Comprehensive Analysis: Fixed Assets
Spelling Entertainment, which produces films and videos and other entertainment media, lists the following items in its 1994 annual report (dollars in thousands):
|
1994 |
1993 |
1992 |
1991 |
|
|
Property, plant, and equipment |
||||
|
net |
$ 16,161 |
$ 4,770 |
$ 4,834 |
$ 6,331 |
|
Other assets |
19,678 |
4,562 |
6,512 |
13,879 |
|
Net assets held for disposition |
0 |
0 |
0 |
16,475 |
|
Intangibles, net of accumulated |
||||
|
amortization of $17,671, |
||||
|
$10,527, $6,713 and |
||||
|
$2,626 |
400,751 |
1,549,983 |
159,291 |
154,946 |
|
Revenues |
$599,839 |
$ 274,899 |
$257,546 |
$122,748 |
|
Operating income |
50,743 |
39,727 |
25,315 |
13,987 |
Required
Part I
a. Describe each of Spelling’s non current assets.
b. Identify any unusual trends or unusual terms.
c. Calculate fixed asset turnover for 1993 and 1994. Use property, plant, and equipment, net.
Part II
d. How does Spelling seem to be managing its fixed assets? What evidence supports your conclusion?
e. Why are intangibles Spelling’s largest noncurrent asset? What problems might this create, especially if these intangibles represent copyrights and trademarks that are no longer fashionable?
Part III
f. What additional information is needed before you can calculate Spelling’s percentage of PPE depreciated?
g. Where might you find such information?
h. Upon carefully reading the notes to Spelling’s 1994 financial statements, you do not find the requisite information. What would you do next to find this information?
Part IV
Further review of Spelling’s notes reveals the following additional information about its asset disposal strategy or the effects thereof. Net assets (liabilities) held for disposition consisted of the following at December 31, (dollars in thousands):
|
1994 |
1993 |
1992 |
1991 |
|
|
Receivables, net |
$ 608 |
$ 2,714 |
$ 7,445 |
$40,282 |
|
Investments |
0 |
0 |
0 |
2,600 |
|
Property, plant, and equipment, |
||||
|
net |
3,161 |
4,467 |
4,572 |
23,050 |
|
Other assets |
0 |
0 |
247 |
5,280 |
|
Accounts payable and other |
||||
|
accruals |
(1,749) |
(1,780) |
(4,023) |
(16,681) |
|
Notes payable |
0 |
0 |
0 |
(19,500) |
|
Other liabilities |
0 |
0 |
(1,090) |
(4,707) |
|
$ 2,020 |
$ 5,401 |
$ 7,151 |
$30,324 |
|
|
Less allowance for estimated |
||||
|
estimated losses on |
||||
|
disposal of segment |
(20,368) |
(29,621) |
(15,058) |
(13,849) |
|
$(18,348) |
$(24,220) |
$(7,907) |
$16,475 |
i. Describe each item in the above note. Note that only one of the above subtotals was reported in Spelling’s balance sheet (see above, Part I). Where were the other subtotals reported? Why?
j. Discuss the implications of this note. What does this note imply about the valuations of Spelling’s other assets? Why?
k. How have Spelling’s perceptions regarding its asset disposal activities changed over the years? Why?
l. Would an external analyst view Spelling’s note as optimistic or worse? Why?
m. If Spelling completes its disposition program in 1995, what is the likely effect on 1995’s net income? Why?
Comprehensive Analysis: Fixed Assets
Spelling Entertainment, which produces films and videos and other entertainment media, lists the following items in its 1994 annual report (dollars in thousands):
|
1994 |
1993 |
1992 |
1991 |
|
|
Property, plant, and equipment |
||||
|
net |
$ 16,161 |
$ 4,770 |
$ 4,834 |
$ 6,331 |
|
Other assets |
19,678 |
4,562 |
6,512 |
13,879 |
|
Net assets held for disposition |
0 |
0 |
0 |
16,475 |
|
Intangibles, net of accumulated |
||||
|
amortization of $17,671, |
||||
|
$10,527, $6,713 and |
||||
|
$2,626 |
400,751 |
1,549,983 |
159,291 |
154,946 |
|
Revenues |
$599,839 |
$ 274,899 |
$257,546 |
$122,748 |
|
Operating income |
50,743 |
39,727 |
25,315 |
13,987 |
Required
Part I
a. Describe each of Spelling’s non current assets.
b. Identify any unusual trends or unusual terms.
c. Calculate fixed asset turnover for 1993 and 1994. Use property, plant, and equipment, net.
Part II
d. How does Spelling seem to be managing its fixed assets? What evidence supports your conclusion?
e. Why are intangibles Spelling’s largest noncurrent asset? What problems might this create, especially if these intangibles represent copyrights and trademarks that are no longer fashionable?
Part III
f. What additional information is needed before you can calculate Spelling’s percentage of PPE depreciated?
g. Where might you find such information?
h. Upon carefully reading the notes to Spelling’s 1994 financial statements, you do not find the requisite information. What would you do next to find this information?
Part IV
Further review of Spelling’s notes reveals the following additional information about its asset disposal strategy or the effects thereof. Net assets (liabilities) held for disposition consisted of the following at December 31, (dollars in thousands):
|
1994 |
1993 |
1992 |
1991 |
|
|
Receivables, net |
$ 608 |
$ 2,714 |
$ 7,445 |
$40,282 |
|
Investments |
0 |
0 |
0 |
2,600 |
|
Property, plant, and equipment, |
||||
|
net |
3,161 |
4,467 |
4,572 |
23,050 |
|
Other assets |
0 |
0 |
247 |
5,280 |
|
Accounts payable and other |
||||
|
accruals |
(1,749) |
(1,780) |
(4,023) |
(16,681) |
|
Notes payable |
0 |
0 |
0 |
(19,500) |
|
Other liabilities |
0 |
0 |
(1,090) |
(4,707) |
|
$ 2,020 |
$ 5,401 |
$ 7,151 |
$30,324 |
|
|
Less allowance for estimated |
||||
|
estimated losses on |
||||
|
disposal of segment |
(20,368) |
(29,621) |
(15,058) |
(13,849) |
|
$(18,348) |
$(24,220) |
$(7,907) |
$16,475 |
i. Describe each item in the above note. Note that only one of the above subtotals was reported in Spelling’s balance sheet (see above, Part I). Where were the other subtotals reported? Why?
j. Discuss the implications of this note. What does this note imply about the valuations of Spelling’s other assets? Why?
k. How have Spelling’s perceptions regarding its asset disposal activities changed over the years? Why?
l. Would an external analyst view Spelling’s note as optimistic or worse? Why?
m. If Spelling completes its disposition program in 1995, what is the likely effect on 1995’s net income? Why?