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

November 11, 2003November 11, 2003

All You Ever Wantedto Know About

Financial Statements

Statement of Cash Flows

All You Ever Wantedto Know About


Statement of Cash Flows

2

Introduction 3 1 What is the Cash Flow Statement? 8 Reconciling Opening and Closing Cash Balances 9 Reconciliation of Changes in Cash Flow Accounts

by Variations in Other Balance Sheet Accounts 10 Categorizing Cash Inflows and Outflows as Operating,

Financing and Investing Flows 11 Operating Activities 12 Example of Cash Flow Statements 13 The Forzani Group Ltd. – Financial Statements:

February 19952

February 19983

Table of ContentsTable of Contents

Page

Tab

3

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

4

Increase of 32%Increase of 32%Total $73.4 millionsTotal $73.4 millions

Sales 1994Sales 1994

Increase of 304%Increase of 304%Total $196.7 millionsTotal $196.7 millions

Sales 1995Sales 1995

of a Winning Year

HighlightsHighlights

SalesEarnings before interest, tax, depreciation and amortizationEarningsEarnings per shareCash flows generated by operating activitiesTotal assetsDebt

Financial Return Financial Return (in millions of $)(in millions of $)

Operating StatisticsNumber of stores at the end of the yearTotal area at the end of the year (square feet)Number of employees at the end of the year

296,714,27,7

1,0211,9

133,9–

19951995

2731,495,911

3,100

73,74,02,1

0,614,6

45,01,7

19941994

82351,399

1,120

304%255%270%

67%290%198%

s.o.

DifferenceDifference

233%326%178%

The Forzani Group Ltd. - Annual Report 1995Introduction (cont’d)The Forzani Group Ltd. - Annual Report 1995Introduction (cont’d)

5

22.2 46 55.6 73.4

296.7

1991 1992 1993 1994 1995

0.4 0.31.2

2

7.7

1991 1992 1993 1994 1995

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 1995.

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 1995Introduction (cont’d)The Forzani Group Ltd. - Annual Report 1995Introduction (cont’d)

6

January 29, 1995January 29, 1995 January 30, 1994January 30, 1994For the years ended

Cash provided by (used in) operating activitiesNet Income $ 7,669 $ 2,072 Items not involving cash:

Depreciation 5,660 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 activitiesAdvances to parent company – (16)Long-Term Debt 161 (38)Proceeds from issuance of shares (net of issuance fees) 28,305 10,243 Contingent liability on acquisition of subsidiary 2,250 – Obligations under capital leases (210) (217)Deferred inducements 3,340 2,210

33,846 12,182

Cash provided by (used in) investing activitiesAcquisition of subsidiary (net of cash) (21,882) – Proceeds from sale of fixed assets 572 1 Acquisition of fixed assets (8,755) (6,039)Acquisition of other assets (976) (6)

(31,041) (6,044)

Increase in cash 6,384 2,247 Cash, beginning of the year cash (1,597) (3,844)

Cash, end of the year 4,787 (1,597)Represented by:

Cash 4,787 83 Indebtedness under revolving credit facility – (1,680)

4,787 (1,597)

The Forzani Group Ltd.Consolidated Statement of Cash FlowsThe Forzani Group Ltd.Consolidated Statement of Cash Flows

6

7


Trial Balance (T/B)Trial Balance (T/B)

General Ledger (G/L)General Ledger (G/L)

TransactionsTransactions

EntriesEntries

Accounting ProcessIntroduction (cont’d)Accounting ProcessIntroduction (cont’d)

8

What is the Cash Flow Statement?What is the Cash Flow Statement?

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 balances11




Calculating the change in each balance sheet account22




Calculating the change in each balance sheet account22

Categorizing those inflows and outflows as operating, financing or investing flows33

9

Reconciling Opening and Closing Cash BalancesReconciling Opening and Closing Cash Balances

“Cash” comprises cash on hand and demand deposits.

“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

The Forzani Group Ltd.Reconciliation of changes in cash flow accounts by variations in otherBalance Sheet accounts

The Forzani Group Ltd.Reconciliation of changes in cash flow accounts by variations in otherBalance 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)

CurrentCashAccounts receivableInventoryPrepaid expenses

Sub-TotalCapital AssetsOther Assets

$ 5927,306

87,0845,477

$ 100,459$ 36,109$ 1,284

$ 137,852

CurrentIndebtedness under revolving C/FA/P and accrued liabilitiesCurrent Portion of Long-term Debt

Sub-TotalLong-term debtDeferred lease inducements

Sub-TotalShare CapitalRetained Earnings (deficit)

Sub-Total

19981998AssetsAssets

Liabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity

$ 4,91715,61977,645

5,989$ 104,170$ 42,572$ 1,966

$ 148,708

19971997

$ 31,397 45,874

1,631 $ 78,881 $ 10,359 $ 10,529 $ 99,769 $ 60,542 $ (22,459)$ 38,083

19981998

$ 37,996 72,782

388 $ 111,166 $ 5,706 $ 12,736 $ 129,608 $ 42,328 $ (23,228)$ 19,100

19971997

$ 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 GeneratedCash Generated(Cash Used)(Cash Used)

Cash GeneratedCash Generated(Cash Used)(Cash Used)

$ 4,325

$ (6,620)

DifferenceDifferencein Cashin Cash

DifferenceDifferencein Cashin Cash

DifferenceDifference(1997 – 1998)(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)

DifferenceDifference(1997 – 1998)(1997 – 1998)

$ 10,856

$ 10,856

11

Categorizing Cash Inflows and Outflows as Operating, Financing and Investing FlowsCategorizing Cash Inflows and Outflows as Operating, Financing and Investing Flows

“Operating Activities” are the principal revenue-producing activities of the enterprise and all other activities that are not investing or financing activities.

“Investing Activities” are the acquisitions and disposals of long term assets and other investments not included in cash equivalents.

“Financing Activities” are the activities that result in changes in the size and composition of equity capital and borrowings of the enterprise.

12

Operating ActivitiesOperating Activities

An enterprise should report cash flows from operating activities using either the direct method or the indirect method.

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

The Forzani Group Ltd.Statement of Cash FlowsThe Forzani Group Ltd.Statement of Cash Flows

(1)

$ –

$ – $ –

Net IncomeNon-Cash items from Income Statements:

- Depreciation and AmortizationChange 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 ActivitiesCash generated by Operating Activities

(3)

$ 0.00Cash Flows from Investing Activities

$ – Sale (Purchase) of Fixed Assets

(3)

Cash generated by Investing ActivitiesCash generated by Investing Activities

(2)

$ – $ – $ –

Issue (Redemption) of SharesPayment of DividendsIncrease (Decrease) of Long-Term Debt

Cash Flows from Financing Activities $ 0.00 (2)

Cash generated by Financing ActivitiesCash generated by Financing Activities

14

The Forzani Group Ltd. Consolidated Balance Sheets ($000s)

The Forzani Group Ltd. Consolidated Balance Sheets ($000s)

February 2, 1997February 2, 1997February 1, 1998February 1, 1998

Approved on behalf of the Board:

(signed) Roman Doroniuk, Director

(signed) John M. Forzani, Director

Assets

CurrentCash $ 592 $ 4,917Accounts receivable 7,306 15,619Inventory 87,084 77,645Prepaid expenses 5,477 5,989

100,459 104,170

Capital assets (Note 3) 36,109 42,572Other assets (Note 4) 1,284 1,966

$ 137,852 $ 148,708

Liabilities and Shareholders’ Equity

CurrentIndebtedness under revolving credit facility (Note 5) $ 31,376 $ 37,996Accounts payable and accrued liabilities 45,874 72,782Current portion of long-term debt 1,631 388

78,881 111,166Long-term debt (Note 6) 10,359 5,706Deferred lease inducements 10,529 12,736

99,769 129,608 Share capital (Note 7) 60,542 42,328 Retained earnings (deficit) (22,459) (23,228)

38,083 19,100

$ 137,852 $ 148,708

15

The Forzani Group Ltd.Consolidated Statements of Operations and DeficitThe Forzani Group Ltd.Consolidated Statements of Operations and Deficit

Corporate and Franchise Retail Sales (unaudited – Note 12) $ 439,141 $ 432,196

RevenueCorporate $ 242,579 $ 251,893Franchise 33,802 91,504

276,381 343,397

Cost of sales 168,539 237,483

Gross margin 107,842 105,914

Operating and administrative expensesStore operating 69,776 74,892General and administrative 26,605 34,112

96,381 109,004

Operating income (loss) before undernoted items 11,461 (3,090)

Amortization 6,985 8,776Interest 3,707 5,145

10,692 13,921

Income (loss) from ongoing operations before the following 769 (17,011)Unusual items (Note 8) - 9,858Discontinued operations (Note 9) - 5,916

Net income (loss) for the year 769 (32,785)Retained earnings (deficit), beginning of year (23,228) 9,557

February 1, 1998February 1, 1998(52 weeks)(52 weeks)

February 2, 1997February 2, 1997(52 weeks)(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 outstanding 19,027,916 7,591,250

Weighted average number of common shares outstanding 14,318,958 7,591,250

($000s, Except for Per Share Data)

16

The Forzani Group Ltd.Notes to Consolidated Financial Statements (cont’d)

The Forzani Group Ltd.Notes to Consolidated Financial Statements (cont’d)

During 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).

