Jackson Automotive Systems

Company Market
OEM Original Equipment Manufacturer 5,000 suppliers in industry
Founded in 1961 by Larry's father Less than 200 with sales > $100M
Larry Edwards, president, 90´s Fragmented market
Energetic and successful Michigan big three
2010 sales recovery 2008 crisis, sales drop more than 30%
2013 first time at full capacity since 2007 Crisis, working at 55% capacity
Conservative financial policies Asia outsource
Debt free since 2004 2010 recovery, 2011 profits
Strong working capital position Raw material high prices
Little $ on new equipment purchases to conserve cash Fierce competition
Big three double digit sales growth may 12-apr 13
Bank Better than expected recovery
Heather James, VP Michigan State Bank
$5M renewal, due in June 2013 Currently
Montly interest payments of 0.5% of principal June 2013
Additional $2.4M equipment purchase, end of july Loan renewal and additional amount, due in Sep-13
Both amounts due in Sept 2013 Worn out components
Loan committee approval required Critical replacement
Delivery shortfalls due to missing component
Air conditioning part
Assumptions Component just arrived
Working at 90% capacity the rest of the year
750K monthly OPEX
Monthly depreciation of $120K, calculate new equipment Stocks purchase
2% annual interest gain of bank balances, previous month September 2012
Tax rate 34% Dissident shareholders
$1.2M dividends due in Sep-13 $5M loan from MSB and $5M cash
1 million stocks
Credit terms net 30 days Par value $1
$4.2M large order, advance of $2.7M in april 40% stocks reduction
Deliveries $1.8M june, $1.8M july, and $0.6M august
$2,440K raw material above normal levels Before After
4 monthly even reductions Stocks 2,500,000 1,500,000
$5.2M monthly purchases Par/nominal V $ 1.00 $ 1.00
Work in progress reduction of $5.04M june Book V $ 11.32 $ 12.19
WIP remains the rest of the year =28291/2500 =18291/1500
New equipment, 20 years, no SV, straight line depr Market V $ 10.00
Equipment buy in august
Supplier net 30 days payment terms
Other expenses remain the same
$375K taxes payments in June 15 and Septment 15
Ratios
Aug-12* Sep-12 May-13* Sep-13
Liquidity
Current 2.5 1.2 1.4 1.7
Quick 1.7 0.7 0.6 1.0
Cash 1.0 0.2 0.3 - 0.1

Dupont
Net profit / sales 3.5% 3.6% 4.5% 4.9%
Assets turnover 1.8 2.3 1.3 2.9
Equity multiplier 1.3 1.7 1.7 1.3
ROE 8.1% 13.9% 9.8% 18.6%

Leverage
Liabilities / Assets 0.2 0.4 0.4 0.2
Liabilities / Equity 0.3 0.7 0.8 0.3

Working capital
DSO (AR) 30 31 34
DI (Inv) 47 128 27
DPO (AP) 30 30 30

Inventories Jun-13 Jul-13 Aug-13 Sep-13

Initial inventory 12,163 6,513 5,903 5,293

Raw M purchases 5,200 5,200 5,200 5,200

Raw materials use -5,200 -5,200 -5,200 -5,200

Raw materials reduction -610 -610 -610 -610
WIP reduction -5,040
Cost of sales -10,850 -5,810 -5,810 -5,810

Final inventory 6,513 5,903 5,293 4,683

Accounts receivable Jun-13 Jul-13 Aug-13 Sep-13

Sales 12,681 7,374 7,201 7,394

Advances -1,800 -900
Accounts receivables 10,881 6,474 7,201 7,394
Exhibit 1 Monthly Shipments at Selling Price (thousands of dollars)

Forecast as of Forecast as of Sales

Month Actual Surp / Dfct
September 2012 May 2013 attainment
2012 October 6,508 6,421 99% (87)
November 6,219 6,302 101% 83
December 6,250 6,009 96% (241)
2013 January 6,074 6,170 102% 96
February 5,996 6,006 100% 10
March 6,291 5,197 83% (1,094)
April 6,515 4,165 64% (2,350)
May 6,832 3,744 55% (3,088)
Eight months total 50,685 44,014 87% (6,671)

June 6,759 12,681 188% 5,922

July 6,645 7,374 111% 729
August 6,478 7,201 111% 723
September 6,433 7,394 115% 961
Twelve months total 26,315 34,650 132% 8,335

Fiscal year total 77,000 78,664 102% 1,664

Exhibit 2 Balance Sheets, 2012-2013 (thousands of dollars)

