100% Cotton 5/1 to 22/1 600,000Rome Rotor 100% Cotton 5/1 to 22/1 1,200,000Barton Rotor Heather and Poly/Cotton Blends 8/1 to 30/1 800,000Butler Rotor 100% Cotton 5/1 to 30/1 1,000,000

Cost of Customer Returns

CalculationPrice of Yarn Sold $5.0

Reimbursement cost $25.0 Liability multiplier 5.0 (25/5)

Returns as % of Volume 1.50%Returns as % of Revenue 7.50% (5 x 1.5%)

Returns as cost/lb $0.077 (7.5% x $1.0235/lb)

Zinser CalculationPrice of Yarn Sold $10.0

Reimbursement cost $75.0 Liability multiplier 7.5 (75/10)

Returns as % of Volume 1.00%Returns as % of Revenue 7.50% (7.5 x 1.0%)

Returns as cost/lb $0.084 (7.5% x $1.0235/lb x 110%)

Existing machine

Monthly Spot Price $ (contract size 50,000lbs)2 / 97 74.053 / 97 73.275 / 97 70.016 / 97 73.587 / 97 71.819 / 97 72.05

10 / 97 68.7512 / 97 67.41

2 / 98 63.903 / 98 65.644 / 98 63.675 / 98 63.006 / 98 81.607 / 98 81.939 / 98 71.52

10 / 98 72.3211 / 98 61.0012 / 98 60.74

2 / 99 63.393 / 99 64.794 / 99 59.425 / 99 58.726 / 99 49.907 / 99 48.209 / 99 51.18

10 / 99 49.4411 / 99 49.8012 / 99 48.53

2 / 00 57.193 / 00 59.314 / 00 56.305 / 00 56.646 / 00 51.607 / 00 50.459 / 00 62.45

10 / 00 63.6011 / 00 64.7212 / 00 64.32

1 / 01 59.302 / 01 52.383 / 01 53.544 / 01 43.835 / 01 44.336 / 01 42.657 / 01 40.619 / 01 34.00

10 / 01 32.1911 / 01 36.2312 / 01 34.94

2 / 02 34.653 / 02 34.534 / 02 33.805 / 02 32.046 / 02 43.777 / 02 45.238 / 02 45.10

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Interest Rate Yields: January 2003

U.S. Government (% yield)

Treasury bill (1-year) 1.24%Treasury note (10-year) 3.98%Treasury bond (30-year) 4.83%

Industrials (% yield)

4.25%AAA (10-year) 4.60%AA (10-year) 4.66%A (10-year) 4.87%BB (10-year) 5.60%BBB (10-year) 6.90%

Prime rate1

1The prime rate was the short-term interest rate charged by large U.S. banks for corporate clients with strong credit ratings.

1 1999 2000Days' sale in inventory 58.6965386234 58.5539373242

Days’ sales in receivables or collection period 25.7109640635 18.5255428128Asset turnover 1.37405446366 1.39357189503Profit Margin ($0.018) ($0.027)EBIT Margin -0.00082521283 -0.01788224798ROA ($0.025) ($0.038)ROE ($0.062) ($0.095)

existing machine book value $2,000,000 if sold, price $500,000

3 Status quo 2002 20030 1

Average selling price / lb 1.02 1.03 Average Raw Material Cost / lb 0.45 0.46 Conversion Cost / lb 0.43 0.43 Weekly capacity 500,000.00 510,000.00

Annual sales volume 26,000,000.00 26,520,000.00 Annual Revenues 26,611,000.00 27,414,652.20

Material cost (Cost of good sold) 11,723,400.00 12,077,446.68 Conversion cost 11,180,000.00 11,517,636.00

Gross Margin 3,707,600.00 3,819,569.52 SG&A cost 1,862,770.00 1,919,025.65 Depreciation and amortization 500,000.00 EBIT 1,844,830.00 1,400,543.87 Tax (36%) 664,138.80 504,195.79 Add Depreciation 500,000.00 OCF 1,180,691.20 1,396,348.07

Working capital 963,567.12 992,666.85 Change in net working capital (963,567.12) (29,099.73) Opportunity cost of old equipment -1,040,000 Cash flow (2,003,567.12) 1,367,248.35 NPV 6,746,011.60

Discount rate 10%

Zinser 2002 20030 1

Average selling price / lb 1.13 1.14 Conversion Cost / lb 0.41 0.41

Average Raw Material Cost / lb 0.4509 0.46 Weekly capacity 475,000.00 484,500.00

Annual sales volume 24,700,000.00 25,194,000.00 Annual Revenues 27,808,495.00 28,648,311.55

Material cost (Cost of good sold) 11,137,230.00 11,473,574.35 Conversion cost 10,052,900.00 10,356,497.58

Gross Margin 6,618,365.00 6,818,239.62 SG&A cost 1,946,594.65 2,005,381.81 Depreciation and amortization 500,000.00 EBIT 4,671,770.35 4,312,857.81 Tax (36%) 1,681,837.33 1,552,628.81 Add Depreciation 500,000.00 OCF 2,989,933.02 3,260,229.00

Working capital 915,388.77 943,033.51 Change in net working capital (915,388.77) (27,644.74) Opportunity cost of old equipment -500,000 Cash flow (1,415,388.77) 3,232,584.26 NPV 20,184,566.19

Discount rate 10%

2001 200268.7023634256 95.7201348418

40.6785558175 64.50606207781.27920246632 1.08465224118

($0.061) ($0.048)-0.03407202783 0.00301410023

($0.078) ($0.052)($0.204) ($0.148)

