Human resources planning Assignment Example | Topics and Well Written Essays - 1500 words

Human resources planning - Assignment Example The factors that influence the demand for products and services, as well as skills competencies are put into consideration and how these factors may continue to influence demand. The company’s supply chain boosts for lower inventories, smoother production plans, reduced stock-outs, and improved customer service as a result of better forecasting techniques. The supply technique adopted by the organization is effectively done to ensure that production is done for the right quantities and the right time. For this reason, the suppliers of YWCA Niagara have always strived to find ways to match demand and supply in order to achieve optimal levels of cost, customer service, and quality that guarantees a competitive advantage with other suppliers, especially in the HR market (Armstrong, 2007). The YWCA Niagara supply chain is designed in such a way that problems that affect delivery may have ramifications throughout the chain. Demand and supply in the human resource department are done by reviewing the data available in the HR audit and projections made for future HR demand and supply. The internal labor force in the organization may be affected by temporary factors such as leaves and permanent factors such as deaths. One of the  core  methods used by the company to forecast the future HR supply is trend analysis. The method is based on the assumption that past ratios and trends in the movement of employees is stable and is a reliable indicator of the future trends and the necessary ratios of employee movement (Belcourt, & Belcourt, 2012). The company makes use of the information collected in HR audit and employment data analysis to identify the labor patterns. The examination of past trends enables the HR department to predict the effect of similar activities in the future of the organization since the HR department makes the assumption that the factors will remain stable and unchanged. Although trend analysis is not

Development of the learning process of students for progress through after school program Essay Example for Free

Development of the learning process of students for progress through after school program Essay The question of development of students in their childhood is extremely vital that has to be tackled carefully, if not various problems will arise not only at the individual level but also at the national level. To improve the condition, the sanction of fund by the government alone is not sufficient to solve the problems but question remains at the top for its use in right direction at the right time in right amount with consideration of grant, method of constructing the children in the limitation of time and space of adults, the capacity of the children for their success, the implementation of art in their education life with the question of implementation of their education in the development of the community with the help of after school program. If the problem is solved tactfully and effectively, the manifold benefit can be had for the development of the students. The proper implementation of the after school program will bring out the goodness in the students to the society in proper manner. The creativity, which is present in every student by birth, will come out to the society to give strength not only to the students themselves but also to the nation. The article ‘Children At Risk: Constructions of Childhood in the 21st Century Community Learning Centers Federal After-School Program’ by Sharon Verner Chappell is not only an informative one but also a fine creation of work of literature. This article may be termed as a vital literature, though it an article, in the contemporary situation due its wide range of data and analysis of the situation of the students of any country. The effectiveness of the article is without the any boundary of the community, language and the nations. The sanction of $4. 5 billion by U. S. government for after school programs through the 21st Century Community Learning Centers (Chappell, S. V. 2006) is an independent variable if we consider the fact about the budget allocation. The amount is decided at the time of budget and at the time of budget preparation other needs are not taken into accounts. Though the actual amount spent will become dependent variable when the number of school and students are taken into consideration. Another example of dependant variable can be seen as the number of good performing students that is directly proportional to increased skill in study and inversely proportional to decreased number of adverse behavior like teen pregnancy. Sanctioning money is very much essential for any project to be completed, considering this assumption the US government has sanctioned the money amount. This may be considered as an important hypothesis. A hypothesis that â€Å"children are active and academically successful (i. e. productive) when they attend a state regulated educational program, whereas those children who do not attend such programs are passive, unproductive, unsuccessful, and by extension, perhaps, not good people† is cited in the article by Chappell (2006). This Operational Research Question is universally acclaimed and it is studied here in the context appropriately. â€Å"The students and the parents both are needed high attention of care and support when they are from high poverty family†. This thought is also implemented in the article. When students are in low-performing school their self-performance is also decreased. In addition to this hypothesis another one like â€Å"when art is introduced in the curriculum, the performance of the students are better many fold from previous†. Another citation by Chappell (2006) from Vadeboncoeur (2005,123), is as ‘notions of time and space can be used to map institutional and narrative landscapes of students. ‘ This is also an important operational research. The definition of term by the article writer is provided in between the sentence by proper explanation in next step in the advancement of the description. After stating some policy, additional information is provided to describe the policy, which act as invisible definition of the term in the article. Some time the definition is given in bracket as in â€Å"reduce the number of children in self-care (latchkey children who take care of themselves)†. The meaning of implemented sentence â€Å"reduce the number of children in self-care† in given in the bracket in later part. Population and sampling procedure is informative and given in between sentence without any tabular form. This keeps the flow of the article readable and enjoyable. One example of this in article is â€Å" Since 2003, 6,800 rural and urban public schools have been served around the country†¦Ã¢â‚¬ . Another sampling in the article is given at proper time and places with proper citation method to avoid the ambiguity due to copyright with gives the article a good ornamental decorating. Data source are very huge and the data are collected from the scholarly and valuable articles all related to the subject matter of the article. The tireless, extensive and enthusiastic efforts are given to collect the data from various books, magazines and the websites. The proper care has been taken to collect the data after exhaustive study of the collected materials to produce the article. The data are collected with proper estimation and measurement and the authenticity cannot be suspected as the whole matter is taken from the scholarly articles, authentic magazines and popular books. The psychological and mental estimation of the children are provided with the article with various hypothesis and theory. The data are not provided in any tabular form but are scattered throughout the articles in the manner of information with full lucrative and informative sentence. In the beginning of the article â€Å"amount of $4. 5 million† is mentioned as the sanctioned amount for 21st Century Community Learning Centers (21st CCLC). Another data is â€Å"6800 rural and public school† but in no any data table. Presentation and interpretation of findings are in very intelligent and economical manner. The various divisions have been done with different sub-heading the article to provide the information in proper and chorological manner. The required data and information can be easily had due to the excellent presentation of the article. Findings have proper interpretation and placed at appropriate place. In this article main theme is the construction of childhood with the help of the ‘after school programs’ to be implemented with the help of various funds allocations by concerned institutions. The methods are described to obtained good results by good students. The need for improvement of economically improvised school along with the economically downtrodden family is emphasized. The need of arts is very much essential for the student to become a good student. Though the article is exhaustive in information and description in the problems mentioned in the titles, the need for further Research cannot be denied. There is a need to study the personal behavior of the students at the time of after school program. Many students may not be interested in such program. So they cannot be forced to do the implemented programs but s/he should be given proper attention to find out the actual need and interest of the students. There is need to conduct the research in the area of students behavior and their interests in the study at the very early age. Strength of the study remains in the area of research. The extensive and exhaustive research is done in proper subject matter. The method of citation is proper and the information put at proper places with the good structure of the paragraph with the flow of the information in one proper direction is always advancing. Weakness of the study is in the method of representation of the data in tabular forms without any comparison method. The compared data would have given better understanding of the situation of the students. The poverty level of the parents of the students and the economically degraded school with opposite situation could have been compared in tabular form for better understanding. The various opinions of the parents and the students could have given better improvement in the study.

