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November 11, 2003 All You Ever Wanted to Know About Financial Statements Statement of Cash Flows All You Ever Wanted to Know About Financial Statements.

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Presentation on theme: "November 11, 2003 All You Ever Wanted to Know About Financial Statements Statement of Cash Flows All You Ever Wanted to Know About Financial Statements."— Presentation transcript:

1 November 11, 2003 All You Ever Wanted to Know About Financial Statements Statement of Cash Flows All You Ever Wanted to Know About Financial Statements Statement of Cash Flows

2 2 n Introduction31 n What is the Cash Flow Statement? 8 n Reconciling Opening and Closing Cash Balances9 n Reconciliation of Changes in Cash Flow Accounts by Variations in Other Balance Sheet Accounts10 n Categorizing Cash Inflows and Outflows as Operating, Financing and Investing Flows11 n Operating Activities12 n Example of Cash Flow Statements13 n The Forzani Group Ltd. – Financial Statements: l February l February Table of Contents PageTab

3 3 The Forzani Group Ltd. – Annual Report 1995 Introduction

4 4 Increase of 32% Total $73.4 millions Sales 1994 Increase of 304% Total $196.7 millions Sales 1995 of a Winning Year Highlights Sales Earnings before interest, tax, depreciation and amortization Earnings Earnings per share Cash flows generated by operating activities Total assets Debt Financial Return (in millions of $) Operating Statistics Number of stores at the end of the year Total area at the end of the year (square feet) Number of employees at the end of the year 296,7 14,2 7,7 1,02 11,9 133,9 – ,495,911 3,100 73,7 4,0 2,1 0,61 4,6 45,0 1, ,399 1, % 255% 270% 67% 290% 198% s.o. Difference 233% 326% 178% The Forzani Group Ltd. - Annual Report 1995 Introduction (cont’d)

5 5 Sales Year ended January 31 ($000,000s) Earnings before Taxes Year ended January 31 ($000,000s) The greater number of stores and significant increase in sales of existing stores resulted in sales increasing by 304% in The integration of all head office functions, as well as the improved profitability of operating activities resulting from savings attributable to the greater number of stores have resulted in an increase of earnings after interest depreciation and amortization of 255%. The Forzani Group Ltd. - Annual Report 1995 Introduction (cont’d)

6 6 January 29, 1995 January 30, 1994 For the years ended Cash provided by (used in) operating activities Net Income$7,669 $2,072 Items not involving cash: Depreciation5,660 1,456 Amortization of deferred inducements(1,403)(464) Others(62)(21) 11,864 3,043 Changes in non-cash operating elements of working capital(8,285)(6,934) 3,579 (3,891) Cash provided by (used in) financing activities Advances to parent company– (16) Long-Term Debt161 (38) Proceeds from issuance of shares (net of issuance fees)28,305 10,243 Contingent liability on acquisition of subsidiary2,250 – Obligations under capital leases(210)(217) Deferred inducements3,340 2,210 33,846 12,182 Cash provided by (used in) investing activities Acquisition of subsidiary (net of cash)(21,882)– Proceeds from sale of fixed assets572 1 Acquisition of fixed assets(8,755)(6,039) Acquisition of other assets(976)(6) (31,041)(6,044) Increase in cash6,384 2,247 Cash, beginning of the year cash(1,597)(3,844) Cash, end of the year4,787 (1,597) Represented by: Cash4, Indebtedness under revolving credit facility– (1,680) 4,787 (1,597) The Forzani Group Ltd. Consolidated Statement of Cash Flows 6

7 7 Financial Statements Trial Balance (T/B) General Ledger (G/L) Transactions Entries Accounting Process Introduction (cont’d)

