Business Policy BUSI 4940
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This 42 page Class Notes was uploaded by Randi Rau on Sunday October 25, 2015. The Class Notes belongs to BUSI 4940 at University of North Texas taught by Grant Miles in Fall. Since its upload, it has received 46 views. For similar materials see /class/229191/busi-4940-university-of-north-texas in Business Administration at University of North Texas.
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Date Created: 10/25/15
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31235 3 Wm ts m m devemp a Maven pm my exam mam N atmnah v R see Asmpte statement amndep m smnwmmw 529 me he mm mam MMEWMW a ts mm mm W M be mm m mmesmmtem an M tangtemm We M a rm t e ste in aka strategm qeptgtgns A dectamtmn m Wnat a m sandstandsmviahts mndamemat vames and mam mme nu Fuse 1 vquot Ya mmsz and dtssemnate the mt s system Em any em PtavEes Ya mm a shaved Dgu mm mm envwanmems and m nstveatmem m x IYagaNamzs cancened Sim Egu actmn Ya hnk stvategv mmmamn ta mptementatmn hvtwvg vtsmn and mssmnta mm and measuvahte gusts a abyectwes BUSI 4940004 Fall 2007 My 39 am u m e etemems mm Mum attutme SD n 7 S emctes dmeventtatms 39 WNW 5t v and c name Chapter 2 BUSINESS STRATEGY DIAMOND Business Strategy Diamond Armzs here Will We be arm and ma nwmucnemnasisv IEconomic Logic Howle returns be obtained rWnicnpmduclcalegDvie L t t t d t 7 Wmmmw 7 owes cos 5 nrougn 505 e a van ages Arenas iwzicwnarkels merits iLowest costs through scope and replication advantages 7 in Eeuuvap 2 yeas 7 iwmmmmmm remium prices ue to unmatcnabie SeNlCe7 rWnicnvaluecvealiDn s1 al2gl257 iprerniurn prices due to proprietary product features Wnalwil euuispeedand Emmi v as st in t SEWEMWWE m Inum g Wh39c39 Huwiiweueiineiev 7 internal develupmenw rJDinlvemuvey W Dmermlmlnrs rAcquistnw Wm returns be enamem erves12Ds1slniDugn scale nnvuem nrs amamagesv i Q linm DduclveliabiliW7 di 7 SW 7 7 Pl Piupiielarv piudumeaiuiesv am a maikew Business Strategy Diamond Business Strategy Diamond IDil ferentiators How will we win IVehicles Howwill we get there lmage Internal development rCuStoleatlon J imvemures rPnce 39 7 isty mw Licensingfranchising rProduct reliability EXPSI39I quottat ed rk t rSpe Acquisitions Business Strategy Diamond Business Strategy Diamond IStaging What will be our speed and sequence ofmoves Speed of expansion Sequence of initiatives Nhlch VVHiCh core technologies 7Whlch valuercreatlon Strategies BUSI 4940004 Fall 2007 Chapter 2 STAKEHD LDER ANALYSIS MAPPING STAKEHOLDER INFLUENCE AND IMPORTANCE ng stakehnlders ask SW5 in mmwmg Have l identitied anyvulnevahle paints stakeh is M in eitheithe strategy ei its patential 7 393 lmplemenlallun7 Delelmlne intluencee vvhic gvuups aie mublllzed and active y in pierneting lhell lnlEVEsls Which gvuups will bene t tiern e evei successinl executien uHhe diategy shaleay executiun and whlch may be adversely attected7 mm s lucaled7 Deteirnine the eiiecls Wild at stiategic decisiens amamie inamv ETHICS AND BIASES Have any pnlenlizl hiases clnuded nur de nrmzking prnccss Implemenlzlinn e xe u i c tng new sliategyle iealize geals Aulhullly sliucluies Cummun lllusluns apenl ourselves lncenllve systems e g iaveiapilily eplirnisrn centiel Rule eiceipeiale Escalating cernrnitrnent geveinance 5 r THING NEW UNDER THE SUN To serve the public as nearly as we can to its complete satisfaction To expect for the service we render a fair remuneration and not all the pro t the traf c will bear To do all in our power to packthe customer s dollar full ofvalue quality and satisfaction To continue to train ourselves and our associates so that the service i o 3 392 o lt m o o i g m E E 539 m l 3 m i E 9 2 5 o S o n and women in our organization through participation in what the business roduces To test our every policy method and act in this way Does it square with what is right and justquot IJJlllll 0 Explain how strategic leadership is essential tci strategytcirrnulaticin and irnplernentaticin Q Understand the relationships among vision mission values and strategy 3 Understand the rules cirVisicin and mission in deterr rnining strategic purpose and strategic coherence ldentity a tirrn s stakeholders and explain why such identificaticin is critical tci Effectlve Strategyfurmulatlun and irnplernentaticin 9 Explain how ethics and biases may attect strategic dEElSanrmaklng BUSI 4940004 Fall 2007 Chapter 2 To BUSI 4940 Students From Dr Grant Miles CoCourse Coordinator Re 2quotd Practice Case Now that you have nished up the Prairie Equipment case it is time to turn your attention to the 2quotd case which will focus on Handy Auto a manufacturer and distributor of hardto nd auto parts There are several things to keep in mind regarding this case 1 While based in fact the actual details regarding Handy Automotive were put together for use in this course Thus Handy does not represent any speci c real company and you should not waste your time trying to gure out who Handy is For the purposes of your analysis classroom handouts are the only source of speci c information on Handy Automotive Also note that while Handy has been used as a case in the past and that a number of good recommendations have been offered there has yet to be a perfect solution More importantly remember that a good recommendation requires not only the idea but also DETAILED JUSTIFICATION AND IMPLEMENTATION using the tools you are learning in this