2004 2005 2006 2007 2008 20092 3 4 5 6 7

1.04 1.05 1.07 1.08 1.09 1.10 0.46 0.46 0.47 0.47 0.48 0.48 0.44 0.44 0.45 0.45 0.46 0.46

520,200.00 530,604.00 541,216.08 552,040.40 563,081.21 574,342.83

27,050,400.00 27,591,408.00 28,143,236.16 28,706,100.88 29,280,222.90 29,865,827.36 28,242,574.70 29,095,500.45 29,974,184.57 30,879,404.94 31,811,962.97 32,772,684.25

12,442,185.57 12,817,939.57 13,205,041.35 13,603,833.60 14,014,669.37 14,437,912.39 11,865,468.61 12,223,805.76 12,592,964.69 12,973,272.23 13,365,065.05 13,768,690.01 3,934,920.52 4,053,755.12 4,176,178.52 4,302,299.12 4,432,228.55 4,566,081.85 1,976,980.23 2,036,685.03 2,098,192.92 2,161,558.35 2,226,837.41 2,294,087.90 500,000.00 500,000.00 500,000.00 1,457,940.29 1,517,070.09 1,577,985.60 2,140,740.77 2,205,391.14 2,271,993.95 524,858.50 546,145.23 568,074.82 770,666.68 793,940.81 817,917.82 500,000.00 500,000.00 500,000.00 1,433,081.79 1,470,924.86 1,509,910.79 1,370,074.09 1,411,450.33 1,454,076.13

1,022,645.39 1,053,529.28 1,085,345.86 1,118,123.31 1,151,890.63 1,186,677.73 (29,978.54) (30,883.89) (31,816.58) (32,777.45) (33,767.32) (34,787.10)

1,403,103.25 1,440,040.97 1,478,094.20 1,337,296.65 1,377,683.01 1,419,289.03

2004 2005 2006 2007 2008 20092 3 4 5 6 7

1.15 1.16 1.17 1.18 1.20 1.21 0.42 0.42 0.42 0.43 0.43 0.44

0.46 0.46 0.47 0.47 0.48 0.48 494,190.00 504,073.80 514,155.28 524,438.38 534,927.15 545,625.69

25,697,880.00 26,211,837.60 26,736,074.35 27,270,795.84 27,816,211.76 28,372,535.99 29,513,490.56 30,404,797.97 31,323,022.87 32,268,978.16 33,243,501.30 34,247,455.04

11,820,076.29 12,177,042.60 12,544,789.28 12,923,641.92 13,313,935.90 13,716,016.77 10,669,263.81 10,991,475.57 11,323,418.14 11,665,385.36 12,017,680.00 12,380,613.94 7,024,150.46 7,236,279.80 7,454,815.45 7,679,950.88 7,911,885.40 8,150,824.34 2,065,944.34 2,128,335.86 2,192,611.60 2,258,828.47 2,327,045.09 2,397,321.85 500,000.00 500,000.00 500,000.00 4,458,206.12 4,607,943.95 4,762,203.85 5,421,122.41 5,584,840.31 5,753,502.48 1,604,954.20 1,658,859.82 1,714,393.39 1,951,604.07 2,010,542.51 2,071,260.89 500,000.00 500,000.00 500,000.00 3,353,251.92 3,449,084.13 3,547,810.47 3,469,518.34 3,574,297.80 3,682,241.59

971,513.12 1,000,852.82 1,031,078.57 1,062,217.14 1,094,296.10 1,127,343.84 (28,479.61) (29,339.70) (30,225.76) (31,138.57) (32,078.96) (33,047.74)

3,324,772.31 3,419,744.43 3,517,584.71 3,438,379.77 3,542,218.84 3,649,193.85

2010 2011 2012 Inflation 8 9 10

1.11 1.12 1.13 1% 0.49 0.49 0.50 0.47 0.47 0.47

585,829.69 597,546.28 609,497.21

30,463,143.91 31,072,406.78 31,693,854.92 33,762,419.32 34,782,044.38 35,832,462.12

14,873,937.34 15,323,130.25 15,785,888.78 14,184,504.45 14,612,876.49 15,054,185.36 4,703,977.52 4,846,037.64 4,992,387.98 2,363,369.35 2,434,743.11 2,508,272.35

2,340,608.17 2,411,294.54 2,484,115.63 842,618.94 868,066.03 894,281.63

1,497,989.23 1,543,228.50 1,589,834.00

1,222,515.40 1,259,435.36 1,297,470.31 (35,837.67) (36,919.97) (38,034.95)

1,462,151.56 1,506,308.54 1,551,799.06

2010 2011 2012 Inflation 8 9 10 1%

1.22 1.23 1.24 0.44 0.45 0.45

0.49 0.49 0.50 556,538.21 567,668.97 579,022.35

28,939,986.71 29,518,786.44 30,109,162.17 35,281,728.18 36,347,236.38 37,444,922.91

14,130,240.47 14,556,973.74 14,996,594.34 12,754,508.48 13,139,694.63 13,536,513.41 8,396,979.23 8,650,568.00 8,911,815.16 2,469,720.97 2,544,306.55 2,621,144.60

5,927,258.26 6,106,261.46 6,290,670.55 2,133,812.97 2,198,254.12 2,264,641.40

3,793,445.29 3,908,007.33 4,026,029.15

1,161,389.63 1,196,463.59 1,232,596.80 (34,045.78) (35,073.97) (36,133.20)

3,759,399.50 3,872,933.37 3,989,895.95