8 8 What is the Cash Flow Statement? n The cash flow statement summarizes the period’s cash flows to reconcile the opening and closing cash balances of the company. The sources and uses of cash are distinguished between the operating, investing and financing activities of the company. The cash flow statement is prepared by calculating the change in each balance sheet account, classifying that net change as either a cash inflow or cash outflow, and categorizing those inflows and outflows as operating, financing or investing flows. This represents somewhat of an oversimplification, since the net change in an account may be the result of any combination of these three categories of activities. Hence, three elements: n The cash flow statement summarizes the period’s cash flows to reconcile the opening and closing cash balances of the company. The sources and uses of cash are distinguished between the operating, investing and financing activities of the company. The cash flow statement is prepared by calculating the change in each balance sheet account, classifying that net change as either a cash inflow or cash outflow, and categorizing those inflows and outflows as operating, financing or investing flows. This represents somewhat of an oversimplification, since the net change in an account may be the result of any combination of these three categories of activities. Hence, three elements: Reconciling opening and closing cash balances1 n The cash flow statement summarizes the period’s cash flows to reconcile the opening and closing cash balances of the company. The sources and uses of cash are distinguished between the operating, investing and financing activities of the company. The cash flow statement is prepared by calculating the change in each balance sheet account, classifying that net change as either a cash inflow or cash outflow, and categorizing those inflows and outflows as operating, financing or investing flows. This represents somewhat of an oversimplification, since the net change in an account may be the result of any combination of these three categories of activities. Hence, three elements: Reconciling opening and closing cash balances1 Calculating the change in each balance sheet account2 n The cash flow statement summarizes the period’s cash flows to reconcile the opening and closing cash balances of the company. The sources and uses of cash are distinguished between the operating, investing and financing activities of the company. The cash flow statement is prepared by calculating the change in each balance sheet account, classifying that net change as either a cash inflow or cash outflow, and categorizing those inflows and outflows as operating, financing or investing flows. This represents somewhat of an oversimplification, since the net change in an account may be the result of any combination of these three categories of activities. Hence, three elements: Reconciling opening and closing cash balances1 Calculating the change in each balance sheet account2 Categorizing those inflows and outflows as operating, financing or investing flows3

9 9 Reconciling Opening and Closing Cash Balances n “Cash” comprises cash on hand and demand deposits. n “Cash Equivalents” are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

10 10 The Forzani Group Ltd. Reconciliation of changes in cash flow accounts by variations in other Balance Sheet accounts $137,852 $148,708 Increase (Decrease) in cash during the year ($33,079 - $30,784 = $2,295) $(2,295) Cash, beginning of year ($4,917 - $37,996) Cash, end of year ($592 - $31,376) Current Cash Accounts receivable Inventory Prepaid expenses Sub-Total Capital Assets Other Assets $592 7,306 87,084 5,477 $100,459 $36,109 $1,284 $137,852 Current Indebtedness under revolving C/F A/P and accrued liabilities Current Portion of Long-term Debt Sub-Total Long-term debt Deferred lease inducements Sub-Total Share Capital Retained Earnings (deficit) Sub-Total 1998Assets Liabilities and Shareholders’ Equity $4,917 15,619 77,645 5,989 $104,170 $42,572 $1,966 $148, $31,397 45,874 1,631 $78,881 $10,359 $10,529 $99,769 $60,542 $(22,459) $38, $37,996 72, $111,166 $5,706 $12,736 $129,608 $42,328 $(23,228) $19, $2,295 $(33,079) $(30,784) $8,313 (9,439) 512 $6,463 $682 $(26,908) 1,243 $4,653 $(2,207) $18,214 $769 Cash Generated (Cash Used) $4,325 $(6,620) Difference in Cash Difference (1997 – 1998) $4,325 8,313 (9,439) 512 $3,711 $6,463 $682 $6,620 26,908 (1,243) $32,285 $(4,653) $2,207 $29,839 $(18,214) $(769) Difference (1997 – 1998) $10,856

11 11 Categorizing Cash Inflows and Outflows as Operating, Financing and Investing Flows n “Operating Activities” are the principal revenue-producing activities of the enterprise and all other activities that are not investing or financing activities. n “Investing Activities” are the acquisitions and disposals of long term assets and other investments not included in cash equivalents. n “Financing Activities” are the activities that result in changes in the size and composition of equity capital and borrowings of the enterprise.

12 12 Operating Activities n An enterprise should report cash flows from operating activities using either the direct method or the indirect method. n Under the indirect method, the net cash flows from operating activities is determined by adjusting net income or loss for the effects of: a.non-cash items such as depreciation, provisions for losses, future taxes, unrealized foreign currency gains and losses, undistributed profits of equity accounted investees and non-controlling interest. b.changes during the period in inventories and operating receivables and payables; c.other deferrals or accruals of past or future operating cash receipts or payments; and d.revenues, expenses, gains or losses associated with investing or financing cash flows.

13 13 The Forzani Group Ltd. Statement of Cash Flows (1) $– Net Income Non-Cash items from Income Statements: -Depreciation and Amortization Change in Non-Cash items of Working Capital Cash Flows from Operating Activities $0.00 (1) Cash, beginning of year $0.00 Increase (Decrease) in cash during the year (1) + (2) + (3) $0.00 Cash, end of year $0.00 Cash generated by Operating Activities (3) $0.00 Cash Flows from Investing Activities $ – Sale (Purchase) of Fixed Assets (3) Cash generated by Investing Activities (2) $ – Issue (Redemption) of Shares Payment of Dividends Increase (Decrease) of Long-Term Debt Cash Flows from Financing Activities $0.00 (2) Cash generated by Financing Activities