course So come up with YOUR best solution rather than trying to copy something that was offered before Since Handy is a fictional company you obviously cannot contact them You are encouraged though to do all the research you can Remember that the information provided here is a starting point not a nishing one The library and Internet can provide you with a wealth of information on the industry and the various competitors suppliers and buyers You can also contact other businesses that might be able to provide you with information on the industry and your possible recommendations Just remember that businesses are not required to talk with you be polite be honest and graciously accept whatever help is offered Do not misrepresent yourself in any way to those you contact remember that your actions re ect not only on you but also on your team your class and the college of business I hope you enjoy working on this case While a little different then Prairie remember that the approach is still the same 7 evaluating and improving the t between the Environment Strategy and the Business Resources amp Capabilities Handy Auto 7 Your Source for HardtoFind Auto Parts cam 12 2mm Busmzss Palwy Cansulhms m Gnadnaudn Way Unwexsny dmdnn Texas Deman TX 752m Dear Cansuhan s ann wnt e p Handy Amath have beenCED afHandysmce Itsxncepnan mm yzusaga and have been mnmdtelymwlvedmdmcnng Handytn n5 presem pnsmdnas a ng camphyzxmthz mun we d emdrkztmduslxy mums sales drmmss mllhnn xann ndw wndznng awn an an nda dd class m an dpnandn m abjecuvelyvlzw an campanys current gunman mdbestdmconnfaxdu fume Despite mybest arrst m dmcmg a number afslgm cam slung 55mins We the ldsl few yanks Handys pmfn 1m xemdmbelawwhznl dunk hycmbe Thus hm askmg yum rann slang Mthsmnlathzxs d d an anmaxanasysas drHandyand m amnapmpddaxrdnwnm ydn behave um I andun x251 afus has at Handysnmuddmmnram effans Once I have exdmmzdd afthz pmpus s x w thznselzct an cansnlnng rm can kaclnselywnhus m pnmng chm Han mm amn Td assist ydn m Lhs task 1 have mcludzdsame backgmnnd mum dn Handy slang wnhdemled nancde anrdnnaudn unad 11an can have an dppdmnnym m2 wnheachafyml pndnd yum presenhmn but savers thmgs have can up and myschedule mu nd Image accammadme suh mzeungs pmve hzlp llm ydmnma and is 1mm that yum rmn wdlcamdzxa afthz anrdnnaudn pmwdzd slang withanyathzxml39anmtmnthm ydn mgh nmmxngaxdmg an andmy dztznnmz an bestcmnse affnmre ac mnfm Handy lam lnakmg faxwuxd m man what yum rm wd have m mm can help Handydmdnndm cannmlz m pmspennm an mxt cenmry Sanmuy dnn Han ch Handydmdnndm Handy Automotive Handy Automotive was incorporated in Ohio in July 1986 Handy is a leading supplier of quothardtofmdquot parts and fasteners for the automotive aftermarket a market segment which it helped to establish Handy designs packages and markets over 29000 different automotive replacement parts and fasteners manufactured to its specifications with approximately half consisting of quothardtofmdquot parts and fasteners quotHardtofindquot parts are those which were traditionally available to consumers only from original equipment manufacturers or junk yards and include among other parts window handles headlamp aiming screws power steering filler caps pedal pads and carburetor preheater hoses Fasteners include such items as oil drain plugs and wheel lug nuts Approximately 70 of Handy s products are sold under its brand names and the remainder are sold for resale under customers39 private labels other brands or in bulk Handy39s products are sold primarily in the United States through automotive aftermarket retailers such as AutoZone and The Pep Boys national regional and local warehouse distributors such as Auto Value Carquest and NAPA and parts and automobile manufacturers or dealers for resale under their own private labels The Automotive Aftermarket The automotive replacement parts market is made up of two components parts for passenger cars and light trucks which comprise about 70 of the market and parts for heavy duty trucks Handy currently markets products primarily for passenger cars and light trucks Two distinct groups of endusers buy replacement automotive parts i individual consumers who purchase parts to perform quotdoityourselfquot repairs on their own vehicles and ii professional installers which include automotive repair shops and the service departments of automobile dealers The individual consumer market is typically supplied through retailers and through the retail arms of warehouse distributors Automotive repair shops generally purchase parts through local independent parts wholesalers and through national warehouse distributors Automobile dealer service departments generally obtain parts through the distribution systems of 39 quot f and J 39 quot A national and regional warehouse distributors The 39 39 J 39 quot of 39 quot and the number of different makes and models of automobiles have resulted in a significant increase in the number of products required to service the domestic and foreign automotive fleet Accordingly the number of parts required to be carried by retailers and wholesale distributors has increased substantially These pressures to include more products in inventory and the significant consolidation among distributors of automotive replacement parts have in turn resulted in larger distributors Retailers and others who purchase aftermarket automotive repair and replacement parts for resale are constrained