Toy World

Exhibit No.1

Toy World, Inc.'s Pro-Forma Balance Sheet under Level Production, 1994 (thousands of dollars) Jan. Feb. Mar. Apr. May June July Aug. Sept. Cash 628 816 200 200 200 200 200 200 200 Account receivablea 1,060 260 300 300 280 280 300 1,780 3,460 Inventoryb 1,050 1,502 1,940 2,391 2,843 3,294 3,733 3,220 2,565 Current Assets 2738 2578 2440 2891 3323 3774 4233 5200 6225 Net plant & equipment 1,176 1,176 1,176 1,176 1,176 1,176 1,176 1,176 1,176 Total assets 3914 3754 3616 4067 4499 4950 5409 6376 7401

Oct. 200 3,980 1,714 5894 1,176 7070

Nov. 200 4,425 769 5394 1,176 6570

Dec. 200 3,400 586 4186 1,176 5362

Account payalec Notes payable, bankd Accrued taxese Long-T-debt current portion Current liabilities Long-term debt shareholders' equityf Total liabilities & equity

250 3,159 (89) 50 3370 375 3,325 7070

250 2,087 105 50 2492 375 3,703 6570

250 764 130 50 1194 350 3,818 5362

250 0 30 50 330 400 3,184 3914

250 0 (24) 50 276 400 3,078 3754

250 106 (165) 50 241 400 2,975 3616

250 760 (257) 50 803 400 2,864 4067

250 1,367 (316) 50 1351 400 2,748 4499

250 2,060 (413) 50 1947 375 2,628 4950

250 2,700 (474) 50 2526 375 2,508 5409

250 3,341 (364) 50 3277 375 2,724 6376

250 4,000 (263) 50 4037 375 2,989 7401

Assumes a 60-day collection period. From Exhibit No-4. c Assume a 30-day payment period. December 31balance paid in january and constant balance maintained thereafter at the level of one month's purchases. d Figure plugged as the difference between assets and all sources of funds except bank notes. e See footnote (g) to case Exhibit 1, and Exhibit No-5. f The Changes are based on the monthly profit figures from the pro forma income statement in Exhibit No-2. a b

Exhibit No-2

Net Sales

Toy World, Inc.'s Pro Forma Income Statement under Level Production, 1994 (thousands of dollars) Jan. 120

Feb. 140

Mar. 160

Apr. 140

May 140

June 140

July 160

Aug. 1,620

Sept. 1,840

Oct. 2,140

Nov. 2,285

Dec. 1,115

Total 10,000

Cost of goods solda Gross profit Operationg Expensesb Interest Expense Interest Income Income taxesc Net Profit

78 42

91 49

104 56

91 49

91 49

91 49

104 56

1,055 565

1,198 642

1,393 747

1,488 797

726 389

6,510 3,490

205 7 1 -171 -58 -229

207 4 2 -164 -56 -220

209 4 1 -158 -54 -212

211 7 1 -170 -58 -228

213 12 1 -177 -60 -237

215 17 1 -184 -63 -247

217 21 1 -183 -62 -245

214 26 1 324 110 214

211 31 1 399 136 263

208 30 1 508 173 335

203 23 1 570 194 376

202 14 1 172 58 114

2,515 196 13 766 260 506

65.10% of sales, reflecting labor saving of $490,000. Assumes a constant gross margin in each month. Operating expenses of $ 2,400,000 are assumed evenly distributed throughout the year. The $115,000 of increased storage and handling costs are allocated to each month on the basis of the amount of inventory at the end of the month as a percent of the sum of the ending inventory figures for all 12 months. c Assumed 34% tax rate./ One can also state that because of losses, no income tax is payable when there is a loss a b

Exhibit No-3

Cash Budget under Level production, 1994 (thousands of dollars)

Inflows Collections After-tax interest income Total

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

1,965 1 1,966

940 2 942

120 1 121

140 1 141

160 1 161

140 1 141

140 1 141

140 1 141

160 1 161

1,620 1 1,621

1,840 1 1,841

2,140 1 2,141

Outflows Payments of account payable Tax payments Repayment of long-term debt Operating expenses Interest expenses wages Total Net inflow (outflow) Beginning Cash Ending cash before any loan increase or repayment Desired cash balance Loan (repayment) increase End-of-month loan End of month Cash Balance

282 0 0 205 7 292 786 1,180 200

250 0 0 207 4 293 754 188 628

250 88 0 209 4 292 843 -722 816

250 35 0 211 7 292 795 -654 200

250 0 0 213 12 293 768 -607 200

250 35 25 215 17 292 834 -693 200

250 0 0 217 21 293 781 -640 200

250 0 0 214 26 292 782 -641 200

250 35 0 211 31 293 820 -659 200

250 0 0 208 30 292 780 841 200

250 0 0 203 23 293 769 1,072 200

250 34 25 202 14 293 818 1,323 200

1,380 200 (752) 0 628

816 200 0 0 816

94 200 106 106 200

-454 200 654 760 200

-407 200 607 1,367 200

-493 200 693 2,060 200

-440 200 640 2,700 200

-441 200 641 3,341 200

-459 200 659 4,000 200

1,041 200 -841 3,159 200

1,272 200 -1,072 2,087 200

1,523 200 -1,323 764 200

Exhibit No-4

Schedule of Changes Affecting inventory, (thousands of dollars) Finished1994Finished Goods

Finished Goods Cost of Goods Goods Net Beginning of Finished Goods a Month Completed sold Change Month End of the Month January $542 78 $464 586 1,050 February 543 91 $452 1,050 1,502 March 542 104 $438 1,502 1,940 April 542 91 $451 1,940 2,391 May 543 91 $452 2,391 2,843 June 542 91 $451 2,843 3,294 July 543 104 $439 3,294 3,733 August 542 1,055 ($513) 3,733 3,220 September 543 1,198 ($655) 3,220 2,565 October 542 1,393 ($851) 2,565 1,714 November 543 1,488 ($945) 1,714 769 December 543 726 ($183) 769 586 a At 65.10% of sales, reflecting Labor Savings. Assumes a Constant Gross margin in each month. Accrued Taxes$ 490,000 Taxes Payable Exhibit No-5 Calculation Taxes in for 1994 (thousandsAccrued of dollars) From priorof Accrued on profits Taxes at a b Month month Month Taxes Paid End of Month January 88 (58) 0 30 February 30 (56) 0 (26) March (26) (54) 88 (168) April (168) (58) 35 (261) May (261) (60) 0 (321) June (316) (63) 35 (413) July (413) (62) 0 (475) August (475) 110 0 (365) September (365) 136 35 (264) October (264) 174 0 (90) November (90) 194 0 104 December 104 59 34 129 From Exhibir No-2

a

b c

From footnote g, case Exhibit 1.

From case Exhibit 1.