Applied Case Assignment #7 (Chapters 10 and 11)
Answer the following questions based on the provided excerpts from a selection of greater Washington area public companies' recent 10-Ks.
Part I: Booz Allen Hamilton Holding Corporation (NYSE: BAH; McLean, VA)
Founded in 1914, Booz Allen Hamilton describes itself as "a leading provider of management consulting, technology, and engineering services to the U.S. government in the defense, intelligence, and civil markets." Booz Allen Hamilton Holding serves as the top-level holding company for the consolidated Booz Allen Hamilton U.S. government consulting business. Answer the following questions based on the Company's Consolidated Balance Sheets for March 31, 2015 and 2014 (hereafter, FY15 and FY14), which are excerpted and presented on the next page:
1. During FY15, the decreases in Class B, Class C, and Class E shares are because those shares were converted to Class A shares. Assume that the remaining increase in Class A share is due to new share issuances for cash. What journal entry would the Company have recorded for the issuance of those new shares?
2. There were no sales of Treasury Stock during FY15. What was the average share price at which the Company repurchased additional Treasury Stock shares during FY15?
3. There were no usual transactions affecting the Company's Retained Earnings during FY15. If Net Income for FY2015 was $232,569 thousand, what was the value of dividends declared during the year?
Part II: Under Armour, Inc. (NYSE: UA; Baltimore, MD)
4. Incorporated in Maryland in 1996, Under Armour, Inc. describes itself as "developing, marketing and distributing branded performance apparel, footwear and accessories for men, women and youth."
On June 15, 2015, Under Armour announced the creation of a new class of non-voting common stock, the Class C common stock. The press release stated that:
Under Armour expects to issue Class C stock through a stock dividend to all existing holders of Under Armour's Class A and Class B common stock, which will have the same effect as a two-for-one stock split. Each holder of a share of Class A or Class B stock will receive one share of the new Class C stock.
Do you agree or disagree that the effect of the Class C stock dividend will be the same as a two-for- one stock split? As an example, assume the transaction would have occurred on January 1, 2015. On the basis of the information on Under Armour's Consolidated Balance Sheet for December 31, 2014 (excerpted and presented on the next page of this assignment), what journal entry would be required to record (a) a two-for-one stock split, and (b) the Class C stock dividend?
(a) Two-for-one stock split:
(b) Class C stock dividend:
Do you agree or disagree that the effect of the Class C stock dividend will be the same as a two-for- one stock split?
Part III: Lockheed Martin Corporation (NYSE: LMT; Bethesda, MD)
Lockheed Martin Corporation describes itself as "a global security and aerospace company principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services," with its principal customers being agencies of the U.S. Government. On the next two pages are Lockheed Martin's Consolidated Statements of Earnings, Comprehensive Income, and Balance Sheets, along with the Long-Term Debt footnote, excerpted from the its 2014 10-K.
5. What is the principal or face value of Lockheed Martin's long-term debt?
6. (a) To what covenant(s) is Lockheed Martin subject under the terms of their revolving credit facility?
(b) How is the covenant ratio described differently from what we might compute as part of the ROE decomposition?
7. The footnote states that "In April 2013, [Lockheed Martin] repaid $150 million of long-term notes with a fixed interest rate of 7.38% due to their scheduled maturities." At the time of repayment, did the net carrying value of these long-term notes reflect at a premium, a discount, or par value? Explain.
8. Has Lockheed Martin's solvency improved or deteriorated in 2014 relative to 2013? Explain your response, and identify the primary cause for that change.
In August 2014, we entered into a new $1.5 billion revolving credit facility with a syndicate of banks and concurrently terminated our existing $1.5 billion revolving credit facility which was scheduled to expire in August 2016. The new credit facility expires August 2019 and we may request and the banks may grant, at their discretion, an increase to the new credit facility ofup to an additional $500 million. The credit facility also includes a sublimit ofup to $300 million available for the issuance of letters of credit. There were no borrowings outstanding under the new facility through December 31, 2014. Borrowings under the new credit facility would be unsecured and bear interest at rates based, at our option, on a Eurodollar Rate or a Base Rate, as defined in the new credit facility. Each bank's obligation to make loans under the credit facility is subject to, among other things, our compliance with various representations, warranties and covenants, including covenants limiting our ability and certain of our subsidiaries' ability to encumber assets and a covenant not to exceed a maximum leverage ratio, as defined in the credit facility. The leverage ratio covenant excludes the adjustments recognized in stockholders' equity related to postretircmcnt benefit plans. As of December 31, 2014, we were in compliance with all covenants contained in the credit facility, as well as in our debt agreements.
We have agreements in place with financial institutions to provide for the issuance of commercial paper. There were no commercial paper borrowings outstanding during 2014 or2013. If we were to issue commercial paper, the borrowings would be supported by the credit facility.
In April 2013, we repaid $150 million of long-term notes with a fixed interest rate of 7.38% due to their scheduled maturities. During the next five years, we have scheduled long-term debt maturities of $952 million due in 2016 and $900 million due in 2019. Interest payments were $326 million in 2014, $340 million in 2013 and $378 million in 2012. All of our existing unsecured and unsubordinated indebtedness rank equally in right of payment.
Attachment:- Assignment.pdf