Mechan Company develops, manufactures, markets, installs and supports a wide range of standards-based LAN and WAN connectivity hardware and software products. The company”s statements of cash flow for the years 2008-2010 follow. Then the relevant portion of Management”s Discussion and Analysis of the statement of cash flows is provided. Consolidated statements of cash flows
Years ended 2010 February 29, and 2009 February 28 and 2008 (In thousands)
|
2010 |
2009 |
2008 |
|
|
Cash flows from operating activities: |
|||
|
Net income |
$ 164,418 |
$ 161,974 |
$ 119,218 |
|
Adjustments to reconcile net income to net |
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|
cash provided by operating activities: |
|||
|
Depreciation and amortization |
32,061 |
26,832 |
17,335 |
|
Provision for losses on accounts receivable |
356 |
72 |
1,734 |
|
Loss on disposals of property, plant and equipment |
93 |
174 |
113 |
|
Deferred taxes Changes in assets and liabilities: |
-38,766 |
-4,434 |
-6,151 |
|
Accounts receivables |
-55,101 |
27,698) |
-17,707 |
|
Inventories |
-50,483 |
23,080) |
-8,758 |
|
Prepaid expenses and other assets |
-18,844 |
3,123) |
1,211 |
|
Accounts payable and accrued expenses |
62,908 |
11,336 |
22,003 |
|
Income taxes payable |
3,705 |
10,476 |
-3,924 |
|
Net cash provided by operating activities$ |
1,00,347 |
$152,529 |
$125,074 |
|
Cash flows from investing activities: |
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|
Capital expenditures |
$ (65,035) |
$ (63,091) |
39,399) |
|
Purchase of available-for-sale securities |
-79,427 |
-71,598 |
30,097) |
|
Purchase of held-to-maturity securities |
-2,05,852 |
-2,82,712 |
258,517) |
|
Materials of marketable securities |
2,08,922 |
3,23,682 |
1,97,406 |
|
Net cash used in investing activities |
$(141,392 |
$ (93,719) |
$(130,607 |
|
Cash flows from financing activities: |
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|
Repayment of notes receivable from stockholders |
$ 174 |
$ 131 |
66 |
|
Repurchase of common stock |
1,173) |
-13,070 |
— |
|
Tax benefit of options exercised |
7,215 |
5,712 |
6,980 |
|
Common stock issued to employee stock purchase plan |
3,323 |
2,287 |
1,637 |
|
Proceeds from stock option exercise |
16,021 |
4,887 |
7,185 |
|
Net cash provided by (used for) financing activities |
$ 25,560 |
$ (53) |
$ 15,868 |
|
Effect of exchange rate changes on cash |
$ 166 |
$ 712 |
$ 161 |
|
Net increase (decrease) in cash and cash equivalents |
$ (15,319) |
$ 59,469 |
$ 10,469 |
|
Cash and cash equivalents, beginning of year |
1,14,032 |
54,563 |
44,067 |
|
Cash and cash equivalents, end of year |
$ 98,713 |
$ 114,032 |
$ 54,563 |
|
Cash paid during the year for: Income taxes |
$ 105,233 |
$ 68,420 |
$ 67,263 |
Management”s discussion and analysis Net cash provided by operating activities was USD 100.3 million in fiscal 2010, compared to USD 152.5 million in fiscal 2009 and USD 125.1 million in fiscal 2008. Capital investment for fiscal 2010 of USD 65.0 million included USD 9.8 million for building costs of which USD 3.4 was for the purchase of an engineering building, USD 21.4 million for engineering computer and computer related software and equipment, USD 5.5 million for manufacturing and related equipment and USD 19.0 million for expanding global sales operations. During fiscal 2009, capital expenditures of USD 63.1 million included approximately USD 8.2 million for building costs related to expanding manufacturing and distribution capacities and enlarging worldwide sales operations, USD 12.5 million for manufacturing and manufacturing support equipment and USD 15.0 million for engineering computer and computer related equipment. Another USD 15.0 million was spent in support of expanded global sales activities. During fiscal 2008, capital expenditures of USD 39.4 million included USD 3.9 million on buildings, USD 10.1 million on engineering equipment, USD 7.8 million on manufacturing capacity expansions and USD 2.0 million to equip new sales offices. Cash, cash equivalents and marketable securities increased during fiscal 2010 to USD 407.0 million, from USD 345.9 million in the prior fiscal year. State and local municipal bonds of approximately USD 264.2 million, maturing in approximately 1.5 years, were being held by the Company at 2010 February 29. At 2010 February 29, the Company did not have any short or long term borrowing or any significant financial commitments outstanding, other than those required in the normal course of business. In the opinion of management, internally generated funds from operations and existing cash, cash equivalents and marketable securities will be adequate to support the Company”s working capital and capital expenditures requirements for both short and long term needs.
a. Which method did the company use in arriving at net cash flows from operating activities?
b. Did current assets other than cash increase or decrease during the year ended 2010 February 29?
c. Did current liabilities increase or decrease during the year ended 2010 February 29?
d. What were the main investing activities during this three-year period?
e. What was the main source of cash from financing activities during the threeyear period?
f. Did the company pay any interest expense during the year ended 2010 February 19?
g. Given the following data, calculate the cash flow per share of common stock ratio, the cash flow margin ratio, and the cash flow liquidity ratio. How do these ratios compare with the ratios shown for other companies in the chapter?
|
(in thousands) |
|
|
Average number of shares of common stock outstanding |
71,839 |
|
Net sales |
$ 1,069,715 |
|
Cash and marketable securities |
2,53,540 |
|
Current liabilities |
1,64,352 |