5

Pro-Forma Forecasting for Urban Outfitters

Using the first Approach, where the three-year average rate of growth in sales is used to forecast for the two year period, first we calculate the average rate of sales growth over the past three years. Given that Sales for the past three years is as given below,

Fiscal Year Ended January 31,
2009 / 2008 / 2007
Sales / $ / 1,834,618 / $ / 1,507,724 / $ / 1,224,717

Then the sales growth rate is as shown below with 2007 being the base year:

2007 / 2008 / 2009 / Average rate of growth (%)
Sales growth rate / - / 23.1 / 21.7 / 22.4

The average rate of sales growth is 22.4%, which implies that all items in the Income statement including depreciation will be increased by this value.

The forecasted values will be as shown below:

Consolidated Statements of Income
(in thousands, except share and per share data)
Fiscal Year Ended January 31, (Actual Data) / Forecasted Data
2009 / 2008 / 2007 / 2010 / 2011
Net Sales / $ / 1,834,618 / $ / 1,507,724 / $ / 1,224,717 / 2,245,572.40 / 2,748,580.70
Cost of sales, including buying, distribution
and occupancy costs / 1,121,140 / 930,952 / 772,796 / 1,372,275.40 / 1,679,665.10
Gross profit / 713,478 / 576,772 / 451,921 / 873,297.00 / 1,068,915.60
Selling, general and administrative expenses / 414,043 / 351,827 / 287,932 / 506,788.60 / 620,309.30
Income from operations / 299,435 / 224,945 / 163,989 / 366,508.40 / 448,606.30
Interest income / 11,504 / 9,390 / 6,531 / 14,080.90 / 17,235.00
Other income / 694 / 575 / 353 / 849.50 / 1,039.70
Other expenses / -2,143 / -515 / -715 / -2,623.00 / -3,210.60
Income before income taxes / 309,490 / 234,395 / 170,158 / 378,815.80 / 463,670.40
Income tax expense / 110,126 / 74,164 / 53,952 / 134,794.20 / 164,988.10
Net Income / $ / 199,364 / $ / 160,231 / $ / 116,206 / 244,021.60 / 298,682.30
Net income per common share:
Basic / $ / 1.2 / $ / 0.97 / $ / 0.71 / 1.47 / 1.8
Diluted / $ / 1.17 / $ / 0.94 / $ / 0.69 / 1.43 / 1.75
Weighted average common shares outstanding:
Basic / 166,793,062 / 165,305,207 / 164,679,786 / 204,154,707.90 / 249,885,362.50
Diluted / 170,860,605 / 169,640,585 / 168,652,005 / 209,133,380.50 / 255,979,257.80

The Balance Sheet is then made to balance by increasing the cash in the forecasted two years by the amount of the net income in the forecasted years 2010 and 2011 and also increasing retained earnings by the amount of net income in the forecasted years 2010 and 2011.

This implies that the cash amount in the forecasted balance sheet for 2010 will be equal to, 316035 + 244022 = $ 560057, and for 2011 will be 560057 + 298682 = $ 858,739.00

The Retained earnings on the other hand will be:

For 2010;

901,339 + 244022 = 1,145,361

And for 2011;

1,145,361 + 298682 =$ 1,444,043

The forecasted balance sheet will therefore be as shown below:

Consolidated Balance Sheet (In thousands, except share and per share data)

Forecasted Data
2010 / 2011
ASSETS
Current assets:
Cash and cash equivalents / 560,057.00 / 858,739.00
Marketable securities / 49,948 / 49,948
Accounts receivable, net allowance for doubtful accounts of $1,229
and $9666, respectively / 36,390 / 36,390
Inventories / 169,698 / 169,698
Prepaid expenses and other current assets / 46,412 / 46,412
Deferred taxes / 5,919 / 5,919
Total current assets / 868,424 / 1,167,106
Property and equipment, net / 505,407 / 505,407
Marketable securities / 155,226 / 155,226
Deferred income taxes and other assets / 43,974 / 43,974
Total Assets / 1,573,031 / 1,871,713
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable / 62,955 / 62,955
Accrued compensation / 11,975 / 11,975
Accrued expenses and other current liabilities / 66,220 / 66,220
Total current liabilities / 141,150 / 141,150
Deferred rent and other current liabilities / 134,084 / 134,084
Total Liabilities / 275,234 / 275,234
Commitments and contingencies (see Note 11)
Shareholders' equity
Preferred shares; $.0001 par value, 10,000,000 shares authorized, none
issued / __ / __
Common shares; $.0001 par value, 200,000,000 shares authorized,
167,712,0888 and 166,104,615 issued and outstanding,
respectively / 17 / 17
Additional paid-in capital / 170,166 / 170,166
Retained earnings / 1,145,361 / 1,444,043
Accumulated other comprehensive (loss) income / (17,747) / (17,747)
Total Shareholders' Equity / 1,297,797 / 1,596,479
Total Liabilities and Shareholders' Equity / 1,573,031 / 1,871,713