nuware - exhibits (1)

8/13/2019 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


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

-

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


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


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

-

uary 31,


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492,955

-

-

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%

nuware - exhibits (1)

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