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Toy World, Inc. Harvard Business School Case Software 2-295-715 Copyright (c) 1994 by the President and Fellows of Harvard College. This case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

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WORKSHEET NAVIGATION This worksheet contains the data from the following exhibits: Table A: Table B: Table C: Exhibit 1: Exhibit 2: Condensed Income Statements, 1991-1993 Balance Sheet at December 31, 1993 Monthly Sales Data Pro Forma Balance Sheets Under Seasonal Production, 1994 Pro Forma Income Statement Under Seasonal Production, 1994

The first exhibit is located in the A1 position. To view each succeeding exhibit, use the SCROLL Bar to view the next exhibit

OPTIONAL NAVIGATIONAL TECHNIQUE Each exhibit in this worksheet has been named using the <Formula> <Define> <Name> commands in Excel. This allows you to easily move from one section of the worksheet to another. Either of the following techniques will allow you to move from one exhibit to another.

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Click on <Formula> in the menu bar, then select <Go to...> from pulldown menu A dialog box will appear listing the exhibts Click on the exhibit you wish to view, then click on <OK>. OR You may use the scroll bar or arrow keys to page down through the list of exhibits if the one you wish to view is not immediately apparent. SCROLL TO A1 TO GO TO FIRST EXHIBIT...

REVISION HISTORY Date Name 12/12/1994 K.Fitta Explanation of Change Converted to Excel

Harvard Business School

Table A

Condensed Income Statements, 1991-1993 (thousands of dollars)

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1991

1992

1993

Net sales Cost of goods sold Gross profit Operating expenses Interest expense Interest income Profit before taxes Federal income taxes Net profit

$5,213 3,597 $1,616 1,199 68 20 $369 125 $244

$6,167 4,440 $1,727 1,542 75 15 $125 43 $82

$7,967 5,577 $2,390 1,912 85 16 $409 139 $270

Table B

Balance Sheet at December 31, 1993 (thousands of dollars)

Cash Accounts receivable Inventory Current assets Plant and equipment, net Total assets Accounts payable Notes payable, bank Accrued taxes(a) Long-term debt, current portion Current liabilities Long-term debt Shareholders' equity Total liabilities and shareholders' equity

$200 2,905 586 $3,691 1,176 $4,867 $282 752 88 50 $1,172 400 3,295 $4,867

(a)The company was required to make estimated tax payments on the 15th of April, June, September, and December. In 1993 it elected to base its estimated tax payments on the previous year's tax. The balance of $88,000 was due on March 15, 1994.

Table C

Monthly Sales Data (thousands of dollars)

Sales 1993

Projected 1994

January February

$64 88

$120 140

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March April May June

96 88 87 95

160 140 140 140

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July August September October November December

96 1,251 1,474 1,723 1,965 940

160 1,620 1,840 2,140 2,285 1,115

Exhibit 1

Pro Forma Balance Sheets Under Seasonal Production, 1994 (thousands of dollars)

Actual Dec. 31, 1993

Jan.

Feb.

Mar.

Apr.

Cash(a) Accounts receivable(b) Inventory(c) Current assets Net plant and equipment(d) Total assets Accounts payable(e) Notes payable, bank(f)

$200 2,905 586 $3,691 1,176 $4,867 $282 752

$878 1,060 586 $2,524 1,176 $3,700 $36 0

$1,526 260 586 $2,372 1,176 $3,548 $42 0

$1,253 300 586 $2,139 1,176 $3,315 $48 0

$1,054 300 586 $1,940 1,176 $3,116 $42 0

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Accrued taxes(g) Long-term debt, current portion Current liabilities Long-term debt(h) Shareholders' equity Total liabilities and equity

88 50 $1,172 400 3,295

31 50 $117 400 3,183

(23) 50 $69 400 3,079

(162) 50 ($64) 400 2,979

(251) 50 ($159) 400 2,875

$4,867

$3,700

$3,548

$3,315

$3,116

(a)Assumed maintenance of minimum $200,000 balance; includes excess cash in months when company is out of debt. (b)Assumed 60-day collection period. (c)Assumed inventories maintained at December 31, 1993 level for all of 1994. (d)Assumed equipment purchases equal to depreciation expense.

(e)Assumed equal to 30% of the current month's sales and related to material purchases of $3,000,000 for 1994 as against sal This represents a 30-day payment period. Since inventories are level, purchases will follow seasonal production (f)Plug figure.

(g)Taxes payable on 1993 income are due on March 15, 1994. On April 15, June 15, September 15, and December 15, 1994, each of the estimated tax for 1994 are due. In estimating its tax liability for 1994, the company has the option of using the prior ($139,000) for its estimate and making any adjusting tax payments in 1995. Alternatively, the company could estimate its 1994 Toy World planned to use its prior year's tax liability as its estimate and to pay $35,000 in April, June, September, and Decemb (h)To be repaid at the rate of $25,000 each June and December.

Exhibit 2

Pro Forma Income Statement Under Seasonal Production, 1994 (thousands of dollars)

Jan.

Feb.

Mar.

Apr.

May

Net sales Cost of goods sold(a) Gross profit Operating expenses(b) Interest expense Interest income(c) Profit (loss) before taxes Income taxes(d)

$120 84 $36 200 7 2 ($169) (57)

$140 98 $42 200 4 4 ($158) (54)

$160 112 $48 200 4 5 ($151) (51)

$140 98 $42 200 4 4 ($158) (54)

$140 98 $42 200 4 3 ($159) (54)

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Net Profit

($112)

($104)

($100)

($104)

($105)

(a)Assumed cost of goods sold equal to 70% sales. (b)Assumed to be same for each month throughout the year. (c)Toy World expected to earn a 4% annualized rate of return on average monthly cash balances.

(d)Negative figures are tax credits from operating losses, and reduced accrued taxes shown on balance sheet. The federal tax

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May

June

July

Aug.

Sept.

Oct.

Nov.

$915 280 586 $1,781 1,176 $2,957 $42 0

$696 280 586 $1,562 1,176 $2,738 $42 0

$527 300 586 $1,413 1,176 $2,589 $48 0

$200 1,780 586 $2,566 1,176 $3,742 $486 433

$200 3,460 586 $4,246 1,176 $5,422 $552 1,741

$200 3,980 586 $4,766 1,176 $5,942 $642 1,745

$200 4,425 586 $5,211 1,176 $6,387 $686 1,677

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(305) 50 ($213) 400 2,770

(394) 50 ($302) 375 2,665

(448) 50 ($350) 375 2,564

(352) 50 $617 375 2,750

(271) 50 $2,072 375 2,975

(126) 50 $2,311 375 3,256

33 50 $2,446 375 3,566

$2,957

$2,738

$2,589

$3,742

$5,422

$5,942

$6,387

en company is out of debt.

,000,000 for 1994 as against sales of $10 million. asonal production

ber 15, and December 15, 1994, payments of 25% has the option of using the prior year's tax liability company could estimate its 1994 tax liability directly. , June, September, and December.

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

$140 98 $42 200 4 3 ($159) (54)

$160 112 $48 200 3 2 ($153) (52)

$1,620 1,134 $486 200 5 1 $282 96

$1,840 1,288 $552 200 12 1 $341 116

$2,140 1,498 $642 200 17 1 $426 145

$2,285 1,600 $685 200 17 1 $469 159

$1,115 780 $335 200 14 1 $122 42

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($105)

($101)

$186

$225

$281

$310

$80

n balance sheet. The federal tax rate on all earnings was 34%.

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Dec.

$200 3,400 586 $4,186 1,176 $5,362 $334 942

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40 50 $1,366 350 3,646

$5,362

Total

$10,000 7,000 $3,000 2,400 95 28 $533 182

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$351

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