Networked Game Issues

Networked Game Issues Network Issues and how they affect gameplay and interactivity A network is when two or more computers have a digital connection between them, particular in networked multiplayer games the players are physically separated from each other. Networks allow users clients to communicate by sending bits of data through the internet of the form of packets, these will then build on top of the internet protocol, and this in terms means that if a packet sent using UDP or TCP a specific IP address then receives the packet. (Armitage, Claypool and Branch, 2006) Unlike networking in this day and age games such as Doom was played through a LAN connection (Local Area Network) which at the time used an IPX protocol. An IPX protocol doesnt require a constant connection between the exchanges of packets.[o1] Appendix [a1] displays the required layers of hardware and software that Doom required to be run across a network. The Topologies that Doom used for LAN connection, the figure on left in appendix [a2] is an Ethernet connection that has computers connected to it acting as peers and the figure on the right also in appendix [a2] is similar to the left figure. All players received a message every 35th of a second that recorded all the players inputs across peer-to-peer network. (Armitage, Claypool and Branch, 2006) Packets are carried all over the internet using networks(Armitage, Claypool and Branch, 2006), the time it takes to send a packet of data from a source to its destination is latency, as standard latency will below 150ms (milliseconds) and wont go above 150ms. A packet must then travel back to the source which results in a round trip time which can take twice as long as the latency i.e. 50ms latency 100ms round trip time. The game world of warcraft consists of two latencies a home and a world latency, home is the connection to the realm server which can include in game chat data, world refers to the world of warcraft servers this in term transmit all other data i.e. combat, nearby players (even if they are not on a users screen and NPCs. The latency will increase greatly when visiting highly populated areas because so much data is being transmitted. In online games there are many common issues that will cause high ping and latency these could involve wireless issues, packet loss, down load speed, firewalls, routers that arent configured correctly i.e. closed ports, QoS and Traffic management where packet queuing is being performed and net link saturation (an issue caused by a users ISP that causes connection issues between a users client and a game server). Congestion is usually the main source of packet jitter, depending if the network has been provisioned correctly congestion can occur at the router interface, in a provider or a carrier network. A User has access to the router, therefore it is the easiest and best place to start in determining jitter at the router end; to track down the source of the jitter depends entirely on the encapsulation.[o2] (Ankit, 2012)Latency in online multiplayer games can change due to jitter where different paths are chosen constantly during streams of traffic. While online gaming a high speed internet connection is recommended to avoid jitter preferably using an Ethernet cable to reduce latency because it is almost immune to interference. Packet Loss usually has four main causes that will occur these are congestion, device performance, software issues on a device, faulty hardware[o3]; the first one being link congestion is when a users data needs to be transferred across many devices and links, a link can be at full capacity when the data arrives at must wait before being sent also called queuing. A network device may start to discard information when it doesnt have enough room for data to queue, information being discarded will most likely never be noticed by the user, many applications can easily discard information and still easily handle data queuing. A users router may not be able to keep up with the traffic that is being transferred; this could be due to a switch, firewall or closed ports. Opening ports on a router allows a networked device connected to the router accessible from outside of the local network i.e. other computers and network devices, this benefits gaming greatly where other players can send and receive data with hardly any interference, usually if a port is closed for a certain game a users gaming experience will suffer. Apparently a routers firmware can cause packet loss during gaming according to Netgear community forum, a user was experiencing severe packet loss across many games and after trying altering game settings, router settings and calling his ISP provider multiple times ended up calling Netgear where they recommended using an older firmware on his router and solved his packet loss problem. [o4] Software on a networked device can cause packet loss if the software hasnt been configured correctly, these bugs can usually be found using a system log or troubleshooting. While software can cause issues so can faulty hardware and cabling resulting in more packet loss, Bandwidth is measured in bits per second, modern day network devices can possibly support up to billions of bits worth of data rates. Slow internet connection is a common cause of low bandwidth, this can be insufficient bandwidth provided by an ISP. In normal terms bandwidth is when a connection has a limited amount of data that can be transferred. Not only does a slow internet connection cause low bandwidth but there are other causes that can happen within a house hold i.e. streaming videos on demand via Netflix or any other on demand provider, downloading files from the internet or in the context of games that require numerous large updates; while these can affect the bandwidth any user that has a home security system which needs a constant stream of data i.e. security footage will also cause bandwidth issues. [5]To avoid bottlenecking for users on the same network the above issues should only be performed when network traffic is low. (Smed, Kaukoranta and Hakonen, 2002) Although t here are ways to try and prevent bandwidth issues, packet aggregations is used to combine many packets being transferred together in to one larger packet in order to reduce the bandwidth requirements. Depending on the size of the data in the original packets, the packet headers size and how many combined packets there are bandwidth savings can be substantial. The number of combined packets can be determined with two different methods timeout-based method and quorum-based method; for timeout-based method before a fixed interval all packets are originated and then become one. An upper bound interval is guaranteed due to the aggregation thanks to this method. The worst thing that can happen with this method is no bandwidth savings are achieved. A certain number of packets are always combined in the quorum method, the number is usually fixed. The transmission delay is not guaranteed because the method is postponed until enough packets have been initiated. The users experience can suffer because of the extended delays in transmission. Both methods have limitations but can each be compensated for when combined (Smed, Kaukoranta and Hakonen, 2002). Internet download speed has always been somewhat of an issue in online gaming where some players can have a slight disadvantage over others, for example Call of Duty 4 selected a Host player at the start of each match if the player had a slow connection all other players were affected except the host thus the term host advantage was given. The graph in appendix [a3] displays the average connection and average peak connection in megabits per second across the globe for 2015. From the data we can gather that Singapore has the highest peak connection speed compared to the United Kingdom is less than half of the peak connection. Singapore may have the highest peak connection but the average connection is dominated by South Korea, their internet connection is years ahead of most of countries some not far behind. Again in 2015 the United Kingdom has almost half the speed of South Korea thus leading us to believe that South Korea is a nation of exceptional gamers thanks to their powerful intent connection. The above graph in appendix [a4] displays the average internet connection for the UK in megabits between March 2013 and March 2016. In those 3 years we can see from the data that the connection speed has more than doubled which gives us an insight that in the next 3 years the average connection speed could double again. MMO Development Discussion and Algorithmic Techniques to Support Scalability There are several things we need to take into account when converting our game to an MMO: Scalability Performance Security The client needs to communicate with the sever using the game protocol to update the status of other clients at the same time within the virtual game environment; things updated include position, health and client name (Yoon and Ng, 2011). First we would need to create a database and link in up to the game sever so that players can register, theres no need for character creation because each client is assigned a character however they could have an avatar name. The name they enter would then need to be checked if it exists within the database using a for each loop to determine if it does then prompt the player to try a new name. Once registered, a player can login in using their credentials i.e. username and password and again that would be checked in the database using a for each loop. An overall translucent text box can be used for chat between players; this could update on the server side and be sent to all clients. A client enders a message sends it to the server and sends it back to all clients. Another thing that could be included is a friends list that would save a players username in a clients friends list only if both clients come to an agreement. We could then introduce an instant message option that would appear in a clients chat box that would be rendered a different colour from normal chat if sent from a friend. See appendix [a5] to see how the game would handle and request information that would be between client and game server. To allow scalability we need to distribute servers onto multiple physical severs, a certain number of gaming severs would be distributed onto physical servers, a gaming server would then handle many more connected players than a physical server, if too many players are on a game server the performance will decrease and render the game unplayable, performance will depend the processing power of the servers and the available bandwidth. [o5] For security we would use encryption, this is so 3rd parties cant view data, both parties are who they say they are i.e. client and server and the data hasnt been modified. We should assume that a user or an attacker can view information that has been sent to the client so the server shouldnt send information that the user should not be able to see i.e. user credentials, client shouldnt really be relied upon for security because an attacker can send pretty much any command they want to a user.[o6] The server should handle pretty much all validation and error checks etc., the client should basically just send a message that they are attacking with a certain item so the sever knows to calculate a certain dps (damage per second). Encryption will not work on someone that uses a bot or deterministic movement to send commands to the server, for example using a seeded random number generator will give the same results over and over again which can be extremely good for grinding a quest or a different seeded number generator for say combat where random attacks are used when they are available. Appendix [a1]Figure was taken from (Armitage, Claypool and Branch, 2006) paper on Networking and Online Games. [a2] Figure was taken from (Armitage, Claypool and Branch, 2006) paper on Networking and Online Games. [a3] Data taken from https://en.wikipedia.org/w/index.php?title=List_of_countries_by_Internet_connection_speedsoldid=758974262 and entered into an excel spreadsheet to produce the graph [a4] Data taken from (Jackson, 2016) and entered into a spreadsheet to produce the graph [a5] (Yoon and Ng, 2011) References [1]Armitage, G., Claypool, M. and Branch, P., 2006. Networking and online games: understanding and engineering multiplayer Internet games. John Wiley Sons [2] Jackson, M. (2016). Ofcom 2016 Report Average UK Home Broadband Speeds Reach 28.9Mbps ISPreview UK. [online] Ispreview.co.uk. Available at: http://www.ispreview.co.uk/index.php/2016/03/ofcom-2016-report-average-uk-home-broadband-speeds-reach-28-9mbps.html [Accessed 20 Mar. 2017]. [4] Smed, J., Kaukoranta, T. and Hakonen, H., 2002. A review on networking and multiplayer computer games (pp. 1-5). Turku Centre for Computer Science. [5] Packetworks.net. (2015). Low Bandwidth Means Slow Network Performance Packetworks. [online] Available at: http://www.packetworks.net/blog/low-bandwidth-means-slow-network-performance.htm [Accessed 20 Mar. 2017]. [6] Ankit. (2012). What are causes of Jitter in gaming and how to find and deal with it. [online] Available at: http://www.techulator.com/resources/6255-What-causes-Jitter-gaming-how-find-deal-with.aspx [Accessed 20 Mar. 2017]. [7] Yoon, I. and Ng, G., 2011. Developing a MMORPG game in One Semester. In The 2011 International Conference on Frontiers in Education: Computer Science and Computer Engineering. [o1]http://searchnetworking.techtarget.com/definition/IPX [o2]http://www.cisco.com/c/en/us/support/docs/voice/voice-quality/18902-jitter-packet-voice.html#topic3 [o3]http://www.annese.com/blog/what-causes-packet-loss [o4]https://community.netgear.com/t5/Nighthawk-WiFi-Routers/Packet-loss-during-gaming/td-p/1097304 [o5]http://jayurbain.com/msoe/se3250/slides/se3250-L15-MMO-game-architecture.pdf [o6]http://stackoverflow.com/questions/4307149/should-a-mmorpg-use-encryption

