Q2. Distressed Investing You are a new hire at the prestiges investment firm of Fredericks and Fredericks, Inc. The firm, known as, and referred to as "2 Freds\12. Swooning data for Question 2, Distressed Investing Distressed Investing Imome Statement 2012' 2013i 201* Total Revenue 2,457.5 2,289.1 2,356.8 Cost of Goods Sold 1, 267.8 1,446.9 1,333.8 Gross Revenue 639.8 542.2 923.0 Operating Expense Salaries and Commissions 123.?Ir 131.9 134.6 Overhead and Other 283 84.3 82 .0 Admin and Marketing 123.9 125.0 100.0 New Product Development 39.2 48.5 52.0 Depreciation 224.1 167.8 160.4 Total Operating Expenses 539.2 602.5 609.0 Earnings Before Interest and Taxes 50.6 234.? 364.0 Interest Expensernoomel 180.8 185.4 190.3 Ea rnfngs aefore Taxes l130.2} 49 .3 173.7 Federai and Local Taxes 17.3 50.8 Net Income [130.2} 32.0 112.9 Dividends an Preferred Shares 15.0 15.0 15.0 Ea rnings Mailable for Common [145.21 12.0 91.9 Common Shares Outstanding 535.6 542.6 545.0 Earnings Per Share {0.22} 0.03 0.18 Total Borrowings 201? 2018i 2019i Debt Outstanding El Par Value 6.5% Mortgage on Research CenterI 425.0 425.0 425.0 Senior Debentures. 8% due 2024 150.0 1.50.0 150.0 Subordinates, M, due 2028 500.0 5010 500.0 Convertibles, 3 3,03% due 2023 300.0 300.0 300.0 Junior 50 bordinates, 12% du e 2023 800.0 000.0 600.0 SubeTotal 2.1250 2.1250 1,925.0 Series A 1096 Redeemable Preferred 150.0 150.0 150.0 Total Debt Capitalization 2,325.0 2,325.0 2,125.0 Selected Iahnceiheet Items Cash 3 nd Equivalents 1 Inventories Accounts Receivable 1 Accounts Payable 0th er ST Liabilities Debt Due in 1 Year or Less Sale Of Assets Investments 3 Goodwill ' Capex Net Fixed Assets Equity Ca pitaliratlon 130.5 523.4 393.2 362.5 101.? 125.0 253.6 57.4 2.8.91.4 {1,092.1} 2018i 29 5.1 525.6 321.5 423. 1 128.3 325.2 131.3 245.9 12.1 2.4705 0,015.7:- 2019i 325.3 439.2 296.9 391.2 118.? 200.0 13-13 238.5 105.? 2,415.3 {977.751. 1. Comprised oi cash balancesaml comercial debt with maturities Iess than one we r 2. Net or returns and write-offs ofReceIu-ahles oomldered undnliectahle 3. Conskts ofuarious patents arid licenses of Intellectual property. Accounts are audited each warwassisn current value. Discreoencies are adjusted throushthe PL 4. Relating to aoquisition 3me Com. in 2011Ac0wntsare being amortized over a 50er period. Debt as ofosinuzms Best Case Worse Case Market Price As Reported Scenario Scenario a5 of061012'2018 1 Issue 5 5 2': S % 5 '8 5.5% Mortgage on Research Center 425.0 425.0 100.0% 318.8 25.0% 85.00 20.0% 2 Senior Debentures, 3% due 2024 150.0 150.0 100.0% 97.5 65.0% 40. 50 31.0% Subordinates, 2%, due 2028 500.0 325.0 75.0% 285.0 52.0% 120.00 24.0% Convertibles, 3 3,18% due 2023 300.0 195.0 55.0% 156.0 52.0% 51.00 110% Junior Su bordinates, 12% due 2028 800.0 400.0 50.0% 328.0 41.0% 88.00 11.0% EU b-Total 2, 125.0 1, 545 .0 2 1.0% 1, 135.3 54. 5% 350.5 18.0% Series A 10% Redeemable Preferred 150.0 6-0.0 40.0% 15.0 10.0% 3.00 2.0% Totals 2,325.0 1,605.0 69.0% 1,200.3 51. 5% 393.5 16.9% 1. The complex heading temper-\"tincture of Henauer lnwery is expected to extend the time the company needs in re-stmeture. It Is expected to talce ap proximately 3 years for me Ha newer Lowery bankruptcvno he resolved and the compawm re-emerge as a a public company. 2. American Industrial Bank has sold the mortgage on Hanover luwerfs Research Centerfor approx. 585 million. The price Includes certain Incentives which could raise the price paid to $120 million
