Dick Sweeney

Corning Case: Complete Pro Forma

Income Statement and Balance Sheet, 1981-1995.

Dividend Target

The following pages show pro formas for the Corning Case under the assumption that the project lasts until 1995.

Further, these pro formas assume that the Indonesia company adheres to the dividend-target policy that is observed in the pro formas in the case up to 1988.

In these pro formas, the data from 1981 to 1988 are the same as in the tables in the case.

Note that the project starts mid-1981. The data in the case’s balance sheet that are labeled “30-Jun-81: Project Completion” are labeled here as 1980.

The notes attached to each accounting statement show how the pro formas were extrapolated to 1989. In some instances, alternative assumptions might well make sense, but the assumptions used below are plausible.

1


Dick Sweeney

International Finance

Corning Case: Complete Pro Forma Income Statement, 1981-1995. Dividend Target.

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obs 1981 1982 1983 1984 1985 1986 1987 1988 | 1989 1990 1991 1992 1993 1994 1995

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NET_SALES_REV 4512.000 9957.000 12836.00 15636.00 16984.00 17526.00 17577.00 17577.00 | 17577.00 17577.00 17577.00 17577.00 17577.00 17577.00 17577.00

|

CGS (before dep) 1736.000 3854.000 4517.000 5035.000 5333.000 5446.000 5466.000 5466.000 | 5466.000 5466.000 5466.000 5466.000 5466.000 5466.000 5466.000

DEPRECIATION 1094.000 2188.000 2188.000 2188.000 2188.000 2188.000 2188.000 2188.000 | 2188.000 2188.000 2188.000 478.0000 0.000000 0.000000 0.000000

SALES,GEN,ADM. 617.0000 1094.000 907.0000 857.0000 857.0000 857.0000 857.0000 857.0000 | 857.0000 857.0000 857.0000 857.0000 857.0000 857.0000 857.0000

OPER_INC 1065.000 2821.000 5224.000 7556.000 8606.000 9035.000 9066.000 9066.000 | 9066.000 9066.000 9066.000 10776.00 11254.00 11254.00 11254.00

AMORTIZATION 229.0000 458.0000 538.0000 538.0000 538.0000 311.0000 80.00000 0.000000 | 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000

ST_TERM_INTERE 76.00000 256.0000 326.0000 391.0000 438.0000 458.0000 465.0000 465.0000 | 465.0000 465.0000 465.0000 465.0000 465.0000 465.0000 465.0000

LG_TERM_INTERE 766.0000 1435.000 1159.000 861.0000 562.0000 263.0000 117.0000 23.00000 | 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000

TOT_OTHER_EXPS 1071.000 2149.000 2023.000 1790.000 1538.000 1032.000 662.0000 488.0000| 465.0000 465.0000 465.0000 465.0000 465.0000 465.0000 465.0000

INC_BEFORE_TAX -6.000000 672.0000 3201.000 5766.000 7068.000 8003.000 8404.000 8578.000| 8601.000 8601.000 8601.000 10311.00 10789.00 10789.00 10789.00

PROV_CURR_TAX 0.000000 0.000000 0.000000 0.000000 0.000000 1580.000 3340.000 3418.000 | 3440.400 3440.400 3440.400 4124.400 4315.600 4315.600 4315.600

PROV_DEFE_TAX 0.000000 0.000000 0.000000 0.000000 0.000000 221.0000 442.0000 442.0000 | 442.0000 442.0000 -442.0000 -442.0000 -442.0000 -442.0000 -221.0000

TOTAL_INC_TAX 0.000000 0.000000 0.000000 0.000000 0.000000 1801.000 3782.000 3860.000 | 3882.400 3882.400 2998.400 3682.400 3873.600 3873.600 4094.600

NET_INCOME -6.000000 672.0000 3201.000 5766.000 7068.000 6202.000 4622.000 4718.000 | 4718.600 4718.600 5602.600 6628.600 6915.400 6915.400 6694.400

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BE_RET_EARN 0.000000 -6.000000 666.0000 2827.000 6513.000 10461.00 13543.00 15045.00 | 16643.00 18241.60 19840.20 22322.80 25831.40 29626.80 33422.20

+NET_INCOME -6.000000 672.0000 3201.000 5766.000 7068.000 6202.000 4622.000 4718.000 | 4718.600 4718.600 5602.600 6628.600 6915.400 6915.400 6694.400

-DIVIDENDS 0.000000 0.000000 1040.000 2080.000 3120.000 3120.000 3120.000 3120.000 | 3120.000 3120.000 3120.000 3120.000 3120.000 3120.000 3120.000

+END_RET_EARN -6.000000 666.0000 2827.000 6513.000 10461.00 13543.00 15045.00 16643.00 | 18241.60 19840.20 22322.80 25831.40 29626.80 33422.20 36996.60

DRET_EARN -6.000000 672.0000 2161.000 3686.000 3948.000 3082.000 1502.000 1598.000 | 1598.600 1598.600 2482.600 3508.600 3795.400 3795.400 3574.400

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1


Dick Sweeney

International Finance: II

Corning Case: Complete Pro Forma Income Statement, 1981-1995.

Dividend Target.

Notes on how to complete the pro forma Income Statement:

Data through 1988 are from the case’s accounting statements.

The series Net Sales Revenue, CGS, and Sales, General and Administrative Expenses reach steady values by 1988, and these values are extrapolated beyond 1988 to 1995.

Depreciation is 2188/year until fixed assets are fully depreciated by end-of-1992 (only 478 remains to be depreciated by end-of 1991).

Definition in case: Operating Income = Net Sales Revenue - (CGS + Depreciation + Sales, General and Administrative Expenses).

Amortization goes to 0.0 in 1988 and last long-term interest is paid in 1988. From 1989 on, only short-term interest of 465 contributes to Total Other Expenses.

Definition: Income Before Taxes = Operating Income - Total Other Expenses.

The tax rate is 40%. There is a tax holiday until mid-1986 (project started in mid-1981).

Deferred Taxes of 442/year (only half of this in 1986) because depreciation reduces net fixed assets to zero before end of project in 1995. After depreciation is zero, deferred taxes become - 442/year (only -221 in 1995).

Definition: Net Income = Income Before Tax - Total Income Taxes. (Where does Net Income come from?)

Definition: Net Income = Dividends + Change in Retained Earnings. (How is Net Income Used? Assumes Clean Surplus Accounting, as used in case’s pro formas.)

Definition: End-of-period Retained Earnings = Beginning-of-period Retained Earnings + Net Income - Dividends.

Definition: Change in Retained Earnings

= End-of-Period Retained Earnings - Beginning-of-period Retained Earnings

= End-of-Period Retained Earnings - End-of-Period Retained Earnings(-1)

= Net Income - Dividends.

1


Dick Sweeney

International Finance

Corning Case: Complete Pro Forma Balance Sheet, 1981-1995. Dividend Target.

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year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

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CASH 869.0000 1780.000 3449.000 4272.000 7776.000 10884.00 13911.00 16523.00 19901.00 24129.60 28358.20 32586.80 36131.40 39484.80 42838.20 46191.60

ACCTS_REC 0.000000 1128.000 1228.000 1583.000 1928.000 2094.000 2161.000 2167.000 2167.000 2167.000 2167.000 2167.000 2167.000 2167.000 2167.000 2167.000

INVENTOR 696.0000 758.0000 1268.000 1487.000 1687.000 1775.000 1807.000 1807.000 1807.000 1807.000 1807.000 1807.000 1807.000 1807.000 1807.000 1807.000

TotCur_AS 1565.000 3666.000 5945.000 7342.000 11391.00 14753.00 17879.00 20497.00 23875.00 28103.60 32332.20 36560.80 40105.40 43458.80 46812.20 50165.60

GR_FIX_AS 21208.00 21208.00 21208.00 21956.00 21956.00 22704.00 22704.00 23452.00 23452.00 23452.00 23452.00 23452.00 23452.00 23452.00 23452.00 23452.00

AccDEPREC 0.000000 1094.000 3282.000 5470.000 7658.000 9846.000 12034.00 14222.00 16410.00 18598.00 20786.00 22974.00 23452.00 23452.00 23452.00 23452.00

NET_FIX_AS 21208.00 20114.00 17926.00 16486.00 14298.00 12858.00 10670.00 9230.000 7042.000 4854.000 2666.000 478.0000 0.000000 0.000000 0.000000 0.000000

NetOtherAS 2292.000 2063.000 1605.000 1467.000 929.0000 391.0000 80.00000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000

TOT_AS 25065.00 25843.00 25476.00 25295.00 26618.00 28002.00 28629.00 29727.00 30917.00 32957.60 34998.20 37038.80 40105.40 43458.80 46812.20 50165.60

ACCTS_PAY 113.0000 123.0000 132.0000 154.0000 175.0000 184.0000 186.0000 186.0000 186.0000 186.0000 186.0000 186.0000 186.0000 186.0000 186.0000 186.0000

ST-term_DT 452.0000 1226.000 1622.000 1996.000 2350.000 2515.000 2579.000 2583.000 2583.000 2583.000 2583.000 2583.000 2583.000 2583.000 2583.000 2583.000

CurPorLTD 500.0000 944.0000 2738.000 2738.000 2738.000 2742.000 850.0000 850.0000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000

TOT_CUR_LI 1065.000 2293.000 4492.000 4888.000 5263.000 5441.000 3615.000 3619.000 2769.000 2769.000 2769.000 2769.000 2769.000 2769.000 2769.000 2769.000

NetLT_DEBT 13600.00 13156.00 9918.000 7180.000 4442.000 1700.000 850.0000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000

ResDefTAX 0.000000 0.000000 0.000000 0.000000 0.000000 0.000000 221.0000 663.0000 1105.000 1547.000 1989.000 1547.000 1105.000 663.0000 221.0000 0.000000

Paid-in_CAP 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00 10400.00

RET_EARN 0.000000 -6.000000 666.0000 2827.000 6513.000 10461.00 13543.00 15045.00 16643.00 18241.60 19840.20 22322.80 25831.40 29626.80 33422.20 36996.60

TotLia+ NW 25065.00 25843.00 25746.00 25295.00 26618.00 28002.00 28629.00 29727.00 30917.00 32957.60 34998.20 37038.80 40105.40 43458.80 46812.20 50165.60

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1


Dick Sweeney

International Finance: II

Corning Case: Complete Pro Forma Balance Sheet, 1981-1995.

Dividend Target.

Notes on how to complete the pro forma Balance Sheet:

Data through 1988 are from the case’s accounting statements.

The series Accounts Receivable, Inventories, Net Other Assets, Accounts Payable Short-Term Debt, Current Portion of Long-Term Debt, Total Current Liabilities, Net Long-Term Debt, and Paid-In Share Capital are at steady values by 1988, and these values are extrapolated beyond 1988 to 1995.

Depreciation is 2188/year until gross fixed assets are fully depreciated by end-of-1992 (only 478 remains to be depreciated by end-of 1991) and net fixed assets are zero.

Note that in some years (1983, 1985, 1987), Gross Assets rise, because there is positive Capital Expenditures, CAPEX.

Retained Earnings are found from the Income Statement as End-Of-Period Retained Earnings.

At this point, making use of “Retained Earnings” from the Income Statement, the sum Total Liabilities + Net Worth can be calculated. Because Total Assets = Total Liabilities + Net Worth, Total Assets can then be calculated.

The only line item missing is Cash. Cash is a “plug” variable that takes on whatever value is required to make Total Assets equal Total Liabilities + Net Worth.

Intuitively, the firm earns Net Income and pays out its target dividend. The rest of Net Income is an addition to Retained Earnings, and goes to finance the accumulation of assets in excess of liabilities. Any left-over additions to Retained Earnings are simply added to Cash.

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