General Cinema Corporation operates the leading movie theater circuits in the United States, is an independent bottler of Pepsi-Cola and related products, and also owns several “high-end” retail stores, including Neiman-Marcus. In a recent set of financial statements, the company reported the following in the current liabilities section. Long-term liabilities—due within one year $ 7,014,000 Total current liabilities 339,304,000 In the notes to the financial statements, the company profiles all the components of its long¬ term debt. 20. Karen Blumenthal, “LTV To Reserve $2.26 Billion for Retirees,” The Wall Street Journal, November 22, 1988, pp. A3, A4. Chapter lO Economic Consequences, Current Liabilities, and Contingencies 525 Cl 0-10 (The annual report of MCI) Cl 0-11 (Appendix 10A: Economic consequences and accounting for postretirement healthcare and insurance costs) CIO-12 (Appendix 10A: Post¬ retirement Costs) REQUIRED:

a. What kind of assets must General Cinema use to repay the long-term liabilities in order for the portion due within one year to be classified as a current liability?

b. If General Cinema plans in the foreseeable future to refinance the amount of currently maturing long-term debt by issuing long-term notes, how should the debt be classified, as current or long-term? Why?

c. Why might management consider such a refinancing strategy? State your answer in terms of important financial ratios and debt covenants.