July 1993
Plastics & Engineering Financial Analysis
04/19/23 @ 22:48 - 2 -
FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Agenda
• Objectives
• Approach
• Trend analysis
• Productivity analysis
• Points for discussion
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Objectives
• Analyze financial information to:– Focus our analysis efforts and tasks
– Establish baseline
– Set context for business case
– Understand key drivers of financial performance
04/19/23 @ 22:48 - 4 -
FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Approach
• Financial analysis– Analyzed:
• 1989 - 1992 XXXX Financial Reports• 1993 YTD XXXX Financial Reports• 1992/1993 XXXX Budget• 1989 - 1992 Jeffersontown Plant Financial Report• 1993 YTD Jeffersontown Plant Financial Report• 1992 Frankfort Plant Financial Report• 1993 YTD Frankfort Plant Financial Report
• Industry Analysis and Competitor Analysis• Internal Gemini Analysis
• Informational Interviews
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Financial Analysis Helps Identify the Path Forward for XXXX’s Change Program
Findings&
Conclusions
ParentCoInterviews
ExternalView
ProjectDesign
ParentCoInterface
Study
MfgAssessment
• Louisville• Frankfort
Financial Analysis & Business
Case
XXX Interviews• 8 Executive
• 31 Focus
1 2 3 4
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
• Total Sales 121.0 39.1 47.2
• Cost of Sales 102.0 36.4 41.3– Materials – 25.7 29.0– Direct Labor – 2.8 4.8– Indirect Labor – 3.5 1.6– Mfg. Overhead – 4.5 5.9
• Gross Profit 19.0 2.7 5.9
• S&E Expenses 4.8 1.6 0.2• G&A Expenses 7.9 2.8 2.4• Interest Expenses 1.1 0.6 0.3
• Net Income Before Taxes 5.2 (2.3) 3.0
• Total Inventories 10.2 3.3 3.5• Accounts Receivable-Trade 15.0 5.6 5.0• Net Fixed Assets 24.4 10.3 5.5
($MM) FY 1992
XXXX Jeffersontown Frankfort
1992 Financial Baseline
Source: XXXX & Engineering Financial report
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
ParentCo Is XXXX’s Largest Customer And Accounts For 65% Of Total Sales
ParentCo Appliance Park 35.4%
ParentCo Bloomington 28.3%
ParentCo (Other) 14.5%
Rev-A-Shelf 7.5%
Other 14.3%
Jeffersontown Frankfort
ParentCo Appliance Park 30.5%
ParentCo Bloomington 34.6%
ParentCo Decatur 15.0%
Rubbermaid 6.7%
JCI/Hyperion 4.5%
Other 8.7%
Rev-A-Shelf
1992 Sales = $39 M 1992 Sales = $47 M
In 1992 ParentCo bought $68 M (79% of total plant sales) from these 2 plants.In 1992 ParentCo bought $68 M (79% of total plant sales) from these 2 plants.
ParentCo
ParentCoAppliance Park
ParentCo(Other)
ParentCoBloomington
Other
ParentCoAppliance Park
ParentCoBloomington
Other
ParentCo
ParentCoDecatur
Rubbermaid
JCI/Hyperion
Source; XXXX
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
While XXXXs’ Revenue Has Grown Rapidly, Earnings Have Not Kept Pace
Much of XXXXs recent growth has been driven by acquisitions.Much of XXXXs recent growth has been driven by acquisitions.
0
2050
70
90
110
130
1989 1990 1991 1992 1993
CGR = 26%
CGR = 10%
CGR = 22%
5259
101
121131
9 8
15
19 20
2.3 12.5 3.1
3.7
Note: Figures include Rev- A- Shelf
Revenue
Gross Profit
Net Income
$ in Millions
Source: XXXX Financial Reports and FY 1992/93 Budget
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
1989 1990 1992 19931991
XXXX Margins Are Below Industry Norms
Improving 1993 gross margins to industry average of 21% equals $7.5 million.Improving 1993 gross margins to industry average of 21% equals $7.5 million.
Source For 1991 Industry Average: Plastics World, June ‘93
1991 Industry Average = 21%
Operating Margin
17%
14%14.9%
15.8% 15.3%
4.6%
1.7% 2.5% 2.6% 2.8%
0
2
4
6
8
10
12
14
16
18
20
22
1991 Industry Average = 4.6%
Gross Margin
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
• Sales 121.0 100% 39.1 100% 47.2 100% 100%• Direct Materials – – 25.7 66% 29.0 61% 39%b
• Direct Labor – – 2.8 7% 4.8 10% 12%• Indirect Labor – – 3.5 9% 1.6 3% 8%
• Overhead – – 4.5 12% 5.9 13% 21%
– Cost of Sales 102.0 84% 36. 94% 41.3 88%80%
– Gross Margin 19.0 16% 2.7 6% 5.9 12%20%
• Selling, Engineer-ing, General& 12.7 11% 4.4 11% 2.9 6% 16%Administrationexpenses
• Operating margin 6.3 5% (1.7) (4%) 3.0 6% 4%
Relative To Recent Industry Benchmarks, XXXXs’ Cost Of Sales Appears To Be Squeezing Margins
% of % of % of % of$(M) Sales $(M) Sales $(M) Sales Sales
1991Industry
XXXX Jeffersontown FrankfortAveragea
a) Source: Plastics World, June 1993; stats rounded off for convenienceb) Primarily resin
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Frankfort Is 20% More Productive Than Jeffersontown
Jeffersontown Frankfort
Total Headcount = 395 a
Expected 1993 Sales: $40 MSales/Employee = $101,000
Total Headcount = 361 b
Expected 1993 Sales: $45 MSales/Employee = $125,000
Headcount for the two plants = 756;XXXX Total Headcount = 1300.
Headcount for the two plants = 756;XXXX Total Headcount = 1300.
a) Includes 76 office and 23 temporary personnelb) Includes 33 office and 103 temporary personnelNote: Product mix at the 2 plants is different
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Resource Breakdown By Activity
a) Includes assemble, trim, pack, clean, count and inspectb) Excludes support and corporate staffc) Excludes support staff
Molding accounts for 75% of resources at the Jeffersontown and Frankfort plants.Molding accounts for 75% of resources at the Jeffersontown and Frankfort plants.
Setup(includingmaterial
handling)
Schedule Mold Assemble a Store Ship &Receive
ReceiveOrders
Jeffersontown 2 4 30 215 43 8 15 =317 b
Frankfort 2 3 33 243 – 4 8 =293 c
FY ‘91 FY ‘92 5/93
Jeffersontown Total Headcount 415 421 395
Frankfort Total Headcount 322 329 361
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Capacity Utilization At XXXXs Lags Industry Average By A Wide Margin
Source: Plastics World, Survey of Plastic Processors, June 1993Capacity: 7 days, 24 hrs/day, 3 shifts
33 machines X 24 hours = 792 mfc hrs/day
Machine uptime, productivity and scheduling adversely affect Jeffersontown capacity utilization.Machine uptime, productivity and scheduling adversely affect Jeffersontown capacity utilization.
Capacity Utilization
0 20 40 60 80
Jeffersontown
Frankfort
IndustryAverage
79%
?
62%
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
? $
62% $11M
XXXX Can Grow Revenue Significantly By Improving Capacity Utilization
Capacity Utilization
0 20 40 60 80
Jeffersontown
Frankfort
IndustryAverage
79%
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
While Inventory Management Appears To Have Improved At Jeffersontown. . .
RM Components Pkg Material FG
0
1
2
3
4
FY 1991 FY 1992 As of 5/93
As of 5/930
2468
101214
FY1991 FY1992
Jeffersontown
Source; XXXX Financial Reports
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
. . . Frankfort May Well Present An Opportunity
RM Components Pkg Material FG
Our initial analysis suggests that inventory management can be further improved.Our initial analysis suggests that inventory management can be further improved.
0
1
2
3
4
FY 1991 FY 1992 As of 5/93
Frankfort
0
2468
101214
FY1991 FY1992 As of 5/93
Source; XXXX Financial Reports
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Unless Operational Improvements Occur, Target 10 Will Drive Jeffersontown Deeper Into The Red In 1993 . . .
Jeffersontown
Source: XXXX FY 1992/93 Budget
Controllable
$26.1M $7.8 M
$6.7 M $5.5 M
$3.1M $1.3 M
$1.6 M $1.0 M
$2.9 M $2.5 M
$0.6 M –
$41M $18M
Raw Material
Direct Labor
Indirect Labor
Manu. Overhead
S&E Expense
G&A Expense
Interest
TotalCosts
TotalSales
Net IncomeBefore Taxes
($540 K)
$41M
$40M
}
A 10% price reduction equates to a 13% ($2.3 million) reduction of controllable costs.A 10% price reduction equates to a 13% ($2.3 million) reduction of controllable costs.
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Frankfort
Note: Annualized on 6 months results ended 3/31/93
Controllable
$27.7 M $8.3 M
$3.3 M $2.6 M
$7.9 M $3.2 M
$0.2 M $0.1 M
$2.4 M $2.1 M
$0.3 M –
$42M $16M
Raw Material
Direct Labor
Indirect Labor
Manu. Overhead
S&E Expense
G&A Expense
Interest
TotalCosts
TotalSales
NetIncome
$2.6 M
$42M
$45M
}
A 10% price reduction equates to a 14% ($2.3 million) reduction of controllable costs.A 10% price reduction equates to a 14% ($2.3 million) reduction of controllable costs.
. . . And Will Threaten Frankfort’s Profitability
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
To Maintain Margins, Analysis Efforts Must Focus On Both Cost Efficiencies And Improving Capacity Utilization
1) Excluding raw material cost2) Assuming 25% incremental margin on additional sales
Cost ReductionOperating At Frankfort And Capacity Utilization
Margin Jeffersontown to Improvement to Improvement Achieve Target 1 Achieve Target 2
$1 million 5.6% 3.2%
$3 million 16.7% 9.2%
$5 million 27.8% 15.3%
Span of Control
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Content
• Objective
• Approach
• Findings
• Next Steps
04/19/23 @ 22:48 - 22 -
FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Objective
• To gain a thorough understanding of reporting relationships at the Jeffersontown and Frankfort Plants vis-a-vis industry norms
• To graphically depict the numbers of direct reports at varying levels of the organization
• To compare spans and reporting relationships between departments and functional areas
04/19/23 @ 22:48 - 23 -
FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Approach
• Reviewed and analyzed most recent (May ‘93) organization chart for Jeffersontown and Frankfort
• Reviewed average spans of control by department
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Hierarchical Levels
• Aligned all Jeffersontown and Frankfort plant personnel by level
– Plant Manager is considered to be Level 0
– Direct reports to the Plant Manager (Functional Managers) are considered Level 1
– Direct reports to Functional Managers (Department Managers) are considered Level 2, and so on . . .
– Only those employees who supervise people are included in subsequent organizational levels to develop span of control relationships
Our analysis covers the entire Jeffersontown and Frankfort operations personnel. Our analysis covers the entire Jeffersontown and Frankfort operations personnel.
04/19/23 @ 22:48 - 25 -
FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Jeffersontown Spans of Control Are Within Industry Norms
Our analysis reveals that major functional areas are at or above industry norms.Our analysis reveals that major functional areas are at or above industry norms.
Average Industry Spans – 1:7 to 1:9
0 1 2 3 4 5 6 7 8 9 10
Level 4
Level 3
Level 2
Level 1
TotalSupervisor
7
14
18
–
TotalHeadcount
9
47
83
201
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
By And Large, Frankfort Spans of Control Are Within Industry Norms
Level 3 shift supervisors have 80+ hourly employees reporting in to them.Level 3 shift supervisors have 80+ hourly employees reporting in to them.
Average Industry Spans – 1:7 to 1:9
0 1 2 3 4 5 6 7 8 9 10
Level 3
Level 2
Level 1
TotalSupervisor
7
9
–
TotalHeadcount
9
20
294
33
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FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Findings
Jeffersontown
• The Jeffersontown plant organization has only four management levels
• Many functional areas have only two or three management levels
• Overall spans of control appear to be in line with industry norms
Frankfort
• The Frankfort plant organization has only three management levels
• Some Level 2 managers have spans of control below industry norms. However, these tend to be small departments with relatively few employees
• 80+ hourly production workers report directly to Level 3 Shift Supervisors
• Most other Level 3 managers have spans of control within industry norms
04/19/23 @ 22:48 - 28 -
FINANCIAL ANALYSIS
© 1993 Gemini Consulting. Reproduction with Express Permission Only. 0707 Fin Analy – V1.2 (Presentations)
Conclusion
• XXXX has a fairly optimal organizational structure and presents little opportunity to reduce overall headcount
• There may be an opportunity to re-organize Frankfort plant operations to better align Shift Supervisors’ spans