Insanity in The Yellow Wallpaper by Gillman and Fruit at the Bottom of

Describe an important experience that happened to a person or character in each text. Explain how this experience affected each person or character. Imagine being kept in a room for months on end, with nothing to do but stare at the wallpaper. Or cleaning a house till it is entirely spotless, in order to eliminate your prints from a murder scene. These events are experienced by the female narrator in "The Yellow Wallpaper" by Charlotte Perkins Gillman and Mr William Acton, in "The Fruit at the Bottom of the Bowl", by Ray Bradbury. Both characters descend into complete madness after experiencing these predicaments. The narrator of ?The Yellow Wallpaper? is a woman who has just given birth and has developed post-natal depression. Because of this, her husband John who is a ?physician of high standing? tells her she must stay in a room in a colonial mansion and is ?forbidden to ?work? until she is well again.? The woman has a feeling the house is haunted even though she is impressed that they are going to stay in such a place for their summer holiday. Once in the room, she notices the wallpaper, which is a horrible yellow colour. Day by day she becomes more obsessed about this wallpaper and begins to see women in the pattern. After asking her husband for consent to leave the room, he refuses and she becomes engulfed by the wallpaper, spending every moment inspecting it. On the day she is due to leave she locks herself in the room and tears the wallpaper off, in order to free the woman inside. This leads her to believe that she is one of the women who has escaped the wallpaper and circles the room claiming ?I?ve got out at last!? The experience of being locked in a room, against her desire drove her to complete and utter mad... ...Acton both begin completely sane but become worse as a result of circumstance. They are driven to behaving the way they do because of the way they are treated by other people. The two characters hallucinate and visualise objects that aren?t actually real. One difference is Acton becomes crazy as a result of his own actions but the narrator becomes crazy as a result of actions by others who take control of her fate. In the two texts ?The Yellow Wallpaper? and ?The Fruit at the Bottom of the Bowl?, two lives are destroyed by circumstance and the relationships they have with others. By the end of the stories the reader is left knowing that the woman could not escape her husband?s control and Acton could not escape the fact that he had murdered somebody. Such insignificant things, a fingerprint and wallpaper, can have the capacity to drive people towards insanity. Insanity in The Yellow Wallpaper by Gillman and Fruit at the Bottom of Describe an important experience that happened to a person or character in each text. Explain how this experience affected each person or character. Imagine being kept in a room for months on end, with nothing to do but stare at the wallpaper. Or cleaning a house till it is entirely spotless, in order to eliminate your prints from a murder scene. These events are experienced by the female narrator in "The Yellow Wallpaper" by Charlotte Perkins Gillman and Mr William Acton, in "The Fruit at the Bottom of the Bowl", by Ray Bradbury. Both characters descend into complete madness after experiencing these predicaments. The narrator of ?The Yellow Wallpaper? is a woman who has just given birth and has developed post-natal depression. Because of this, her husband John who is a ?physician of high standing? tells her she must stay in a room in a colonial mansion and is ?forbidden to ?work? until she is well again.? The woman has a feeling the house is haunted even though she is impressed that they are going to stay in such a place for their summer holiday. Once in the room, she notices the wallpaper, which is a horrible yellow colour. Day by day she becomes more obsessed about this wallpaper and begins to see women in the pattern. After asking her husband for consent to leave the room, he refuses and she becomes engulfed by the wallpaper, spending every moment inspecting it. On the day she is due to leave she locks herself in the room and tears the wallpaper off, in order to free the woman inside. This leads her to believe that she is one of the women who has escaped the wallpaper and circles the room claiming ?I?ve got out at last!? The experience of being locked in a room, against her desire drove her to complete and utter mad... ...Acton both begin completely sane but become worse as a result of circumstance. They are driven to behaving the way they do because of the way they are treated by other people. The two characters hallucinate and visualise objects that aren?t actually real. One difference is Acton becomes crazy as a result of his own actions but the narrator becomes crazy as a result of actions by others who take control of her fate. In the two texts ?The Yellow Wallpaper? and ?The Fruit at the Bottom of the Bowl?, two lives are destroyed by circumstance and the relationships they have with others. By the end of the stories the reader is left knowing that the woman could not escape her husband?s control and Acton could not escape the fact that he had murdered somebody. Such insignificant things, a fingerprint and wallpaper, can have the capacity to drive people towards insanity.

Automobile Industry China Essay

? China became the world’s largest automobile producer and market in 2009 with annual sales of nearly 14 million vehicles. The market continues to expand in 2010. In the first nine months of 2010, automobile production reached 13. 08 million units, a 36. 1 percent increase from a year ago. The China Association of Automobile Manufacturers (CAAM) raised its forecast for annual sales to reach a record 17 million this year, matching the highest annual total ever reached in the United States. Industry growth has been primarily driven by rising domestic demand stemming from rising incomes, a growing middle class, and by supportive industry policies from the Chinese government. The Chinese automotive industry remains very fragmented. In addition, Chinese central government officials fear that unchecked expansion of China’s auto industry encouraged by local authorities could harm the wider economy, and that excess capacity must be stopped. Hence, the central government continues to push for mergers and acquisitions (M&A) in the automotive industry which will support the emergence of a few leading national companies. China’s weak R&D, domestic innovation and design capabilities are key challenges to its international competitiveness. With the government’s encouragement, domestic firms have opted for strategic partnerships with foreign players, aiming to facilitate technology transfer and improve domestic design and engineering capabilities. The Chinese government has implemented a number of tax adjustments and subsidies for automobile purchases to encourage hybrid electric vehicles, pure electric vehicles and traditional vehicles of small engine displacement. Beijing has gradually introduced higher automobile emission standards for new vehicles. Plans to develop hybrid electric and pure electric vehicle production capabilities are part of a broader, environmentally friendly strategy to develop the auto industry. Market opportunities exist especially in the following areas: o Developing domestic innovation capabilities (e.g. vehicle design and engineering, hybrid electric and pure electric engines, electric motors and electric controls) o Productivity and quality upgrade (e. g. engines, transmissions, electronic control systems and safety systems) o Mergers and acquisitions (both in China and in Israel) o Clean transportation technologies 3 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) ? ? ? ? ? ? o Advanced manufacturing technologies o Supply of essential automotive components/systems to OEMs (e. g.electronic control systems and safety systems) ? The following automotive segments in China are considered to be highly competitive and it will likely be difficult for Israeli firms to penetrate the market unless they have an extreme competitive advantage: Fabric for seats/interiors, seat covers, floor mats, curtains, aluminum die casting, rubber bumpers, electronic harness cables, antennae, speakers, electric starters, vehicle cleaning products, window films, A/C compressors, fuel and oil and air filters. 1. MARKET OVERVIEW ? ? China’s automotive market has the most growth potential in the world; per capita car ownership is still remarkably low at 4. 78% and is expected to grow significantly. Domestic whole-vehicle manufacturers and automotive suppliers are still extremely fragmented (government-supported consolidation is imminent in the near future); challenges remain for domestic R&D and design. With government subsidies and tax incentives, China is aiming to establish an early footing in the production of low-emission and environmentally friendly automobiles. Component imports surged by 130% in the first half of 2010; 60% of imported components were drivetrains, engines or automotive body components. ? ? 1. 1 GENERAL OVERVIEW Market Growth Primarily fueled by domestic and partly by foreign demand, China’s rapidly expanding automotive industry has outpaced the nation’s already impressive GDP growth rates in recent years. Domestically, rising incomes and encouragement from the Chinese government for the urban population to obtain drivers licenses have spurred the demand for passenger vehicles. The booming passenger vehicle market has led to a soaring demand for automotive components. Internationally, automotive manufacturers faced with decreasing margins and profitability have sought out more affordable supply chain solutions, looking to China as a potential source for lower cost automotive components. Unlike developed markets for passenger vehicles, where growth in demand has been largely stagnant, China’s domestic demand for new automobiles has skyrocketed in the past years. Strong car sales in China in 2009 pushed the auto market to the largest in the world, and 2010 is set follow the positive trend. 4 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009). Source: China Association of Automotive Manufacturers (CAAM) In the first nine months of 2010, automobile sales reached 13. 08 million units, up 36. 1% from a year ago. Over 9 million of the total sales were passenger cars and 3. 24 million were commercial vehicles. CAAM predicted that the 2010 annual sales will reach a record of 17 million units. It is widely believed that China’s automotive market currently has the most growth potential in the world. China’s 2009 per capita private car ownership was 4. 78%, far less than the 40% average of developed countries, and even less than other emerging markets such as Russia, Brazil and India. This is a strong indication that China’s domestic market is far from being overly saturated. According to CAAM predictions, growth in the auto industry will remain strong until 2020 with annual growth expected to consistently range from 13 to 15 percent. The total number of vehicles will jump from 67 to 150 million. Sales in larger tierone and tier-two cities as well as rural areas should keep growing at a rapid pace over the next few years and high growth areas will move from eastern China to the central and western regions. Market Players There are currently more than 100 whole-vehicle manufacturers and nearly 8,000 automotive parts manufacturers in China, located primarily in Southern, Eastern, and Northeastern and central China (see the map on the right). Together, the top ten passenger vehicle manufacturers (seven of which are joint ventures (JVs) make up almost 90% of China’s market share (see the table below). Nearly every major global vehicle manufacturer has established JV operations in China. 