Notes to Oakland Furniture Ltd's Financial Statements:
Financial Restructuring with the Management Buy-Out (MBO)
When Oakland was purchased by its management as a going concern from the parent group that had owned it, the financial structure of the company was altered with the introduction of outside finance. The existing management purchased the ordinary shares in the company assisted by a specialist finance institution. This institution also provided dividend preference shares and arranged both new overdraft facilities and a term loan.
Prior to the MBO, funding had been a mixture of inter-company loans from the holding company and bank borrowings.
Notes to Profit and Loss Account items
Net interest payable is the sum of total interest paid less interest earned.
Taxation is levied at the standard company rate. Various tax allowances on investments and other deferred tax items means that it does not necessarily correspond to the profit (or loss) on ordinary activities made in any period.
Dividends. Prior to the MBO, this represented a dividend remitted to the parent. Following the MBO, it represents the dividend on the preference shares paid to the specialist finance institution as well as an element of director-shareholder pay.
Notes to the Balance Sheet
Fixed assets are in at cost, net of depreciation. Following the MBO considerable investment in upgrading and replacing old machinery has taken place to improve product quality, flexibility and delivery times.
Investments include intangible fixed assets, such as capitalised marketing expenditures, net of depreciation.
Work in progress and finished goods includes partly finished items, items in the course of production and finished parts. These are valued at cost.
Stocks are raw supplies of wood and fittings, valued at cost.
Debtors include an element of staggered payment. Nevertheless, the provision of extended credit is a traditional feature of the industry.
Investments (under current assets) are near cash items which can be realised within a year.
Trade creditors are principally suppliers or raw materials and fittings. The taking of extended credit is a traditional feature of the industry.
Short term borrowings are made through an agreed overdraft facility secured by a general charge. The current agreed facility is £1.8m. Prior to the MBO this item included short-term inter-company loans.
Other items include tax and other miscellaneous payments.
Items due after one year:
Long term creditors include deferred payment terms on new machinery and other items as well as some agreed liabilities taken over at the time of the MBO and owed to the former owners.
Borrowings are principally a term loan taken out at the time of the MBO. Prior to the buy-out, this was all inter-company loans from the parent.
The Other item relates to the purchase of new machinery and a potential future liability.
Provisions relate to items such as tax and other potential liabilities. A change in accounting policy following the MBO created this new category.
Capital and Reserves
The changes in called up share capital relate to the preference shares issued at the time of the MBO to the specialist financial institution as well as sundry adjustments.
Profit and loss account is retained profit taken to reserves.
(Rounding may mean the figures do not fully add in all cases.)