P 7-10 Consecutive five-year balance sheets and income statements of Laura Gibson Corporation are shown below and on the following page.

Required

a. Compute the following for the years ended December 31, 2007?2011:

1. Times interest earned

2. Fixed charge coverage

3. Debt ratio

4. Debt/equity ratio

5. Debt to tangible net worth

b. Comment on the debt position and the trends indicated in the long-term debt-paying ability.

LAURA GIBSON CORPORATION

Balance Sheets

December 31, 2007 through December 31, 2011

(Dollars in thousands) 2011 2010 2009 2008 2007

Assets

Current assets:

Cash $ 27,000 $ 26,000 $ 25,800 $ 25,500 $ 25,000

Accounts receivable, net 135,000 132,000 130,000 129,000 128,000

Inventories 128,000 130,000 134,000 132,000 126,000

Total current assets 290,000 288,000 289,800 286,500 279,000

Property, plant, and equipment, net 250,000 248,000 247,000 246,000 243,000

Intangibles 20,000 18,000 17,000 16,000 15,000

Total assets $560,000 $554,000 $553,800 $548,500 $537,000

(Dollars in thousands) 2011 2010 2009 2008 2007

Liabilities and shareholders? equity

Current liabilities:

Accounts payable $ 75,000 $ 76,000 $ 76,500 $ 77,000 $ 78,000

Income taxes 13,000 13,500 14,000 13,000 13,500

Total current liabilities 88,000 89,500 90,500 90,000 91,500

Long-term debt 170,000 168,000 165,000 164,000 262,000

Shareholders? equity 302,000 296,500 298,300 294,500 183,500

Total liabilities and

shareholders? equity $560,000 $554,000 $553,800 $548,500 $537,000

LAURA GIBSON CORPORATION

Statement of Earnings

For the Years Ended December 31, 2007?2011

(In thousands, except per share) 2011 2010 2009 2008 2007

Net sales $920,000 $950,000 $910,000 $850,000 $800,000

Cost of goods sold 640,000 648,000 624,000 580,000 552,000

Gross margin 280,000 302,000 286,000 270,000 248,000

Selling and administrative expense 156,000 157,000 154,000 150,000 147,000

Interest expense 17,000 16,000 15,000 14,500 23,000

Earnings from continuing

operations before income taxes $107,000 $129,000 $117,000 $105,500 $ 78,000

Income taxes 36,300 43,200 39,800 35,800 26,500

Earnings from continuing operations 70,700 85,800 77,200 69,700 51,500

Discontinued operating earnings (loss), net of taxes:

From operations (1,400) 1,300 1,400 1,450 1,600

On disposal (900) ? ? ? ?

Earnings (loss) from discontinued

operation (2,300) 1,300 1,400 1,450 1,600

Net earnings $ 68,400 $ 87,100 $ 78,600 $ 71,150 $ 53,100

Earnings (loss) per share:

Continuing operations $ 1.53 $ 1.69 $ 1.46 $ 1.37 $ 1.25

Discontinued operations (0.03) 0.01 0.01 0.01 0.01

Net earnings per share $ 1.50 $ 1.70 $ 1.47 $ 1.38 $ 1.26

***Note: Operating lease payments were as follows: 2011, $30,000; 2010, $27,000; 2009, $28,500; 2008, $30,000;

2007, $27,000 (dollars in thousands).

CASE 7-4 LOCKOUT

The Celtics Basketball Holdings, L.P. and Subsidiary included the following note in its 1998 annual report:

Note G?Commitments and Contingencies (in Part)

National Basketball Association (?NBA?) players, including those that play for the Boston Celtics, are covered by a collective bargaining agreement between the NBA and the NBA Players Association (the ?NBPA?) that was to be in effect through June 30, 2001 (the ?Collective Bargaining Agreement?). Under the terms of the Collective Bargaining Agreement, the NBA had the right to terminate the Collective Bargaining Agreement after the 1997?1998 season if it was determined that the aggregate salaries and benefits paid by all NBA teams for the 1997?1998 season exceeded 51.8% of projected Basketball Related Income, as defined in the Collective Bargaining Agreement (?BRI?). Effective June 30, 1998, the Board of Governors of the NBA voted to exercise that right and reopen the Collective Bargaining Agreement, as it had been determined that the aggregate salaries and benefits paid by the NBA teams for the 1997? 1998 season would exceed 51.8% of projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA players in support of its attempt to reach a new collective bargaining agreement. The NBA and the NBPA have been engaged in negotiations regarding a new collective bargaining agreement, but as of September 18, 1998, no agreement has been reached. In the event that the lockout extends into the 1998?1999 season, NBA teams, including the Boston

