Chapter 3 notes to financial statements

The accompanying consolidated financial statements and related notes reflect estimates and assumptions made by the management of Hexcel. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosures with respect to contingent assets and liabilities, and the reported amounts of revenues and expenses. Financial statements are documents that publicly traded companies use to communicate financial data to a governing body called the Securities and Exchange Commission . Financial statements contain information about assets owned by a company, debt owed by a company, revenue, expenses, and information about financing provided by shareholders. The financial statements contain line items that express a numerical value on each item listed. Notes to the financial statements contain detailed information on the accounting decisions made by accountants during the creation of the financial statements as well as explanations of important factors that impact line items.

Notes are used to disclose important information that explains how accountants applied GAAP in their financial reporting of the company. A company that manufactures and sells automobiles will include a value for contingent liability for warranty claims for the automobiles manufactured. The company will use data from past warranty claims to calculate the expected future liability expense, and include that expense on the financial statement.

Types of Footnotes to the Financial Statements

It helps the analysts understand theaccounting policiesand how they might affect the company’s underlying financial health. Footnotes are often quite long and help to clearly describe the smaller details that connect with specific parts of the financial statements. The financial statement footnotes provide greater information to specific portions of the statements, which helps improve the flow of information for the reader and makes sure the essential explanatory details are included. The income statement, which is sometimes called the statement of earnings or statement of operations, lists all revenue and expense account balances and shows the company’s net income or net loss for a particular period of time. The single‐step format puts revenue and expense accounts into separate groups. Then, total expenses are subtracted from total revenues to determine the net income or loss.

• The Company is also exempt under the terms of FRS 8 ‘Related Party Disclosures’ from disclosing transactions with other members of the Home Retail Group.
• The acquisition was substantially downsized from the original agreement whereby the company had, subject to certain terms and conditions, committed to purchase selected assets and businesses of Fiberite for approximately $300,000.
• [IAS 1.88] Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income.
• The credit and overdraft facilities in use by the company’s European subsidiaries as of December 31, 1998 and 1997, other than the Senior or Revolving Credit Facilities, bear interest at rates between 3.0% and 6.4% per annum.
• Those stockholders are interested in receiving financial statements which report the results and financial position of the entire economic entity, which is all of the subsidiaries and the parent corporation.
• Depending on its nature, companies should disclose this information either in the financial statements, in notes to the financial statements, or in supplemental statements.

The company determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset’s carrying value. If an asset is considered impaired, the asset is written down to fair value which is either determined based on discounted cash flows or appraised values, depending on the nature of the asset. If the gain is probable and quantifiable, the gain is not accrued for financial reporting purposes, but it can be disclosed in the notes to financial statements. As you can see, the notes to financial statements provides enormous information about how the company manages its business and the practices it follows and an analyst must use such information in his analysis. Footnotes also depend heavily on the accounting framework that is being followed for the specific company.

Other Information Pertaining to Financial Statements

Footnotes are used by both analysts and auditors to better understand the company’s financial position. The content on this posting is provided “as is;” no representations are made that the content is error-free or up to date. The Home Retail Group Share Incentive Scheme Trust provides for the issue of shares to Group employees under the Share Incentive Plan.

• If the gain is probable and quantifiable, the gain is not accrued for financial reporting purposes, but it can be disclosed in the notes to financial statements.
• The direct method simply lists operating cash flows by type of cash receipt and payment.
• In this section, the management discusses many important issues and uses it as an opportunity to communicate key financial activities of the company.
• Part of accounting is being able to tell a financial story, and the notes provide the accountant with the level of detail needed to communicate the full story.

The footnotes present required disclosures, accounting methodologies used, any modifications to methodologies from previous reporting periods, and upcoming transactions that may affect future profitability. As its name implies, this statement focuses on cash flows rather than income. For example, the $870 Mr. Green receives from customers includes unearned revenues and excludes accounts receivable.

Notes to Financial Statements as an Important Source of Information for a Financial Statement Analysis

Required disclosures may be made in the body of the financial statements, the notes to such statements, special communications, and/or the president’s letter or other management reports in the annual report. Since the financial statements provide only a summary of what the company is required to report, it is important for financial analysts to read the disclosures and other supplementary information to know the real story. Since the corporation’s shares of stock are publicly traded, the consolidated financial statements must be audited by a registered firm of independent certified public accountants.

In 1996, Hexcel announced plans to consolidate the company’s operations over a period of three years. The objective of the program was to integrate acquired assets and operations into Hexcel, and to reorganize the company’s manufacturing and research activities around strategic centers dedicated to select product technologies. The business consolidation program was also intended to eliminate excess manufacturing capacity and redundant administrative functions. Management expected that this consolidation program would take approximately three years to complete, in part because of the aerospace industry requirements to “qualify” specific equipment and manufacturing facilities for the manufacture of certain products.

Transaction costs in relation to the downsized transaction were not material. An income statement reports on a company’s expenses and profits to show whether the company made or lost money. A financial statement is a formal report of the financial activities of a business, person, or other entity. Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business. For large corporations, these statements are often complex and may include extensive notes, an explanation of financial policies, and management analysis.

For best practices on efficiently downloading information from SEC.gov, including the latest EDGAR filings, visit sec.gov/developer. You can also sign up for email updates on the SEC open data program, including best practices that make it more efficient to download data, and SEC.gov enhancements that may impact scripted downloading processes. The aggregate fair values of the Convertible Subordinated Notes, due 2003, and the Convertible Subordinated Debentures, due 2011, are estimated on the basis of quoted market prices, although trading in these debt securities is limited and may not reflect fair value. The aggregate fair value of the Convertible Subordinated Notes, due 2003, was approximately $96,100 and $196,000 as of December 31, 1998 and 1997, respectively. The aggregate fair value of the Convertible Subordinated Debentures, due 2011, was approximately $19,000 and $25,500 as of December 31, 1998 and 1997, respectively.

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On February 17, 1999, the company repaid $12,500 of its Ciba Senior Subordinated Notes payable. The repayment was financed with borrowings under the company’s Senior Credit Facility. As a result of the repayment, the company will write-off approximately $600 of the unamortized discount in 1999.

In July of 1996, depreciable assets completed an offering of $114,500 in convertible subordinated notes, due 2003 (the “Convertible Subordinated Notes”). The Convertible Subordinated Notes carry an annual interest rate of 7% and are convertible into Hexcel common stock at a conversion price of $15.81 per share, subject to adjustment under certain conditions. Net proceeds of $111,351 from this offering were used to repay amounts owed under the company’s Revolving Credit Facility. For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and explanation of financial policies andmanagement discussion and analysis.

The Acquired Hercules Business, which manufactures carbon fibers and prepregs for commercial aerospace, space and defense, general industrial and recreation markets, was purchased for $139,400 in cash. For example, the notes may explain financial figures or the accounting methods used to prepare the statement. When a business enterprise presents all the relevant financial information in a structured and easy to understand manner, it is called a financial statement.

The https://1investing.in/ for the financial statements will detail how accountants at the company estimated the expense. These separate financial statements of Home Retail Group (“the Company”) are presented as required by the Companies Act 1985 (“the Act”), and were approved by the Board on 2 May 2007. They have been prepared on a going concern basis and under the historical cost convention, and in accordance with the Companies Act 1985 and applicable UK Generally Accepted Accounting Principles .

Some footnotes will be filled with accounting jargon, which may make the information conveyed difficult for the reader to understand. It could be to hide something from the public, and investors should be wary of any financial statements like them. Financial statement footnotes are used as additional information by individuals reading financial statements.

An opinion is said to be unqualified when the auditor concludes that the financial statements give a true and fair view in accordance with the financial reporting framework used for the preparation and presentation of the financial statements. The notes are required by the full disclosure principle because the amounts and line descriptions on the face of the financial statements cannot provide sufficient information. In fact, there may be some large potential losses that cannot be expressed as a specific amount, but they are critical information for lenders, investors, and others.

The acquisition was substantially downsized from the original agreement whereby the company had, subject to certain terms and conditions, committed to purchase selected assets and businesses of Fiberite for approximately $300,000. As a result of the downsized transaction, the company wrote-off $4,973 of acquisition and financing costs to business acquisition and consolidation expenses in 1997. In addition, the company expensed $8,000 of acquired in-process research and technology purchased from Fiberite which is also included in the 1997 business acquisition and consolidation expenses. The company periodically reviews the recoverability of all long-term assets, including the related amortization period, whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable.