is.wis.scoe.030 Interpreting statements of changes in owners equity

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1 Income Statements» What Do I See?» Statements of Changes in Owner s Equity» Exercises E X E R C I S E S is.wis.scoe.030 Interpreting statements of changes in owners equity This exercise will help you interpret statements of changes in owners equity by connecting them to balance sheets and income statements for Whole Foods Market and two drug store chains: Walgreens and Alliance Boots. See the companies statements on pages 3 7. Check your answers in the provided solution. Part I This pertains to Whole Foods Market s statements on pages 3 4. (a) What line items and numbers are the same on Whole Foods balance sheets and statements of shareholders equity for fiscal 2010 and 2009? Hint: There are five line items and numbers that are the same across the statements for each year. Search This exercise helps you learn how to search for information. (b) How much comprehensive income did Whole Foods recognize during fiscal 2010? (c) How much net income did Whole Foods recognize during fiscal 2010? (d) How much other comprehensive income did Whole Foods recognize during fiscal 2010? (e) Whole Foods recognized $47,020 (thousand) increase in common stock when it issued stock to employees (pursuant to team member stock plans) during fiscal How many shares did the company issue? Part II This pertains to Walgreen s statements on pages 5 6. (f) What line items and numbers are the same on Walgreens income statement and statements of shareholders equity for fiscal 2010, 2009, and 2008? Hint: There s one line item and number that s the same across the statements for each year. (g) How much dividends did Walgreen s recognize during fiscal 2010? How much was this per share? (h) Cash dividends are declared by the company s board of directors before they are paid to shareholders. When a dividend is declared, retained earnings decreases and a liability (dividends payable) increases. Combining these two events, we see that ultimately cash dividends reduce cash and retained earnings. Why does it make sense for retained earnings and thus the book value of the owners claims to decrease when a dividend is declared and paid? (i) True or False: Walgreens declared a dividend on its common stock in fiscal 2010, 2009, and (j) True or False: Walgreens recognized ($61) million of accumulated other comprehensive income (loss) for fiscal You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons Attribution-Noncommercial- Alike United States license NavAcc LLC.

2 2 NAVIGATING ACCOUNTING Part III This pertains to Alliance Boots statement (page 7). (k) How much comprehensive income, net income, and other comprehensive income did Alliance Boots recognize in its total equity (including non-controlling interests) during fiscal 2011? (l) What was the net effect of all transactions with Alliance Boots owners during fiscal 2011? Part IV This pertains to Alliance Boots as well as Whole Foods and Walgreens. (m) Compare and contrast the column headers on each of the companies statements of changes in owners equity. What is common across the three companies? What appear to be synonyms? (n) Identify common items that explain the changes in the companies retained earnings during fiscal (o) What do your observations above suggest in terms of how balance sheets and income statements connect to the statements of changes in owners equity? How might the incremental information on the statement of changes in owner s equity help investors forecast a company s future performance?

3 EXERCISES 3 Figure 1 Whole Foods Market, Inc. Balance Sheets This figure is an excerpt from Whole Foods 2010 annual Form 10-K report, page 32. Consolidated Balance Sheets (In thousands) September 26, 2010 and September 27, 2009 Assets Current assets: Cash and cash equivalents $ 131,996 $ 430,130 Short-term investments available-for-sale securities 329,738 - Restricted cash 86,802 71,023 Accounts receivable 133, ,731 Merchandise inventories 323, ,602 Prepaid expenses and other current assets 54,686 51,137 Deferred income taxes 101,464 87,757 current assets 1,161,519 1,055,380 Property and equipment, net of accumulated depreciation and amortization 1,886,130 1,897,853 Long-term investments available-for-sale securities 96,146 - Goodwill 665, ,254 Intangible assets, net of accumulated amortization 69,064 73,035 Deferred income taxes 99,156 91,000 Other assets 9,301 7,866 assets $ 3,986,540 $ 3,783,388 Liabilities and holders Equity Current liabilities: Current installments of long-term debt and capital lease obligations $ 410 $ 389 Accounts payable 213, ,597 Accrued payroll, bonus and other benefits due team members 244, ,983 Dividends payable - 8,217 Other current liabilities 289, ,838 current liabilities 747, ,024 Long-term debt and capital lease obligations, less current installments 508, ,848 Deferred lease liabilities 294, ,326 Other long-term liabilities 62,831 69,262 liabilities 1,613,282 1,742,460 Series A redeemable preferred stock, $0.01 par value, 425 shares authorized; zero and 425 shares issued and outstanding at 2010 and 2009, respectively - 413,052 holders equity: Common stock, no par value, 300,000 shares authorized; 172,033 and 140,542 shares issued and outstanding at 2010 and 2009, respectively 1,773,897 1,283,028 Accumulated other comprehensive income (loss) 791 (13,367) Retained earnings 598, ,215 shareholders equity 2,373,258 1,627,876 Commitments and contingencies liabilities and shareholders equity $ 3,986,540 $ 3,783,388 Source:

4 4 NAVIGATING ACCOUNTING Figure 2 Whole Foods Market, Inc. Statements of holders Equity and Comprehensive Income This figure is an excerpt from Whole Foods 2010 annual Form 10-K report, page 34. Consolidated Statements of holders Equity and Comprehensive Income (In thousands) Fiscal years ended September 26, 2010, September 27, 2009 and September 28, 2008 Accumulated Common other s Common stock in comprehensive Retained shareholders outstanding stock treasury income (loss) earnings equity Balances at September 30, ,240 $ 1,232,845 $ (199,961) $ 15,722 $ 410,198 $ 1,458,804 Net income , ,524 Foreign currency translation adjustments (7,714) - (7,714) Reclassification adjustments for amounts included in income, net of income taxes ,302-2,302 Change in unrealized losses, net of income taxes (9,888) - (9,888) Comprehensive income 99,224 Dividends ($0.60 per common share) (84,012) (84,012) Issuance of common stock pursuant to team member stock plans 1,040 17, ,206 Retirement of treasury stock ,961 - (199,961) - Excess tax benefit related to exercise of team member stock options - 6, ,083 -based payment expense - 10, ,505 Cumulative effect of new accounting standard adoption (1,288) (1,288) Other 6 (498) (498) Balances at September 28, ,286 1,266, ,461 1,506,024 Net income , ,804 Foreign currency translation adjustments (8,748) - (8,748) Reclassification adjustments for amounts included in income, net of income taxes ,440-8,440 Change in unrealized losses, net of income taxes (13,481) - (13,481) Comprehensive income 133,015 Redeemable preferred stock dividends (28,050) (28,050) Issuance of common stock pursuant to team member stock plans 256 4, ,286 Excess tax benefit related to exercise of team member stock options based payment expense - 12, ,795 Other - (248) (248) Balances at September 27, ,542 1,283,028 - (13,367) 358,215 1,627,876 Net income , ,833 Foreign currency translation adjustments ,564-1,564 Reclassification adjustments for amounts included in income, net of income taxes ,943-12,943 Change in unrealized losses, net of income taxes (349) - (349) Comprehensive income 259,991 Redeemable preferred stock dividends 358 5, (5,478) (283) Conversion of preferred stock 29, , ,052 Issuance of common stock pursuant to team member stock plans 1,822 47, ,020 Excess tax benefit related to exercise of team member stock options - 2, ,708 -based payment expense - 22, ,894 Balances at September 26, ,033 $ 1,773,897 $ - $ 791 $ 598,570 $ 2,373,258 Source:

5 EXERCISES 5 Figure 3 Walgreen Company Statements of Earnings This figure is an excerpt from Walgreen s 2010 annual report, page 24. Consolidated Statements of Earnings Walgreen Co. and Subsidiaries for the years ended August 31, 2010, 2009 and 2008 (In millions, except per share amounts) Earnings Net sales $67,420 $ 63,335 $ 59,034 Cost of sales 48,444 45,722 42,391 Gross Profit 18,976 17,613 16,643 Selling, general and administrative expenses 15,518 14,366 13,202 Operating Income 3,458 3,247 3,441 Interest expense, net (85) (83) (11) Earnings Before Income Tax Provision 3,373 3,164 3,430 Income tax provision 1,282 1,158 1,273 Net Earnings $ 2,091 $ 2,006 $ 2,157 Net earnings per common share basic $ 2.13 $ 2.03 $ 2.18 Net earnings per common share diluted Average shares outstanding Dilutive effect of stock options Average shares outstanding assuming dilution The accompanying Notes to Consolidated Financial Statements are integral parts of these statements. Source:

