Aurora.

xls

This spreadsheet supports STUDENT analysis of the

case, "Aurora Textile Company" (UVA -F-
1536)

Copyright (C) 2007, by the University of Virginia Darden School Foundation.

 Consolidated Statement of Operations for the Fiscal Years
Ending December, 31 1999-2002
($ thousands)

1999 2000 2001 2002

Pounds shipped (000's) 187,673 190,473 151,893 144,116
Average selling price / lb 1.3103 1.2064 1.2045 1.0235
Conversion Cost / lb 0.4447 0.4421 0.4465 0.4296
Average Raw Material Cost / lb 0.7077 0.6429 0.6487 0.4509

Net Sales $245,908 $229,787 $182,955 $147,503

Raw Material Cost 132,812 122,461 98,536 64,982
Cost of Conversion 83,454 84,212 67,822 61,912
Gross Margin 29,641 23,114 16,597 20,609
SG&A Expenses 14,603 14,218 11,635 10,305
Depreciation & Amortization 15,241 13,005 11,196 9,859
Operating Profit (203) (4,109) (6,234) 445
Interest Expense 6,777 6,773 5,130 3,440
Other Income (Expense) 1,143 (1,232) (409)
Asset Impairments* 4,758 7,564
Earnings Before Income Tax Provision (6,980) (9,739) (17,354) (10,968)
Income Tax Provision (Benefit) @ 36% tax rate (2,513) (3,506) (6,247) (3,949)
Net Earnings ($4,467) ($6,233) ($11,106) ($7,020)

* Costs associated with the shut down of plants

ROS (1.8%) (2.7%) (6.1%) (4.8%)

Decrease on sales (6.6%) (20.4%) (19.4%)
Gross margin 12.1% 10.1% 9.1% 14.0%
EBIT (0.1%) (1.7%) (2.5%) 0.2%
ROA (2.5%) (3.8%) (7.8%) (5.2%)
 1999 2000 2001 2002
1.5% (20.3%) (5.1%)
(7.9%) (0.2%) (15.0%)
(0.6%) 1.0% (3.8%)
(9.1%) 0.9% (30.5%)

54.0% 53.3% 53.9% 44.1%

33.9% 36.6% 37.1% 42.0%
12.1% 10.1% 9.1% 14.0%
5.9% 6.2% 6.4% 7.0%
6.2% 5.7% 6.1% 6.7%
(0.1%) (1.8%) (3.4%) 0.3%
2.8% 2.9% 2.8% 2.3%
0.0% 0.5% (0.7%) (0.3%)

(2.8%) (4.2%) (9.5%) (7.4%)

(1.8%) (2.7%) (6.1%) (4.8%)

Increase 10% Average selling price / lb 1.0235 1.1371085 1.14848 1.159964
Decreas 0.03 Conversion Cost / lb 0.4077 0.411753 0.415871 0.420029
Increase Return /lb 0.0840
Same Average Raw Material Cost / lb 0.4509 0.455409 0.459963 0.464563
WACC 10%
Decrease 5% Volume (pounds) 26,000 25,194 25,698 26,212
SG&A 7% 7% 7% 7%
In 000's Y0 Y1 Y2 Y3
Sales 28,648 29,513 30,405
COGS 11,474 11,820 12,177
Cinversion cost 10,374 10,687 11,010
SG&A 50 2,005 2,066 2,128
D&A 825 825 825
EBT (50) 3,971 4,115 4,265
Tax (36%) (18) 1,429 1,482 1,535
NI (32) 2,541 2,634 2,729

Profit/loss selling machine (1,500)

Tax rebate -540
CF from machine 1040

Cash flow
NI (32) 2,541 2,634 2,729
+DA 0 825 825 825
+Sale of machine 1,040 0 0 0
+Change in inventories
-Capex 8,250
Zinser CF (7,242) 3,366 3,459 3,554
No zinzer 0 1,396 1,433 1,471
Delta CF (7,242) 1,970 2,026 2,083
NPV Delta 6,811

NPV zinser 15,752

NPV no zinser 8,940
Dff 6,811 So we should invest in the machine, but the
This is a trouble industry, and a company

Marjet research 15,000

Eng test 5,000
Sunk cost 20,000
 1.171564 1.18328 1.195112 1.20706 1.21913 1.23133 1.2436388
0.42423 0.428472 0.432757 0.43708 0.44145 0.44587 0.4503282 *Returns are included here

