This experiential exercise involves creating a pro forma Balance Sheet and a pro

Question

  This experiential exercise involves creating a pro forma Balance Sheet and a pro forma Income Statement for XYZ Company. Assume the current year is 2011. To assist you in this endeavor, an Excel worksheet containing XYZ’s 2010 Income Statement and Balance Sheet has been provided. Develop the two pro forma financial statements for 2011 based upon the following assumptions:
     The company plans to increase sales by an additional 2 percent in 2011 due to minor price increases. In addition, the firm plans to launch a massive marketing campaign in Asia. The campaign is anticipated to cost $100,000,000 and to add an additional $500,000,000 in sales during 2011.
     The company plans to invest an additional $400,000,000 in additional research and development in 2011. New plant and equipment is projected to cost $500,000,000, and will be depreciated over 20 years. (Note: Assume the plant and equipment come on line the first day of 2011). Salaries for new employees are estimated at $50,000,000 for 2011.
     The company plans to finance construction of the new facilities by taking on $500,000,000 in long-term debt. The terms of the transaction include a 10-year balloon loan at 5 percent interest. Interest payments are due on December 31 for each of the next ten years.
     The company anticipates issuing 100,000,000 new shares of common stock. The firm currently has 296,330,000 outstanding shares of common stock. The new shares are expected to sell for $350 per share. The new offering is expected to occur on January 1, 2011.

XYX Pro Forma Balance Sheet 12/31/2010 12/31/2011 (Values in Thousands) Assets Current Assets Cash and Equivalents 4,173,211 Short Term Investments 4,157,073 Net Receivables 737,317 Inventory 0 Other Current Assets 229,507 Total Current Assets 9,297,108 Long Term Investments Property, Plant and Equipment, Gross 961,749 Goodwill 194,900 Intangible Assets 82,783 Less: Accumulated Depreciation 0 Other Assets 31,310 Total Non-Current Assets 1,270,742 Total Assets 10,567,850 Liabilities and Shareholders' Equity Current Liabilities Accounts Payable 672,285 Short/Current Long Term Debt 0 Other Current Liabilities* 73,099 Total Current Liabilities 745,384 Non-Current Liabilities Long Term Debt 0 Deferred Income Taxes* 61,585 Deferred Long Term Liability Charges 45,887 Minority Interest* 0 Total Non-Current Liabilities 107,472 Total Liabilities 852,856 Shareholders' Equity Preferred Stock Equity* 0 Common Stock Equity 296,330 Retained Earnings 2,055,868 Capital Surplus 7,477,792 Other Stockholder Equity -114,996 Total Stockholders' Equity 9,714,994 Total Liabilities/Stockholders Equity 10,567,850

Explanation / Answer

XYZ Pro forma Income statement 31/12/2010 31/12/2011 XYZ Pro forma Balance sheet 31/12/2010 31/12/2011 (Values in thousands) (Values in thousands) Total Revenue $61,38,560 $67,61,331 Cost of revenue $25,77,088 $28,38,407 Assets Gross Profit $35,61,472 $39,22,924 Current Assets Cash and Equivalents       41,73,211    3,91,35,011 Operating expenses Short term Investments       41,57,073       41,57,073 Selling,General & Admin exp. $8,54,684 $10,04,684 Net Receivables         7,37,317          8,11,360 Research & Development $5,99,510 $9,99,510 Inventory                      -                       - Depreciation/amortization $0 $25,000 Other Current Assets         2,29,507          2,29,507 Non recurring $90,000 $0 Total Current Assets       92,97,108    4,43,32,951 Total operating exp. $15,44,194 $20,29,194 Long Term Investments Operating Income or loss $20,17,278 $18,93,730 Property, Plant and Equipment, Gross         9,61,749       14,61,749 Goodwill         1,94,900          1,94,900 Income from continuing operations Intangible Assets             82,783             82,783 Total other Income / Expenses net $1,25,175 $1,25,175 Less: Accumulated Depreciation                      -            -25,000 Earning before Interest and taxes $21,42,453 $20,18,905 Other Assets             31,310             31,310 Total Non-Current Assets       12,70,742       17,45,742 Interest exp. $776 $25,776 Income before tax $21,41,677 $19,93,129 Total Assets 1,05,67,850    4,60,78,693 Income tax expense $6,76,280 $6,29,430 Liabilities and Shareholders' Equity Net Income from Continuing operation $14,65,397 $13,63,699 Current Liabilities Accounts Payable         6,72,285          7,37,986 Net Income $14,65,397 $13,63,699 Short/Current Long Term Debt                      -             25,000 Other Current Liabilities*             73,099             73,099 Preferred stock and other adjustment $0 $0 Total Current Liabilities         7,45,384          8,36,085 Net Income applicable to Common shares $14,65,397 $13,63,699 Non-Current Liabilities Long Term Debt                      -          5,00,000 Deferred Income Taxes*             61,585             61,585 Deferred Long Term Liability Charges             45,887             45,887 Minority Interest*                      -                       - Total Non-Current Liabilities         1,07,472          6,07,472 Total Liabilities         8,52,856 Shareholders' Equity Preferred Stock Equity*                      -                       - Common Stock Equity         2,96,330          3,96,330 Retained Earnings       20,55,868       34,19,567 Capital Surplus       74,77,792    4,23,77,792 Other Stockholder Equity        -1,14,996        -1,14,996 Total Stockholders' Equity       97,14,994    4,60,78,693 Total Liabilities/Stockholders Equity 1,05,67,850    4,60,78,693

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