Question 2

Review the financial statements for Tye Mill Technology, Inc. Your mission is to reveal the nature of Tye Mills cash flows for the year ended December 31, 2010. I suggest you approach this in a step by step process:

Beginning with the amounts in the Change in Account column, with the Balance Sheets, develop a Sources and Uses Statement* to identify the respective sources and uses of cash.

Note the type of activity that relates to each source and use.

Before going further, with a 30 second look, what are highlights of the cash flow story?

Assemble the Statement of Cash Flows, using the indirect method.

And, finally, concisely comment on Tye Mills year (2010), from the perspective of its income, cash flows and balance sheet.

*A Sources and Uses statement is a quick look at how cash flowed and can be a helpful intermediary step between the balance sheets and the statement of cash flows. It lists all the sources of cash, then all the uses of cash. Reminder: a company generates cash by reducing an asset or by increasing a liability and uses cash by increasing an asset account or reducing a liability account.

A curious thought following these two principles, a reduction in cash and marketable securities appears as a source of cash. Hmm... How could that be?

	Tye Mill Industries Balance Sheets ($ millions) December 31
		2009		2010		Change in Account
	Assets
	Cash & marketable securities	$12.2		$14.3		$2.1
	Accounts receivable, less reserve	200.2		218.6		18.4
	Inventories	390.0		392.2		2.2
	Other current assets	55.7		47.3		(8.4)
	Total current assets	658.1		672.4
	Gross property, plant & equipment	993.3		1,025.1		31.8
	Less accumulated depreciation	567.6		592.6		25.0
	Net property, plant & equipment	425.7		432.5
	Goodwill & intangible assets, net	469.6		458.3		(11.3)
	Other assets	38.3		36.1		(2.2)
	Total assets	1,591.7		1,599.3
	Liabilities & shareholders equity
	Long-term debt due in on year	--		--		--
	Short-term borrowings	39.2		25.5		(13.7)
	Trade accounts payable	88.9		95.9		7.0
	Taxes payable	0.7		7.1		6.4
	Accrued expenses	87.4		76.6		(10.8)
	Total current liabilities	216.2		205.1
	Long-term debt	388.9		324.4		(64.5)
	Accrued employee & retiree benefits	50.8		52.7		1.9
	Deferred taxes	12.8		21.0		8.2
	Other long-term liabilities	14.4		12.3		(2.1)
	Total liabilities	466.9		410.4
	Common stock	5.4		5.4
	Additional paid-in capital	85.5		85.5
	Retained earnings	921.7		976.5				Note: are dividends relevant to this number, when you look at cash flows? Will this inform the 'activity' note in the Sources and Uses Statment?
	Treasury stock	(103.9)		(83.6)
	Total shareholders' equity	908.7		983.8		75.1
	Total liabilities & shareholders' equity	1,591.8		1,599.3
	Tye Mill Industries Income Statements ($ millions) For year ended December 31
		2009		2010
	Net sales	$1,201.4		$1,328.2
	Cost of goods sold	790.2		876.4
	Gross profit	411.2		451.8
	Selling, general & administrative expense	210.8		235.2
	Depreciation and amortization	42.2		43.4
	Total operating expenses	253.0		278.6
	Operating income	158.2		173.2
	Interest expense	23.8		20.4
	Other nonoperating expenses (income)	11.3		(1.5)
	Total nonoperating expenses	35.1		18.9
	Income before income taxes	123.1		154.3
	Provision for income taxes	36.6		47.1		Note: Provision for income taxes is the tax amount due for accounting purposes. Tye Mill Industries uses accelerated depreciation methods that allow their actual tax payment to be lower. The difference between these calculations is recorded in the Deferred Taxes (liability) account.
	Net Income	86.5		107.2
Here's a start to help visualize the Sources and Uses Statement.
	Tye Mill Industries Sources and Uses Statement ($ millions) For year ended December 31
		2010		Type of Activity
	Sources
	Reduction in other current assets	$8.4		Operating
	Total sources
	Uses