5 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009). Top 10 Passenger Vehicle Manufacturers in China (2009) Rank 1 2 3 4 5 6 7 8 9 10 Source: CAAM Company SAIC1 FAW2 Dongfeng Chana (incl. Hafei) Beijing Auto Guangzhou Auto Chery BYD Brilliance Geely Others HQ Shanghai Changchun Wuhan Chongqing Beijing Guangzhou Hefei Shenzhen Shenyang Taizhou JV Partner GM, VW VW, Toyota, Mazda PSA, Nissan, Honda Ford, Mazda, Suzuki Hyundai Daimler Honda, Toyota, Isuzu, Fiat N/A N/A BMW, Toyota N/A Sales (Unit) 2,705. 5K 1,944. 6K 1,897. 7K 1,869. 8K 1,243. 0K 606. 6K 500. 3K 448. 4K 348. 3K 329. 1K 1,750K Market Share 19. 83% 14. 25% 13. 91% 13. 70% 9. 11% 4. 45% 3. 67% 3. 29% 2. 55% 2. 41% 12. 84% Import Positive demand growth for automobiles and components has not only caused domestic industry development, but has led to increased attention from leading foreign automotive manufacturers eager to expand into the rapidly growing market. Foreign automotive manufacturers have also been encouraged by lower import tariffs, which have been lowered for whole vehicles from 70-80% to 25% since China joined the World Trade Organization (WTO). Import tariffs on Semi-Knocked-Downs (SKDs) and Complete-Knocked-Downs (CKDs) have dropped from 50% to 25%, while import tariffs on vehicle components have dropped from 15% to 10%. 1 2 Shanghai Automotive Industry Corporation First Auto Works 6 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) China’s automotive import growth was slowed due to weaker demand caused by the global economic crisis of 2009. Annual total import were USD 33. 1 billion in 2009, representing a year-onyear increase of only 5. 34%. Assisted by government incentive programs and China’s economic recovery, China’s auto import total bounced back from a sluggish 2009, surging by 130% to USD 27. 22 billion in the first half of 2010. Imported European luxury cars had a remarkable 237. 2% increase in 2010 compared to the same period the previous year. China’s automotive component imports grew to USD 12. 7 billion in the first half of 2010, a 90% increase over the same period of 2009. Drivetrain, engine and automotive body components accounted for over 60% of the total component imports (see chart). More than 80% of the imported components came from Japan, German, Korea, and the United States. The main groups of imported automotive components to China can be divided into three categories: ? Japanese and Korean OEMs and Tier I suppliers: Generally these companies tend to only use suppliers from their country of origin. For example, Toyota typically sources components from Japanese JVs or Wholly Owned Foreign Enterprises (WFOEs) on the mainland, or directly imports from Japan. Such practice tends to result from strict quality requirements, cultural compatibility and logistical concerns. German OEMs and Tier I suppliers: These companies typically import components in the areas where Chinese suppliers are weak (e. g. safety systems for high-end passenger cars). The US and French OEMs operating in China have not increased their automotive component imports as much as their peers for different reasons. US OEMs have steadily increased their sourcing from local Chinese suppliers for vehicles manufactured in China to stay competitive, and French OEMs are facing a shrinking market share in China. ? ? Chinese OEMs are emerging buyers of imported automotive components, especially in the segments of hybrid and electric vehicles and Chinese-brand luxury vehicles. 7 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Export The impact of the economic crisis in 2008-2009 forced many multinational companies to reduce their sourcing of automotive vehicles and components from China. According to CAAM, China exported a total of 369,600 units in 2009 worth USD 5. 19 billion, which was down by 46% from 2008. China’s auto exports rebounded as the global market recovered in 2010, with 250,100 vehicles exported in the first six months (up 55. 93% year-on-year). Passenger vehicle exports surged 115. 93% to 116,500 units, while commercial vehicle exports increased 25. 50% to 133,900 units. Algeria, Vietnam and Egypt were the major whole-vehicle export destinations in the first half of 2010. The auto component’s export growth has witnessed even more impressive growth than whole-vehicles. Exports increased 54. 11% to reach USD 18 billion in the first half year of 2010, with drive system components exceeding 50% of the total by value. More than 50% of the components were exported to the USA, Japan, South Korea, Germany and the United Kingdom. 1. 2 MARKET STRUCTURE Supplier Landscape The automotive supplier landscape in China is extremely fragmented. According to CAAM, there are approximately 8,000 automotive enterprises scattered across various segments including full vehicle manufacturing, vehicle refitting, motorcycle production, engine production and automotive parts manufacturing. Most of these companies specialize in lower-end parts and lack the capital needed to invest in production of higher quality products. Seven of China’s ten largest components manufacturers are foreign companies, and about 70% of the country’s USD 160 billion auto supply market is occupied by foreign companies or joint ventures. There are approximately 120 OEMs in total, 40% of which produce passenger vehicles. One of the key contributors to the fragmentation of the automotive market as a whole is that Chinese suppliers serve a large amount of separate OEMs. The world’s leading automotive companies are all well-established in China. OEMs are represented by Ford, General Motors (GM), Volkswagen (VW), Daimler, BMW, PSA, Mazda, Nissan, Honda, Toyota, Hyundai, and tier-one international companies including Bosch, Delphi, Denso, Johnson Controls, Lear, Magna, Visteon, Yazaki, ZF, Arvin Meritor and TRW. 8 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Most of the international automaker and component manufactures have invested heavily in China in attempts to gain a competitive edge. For example, GM, Ford and Jaguar Land Rover have established their Asia Pacific headquarters in China. GM, VW and Honda have also opened China R&D centers and have begun to design car models specifically for the Chinese consumer. International automotive components companies have also expanded their presence in China. For instance, BorgWarner recently opened a China Technical Center. ZF announced the establishment of its Asia Pacific headquarters in Shanghai as well as a new Shanghai R&D center. Eaton’s Asia Pacific headquarters is in Shanghai. Rapid expansion from international firms has let to foreign-invested automotive components suppliers holding 70% of the Chinese market share. Most of the top Chinese automotive parts manufacturers are wholly owned domestic companies such as ASIMCO, Wanxiang, Hongteo, Fuyao, Dicastal, Wanfeng and others. These companies could be potential competitors or partners for Israeli companies. In response to the soaring domestic demand, Chinese automotive component manufacturers have ramped up their production capacities significantly, but this has also led to an increase in quality complaints. Key Challenges for the Domestic Industry Chinese suppliers are now looking beyond the domestic market and improving their production process to emerge as true global competitors. However, further investment in R&D is still required before Chinese manufacturers can truly compete globally, as the industry still lacks technological capability and suffers from quality issues. China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Chery Automotive (Chery) ? Founded in 1997 and now has an annual production capacity of 650,000 vehicles, 400,000 engines, and 400,000 sets of gearboxes. ? Continues to expand into the overseas market and has established plants in 16 countries becoming the biggest Chinese vehicle exporter for seven consecutive years. ? Chery Automobile Test & Technology Center opened in July 2010, which became the largest auto lab in Asia. The company will invest RMB 2. 4 billion in 2010 to accelerate its new model development. ? Chery now owns a full set of manufacturing and R&D facilities, including four car plants, two engine plants, a gearbox plant, an automobile engineering research institute, an automobile planning and design institute and an automobile test & technology center. ? Have extensive technological and business relationships with overseas auto companies. Chery signed an agreement with Chrysler to produce Chery made cars under the Chrysler brand to be sold in the United States and Mexico. ? Chery Quantum Auto. Ltd is a joint venture between Chery and Quantum LLC under an Israeli Group. They aimed to invest USD 334 million in 2010 to develop high-end cars and SUVs for the overseas market. 9 R&D capability Chinese automotive component manufacturers are able to manufacture products when they are provided with designs and specifications, however most of them lack design, engineering and R&D capabilities. Owing to weak R&D and engineering capabilities, many local suppliers have opted to enter into technical collaborations or JVs with leading international suppliers with the goal of facilitating the transfer of technology and improve basic product engineering capabilities. A growing number of Chinese auto parts suppliers have begun to invest in and acquire western firms. Domestic R&D capabilities of Chinese automotive part manufacturers have historically been limited due to the small-scale of most operations and a shortage of investment in laboratory facilities in comparison to international firms. Taking steps to remedy the situation, the Chinese government has continued to encourage investment in R&D for core systems, such as engines, transmission systems, steering systems, brake systems and driving control systems. Safety and reputational issues Incidents and product recalls have raised questions about the quality and safety standards of Chinese manufactured automotive components. According to the 2009 China Automotive Product Quality & After Service Quality report, among the 9359 complaints documented about Chinese made cars, 19. 5% were related to engine problems; 10. 5% to steering systems; 10. 7% to braking systems; 18. 5% to automobile accessories and electronics; and the remaining 40. 8% related to the gearbox, clutch, front and rear axles, suspension systems and air conditioning systems. As a result of complaints and recalls, as well as other non-automotive related manufacturing scandals in China including melamine milk, contaminated pet food, and anti-freeze laced toothpaste, Chinese manufactures are facing serious issues about their reputation. This is a problem local manufacturers will have to overcome if they want to increase their competitiveness on the global stage. The drivers are in place for Chinese domestic manufacturers to move to the forefront of the global automotive industry, but substantial domestic investment in R&D and improvements on quality and reputation are a necessary prerequisite. 1. 3 EMERGING INDUSTRY TRENDS Industry Drivers The rapid expansion of the Chinese automotive industry has been largely attributed to the growth in domestic demand for passenger vehicles and international demand for affordable automotive components. The Chinese government also continues to play an important role in encouraging the growth of the industry. 10 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Tier II and Tier III cities emerge as market growth engines In 2010, most multinational automakers have included a focus on Central and Western China markets into their strategies in order to capture future growth opportunities. For example, Volkswagen is ramping up capacity of its Chengdu plant more than doubling its production of Sagitars and Jettas from 150,000 to 350,000. GAIC Toyota (a JV between Guangzhou Automobile Industry Corporation and Toyota) is considering building a small and price-competitive car to target the lower end of the market. The JV also announced plans to expand its dealership network across central and Western China. Central and western China have emerged as the main growth engine of the automotive market. According to CAAM, automobile sales in second and third-tier cities in the first nine months of 2009 surged 41 percent and 51 percent respectively, while sales in the firsttier cities increased by 34 percent. Domestic demand has been fueled by rising incomes and a growing middle class creating a larger consumer culture. The purchase of an automobile is increasingly becoming a symbol of financial success. In the past, the focus has been on coastal cities. Since 2009, tier II and tier III cities have emerged as the strongest market growth engines (see more details on your left) Even though large cities in China are facing serious traffic congestion issues, Chinese have not been deterred about making new automobile purchases. China overtook the U. S. as the world’s number one automotive market in January 2009. The positive developments in the passenger vehicle industry have benefitted both domestic auto manufacturers (which are emerging from their infancy stages and developing competitive capabilities) and major international automotive giants (which have increased investment into China to expand their presence). However, with per capita car ownership was still only 4. 