2012 2013 Forecast 2013

August September October November December January February March April May June July August September October
Cash 8,350 3,328 3,523 4,511 4,239 4,878 5,182 3,962 6,277 4,994 1,627 6,536 7,034 (715) 728
Accounts receivablea 5,793 5,969 6,421 5,851 6,009 6,170 5,606 5,197 3,365 3,744 10,881 6,474 7,201 7,394 0
Inventory 7,154 7,364 7,524 7,219 7,277 7,097 7,529 8,371 11,234 12,163 6,513 5,903 5,293 4,683 4,683
Current assets 21,297 16,661 17,468 17,581 17,525 18,145 18,317 17,530 20,876 20,901 19,021 18,913 19,528 11,362 5,411

Gross PP&E 45,500 45,500 45,500 45,500 45,500 45,500 45,500 45,500 45,500 45,500 45,500 47,900 47,900 47,900 47,900
Accumulated depreciationb 30,368 30,488 30,608 30,728 30,848 30,968 31,088 31,208 31,328 31,448 31,568 31,688 31,818 31,948 32,078
Net PP&E 15,132 15,012 14,892 14,772 14,652 14,532 14,412 14,292 14,172 14,052 13,932 16,212 16,082 15,952 15,822
Prepaid expenses 242 58 23 45 47 52 65 46 46 54 54 54 54 54 54
Total assets 36,671 31,731 32,383 32,398 32,224 32,729 32,794 31,868 35,094 35,007 33,007 35,179 35,664 27,368 21,287

Accounts payablec 4,977 5,197 5,347 5,352 5,110 5,130 5,162 5,122 6,223 5,969 5,200 5,200 5,200 5,200 0
Notes payable, bank 0 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 7,400 7,400 0 0
Accrued taxesd 252 4 174 331 107 269 417 140 216 273 219 448 612 468 169
Other accrued expenses 1,500 1,542 1,542 1,542 1,542 1,542 1,542 1,142 1,142 1,142 1,142 1,142 1,142 1,142 1,142
Customer advance payments 1,651 1,651 1,651 1,200 1,200 1,200 800 800 2,700 2,700 900 0 0 0 0
Current liabilities 8,380 13,394 13,714 13,425 12,959 13,141 12,921 12,204 15,281 15,084 12,461 14,190 14,354 6,810 1,311

Shareholders' equity 28,291 18,337 18,668 18,973 19,265 19,588 19,874 19,664 19,813 19,923 20,546 20,990 21,310 20,558 19,976
Total liabilities and equity 36,671 31,731 32,383 32,398 32,224 32,729 32,794 31,868 35,094 35,007 33,007 35,179 35,664 27,368 21,287

a
Selling term of net 30 days.
b
Depreciation of $120,000 per month.
c
Purchase terms of net 30 days.
d
Outstanding taxes on 2012 fiscal year income were due January 15, 2013. On December 15, 2011, March 15, 2012, June 15, 2012, and September 15, 2012, payments of
25% of each of the estimated tax for 2012 ($1,500,000) were due. Taxes payable for 2013 were assumed to be $1,500,000 and would be paid on December 15, 2012,
March 15, 2013, June 15, 2013, and September 15, 2013, in equal increments.
Exhibit 3 Income Statements, 2012-2013 (thousands of dollars)

2012 FY Oct 11 - 2012 2012

2012 August September Sep 12 2012 October November December 2013 January 2013 February
Net sales 6,321 5,969 71,642 6,421 6,302 6,009 6,170 6,006
COGS 4,994 4,727 56,955 5,003 4,914 4,695 4,815 4,692
Gross profit 1,327 1,242 14,687 1,418 1,388 1,314 1,355 1,314

Operating expenses 773 763 9,509 777 788 733 728 744
Depreciation and amortization 120 120 1,440 120 120 120 120 120
a
Interest expense 0 0 0 25 25 25 25 25
b
Interest income 13 14 120 6 6 8 7 8
Profit (loss) before tax 447 373 3,858 502 461 443 489 433
Income taxesc 152 127 1,312 171 157 151 166 147
Net income 295 246 2,546 331 304 293 323 286
Dividends 0 200 400 0 0 0 0 0

a
6% annualized interest rate charged on outstanding bank loans.
b
2% annualized rate of return on beginning monthly cash balances.
c
The federal tax rate on all earnings was 34%.

Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
COGS 79.0% 79.2% 79.5% 77.9% 78.0% 78.1% 78.0% 78.1%
Gross profit 21.0% 20.8% 20.5% 22.1% 22.0% 21.9% 22.0% 21.9%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Operating expenses 12.2% 12.8% 13.3% 12.1% 12.5% 12.2% 11.8% 12.4%
Depreciation and amortization 1.9% 2.0% 2.0% 1.9% 1.9% 2.0% 1.9% 2.0%
Interest expensea 0.0% 0.0% 0.0% 0.4% 0.4% 0.4% 0.4% 0.4%
Interest incomeb 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1%
Profit (loss) before tax 7.1% 6.2% 5.4% 7.8% 7.3% 7.4% 7.9% 7.2%
Income taxesc 2.4% 2.1% 1.8% 2.7% 2.5% 2.5% 2.7% 2.5%
Net income 4.7% 4.1% 3.6% 5.2% 4.8% 4.9% 5.2% 4.8%
Dividends 0.0% 3.4% 0.6% 0.0% 0.0% 0.0% 0.0% 0.0%
 2013 FY Oct 12 - 2013 YOY
2013 March 2013 April 2013 May 8M Total 2013 June 2013 July August 2013 Sept Sep 13 October Growth
5,197 4,165 3,744 44,014 12,681 7,374 7,201 7,394 78,664 0 9.8%
4,087 3,215 2,876 34,297 10,850 5,810 5,810 5,810 62,577 0 9.9%
1,110 950 868 9,717 1,831 1,564 1,391 1,584 16,087 0 9.5%

685 587 566 5,608 750 750 750 750 8,608 750 -9.5%
120 120 120 960 120 120 130 130 1,460 130 1.4%
25 25 25 200 25 25 37 37 324 0 **
9 7 10 60 8 3 11 12 93 -1 -22.1%
289 225 167 3,009 944 672 485 679 5,789 -881 50.0%
98 76 57 1,023 321 228 165 231 1,968 -300 50.0%
191 148 111 1,986 623 443 320 448 3,821 -582 50.0%
400 0 0 400 0 0 0 1200 1600 0 300.0%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

78.6% 77.2% 76.8% 77.9% 85.6% 78.8% 80.7% 78.6% 79.5%
21.4% 22.8% 23.2% 22.1% 14.4% 21.2% 19.3% 21.4% 20.5%
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
13.2% 14.1% 15.1% 12.7% 5.9% 10.2% 10.4% 10.1% 10.9%
2.3% 2.9% 3.2% 2.2% 0.9% 1.6% 1.8% 1.8% 1.9%
0.5% 0.6% 0.7% 0.5% 0.2% 0.3% 0.5% 0.5% 0.4%
0.2% 0.2% 0.3% 0.1% 0.1% 0.0% 0.2% 0.2% 0.1%
5.6% 5.4% 4.5% 6.8% 7.4% 9.1% 6.7% 9.2% 7.4%
1.9% 1.8% 1.5% 2.3% 2.5% 3.1% 2.3% 3.1% 2.5%
3.7% 3.6% 3.0% 4.5% 4.9% 6.0% 4.4% 6.1% 4.9%
7.7% 0.0% 0.0% 0.9% 0.0% 0.0% 0.0% 16.2% 2.0%
Cash Inflow & Outflows, Jun-Sep 2013 (thousands of dollars)

2013
2013 June 2013 July 2013 August 2013 Sept October
Inflows
Collection 3,744 10,881 6,474 7,201 7,394
Interests 8 3 11 12 - 1
Bank credit 2,400
Inflows Sub-total 3,752 13,284 6,485 7,213 7,393

Outflows
Payables 5,969 5,200 5,200 5,200 5,200
Operating Exp 750 750 750 750 750
Interests 25 25 37 37 -
Taxes 375 375
Dividends 1,200
Equipment 2,400
Bank credit 7,400
Outflows Sub-total 7,119 8,375 5,987 14,962 5,950

Net flow - 3,367 4,909 498 - 7,749 1,443

Cash Initial Bal 4,994 1,627 6,536 7,034 - 715

Cash Final Bal 1,627 6,536 7,034 - 715 728

Cash Flow, Jun-Sep 2013 (thousands of dollars)

2013 June 2013 July 2013 August 2013 Sept 2013 October
Net income 623 443 320 448 -582
Depreciation and amortization 120 120 130 130 130
Accounts receivablea (7,137) 4,407 (727) (193) 7,394
Inventory 5,650 610 610 610 0
Accounts payablec (769) 0 0 0 (5,200)
Working capital variation (2,256) 5,017 (117) 417 2,194
Customer advance payments (1,800) (900) 0 0 0
Accrued taxesd (54) 228 165 (144) (300)
Other accrued expenses 0 0 0 0 0
Cash from Operating Act -3,367 4,909 498 851 1,443

Gross PP&E 0 (2,400) 0 0 0

Cash for Investment Act 0 (2,400) 0 0 0

Notes payable, bank 0 2,400 0 (7,400) 0

Dividends 0 0 0 (1,200) 0
Cash from Financing Act 0 2,400 0 (8,600) 0

Net Cash Flow (3,367) 4,909 498 (7,749) 1,443

Initial Cash 4,994 1,627 6,536 7,034 (715)

Ending Cash 1,627 6,536 7,034 (715) 728