in the shortterm to a finite amount of space in which to display and stock products Thus the reputation for quality customer service and line profitability which a supplier enjoys is a significant factor in a purchaser39s decision as to which product lines to carry in the limited space available Further because of the efficiencies achieved through the ability to order all or part of a complete line of products from one supplier with possible volume discounts as opposed to satisfying the same requirements through a variety of different sources retailers and other purchasers of automotive parts seek to purchase products from fewer but stronger suppliers The replacement automotive parts industry is highly competitive Various competitive factors affecting the automotive aftermarket are price product quality breadth of product line range of applications and customer service Substantially all of Handy39s products are subject to competition with similar products manufactured by other manufacturers of aftermarket automotive repair and replacement parts Some of these competitors are divisions and subsidiaries of companies much larger than Handy and possess a longer history of operations and greater financial and other resources than Handy Further some of Handy39s private label customers also compete with Handy Company Background Products Handy sells over 29000 different automotive replacement parts and fasteners to meet a variety of needs including quothardtofindquot parts sold primarily under the FOUND IT brand name a comprehensive array of fasteners for use by commercial automotive repair facilities and sold under the Mandor and Auto Service brand names and traditional automotive replacement parts sold under Handy s other brand names as well as under customers39 private label brands Handy markets these parts primarily through its Mighty Motor and Mandor divisions Many of Handy39s parts are sold under quotdual brandsquot in order to provide Handy s customers with an individualized identity or to satisfy a particular brand preference For example a customer could purchase a line of window handles under either the Mighty Motor FOUND IT brand or the Mandor brand Certain of Handy39s brands such as Metal Mite are offered as a single brand through both the Mighty Motor and Mandor divisions Approximately 70 of Handy39s revenues are derived from products sold under its more than fifty brand names including among others the following FOUND IT An extensive array of replacement parts including window handles knobs and switches door handles control knobs pads wheel screws and retainer rings license plate frames and parts windshield washer parts hood latch release cables radiator parts battery holddown bolts valve train parts spring Ubolts tailgate cables and power steering filler caps Mandor An extensive array of replacement parts including many hardtofind parts and fasteners The Mandor brand is designed to provide the customer with a competitive brand alternative Power Lift Trunk hood and hatchback lift supports and component parts Super Lift Trunk hood and hatchback lift supports and component parts ReadyBoot Constant velocity joint boots and clamps Boot Up Constant velocity joint boots and clamps In addition to the above list Handy also sells products under its own brand names to service both manual and automatic transmissions heating and cooling systems altemators and other electrical components and wheels and struts The remainder of Handy39s revenues are generated by the sale of parts packaged by the company or others for sale in bulk or under the private labels of parts manufacturers such as Raybestos national warehouse distributors such as NAPA and automobile manufacturers or their dealers such as Ford39s quotMotorcraftquot brand and General Motors quotACDelcoquot brand Handy39s Power Lift and private label lines of lift supports which includes more than 200 different models have traditionally accounted for approximately 10 12 of gross sales No other single group of related products accounts for more than 10 of the company s sales Product Development Product development is central to Handy s business The development of a broad range of products many of which are not conveniently or economically available elsewhere has in part enabled the company to grow to its present size and is important to its future growth Through careful evaluation exacting design and precise tooling Handy is frequently able to offer products which fit a broader range of makes and models than the original equipment parts they replace This assists retailers and other purchasers in maximizing the productivity of the limited space available for each class of part sold Where possible Handy improves its parts so they are better than the parts they replace In addition parts are often packaged to include different items in complete kits to ease installation Thus many of Handy s products are simpler to install or use Handy maintains an inhouse engineering staff that routinely generates ideas for new parts and expansion of existing lines As well the company solicits ideas from its customers both directly and through its sales force regarding which types of presently unavailable parts the ultimate customer is seeking In determining whether to produce an individual part or a line of related parts the company considers the number of vehicles of a particular model to which the part may be applied the potential for modifications which will allow the product to be used over a broad range of makes and models the average age of the vehicles in which the part would be used and the failure rate of the part in question This review process winnows the many new product suggestions to those most likely to enhance Handy39s existing product lines or to support new product lines Manufacturing Once a new product has been developed Handy39s engineering department produces detailed engineering drawings and prototypes which are used to solicit bids for manufacture from a variety of vendors in the United States and abroad about 70 of the products are manufactured in the US 30 overseas After a vendor is selected tooling for a production run is produced by the vendor at Handy39s expense A pilot run of the product is produced and subjected to rigorous testing by Handy s engineering department and on occasion by outside testing laboratories and facilities in order to evaluate the precision of manufacture and the resiliency and structural integrity of the materials used If acceptable the product then moves into full production Packaging Inventory and Shipping Finished products are received at one or more of Handy s facilities depending on the type of part and staged for packaging Handy employs a variety of customdesigned packaging machines for quotblister packagingquot in which individual parts are dropped into plastic quotblisterquot cups to which a preprinted card backing with appropriate graphics is sealed and for quotskinningquot in which parts are prepositioned on a printed card backing over which a malleable plastic quotskinquot is laid and fixed by vacuum and heattreatment processes In either event the printed card contains Handy39s label or a private label a part number a universal packaging bar code suitable for electronic scanning a description of the part and appropriate installation instructions Products are also sold in bulk to automotive parts manufacturers and packagers Completed inventory is stocked in the warehouse portions of Handy39s facilities see Exhibit 1 for a list of these facilities and is organized according to historical popularity in order to aid in retrieval for shipping Handy strives to maintain a level of inventory to adequately meet current customer order demand with additional inventory to satisfy new customer orders and special programs In the aggregate this has resulted in approximately a two month supply of its products packaged and readily available for shipment and a three to four month supply of product in finished bulk form ready for packaging Handy ships its products from all of its locations either by contract carrier common carrier or parcel service Products are generally shipped to the customer39s central warehouse for redistribution within their network In certain circumstances at the request of the customer Handy ships directly to the customer39s stores Sales and Marketing Handy markets its parts to three groups of purchasers currently comprising approximately 10000 accounts who in turn supply individual consumers and professional installers i Approximately 40 of Handy s revenues are generated from sales to automotive aftermarket retailers such as AutoZone and The Pep Boys local independent parts wholesalers and national general merchandise chain retailers Handy sells some of its products to virtually all major chains of automotive aftermarket retailers ii Approximately 35 of Handy39s revenues are generated from sales to warehouse distributors such as Auto Value Carquest and NAPA which may be local regional or national in scope and which may also engage in retail sales and iii The balance of Handy39s revenues are generated from sales to special markets which include among others salvage yards automobile dealers and the parts distribution systems of parts and automobile manufacturers Handy utilizes a number of different methods to sell its products Handy39s approximately 100 person direct sales force solicits purchases of the company39s products directly from customers as well as managing the activities of more than 15 independent manufacturer39s representative agencies Independent manufacturer39s representatives are used to help service existing retail customers providing frequent onsite contact For certain of its major customers and its private label purchasers Handy relies primarily upon the direct efforts of its sales force who together with the company39s executive officers coordinate the more complex pricing and ordering requirements of these accounts Handy s sales force is given the freedom to do what it takes to get the company s product into storesl The sales focus is designed to secure new customers and increase sales by adding new product lines and expanding product selection within existing customers Handy39s sales efforts are not directed merely at selling individual products but rather more broadly towards selling groups of related products that can be displayed on attractive companydesigned display systems thereby maximizing each customer39s ability to present Handy39s product line within the confines of the available area Handy prepares a number of catalogs application guides and training materials designed to describe the company39s products and other applications as well as to train the customers39 salesmen in the promotion and sale of Handy39s products Every two to three years Handy prepares a new master