78% in 2009, still far below the 40% average in developed countries. This is a strong sign that domestic demand for passenger vehicles will remain high in years to come. The domestic aftermarket for automotive components is increasingly becoming an important driver of the industry. More than thirteen million cars are sold annually in China which is leading to a growing market for automobile repairs and further stimulating domestic demand for automotive components. International demand for automotive components has also increased as international automotive firms face pressures to reduce costs and take advantage of more economical alternatives abroad. China’s inexpensive labor force presents an attractive option for producing lower-cost automotive components, which were initially primarily for the international aftermarket but are increasingly being used by international OEMs. The majority of leading international automobile OEMs have established global sourcing offices, R&D centers as well as regional headquarters in China. 11 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Finally, the Chinese government continues to play an important role in driving the industry. Post-WTO accession concessions have resulted in lower import tariffs, giving international automotive firms more access to the domestic market. Beijing has actively encouraged the establishment of JV R&D centers with preferential tax policies designed to facilitate the transfer of knowledge and technology. The government has pledged substantial funds towards automotive technology innovation, upgrades, and the R&D of alternative-fuel automobiles and components. They are also setting restrictions and quotas requiring all vehicles that are used for government use to be produced domestically. Industry Consolidation China is determined to restructure its automotive industry, with the hopes of changing the market from many fragmented manufactures to two or three dominant domestic firms. According to the State Council’s regulations released in early September 2010 which called for greater industrial consolidation, the automobile industry was at the top of the list of targeted sectors. The State Council set the goal of reducing the number of major automakers who are responsible for 90% of domestic sales output, from 14 to 10. Under the plan two or three companies would dominate the industry, responsible for producing more than three million vehicles annually, while four others would have annual output capacity of 1. 5 million units. The State Council named the following four groups as potential industry heavyweights, urging them to take advantage of consolidation opportunities: FAW; Dongfeng; China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Shanghai Automotive (Group) Corp (SAIC) Industry ? Headquartered in Shanghai, it is one of the top three auto groups in China. ? Mainly engaged in the manufacturing, sales and R&D for passenger cars, commercial vehicles and auto components. ? The company is ranked 223 of the Fortune 500 companies with consolidated revenue of US$33. 6 billion in 2009. ? Sold over 2. 7 million vehicles in 2009, making up almost 20% of China’s market. ? SAIC invested over 10 billion RMB on new model development in the past 3 years, and will launch hybrid and electric vehicles in 2010 and 2012. ? Acquired Nanjing Automotive (Group) Corp (NAC) in 2007 and became the largest manufacturer in China with a consolidated annual production of 2 million units. ? SAIC has opened branches in the USA, Europe, Hong Kong, Japan and Korea. It has established a long-term cooperation with GM and Volkswagen. SAIC and GM formed Shanghai GM and the Pan Asia Technical Automotive Center (PATAC) in 1997 and launched 8 additional China joint ventures, including SAIC-GM-Wuling, GMAC-SAIC Automotive Finance Company, and General Motors SAIC Investment Limited. ? Shanghai Volkswagen (a joint venture between SAIC and Volkswagen AG) recently announced it will build a fifth assembly plant in Jiangsu. The plant will have an annual production capacity of 300,000 vehicles and start operation by the end of 2012. 12 SAIC and Chang’an. Additionally, it named four regional leaders that it encouraged to consider regional consolidation: Beijing Automobile; Guangzhou Automobile; Cherry and Sinotruck. All of these companies are passenger vehicle manufacturers with the exception of Sinotruck which manufactures heavy-duty trucks (sales of over 125,000 units in 2009). Industry analysts predict that the coming wave of M&As within the automotive sector could see a deal that breaks the USD 1 billion mark, more than doubling the largest deal to date which was the USD 450 million purchase of General Motors’. Nexteer steering components unit by a joint venture established by Beijing’s Tempo Group and the Beijing government. Global Expansion As the leading automotive market, China automakers are accelerating global transformation to increase their presence in the overseas market. Zhejiang Geely Holding Group (one of China’s largest independent carmakers) recently completed its acquisition of Ford Motor’s Volvo brand for USD 1. 5 billion. This is an indication that Chinese automakers have begun to recognize the power of strong brand reputation. Geely’s Volvo bid is the largest takeover in Chinese auto industry and will provide a pattern for Chinese carmakers to expand aboard and acquire companies with a strong reputation. Beiqi Foton, China’s leading commercial automaker followed Geely’s step and announced its global expansion plan. This includes setting up a production base in Russia by 2012 with an annual capacity of 100, 000 vehicles and building five other plants in Brazil, India, Russia, Mexico and Thailand before 2015. New Energy Vehicle: Focus of Future Development High oil prices, air pollution, and China’s commitment to reduce carbon emissions have led the automotive industry to explore alternative energies. The Chinese government has launched policies and incentives to stimulate the development of new energy vehicles, including electric (hybrid, plug-in and battery), fuel cell, and hydrogen-powered. China has identified new energy vehicle as one of the seven emerging strategic industries. Many estimate China will become the world’s largest new energy vehicle market by 2020. The Energy Saving and New Energy Vehicle Development Plan (2011-2020) and the Automotive Industry 12th Five-year Plan (2011-2015), two of the key policies expected to guide the development of new energy vehicle industry, are expected to come out by the end of 2010. The Ministry of Industry and Information Technology (MIIT) is the principal drafter of these plans which are later submitted to the State Council for approval. The plans set the following key targets for the new energy vehicle industry by the end of 2020: ? In the following five years China will aggressively support the development of key components of energy efficient and new energy automobiles. For electric motors and 13 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) ? ? batteries manufacturers, China hopes that three to five â€Å"backbone† enterprises will emerge with their combined market share exceeding 60%. China will produce 5 million new energy vehicles and become the number one producer of new energy vehicles in the world by 2020; Average fuel economy of passenger vehicles will be 4. 5 L/100 kilometers by 2020, the same as European standards. The plans will become the backbone policy for the entire new energy vehicle industry, as it provides direction for public funding, sector focus and industry structuring. Most important to pay attention to is that Chinese companies are likely to reap the most benefits from these structured strategies. To support indigenous innovation, the Chinese government has stated that the two or three key new energy vehicle component manufacturers will most likely be domestic companies, either state-owned or private. 2 REGULATORY OVERVIEW ? Government tariffs on automotive imports are in compliance with WTO rules, but minimum capital barriers still exist for foreign investors. The government has created some incentives to spur R&D partnership, and regulations for foreign distributers have been eased somewhat. The government has plans to implement higher auto emissions standards for new cars in China. So far four regions have implemented â€Å"China IV† emission standards (Beijing, Shanghai, Nanjing and Guangdong Province). The Chinese government views the development of the new energy vehicle industry in China as a top priority and has introduced a wide range of subsidies and policies in its favor. ? ? China’s automotive industry supply chain is very broad with many components such as import and export, manufacturing, environmental protection, technology upgrades and quality control. As such, the industry is regulated by a range of government organs, both at the national and sub-national level. The below chart illustrates the key central level regulators of the automotive industry, and their relevant responsibilities. 14 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) The automotive industry is subject to a number of laws and regulations. The key regulations that are relevant to Israeli companies are addressed below. 2. 1 FOREIGN ACCESS TO THE CHINESE AUTOMOTIVE MARKET Trade The Chinese auto sector is competitive and has a well-developed supply chain. Imports of foreign-made auto parts will likely decrease as OEMs continue to increase their local capacities. At the same time, higher quality Chinese auto parts are increasingly being integrated into the global supply chain. Currently the import tariff for whole vehicles is 25% and for automotive components is 10%. 15 China’s Automotive Sector – Prepared for IEICI Updated November 2010 (Original April 2009) Investment Foreign businesses must meet a number of requirements in order to access China’s automotive market. The Chinese government has set requirements for minimum registered capital when a firm wants to establish an automotive facility which is RMB 500 million (USD 75 million3) for automobile financing, RMB 500 million (USD 75 million) for engine production and RMB 10 million (USD 1. 5 million) for an R&D center. All projects are subject to government approval. Foreign firms looking to produce passenger vehicles cannot set up WOFEs, but must partner with a local Chinese firm in the form of a JV, with the foreign partner’s stake limited to 50%. On the other hand, China offers fiscal and financial incentives to attract foreign investment in R&D strategies as part of the central government’s strategy to speed up the transfer of international technology. China currently provides tax incentives for enterprises engaged in research and development activities, allowing R&D enterprises to deduct 50% of R&D expenses. Suppliers are most often required to localize or invest in China and Israeli companies interested in tapping into the vast Chinese market will need to consider establishing a local presence. IPR Issues in China While the protection of intellectual property rights (IPR) remains a contentious issue for companies in China, the country’s laws and regulations have progressed considerably in recent years, with the large majority now compliant with requirements of the WTO’s TRIPS agreement. The main challenge surrounding IPR protection in China is the lack of effective enforcement of the existing regulations. Enforcement issues arise from a range of root causes, including the relatively recent introduction of IPR legislation and concept of intellectual property in general, the absence of a fully independent judicial system, and provincial officials’ often protective attitude towards local job creating counterfeiting industries. While most foreign companies considering business operations in China may have to accept an unavoidable degree of IPR infringement, there are nevertheless a number of actions that a company can take in order to limit their IPR-related risk: ? ? ? Ensure to register your patents, copyrights, or trademarks with the relevant bureaus Ensure that your trade or other.