14 14 The Forzani Group Ltd. Consolidated Balance Sheets ($000s) February 2, 1997 February 1, 1998 Approved on behalf of the Board: (signed) Roman Doroniuk, Director (signed) John M. Forzani, Director Assets Current Cash$592$4,917 Accounts receivable7,30615,619 Inventory87,08477,645 Prepaid expenses5,4775, ,459104,170 Capital assets (Note 3)36,10942,572 Other assets (Note 4)1,2841,966 $137,852$148,708 Liabilities and Shareholders’ Equity Current Indebtedness under revolving credit facility (Note 5)$31,376$37,996 Accounts payable and accrued liabilities45,87472,782 Current portion of long-term debt1, ,881111,166 Long-term debt (Note 6)10,3595,706 Deferred lease inducements10,52912,736 99,769129,608 Share capital (Note 7) 60,54242,328 Retained earnings (deficit) (22,459)(23,228) 38,08319,100 $137,852$148,708

15 15 The Forzani Group Ltd. Consolidated Statements of Operations and Deficit Corporate and Franchise Retail Sales (unaudited – Note 12)$439,141$432,196 Revenue Corporate$242,579$251,893 Franchise33,80291, ,381343,397 Cost of sales168,539237,483 Gross margin107,842105,914 Operating and administrative expenses Store operating69,77674,892 General and administrative26,60534,112 96,381109,004 Operating income (loss) before undernoted items11,461(3,090) Amortization6,9858,776 Interest3,7075,145 10,69213,921 Income (loss) from ongoing operations before the following769(17,011) Unusual items (Note 8)-9,858 Discontinued operations (Note 9)-5,916 Net income (loss) for the year769(32,785) Retained earnings (deficit), beginning of year(23,228)9,557 February 1, 1998 (52 weeks) February 2, 1997 (52 weeks) Retained earnings (deficit), end of year$(22,459)$(23,228) Basic earnings (loss) per share$0,05$(4,32) Total number of common shares outstanding19,027,9167,591,250 Weighted average number of common shares outstanding14,318,9587,591,250 ($000s, Except for Per Share Data)

16 16 The Forzani Group Ltd. Notes to Consolidated Financial Statements (cont’d) nDuring the year, the Company refinanced its operations. The refinancing was achieved with the support of suppliers, landlords, the Company’s principal lender and with the issue of common equity. The purpose of the refinancing was to provide liquidity to fund operations, to ensure that the Company could meet its obligations as they came due and to support its restructuring initiatives. The voluntary financial support provided by the Company’s major suppliers and landlords by way of deferral of existing and future liabilities, in the amount of approximately $20 million, carried no interest. The supplier deferrals due were repaid during the year. The landlord deferrals are repayable over three years. One-third of the landlord deferrals were repaid during the year. The principal lender provided additional support of $8 million carrying interest at an effective rate of prime plus 4%. The Company repaid the advance during the year, and subsequently obtained a secured term credit facility of $5,400,000 (see Note 6). nThe equity infusion was made via insurance of 10,900,000 special warrants (see Note 7). Proceeds from the offering were applied against the Company’s revolving credit facility, thereby improving its general working capital position. Subsequent to year end, the Company issued an additional 4,650,000 special warrants (see Note 14). The proceeds from this offering were used to repay the secured term credit facility and to provide additional working capital to support store renovations and additions. n Tabular amounts in thousands of dollars Refinancing 2.

17 17 How to derive the Statement of Cash Flows Net cash position (indebtedness), beginning of the year Increase (decrease) in cash Net cash position (indebtedness), end of the year $(33,079) $2,295 $(30,784) $148,708 $137,852 Current Cash Accounts receivable Inventory Prepaid expenses Sub-Total Capital Assets Other Assets $592 7,306 87,084 5,477 $100,459 $36,109 $1,284 $137,852 Current Indebtedness under revolving C/F A/P and accrued liabilities Current Portion of Long-term Debt Sub-Total Long-term debt Deferred lease inducements Sub-Total Share Capital Retained Earnings (deficit) Sub-Total 1998Assets Liabilities and Shareholders’ Equity $4,917 15,619 77,645 5,989 $104,170 $42,572 $1, $31,397 45,874 1,631 $78,881 $10,359 $10,529 $99,769 $60,542 $(22,459) $38, $37,996 72, $111,166 $5,706 $12,736 $129,608 $42,328 $(23,228) $19, Current Indebtedness under revolv. C/F A/P and accrued liabilities Current Portion of LTD Total current Long-term debt Deferred lease inducements Total Liabilities Share Capital Retained Earnings (deficit) Liabilities and Shareholders’ Equity Current Cash Accounts receivable Inventory Prepaid expenses Total current Capital Assets Other Assets Assets $(4,325) (8,313) 9,439 (512) $(3,711) $(6,463) $(682) $(6,620) (26,908) 1,243 $32,285 $4,653 $(2,207) $(29,839) $18,214 $769 Difference Difference $(1,852) (248) $18,214 7,230 (1,334) $769 6, (1,797) 1,562 (713) $7,351 $(27,522) Net Income (loss) from ongoing operations Items not involving cash: Amortization Amortization of finance charges Amortization of deferred lease inducements Write-off of capital assets Write-off of deferred lease inducements Sub-Total Changes in non-cash operating elements of Working Capital Proceeds from share capital and issuance of S/W Proceeds from issuance of long-term debt Principal repayment of long-term debt Proceeds from deferred lease inducements Collection of long-term receivable 1998 Cash provided by (used in) operating activities Cash provided by (used in) financing activities Addition of capital assets Addition of other assets Cash provided by (used in) investing activities $(2,100) $24,566 $(20,171)

