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 forecast?Please make simple comparison of projected and actual income statement and balanced sheets and inventories (see Exhibit S-1)

3 Has SureCut's financial condition worsened sufficiently to cause Mr. Stewart any great concern?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 timingmagnitude, and duration of the need? How certain are you of your forecast? Can the needfor finance be avoided by deferring expenditures? How attractive is the firm at the time financing need?

5 Describe SureCut Shears in terms of its market, competitive and operating characteristics?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 conditions?When will SureCut to repay the loan in full?

7 Compare the nature of the financial problems faced by SureCut Shears and Toy World.

What assumption did Mr. Fischer make when he prepared the forecasts

Why was SureCut Shears unable to repay its bank loan by March 31, 1996, as originally forecast?Please make simple comparison of projected and actual income statement and balanced sheets and inventories (see Exhibit S-1)

Has SureCut's financial condition worsened sufficiently to cause Mr. Stewart any great concern?

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

Describe SureCut Shears in terms of its market, competitive and operating characteristics?

Would you, as Mr. Stewart, agree to an extension of loan? Under what specific terms and conditions?

Compare the nature of the financial problems faced by SureCut Shears and Toy World.

Exhibit 1

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ActualJune 30, 1995 1996

July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June Total

Sales ($) 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

Costs of goods sold

18,081 1,260 1,620 1,980 2,700 2,340 1,980 1,260 1,260 1,080 900 720 900 18,000

3,560 300 300 300 300 300 300 300 300 300 300 300 300 3,600

21,641 1,560 1,920 2,280 3,000 2,640 2,280 1,560 1,560 1,380 1,200 1,020 1,200 21,600

Gross profit 8,494 540 780 1,020 1,500 1,260 1,020 540 540 420 300 180 300 8,400

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 0 0 300 0 0 300 0 0 300 0 0 600 1,500

Retained earnings 1,868 173 326 180 787 634 180 173 173 (204) 19 (58) (581) 1,802

Cumulative retained earnings 173 499 679 1,466 2,100 2,280 2,453 2,626 2,422 2,441 2,383 1,802

Exhibit 1 Pro Forma Income Statement, Fiscal 1996 (thousands of $)

Materials and labor @ 60% of sales Overhead (incl. depreciation $130)

Selling and administrative expenses

Exhibit 2

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ActualJune 30, 1995 1996

July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June

Cash 2,121 736 736 736 736 736 1,139 2,609 3,179 2,413 2,235 1,759 7272,084 2,850 3,750 4,650 6,150 6,150 5,250 3,750 3,150 2,850 2,400 1,950 2,100

Inventories 8,106 8,368 8,303 7,878 6,733 5,948 5,523 5,818 6,113 6,588 7,243 8,078 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 0 985 2,772 3,270 2,395 620 0 0 0 0 0 0 1,162861 744 777 777 777 777 777 777 777 777 777 777 777

0 97 281 78 521 877 674 771 868 449 460 428 (34)Miscellaneous other 270 270 270 270 270 270 270 270 270 270 270 270 270

Current liabilities 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% 11,960 11,960 11,960 11,960 11,960 11,960 11,661 11,661 11,661 11,661 11,661 11,661 11,362Common stock 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500Earned surplus 12,284 12,457 12,783 12,963 13,750 14,384 14,564 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

Exhibit 2 Pro Forma Balance Sheets, Fiscal 1996 (thousands of $)

Accounts receivablea

Accounts payableb

Taxes payablec

aAssumes collections lag sales by 45 days.bAssumes 30-day payment period, in accordance with trade terms.cEstimated 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.

Exhibit 2 (continued)

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Exhibit 2 (continued)

1995 1996July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June

Raw Materials

Opening balances 810 777 777 777 777 777 777 777 777 777 777 777Plus: Purchases 744 777 777 777 777 777 777 777 777 777 777 777Less: Trans. to work in progress 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

Work in Process

Opening balance 3,110 3,110 3,110 3,110 3,110 3,110 3,110 3,110 3,110 3,110 3,110 3,110Plus: Raw materials additions 777 777 777 777 777 777 777 777 777 777 777 777Plus: Labor additions 778 778 778 778 778 778 778 778 778 778 778 778Less: Trans. to finished goods 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 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

Finished Goods

Opening balance 4,186 4,481 4,416 3,991 2,846 2,061 1,636 1,931 2,226 2,701 3,356 4,191Plus: Work in process additions 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555 1,555Less: Cost of goods sold 1,260 1,620 1,980 2,700 2,340 1,980 1,260 1,260 1,080 900 720 900

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

Exhibit 3

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1995 1996July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.

Sales ($) 2,070 2,605 3,080 4,066 3,373 2,799 1,758 1,738 1,498

Cost of goods

Materials and labor 1,304 1,641 1,949 2,440 2,024 1,680 1,056 1,095 960

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 4 (15)

Profit after taxes 126 257 319 666 493 360 95 7 (28)

Dividends 0 0 300 0 0 300 0 0 (300)

Retained earnings 126 257 19 666 493 60 95 7 (328)

Cumulative retained earnings 126 383 402 1,068 1,561 1,621 1,716 1,723 1,395

Exhibit 3 Income Statements, 1995-1995 (thousands of $)

374a 323a

aIncludes special cost for laying off personnel.

Exhibit 4

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1995 1996June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.

Cash 2,121 957 573 702 696 830 641 1,133 1,076 688Accounts receivable 2,084 2,837 3,644 4,395 5,651 5,526 5,573 3,958 3,169 2,867Inventories 8,106 8,378 8,303 7,963 7,179 6,705 6,502 6,925 7,170 7,374

Current assets 12,311 12,172 12,520 13,060 13,526 13,061 12,716 12,016 11,415 10,929

Net plant 24,564 26,103 27,672 27,848 27,858 27,843 27,885 27,843 27,810 27,812

Total assets 36,874 38,275 40,192 40,908 41,384 40,904 40,601 39,859 39,225 38,741

Bank loans payable 0 1,270 2,759 3,714 3,110 1,916 2,279 1,376 778 1,256Accounts payable 861 789 774 843 876 834 684 699 658 514Taxes payable 0 71 215 (79) 296 574 303 357 361 (127)Miscellaneous other 270 275 317 284 290 275 269 266 260 258

Current liabilities 1,131 2,405 4,065 4,762 4,572 3,599 3,535 2,698 2,057 1,901

Mortgage 8% 11,960 11,960 11,960 11,960 11,960 11,960 11,661 11,661 11,661 11,661Common stock 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500Earned surplus 12,284 12,410 12,667 12,686 13,352 13,845 13,905 14,000 14,007 13,679

Total liabilities, net worth 36,875 38,275 40,192 40,908 41,384 40,904 40,601 39,859 39,225 38,741

Exhibit 4 Balance Sheets, 1995-1996 (thousands of $)

Exhibit 4 (continued)

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1995 1996June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar.

Raw Materials

Opening balances 810 814 757 760 793 823 778 762 753Plus: Purchases 787 777 837 867 802 688 690 652 518Less: Trans. to work in process 783 834 834 834 772 733 706 661 601

Closing balance 814 757 760 793 823 778 762 753 670

Work in Process

Opening balance 3,110 3,131 3,196 3,221 3,224 3,139 3,037 2,953 2,781Plus: Raw materials additions 783 834 834 834 772 733 706 661 601Plus: Labor additions 789 789 772 789 748 789 789 688 646Less: Trans. to finished goods 1,551 1,558 1,581 1,620 1,605 1,624 1,579 1,521 1,495

Closing balance 3,131 3,196 3,221 3,224 3,139 3,037 2,953 2,781 2,533

Finished GoodsOpening balance 4,186 4,433 4,350 3,982 3,162 2,743 2,687 3,210 3,636Plus: Work in process additions 1,551 1,558 1,581 1,620 1,605 1,624 1,579 1,521 1,495Less: Cost of goods sold 1,304 1,641 1,949 2,440 2,024 1,680 1,056 1,095 960

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

Exhibit 4 (continued)

Exhibit S-1

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

July August September October

Income Statement

Net salesProfits after taxesDividendsRetained earnings

Balance sheets

CashAccount receivableInventory

Current assetsNet plant

Total assets

Bank loansAccounts payableTaxes payableMiscellaneous other

Current liabilitiesMortageCommon stockEarned surplus

Total liabilitiesand capital

Exhibit S-1

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

November December Jannuary February March

Exhibit S-1 (cont)

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1995June July Aug. Sept. Oct. Nov. Dec.

Raw Materials

Opening balancesPlus: PurchasesLess: Trans. to work in process

Closing balance

Work in Process

Opening balancePlus: Raw materials additionsPlus: Labor additionsLess: Trans. to finished goods

Closing balance

Finished GoodsOpening balancePlus: Work in process additionsLess: Cost of goods sold

Closing balance

Total closing inventory

Exhibit S-1 (continued)

Exhibit S-1 (cont)

Page 12

1995 1996Jan. Feb. Mar.

Exhibit S-2

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

September 30, 1995 December 31, 1995June30, 1995 Actual Pro Forma Actual

Current ratio

Acid-test ratio

Collection period (days)(based on average dailysales in the most recent60 days)

Average Inventoryturnover for quarter(annualized)

Net income/averagenet worth for quarter

Net worth/total assets

Exhibit S-2

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December 31, 1995 March 31, 1996Pro Forma Actual Pro Froma

Exhibit S-3

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Actual Pro formaMarch 31,1996 December 31, 1996

CashAccounts receivableInventories

Current assets

Net plant

Total assets

Bank loans payableAccounts payableTaxes payableMiscellaneous other

Current liabilities

Mortgage 8%Common stockEarned surplus

Total liabilities, net worth

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

Exhibit S-3

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Pro formaFebruary 29, 1997

Pro Forma Balance Sheets, December 31, 1996 and February 28, 1997 (rough estimates)