Anne Aylor Case

Anne Aylor, Inc. Determination of Planning Materiality and Tolerable Misstatement MARKS. BEASLEY · FRANK A. BucKLEss  ·STEVEN M. GLOVER · DouGLAS F. PRAWITT LEARNING OBJECTIVES After completing and discussing this case you should be able to [1] [2] Determine planning materiality for an audit client Provide support for your materiality decisions [3] Allocate planning materiality to financial statement elements INTRODUCTION j– Anne Aylor, Inc. (Anne Aylor) is a leading national specialty retailer ofhigh-qualitywomen's apparel, shoes, and accessories sold primarily under the â€Å"Anne Aylor† brand name.Anne Aylor is a highly __ recognized national brand that defin_s_a _ e dis_tin_t_ c fashion_point of v:iew. –. Anne Aylor merchandise represents classic styles, updated to reflect current fashion trends. Company stores offer a full range of career and casual separates, dresses, tops, weekend wear, shoes and accessories coordinated as part of a total wardrobing strategy. The company places a significant emphasis on customer service. Company sales associates are trained to assist customers in merchandise selection and wardrobe coordination, helping them achieve the â€Å"Anne Aylor† look while maintaining the customers' personal styles.The company follows the standard fiscal year of the retail industry, which is a 52-or 53week period ending on the Saturday closest to January 31 of the following year. Net revenue for the year ended January 291 2011 (referred to as fiscal2011) was $1. 4 billion and net income was $58 million. At the end of fiscal 2011, the company operated approximately 584 retail stores located in 46 states under the name Anne Aylor. The company's core business focuses on relatively affluent, fashion-conscious professional women with limited shopping time.Substantially all of the company's merchandise is developed in-house by its product design and development teams. Production of merchandise is sourced to 131 indepen dent manufacturers located in 19 countries. Approximately 45 percent; 16 percent, 13 percent, 12 percent, and 9 percent of the company's merchandise is manufactured in China, Philippin~s, Indonesia, India, and Vietnam, respectively. Merchandise is distributed to the company's retail stores through a single distribution center, located in Louisville, Kentucky.Anne Aylor stock trades on The New York Stock Exchange and Anne Aylor is required to have an integrated audit of its consolidated financial statements and its internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). As of the close of business on March 11, 2011 Anne Aylor had 48,879,663 shares of common stock outstanding with a trading price of $22. 57. The case was prepared by MarkS. Beasley, Ph. D. and Frank A. Buckless, Ph. D. f North Carolina State University and Steven M. Glover, Ph. D. and Douglas F. Prawitt, Ph. D. of Brigham Young Univers ity, as a basis for class discussion. Anne Aylor, Inc. is a fictitious company. All characters and names represented are fictitious; any similarity to existing companies or persons is purely coincidental. From Case 7. 1 of Auditing Cases: An Interactive Learning Approach. Fifth Edition. Mark S. Beasley, Frank A. Buckless, Steven M. Glover, Douglas F. Prawitt. Copyright e 2012 by Pearson Education, Inc. Published by Prentice Hall.All rights reserved 77 Anne Aylor, Inc. BACKGROUND Your firm, Smith and Jones, PA. , is in the initial planning phase for the fiscal 2012 audit of Anne Aylor, Inc. (i. e. , the audit for the year that will end on January 28, 2012). As the audit manager, you have been assigned responsibility for determining planning materiality and tolerable misstatement for key financial statement accounts. Your firm's materiality and tolerable misstatement guidelines have been provided to assist you with this assignment (see Exhibit 1).Donna Fontain, the audit partner, has performed a preliminary analysis of the company and its performance and believes the likelihood of management fraud is low. Donna's initial analysis of the company's performance is documented in the memo referenced as G-3 (top right hand comer of the document). Additionally, Donna has documented current events/issues noted while performing the preliminary analysis in a separate memo, G-4. You have recorded the audited fiscal 2011 and projected fiscal20 12 fmancial statement numbers on audit schedule G-7.The company's accounting policies are provided in Exhibit 2. Assume no material misstatements were discovered during the fiscal 2011 audit. REQUIRED [1] Review Exhibits 1 and 2; audit memos G-3, and G-4i and audit schedules G-5, G-6 and G-7. Based on your review, answer each of the following questions: [a] [b] [c) [d) [e) [f) [g) [2) Why are different materiality bases considered when determining planning materiality? Why are different materiality thresholds relevant for different au dit engagements?Why is the materiality base that results in the smallest threshold generally used for planning purposes? Why is the risk of management fraud considered when determining tolerable misstatement? Why might an auditor not use the same tolerable misstatement amount or percentage of account balance for all fmancial statement accounts? Why does the combined total of individual account tolerable misstatements commonly exceed the estimate of planning materiality? Why might certain trial balance amounts be projected when considering planning materiality?Based on your review of the Exhibits ( 1 and 2) 1 audit memos ( G-3, and G-4), and audit schedules ( G-5, G 6-1, and G 6-2), complete audit schedules G-5, G-6 and G-7. 78 Anne Aylor, In(. EXHIBIT 1 Smith and Jones, PA. Polley Statement: Planning Materiality This policy statement provides general guidelines for firm personnel when establishing planning materiality and tolerable misstatement for purposes of determining the nature , timing, and extent of audit procedures. The intent of this policy statement is not to suggest that these materiality guidelines must be followed on all audit engagements.The appropriateness of these materiality guidelines must be determined on an engagement by engagement basis, using professional judgment. Planning Materiality Guidelines Planning materiality represents the maximum, combined financial statement misstatement or omission that could occur before Influencing the decisions of reasonable individuals relying on the financial. statements. The magnitude and nature of financial statement misstatements or omissions will not have the same influence on all financial statement users.For example, a 5 percent misstatement with current assets may be more relevant for a creditor than a stockholder, while a 5 percent misstatement with net income before Income taxes may be more relevant for a stockholder ttian a creditor. Therefore, the primary consideration when determining materiali ty Is the expected users of the financial statements. Relevant financial statement elements and presumptions on the effect of combined misstatements or omissions that would be considered Immaterial and material are provided below: †¢ Net Income-Before-Income Taxes –  ·combined misstatements or omissions less than 2 percent of..  ·- Net Income Before Income Taxes are presumed to be immaterial and combined misstatements or - ·Ã‚ ·Ã‚ ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€- omissions-greater than ·7†³percenfare-pfes-umecrtob8 ·-material. -(Note: Net lncome.. Befofe.. lncome______ .. Taxes may not be an appropriate base If the clienrs Net Income Before Income Taxes is substantially below other companies of equal size or Is highly variable. ) †¢ Net Revenue – combined misstatements or omissions less than 0. 5 percent of Net Revenue are presumed to be Immaterial, and combined misstatements or omissions greater than 2 percent are presumed to be material. Curren t Assets – combined misstatements or omissions less than 2 percent of Current Assets are presumed to be immaterial, and combin9d misstatements or omissions greater than 7 percent are presumed to be material. †¢ Current Liabilities – combined misstatements or omissions less than 2 percent of Current Uabilities are presumed to be immaterial and combined misstatements or omissions greater than 7 percent are presumed to be material. †¢ Total Assets- combined misstatements or omissions less than 0. percent of Total Assets are presumed to be immaterial, and combined misstatements or omissions greater than 2 percent are presumed to be material. (Note: Total Assets may not be an appropriate base for service organizations or other organizations that have few operating assets. ) The specific amounts established for each financial statement element must be determined by considering the primary users as well as qualitative factors. For example, if the client is close to violating the minimum current ratio requirement for a loan agreement, a smaller planning materiality amount should be used for current assets and liabilities.Conversely, if the client is substantially above the minimum current ratio requirement for a loan agreement, n would be reasonable to use a higher planning materiality amount for current assets and current liabilnies. Planning materiality should be based on the smallest amount established from relevant materiality bases to provide reasonable assurance that the financial statements, taken as a whole, are not materially misstated for any user. Anne Aylor, Inc.Tolerable Misstatement Guidelines In addition to establishing materiality for the overall financial statements, materiality for individual financial statement accounts should be established. The amount established for individual accounts is referred to as â€Å"tolerable misstatement. † Tolerable misstatement represents the amount individual financial statement accoun ts can differ from their true amount without affecting the fair presentation of the financial statements taken as a whole. Establishment of tolerable misstatement for individual accounts enables the auditor to design and execute an audn strategy for each audit cycle.The objective in setting tolerable misstatement for individual financial statement accounts is to provide reasonable assurance that the financial statements taken as a whole are fairly presented in all material respects at the lowest cost. To provide reasonable assurance that the financial statements taken as a whole do not contain material misstatements, the tolerable misstatement established for individual financial statement accounts should not exceed 75 percent of planning materiality. The percentage threshold