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(a)
INTEL
CommonSizeBalanceSheet
2007
Assets:
CurrentAssets
Cashandequivalents
Shortterminvestments
Tradingassets
A/R
Inventories
Deferredtaxassets
Othercurrentassets
Totalcurrentassets
Property,plantandequipment,net
Marketableequitysecurities
Otherlongterminvestments
Goodwill
Otherlongtermassets
TotalAssets
9%
8%
18
10
8
9
5
4
6
6
2 2
2 1
50%
40%
28%
33%
2
1
5
8
7
8
8
10
100%
100%
2010
Liabilities:
Currentliabilities
Shorttermdebt
A/P
Accruedcompensationandbenefits
Accruedadvertising
Deferredincomeonshipmentstodistributor
Otheraccruedliabilities
Totalcurrentliabilities
Longtermincometaxpayable
Longtermdebt
Deferredtaxliabilities
Otherlongtermliabilities
Totalliabilities
Stockholders'equity
2006
%
4
4
2
1
4
15%
3
1
2
21%
2009
%
4
5
1
1
3
14%
4
1
2
21%
Commonstock
Accumulated.othercomprehensiveincome
Retainedearnings
Totalstockholders'equity
Totalliabilities&stockholders'equity
26
1
52
79%
100%
28
1
50
79%
100%
(b) ThecurrentassetsofIntelincludecash,shortterminvestments,trading
assets,accountsreceivable,inventories,deferredtaxassetsandothercurrent
assets.Longtermassetsarecomposedofproperty,plantandequipment,
marketableequitysecurities,longterminvestments,goodwill,andanotherassets
account.Themostsignificantassetstothecompanyarecashandshortterm
investments,property,plantandequipment,longterminvestments(including
otherlongtermassetswhichincludeinvestments)andgoodwill.
Tradingassetsandavailableforsaleinvestmentsarereportedatfairvalue.Non
marketableequitysecuritiesareaccountedforathistoricalcost,or,ifIntelhas
significantinfluenceovertheinvesteetheequitymethodisused.Inventoriesare
valuedusingcurrentaverageorFIFO.Straightlinedepreciationisusedfor
depreciatingproperty,plantandequipmentforfinancialreportingpurposes.
Otheritemslearnedfromthenotesaboutassetaccountsincludeinformationabout
Intel'smanyinvestments,derivativefinancialinstruments,abreakdownofthe
inventoryaccountintorawmaterials,workinprocessandfinishedgoods,detailof
theproperty,plantandequipmentaccount,theestimatedusefullivesofplantand
equipment,goodwill,andotherintangibleassets.
Theassetstructurehaschanged.Currentassetshaveincreased10%overall,while
longtermassetshavedecreasedbythatamount.Inparticular,shortterm
investmentsmorethandoubledindollaramountandincreasedfrom10to18%of
totalassets.Thechangesinlongtermassetsconsistofa5%declineinthenet
property,plantandequipmentaccountanda5%declineintheotherlongterm
investmentsaccounts.Thedeclineintheproperty,plantandequipmentaccountis
aresultofthelargeincreaseindollarsintheshortterminvestmentaccountas
property,plantandequipmenthasactuallyincreasedindollars.
(c)
Allowanceaccountasapercentageofaccountsreceivable:
2010
2009
Allowancefordoubtfulaccounts
NetReceivables+Allowance
Percentageof
Receivables
$28
$2,867+$28
0.97%
$19
$2,273+$19
Sales
Totalaccountsreceivable
Allowancefordoubtfulaccounts
0.83%
Changefrom
2009to2010
24.2%
26.3%
47.4%
Assaleshaveincreasedboththeaccountsreceivableandtheallowancefor
doubtfulaccountshavealsoincreased.Thisisanormalpattern.Lookingatthe
valuationandqualifyingaccountsscheduleinIntel'sForm10K(page111)it
appearsthatIntelsallowanceaccountbalancewasmorethanadequatein2008
and2009.In2010,Inteldidnothaveanywriteoffsofbaddebtyetincreasedthe
allowanceaccountby$9million.Intelmaybeanticipatingcustomerdefaultsin
2011,butin2008and2009,arecessionaryperiod,Inteldidagoodjobcollecting
onaccountsreceivablewithminimalwriteoffs.ItisalsopossiblethatIntel
overestimatedtheaccountwiththeintentionoflaterreducingittoimprovethenet
incomenumber.
ItisnoteworthythatIntel'stwolargestcustomersaccountfor38%ofnetrevenues
and44%ofaccountsreceivablein2010.Shouldoneofthesecustomersdefault
thiswouldnegativelyimpactIntel.Inaddition,ifoneofthesecustomerstakestheir
businesselsewherethatwouldbehighlydetrimentaltoIntel'ssalesandultimate
profit.Intelbelievesthattheirtwolargestcustomersarelowriskwithregardto
collectionontheiraccountsbasedonhistoricalexperience.SinceDelland
HewlettPackardareIntel'stwolargestcustomers(page8ofForm10K),thisis
probablyagoodassumption.