Celtics, will refund amounts paid by season ticket holders (plus interest) for any games that are canceled as a result of the lockout. In addition, as a result of the lockout, NBA teams have not made any payments due to players with respect to the 1998?1999 season. The NBPA has disputed the NBA?s position on this matter, and both the NBA and the NBPA have presented their cases to an independent arbitrator, who will make his ruling no later than the middle of October 1998. As of September 18, 1998, the arbitrator has not ruled on this matter. Although the ultimate outcome of this matter cannot be determined at this time, any loss of games as a result of the absence of a collective bargaining agreement or the continuation of the lockout will have a material adverse effect on the Partnership?s financial condition and its results of operations. Further, if NBA teams, including the Boston Celtics, are required to honor the player contracts for the 1998?99 season and beyond without agreeing to a new collective bargaining

agreement or without ending the lockout, which would result in the loss of games, the Partnership?s financial condition and results of operations will be materially and adversely affected. The Partnership has employment agreements with officers, coaches and players of the basketball team (Celtics Basketball). Certain of the contracts provide for guaranteed payments, which must be paid even if the employee is injured or terminated. Amounts required to be paid under such contracts in effect as of September 18, 1998, including option years and $8,100,000 included in accrued expenses at June 30, 1998, but excluding deferred compensation commitments disclosed in Note E?Deferred Compensation, are as follows:

Years ending June 30, 1999 $32,715,000

2000 33,828,000

2001 27,284,000

2002 20,860,000

2003 19,585,000

2004 and thereafter 10,800,000

Commitments for the year ended June 30, 1999, include payments due to players under contracts for the 1998?1999 season in the amount of $18,801,000, which are currently not being paid as a result of the lockout described above. Celtics Basketball maintains disability and life insurance policies on most of its key players. The level of insurance coverage maintained is based on management?s determination of the insurance proceeds which would be required to meet its guaranteed obligations in the event of permanent or total disability of its key players.

Required Discuss how to incorporate the contingency note into an analysis of Celtics Basketball Holdings, L.P. and Subsidiary.

Please label all work!!!

Also know that there is 2 questions and one has multiple parts. I have attached a work document as well as snap shots of the problems.

