SureCut Shears, Inc.

1 What assumption did Mr. Fischer make when he prepared the forecasts
shown in case Exhibit 1 and 2? Were these assumptions reasonable?

2 Why was SureCut Shears unable to repay its bank loan by March 31, 1996, as originally f
Please make simple comparison of projected and actual income statement and balanced

3 Has SureCut's financial condition worsened sufficiently to cause Mr. Stewart any great co
Please compare actual and projected financial ratios (See Ehxibit S-2)

4 What are characteristics of SureCut's need for external finance? What is the timing
magnitude, and duration of the need? How certain are you of your forecast? Can the nee
for finance be avoided by deferring expenditures? How attractive is the firm at the time

5 Describe SureCut Shears in terms of its market, competitive and operating characteristic
How risky is SUreCut in operating and competitive terms?

6 Would you, as Mr. Stewart, agree to an extension of loan? Under what specific terms and
When will SureCut to repay the loan in full?
7 Compare the nature of the financial problems faced by SureCut Shears and Toy World.

e forecasts

arch 31, 1996, as originally forecast?

me statement and balanced sheets and inventories (see Exhibit S-1)

use Mr. Stewart any great concern?

ce? What is the timing

your forecast? Can the need
ctive is the firm at the time financing need?

and operating characteristics?

der what specific terms and conditions?

ut Shears and Toy World.

Exhibit 1
Exhibit 1

Pro Forma Income Statement, Fiscal 1996 (thousands of $)

Actual
June 30,
1995

Sales ($)

July

1995
Aug. Sept. Oct.

Nov.

Dec.

Jan.

Feb.

1996
Mar. Apr.

May

June

Total

30,135

2,100 2,700 3,300 4,500 3,900 3,300

2,100 2,100 1,800 1,500 1,200 1,500

30,000

18,081

1,260 1,620 1,980 2,700 2,340 1,980

1,260 1,260 1,080

Costs of goods sold

Materials and labor
@ 60% of sales
Overhead

900

720

900

18,000

300

300

300

3,600

1,560 1,560 1,380 1,200 1,020 1,200

21,600

(incl. depreciation
$130)

3,560
21,641

300

300

300

300

300

300

1,560 1,920 2,280 3,000 2,640 2,280

300

300

300

Gross profit

8,494

540

780 1,020 1,500 1,260 1,020

540

540

420

300

180

300

8,400

Selling and administrative

expenses

3,240

270

270

270

270

270

270

270

270

270

270

270

270

3,240

Profit before taxes

5,254

270

510

750 1,230

990

750

270

270

150

30

(90)

30

5,160

Taxes

1,891

97

184

270

443

356

270

97

97

54

11

(32)

11

1,858

Profit after taxes

3,363

173

326

480

787

634

480

173

173

96

19

(58)

19

3,302

Dividends

1,495

300

300

300

600

1,500

Retained earnings

1,868

173

326

180

787

634

180

173

173

(204)

19

(58)

(581)

1,802

173

499

679 1,466 2,100 2,280

Cumulative retained earnings

Page 3

2,453 2,626 2,422 2,441 2,383 1,802

Exhibit 2

Pro Forma Balance Sheets, Fiscal 1996 (thousands of $)

Actual
June 30,
1995

Cash
Accounts receivablea
Inventories

2,121
2,084
8,106

July
736
2,850
8,368

Aug.
736
3,750
8,303

1995
Sept.
736
4,650
7,878

Exhibit 2

Oct.

Nov.

Dec.

Jan.

Feb.

736
6,150
6,733

736
6,150
5,948

1,139
5,250
5,523

2,609
3,750
5,818

3,179
3,150
6,113

1996
Mar.
2,413
2,850
6,588

Apr.

May

June

2,235
2,400
7,243

1,759
1,950
8,078

727
2,100
8,733

Current assets

12,311

11,954 12,789 13,264 13,619 12,834 11,892

12,162 12,432 11,809 11,839 11,749 11,569

Net plant

24,564

26,059 27,554 27,554 27,554 27,554 27,554

27,554 27,554 27,554 27,554 27,554 27,554

Total assets

36,875

38,013 40,343 40,818 41,173 40,388 39,446

39,716 39,986 39,363 39,393 39,303 39,123

Bank loans payable

Accounts payableb
Taxes payablec
Miscellaneous other
Current liabilities

0
861
0
270

985
744
97
270

2,772
777
281
270

3,270
777
78
270

2,395
777
521
270

620
777
877
270

0
777
674
270

0
777
771
270

0
777
868
270

0
777
449
270

0
777
460
270

0
777
428
270

1,162
777
(34)
270

1,131

2,096

4,100

4,395

3,963

2,544

1,721

1,818

1,915

1,496

1,507

1,475

2,175

Mortgage 8%
Common stock
Earned surplus

11,960
11,500
12,284

11,960 11,960 11,960 11,960 11,960 11,661

11,500 11,500 11,500 11,500 11,500 11,500
12,457 12,783 12,963 13,750 14,384 14,564

11,661 11,661 11,661 11,661 11,661 11,362

11,500 11,500 11,500 11,500 11,500 11,500
14,737 14,910 14,706 14,725 14,667 14,086

Total liabilities, net worth

36,875

38,013 40,343 40,818 41,173 40,388 39,446

39,716 39,986 39,363 39,393 39,303 39,123

Assumes collections lag sales by 45 days.

b
c

Assumes 30-day payment period, in accordance with trade terms.

Estimated taxes are paid in four equal installments of $380,000 each in September, December, March, and June based on pro forma earnings calculated the previous June.

Page 4

Exhibit 2 (continued)
Exhibit 2 (continued)

July

Aug.

1995
Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

1996
Mar.

Apr.

May

June

Raw Materials
Opening balances
Plus: Purchases
Less: Trans. to work in progress

810
744
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

777
777
777

Closing balance

777

777

777

777

777

777

777

777

777

777

777

777

Opening balance
Plus: Raw materials additions
Plus: Labor additions
Less: Trans. to finished goods

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

3,110
777
778
1,555

Closing balance

3,110

3,110

3,110

3,110

3,110

3,110

3,110

3,110

3,110

3,110

3,110

3,110

Opening balance
Plus: Work in process additions
Less: Cost of goods sold

4,186
1,555
1,260

4,481
1,555
1,620

4,416
1,555
1,980

3,991
1,555
2,700

2,846
1,555
2,340

2,061
1,555
1,980

1,636
1,555
1,260

1,931
1,555
1,260

2,226
1,555
1,080

2,701
1,555
900

3,356
1,555
720

4,191
1,555
900

Closing balance

4,481

4,416

3,991

2,846

2,061

1,636

1,931

2,226

2,701

3,356

4,191

4,846

Total closing inventory

8,368

8,303

7,878

6,733

5,948

5,523

5,818

6,113

6,588

7,243

8,078

8,733

Work in Process

Finished Goods

Page 5

Exhibit 3
Exhibit 3

Income Statements, 1995-1995 (thousands of $)

July
Sales ($)

Aug.

Sept.

1995
Oct.

Nov.

Dec.

1996
Feb.

Jan.

Mar.

2,070

2,605

3,080

4,066

3,373

2,799

1,758

1,738

1,498

1,304

1,641

1,949

2,440

2,024

1,680

1,056

1,095

960

374

323a

Cost of goods
Materials and labor
Overhead (incl. depreciation $130)

296

290

340

310

303

288

293

1,600

1,931

2,289

2,750

2,327

1,968

1,349

1,469

1,283

Gross profit

470

674

791

1,316

1,046

831

409

269

215

Selling and administrative expenses

273

273

293

275

275

269

260

258

258

Profit before taxes

197

401

498

1,041

771

562

149

11

(43)

Taxes

71

144

179

375

278

202

54

(15)

126

257

319

666

493

360

95

(28)

300

300

(300)

Retained earnings

126

257

19

666

493

60

95

(328)

Cumulative retained earnings

126

383

402

1,068

1,561

1,621

1,716

1,723

1,395

Profit after taxes

Dividends

Includes special cost for laying off personnel.

Page 6

Exhibit 4
Exhibit 4

Balance Sheets, 1995-1996 (thousands of $)

June
Cash
Accounts receivable
Inventories

July

Aug.

1995
Sept.

Oct.

Nov.

Dec.

Jan.

1996
Feb.

Mar.

2,121
2,084
8,106

957
2,837
8,378

573
3,644
8,303

702
4,395
7,963

696
5,651
7,179

830
5,526
6,705

641
5,573
6,502

1,133
3,958
6,925

1,076
3,169
7,170

688
2,867
7,374

12,311

12,172

12,520

13,060

13,526

13,061

12,716

12,016

11,415

10,929

24,564

26,103

27,672

27,848

27,858

27,843

27,885

27,843

27,810

27,812

36,874

38,275

40,192

40,908

41,384

40,904

40,601

39,859

39,225

38,741

Bank loans payable

Accounts payable
Taxes payable
Miscellaneous other

0
861
0
270

1,270
789
71
275

2,759
774
215
317

3,714
843
(79)
284

3,110
876
296
290

1,916
834
574
275

2,279
684
303
269

1,376
699
357
266

778
658
361
260

1,256
514
(127)
258

Current liabilities

1,131

2,405

4,065

4,762

4,572

3,599

3,535

2,698

2,057

1,901

11,960
11,500
12,284

11,960
11,500
12,410

11,960
11,500
12,667

11,960
11,500
12,686

11,960
11,500
13,352

11,960
11,500
13,845

11,661
11,500
13,905

11,661
11,500
14,000

11,661
11,500
14,007

11,661
11,500
13,679

36,875

38,275

40,192

40,908

41,384

40,904

40,601

39,859

39,225

38,741

Current assets
Net plant
Total assets

Mortgage 8%
Common stock
Earned surplus
Total liabilities, net worth

Page 7

Exhibit 4 (continued)
Exhibit 4 (continued)

June

July

Aug.

1995
Sept.

Oct.

Nov.

Dec.

Jan.

1996
Feb.

Mar.

Raw Materials
Opening balances
Plus: Purchases
Less: Trans. to work in process

810
787
783

814
777
834

757
837
834

760
867
834

793
802
772

823
688
733

778
690
706

762
652
661

753
518
601

Closing balance

814

757

760

793

823

778

762

753

670

Opening balance
Plus: Raw materials additions
Plus: Labor additions
Less: Trans. to finished goods

3,110
783
789
1,551

3,131
834
789
1,558

3,196
834
772
1,581

3,221
834
789
1,620

3,224
772
748
1,605

3,139
733
789
1,624

3,037
706
789
1,579

2,953
661
688
1,521

2,781
601
646
1,495

Closing balance

3,131

3,196

3,221

3,224

3,139

3,037

2,953

2,781

2,533

Finished Goods
Opening balance
Plus: Work in process additions
Less: Cost of goods sold

4,186
1,551
1,304

4,433
1,558
1,641

4,350
1,581
1,949

3,982
1,620
2,440

3,162
1,605
2,024

2,743
1,624
1,680

2,687
1,579
1,056

3,210
1,521
1,095

3,636
1,495
960

Closing balance

4,433

4,350

3,982

3,162

2,743

2,687

3,210

3,636

4,171

Total closing inventory

8,378

8,303

7,963

7,179

6,705

6,502

6,925

7,170

7,374

Work in Process

Page 8

Exhibit S-1
Exhibit S-1 Variations of actual Data from Forecasted Data (thousand of dollars)
July

August

Income Statement
Net sales
Profits after taxes
Dividends
Retained earnings
Balance sheets
Cash
Account receivable
Inventory
Current assets
Net plant
Total assets
Bank loans
Accounts payable
Taxes payable
Miscellaneous other
Current liabilities
Mortage
Common stock
Earned surplus
Total liabilities
and capital

Page 9

September

October

Exhibit S-1

d of dollars)
November

December

Jannuary

February

Page 10

March

Exhibit S-1 (cont)

Exhibit S-1 (continued)

June

July

Aug.

Raw Materials
Opening balances
Plus: Purchases
Less: Trans. to work in process
Closing balance
Work in Process
Opening balance
Plus: Raw materials additions
Plus: Labor additions
Less: Trans. to finished goods
Closing balance
Finished Goods
Opening balance
Plus: Work in process additions
Less: Cost of goods sold
Closing balance
Total closing inventory

Page 11

1995
Sept.

Oct.

Nov.

Dec.

Exhibit S-1 (cont)

Jan.

1996
Feb.

Mar.

Page 12

Exhibit S-2
Exhibit S-2 Sample Pro Forma and Actual Ratios and Other Financial Data

June30, 1995

September 30, 1995

Actual
Pro Forma

Current ratio
Acid-test ratio
Collection period (days)
(based on average daily
sales in the most recent
60 days)
Average Inventory
turnover for quarter
(annualized)
Net income/average
net worth for quarter
Net worth/total assets

Page 13

December 31, 1995

Actual

December 31, 1995

Pro Forma

Exhibit S-2

March 31, 1996

Actual
Pro Froma

Page 14

Exhibit S-3
Exhibit S-3 Pro Forma Balance Sheets, December 31, 1996 and February 28, 1997 (rough estimates)
Actual
March 31,1996

Pro forma
December 31, 1996

Cash
Accounts receivable
Inventories
Current assets
Net plant
Total assets
Bank loans payable
Accounts payable
Taxes payable
Miscellaneous other
Current liabilities
Mortgage 8%
Common stock
Earned surplus
Total liabilities, net worth

Page 15

Exhibit S-3

1997 (rough estimates)

Pro forma
February 29, 1997

Page 16