Long-Term Liabilities ( 9) - Assignment Example

Long-Term Liabilities (Assignment 9) Identify the changes in the long-term liability accounts that occurredduring the most recent accounting period. Blank spaces have been provided for you to write in additional items that appear in your firms long-term liability section.Long-term LiabilitiesAmount on Most Recent Balance Sheet Amount at End of Prior YearNet Change in DollarsNet Change in Percent Long-term debt1,395,093 1,304,225 90,8686.97%Capitalized lease obligations _ _ _ _Deferred tax liabilities194,469 188,9575,5122.

92%Pension liability251,551248,615 2,9361.18%Post-retirement medical and other benefits30,918 31,774 -856-2.69%Long-term income taxes payable13,38226,470-13,088-49.44%Other non-current liabilities89,863 97,039 7,1767.39%Total long-term liabilities1,975,2761,897,08078,1964.12%2. Based on the information in No. 1 and that found in the notes to the financial statements, briefly summarize the significant changes, if any, in the long-term liability accounts during the most recent year. There was one major significant change in the long-term liabilities of the company and involved long-term income taxes payable.

Long-term income taxes payable recorded a negative change of 49.44% from the previous. This clearly indicates that the company reduced its long-term income tax payable by 49.44 percent. This is a good sign of the efforts of the company tom reduce long-term liabilities. According to the notes on the financial statements, the management of the company recorded that the company recorded a significant reduction in income tax payable as a result of changes in tax policies. The U.S. federal and state tax audits resolved to lower the rate of income tax rate from 32.

5 percent in April 2, 2011 to 12.7 percent in March 31, 2012. 3. What are the approximate interest rates incurred on your firms long-term liabilities? Complete the schedule below. Some items, e.g., deferred tax liabilities, do not incur interest. Some (or most) of this information will be found in the notes to the financial statements.Long-term Liability AccountsApproximate Rate of lnterestIncome taxes payable12.7%Post-retirement medical and other benefits4%Long-term debt 5.6%4. What amount of cash is the firm obligated to pay out in each of the next five years for repayment of long-term debt, capitalized lease obligations, operating leases, and for other commitments?

YearRepayment of Long-term DebtCapital Lease ObligationsOperating LeasesOther CommitmentsYear 1294,643.6 _19,407.817,972.6Year 2294,643.6 _19,407.817,972.6Year 3294,643.6 _19,407.817,972.6Year 4294,643.6 _19,407.817,972.6Year 5294,643.6 _19,407.817,972.6Totals 1,473,218.2 _97,03989,8635. Go to the statement of cash flows. Observe the amount of "net cash flow from operations" generated in each of the last three years. To what extent does it appear that the company will be able to pay off the above scheduled obligations each year with cash generated from operations?

Might the company need to raise the required cash in some other way? Discuss. The company has been recording consistent increase in the amount of net cash flow from operations. In the last financial year ended in December 2011, the Pentair recorded a net cash flow from operations of 320,226,000. This is remarkable given the fact that the company has been recording consistent performance in the last three years. Taking a look at both the present and past performances of the company, the company is only able to pay long term debts.

The other obligations have the effect of straining the company’s financial resources and this may require the company to source for additional capital. The company may pay the obligations by raising additional capital from the stock market through the sale of shares. Pentair may also source for short term loans to clear the smaller obligations in order to remain with the obligation of paying for long term debts. 6. Find and read the footnote about your firms pension plan(s). Then answer the following questions.a. Which type(s) of pension plan does your firm have?

Check all that apply. The firm may have either type of plan, both, or none. None. b. Fill in the blanks below to determine if your company has sufficient assets to satisfy its pension obligations.1) Fair value of pension plan assets 378,990Less: accumulated benefit obligation (ABO) - (282,469)Excess (deficiency) of plan assets over ABO = 96,5212) Fair value of pension plan assets 371,690Less: projected benefit obligation (PBO) - (276,917)Excess (deficiency) of plan assets over PBO = 94,773c.

If the company were liquidated today, would there be enough pension plan assets for the firm to meet its obligations to its employees? Explain. Yes. This is because the company has more pension plan assets compared to the accumulated benefit obligation. This means that the sale of pension assets will be able to generate income that will cover the company’s accumulated benefit obligations. d. If you acquired the company and its employees today, are there enough pension plan assets to cover benefits earned-to-date when the employees retire at their normal retirement dates? Explain. Yes.

This is a similar situation to the one named above because the company has the capacity to pay the entire obligation related to employee compensation even after their retirement without compromising their age of retirement. The analysis of the company’s pension plan indicates that the company has an excess of 94,773,000 which after covering the pension scheme obligations. N/B: question number seven has been skipped because the company’s bonds are not rated be Mergent. 8. Did your firm disclose any contingencies, sometimes called contingent liabilities, in the notes to the financial statements?

Discuss the specific nature of these contingencies and how (or whether) they are expected to affect the firms financial health. Yes. The company is facing legal proceedings with regard to its business conduct. To be more specific, the company has been sued for environment pollution and the management of the company estimates its liability to be valued at around 1.3 million dollars and the company has already established a current reserve of 1.5 million dollars to handle to the legal issue. This will affect the liquidity of the firm because the creation of a current reserve involves huge amounts of money. 9. Calculate each of the following ratios for the most recent year using the computational formulas just explained.a. Debt to total assets= total liabilities/total assets b.

Times interest earned = {Net income + [Interest expense + (1-tax rate)]}/Interest expensePentair, Inc.COMPARATIVE FIRMS Lennox Lincoln Snap-on Valmont Xylema. Debt to total assets5.44x6.1x4.3x4.1x3.9x5.1xb. Times interest earned 0.9x2.1x1.9x1.6x0.6x2.1x11. How do your firms ratios compare to those of your comparative firms? Are they high, low, about the same? Is there anything specific about your firm, its industry, or your comparative firms or industries that might tend to explain the differences between your companys ratios and those of the other firms? Discuss. Pentair, Inc.

has recorded relatively similar ratios to comparative firms because most of the firms have their ratios within the same range. However, there exists some difference in the financial ratios of the firms and this can be explained by the fact that the firms have operate in a similar competitive market. This requires that the firms explore their competitive advantages which may explain the differences in ratios (Nikolai, 2009). ReferenceNikolai, L. (2009). Intermediate Accounting. Chicago: Cengage Learning.