catalog which lists all of its products The catalog is updated periodically through supplements Employees At the end of 2006 Handy had approximately 1000 employees of whom 94 were employed fulltime Of these employees roughly 700 were engaged in production inventory or quality control about 45 were involved in engineering and product development 160 or so were employed in sales and order entry and the remainder including the company39s 9 executive officers were devoted to administration finance and strategic planning see Exhibit 2 for a listing of corporate officers No employee is covered by any collective bargaining agreement and relations with employees are believed to be generally good Current Situation Over the past two years Handy has focused its efforts on providing an expanding array of new product offerings and strengthening its relationships with its customers To that end Handy has made significant investments to increase market penetration primarily in the form of product development customer credits and allowances and strategic acquisitions Chief among these efforts have been three acquisitions that have allowed the company to add to its range of product lines These acquisitions included 1 Handy calculates its net sales by subtracting credits and allowances from gross sales Credits and allowances include costs for cooperative advertising product returns discounts given to customers who purchase new products for inclusion in their stores and the cost of competitors39 products that are purchased from the customer in order to induce a custom er to purchase new product lines from Handy The credits and allowances are designed to increase market penetration and increase the number of product lines carried by customers by displacing competitors39 products within customers stores and promoting consolidation of customers suppliers Mandor Products acquired January 2005 Mandor is one of the nation s oldest suppliers of automotive aftermarket parts and fasteners The Mandor acquisition added net sales of approximately 40 million Velocity Inc acquired August 2005 a privately held supplier of protective boots for the constant velocity CV joints on frontwheel drive vehicles FIX IT International acquired January 2006 a national supplier of auto parts to car dealers auto salvage yards specialty rebuilders and niche markets While these efforts have boosted sales and had a positive effect in solidifying Handy s position within the industry their ultimate impact on the bottom line is still in doubt Another important consideration is the fact that an increasing percentage of products are being sold to Handy s major customers in part due to consolidation among automotive aftermarket retailers While this has had a positive impact on net sales as a general rule sales to major customers are at lower margins than sales to other customers As well this leaves Handy more vulnerable to decisions made by these customers Monroe Auto Equipment for example has indicated that beginning in 2008 they plan to manufacture or source directly some of the products they currently purchase from Handy Sales of these products amounted to approximately 60 million in 2006 Handy plans to aggressively seek new customers for these products Exhibit 1 Handy Automotive Facilities Handy39s principal offices are located on a 30 acre tract in Findlay Ohio The tract contains a 334000 square foot building and two adjoining buildings which have an aggregate area of approximately 17000 square feet Approximately 326500 square feet of these three structures are used for receiving packaging warehousing and shipping and approximately 24500 square feet are used for executive and administrative purposes A 97000 square foot company facility in Newton Georgia also houses packaging production lines distribution facilities and a warehouse A third company facility located on a 23 acre tract in Madison Indiana is a 185000 square foot office building and warehouse Approximately 160000 square feet of this structure is used for receiving packaging warehousing and shipping and approximately 25000 square feet is used for sales and administrative purposes An approximately 100000 square foot expansion was completed in April 2004 Additional company facilities are located in Hudson Wisconsin an 18000 square foot office and warehouse facility Glen Rock Pennsylvania 32000 square foot office and warehouse facility and Fort Pierce Florida a 5000 square foot facility used primarily for telemarketing Name John Hall David Schoorman Arnold Cooper Richard Woodward Scott Shane Jess Brazeal James McCarthy Hollister Sykes Walter Chua Exhibit 2 Company Of cers Age 43 Position with the Company President Chief Executive Of cer Chairman of the Board of Directors and Director 39 Executive Vice President SecretaryTreasurer and Director 38 Vice President Operations 45 Vice President IS 43 Vice President Purchasing 43 Vice President Marketing and Engineering 46 Vice President Sales 39 Vice President General Counsel and Assistant Secretary 46 Chief Financial Of cer FISCAL YEAR ENDING Cash Mrktable Securities Receivables Inventories Raw Material Work in Progress Finished Goods Notes Receivable Other Current Assests Total Current Assets Prop Plant amp Equip Accumulated Dep Net Prop amp Egip Invest amp Adv to Subs Other noncur Assets Defferred Charges Intangibles Deposits amp oth Assets Total Assets 122806 978 NA 37242 44151 NA NA NA NA 