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McGraw-Hill/Irwin Copyright 2007 The McGraw-Hill Companies, Inc. All rights reserved.

CHAPTER 1

Interpreting Financial Statements

TABLE 1-1 Worldwide Sports Financial Transactions 2005 ($ thousands)

ASSETS Accounts receivable Inventory Fixed assets = LIABILITIES Loan Accounts from payable relatives $ 80 25 30 (15) (10) $ 215 $ 25 $ 110 $ 45 $ 20 $ 100 $ 20 60 900 (190) (350) (210) (15) (10) 275 100 + EQUITY Owners' equity $ 150

Cash Beginning Balance 1/1/05 Initial purchases Sales Wages Merchandise purchases Other expenses Depreciation Interest payment Ending Balance 12/31/05 $ 250 (140) 875 (190) (360) (210)

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FIGURE 1.2 Ties among Financial Statements

ASSETS at beginning
Cash

LIABILITIES at beginning + EQUITY at beginning

Shareholder's Equity

Revenues

Operating

Investing

Financing

Balance sheets

ASSETS at end

LIABILITIES at end

+ EQUITY at end

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Expenses

Cash flow statement

Income statement

TABLE 1-2 Harley-Davidson, Inc. Balance Sheets

($ millions)
December 31 2003 Assets Cash $ 329.3 Marketable securities 993.3 Accounts receivable, less reserve for possible losses 1,114.4 Inventories 207.7 Prepaid income taxes 51.2 Other current assets 33.2 Total current assets 2,729.1 Property, plant, and equipment Less accumulated depreciation and amortization Net property, plant, and equipment Finance receivables, net Goodwill Other assets Total assets
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Change in

2004 Account $ 275.2 1,336.9 1,328.4 226.9 60.5 38.3 3,266.2 2,193.4 1,168.7 1,024.7 905.2 59.5 227.7 $ 5,483.3 $ (54.1) 343.6 214.0 19.2 9.3 5.1 2.2 23.8 (21.6) 169.3 5.8 (130.4)

2,191.2 1,144.9 1,046.3 735.9 53.7 358.1 $ 4,923.1

TABLE 1-2 (Continued)

Liabilities and Shareholders' Equity Long-term debt due in one year Accounts payable Income taxes payable Accrued expenses Other current liabilities Total current liabilities Long-term debt Postretirement healthcare benefits Deferred income taxes Other long-term liabilities Total liabilities Common stock Additional paid-in capital Retained earnings Less treasury stock Total shareholders' equity Total liabilities and shareholders' equity
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324.3 223.9 54.8 197.2 155.6 955.8 670.0 127.4 125.8 86.3 1,965.3 3.3 419.5 3,121.2 (586.2) 2,957.8

495.4 244.2 53.5 197.1 182.4 1,172.6 800.0 149.8 51.4 90.8 2,264.6 3.3 533.1 3,832.5 (1,150.4) 3,218.5

171.1 20.3 (1.3) (0.1) 26.8 130.0 22.4 (74.4) 4.5

260.7

$ 4,923.1

$ 5,483.1

TABLE 1-3 Harley-Davidson, Inc. Income Statement

($ millions)
December 31 2003 Net sales Cost of goods sold Gross profit Selling, general and engineering expenses Depreciation Total operating expenses Operating income Interest expense Other non-operating income Total nonoperating expenses Income before income taxes Provision for income taxes Net income
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2004 $ 5,320.5 2,995.5 2,325.0 726.6 214.1 940.7 1,384.3 22.7 18.0 4.7 1,379.6 489.7 $ 889.9

$ 4,903.7 2,855.7 2,048.0 684.2 196.9 881.1 1,166.9 21.5 20.7 0.8 1,166.1 405.1 $ 761.0

TABLE 1-4 Harley-Davidson, Inc. Sources and Uses Statement, 2004 ($ millions)
Sources Reduction in cash Reduction in net property, plant and equipment Reduction in other assets Increase in long-term debt due in one year Increase in notes payable Increase in other current liabilities Increase in long-term debt Increase in postretirement healthcare benefits Increase in other long-term liabilities Increase in shareholders' equity Total sources
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54.1 21.6 130.4 171.1 20.3 26.8 130.0 22.4 4.5 260.7

$ 841.9

TABLE 1-4 (Continued)

Uses Increase in marketable securities Increase in accounts receivable Increase in inventories Increase in prepaid income taxes Increase in other current assets Increase in finance receivables, net Increase in goodwill Reduction in income taxes payable Reduction in accrued expenses Reduction in deferred income taxes Total uses
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$ 343.6 214.0 19.2 9.3 5.1 169.3 5.8 1.3 0.1 74.4 $ 842.1

TABLE 1-5 Harley-Davidson, Inc. Cash Flow Statement, 2004 ($ millions)

Cash Flows from Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation Deferred income taxes Changes in assets and liabilities Increase in accounts receivables Increase in inventories Increase in accounts payables Other asset and liabilities, net change Tax benefit from the exercise of stock options Other Net cash provided by operating activities
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$ 889.8

214.1 (42.0) (212.4) (19.2) 39.6 (45.3) 51.5 93.6 969.7

TABLE 1-5 (Continued)

Cash Flows from Investing Activities Capital expenditures Investment in securitized receivables, net Net purchases of marketable securities Other, net Net cash used by investing activities Cash flows from financing activities Net increase in long-term borrowings Dividends paid Repurchase of common stock Issuance of common stock under employee stock option plans Net cash provided by financing activities Net increase (decrease) in cash Cash at beginning of year Cash at end of year
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(213.6) (146.3) (349.0) 1.2 (707.7)

305.0 (119.2) (564.1) 62.2 (316.1) (54.1) 329.3 $ 275.2

TABLE 1-6 The Book Value of Equity is a Poor Surrogate for the Market Value of Equity, December 31, 2004
Value of Equity ($ millions) Book Market 9,081 249 15,935 2,435 290 27,726 2,929 3,219 37,726 24,158 29,747 38,579 29,911 364 7,101 22,186 2,576 101,224 2,069 143 22,639 52,925 17,880 59,011 85,445 146,708 145,774 17,141 143 43,849 Ratio, Market Value to Book Value 2.4 10.3 6.4 0.8 0.5 0.8 18.1 5.6 1.6 3.5 4.9 3.8 0.6 0.4 6.2

Company Aetna Inc. Affymetric Inc. Coca-Cola Co Dana Corp First Advantage Corp General Motors Corp. Google, Inc. Harley-Davidson Inc. Hewlett-Packard Co. Home Depot Inc. IBM Intel Corp. Kraft Foods Winn-Dixie Stores Inc. Yahoo! Inc.
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