18 18 $(4,325) (8,313) 9,439 (512) $(3,711) $(6,463) $(682) $(1,852) (248) $18,214 7,230 (1,334) $769 6, (1,797) 1,562 (713) $7,351 $(27,522) Net Income (loss) from ongoing operations Items not involving cash: Amortization Amortization of finance charges Amortization of deferred lease inducements Write-off of capital assets Write-off of deferred lease inducements Sub-Total Changes in non-cash operating elements of Working Capital $(20,171 Proceeds from share capital and issuance of S/W Proceeds from issuance of long-term debt Principal repayment of long-term debt Proceeds from deferred lease inducements Collection of long-term receivable $24, Cash provided by (used in) operating activities Cash provided by (used in) financing activities Addition of capital assets Addition of other assets $(2,100) Cash provided by (used in) investing activities The Forzani Group Ltd. Statement of Changes in Financial Position Current Indebtedness under revolv. C/F A/P and accrued liabilities Current Portion of LTD Total current Long-term debt Deferred lease inducements Total Liabilities Share Capital Retained Earnings (deficit) $(6,620) (26,908) 1,243 $32,285 $4,653 $(2,207) $(29,839) $18,214 $769 Liabilities and Shareholders’ Equity Difference $(20,171) $24,566 $(2,100) Current Cash Accounts receivable Inventory Prepaid expenses Total current Capital Assets Other Assets Assets Net cash position (indebtedness), beginning of the year Increase (decrease) in cash Net cash position (indebtedness), end of the year $(33,079) $2,295 $(30,784) Difference $7,145 $614 = (A) + (B) + (C) $(20,171)(A) $24,566 (B) $(2,100)(C) $(4,325) (8,313) 9,439 (512) $(3,711) $(6,463) $(682) $(1,852) (248) $18,214 7,230 (1,334) $769 6, (1,797) 1,562 (713) $7,351 $(27,522) Net Income (loss) from ongoing operations Items not involving cash: Amortization Amortization of finance charges Amortization of deferred lease inducements Write-off of capital assets Write-off of deferred lease inducements Sub-Total Changes in non-cash operating elements of Working Capital $(20,171 Proceeds from share capital and issuance of S/W Proceeds from issuance of long-term debt Principal repayment of long-term debt Proceeds from deferred lease inducements Collection of long-term receivable $24, Cash provided by (used in) operating activities Cash provided by (used in) financing activities Addition of capital assets Addition of other assets $(2,100) Cash provided by (used in) investing activities Current Indebtedness under revolving C/F A/P and accrued liabilities Current Portion of LTD Total current Long-term debt Deferred lease inducements Total Liabilities Share Capital Retained Earnings (deficit) $(6,620) (26,908) 1,243 $32,285 $4,653 $(2,207) $(29,839) $18,214 $769 Liabilities and Shareholders’ Equity Difference $(20,171) $24,566 $(2,100) Current Cash Accounts receivable Inventory Prepaid expenses Total current Capital Assets Other Assets Assets Net cash position (indebtedness), beginning of the year Increase (decrease) in cash Net cash position (indebtedness), end of the year $(33,079) $2,295 $(30,784) Difference $7,145 $614 = (A) + (B) + (C) $(20,171)(A) $24,566 (B) $(2,100)(C)

19 19 Accounting Formula Assets LiabilitiesOwners’ Equity = + Cash Portion (Assets) Non Cash Portion (Assets) Cash Portion (L + OE) Non Cash Portion (L + OE) ++= Cash Portion (Assets) Cash Portion (L + OE) Non Cash Portion (L + OE) Non Cash Portion (Assets) =


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