Statement of cash flows
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The statement of cash flows for Landsâ?? End is reproduced here: CASE 7â?" 1 LANDSâ?? END, INC. & SUBSIDIARIES Consolidated Statements of Cash Flows FOR PERIOD ENDED
($ in thousands) Year 9 Year 8 Year 7
Cash flows from operating activities
Net income............................................................. $ 31,185 $ 64,150 $ 50,952
Adjustments to reconcile net income to net cash flows from operating activitiesâ?"
Pretax non- recurring charge.......................................... 12,600 â?" â?"
Depreciation and amortization ...................................... 18,731 15,127 13,558
Deferred compensation expense.................................653 323 317
Deferred income taxes..................................................( 5,948) ( 1,158) 994
Pretax gain on sale of subsidiary................................... â?" ( 7,805) â?"
Loss on disposal of fixed assets................... 586 1,127 325
Changes in assets and liabilities excluding
Effects of divestures
Receivables (5,640) (7,019) (675)
Inventory 21,468 (104,545) 22,371
Prepaid Advertising (2,844) (7,447) 4,758
Other Prepaid expenses (2,504) (1,366) (145)
Accounts Payable 4,179 11,616 14,205
Reserve for returns 1,065 944 629
Accrued Liabilities 6,993 8,755 4,390
Accrued Profit Sharing (2,030) 1,349 1,454
Income Taxes Payable (5,899) ` (1,047) 8,268
Other 1,665 64 394
Net cash flows from (used for) operating activities 74,260 (26,932) 121,795
Cash Flows from (used for) investing activities
Cash paid for capital additions (46,750) (47,659) (18,481)
Proceeds from sale of subsidiary - 12,350 -
Net cash flows used for investing activities (46,750) (35,309) (18,481)
Cash flows from (used for) financing activities
Proceed s from short-term debt 6,505 21,242 1,876
Purchases of Treasury Stock (35,557) (45,899) (30,143)
Issuance of Treasury Stock 1,845 409 604
Net cash flows used for financing activities (27,207) (24,248) (27,663)
Net increase (decrease) in cash and cash equivalents 303 (86,489) 75,651
Beginning cash and cash equivalents 6,338 92,827 17,176
Ending cash and cash equivalents 6,641 6,338 92,827
a. Landsâ?? End recently implemented a strategy of filling nearly all orders when the order is placed. In what year do you believe the company implemented this strategy and how is the strategy reflected in the information con-tained in the statement of cash flows?
b. Explain how the following items reconcile net income to net cash flows from operating activities: ( 1) Depreciation ( 2) Receivables ( 3) Inventory ( 4) Reserve for returns
c. Calculate free cash flows for each year shown. CHECK ( c ) Yr 9, $ 27,510
d. How does Landsâ?? End use its free cash flow? Do you think its use of free cash flows reflects good financial strategy?
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