Construct the quarterly pro-forma statements for 1992, quarterly. Make sure that in a separate table, you show any assumptions that you have made, and in an adjacent cell, briefly justify your assumption. For example, this assumption is stated in case or this rate is the average of the past 3 years etc.

For any projection, the case information has priority. Otherwise, you can use your own justified assumption. except for the one:

Page 3: ... the loan would be reduced to $3 million by January 31, 1992.

Ignore this statement. Instead, use the Plug to determine the companys need for

short-term bank loan (notes payable) in 1992.

Be careful with the ratio computations when the data are quarterly. Adjust the data where necessary so that the resulting ratios use our normal standards of comparison. Refer to the slides that we have for annualizing ratios.

Note that the quarterly income statements in the case are cumulative within each year and that you will need to look at each quarter, not the cumulative amounts for all your calculations (e.g., You care about the third quarter, not the 9-month period ending at the end of the third quarter). You can construct the quarterly income statements for a year by using the 3-month, subtracting the 3-month from the 6-month (to get the second quarter), subtracting the 6-month from the 9- month (to get the third quarter), and subtracting the 9-month from the 12-month income

will be taken off for:

statements (to get the fourth quarter). If you do not construct these true quarterly income statements your quarterly calculations will all be wrong. Of course, no adjustments are necessary for the balance sheets because they are snapshots not flows.

A stock dividend is not the same thing as a cash dividend. With a stock dividend, the company gives each stockholder additional shares of stock in the company. For example, if you owned 100 shares of stock and the company gave a 10% stock dividend you would own 110 shares afterwards. There is no cash flow involved and there is no effect on the total equity of the business. It is similar (but not identical) to the effect of a stock split. Therefore, stock dividends do not appear on cash flow statements.

As a reminder, here is how to deal with changes in the goodwill for cash flow statements: Any increase in the goodwill is a sign of investment, so it goes to the CFF. Any decrease in the goodwill is a sign of depreciation, so the change will appear on CFO as a depreciation expense.

Data:

Comfort Zone
Statements of Consolidated Income
For Years Ended January 31
(Thousands of dollars)	1988	1989	1990	1991
Net Sales	45,852	64,335	85,362	108,255
Cost of Merchandise Sold	34,626	48,867	64,632	83,211
Gross Profit on Sales	11,226	15,468	20,730	25,044
Operating Expenses (note 1)	7,931	11,065	14,644	18,658
Profit from Operations	3,295	4,403	6,086	6,386
Other Income	27	123	195	600
Interest Expense	-153	-303	-474	-900
Income before Income Taxes	3,169	4,223	5,807	6,086
Provision for Income Taxes	1,168	1,616	2,474	2,417
Net Income	2,001	2,607	3,333	3,669
Note 1: Includes
Provision for doubtful accounts	N/A	N/A	N/A	675
Depreciation expense	N/A	N/A	N/A	216
Consolidated Balance Sheets
For Years Ended January 31
(Thousands of dollars)	1988	1989	1990	1991
Current Assets:
Cash	945	1,755	1,677	960
Accounts & notes rec. (net)	6,015	8,037	11,754	16,254
Inventories	11,739	12,975	20,133	25,008
Other current assets	63	15	60	306
Total current assets	18,762	22,782	33,624	42,528
Property, plant, & equip. (net)	1,257	1,266	2,028	2,280
Goodwill	543	507	1,131	1,062
Other Assets	57	66	72	18
Total	20,619	24,621	36,855	45,888
Current Liabilities:
Notes payable to banks	30	0	1,563	2,400
Current portion - LTD	309	636	891	612
Trade accounts payable	3,480	3,696	8,550	10,245
Accrued liabilities	3,489	2,376	2,883	2,697
Total current liabilities	7,308	6,708	13,887	15,954
Long-Term Debt	4,080	3,576	5,157	8,454
Stockholders' Equity:
Common stock - $.10 par	150	165	333	333
Other paid-in capital	714	3,198	3,171	3,171
Retained earnings	8,367	10,974	14,307	17,976
Stockholders' equity	9,231	14,337	17,811	21,480
Total	20,619	24,621	36,855	45,888
Quarterly Statements of Consolidated Income
For Years Ended January 31
(Thousands of dollars)	3 months	6 months	9 months	12 months	3 months	6 months	9 months	12 months	3 months	6 months
	Apr-89	Jul-89	Oct-89	Jan-90	Apr-90	Jul-90	Oct-90	Jan-91	Apr-91	Jul-91
Net Sales	17,262	41,061	64,656	85,362	22,947	54,186	82,875	108,255	23,943	57,147
Cost of Merchandise Sold	13,134	31,266	49,365	64,632	17,610	41,715	63,903	83,211	18,534	43,752
Gross Profit on Sales	4,128	9,795	15,291	20,730	5,337	12,471	18,972	25,044	5,409	13,395
Operating Expenses (note 1)	2,991	6,630	10,454	14,644	4,083	8,969	13,974	18,658	4,501	9,977
Profit from Operations	1,137	3,165	4,837	6,086	1,254	3,502	4,998	6,386	908	3,418
Other Income	33	72	108	195	36	219	408	600	267	450
Interest Expense	-108	-237	-324	-474	-132	-291	-486	-900	-243	-528
Income before Income Taxes	1,062	3,000	4,621	5,807	1,158	3,430	4,920	6,086	932	3,340
Provision for Income Taxes	453	1,284	1,975	2,474	456	1,357	1,920	2,417	365	1,312
Net Income	609	1,716	2,646	3,333	702	2,073	3,000	3,669	567	2,028
Quarterly Statements of Consolidated Income
For Years Ended January 31
(Thousands of dollars)	Apr-89	Jul-89	Oct-89	Jan-90	Apr-90	Jul-90	Oct-90	Jan-91	Apr-91	Jul-91
Current Assets:
Cash	1,983	1,488	1,353	1,677	2,031	1,794	1,197	960	1,692	1,248
Accounts & notes rec.	10,356	12,855	12,798	12,285	14,256	17,790	16,908	16,887	16,815	20,136
Allow for bad debts	-474	-690	-903	-531	-729	-939	-1,239	-633	-699	-828
Inventory	18,165	19,104	18,936	20,133	25,926	29,319	26,286	25,008	31,965	30,396
Prepaid and other	24	51	87	60	24	51	90	306	63	102
Total current assets	30,054	32,808	32,271	33,624	41,508	48,015	43,242	42,528	49,836	51,054
Property, plant & equip.	2,502	2,817	2,901	2,859	3,018	3,153	3,231	3,309	3,393	3,462
Accumulated depr.	-867	-906	-948	-831	-873	-918	-972	-1,029	-1,086	-1,128
Net	1,635	1,911	1,953	2,028	2,145	2,235	2,259	2,280	2,307	2,334
Goodwill	1,185	1,182	1,149	1,131	1,116	1,098	1,080	1,062	1,044	1,026
Other Assets	87	66	54	72	123	72	75	18	93	66
Total	32,961	35,967	35,427	36,855	44,892	51,420	46,656	45,888	53,280	54,480
Current Liabilities:
Notes payable-bank	1,002	2,334	1,641	1,563	2,400	3,000	2,700	2,400	2,400	4,200
Trade accounts payable	8,601	9,666	8,649	8,550	14,727	17,178	11,304	10,245	16,971	16,137
Current portion-LTD	639	669	882	891	954	618	618	612	612	606
Accrued taxes	897	582	912	1,176	1,383	852	771	690	939	495
Other	1,113	1,023	1,128	1,707	1,416	1,110	1,680	2,007	1,866	1,359
Total current liab.	12,252	14,274	13,212	13,887	20,880	22,758	17,073	15,954	22,788	22,797
Long-Term Debt	5,628	5,499	5,091	5,157	5,499	8,778	8,772	8,454	8,445	8,175
Stockholders' Equity:
Common Stock	333	333	333	333	333	333	333	333	333	333
Paid-in capital	3,165	3,171	3,171	3,171	3,171	3,171	3,171	3,171	3,171	3,171
Retained earnings	11,583	12,690	13,620	14,307	15,009	16,380	17,307	17,976	18,543	20,004
Stockholders' equity	15,081	16,194	17,124	17,811	18,513	19,884	20,811	21,480	22,047	23,508
Total	32,961	35,967	35,427	36,855	44,892	51,420	46,656	45,888	53,280	54,480