3555 85926 15441 NA 15441 NA NA NA 32701 2639 136708 123005 1322 NA 24376 37045 NA NA NA NA 3453 66196 14066 NA 14066 NA NA NA 29710 2892 112864 ANNUAL ASSETS 123104 447 636 19200 24779 NA NA NA NA 1837 46899 7130 NA 7130 NA NA NA NA 1555 55583 122503 4338 1802 14899 19910 NA NA NA NA 1830 42777 6228 NA 6228 NA NA NA NA 1204 50210 000 122602 NA NA 10486 16981 NA NA NA NA 1284 28750 5777 NA 5777 NA NA NA NA 35031 122801 705 NA 9906 12840 NA NA NA NA 24387 5730 NA 5730 NA NA NA NA 30587 122900 NA NA 6196 8924 NA NA NA NA 15314 5219 NA 5219 NA NA NA NA 21284 123099 NA NA 4443 7667 NA NA NA NA 12852 4431 NA 4431 NA NA NA NA NA 17283 Annual Liabilities 000s FISCAL YEAR ENDING 122806 123005 123104 122503 122602 122801 122900 123099 Notes Payable NA NA NA NA 786 NA 2374 3311 Accounts Payabe 7575 4994 3834 2142 3214 3456 2132 2473 Cur Long Term Debt 6430 3261 257 NA NA NA NA 520 Cur port Cap Leases NA NA NA 234 302 436 505 NA Accrued Expenses 4752 3289 1532 1500 1570 91 1058 894 Income Taxes NA NA NA NA NA 59 NA NA Other Current Liab NA NA NA NA NA 5 2762 4100 Total Current Liab 18757 11543 5622 3875 5872 4873 8831 11299 Mortgages NA NA NA NA NA NA NA NA Deferred ChargesInc 910 779 311 NA NA NA NA NA Convertable Debt NA NA NA NA NA NA NA NA Long Term Debt 59623 49427 3394 NA 9 NA NA 4242 Noncurr Cap Leases NA NA NA 3651 3874 4187 4642 NA Other Long Term Liab NA NA NA NA NA NA NA NA Total Liabilities 79289 61749 9327 7526 9757 9059 13473 15540 Minority Int Liab NA NA NA NA NA NA NA NA Preferred Stock NA NA NA NA NA NA NA NA Common Stock Net 85 85 85 84 71 71 53 32 Capital Surplus 31740 31436 31277 31125 18526 18522 12 32 Retained Earnings 25595 19593 14894 11475 6678 2935 7748 1680 Treasury Stock NA NA NA NA NA NA NA NA Other Equities NA NA NA NA NA NA NA NA Shareholders Equity 57419 51114 46256 42684 25275 21529 7811 1744 Tot Liab amp Net Worth 136708 112864 55583 50210 35031 30587 21284 17283 FISCAL YEAR ENDING Net Sales Cost of goods Gross Profit RampD Expense Sell Gen amp Admin Inc Bef Dep amp Amort Depreciation amp Amort Non Operating Inc Interest Exp Inc Before Tax Prov for Inc Tax Minority Int Inc Invest GainsLosses Other Income Net Inc bef EX Items EX Items and Disc Ops Net Income Outstanding Shares 122806 155770 96346 59424 NA 45385 14039 NA NA 4563 9475 3474 NA NA NA 6002 NA 6002 8508 Annual Income 00039s 123005 120656 73896 46760 NA 35677 11082 NA NA 3795 7288 2589 NA NA NA 4699 NA 4699 8462 123104 69740 43844 25896 NA 19963 5933 NA NA 5562 2142 NA NA NA 3420 NA 3420 8436 122503 66083 40012 26071 NA 17861 8210 NA NA 7496 2700 NA NA NA 4797 NA 4797 8419 122602 50295 26000 24295 NA 17775 6520 NA 6150 2407 NA NA NA 3743 NA 3743 7077 122801 43033 21073 21960 NA 15501 6458 NA 6129 1897 NA NA NA 4232 NA 4232 7076 122900 38009 17642 20368 NA 13092 7276 NA 1350 6067 NA NA NA NA 6067 NA 6067 5247 123099 33931 17316 16614 NA 12083 4532 NA 1389 3316 NA NA NA NA 3316 NA 3316 3180 KEY ANNUAL FINANCIAL RATIOS FISCAL YEAR ENDING 122806 123005 123104 QUICK RATIO 204 223 361 CURRENT RATIO 458 573 834 SALESCASH 15921 9128 6438 SG amp ASALES 029 030 029 RECEIVABLES TURNOVER 418 495 363 RECEIVABLES DAYS SALES 8607 7273 9911 INVENTORIES TURNOVER 353 326 281 INVENTORIES DAYS SALES 10204 11053 12791 NET SALESWORKING CAPITAL 232 221 169 NET SALESPLANT amp EQUIPMENT 1009 858 978 NET SALESCURRENT ASSETS 181 182 149 NET SALESTOTAL ASSETS 114 107 125 NET SALESEMPLOYEES 141983 135993 129767 TOTAL LIABTOTAL ASSETS 058 055 017 TOTAL LIABINVESTED CAPITAL 068 0 61 019 TOTAL LIABCOMMON EQUITY 138 1 21 0 20 TIMES INTEREST EARNED 308 2 92 15 99 CURRENT DEBTEQUITY 011 0 06 0 01 LONG TERM DEBTEQUITY 104 0 97 0 07 TOTAL DEBTEQUITY 115 1 03 0 08 TOTAL ASSETSEQUITY 238 2 21 1 20 PRETAX INCNET SALES 006 0 06 0 08 PRETAX INCTOTAL ASSETS 007 0 06 0 10 PRETAX INCINVESTED CAPITAL 008 0 07 0 11 PRETAX INCCOMMON EQUITY 017 014 0 12 NET INCOMENET SALES 004 0 04 0 05 NET INCOMETOTAL ASSETS 004 0 04 0 06 NET INCOMEINVESTED CAPITAL 005 0 05 0 07 NET INCOMECOMMON EQUITY 010 0 09 0 07 Handy Automotive Additional Information The following items while not an exhaustive list identify additional information that may be helpful for your analysis Handy s Mission and Goals Broadly Handy wants to be the company people think of when it comes to hardto nd auto parts and to return to the pro tability levels that were achieved in the early nineties More speci cally Handy s approach over the last few years which focused on getting bigger through acquisition and aggressive selling as a response to consolidation trends in both their own industry and that of their retail customers has not yet produced the profitability that had been expected Seven years ago Handy was 13 the current size yet on a percentage basis it was 3 times as pro tability Whether the lack of a turnaround is due to the approach being misguided or to the fact that there has not been enough time for the results to show up or to the fact that Handy has not yet gotten big enough to achieve a critical mass or to some other factor is not known Financial Information The current debt structure and a statement of cash ows are provided in separate handouts see attachments The jump in intangibles seen in the balance sheet in 2005 is primarily due to goodwill acquired with the Mandor name RampD expenses and depreciation amp amortization both shown as NA on the income statement are accounted for as part of Selling General and Administrative expenses For RampD