Graphic Inc - Case 07-6 Graphic, Inc. Graphic, Inc....

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Case 07-6 Graphic, Inc. Graphic, Inc. (“Graphic” or “Company”), an SEC registrant, is a manufacturer and developer of high-end printing equipment, color scanners and related software that are used by newspapers, magazines and professional graphic artists. The Company has been in business for more than 80 years and weathered many competitive challenges, such as occurred in the 1950s and 1980s from changes in technology. The industry is somewhat cyclical; nevertheless, the Company has positive retained earnings and a long operating history. In the past decade, Graphic has continuously reported net losses. However, in the past fiscal year (the year ended December 31, 2004), the Company reported net income of $7.4 million and for the year ended December 31, 2005, the Company has prepared internal financial statements showing preliminary net income of $12.6 million (see Exhibit 1(a)). The increase in profitability is primarily due to the Company’s launch of its new flagship product, the G-1000, approximately three years ago. It is January 5, 2006, and the audit partner is meeting with the CFO for lunch to discuss the preliminary figures prepared by the accounting department. An excerpt from their discussion is as follows: CFO: As you can see, this year has been a tremendous year for us — record profits! We’ll probably be revising the projections that we presented to the Board a few months ago to reflect sales of $130 million and net income of $15.5 million for 2006. And that doesn’t include our recent discussions with The Sports Magazine that could lead to a recurring $20 million annual contract. Partner: It sounds like exciting times for you and the company. It looks like the G-1000 has really picked up the Company. Now that you’re generating taxable income, it would be a good idea to make sure you do as much as you can to prevent your NOLs from expiring before you can use them. CFO: We hired a new tax director to replace Frank, and she’s got some really good ideas about how to keep our NOLs from expiring in the event our forecast of future profits does not materialize in the appropriate NOL carryforward periods. I
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This note was uploaded on 03/23/2011 for the course ACC 550 taught by Professor Lin during the Spring '11 term at Prince George's Community College, Largo.

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Graphic Inc - Case 07-6 Graphic, Inc. Graphic, Inc....

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