6 6 NAVIGATING ACCOUNTING Figure 4 Walgreen Company Statements of holders Equity This figure is an excerpt from Walgreen s 2010 annual report, page 25. Consolidated Statements of holders Equity Walgreen Co. and Subsidiaries for the years ended August 31, 2010, 2009 and 2008 (In millions, except shares and per share amounts) Accumulated Common Employee Other Treasury Common Stock Paid-In Stock Loan Retained Comprehensive Stock Stock s Amount Capital Receivable Earnings Income (Loss) Amount Balance, August 31, ,141,357 $ 80 $ 559 $ (52) $ 12,027 $ (4) $ (1,506) Net earnings 2,157 Cash dividends declared ($.3975 per share) (394) Treasury stock purchases (8,000,000) (294) Employee stock purchase and option plans 6,034,861 (55) 249 Stock-based compensation 71 Employee stock loan receivable 16 ASC 740 adoption impact 2 Additional minimum postretirement liability, net of $2 tax benefit 13 Balance, August 31, ,176, (36) 13,792 9 (1,551) Net earnings 2,006 Cash dividends declared ($.4750 per share) (471) Treasury stock purchases (10,270,000) (279) Employee stock purchase and option plans 9,655,172 (48) 297 Stock-based compensation 78 Employee stock loan receivable (104) Additional minimum postretirement liability, net of $29 tax benefit 28 Balance, August 31, ,561, (140) 15, (1,533) Net earnings 2,091 Cash dividends declared ($.5875 per share) (570) Treasury stock purchases (55,716,733) (1,756) Employee stock purchase and option plans 5,760,396 (5) 188 Stock-based compensation 84 Employee stock loan receivable 53 Additional minimum postretirement liability, net of $34 tax expense (61) Balance, August 31, ,605,053 $ 80 $ 684 $ (87) $ 16,848 $ (24) $ (3,101) Source:

7 EXERCISES 7 Figure 5 Alliance Boots Statements of Changes in Equity This figure is an excerpt from Alliance Boots 2010/2011 annual report, page 62. Group statement of changes in equity for the year ended 31 March 2011 capital premium Retained earnings holders equity Other reserves Non controlling interests equity 2011 At 1 April ,065 2, , ,340 Profit for the year Other comprehensive income for the year Net exchange differences on translation of non-sterling denominated operations (12) (12) (15) (27) Defined benefit schemes net actuarial gains net of surplus restriction Movements on available-for-sale reserve including amounts recycled (9) (9) (9) of post tax other comprehensive income of associates and joint ventures Tax on other comprehensive income for the year (40) 25 (15) (15) (15) 100 comprehensive income for the year Transactions with owners Transfer from special reserve (34) Non controlling interests in businesses acquired Liability to acquire equity stakes from non controlling interests (362) (362) (362) Future dividend obligations to non controlling interests (28) (28) Dividends paid to non controlling interests (18) (18) Purchase of non controlling interests (92) (1) Non controlling interests in businesses disposed (12) (12) Contribution from non controlling interests (237) (237) At 31 March ,065 2, (15) 4, ,124 capital premium Retained earnings holders equity Other reserves Non controlling interests equity 2010 At 1 April ,065 2, , ,224 Profit for the year (4) 604 Other comprehensive income for the year: Net exchange differences on translation of non-sterling denominated operations (1) 35 Defined benefit schemes net actuarial losses (694) (694) (694) Fair value losses on cash flow hedging instruments net of amounts recycled (1) (1) (1) Net movements on available-for-sale reserve of post tax other comprehensive income of associates and joint ventures (10) (10) (10) Tax on other comprehensive income for the year (500) 55 (445) (1) (446) comprehensive income for the year (5) 158 Transactions with owners: Non controlling interests in businesses acquired Future dividend obligations to non controlling interests (30) (30) (32) (62) Transfer to special reserve (4) (4) 4 Purchase of non controlling interests (15) (15) Contribution from non controlling interests 3 3 (34) (34) (8) (42) At 31 March ,065 2, , ,340 Owners comprise equity shareholders of the Company and non controlling interests. Source: