S.D. TAYLOR JEWELLERS LTD. STATEMENTS OF EARNINGS FOR YEARS ENDING JUNE 30 (000 5) 2012 2011 Sales $ 2,325.0 $ 2,059.5 Cost of sales 1,133.8 968.5 Gross income $ 1,191.2 $ 1,091.0 Operating expenses: Salaries and benefits 5 430.7 370.3 Overheads 147.0 123.4 Advertising 93.6 74.0 Supplies 83.5 70.0 Depreciation 39.4 35.1 Bad debt 6.9 4.1 Other miscellaneous 93.4 80 5 Total operating expenses 893.6 757 3 Earnings from operations 297.6 333.6 Plus: other income 374 Subtotal 335.0 366.5 Less: interest expense S 53.7 3 37.0 Net earnings before tax 281.3 329.5 Income taxes 70.3 82 4 Net earnings" 1 2110 1 2471 *Dividends paid for 2011 were 509,000 and $54 090 for 2012S.D. TAYLOR JEWELLERS LTD. BALANCE SHEETS AS AT JUNE 30 (000 5) 2012 2011 ASSETS Current aggets: Cash 10.1 9.6 Accounts receivable 126.5 1053 Inventories 1,076.7 285.5 Prepaid expenses 23.3 16.6 Total current aggets $ 1,236.6 $ 1,017.0 Loans to employees 28.3 283 Investment in subsidiary 79.2 120.7 Other investments 18.2 17.4 Fixed assets: Land S 29.8 29.8 Buildings and fixtures 512.6 442.0 Less: accumulated depreciation 319.6 280.2 Total fixed assets (net) 222.8 191 6 Total assets 1.851 1 1.3750 LIABILITIES Liabilities Current liabilities: Working capital loan 69.5 30.2 Note: payable (bank) 328.9 2123 Accounts payable 184.9 183.0 Income taxes payable 21.4 24.1 Total current liabilities 3 604.7 509.6 Long-term debt 12.2 24.4 Total liabilities 616.9 6 534.0 Equity Capital stock 40.7 40.7 Retained earnings 927.5 200.3 Total equity 968.2 2410 Total liabilities and equity $ 1.585.1 $ 1.375.0S. D. TAYLOR JEWELLERS LTD. STATEMENT OF CASH FLOWS FOR THE YEAR ENDING JUNE 30, 2012 (090 5) 2012 OPERATIONS: Net Income 211.0 Adjustments to Cash Basis: Depreciation 30.4 Acoounts receivable (21.2) Inventory (191.2) Prepaid expanses (8.7) Accounts payable 1.5 Income taxes payable 182 7) Net cash flow from operations (20.5) FINANCING ACTIVITIES: Working Capital Loan 30.3 Notes payable 110.0 Long term debt (12.2) Dividends 183.8) Net cash flow from financing 3 50.9 INVESTING ACTIVITIES: Building and fodures (70.8) Investment in subsidiary 41.5 Other Investment Net cash flow from investing (20.9) Net cash flow Beginning cash 0.5 Ending cash 10.15.D. TAYLOR JEWELLERS LTD. RATIO ANALYSIS For the years ended June 30, 2011 and 2012 2012 2011 PROFITABILITY Sales 100.0% 100.0% Cost of goods sold 48.89% 47.0% Gross income 51.2% 53.0% Operating expenses 38.4% 36.8% Operating income 12.8% 16.29% Other income 1.6% 1.6% Interest expense 2.39% 1.8% Net earnings 12.0%% Return on average equity 23.3% 32.296 LIQUIDITY Current ratio 2.05:1 2.00:1 Acid test 0.23:1 0.23:1 Working capital $631,800 $507,400 EFFICIENCY Age of receivables 19.9 days 18.7 days Age of inventory 346.6 days 333.8 days Age of payables" 59.5 days 69.0 days Net fixed assets/sales $0.096 $0.093 STABILITY Net worth/total aggets 61.19% 61.2% Interest coverage 6.2 X 9.9 X GROWTH 2011-2012 Sale: 12 904 Profit income (14.696) Asset: 15.3% Equity 15.1% Last year's equity = $602 0 ($8410 + 500 -$247.1) `Calculation assumes purchases = cost of goods salaGARDINER WHOLE SALERS INCORPORATED AGING OF ACCOUNTS RECEIVABLE AS AT DECEMBER 31, 2012 Due From Prior Sept Oct. Nov. Dec. Total S.D. Taylor Jewellers Led. $30,846 $4,852 $18,732 $5.464 $59.894 Elegance Jewellers Inc. $2,640 $33,832 $7,105 530,146 $63 202 $136.928S.D. TAYLOR JEWELLERS In a meeting with Stan Taylor, manager and owner of S.D. Taylor Jewellers Ltd., Wilson again discussed recent retail performance. Taylor said that he experienced a "negligible" reduction in margins. He felt the expected sales growth for the coming year would be between five and 10 per cent with operating expenses expected to increase at the same rate. Taylor had no plans for changes in the credit policy of his company. Taylor noted that S.D. Taylor Jewellers Lid had been paying its accounts at comparatively the game rate as last year, and that he had been watching inventory levels more carefully. Taylor also told Wilson that the increase in buildings and fixtures was expected to equal depreciation, so the net book value would remain the same. With this additional information from the two retailers in mind, Wilson set out to complete her report