Kodak
Refer to the following financial statements for Kodak:
CASE 9–1
Forecasting Pro Forma Financial Statements
Required: Prepare forecasts of its income statement, balance sheet, and statement of cash flows
for 20x7 under the following assumptions:
a. All financial ratios remain at 20x6 levels.
b. Kodak will not record restructuring costs for 20x7.
c. Taxes payable are at the 20x6 level of $544 million.
d. Depreciation expense charged to SG&A is $765 million and $738 million for 20x6 and 20x5,
respectively.
e. Gross PPE is $12,982 million and $12,963 million for 20x6 and 20x5, respectively.
f. Projected current maturities of long-term debt are $13 million for 20x7.
g. Capital expenditures for 20x6 and 20x5 are $1,047 and $783, respectively.
Solution
Kodak
Income Statement
For Year Ended Deember 31 (in millions) 20x7 Est 20x6 20x5
Net Sales $ 12,515 $ 13,234 $ 13,994
Cost of Goods Sold 8,975 8,670 8,375
Gross Profit 3,540 4,564 5,619
Selling, General and Administrative Expenses 1,907 2,016 1,927
Depreciation Expenses 766 765 738
Research and Development Costs 737 779 784
Restructuring Costs (Credits) and Other - 659 (44)
Earnings from Operations 131 345 2,214
Interest Expense 208 219 178
Other Income (Charges) (17) (18) 96
Earnings Before Income Taxes (94) 108 2,132
Provision for Income Taxes (28) 32 725
Net Earnings $ (66) $ 76 $ 1,407
Balance Sheet
At December 31 (in millions, except per share data) 20x7 20x6 20x5
Assets
Current Asssets
Cash and Cash Equivalents $ 373 $ 448 $ 246
Receivables, net 2,210 2,337 2,653
Inventories, net 1,177 1,137 1,718
Deferred Income Taxes 521 521 575
Other Current Assets 240 240 299
Total Current Assets 4,521 4,683 5,491
Property, Plant and Equipment 13,972 12,982 12,963
Accumulated Depreciation 8,089 7,323 7,044
Property, Plant and Equipment, net 5,883 5,659 5,919
Goodwill, net 948 948 947
Other Long-term Assets 2,072 2,072 1,855
Total Assets $ 13,424 $ 13,362 $ 14,212
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable and Other Current Liabilities $ 3,391 $ 3,276 $ 3,403
Short-term Borrowings 1,378 1,378 2,058
Current portion of long-term debt 13 156 148
Accrued Income Taxes 544 544 606
Total Current Liabilities 5,326 5,354 6,215
Long-term Debt, net of current portion 1,653 1,666 1,166
Postemployment Liabilities 2,728 2,728 2,722
Other ong-term Liabilities 720 720 681
Total Liabilities 10,427 10,468 10,784
Shareholders' Equity
Common Stock, $2.50 par value 978 978 978
Additional Paid in Capital 849 849 871
Retained Earnings 7,534 7,431 7,869
Accumulated Other Comprehensive Loss (597) (597) (482)
8,764 8,661 9,236
Treasury Stock (5,767) (5,767) (5,808)
Total Shareholders' Equity 2,997 2,894 3,428
Total Liabilities and Shareholders' Equity $ 13,424 $ 13,362 $ 14,212
Statement of Cash Flow
20x7
Cash flow from Operating Activities
Net Income $ (66)
Depreciation 766
Decrease in Accounts Receivable 127
Decrease in Inventories (40)
Decrease in Accounts Payable 115
Cash flow from Operating Activities 902
Cash flow from Investing Activities
Purchase of Property, Plant and Equipment (990)
Cash used in Investing Activities (990)
Cash flow from Financing Activities
Long-term Debts 13
Cash flow from Financing Activities 13
Net change in Cash (75)
Beginning Cash 448
Ending Cash 373
Ratios
20x7 20x6
Receivables Turnover 5.66 5.66
Inventory Turnover 7.63 7.63
Accounts Payables Turnover 2.65 2.65
Capital Expenditure $ 990 $ 1,047
Capital Expenditure/Sales 7.91% 7.91%
Assumptions for Growth
20x7 20x6
-5.43% -5.43%
3.52% 3.52%
34.49% 34.49%
15.23% 15.23%
5.90% 5.90%
5.89% 5.89%
6.49% 6.49%
-0.14% -0.14%
29.63% 29.63%
Assumptions
20x7 20x6
Sales Divided by AR Turnover
COGS Divided by Inventory Turnover
No Change
No Change
Addition of Capex @ 7.91% of sale
Prev. yr. Accum. Dep. + Current year Dep.
No Change
No Change
COGS Divided by AP Turnover
No change
Given in point f
No change
Prev. Yr. minus current portion
No change
No change
No change
No change
Prev Yr. add current yr. net income
No Change
No change