(d) Intelhasthetypicalliabilitiesfoundonmostcompanies'balancesheets:
shorttermdebt,accountspayable,accruedliabilities,deferredincome,income
taxespayable,longtermdebtanddeferredtaxliabilities.Nooneliabilityaccount
issignificant.In2009and2010,21%ofthecapitalstructureisdebt,while79%is
equity.Therehavebeennosignificantchangestothedebtandequitystructure.
(e) Intelhascommitmentsforoperatingleasesandiscommittedtopay$327
millioninthefuture(2011andthereafter).Thecompanyhasalsocommittedto
constructorpurchase$4.6billionofproperty,plantandequipment.Other
commitmentsof$600millionincludelicenses,purchasesofrawmaterialsand
noncontingentfundingobligations.(Note23ofForm10K)
Contingenciesarecomprisedoflegalproceedingsincludingsignificantchallenges
filedbyAMDandotherstothecompanyscompetitivepractices.TheEuropean
Commission(EC)imposeda$1.447billionfineonIntelin2009thatIntelhas
paid;however,IntelhasappealedtheECsdecisionandtheECisexpectedtorule
in2012.Intelanticipatesthesechallengeswillcontinueforanumberofyearsand
mayrequiresubstantialfinancialresourcesandmanagementtimetodefendtheir
position.(Note29ofForm10K)
(f)
Deferredtaxesareincludedundercurrentassets,noncurrentassetsandnon
currentliabilities.Sharebasedcompensationisthemostsignificantcomponentof
deferredtaxes.
(g) Intelhasthefollowingequityaccounts:Preferredstock,Commonstock,
AccumulatedothercomprehensiveincomeandRetainedearnings.
Case2.4
1.
WalgreenCo.andSubsidiaries
CommonSizeBalanceSheet
Assets
CurrentAssets:
Cashandcashequivalents
Shortterminvestments
Accountsreceivable,net
Inventories
Othercurrentassets
TotalCurrentAssets
NonCurrentAssets
August31,
2010
2009
7%
9
28
1
45%
8%
2
10
27
1
48%
Propertyandequipment,atcostlessaccumulated
depreciationandamortization
43
43
Goodwill
7
6
Othernoncurrentassets
5
3
TotalNonCurrentAssets
55%
52%
TotalAssets
100%
100%
LiabilitiesandShareholdersEquity
CurrentLiabilities
Shorttermborrowings
%
%
Tradeaccountspayable
17
17
Accruedexpensesandotherliabilities
11
10
Incometaxes
TotalCurrentLiabilities
28%
27%
NonCurrentLiabilities
Longtermdebt
9%
9%
Deferredincometaxes
1
1%
Othernoncurrentliabilities
7
6
TotalNonCurrentLiabilities
17%
16%
TotalLiabilities
45%
43%
Shareholders'Equity
Commonstock
%
%
Paidincapital
3
3
Employeestockloanreceivable
(1)
Retainedearnings
64
61
Accumulatedothercomprehensive(loss)income
Treasurystock,atcost
(12)
(6)
TotalShareholders'Equity
55%
57%
TotalLiabilitiesandShareholders'Equity
100%
100%
2.
Inventoriesarethemostsignificantcurrentassetandpropertyand
equipmentisthemostsignificantnoncurrentasset.Theproportionofinventories
seemsappropriatesincetheindustryaveragerelativetototalassets,accordingto
Exhibit2.4inthetextbook,is32.6%andWalgreensinventoriesare28%oftotal
assets.Walgreenspropertyandequipmentmakeup43%oftotalassetswhilethe
industryaverage,accordingtoExhibit2.5inthetextbook,is12.4%.
3.
WalgreenusestheLIFOmethodofinventoryvaluation.Thenotestothe
financialstatementsexplainthatinventorieswouldhavebeenrecordedatahigher
amountiftheFIFOmethodofinventoryhadbeenused.Thisimpliesthatinflation
hasoccurredsinceunderFIFO,themostrecentpurchaseswouldberecordedon
thebalancesheet,andunderLIFO,thefirstpurchaseswouldberecordedonthe
balancesheet.
4.
ThemajorityofWalgreensliabilitiesiscurrentandincludesaccounts
payableandaccruedexpenses.Longtermdebtis9%oftotalassets.Thedollar
amountoftotalliabilitiesis$11,875million,justundertheamountofcurrent
assets.Thelevelofriskappearstobelow.
5.
Walgreenmostlikelypaiddividendsintheamountof$570million
calculatedasfollows:
Beginningretainedearnings+netincomedividends=Endingretainedearnings
$15,327+$2,091dividends=$16,848
6.
Yes,Walgreenusesoffbalancesheetfinancingintheformofoperating
leasesAsofAugust31,2010,totalminimumleasepaymentstotaled$36,790
million.ThisamountislargerthanthetotalofWalgreensassets.
7.
EventhoughitappearsfromthebalancesheetofWalgreenthatthecompany
maybecreditworthy,readingthenotespaintsamuchdifferentpicture.Offbalance
sheetfinancingputsWalgreenathighrisk.Operatingleasesarecontractual
obligationsand,likedebt,thefirmmustbeabletomaketheleasepaymentsor
couldbeforcedintobankruptcy.Withoutmoreinformationabouttheprofitability
ofthefirmandanassessmentofhowmuchcashtheygenerateeachyear,the
balancesheetandnotesavailablesuggestthatWalgreenisapoorcreditrisk.