\fP 7-10 Consecutive five-year balance sheets and income statements of Laura Gibson Corporation are shown below and on the following page. Required a. Compute the following for the years ended December 31, 2007-2011: 1. Times interest earned 2. Fixed charge coverage 3. Debt ratio 4. Debt/equity ratio 5. Debt to tangible net worth b. Comment on the debt position and the trends indicated in the long-term debt-paying ability. LAURA GIBSON CORPORATION Balance Sheets December 31, 2007 through December 31, 2011 (Dollars in thousands) 2011 2010 2009 2008 2007 Cash $ 27,000 $ 26,000 $ 25,800 $ 25,500 $ 25,000 Accounts receivable, net 135,000 132,000 130,000 129,000 128,000 Inventories 128,000 130,000 134,000 132,000 126,000 Total current assets 290,000 288,000 289,800 286,500 279,000 Property, plant, and equipment, net 250,000 248,000 247,000 246,000 243,000 Intangibles 20,000 18,000 17,000 16,000 15,000 Total assets $560,000 $554,000 $553,800 $548,500 $537,000 Assets Current assets: (Dollars in thousands) Liabilities and shareholders' equity Current liabilities: Accounts payable Income taxes Total current liabilities Long-term debt Shareholders' equity Total liabilities and shareholders' equity 2011 2010 2009 2008 2007 $ 75,000 13,000 88,000 170,000 302,000 $ 76,000 13,500 89,500 168,000 296,500 $ 76,500 14,000 90,500 165,000 298,300 $ 77,000 13,000 90,000 164,000 294,500 $ 78,000 13,500 91,500 262,000 183,500 $560,000 $554,000 $553,800 $548,500 $537,000 LAURA GIBSON CORPORATION Statement of Earnings For the Years Ended December 31, 2007-2011 2011 2010 2009 2008 $920,000 $950,000 $910,000 $850,000 640,000 648,000 624,000 580,000 280,000 302,000 286,000 270,000 156,000 157,000 154,000 150,000 17,000 16,000 15,000 14,500 2007 $800,000 552,000 248,000 147,000 23,000 (In thousands, except per share) Net sales Cost of goods sold Gross margin Selling and administrative expense Interest expense Earnings from continuing operations before income taxes $107,000 Income taxes 36,300 Earnings from continuing operations 70,700 Discontinued operating earnings (loss), net of taxes: From operations (1,400) On disposal (900) Earnings (loss) from discontinued operation (2,300) Net earnings $ 68,400 Earnings (loss) per share: Continuing operations $ 1.53 Discontinued operations (0.03) Net earnings per share $ 1.50 $129,000 43,200 85,800 $117,000 39,800 77,200 $105,500 35,800 69,700 $ 78,000 26,500 51,500 1,300 1,400 1,450 1,600 1,300 $ 87,100 1,400 $ 78,600 1,450 $ 71,150 1,600 $ 53,100 $ 1.69 0.01 $ 1.70 $ 1.46 0.01 $ 1.47 $ 1.37 0.01 $ 1.38 $ 1.25 0.01 $ 1.26 ***Note: Operating lease payments were as follows: 2011, $30,000; 2010, $27,000; 2009, $28,500; 2008, $30,000; 2007, $27,000 (dollars in thousands). CASE 7-4 LOCKOUT The Celtics Basketball Holdings, L.P. and Subsidiary included the following note in its 1998 annual report: Note GCommitments and Contingencies (in Part) National Basketball Association (\"NBA\") players, including those that play for the Boston Celtics, are covered by a collective bargaining agreement between the NBA and the NBA Players Association (the \"NBPA\") that was to be in effect through June 30, 2001 (the \"Collective Bargaining Agreement\"). Under the terms of the Collective Bargaining Agreement, the NBA had the right to terminate the Collective Bargaining Agreement after the 1997-1998 season if it was determined that the aggregate salaries and benefits paid by all NBA teams for the 1997-1998 season exceeded 51.8% of projected Basketball Related Income, as defined in the Collective Bargaining Agreement (\"BRI\"). Effective June 30, 1998, the Board of Governors of the NBA voted to exercise that right and reopen the Collective Bargaining Agreement, as it had been determined that the aggregate salaries and benefits paid by the NBA teams for the 1997- 1998 season would exceed 51.8% of projected BRI. Effective July 1, 1998, the NBA commenced a lockout of NBA players in support of its attempt to reach a new collective bargaining agreement. The NBA and the NBPA have been engaged in negotiations regarding a new collective bargaining agreement, but as of September 18, 1998, no agreement has been reached. In the event that the lockout extends into the 1998-1999 season, NBA teams, including the Boston Celtics, will refund amounts paid by season ticket holders (plus interest) for any games that are canceled as a result of the lockout. In addition, as a result of the lockout, NBA teams have not made any payments due to players with respect to the 1998-1999 season. The NBPA has disputed the NBA's position on this matter, and both the NBA and the NBPA have presented their cases to an independent arbitrator, who will make his ruling no later than the middle of October 1998. As of September 18, 1998, the arbitrator has not ruled on this matter. Although the ultimate outcome of this matter cannot be determined at this time, any loss of games as a result of the absence of a collective bargaining agreement or the continuation of the lockout will have a material adverse effect on the Partnership's financial condition and its results of operations. Further, if NBA teams, including the Boston Celtics, are required to honor the player contracts for the 1998-99 season and beyond without agreeing to a new collective bargaining agreement or without ending the lockout, which would result in the loss of games, the Partnership's financial condition and results of operations will be materially and adversely affected. The Partnership has employment agreements with officers, coaches and players of the basketball team (Celtics Basketball). Certain of the contracts provide for guaranteed payments, which must be paid even if the employee is injured or terminated. Amounts required to be paid under such contracts in effect as of September 18, 1998, including option years and $8,100,000 included in accrued expenses at June 30, 1998, but excluding deferred compensation commitments disclosed in Note EDeferred Compensation, are as follows: Years ending June 30, 1999 $32,715,000 2000 33,828,000 2001 27,284,000 2002 20,860,000 2003 19,585,000 2004 and thereafter 10,800,000 Commitments for the year ended June 30, 1999, include payments due to players under contracts for the 1998-1999 season in the amount of $18,801,000, which are currently not being paid as a result of the lockout described above. Celtics Basketball maintains disability and life insurance policies on most of its key players. The level of insurance coverage maintained is based on management's determination of the insurance proceeds which would be required to meet its guaranteed obligations in the event of permanent or total disability of its key players. Required Discuss how to incorporate the contingency note into an analysis of Celtics Basketball Holdings, L.P. and Subsidiary.