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Boston Automation Systems, Inc.
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BAS Sales Distribution
Sales during 1999: $1.8 billion
Glendale
Division
Advanced
Technology
Division
Technical
Devices
Division
Sales $1.21 $0.39 $0.21
Income (Loss) before taxes 0.29 0.06 (0.02)
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Consolidated Balance Sheets December 31,
1999 and 1998 (in Thousands)
1999 1998 1999 1998
ASSETS
Current assets:
Cash and cash equivalents $181,345 $185,514 12 14
Marketable securities 66,316 15,914 4 1
Accounts receivable, less allowance for doubtful accounts of
$4,410 and $2,395 in 1999 and 1998, respectively 296,159 219,303 19 17
Inventories: 0 0Parts 123,300 154,706 8 12
Assemblies in process 145,393 111,641 9 9
268,693 266,347 17 20
Deferred tax assets 49,716 49,262 3 4
Prepayment and other current assets 45,458 23,200 3 2
Total current assets 907,687 759,540 58 58
Property, plant and equipment 0 0
Land 41,774 41,060 3 3
Buildings and improvements 238,136 171,895 15 13
Machinery and equipment 692,383 591,897 44 45Construction in progress 9,693 52,699 1 4
Total 981,986 857,551 63 65
Less: Accumulated depreciation -484,247 -422,594 -31 -32
Net property, plant, and equipment 497,739 434,957 32 33
Marketable securities 139,752 96,494 9 7
Other assets 23,035 21,823 1 2
Total assets $1,568,213 $1,312,814 100 100
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Consolidated Balance Sheets December 31,
1999 and 1998 (in Thousands)
1999 1998 1999 1998
LIABILITIES
Current liabilities:
Notes payable-banks $8,221 $7,393 1 1
Current portion of long-term debt 4,659 1,309 0 0
Accounts payable 104,335 45,042 7 3
Accrued employees' compensationand withholdings 117,314 68,431 7 5Uneamed service revenue and customer advances 60,096 64,674 4 5
Other accrued liabilities 66,223 54,071 4 4
Accrued income taxes 31,478 14,770 2 1
Total current liabilities 392,326 255,690 25 19
Deferred tax liabilities 13,907 17,554 1 1
Long-term debt 8,948 13,200 1 1
Total liabilities 415,181 286,444 26 22
Shareholders equityCommon stock, $0.125 par value, 250,000 shares authorized,
170,319 and 83,744 net shares issued and outstanding in 1999
and 1998, respectively 21,290 10,468 1 1
Additional paid in capital 234,198 310,052 15 24
Retained earnings 897,544 705,850 57 54
Total shareholders equity 1,153,032 1,026,370 74 78
Total liabilities and shareholders equity $1,568,213 $1,312,814 100 100
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Consolidated Statements of Income, Years EndedDecember 31 (in Thousands, Except Per-Share Amounts)
1999 1998 1997 1999 1998 1997
Net sales $1,790,912 $1,489,151 $1,266,274 100 100 100
Expenses:
Cost of sales 1,047,752 947,174 734,370 59 64 58
Engineering and development 228,570 195,158 162,500 13 13 13
Selling and administrative 256,392 212,885 194,103 14 14 15
1,532,714 1,355,217 1,090,973 86 91 86
Income from operations 258,198 133,934 175,301 14 9 14
Interest income 17,307 13,514 20,289 1 1 2
Interest expense -1,656 -1,566 -2,245 0 0 0
Income before income taxes 273,849 145,882 193,345 15 10 15
Provision for income taxes 82,155 43,765 65,737 5 3 5Net income $191,694 $102,117 $127,608 11 7 10
Net income per common share-basic $1.12 $0.61 $0.76 0 0 0
Net income per common share-diluted $1.07 $0.59 $0.74 0 0 0
Shares used in net income per common share-basic 170,519 167,645 166,868 10 11 13
Share used in net income per common share-diluted 178,550 171,930 172,638 10 12 14
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Consolidated Statements of Changes in ShareholdersEquity, Years Ended December 31, 1999, 1998, and 1997
(in Thousands)
Shares
Issued
Share
Reacquired
Common
Stock Par
Value
Additional
Paid-In
Capital
Retained
Earnings
Total
Balance, December 31, 199687,242 4,762 $10,310 $355,576 $476,125 $842,011
Is suance of s tock to employees
under benefit plans 3,373 422 43,643 44,065
Tax benefit from stock options27,982 27,982
Repurchase of stock2,550 -319 -104,216 -104,535
Net income127,608 127,608
Balance, December 31, 199790,615 7,312 10,413 322,985 603,733 937,131
Is suance of s tock to employees
under benefit plans 1,796 224 26,355 26,579
Tax benefit from stock options11,701 11,701
Repurchase of stock1,355 -169 -50,989 -51,158
Net income102,117 102,117
Balance, December 31, 199892,411 8,667 10,468 310,052 705,850 1,026,370
Is suance of s tock to employeesunder benefit plans 3,205 401 60,730 61,131
Repurchase of stock1,366 -171 -86,980 -87,151
Two-for-one stock split effected in the
form of a 100% stock dividend 95,616 10,033 10,698 -10,698 0
Is suance of s tock to employees
under benefit plans after two-for-one
stock split 1,973 246 20,947 21,193
Tax benefit from stock options60,462 60,462
Repurchase of stock after two-for-one
stock split 2,820 -352 -120,315 -120,667
Net income$191,694 191,694
Balance, December 31, 1999193,205 22,886 $21,290 $234,198 $897,544 $1,153,032
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Consolidated Statement of Cash Flows, Years
Ended December 31 (in Thousands)1999 1998 1997
Cash flows from operating activities:
Net income $191,694 $102,117 $127,608
Adjustments to reconcile net income to net cash Provided by
operating activities:
Depreciation 85,279 75,351 57,983Amortization 1,107 953 1,168
Charge for excess inventory 23,000
Deferred income tax provision (credit) -4,101 -14,607 1,341
Other non-cash items, net 4,354 -804 1,377
Changes in operating assets and liabilities:
Accounts receivable -76,856 81,630 -122,503
Inventories -2,346 -16,990 -131,014
Other assets -24,576 -1,184 -3,861
Accounts payable and accruals 115,750 18,530 41,261
Accrued income taxes 77,171 7,685 40,092
Net cash provided by operating activities 367,476 275,681 13,452
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Consolidated Statement of Cash Flows, Years
Ended December 31 (in Thousands)1999 1998 1997
Cash flows from investing activities:
Additions to property, plant, and equipment -119,780 -119,457 -106,436
Increase in equipment manufactured by the company -31,376 -44,983 -25,695
Purchases of held-to-maturity marketable securities -177,650 -20,000 -111,033
Maturities of held-to-maturity marketable securities 118,990 20,000 206,556
Purchases of available-for-sale marketable securities -204,824 -162,092 -192,174
Proceeds for sales and maturities of available-for-sale marketable
securities 169,824 224,951 151,426
Net cash used in investing activities -244,816 -101,581 -77,356
Cash flows from financing activites:
Payments of long-term debt -1,333 -1,615 -2,410
Issuance of common stock under s tock opt ion and stock
purchase plans 82,323 26,579 44,065
Acquisition of treasury stock -207,819 -51,158 -104,535
Net cash used by financing activities -126,829 -26,194 -62,880
Increase (decrease) in cash and cash equivalents -4,169 110,846 -126,784
Cash and cash equivalents at beginning of year $185,514 74,668 201,452
Cash and cash equivalents at end of year $181,345 $185,514 $745,668
Supplementary disclosure of cash flow information:
Cash paid during the year for:
Interest $1,615 $1,525 $2,257
Income taxes $22,747 $47,225 $31,971
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Revenue Recognition Policy
Product revenues: on shipment
Product with warranty: estimated cost is provided while
recognizing revenue Service revenues: as services are provided or over
period of related contract
Contracts: percentage-of-completion method based
upon efforts-expended method Changes to estimated costs: in period in which
determined
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Discussion Question
Cookbook Rules vs. General Principles?
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Revenue
Actual + expected cash inflows
Types.. Inflows of cash
Enhancement of assets of an entity
Settlement of liabilities
Inflows resulting in an increase in equity
Increased value of a product resulting from production
Resulting from.., Sale of goods
Delivering goods Producing goods
Rendering services
Use of enterprise resources yielding interest, royalties and dividends
Other activities that constitute the entitys ongoing major or central operations
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Items Not Included in Revenues
Appreciation in the value on disposal of fixed assets or non current assetsCapital gain
Unrealized holding gains on change in value of current assets
Natural increasein, Herds
Agricultural
Forest products
Realized and unrealized gains from change in exchange rates
Realized gains resulting from discharge of an obligation less than its carryingamount
Unrealized gains resulting from restatement of the carrying amount of anobligation
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Recognizing Revenues
Sale or cash preceding production and delivery: on productionand delivery
Product contracted for before production: on percentagecompletion
Services rendered or rights use assets extended continuouslyover time: as earned
Products readily realizable: on production
Products, services, other assets exchanged: as already earned
Doubtful of receipt = on the basis of cash receipt
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Revenue Recognition
CIF sales.., Sales price includes cost, insurance and freight
Paid by the seller Transfer of ownership takes place on receipt of bill of
lading / acknowledged lorry receipt
FOB sales.., Sales price does not include insurance or freight All insurance, freight etc would be borne by the buyer
Recognize revenues at the time of dispatch
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Revenue Recognition
Recognition
Services
Advertising (Media/production) commisions Completion of service
Insurance agnecy commissions On effective commencement of renewal dates of the related policiesInstallation fees When equipment is installed and accepted by the customers
Financial service commissions
Driven by..,
(a) Nature of service
(b) Incidence of costs related to service
When the payment of the service will be received
Others
Interest
Time proportion basis, taking into account..,
(a) Amount outstanding
(b) Rate applicable
Royalties Accrual basis, in accordance with terms of agreement
Dividends When owner's right to receive payment is established
Revenue Recognition
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Discussion Question
How should the revenue recognition criteria beimplemented for the following situations?
Customers pay prior to delivery Products / services are provided over multiple years
Credit-worthiness of the customer is questionable
Money-back guarantees are offered
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Discussion Question
Warehouse clubs charge an annual membershipfee that provides the subscribers with the
opportunity to buy merchandise at discountprices
How should the membership fee be recorded?
Have the warehouse merchandisers fulfilled theircommitments to members at sign-up, justifying immediaterecognition of revenues, or should revenues be deferredand recognized throughout the year?
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Discussion Question
Two year agreement made with clinet to build a yacht
Money agreed to pay on contract completion: $10
million Expected cost of yacht construction: $8 million
Gross profit as per.., Percentage completion method: $1 million per year
Completed contract method: $0 in first year and $2 in the second year
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Discussion Question
How are customer dissatisfaction and returnrisks reflected in financial reporting?
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Discussion Question
A company does systems integration for largecustomers
A project requires about.., Design and gain approval from customer: 6 months
Implement the project: 12 months
Customer gets no real value form the project until the
whole thing is complete When have the company earned revenue that the
project generates?
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Discussion Question
A company sells to retailers
Based on bill-and-hold, the company allows
customers to buy product well in advance of timethey need it
The company warehouse it for them and ship it
out later When does company earns the revenue?
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Discussion Question
You work for an architectural firm
The firm provides clients with plans for buildings, deals
with the local building authorities, and supervises theconstruction or reconstruction
All these services are included in the firms fee, which is
generally figured as a percentage of construction costs
How do you figure out when the firm has earned itsrevenue?
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Channel Stuffing
Manufacturers under stock market pressure tomake their numbers, are frequently tempted to
ship unordered software to distributors at theend of a quarter
Example: Macromedia
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Adelphia
Big cable TV operator
Wound up in bankruptcy few years ago
Bought large no. of cable boxes and installed in customers homes
Cost per box: $500 Additionally charged the cable-box supplier a marketing fee of $26 for its boxes and let
the supplier raise its price just enough to cover the fee
No change of cash to the extent of $26
The cable box supplier, Marketing campaign charges were amortized over severalyears
Adelphia billed million of $ additional revenues without doing anything
Inflated company earnings by.., 2000: $37 million
2001: $54 million
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