The 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.

Tabular amounts in thousands of dollars

RefinancingRefinancing2.2.

17

How to derive the Statement of Cash FlowsHow 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

$ 148,708

$ 137,852


Sub-TotalCapital AssetsOther Assets

$ 5927,306

87,0845,477

$ 100,459$ 36,109$ 1,284

$ 137,852

CurrentIndebtedness under revolving C/FA/P and accrued liabilitiesCurrent Portion of Long-term Debt

Sub-TotalLong-term debtDeferred lease inducements

Sub-TotalShare CapitalRetained Earnings (deficit)

Sub-Total

19981998AssetsAssets

Liabilities and Shareholders’ EquityLiabilities and Shareholders’ Equity

$ 4,91715,61977,645

5,989$ 104,170$ 42,572$ 1,966

19971997

$ 31,397 45,874

1,631 $ 78,881 $ 10,359 $ 10,529 $ 99,769 $ 60,542 $ (22,459)$ 38,083

19981998

$ 37,996 72,782

388 $ 111,166 $ 5,706 $ 12,736 $ 129,608 $ 42,328 $ (23,228)$ 19,100

19971997

CurrentIndebtedness under

revolv. C/FA/P and accrued liabilitiesCurrent Portion of LTD

Total currentLong-term debtDeferred lease inducements Total LiabilitiesShare CapitalRetained Earnings (deficit)

Liabilities andLiabilities andShareholders’ EquityShareholders’ Equity


Total currentCapital AssetsOther Assets

AssetsAssets

$ (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



$ (1,852)(248)

$ 18,214 7,230

(1,334)303 153

$ 769

6,985 545

(1,797)1,562 (713)

$ 7,351 $ (27,522)

Net Income (loss) from ongoing operationsItems not involving cash:

AmortizationAmortization of finance chargesAmortization of deferred lease inducementsWrite-off of capital assetsWrite-off of deferred lease inducements

Sub-TotalChanges in non-cash operating elements of Working Capital

Proceeds from share capital and issuance of S/WProceeds from issuance of long-term debtPrincipal repayment of long-term debtProceeds from deferred lease inducementsCollection of long-term receivable

19981998Cash provided by (used in) operating activitiesCash provided by (used in) operating activities

Cash provided by (used in) financing activitiesCash provided by (used in) financing activities

Addition of capital assetsAddition of other assets

Cash provided by (used in) investing activitiesCash provided by (used in) investing activities

$ (2,100)

$ 24,566

$ (20,171)

18

$ (4,325)(8,313)

9,439(512)

$ (3,711)$ (6,463)$ (682)

$ (1,852)(248)

$ 18,214 7,230

(1,334)303 153

$ 769

6,985 545

(1,797)1,562 (713)

$ 7,351 $ (27,522)




$ (20,171


$ 24,566




$ (2,100)


The Forzani Group Ltd.Statement of Changes in Financial PositionThe Forzani Group Ltd.Statement of Changes in Financial Position


revolv. C/FA/P and accrued liabilitiesCurrent Portion of LTD


$ (6,620)

(26,908)1,243

$ 32,285 $ 4,653 $ (2,207)$ (29,839)$ 18,214$ 769

Liabilities andLiabilities andShareholders’ EquityShareholders’ EquityDifferenceDifference

$ (20,171)

$ 24,566

$ (2,100)



AssetsAssets




$ (33,079)

$ 2,295

$ (30,784)


$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)303 153

$ 769

6,985 545

(1,797)1,562 (713)

$ 7,351 $ (27,522)




$ (20,171


$ 24,566




$ (2,100)



revolving C/FA/P and accrued liabilitiesCurrent Portion of LTD


$ (6,620)

(26,908)1,243

$ 32,285 $ 4,653 $ (2,207)$ (29,839)$ 18,214$ 769

Liabilities andLiabilities andShareholders’ EquityShareholders’ EquityDifferenceDifference

$ (20,171)

$ 24,566

$ (2,100)



AssetsAssets




$ (33,079)

$ 2,295

$ (30,784)


$7,145

$614

= (A) + (B) + (C)

$ (20,171) (A)

$ 24,566 (B)

$ (2,100) (C)

19

Accounting FormulaAccounting Formula

Assets Liabilities Owners’ 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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