july 1993 plastics & engineering financial analysis

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


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


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


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


• 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


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


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


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


• 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


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

04/19/23 @ 22:48 - 12 -

FINANCIAL ANALYSIS


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


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


? $

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


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


. . . 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

04/19/23 @ 22:48 - 17 -

FINANCIAL ANALYSIS


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.

04/19/23 @ 22:48 - 18 -

FINANCIAL ANALYSIS


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

04/19/23 @ 22:48 - 19 -

FINANCIAL ANALYSIS


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

04/19/23 @ 22:48 - 21 -

FINANCIAL ANALYSIS


Content

• Objective

• Approach

• Findings

• Next Steps

04/19/23 @ 22:48 - 22 -

FINANCIAL ANALYSIS


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


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


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


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

04/19/23 @ 22:48 - 26 -

FINANCIAL ANALYSIS


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


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


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

july 1993 plastics & engineering financial analysis

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