Question

Pro Forma Income Statements

Presented below is the consolidated statement of earnings for Mann & Miller, Inc.

Mann & Miller, Inc.
Consolidated Statement of Earnings
($ millions)		2015	2014	2013
Sales of customers		$35,980	$32,317	$29,172
Cost of goods sold		9,745	9,581	8,957
Gross profit		26,235	22,736	20,215
Selling, marketing & administrative expense		12,216	11,260	10,495
Research expense		3,957	3,591	3,105
Purchased in-process research & development		189	105	66
Interest income		(256)	(456)	(429)
Interest expense, net of portion capitalized		160	153	204
Other (income) expense, net		294	185	(94)
		16,560	14,838	13,347
Earnings before provision for income taxes		9,675	7,898	6,868
Provision for income taxes		2,806	2,230	1,915
Net earnings		$ 6,869	$ 5,668	$ 4,953
Basic net earnings per share		$2.20	$1.87	$1.65
Diluted net earnings per share		$2.16	$1.84	$1.61

Required
Using the Mann & Miller Inc. (M&M) consolidated statement of earnings as your base year, prepare pro forma income statements for M&M for 2016 and 2017. Relevant assumptions that you should use include:

• Sales growth is 10 percent per year.
• Gross profit margin is 65 percent.
• Effective income tax rate is 29 percent.
• Selling, marketing & administrative expenses, research expenses, and other income and expenses net all vary as a function of sales.
• Purchased in-process R&D, and interest income remain constant at the 2015 level.
• Interest expense is six percent of the beginning balance of long-term debt.
• Long-term debt at the end of 2015 is $2,650 and increases by five percent each year.

Instructions

Mann & Miller, Inc.
Proforma Financial Statements
(in millions)	2016		2017
Sales to customers	Answer		Answer
Cost of sales	Answer		Answer
Gross profit	Answer		Answer
Selling & administrative	Answer		Answer
Research	Answer		Answer
In-process R & D	Answer		Answer
Interest income	Answer		Answer
Interest expense	Answer		Answer
Other (income) expense, net	Answer		Answer
Income before taxes	Answer		Answer
Income taxes	Answer		Answer
Netincome	Answer		Answer

• 1. Round answers to the nearest whole number.
  2. Use rounded Sales figure for subsequent calculations.
  3. For selling, marketing & administrative expenses, research expenses, and other income and expenses computations - use (2015 expense / 2015 sales) as your factor for both 2016 and 2017 computations. Do not round until your final answer.
  4. Use a negative sign with interest income answers.

Answer 1

11 0W ee mann& mille JNc profoma fnn cial statgnents $ Cin millisns) Note a2 2o 2 017 sales to customes1 39S78 43535-8 1S237.53 13852-3 cost of Sales 3 STESB 26298-7 selling &adminishabve 13416-9 14758-6 Rescarch 4353 58 47ss-9 Inprocek R&D 189 89 intesest in come (s8) (254) 3pe 166-95 Cocxr art -3cat interet expar sc 159 ofhes Cintom e) expen, ne 7 348-3 316-6 income be fou tarey 8302-52 7546-62 fadsioe in come taves (a%) 2168.52 407-73 Net in come 53 S8.10 894-25

(H tlo. gales customess $39578 35980 x 10y 2016= $435 35.8 $39578 x110 3 ven G.o paat Ca Bale) Note:2 35 725.7 2016 $39 578 x 65 $48535-8x 6S $8298. 27 2017= 1 Note 3 Cost Sales Sales - Gop 1 : $39578- $as725 7= $ 13853.3 ২०।। $152 34-5 us535.8- $ 6298. 27

NOte; y selling & adminishr ave gelting & adminiskabve factos Ce0is) Ceo saler 33.99 35980 sellog&adminskah ve soles x 33 y For 2016= 39578x33.9y 13416 9 >For 2017 salis x 33 9 43535. 8X33 . /4758.6 Reseasch expen3y Note, 5 Sres easch expens factor (2015) Saly 39 S7 IL1. 35980 Research expens 39578 x 11 4353-S 8 2016 2 43535 8X1TT

inteoest erpense Note6 650 Long tam debt (eols) (+)5 incaea C 26Sס x ל $ 139 5 २৭৪२-5 Long heam delt 2ol6) $139-1 C$983.55) ও २१३) - ८ Long team delt (2ol) balant ioteoest epense - 6 beginning >2ol50Long fem debt x 6y C2015) 3650x 61.159 R017Long team delt X 6 2016) 298a.5x 6-106.95

Othes intome, expense net Note: 394 factos( zo1s) O.8 X100 35980 Other intome expen net 2016 39578 316 6 348.3 3535-8 XD 8 2017-