the 45 engineers Handy employs cost roughly 225 million in salaries This might be used as a starting point for determining RampD costs The jumps in income seen in 2005 and 2006 were primarily due to acquisitions Mandor acquired in 2005 added 45 million in sales Fixit acquired in 2006 and Velocity Inc acquired in late 2005 added 20 million and 10 million respectively Organization Structure and Distribution of Employees An organization chart with rough employee counts and a table that shows Handy s facility breakdown are attached Markets Customers and Products Handy does not currently sell any products aimed at the large truck market It has never previously been a company focus and would require us to learn about and address very different customers and distribution channels Regarding the number of products and brands Handy currently maintains many of our major customers ie retail automotive parts outlets have expressed a desire to have multiple brands within any given part area This being the case Handy would prefer to supply each of the brand alternatives so that we receive the sale regardless of the enduser s choice Handy s customers prefer this arrangement because it means that they only have to deal with one supplier A similar logic applies to the number of parts that are offered along with the fact that there are simply many possible parts in the auto industry Customers are demanding that suppliers offer a broader product range so that the total number of suppliers can be reduced The reality is that Handy s customers are themselves consolidating Because of this 35 of sales are now accounted for by 4 major customers who exert significant power The average return on sales for these customers is 28 compared to 46 for the rest of Handy s customers The power of these customers is one factor that might be leading to the long collection time for receivables Only 1 of Handy s current sales come from outside the Us Canada and Holland are the two countries that account for this The company is not averse to further international efforts Technology Inventory Management and Delivery Systems Handy has a wide area network that connects all of their facilities to the main office in Ohio This system is also used to manage the inventory arriving parts are manually entered into the system and packaged parts are tracked through bar codes and can be used by customers for ordering primarily utilized by bigger customers Handy does not currently have any integrated EDI systems to automatically track customers inventory but has the general capability and capacity to do this with their current system Shipping is paid for by the customer and is shipped by whatever method the customer prefers eg large customers may have their own trucking arrangements Regarding inventory levels while Handy is generally interested in reducing this there are several issues that must be considered First the nature of hardtofind parts requires that some parts are simply not ordered on a regular basis but still must be maintained Handy continues to maintain a part for up to two years of no orders before examining it for discontinuation In addition the nature of our arrangements with our contract manufacturers does not lend itself to an easy implementation of a JIT system see Production section below Production Contracts and Packaging Handy has about 170 current manufactures that it contracts with for production of parts Parts contracts are put out for bid to the lowest bidder who meets technical specifications factoring in shipping costs particularly for foreign suppliers For most parts a year s supply will only take a short time for a manufacture to produce once they are tooled up Because of this producers tend to manufacture the years supply in a single run and will then try to ship as much of that run to us as soon as they can Packaging and warehousing takes place at each of three facilities each running at about 88 capacity There have been some inefficiencies arising out of the recent acquisitions and management feels that improvements in this area might cut the cost of goods sold by at least 1 Sales and Marketing Handy primarily markets its products through direct sales There is no signi cant outside advertising The 100 person sales force focuses on developing new accounts and increasing sales to existing accounts They are not responsible for order gathering The sales force is divided by both customer and regions Twenty sales people are focused on major customers and work closely with top management to service these accounts The remaining 80 sales people are divided on a regional basis with at least one sales person assigned to each of the 50 states The sales force is compensated on average with a 30000 base salary plus a 1 commission on all sales generated by their clients Human Resources Handy currently has good relations with its workers Production workers are cross trained and can perform virtually any job within the warehouses and packaging functions though training is informal Labor turnover is estimated to be less than 20 per year Competitors Despite recent consolidation trends Handy s industry is still very fragmented Handy is believed to have a fraction of 1 of the market No single competitor is considered a direct duplicate to Handy s products but there are many competitors who make at least some of the same products that Handy does CONSOLIDATED STATEMENTS OF CASH FLOWS in