Professional Documents
Culture Documents
December 2, 2015
TO:
FROM:
SUBJECT:
EXECUTIVE SUMMARY
Hanson Ski Products (HSP) is a $9.8MM leading manufacturer of high-quality ski boots
with robust gross profit margins averaging 46.7%. HSP has maintained a revolving line of credit
with a banking syndicate led by the United Bank of Denver (UBD) to cover seasonal financing
needs. HSP is concerned over the repayment of loans to a dissident shareholder in Q3 FY 1987,
specifically whether this years $4.2MM revolving line of credit priced at 375bps over prime will be
sufficient. After analyzing the Q3 FY 1987 loan schedule we have projected the need for an
overadvance of $450M in November. We recommend that UBD and its partners grant the
overadvance with a personal guarantee from Mr. Alden Denny Hanson and revised covenants.
REQUEST
HSP requests a reevaluation of its current line of credit for Fiscal Year 1987 in anticipation
of an $841M final installment of a dissident shareholders loan due in November 1987. Currently,
HSP maintains a $4.2MM revolving line of credit at 375bps over prime. UBD leads a three bank
syndicate underwriting the facility.
KEY ISSUES & RISKS/MITIGATING FACTORS
Risk: Company operations and UBD collateral claims are at risk due to possible supplier issues.
HSP turned over its payables 5.0x in FY 84, falling well beneath the bottom quartile of industry
comparables. As shown in the table to the right, this metric continued on a downward trend,
decreasing 2.06x, contrasting with a general industry increase. Consequently, HSP has suffered
Hanson Ski Products
a YoY extension of its days payable
FY 1984
FY 1985
FY 1986
FY 1987 Est.
outstanding (DPO) from 72 DCOGS
Cost of Sales / Payables
5.04x
3.87x
2.91x
2.98x
in FY 84 to 122 DCOGS in FY 86.
RMA Sporting and Athletic Goods Comparables
Should a major supplier sever relations or seek
FY 1984
FY 1985
FY 1986
FY 1987
a secured note from HSP as collateral for Upper
15.30x
21.70x
27.20x
27.50x
extended terms, company operations and Middle
11.00x
14.70x
14.70x
14.30x
financial strength would be adversely impacted. Lower
5.10x
7.90x
8.00x
7.50x
Additionally, three unsecured suppliers have the Source: Exhibit K.
right to drive a business into involuntary bankruptcy, leaving UBD at risk of loss in the event of a
Chapter 7 liquidation or Chapter 11 reorganization.
Mitigation: FY 87 estimates DPO to remain at 122 DCOGS, halting the extension of trade credit.
However, to truly mitigate the risk, the downward trend must be reversed. In order to do so, we
propose working with HSP to pay its suppliers more promptly and implementing a covenant
limiting DPO. This will result in less reliance on supplier credit and greater emphasis on traditional
commercial bank financing.
Risk: HSP is also at risk of unsustainable interest expense growth. The current market
environment is characterized by dramatically increasing prime rates. From FY 87 to FY 88, the
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HSP Credit Request Memo
Page 1 of 7
prime rate jumped only 25bps while in FY 89 and 90 the prime rate jumped by at least 100bps
each year. The facility calls for 375 bps over prime, exposing HSP to floating interest rates in the
high teens.
Mitigation: The floating nature of the loan serves as a hedge for HSP during times of falling interest
rates, offering manageable interest expense in comparison to competitors with fixed facilities.
However, in this rising rate environment HSP is correctly minimizing its absolute interest rate by
transitioning from commercial financing to traditional commercial bank funding that charges less
interest.
Risk: HSP encounters risk by employing level production in a seasonal industry. Level production
is both a preference of management and, to some degree, a necessity because HSP lacks the
manufacturing capacity to produce on an as needed basis. This leads to inventory buildup prior
to order placement and relies heavily on projected sales figures.
Mitigation: Historically, management has been able to produce accurate projections and
consistently manufactures up to 60% of yearly inventory in advance of actual sales. 10-years of
successful level production experience acts as HSPs mitigation.
Risk: Demand for ski products is highly sensitive to poor snow years, manifesting in decreased
reorders and overall demand for the following year as HSP customers sell off unsold inventory.
This affects the ski product industry as a whole.
Mitigation: International revenues currently account for 30% of total revenue and growth outpaces
domestic sales. This geographic diversification of revenues helps HSP as it is highly unlikely that
global snowfall will be uniformly affected. Since weather is uncontrollable, this risk is ultimately
inherent to the industry.
INDUSTRY AND BUSINESS
Competition in the ski boot industry is focused on different boot designs and product
quality. HSPs patented rear-entry boot represents an innovation within the high end segment.
The need for R&D to update models and patented features create barriers to entry for new firms,
but cheaper imitations could pose a substitution risk in the long run as the patents expire. The
industry features highly seasonal demand as most dealers stock inventory during spring and
summer for the upcoming ski season.