0.469208 0.4739 0.478639 0.48343 0.48826 0.49314 0.4980741

26,736 27,271 27,816 28,373 28,940 29,519 30,109

7% 7% 7% 7% 7% 7% 7%
Y4 Y5 Y6 Y7 Y8 Y9 Y10
31,323 32,269 33,244 34,247 35,282 36,347 37,445
12,545 12,924 13,314 13,716 14,130 14,557 14,997
11,342 11,685 12,038 12,401 12,776 13,162 13,559 *Includes return
2,193 2,259 2,327 2,397 2,470 2,544 2,621
825 825 825 825 825 825 825
4,418 4,577 4,740 4,908 5,081 5,259 5,443
1,591 1,648 1,706 1,767 1,829 1,893 1,960
2,828 2,929 3,034 3,141 3,252 3,366 3,484

100
36
64

2,828 2,929 3,034 3,141 3,252 3,366 3,484

825 825 825 825 825 825 825
0 0 0 0 0 0 64

3,653 3,754 3,859 3,966 4,077 4,191 4,373

1,510 1,370 1,411 1,454 1,498 1,543 1,565
2,143 2,384 2,447 2,512 2,579 2,648 2,808

uld invest in the machine, but the question is, wiill we be the long enought to reap the benefits?
ouble industry, and a company in torubles, they dont last long enought, so all their decisionas are shor term
Increase 10% Average selling price / lb 1.0235 1.033735 1.044072 1.054513
Decreas 0.03 Conversion Cost / lb 0.4300 0.4343 0.438643 0.443029
Increase Return /lb 0.0768 1.5% of sales
Same Average Raw Material Cost / lb 0.4509 0.455409 0.459963 0.464563
WACC 10%
Decrease 5% Pounds shipped 26,000 26,520 27,050 27,591

In 000's Y0 Y1 Y2 Y3
Sales 27,415 28,243 29,096
COGS 12,077 12,442 12,818
Cinversion cost 11,518 11,865 12,224
SG&A 1,919 1,977 2,037
D&A 500 500 500
EBT 0 1,401 1,458 1,517
Tax (36%) 0 504 525 546
NI 0 896 933 971

Profit/loss selling machine

Tax shield
CF from machine

Cash flow
NI 0 896 933 971
+DA 0 500 500 500
+Sale of machine 0 0 0 0
+Change in inventories
-Capex
0 1,396 1,433 1,471
NPV $8,940.50

Marjet research 15,000

Eng test 5,000
Sunk cost 20,000
1.065058 1.075709 1.086466 1.09733 1.1083 1.11939 1.1305807
0.44746 0.451934 0.456454 0.46102 0.46563 0.47028 0.4749875

0.469208 0.4739 0.478639 0.48343 0.48826 0.49314 0.4980741

28,143 28,706 29,280 29,866 30,463 31,072 31,200

Y4 Y5 Y6 Y7 Y8 Y9 Y10
29,974 30,879 31,812 32,773 33,762 34,782 35,274
13,205 13,604 14,015 14,438 14,874 15,323 15,540
12,593 12,973 13,365 13,769 14,185 14,613 14,820
2,098 2,162 2,227 2,294 2,363 2,435 2,469
500
1,578 2,141 2,205 2,272 2,341 2,411 2,445
568 771 794 818 843 868 880
1,010 1,370 1,411 1,454 1,498 1,543 1,565

1,010 1,370 1,411 1,454 1,498 1,543 1,565

500 0 0 0 0 0 0
0 0 0 0 0 0 0

1,510 1,370 1,411 1,454 1,498 1,543 1,565

 Consolidated Balance Sheets for the Fiscal Years
Ending December, 31 1999-2002
($ thousands)

1999 2000 2001 2002

Assets
Cash and cash equivalents $1,144 $5,508 $2,192 $1,973
Accounts receivable, net 17,322 11,663 20,390 26,068
Inventories 34,778 33,155 31,313 33,278
Other current assets 2,774 1,922 712 2,378
Total Current Assets $56,018 $52,247 $54,608 $63,697

Property and Equipment

Land 2,654 2,594 2,516 2,505
Buildings 32,729 31,859 30,308 30,427
Machinery and equipment 230,759 220,615 197,889 190,410
Gross PP&E 266,142 255,068 230,713 223,342
Less accumulated depreciation (147,891) (147,104) (146,302) (154,658)
Net PP&E 118,250 107,964 84,411 68,684
Goodwill 1,180 1,180 1,180 1,180
Other non-current assets 3,516 3,499 2,824 2,430
Total Assets $178,965 $164,890 $143,023 $135,991

