Question 17.9: Classification of Cash Flows Nautica Enterprises An excerpt ......
Classification of Cash Flows
Nautica Enterprises^{21}
An excerpt from the statement of cash flows from the fiscal 2000 annual report of Nautica Enterprises, an apparel manufacturer, is shown as Exhibit 25. An excerpt from the statement of cash flows from the company’s fiscal 2001 annual report is shown in Exhibit 26. Use these two excerpts to answer the questions below.
1 . What amount does Nautica report as operating cash flow for the year ended 4 March 2000 in Exhibit 25? What amount does Nautica report as operating cash flow for the same year in Exhibit 26?
2 . Exhibit 25 shows that the company had investing cash flows of $21,116 thousand from the sale of short-term investments for the year ended 4 March 2000. Where does this amount appear in Exhibit 26 ?
3 . As actually reported (Exhibit 26), how did the company’s operating cash flow for fiscal year 2001 compare with that for 2000? If Nautica had not changed the classification of its short-term investing activities, how would the company’s operating cash flows for fiscal year 2001 have compared with that for 2000?
^{21}Example adapted from Mulford and Comiskey (2005) .
| EXHIBIT 25 Excerpt from Nautica Enterprises’ Consolidated Statement of Cash Flow from Annual Report, filed 27 May 2000 (amounts in thousands) | |
| Year ended 4 March 2000 | |
| Cash flows from operating activities | |
| Net earnings | $46,163 |
| Adjustments to reconcile net earnings to net cash provided by operating activities, net of assets and liabilities acquired | |
| Minority interest in net loss of consolidated subsidiary | — |
| Deferred income taxes | (1,035) |
| Depreciation and amortization | 17,072 |
| Provision for bad debts | 1,424 |
| Changes in operating assets and liabilities | |
| Accounts receivable | (6,562) |
| Inventories | (3,667) |
| Prepaid expenses and other current assets | (20) |
| Other assets | (2,686) |
| Accounts payable: trade | (548) |
| Accrued expenses and other current liabilities | 9,086 |
| Income taxes payable | 3,458 |
| Net cash provided by operating activities | 62,685 |
| Cash flows from investing activities | |
| Purchase of property, plant, and equipment | (33,289) |
| Acquisitions, net of cash acquired | — |
| Sale (purchase) of short-term investments | 21,116 |
| Payments to register trademark | (277) |
| Net cash used in investing activities | (12,450) |
| EXHIBIT 26 Excerpt from Nautica Enterprises’ Consolidated Statements of Cash Flows from Annual Report, filed 29 May 2001 (amounts in thousands) | ||
| Year Ended 3 March 2001 | Year Ended 4 March 2000 | |
| Cash flows from operating activities | ||
| Net earnings | 46,103 | 46,163 |
| Adjustments to reconcile net earnings to net cash provided by operating activities, net of assets and liabilities acquired | ||
| Minority interest in net loss of consolidated subsidiary | — | — |
| Deferred income taxes | (2,478) | (1,035) |
| Depreciation and amortization | 22,968 | 17,072 |
| Provision for bad debts | 1,451 | 1,424 |
| Changes in operating assets and liabilities | ||
| Short-term investments | 28,445 | 21,116 |
| Accounts receivable | (17,935) | (768) |
| Inventories | (24,142) | (3,667) |
| Prepaid expenses and other current assets | (2,024) | (20) |
| Other assets | (36) | (2,686) |
| Accounts payable: trade | 14,833 | (548) |
| Accrued expenses and other current liabilities | 7,054 | 3,292 |
| Income taxes payable | 3,779 | 3,458 |
| Net cash provided by operating activities | 78,018 | 83,801 |
| Cash flows from investing activities | ||
| Purchase of property, plant, and equipment | (41,712) | (33,289) |
| Acquisitions, net of cash acquired | — | — |
| Purchase of short-term investments | — | — |
| Payments to register trademark | (199) | (277) |
| Net cash used in investing activities | (41,911) | (33,566) |
to 1: In Exhibit 25 , Nautica reports operating cash flow for the year ended 4 March 2000 of $62,685 thousand. In Exhibit 26, Nautica reports operating cash flow for the same year of $83,801 thousand.
to 2: The $21,116 thousand (i.e., the difference between the amounts of operating cash flow reported in Exhibits 25 and 26) that appears in Exhibit 25 as investing cash flows from the sale of short-term investments for the year ended 4 March 2000 has been reclassified. In Exhibit 26, this amount appears under changes in operating assets and liabilities (i.e., as a component of operating cash flow).
to 3: As reported in Exhibit 26 , the company’s cash flows declined by 7% from fiscal year 2000 to fiscal year 2001 (= 78,018/83,801 – 1 = –7%). If Nautica had not changed the classification of its short-term investing activities, the company’s operating cash flows for fiscal year 2001 would have been $49,573 thousand (=78,018 – 28,445), and would have shown a decline of 21% from fiscal year 2000 to fiscal year 2001 (= 49,573/62,685 – 1 = –21%).