The lengthening of DPO to 122 DCOGS may highlight low bargaining power of suppliers.
Buyer power is also low, exemplified by the sale price of $115.01 per boot over a $54.31 cost per
boot. HSP is able to charge a premium due in part to its revolutionary patent and May 1977
naming of one of the 25 best-designed products available in America by Fortune. Risk of
substitution shouldnt be noticeably realized until expiration of the rear-entry patent that has
allowed for high margins.
HSP is a Boulder, CO based manufacturer of high-quality ski boots with global revenues
of $9.76MM in its most recent fiscal year. Founded in 1973, HSP has shown continual growth,
capturing 20% of the US market, which is estimated to grow at 10% annually. As a recent entrant,
HSP has revolutionized the industry with a patented rear-entry concept. They expect market share
to plateau beginning in 1991. The international portion of HSP has recently demonstrated faster
growth than US rates, which shows a potentially large portion of the international market to
capture.
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HSP Credit Request Memo
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The company offers four models of adult boots with an average price of approximately
$115. At the annual Las Vegas Ski Show in March, HSP secures 25%-30% of its orders for the
following fiscal year. The majority of orders, representing 55%-60%, are placed during Q1 of the
fiscal year when sales representatives reach out to dealers who did not attend the show.
Collection policy during these order periods offers discounts ranging from 4%-12% for full
payment within two to three months. The final 10%-20% of sales begin in July during the reorder
period and feature a 2%/30 collection policy. On average, collections are made within 75 days,
but this period is extended during bad snow years.
MANAGEMENT
Alden Denny Hanson serves as president and chief executive officer of HSP. Other key
players include Chris Hanson, who designed HSPs patented technology, and David Snyder, the
company treasurer. Mr. Snyder handles the preparation of financial statements for the company
and exercises tight internal cash management driven by the firms high leverage. He will be our
primary contact for financial information. The Hanson brothers, Denny and Chris, were founding
members of the management team.
Of note, the reason for this credit line evaluation derives from a shareholder dispute that
requires the company to repay a key shareholder holding $841M in outstanding loans in
November 1987. If the company is able to make the payment, Mr. Hanson will be able to maintain
operational control of the company.
HISTORICAL FINANCIAL ANALYSIS
HSP sales have grown from $5.753MM to $9.776MM from 1984 to 1986 at CAGR of
30.4%, earning it a spot on the list of top 10 ski manufacturers worldwide in 1984. The industry
grows approximately 10% per year, indicating that HSPs growth outpaces the market.
Additionally, HSP maintains a greater gross profit margin of 46.7% as compared to the industry
average of 30.9%, which it has been able to hold at approximately 47% since FY 1984 despite
exponential top line growth. EBITDA grew immensely from $1.317MM in 1984 to $2.381MM in
1986 with the operating profit margin averaging 17%. This is far superior to the industry average
of 6.5%. The strength of HSPs income statement stems from its avant-garde patent protected ski
boot technology, which has consistently fueled sales growth.
Historical asset analysis suggests a recovery from recent sparse snow years. Days sales
outstanding has fluctuated from 44 DSO (FY 1984) to 66 DSO (FY 1985) to 58 DSO (FY 1986),
representing the relaxation of credit terms for buyers during a poor snow year. Inventory days
outstanding also indicates an industry slowdown. Inventory days reached 205 days in FY 1985,
22 days greater than in 1984. However in 1986 inventory turnover decreased to 136 days,
suggesting that inventory turnover is beginning to normalize. Overall, HSP also holds about 3%
less inventory than the industry average.
Falling productive use of the firms fixed assets is also a rising concern. While Sales / Net
Fixed Assets in FY 84 is 6.7x, 2.3x above the lower quartile, in the following two fiscal years
HSPs productive use of fixed assets falls below respective industry average lower quartiles.
HSP performs poorly against the solvency benchmarks of the industry. The current ratio
dips from 1.3 to 0.9, and a similar trend is followed by the quick ratio, which decreases from 0.6
to 0.5, in FY 1984 and FY 1986, respectively. Both ratios occupy the industrys worst performing
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HSP Credit Request Memo
Page 3 of 7
quartiles further implying HSPs tendency to mismatch financing maturities with asset lives. Also
noteworthy, is the stark difference between the current and quick ratio indicating HSPs reliance
on inventories.
EBIT / Interest ratio has risen from 2.2x to 3.6x historically, indicating that HSP is becoming
more stable in meeting interest payments on its loans and that it could take on more debt. Net
Profit + DDA / Current Maturity of LTD has been greater than 1 year-to-year, reinforcing HSPs
ability to cover current maturities with cash flows despite fluctuations in maturity due. Furthering
this conclusion are HSPs strong and positively trending debt service coverage ratios as seen in
the exhibit below.
Hanson Ski Products
FY 1984
FY 1985
FY 1986
FY 1987 Est.
