Uniroyal Technology Corporation (UTC), with corporate offices in Sarasota, Flori
ID: 2486862 • Letter: U
Question
Uniroyal Technology Corporation (UTC), with corporate offices in Sarasota, Florida, is organized into three operating segments. The high-performance plastics segment is responsible for research, development, and manufacture of a wide variety of Products, including orthopedic braces, graffiti-resistant seats for buses and airplanes, and a static-resistant plastic used in the central processing units of microcomputers. The coated fabrics segment manufactures products such as automobile seating, door and instrument panels, and specialty items such as waterproof seats for personal watercraft and stain-resistant, easy-cleaning upholstery fabrics. The foams and adhesives segment develops and manufactures products used in commercial roofing applications. The following items relate to operations in a recent year. Serious pressure was placed on profitability by sharply increasing raw material prices. Some raw materials increased in price 50% during the past year. Cost containment programs were instituted and product prices were increased whenever possible, which resulted in profit margins actually improving over the course of the year. The company entered into a revolving credit agreement, under which UTC may borrow the lesser of $ 15,000,000 or 80% if eligible accounts receivable. At the end of the year, approximately $ 4,000,000 was outstanding under this agreement. The company plans to use this line of credit in the upcoming year to finance operations and expansion. Should investors be informed of raw materials price increases, such as described in item 1? Does the fact that the company successfully met the challenge of higher prices affect the answer? Explain. How should the information in item 2 be presented in the financial statements of UTC?Explanation / Answer
(a) Yes, investors should be informed about the increase in raw materials prices during the year and also about how the management reacted to such increase in the prices of raw materials. This information should be provided to the investors through the management discussion and analysis report attached to the annual report published by the company.
No, the fact that the company successfully met the challenge of higher prices affect does not affect the above answer because even in that case the investors should know what has been going on during the year and how the management handled certain challenges thrown towards it by the economy.
(b) The information in item 2 should be disclosed in the financial statements in the management's future plans section.
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