thousands For the Year Ended Dec28 2006 Dec 30 2005 Dec31 2004 Cash Flows from Operating Activities Net income S6002 S4699 S3420 Adjustments to reconcile net income to cash used in provided by operating activities Depreciation and amortization 4477 3881 1419 Provision for doubtful accounts 519 467 55 Provision for deferred income tax 755 492 308 Changes in assets and liabilities net of acquisitions Accounts receivable 11181 190 4116 Inventories 3858 4275 4593 Prepaids and other current assets 991 171 503 Other assets 584 985 41 Accounts ayable 1760 1880 1497 Other accrued liabilities 811 1290 30 Cash used in provided by operating activities 1818 2724 2134 Cash Flows from Investing Activities Property plant and equipment additions 3766 2218 2245 Short term investments 600 1100 Business acquisitions 5228 41835 290 Cash used in investing activities 8994 43453 1435 Cash Flows from Financing Activities Net proceeds from revolving credit 5300 18550 Proceeds from term loans 12000 25000 Repayment of term loans and capitalized lease obligations 7043 2071 220 Proceeds from common stock issuances 286 150 144 Cash provided by used in financing activities 10543 41629 76 Net Decrease Increase in Cash and Cash Equivalents 324 825 3670 Cash and Cash Equivalents Beginning of Year 1247 422 4092 Cash and Cash Equivalents End of Year S 978 S 1322 S 447 Supplemental Cash Flow Information Cash paid for interest expense S3740 S3376 S 510 Cash paid for income taxes S3702 S3269 S1535 LONG TERM DEBT Longterm debt consists of borrowings under bank credit facilities industrial revenue bonds and capitalized lease obligations as follows December 28 December 30 in thousands 2006 2005 Bank credit facility 2003 Term Loan 22260 24910 2004 Term Loan 11024 Revolving credit 25281 19663 Industrial revenue bonds 4386 4720 Capitalized lease obligations 3102 3394 Total 66053 52687 Less Current portion 6430 3261 Total longterm debt 59623 49426 Aggregate annual principal payments applicable to longterm debt as of December 28 2006 are as follows in thousands 2007 6430 2008 32236 2009 7593 2010 8132 2011 8149 Thereafter 3513 Total 66053 Handy Automotive Facilities Information Facilities Characteristic Total Ohio Georgia Indiana Wisconsin Pennsylvania Florida Size sq ft 334000 97000 185000 18000 32000 5000 PFOdIIHVJQC 400 100 200 700 Sales 40 30 10 5 10 5 100 Employees AdminCleric 60 20 30 10 5 10 135 Engineering 30 15 45 Officers 10 10 Office Office Office Office Office Office Activities Warehouse Warehouse Warehouse Warehouse Warehouse Production Production Production Ownership Lease Lease Debt Debt Debt Debt John H all President David Schoorman Walter Chua Executive VP I I I I I I Arnold Cooper Scott Shane wiiggagrd James McCarthy Vie Bkraieal Hollister Sykes VP Operations VP Purchasing VP Sales ar e lng VP Info Systems Engmeermg Manager Manager Manager Regional Major Account Ohio Georgia Indiana Salespeople Reps 100 200 20 10232007 0 mm W 5 mm m mm gamma sesame hawwpm WWW mmm empanwemmageandmmmshasm m p 53 p as m 2 a man Chapter 13 1 denmme m esmavmevsanddmevemwpes PM G V 39quotquot 39quot me e SLZCZLTLWLZZ ZZ Z ig 39 TwentyFirst Century mm m es heyp aym carpmategavemance mm and new mmm as a A mama s aw sesame mm We my Mum mm s mm mm 0 mm and mm pmcesamnmmm n a Dreadef Dasvemm gmnme games howaH gammy m uence he wrvoramn g I Sham 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gumquot I F m 397 sum venues 39 buyerand buyer s preterenees nggggzg w Inn HW iii eett i27 rimeinai developmmv u nceniinnialives 7mm my Emphasizes pruduct ur service Emphasizes eprnpiernentary rLicensinMianchisinm value and ufferings within industry prpeuets and services Within and Ecnnnrrlclnmc rExpeiirmmaliuW eetinitipn aerpss industries and segments WWW Ammsmuw HuWWill returns pe ubiainem Emphasizes emeientpperatipn Emphasizesrethinking at the anWes1cus1slhiuughscaie ptthe mudel indust business mudel WWW N r Wes1cus1slhiuu hscupe andiEpiicaliunadvanlages rnp asizes a ap a run an capar rnp asizes s ra egie in en 7 rPierniurnpiicesduelu pmn bilitiesthat suppun eprnpetitwe seeking tn shape the external michabia 523mg estwnev e remiumpnces ue u rPiuduclieiiabiin 7 remiiatiun Envirunment uvertirne pmpnmw mummmmw 73mm Wk 15 THREE OPTIONS FOR APPROACHING CHANGE While change is likely to happen in all industries the rm needs to have a perspective on how it is going to approach change ProspectoreFirst to market trying to introduce new products and new markets p with otnei39s for neW ideas andor distribution Not all rms need to norwill be able to respond in the same manner 39Anaiyzer 2m 0 a t Re nes new product offerings expands market through ewsting 39The package arenas Vehicles staging etc of different rms are likely to d smbmn Sygtemg bmgmg p ceg down extenwe markemg etc be different Therefore the pacing of response and changes are also likely r to diffe 39DefenderrTnes to nd more stable niches Within an industry Focus on efficiency ldUllll ofneW 39Lack ofa coherent perspective is likely to lead the firm to be reactive to products i5 ciearandorits niche i5 threatened tmquot within their package BUSI 4940 7 Fall 2007 3 BUSI 4940 7 Fall 2007 0 WWW WWW mm mmpem Emmage m Mm mm ummmm Wamema Wm m mm Femquot mm We advamgesm swam m masmgmwwwmew 9 mm and mm We Manama mmwwmn 5 mm and mm memes muemmam Emma Wm mueva smeg esmmgmed enmmmmange 0 mm We WWW m dvnamc mew my me 1me 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