Liabilities
Accounts payable 12,236 7,693 9,667 10,835
Accrued compensation and benefits 4,148 3,712 4,176 4,730
Accrued interest 1,830 1,090 961 929
Other accrued expenses 4,083 3,914 3,881 3,657
Current portion of long-term debt 1,009 1,730 0 0
Total Current Liabilities $23,306 $18,139 $18,685 $20,151
Long-term debt 66,991 66,991 58,000 58,000
Other long-term liabilities 16,566 14,081 11,776 10,297
Total Liabilities $106,863 $99,211 $88,461 $88,448

Shareholder's equity
Common stock, par $0.01 50 50 50 50
Capital surplus 15,868 15,678 15,668 15,668
Retained earnings 56,184 49,951 38,845 31,825
Total Shareholders' Equity $72,102 $65,679 $54,563 $47,543
Total Liabilities and Shareholders' Equity $178,965 $164,890 $143,023 $135,991
Days

25 18 40 64
96 99 116 187
 Cost of Customer Returns

Existing
machine Calculation
Price of Yarn Sold $5.0
Reimbursement cost $25.0
Liability multiplier 5.0 (25/5)
Returns as % of Volume 1.50%
Returns as % of Revenue 7.50% (5 x 1.5%)
Returns as cost/lb $0.077 (7.5% x $1.0235/lb)

Zinser Calculation
Price of Yarn Sold $10.0
Reimbursement cost $75.0
Liability multiplier 7.5 (75/10)
Returns as % of Volume 1.00%
Returns as % of Revenue 7.50% (7.5 x 1.0%)
Returns as cost/lb $0.084 (7.5% x $1.0235/lb x 110%)
 Plant Production Capability

Plant Technology Product Mix Count Range Capacity

Hunter Ring 100% Cotton 5/1 to 22/1 600,000
Rome Rotor 100% Cotton 5/1 to 22/1 1,200,000
Barton Rotor Heather and Poly/Cotton Blends 8/1 to 30/1 800,000
Butler Rotor 100% Cotton 5/1 to 30/1 1,000,000
 Spot Price (Dollars)
Monthly Spot Price $ (contract size 50,000lbs)
2 / 97 74.05
3 / 97 73.27
5 / 97 70.01
6 / 97 73.58 90
7 / 97 71.81
9 / 97 72.05 80
10 / 97 68.75
12 / 97 67.41 70
2 / 98 63.90
3 / 98 65.64
60
4 / 98 63.67
50
5 / 98 63.00
6 / 98 81.60
40
7 / 98 81.93
9 / 98 71.52
30
10 / 98 72.32
11 / 98 61.00
20
12 / 98 60.74
2 / 99 63.39
10
3 / 99 64.79
4 / 99 59.42 0
5 / 99 58.72
12/97

10/98

10/99
10/97

12/98

12/99

10/00
12/00
2/97
4/97
6/97
8/97

2/98
4/98
6/98
8/98

2/99
4/99
6/99
8/99

2/00
4/00
6/00
8/00
6 / 99 49.90
7 / 99 48.20
9 / 99 51.18 Month
10 / 99 49.44
11 / 99 49.80
12 / 99 48.53
2 / 00 57.19
3 / 00 59.31
4 / 00 56.30
5 / 00 56.64
6 / 00 51.60
7 / 00 50.45
9 / 00 62.45
10 / 00 63.60
11 / 00 64.72
12 / 00 64.32
1 / 01 59.30
2 / 01 52.38
3 / 01 53.54
4 / 01 43.83
5 / 01 44.33
6 / 01 42.65
7 / 01 40.61
9 / 01 34.00
10 / 01 32.19
11 / 01 36.23
12 / 01 34.94
2 / 02 34.65
3 / 02 34.53
4 / 02 33.80
5 / 02 32.04
6 / 02 43.77
7 / 02 45.23
8 / 02 45.10
9 / 02 42.30
10 / 02 41.79
11 / 02 47.50
12 / 02 45.98
 4/99
6/99
8/99
10/99
12/99

Month
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12/00
2/01
4/01
6/01
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12/01
2/02
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12/02
Interest Rate Yields: January 2003

U.S. Government (% yield)

Treasury bill (1-year) 1.24%

Treasury note (10-year) 3.98%
Treasury bond (30-year) 4.83%

Industrials (% yield)

Prime rate1 4.25%

AAA (10-year) 4.60%
AA (10-year) 4.66%
A (10-year) 4.87%
BB (10-year) 5.60%
BBB (10-year) 6.90%

The prime rate was the short-term interest rate charged by large U.S. banks
1

for corporate clients with strong credit ratings.