should be lower as the expectation for management fraud increases.In many audits it is reasonable to expect that individual financial accounts misstatements identified will be less than tolerable misstatement a nd that misstatements across accounts will offset each other (some identified misstatements will overstate net income and some identHied misstatements will understate net income). This expectation is not reasonable when the likelihood of management fraud is hi,gh. If management is intentionally trying to misstate the financial statements, it is likely that misstatements will be systematically biased in one direction across accounts.The tolerable misstatement percentage threshold should not exceed:- — — —— ·- · - · – ·Ã¢â‚¬â€œ —- —- ·Ã¢â‚¬â€œ — – –  ·- ·  ·Ã¢â‚¬â€ —- ·Ã‚ ·- ·Ã‚ ·Ã‚ ·Ã‚ ·- – ——7-5-percent-of-planning materJality-if low-likelihood-otmanagementfraud —————- _– ·- ·-  ·- - · - ·Ã¢â‚¬â€œÃ‚ ·- · . †¢ 50 percent of planning materiality if reasonably low likelihood of management fraud, and †¢ 25 percent of planning materiality if moderate likelihood of management fraud Finally a lower tolerable misstatement may be required for specific accounts because of the relevance of the account to users.Tolerable misstatement for a specific account should not exceed that amount that would influence the decision of reasonable users. Approved: April 24, 2009 80 Anne Aylor, Inc. EXHIBIT 2 Anne Aylor, Inc. Accounting Policies Revenue Recognition -The Company records revenue as merchandise is sold to clients. The Company's policy with respect to gift certificates and gift cards is to record revenue as they are redeemed for merchandise. Prior to their redemption, these gift certificates and gift cards are recorded as a liability.While the Company honors all gift certificates and gift cards presented for payment, management reviews unclaimed property laws to determine gift certificate and gift card balances required for escheatment to the appropriate government agency. Amounts related to shi pping and handling billed to clients in a sales transaction are classified as revenue and the costs related to shipping product to clients are classified as cost of sales. A reserve for estimated returns is established when sales are recorded. The Company excludes sales taxes collected from customers from net sales in Its Statement of Operations.Cost of Sales and Selling, General and Administrative Expenses- The following table Illustrates the primary costs classified in each major expense category: Cost of Sales Cost of merchandise sold; Freight costs associated with moving merchandise from our suppliers to our distribution center; __ †¢ . – Costs asSociated with the rilovein8nt Of – merchandise-through. customsrCosts associated with the fulfUiment of online customer orders; Depreciation related to merchandise management systems; Sample development costs; Merchandise shortage; and Client shipping costs.Selling, General and Administrative Expenses Payroll, bonus a nd benefit costs for retail and corporate associates; –~- __Design and merchandising oosts;____ _ _ _ Occupancy costs for retail and corporate facilities; -Depreciation related to retail and corporate assets; · Advertising and marketing costs; Occupancy and other costs associated with operating our distribution center; Freight expenses associated with moving merchandise from our distribution center to our retail stores; and Legal, finance, Information systems and other corporate overhead costs.Advenlslng- Costs associated with the production of advertising, such as printing and other costs, as well as costs associated with communicating advertising that has been produced, such as magazine ads, are expensed when the advertising first appears In print. Costs of direct mall catalogs and postcards are fully expensed when the advertising Is scheduled to first arrive in clients' homes. Leases and Oete†ed Rent Obligations – Retail stores and administrative facilities are occupied under operating leases, most of which are non-cancelable.Some of the store leases grant the right to extend the term for one or two additional five-year periods under substantially the same terms and conditions as the original leases. Some store leases also contain early termination options, which can be exercised by the Company under specific conditions. Most of the store leases require payment of a specified minimum rent, plus a contingent rent based on a percentage of the store's net sales in excess of a specified threshold.In addition, most of the leases require payment of real estate taxes, Insurance and certain common area and maintenance costs In addition to the future minimum lease payments. Rent expense under non-cancelable operating leases with scheduled rent increases or free rent periods is accounted for on a straight-line basis over the initial lease term beginning on the date of initial possession, which is generally when the Company enters the space and b egins construction build-out Any reasonably assured renewals are considered. The amount of the excess of straight-line rent expense over scheduled payments is recorded as adeferred liability. 1 Anne Aylor, IlK. Construction allowances and other such lease incentives are recorded as deferred credits, and are amortized on a straight-line basis as a reduction of rent expense beginning in the period they are deemed to be earned, which often is subsequent to the date of initial possession and generally coincides with the store opening date. The current portion of unamortized deferred lease costs and construction allowances is included in â€Å"Accrued tenancy†, and the long-term portion is included in â€Å"Deferred lease costs† on the Company's Balance Sheets.Restructuring Costs – On January 30, 2008, the Company inniated a multi-year restructuring program designed to enhance protnability and improve overall operating effectiveness. The restructuring program, includ es closing underperforming stores over a three-year period, reducing the Company's corporate staff by approximately 1Oo/o and undertaking a broad-based productivity initiative that includes, among other things, the strategic procurement of non-merchandise goods and services.Restructuring costs include non-cash expenses, primarily associated wnh the write-down of assets related to store closures, cash charges related primarily to severance and various other costs to implement the restructuring program. Liabilities associated with restructuring charges are included in â€Å"Accrued salaties and bonus,† Accrued tenancy,† â€Å"Accrued expenses and other current liabilities,† and â€Å"Other liabilities. † Cash and Cash Equivalents – Cash and short-term highly liquid investments with original maturity dates of 3 months or less are considered cash or cash equivalents.The Company invests excess cash primarily in money market accounts and short-term commer cial paper. Financial Instruments- The Company's auction rate securities are classified as available-for-sale and are — - ·Ã‚ ·- ·Ã‚ · —–carried at. cost or_ par_ value,. which _appro,droaJe$J~! mM~~LV~-~~~ . I~_s. e_ sepurities have stated maturities beyond three months but are priced and traded as short-term instruments due to theliquiditY-provided fnrougn — - · – ·  ·Ã‚ ·  ·Ã¢â‚¬â€Ã¢â‚¬â€-  · - ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€œ – ·-ttie interesrratereset ·mechanism-of-2B-or35-days:– ·Ã¢â‚¬â€Ã¢â‚¬â€œÃ‚ ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€-  ·Ã¢â‚¬â€-. - ·Ã‚ ·- ·Ã¢â‚¬â€œÃ‚ ·Ã‚ ·- ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ · Merchandise Inventories – Merchandise inventories are valued at the lower of average cost or market, at the individual item level. Market is determined based on the estimated net realizable value, which is generally the merchandise selling price. Merchandise inventory levels are monitored to identify slow-moving items and broken assortments (items no longer in stock in a sufficient range of sizes) and markdowns are used to clear such merchandise. Merchandise inventory value is reduced if the selling price is marked below cost.Physical inventory counts are performed annually in January, and estimates are made for any shortage between the date of the physical inventory count and the balance sheet date. Store Pre-Opening Costs – Non-capital expendnures, such as rent, advertising and payroll costs incurred prior to the opening of a new store are charged to expense in the period they are incurred. Property and Equipment- Property and equipment are recorded at cost. Depreciation and amortization are computed on a straight-line basis over the following estimated useful lives: Building †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 0 yea rs Leasehold improvements †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 10 years or term of lease, if shorter Furniture, fixtures and equipment.. †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 2-1 0 years Software †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 5 years Accounting for the Impairment or Disposal of Long-Lived Assets – The assessment of possible impairment is based on tbe Company's ability to recover the carrying value of the long-lived asset from the expected future pre-tax cash flows (undiscounted and wnhout interest charges).If these cash flows are Jess tha11 the carrying value of such assets, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows. T he measurement of impairment requires management to make estimates of these cash flows related to long- 82 Anne Aylor, In(. lived assets, as well as other fair value determinations. Goodwill and lnde†nlte-llved Intangible Assets – The Company performs annual impairment testing related to the carrying value of the Company's recorded goodwill and indefinite-lived intangible assets.Defe†ed Financing Costs- Deferred financing costs are amortized using the effective interest method over the term of the related debt. Self Insurance – The Company is self-insured for certain losses related to its employee point of service medical and dental plans, its workers' compensation plan and for short-term disability up to certain thresholds. Costs for self-insurance claims filed, as well as claims incurred but not reported, are accrued based on management's estimates, using information received from plan administrators, third party activities, historical analysis, and other relevant data.Costs for seH-insurance claims filed and claims incurred but not reported are accrued based on known claims and historical experience. Income Taxes – The Company accounts for income