EBIT / Interest
2.24x
2.88x
3.59x
5.82x
8.08x
34.31x
1.71x
10.95x
Source: Exhibit K.
Further liability analysis is plagued with a worrisome lengthening of days payable trend,
which spikes from 72 DCOGS in 1984 to 125 DCOGS in 1986. Accounts payable to total assets
sharply spiked from 16.1% in 1984 to 26.2% in 1986. Increasing accounts payable has
dramatically impacted net working capital, contributing to a negative figure of $589M in 1986. This
trend has exacerbated HSPs highly levered nature, hindering its capability to take on new debt.
HSPs leverage ratios compare closely to the industrys lower quartile. Fixed / Net Worth
ratio was -2.6x in 1984 and 1.2x in 1986, while the industry averages for the lower quartile were
1.3x and 0.9x respectively. HSPs Debt / Net Worth ratio was -10.9x in 1984 and 2.4x in 1986,
industry averages were 2.6x and 2.2x respectively. Although a reduced leverage trend is
apparent, HSP remains highly levered comparatively.
Of note, industry comparables were made using available data covering the Sporting and
Athletic Goods sector. This broader industry represents a slightly wider range of competitive
environments and products that may not be directly comparable to the ski product industry.
PROJECTIONS
HSP projects reaching $26MM in net sales by fiscal year 1991, necessitating an annual
sales growth of 22%. Annual COGS and operating expenses were estimated at a rate in line with
historical averages yielding a continued growth in both gross profit and operating earnings.
Interest expense was calculated by applying the 375bps floating rate to historic prime rates of
8.25%, 9.5%, and 10.5% for FY 88, 89, and 90, respectively. Each rate was applied to the
average STD for that year, while a LTD interest
FY 1987 Long Term Interest Calculations
rate of 24.08%, estimated through reverse
Principal Interest $ Interest %
calculation detailed to the right, was applied Long Term
$1,010 $243.18 24.08%
solely to FY 88 due to a zero balance in LTD Short Term Avg
$1,599 $187.82 11.75%
going forward. HSPs financing solely through Total
$2,609 $431.00
STD and the dissipation of LTD yielded a smaller Source: Exhibit D.
projected interest expense than previous years despite higher absolute rates.
A corporate tax rate estimate of 33.33% was calculated and applied using FY 87 financial
budget estimates. Preceding tax provisions were warped due to a NOL carry forward that was
exhausted in FY 86, prohibiting the calculation of a corporate tax rate from actuals. Net earnings
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HSP Credit Request Memo
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grew a projected 7% into FY 88, slower than the estimates of 19.1% into FY 87, but increased
to an average of 25% over the following two projected years. HSPs cash accounts were left at
$100M per Snyders policy target.
The remaining current assets were projected at a historic percent of sales. Total net fixed
assets were estimated at a historic 17.2% of sales and accumulated depreciation was carried
over from our income statement projections, allowing for PP&E to be calculated as a plug figure.
Looking toward the liabilities side of the balance sheet, we projected accounts payable growing
at a historic 24% of COGS. Using a DCOGS multiple yielded a FY 88 accounts payable figure
that was less that FY 87 estimates and was ruled
Ending
unfeasible. Our remaining current liabilities were held
Loan
Loan Amount
constant with notes payable - banks working as a plug.
Balance
> Line Limit
LTD was held constant with the preceding year
at zero. Hanson was not planning on issuing new
common stock and additional paid-in capital was also
held constant. The short term notes payable -- banks
was then estimated as the difference between total
liabilities and shareholders equity and total assets. We
projected that HSP would end each fiscal year below
the current line limit at final balances of $2.2MM (FY
88), $1.7MM (FY 89), and $1.6MM (FY 90).
Yearly (FY)
$1,650
$2,550
$2,220
$1,980
$1,773
$2,427
$1,153
$3,047
Quarterly (FY 87)
'87 Q1
$2,176
$2,024
'87 Q2
$3,727
$473
'87 Q3
$3,041
$1,159
'87 Q4
$1,650
$2,550
Monthly (Q3)
'87 Oct
$3,680
$520
'87 Nov $4,650
($450)
'87 Dec
$3,041
$1,159
1987
1988
1989
1990
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HSP Credit Request Memo
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REPAYMENT ANALYSIS
Through an Operating
Cash Flow / Debt Service analysis
we determined that there was
ample historic and projected
coverage of both short and long
term obligations. The dissipation
of long term debt and projected
reliance on short term financing
further
strengthens
HSPs
coverage ratios, improving from
0.6x in FY 85 to a projected 1.9x
in FY 90. We conclude that HSP
can confidently take on the
proposed revolving line of credit.
FY
1985
Hist
$1,233
$267
FY
1986
Hist
$1,820
$419
FY
1987
Est.
$2,510
$683
FY
1988
Proj.
$2,489
$811
FY
1989
Proj.
$3,027
$986
FY
1990
Proj.
$3,681
$1,199
$0
$0
($468)
$0
$0
($400)
$0
$0
($693)
$0
$0
($745)
$0
$0
($921)
$0
$0
($1,158)
$1,032
$1,839
$2,500
$2,555
$3,092
$3,723
Debt Service
$1,637
$2,624
$2,988
$2,094
$2,485
$1,981
0.63x
0.70x
0.84x
1.22x
1.24x
1.88x
EBIT
Depreciation
Unfinanced CAPEX
Distributions
Taxes
Coverage
Source: Exhibit H.
COLLATERAL ANALYSIS
HSP currently can draw against its line of credit to the extent of 70% of the cost of
inventories and 80% of current account receivables.
In the event of liquidation, the work in progress portion of inventories would present a greater
challenge than a primarily finished good inventory. As a manufacturing company, the timing of
the liquidation will determine the type of inventory we would inherit.
The competitive landscape of the industry would place greater pressure on the bank as a
timely sale would be necessary before the introduction of newer boot models that would deem
our inventory obsolete. Additionally, 70%-90% of sales are generated through relationships with
numerous dealers and during an industry trade conference. Therefore, UBD lacks the expertise
to liquidate with minimal cost. However HSPs single location represents a favorable logistical
condition to facilitate a potential sale.
Receivables collection speed will also be determined by the timing liquidation takes place.
AR is susceptible to sparse snow years, in which credit is significantly extended as the dealer
network recovers from inventory buildup.
Quarterly collateral analysis properly represents HSPs order cycle. Quarterly coverage
ratios only dip below 1.25 in Q1 of 1986 due to the seasonality of business. Cash receipts are
lowest in FQ1 and due to HSPs level production, net cash flow will be negative. The current line
limit is sufficient to cover the financing need of this quarter.
GUARANTOR ANALYSIS
Personal guarantees by major stakeholders had been required on the FY 86 $4.2MM
revolving line of credit but was not required on the FY 87 renewal. However, pending further
investigation of the dissident key shareholder we would suggest implementing a personal fiduciary
guarantee by Alden Denny Hanson. We find this necessary because any overadvance in FY
1987 would be used to cover the companys shareholder obligation, granting Mr. Hanson
continued operational control.
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HSP Credit Request Memo
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PROPOSED COVENANTS
HSP will not be allowed to take on long term debt without UBD approval.
HSP will be required to maintain DPO at 122 DCOGS, with the intent to reduce
incrementally through improved supplier payment.
Year-end debt service coverage of 1.2x - 1.25x.
Maintain Current Ratio above 1.00.
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HSP Credit Request Memo
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12/2/2015
Group 5
HSP Credit Request Memo
FY
1984
CSA
RMA
$5,753
100.0% 100.0%
$341
$3,040
$2,713
5.9%
52.8%
47.2%
$1,585
$152
$1,737
27.6%
2.6%
30.2%
Operating Earnings
Interest Expense
Income Before Tax & Extraord. Item
Tax Provision
Earnings Before Extraord. Item
Extraord. Item: Tax NOL Carry Forward
$976
($436)
$540
($314)
$226
$314
17.0%
-7.6%
9.4%
-5.5%
3.9%
5.5%
Net Earnings
$540
9.4%
Depreciation
Total Cost of Goods Sold
Gross Profit
FY
1985
CSA
30.4%
FY
1986
CSA
RMA
CSA
100.0%
100.0%
100.0%
100.0%
29.9%
$9,776
27.4%
$561
$5,177
$4,599
29.8%
5.6%
53.3%
46.7%
30.9%
24.3%
$2,519
$260
$2,779
25.8%
2.7%
28.4%
23.6%
26.9%
2.6%
29.5%
24.4%
$1,820
($507)
$1,313
($400)
$913
$251
18.6%
-5.2%
13.4%
-4.1%
9.3%
2.6%
$1,164
11.9%
RMA
100.0% 100.0%
33.0%
$7,671
33.3%
$396
$4,140
$3,531
25.3%
$2,109
$189
$2,298
27.5%
2.5%
30.0%
$1,233
($428)
$805
($468)
$337
$468
16.1%
-5.6%
10.5%
-6.1%
4.4%
6.1%
$805
10.5%
7.7%
4.9%
Page 1 of 11
5.2%
54.0%
46.0%
5.6%
3.8%
CAGR
$
5.7%
53.0%
47.0%
6.2%
4.0%
17.2%
-6.1%
11.1%
-5.2%
5.9%
4.7%
10.6%
AVG
RMA
6.5%
4.2%
3/31
1984
CSA
RMA
Current Assets:
Cash
Accounts Receivable, net
Inventories
Prepaid Expenses
Total Current Assets
$163
$692
$1,352
$99
$2,306
4.9%
20.7%
40.5%
3.0%
69.1%
Fixed Assets
Plant, Property & Equipment
Less: Accumulated Depreciation
Total Net Fixed Assets
Other Assets
Total Assets
$1,430
($569)
$861
$171
$3,338
42.8%
-17.0%
25.8% 21.6%
5.1%
100.0% 100.0%
4.3%
28.2%
36.7%
70.0%
3/31
1985
CSA
RMA
% Sales
12.0%
23.5%
1.7%
$81
$1,378
$2,104
$124
$3,687
1.6%
27.6%
42.1%
2.5%
73.7%
$1,958
($836)
$1,122
$191
$5,000
39.2%
-16.7%
22.4% 16.9%
3.8%
100.0% 100.0%
24.9%
-9.9%
15.0%
4.0%
29.6%
43.2%
78.0%
% COGS
Accounts Payable
Notes Payable-banks
Income Taxes Payable
Current Installments--Long Term Debt
Total Current Liabilities
$536
$1,100
$0
$109
$1,745
16.1%
33.0%
0.0%
3.3%
52.3%
$1,423
$506
$1,929
42.6%
15.2%
57.8%
Total Liabilities
$3,674
110.1%
Shareholders' Equity:
Common Stock
Additional Paid-In Capital
Retained Earnings (Deficit)
Total Shareholders' Equity:
$1,126
33.7%
$105
3.1%
($1,567) -46.9%
($336) -10.1%
$3,338
14.1%
9.2%
0.0%
2.3%
42.8%
17.6%
% Sales
18.0%
27.4%
1.6%
$156
$1,556
$1,729
$262
$3,703
25.5%
-10.9%
14.6%
3/31
1986
CSA
RMA
2.6%
25.7%
28.6%
4.3%
61.2%
3.3%
27.3%
41.4%
73.1%
$3,393
56.1%
($1,255) -20.8%
$2,138
35.4% 18.2%
$207
3.4%
$6,048 100.0% 100.0%
% COGS
$967
$2,082
$0
$35
$3,084
19.3%
41.6%
0.0%
0.7%
61.7%
16.8%
$1,407
$0
$1,407
28.1%
0.0%
28.1%
62.0%
$4,491
89.8%
38.0%
$1,166
$105
($762)
$509
23.3%
2.1%
-15.2%
10.2%
100.0% 100.0%
$5,000
23.4%
CSA
15.9%
17.7%
2.7%
3.0%
24.7%
37.1%
3.3%
68.0%
34.7%
-12.8%
21.9%
AVG
RMA
3.9%
28.4%
40.4%
73.7%
% Sales
15.3%
22.9%
2.0%
46.0%
-18.2%
27.9% 18.9%
4.1%
100.0% 100.0%
28.4%
20.5%
33.4%
0.8%
6.9%
61.6%
23.9%
17.2%
% COGS
$1,586
$1,547
$149
$1,010
$4,292
26.2%
25.6%
2.5%
16.7%
71.0%
12.5%
$0
$0
$0
0.0%
0.0%
0.0%
61.4%
$4,292
71.0%
38.6%
$1,249
$105
$402
$1,756
20.7%
1.7%
6.6%
29.0%
100.0% 100.0%
$6,048
100.0% 100.0%
Page 2 of 11
11.7%
18.3%
1.8%
3.4%
44.9%
% Sales
10.6%
12.7%
1.3%
2.6%
36.1%
30.6%
12.1%
13.4%
2.8%
41.3%
16.1%
23.6%
5.1%
28.6%
15.1%
56.1%
90.3%
59.8%
43.9%
25.9%
2.3%
-18.5%
9.7%
40.2%
100.0% 100.0%
FQ1
Apr-June
1986
$391
$344
$47
$779
($732)
$0
($732)
FQ2
July-Sept
1986
$5,893
$2,630
$3,263
$1,204
$2,059
($432)
$1,627
Page 3 of 11
% of Total
49.6%
46.6%
52.3%
28.9%
99.0%
62.3%
117.4%
FQ3
Oct-Dec
1986
$4,769
$2,176
$2,593
$1,256
$1,337
($261)
$1,076
% of Total
40.1%
38.6%
41.5%
30.2%
64.3%
37.7%
77.6%
FQ4
Jan-Mar
1987
$832
$491
$341
$926
($585)
$0
($585)
% of Total
7.0%
8.7%
5.5%
22.2%
-28.1%
0.0%
-42.2%
Total
$11,885
$5,641
$6,244
$4,165
$2,079
($693)
$1,386
FY
1984
Hist
FY
1985
Hist
FY
1986
Hist
FY
1987
Est.
$5,753
$9,776
27.4%
$4,616
$561
$5,177
$4,599
$11,885
21.6%
$4,958
$683
$5,641
$6,244
Implied CAGR
21.6%
Hist. Avg.
Hist. Avg.
5.6%
53.3%
Assumptions
FY
1988
Proj.
FY
1989
Proj.
FY
1990
Proj.
FY
1991
Proj.
$14,454
21.6%
$6,887
$811
$7,698
$6,756
$17,579
21.6%
$8,376
$986
$9,362
$8,217
$21,379
21.6%
$10,186
$1,199
$11,385
$9,993
$26,000
COGS
Depreciation
Total Cost of Goods Sold
Gross Profit
$2,699
$341
$3,040
$2,713
$7,671
33.3%
$3,744
$396
$4,140
$3,531
$1,585
$152
$1,737
$976
$2,109
$189
$2,298
$1,233
$2,519
$260
$2,779
$1,820
$3,425
$309
$3,734
$2,510
Hist. Avg.
Hist. Avg.
26.9%
2.6%
$3,894
$374
$4,268
$2,489
$4,735
$455
$5,190
$3,027
$5,759
$553
$6,312
$3,681
Interest Expense
Income Before Tax & Extraord. Item
($436)
$540
($428)
$805
($507)
$1,313
($431)
$2,079
See ST IR Calc
var
($255)
$2,234
($265)
$2,762
($208)
$3,473
Tax Provision
Earnings Before Extraord. Item
($314)
$226
($468)
$337
($400)
$913
($693)
$1,386
($745)
$1,489
($921)
$1,842
($1,158)
$2,315
$314
$540
$468
$805
49.1%
$251
$1,164
44.6%
$0
$1,386
19.1%
$0
$1,489
7.4%
$0
$1,842
23.7%
$0
$2,315
25.7%
None
Page 4 of 11
Boots Sold
Cost Per Boot
Price Per Boot
FY
1986
85,000
$54.31
$115.01
3/31
1984
Hist
3/31
1985
Hist
3/31
1986
Hist
3/31
1987
Est.
Current Assets:
Cash
Accounts Receivable, net
Inventories
Prepaid Expenses
Total Current Assets
$163
$692
$1,352
$99
$2,306
$81
$1,378
$2,104
$124
$3,687
$156
$1,556
$1,729
$262
$3,703
$100
$1,741
$1,869
$283
$3,993
Fixed Assets
Plant, Property & Equipment
Less: Accumulated Depreciation
Total Net Fixed Assets
Other Assets
Total Assets
$1,430
($569)
$861
$171
$3,338
$1,958
($836)
$1,122
$191
$5,000
$3,393
$4,288
($1,255) ($1,938)
$2,138
$2,350
$207
$302
$6,048
$6,645
NFA+Depr
From I/S
Hist. % Sales
Hold
Accounts Payable
Notes Payable-banks
Income Taxes Payable
Current Installments--Long Term Debt
Total Current Liabilities
$536
$1,100
$0
$109
$1,745
$967
$2,082
$0
$35
$3,084
$1,586
$1,547
$149
$1,010
$4,292
$1,664
$1,650
$0
$189
$3,503
Hist. % COGS
Plug
Hold
Hold
$1,423
$506
$1,929
$1,407
$0
$1,407
$0
$0
$0
$0
$0
$0
Hold
Hold
Total Liabilities
$3,674
$4,491
$4,292
$3,503
Shareholders' Equity:
Common Stock
Additional Paid-In Capital
Retained Earnings (Deficit)
Total Shareholders' Equity:
$1,126
$105
($1,567)
($336)
$1,166
$105
($762)
$509
$1,249
$105
$402
$1,756
$1,249
$105
$1,788
$3,142
$3,338
$5,000
$6,048
$6,645
Assumptions
Client Est.
Hist. % Sales
Hist. % Sales
Hist. % Sales
$100
15.3%
22.9%
2.0%
17.2%
$302
3/31
1988
Projected
3/31
1989
Projected
3/31
1990
Projected
$100
$2,212
$3,306
$290
$5,908
$100
$2,690
$4,021
$353
$7,163
$100
$3,272
$4,890
$429
$8,690
$5,228
($2,749)
$2,479
$302
$8,689
$6,750
($3,735)
$3,015
$302
$10,481
$8,601
($4,934)
$3,667
$302
$12,659
$1,838
$2,220
$0
$0
$4,058
$2,235
$1,773
$0
$0
$4,008
$2,718
$1,153
$0
$0
$3,871
$0
$0
$0
$0
$0
$0
$0
$0
$0
$4,058
$4,008
$3,871
$1,249
$105
$3,277
$4,631
$1,249
$105
$5,119
$6,473
$1,249
$105
$7,434
$8,788
$8,689
$10,481
$12,659
Page 5 of 11
Hold
Hold
From I/S
24%
FQ1
Apr-June
1986
FQ2
July-Sept
1986
Total
COGS
Depreciation
Total Cost of Goods Sold
Gross Profit
$653
$59
$712
($665)
$1,003
$91
$1,094
$2,169
$998
$90
$1,088
$1,505
$770
$70
$840
($499)
$3,425
$309
$3,734
$2,510
Interest Expense
Income Before Tax & Extraord. Item
($67)
($732)
($110)
$2,059
($168)
$1,337
($86)
($585)
($431)
$2,079
Tax Provision
Earnings Before Extraord. Item
$0
($732)
($432)
$1,627
($261)
$1,076
$0
($585)
($693)
$1,386
$0
($732)
($732)
$0
$1,627
$895
$0
$1,076
$1,971
$0
($585)
$1,386
$0
$1,386
Page 6 of 11
$4,769
40.13%
$2,005
$171
$2,176
$2,593
FQ4
Jan-Mar
1987
$391
3.29%
$173
$171
$344
$47
$5,893
49.58%
$2,459
$171
$2,630
$3,263
FQ3
Oct-Dec
1986
$832
7.00%
$320
$171
$491
$341
$11,885
100%
$4,958
$683
$5,641
$6,244
Assumptions
Total COGS-Depr.
Straight-Line
FQ1
Apr-June
1986
FQ2
July-Sept
1986
FQ3
Oct-Dec
1986
FQ4
Jan-Mar
1987
Current Assets:
Cash
Accounts Receivable, net
Inventories
Prepaid Expenses
Total Current Assets
$100
$507
$2,808
$241
$3,656
$100
$4,580
$1,690
$294
$6,664
$100
$4,739
$1,166
$198
$6,203
$100
$1,741
$1,869
$283
$3,993
Fixed Assets
Plant, Property & Equipment
Less: Accumulated Depreciation
Total Net Fixed Assets
Other Assets
Total Assets
$3,570
($1,398)
$2,172
$201
$6,029
$3,808
($1,564)
$2,244
$247
$9,155
$3,987
($1,743)
$2,244
$283
$8,730
$4,288
($1,938)
$2,350
$302
$6,645
$1,849
$2,176
$0
$980
$5,005
$1,717
$3,727
$0
$1,060
$6,504
$1,755
$3,041
$0
$207
$5,003
$1,664
$1,650
$0
$189
$3,503
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
Total Liabilities
$5,005
$6,504
$5,003
$3,503
Shareholders' Equity:
Common Stock
Additional Paid-In Capital
Retained Earnings (Deficit)
Total Shareholders' Equity:
$1,249
$105
($330)
$1,024
$1,249
$105
$1,297
$2,651
$1,249
$105
$2,373
$3,727
$1,249
$105
$1,788
$3,142
$6,029
$9,155
$8,730
$6,645
Assumptions
Page 7 of 11
$149 Paid Q1
FY
1985
Hist
$1,233
$267
FY
1986
Hist
$1,820
$419
FY
1987
Est.
$2,510
$683
FY
1988
Proj.
$2,489
$811
FY
1989
Proj.
$3,027
$986
FY
1990
Proj.
$3,681
$1,199
Unfinanced CAPEX
Distributions
Taxes
$0
$0
($468)
$0
$0
($400)
$0
$0
($693)
$0
$0
($745)
$0
$0
($921)
$0
$0
($1,158)
$1,032
$1,839
$2,500
$2,555
$3,092
$3,723
Debt Service
$1,637
$2,624
$2,988
$2,094
$2,485
$1,981
0.63x
0.70x
0.84x
1.22x
1.24x
1.88x
Coverage
Page 8 of 11
FQ1
Apr-June
1986
$1,487
FQ2
July-Sept
1986
$1,764
FQ3
Oct-Dec
1986
$4,572
FQ4
Jan-Mar
1987
$3,800
$1,928
$67
$177
$0
$2,172
$2,967
$110
$238
$0
$3,315
$2,698
$168
$179
$841
$3,886
$2,022
$86
$301
$0
$2,409
$143
$166
$179
$195
$100
$507
$2,808
$241
$201
$100
$4,580
$1,690
$294
$247
$100
$4,739
$1,166
$198
$283
$100
$1,741
$1,869
$283
$302
$1,849
$0
$980
$1,717
$0
$1,060
$1,755
$0
$207
$1,664
$0
$189
$2,176
$3,727
$3,041
$1,650
$507
$2,808
$4,580
$1,690
$4,739
$1,166
$1,741
$1,869
FQ2
$3,727
FQ3
$3,041
FQ4
$1,650
$406
17%
$1,966
83%
$2,371
$3,664
76%
$1,183
24%
$4,847
$3,791
82%
$816
18%
$4,607
$1,393
52%
$1,308
48%
$2,701
1.09x
1.30x
1.52x
1.64x
$195
$1,120
$1,566
$1,051
$2,024
$473
$1,159
$2,550
Line Limit
Advance Rates
Accounts Receivable
Inventory
$4,200
Cash Receipts
Cash outflows
For materials, labor, and operating expenses
(except for interest but including income taxes)
Interest
Capital expenditures for fixed assets
Pay back stockholder loans
Total Outflows
Depreciation
Collateral Analysis
FQ1
$2,176
80%
70%
Page 9 of 11
December
$2,518
Cash Outflow
For materials, labor, and
operating expenses (except for
interest)
Interest
Capital Expenditures
Pay back stockholder loans
Total Outflow
$830
$54
$69
$0
$953
$1,065
$56
$62
$841
$2,024
$803
$58
$48
$0
$909
$47
($970)
$1,609
$3,727
$0
$47
$3,680
$3,680
$0
($970)
$4,650
$4,650
$0
$1,609
$3,041
$5,517
$1,363
$4,739
$1,166
Collateral Analysis
October
November
$3,680
$4,650
December
$3,041
$4,336
$932
$5,268
$4,414
$954
$5,368
$3,791
$816
$4,607
1.43x
1.15x
1.52x
$1,588
$718
$1,566
$520
($450)
$1,159
$4,200
80%
70%
Page 10 of 11
Current
Quick
Sales Receivable (Days)
Sales Receivable (Multiple)
Cost of Sales / Inventory
Cost of Sales / Payables
Days Payable Outstanding
Days Inventory Outstanding
FY 1984
FY 1985
FY 1986
FY 1987 Est.
1.32
1.20
0.86
1.14
0.49
43.90 DSO
8.31x
2.00x
5.04x
72.49 DCOGS
182.84 DCOGS
0.47
65.57 DSO
5.57x
1.78x
3.87x
94.27 DCOGS
205.12 DCOGS
0.40
0.53
58.10 DSO
53.47 DSO
6.28x
6.83x
2.67x
2.65x
2.91x
122.33 DCOGS
136.72 DCOGS
2.98x
122.50 DCOGS
137.59 DCOGS
10.25x
12.72x
-16.60x
24.26x
EBIT / Interest
2.24x
2.88x
3.59x
5.82x
8.08x
-2.56x
-10.93x
16.18%
6.68x
1.72x
5.93%
34.31x
2.20x
8.82x
16.10%
6.84x
1.53x
5.16%
1.71x
1.22x
2.44x
21.71%
4.57x
1.62x
5.74%
Page 11 of 11
10.95x
0.75x
1.11x
31.29%
5.06x
1.79x
5.75%
Middle
Lower
Upper
Middle
Lower
FY 1984
FY 1985
FY 1986
FY 1987
1.70
1.70
2.00
1.70
2.20
1.30
1.10
0.70
0.50
2.60
1.50
1.10
0.70
0.50
2.70
1.40
1.40
0.90
0.40
2.20
1.40
1.20
0.90
0.70
Upper
36.00 DSO
38.00 DSO
31.00 DSO
37.00 DSO
Lower
78.00 DSO
72.00 DSO
74.00 DSO
70.00 DSO
Middle
Upper
Middle
Lower
Upper
Middle
Lower
61.00 DSO
10.20x
53.00 DSO
9.50x
6.00x
6.90x
4.70x
4.10x
4.70x
3.30x
2.50x
5.10x
3.00x
2.30x
47.00 DSO
11.70x
59.00 DSO
9.90x
7.80x
6.20x
4.60x
4.50x
4.90x
3.20x
2.40x
5.20x
3.00x
2.60x
Upper
15.30x
21.70x
27.20x
27.50x
Lower
5.10x
7.90x
8.00x
7.50x
Middle
Upper
Middle
Lower
Upper
Middle
Lower
11.00x
-
14.70x
-
14.70x
-
14.30x
-
Upper
4.30x
4.30x
3.80x
3.70x
Lower
9.30x
11.40x
9.40x
10.20x
3.40x
3.60x
1.80x
3.40x
Middle
Upper
Middle
Lower
Upper
Middle
Lower
Upper
Middle
Lower
Upper
Middle
Lower
5.80x
9.70x
1.60x
4.50x
2.80x
1.30x
0.30x
0.60x
1.30x
0.90x
1.40x
2.60x
5.30x
4.80x
1.00x
7.10x
3.00x
0.50x
0.20x
0.40x
1.00x
1.10x
1.50x
2.90x
5.10x
3.90x
1.20x
1.80x
1.30x
2.90x
0.20x
0.40x
0.90x
0.90x
1.40x
2.20x
17.80%
12.20%
Lower
2.30%
0.10%
1.30%
Upper
22.70x
Lower
4.40x
Middle
Upper
Middle
Lower
Upper
Middle
Lower
8.50%
37.20x
2.30x
12.00x
19.50%
9.20%
13.70x
4.20x
Upper
Middle
5.80x
6.20%
20.50x
3.70x
0.20x
0.40x
0.80x
0.90x
1.60x
3.50x
16.50%
9.70%
4.30%
25.80x
8.30x
19.20x
13.40x
17.30x
2.30x
2.20x
2.30x
2.40x
1.70x
1.30x
0.9%
2.0%
2.9%
7.90x
1.80x
1.60x
0.9%
1.5%
2.7%
6.10x
1.90x
1.50x
1.1%
1.6%
3.1%
6.60x
2.00x
1.60x
1.0%
1.4%
2.3%