using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized, and income or expense is recorded, for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Treasury Stock Repurchases – The Company repurchases common stock from time to time, subject to market conditions and at prevailing market prices, through open market purchases or in privately negotiated transactions. Repurchased shares of common stock are recorded using the ~ost method. - ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€œ —– — · – – – – – – – – –  œ – –  · ——- ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€- - ·Ã¢â‚¬â€Ã‚ · —- ——— · —- ·Ã‚ ·Ã¢â‚¬â€œÃ‚ ·Ã‚ ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€- ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€œ ————-Stock-based Compensation- The Company uses the modified prospective method to record stock-based — ·Ã‚ ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€Ã‚ ·Ã‚ ·- —compensation-:-Thecalculaticinof stocK-baseifcompensatiOn exp-ense requirestne input ofnigtily subjective___  ·Ã¢â‚¬â€œÃ‚ ·Ã‚ ·Ã‚ ·  ·Ã¢â‚¬â€Ã¢â‚¬â€œ.. -†¦ assumptions, including the expected term of the stock-based awards, stock price volatility, and pre-vesting forfeitures. The Company estimates the expected IHe of shares granted in connection with stock-based awards using historical exercise patterns, which is assumed to be representative of future behavior.The volatility of common stock at the date of grant is estimated based on an average of the historical volatility and the implied volatility of publicly traded options on the common stock. In add†ion, the expected forfe†ure rate is estimated and expense is only recorded for those shares expected to vest. Forfeitures are estimated based on historical experience of stock-based awards granted, exercised and cancelled, as well as considering future expected behavior.Savings Plan and Pension Plan -In June 2006, the Company's Board of Directors authorized management to freeze â€Å"s non-contributory defined benefit pension plan (the â€Å"Pension Plan†) and enhance its defined contribution 401 (k) savings plan (the â€Å"401 (k) Plan;. These plan changes became effective on October 1, 2006. Savings Plan – Substantially all employees of the Company and â€Å"s subsidiaries who work at least 30 hours per week or who work 1,000 hours during a consecutive 12 month period are eligible to participate in the Company's 401 (k) Plan.Under the plan, participants can contribute an aggr egate of up to 75o/o of their annual earnings in any combination of pre-tax and after-tax contributions, subject to certain lim†ations. The Company makes a matching -contribution of 1OOo/o w†h respect to the first 3o/o of each participant's contributions to the 401 (k) Plan and makes a matching contribution of 50o/o with respect to the second 3o/o of each participant's contributions to the 401 (k) Plan.Pension Plan- Substantially all employees of the Company who began employment prior to October 1, 2006, and completed 1,000 hours of service during a consecutive 12 month period prior to that date are eligible for benefits under the Company's Pension Plan. The Pension Plan calculates benefits based on a career average formula. Only those associates who were eligible under the Pension Plan on or before September 30, 2006 are eligible to receive benefits from the Pension P! an once they have completed the five years of 83 Anne Aylor, Inc. ervice required to become fully vest ed. As a resu~t of the Pension Plan freeze, no associate may become a participant in the Pension Plan on or after October 1, 2006, and no additional benefits will be earned under the Pension Plan on or after October 1, 2006. The Company records the net over- or under-funded position of a defined benefit postretirement plan as an other asset or other liability, with any unrecognized prior service costs, transition obligations or actuarial gains/losses reported as a component of accumulated other comprehensive income in stockholders' equity.Other Liabilities – Other liabil~ies includes liabilities associated with the Company's restructuring program, pension plan, borrowings for the purchase of fixed assets, and obligation tor excess corporate office space. — ·Ã‚ ·Ã¢â‚¬â€- ·Ã¢â‚¬â€Ã¢â‚¬â€œ —– ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€ —- ·Ã¢â‚¬â€- ·- - ·Ã¢â‚¬â€Ã¢â‚¬â€Ã‚ ·-  ·Ã¢â‚¬â€- – ·Ã¢â‚¬â€Ã‚ ·Ã‚ ·Ã¢â‚¬â€- ·- ·Ã¢â‚¬â€œ - ·- ·- ·Ã¢â‚¬â€Ã‚ · — ·Ã¢â‚¬â€Ã¢â‚¬â€œÃ‚ ·Ã¢â‚¬â€- ·.  ·- ·Ã¢â‚¬â€Ã‚ ·Ã‚ ·  ·- ·- - ·  ·- ·Ã¢â‚¬â€œÃ‚ ·  ·- ·- ·- —– ·- 84 Anne Aylor, In(. Anne Aylor, Inc. Memo: Analysis of Performance First Quarter Year Ended: January 28,2012 Reference: Prepared by: Date: G3 DF 6115111 Reviewed by: Net sales for the first quarter of fiscal 2012 increased 7. 5 percent from the first o quarter – f fiscal 2011.Comparable store sales for the first quarter of fiscal 2012 increased 5. 1 percent, compared to a comparable store sales increase of 2. 5 percent in the first quarter offiscal201 J. The Company saw improvement in same store sales as a result of a targeted promotional strategy that helped drive increased traffic to Company stores. The Company also continues to experience growth in e-commerce sales that are up by more than 20% over the previous comparable period. Gross margin as a percentage of net sales increased to 54. 5 percent in the first q uarter of fiscal 2012, compared to 53. 0 percent in the first quarter of fiscal 2011.The increase in gross margin as a percentage of net sales for the first quarter of fiscal 2012 as compared to the comparable fiscal 2011 period was due primarily to higher full price sales as a percentage of total sales coupled with higher margin rates achieved on both full price and non-full price sales at stores. This performance was the result of improved product offerings, effective marketing initiatives and the success of the Company's strategy to appropriately position inventory levels. ——————————————– ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€œÃ‚ · - ·Ã¢â‚¬â€- ———— ·Ã¢â‚¬â€Ã‚ ·Ã‚ ·Ã¢â‚¬â€Ã‚ ·Ã¢â‚¬â€Ã‚ · ——– ·Ã¢â‚¬â€œÃ‚ ·Ã‚ ·- ·Ã‚ ·Ã‚ ·Selling, general and administrative expenses as a percentage of net sales decreased —— — â €”—– ———-ro–48:1 percent; -;n-rhe first quanero jlsCiir20n ;–co paredto5o:g peicenroj ner — — ———– —–f m sales in the first quarter of fiscal 2011. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to improved operating leverage as a result of higher net sales, payroll and tenancy related savings associated with the restructuring program, and continued focus on cost savings initiatives.The decrease in selling, general and administrative expenses was partially offset by higher marketing and performance-based compensation expenses. Net income as a percentage of net sales increased to 3. 8 percent in the first quarter of fiscal 2012, compared to 2. 6 percent in the first quarter of fiscal 2011. The increase in net income as a percentage of net sales is due to strong full price selling at Company stores and improved operat ing efficiencies. 85 Anne A~or, Inc. Anne Aylor, Inc.Planning Materiality AsiiiSrnent Year Ended: January 28, 2012 Primary Users of Financial Statements (llat): Reference: Prepared by: Date: Reviewed by: G5 Materla! ltl_Bases On thousands_}: Flscal2011 Actual Financial Statement Bat Amounts Income Before Taxes Net Revenues Current Uabilltles Current Assets—– Total Assets Planning Materiality On thousands): Explanation: Flscal2012 Planning Materiality Levels Projected Upper Limit Lower Limit Financial Dollar Statement Dollar Amount Percent Amounts Percent Amount 2 7 – 2– –0. 5 – –7 2 7 2 0. 5 2 – – – I$ 87 Anne Aylor, Inc. Anne Aylor, Inc. Tolerable Mlutatement Assessment Year Ended: January 28, 2012 Reference: Prepared by: Dale: Reviewed by: G6 Likelihood of Management Fraud (check one): Low Likelihood of Management Fraud Reasonably Low Likelihood of Management Fraud Moderate Likelihood of Management Fraud Tolerab le Misstatement (In thousands): Planning Materiality: Multiplication Factor (0. 75 if low likelihood of management fraud, 0. 50 if reasonably low likelihood of management fraud, and 0. 25 if moderate likelihood of management fraud).Tolerable Misstatement (In thousands) $ X $ :;pee S lflc Accounts Requiring Lower Tolerable Mlsstatement: Account Tolerable Misstatement Explanation;- — —– ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€œÃ‚ ·- ·- ·Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€Ã¢â‚¬â€- — —————- · . ——- · —–~– ——— ·- ·Ã‚ ·Ã‚ ·Ã‚ · .†¢. —– ——-â€Å"‘ —- – —- ——- - ·  ·Ã¢â‚¬â€- ·- — – †¦. ——— — ·Ã¢â‚¬â€ —- Explanation: Explanation: Explanation: Explanation: Explanation: 88 Anne Aylor, Inc. Anne Aylor, Inc. Planning Materiality Finan cial Information YearEnded:January28,2012 Reference: Prepared by: G7 Data: Reviewed by: 1/28/2012 1/29/2011Projected Actual All amonts are in thousands 1,355,400 $ $ 1,243,788 Net sales 599,700 562,427 Cost of sales 755,700 681,361 Gross margin 659,800 627,622 SeiUng, general and administrative expenses 3,856 Restructuring charges 0 95,900 Operating income/(loss 49,883 Interest income 700 636 1,200 Interest expense 1,009 95,400 lncome/(loss) before income taxes 49,510 Income tax provlsion/(beneflt) 36,900 18,408 Net lncome/(loss) 58,500 $—-~=-$—=-3a1,~10†¢2 A11ets Current assets Cash and cash equivalents $ 156,600 $ 138,194 . ___ Accountsreceivable ____ - ·Ã¢â‚¬â€Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€- – ·- ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€Ã‚ ·Ã¢â‚¬â€œÃ‚ ·Ã‚ ·Ã¢â‚¬â€Ã¢â‚¬â€- ·Ã‚ ·Ã¢â‚¬â€œÃ‚ ·Ã¢â‚¬â€Ã¢â‚¬â€œÃ‚ ·12,100– —— 12,67o- ·-.. —- · Merchandise Inventories 133,800 111,229  ·Refundable Income- taxes- ·Ã¢â‚¬â€-~— · – ·-  ·-  ·- —  ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã‚ ·Ã¢â‚¬â€œ —- ·- ·Ã‚ ·  ·Ã‚ ·-  ·  ·- · —– ·  ·Ã‚ ·Ã‚ · —- —– – ·  ·- ·- –  ·- · —- —— ·  ·Ã¢â‚¬â€Ã¢â‚¬â€œ18,400 16,394 Deferred income taxes Prepaid expenses and other current assets Total current assets Property and equipment net Deferred financing costs, net Deferred Income taxes Other assets Total assets Uabllltles and Stockholdn' Equity Current llabllltles Accounts payable Accrued salaries and bonus Accrued tenancy Gift certificates and merchandise credits redeemable Accrued expenses and other current Uabilltles Total current liabilities Deferred lease costs Deferred income taxes Long-term performance compensation Other liabilities Total liabilities Stockholders' equity Common stock and paid in capital Retained earnings Accumulated other comprehensive loss Treasury stock Total stockholders' equity . Total liabilities and stoc kholders' equity $