The company financial performance and recommendation for improvement
The financial performance of the company over the last past year is presented in Exhibit 1. Over the five past five year, the average growth rate of the company was 11% whereas the industry growth rate where only 3%. The Gross profit margin is declining since 2008. Consolidated gross profit for fiscal 2010 was $2.28 billion, up $257.2 million, or 12.7%, over the prior year primarily due to the increase in sales volume. Gross profit margin of 11.9% declined 56 basis points over the prior year with all regions in each operating group experiencing declines in margins. SG&A expenses were 8.5% of sales and 71.0% ...view middle of the document...
The cost reduction plan should include severance costs, facility exit costs and other charges related to contract termination costs and fixed asset write-downs. Severance charges recorded related to personnel reductions in administrative, finance and sales. Facility exit costs of consists of lease liabilities and fixed asset write-downs associated with seven vacated facilities in the Americas, EMEA and the Asia/Pac region. Other charges consisted primarily of contractual obligations with no on-going benefit to the Company.
Analyse the sources of finance and the capital structure of the company. Comment on the short- and long-term financial strategy of the company.
Source of finance and Capital Structure
Cash Flows from Operating Activities: Historically, during periods of growth, the Company has utilized operating cash flows to meet the working capital requirements of funding growth.
Cash Flows from Investing Activities: During fiscal 2010, the company received proceeds of $11.8 million related to earn-out provisions from the prior sale of an equity method investment as well as the sale of a small cost method investment.
Credit: The Company has a five-year $500.0 million unsecured revolving credit facility with a syndicate of banks which expires in September 2012. Under the Credit Agreement, the Company may elect from various interest rate options, currencies and maturities.
Accounts receivable securitization program: The Company has an accounts receivable securitization program (the “Securitization Program”) with a group of financial institutions that allows the Company to sell, on a revolving basis, an undivided interest of up to $450.0 million in eligible receivables while retaining a subordinated interest in a portion of the receivables.
Notes: In June 2010, the Company issued $300.0 million of 5.875% Notes due June 15, 2020. The Company received proceeds of $296.5 million from the offering, net of discount and underwriting fees.
The following table summarizes the Company’s capital structure as of the end of fiscal 2010 with a comparison with the end of fiscal 2009:
| 2010 | | 2009 |
| Thousands of US Dollars | % Cap | | Thousands of US Dollars | % Cap |
| | | | | |
Short-term debt | 36,549 | 0.8 | | 23,294 | 0.6 |
Long-term debt | 1,243,681 | 29 | | 946,573 | 25.4 |
| | | | | |
Total debt | 1,280,230 | 30 | | 969,867 | 26 |
Shareholders’ equity | 3,009,117 | 70 | | 2,760,857 | 74 |
| | | | | |
Total capitalization | 4,289,347 | 100 | | 3,730,724 | 100 |
The detail of the leverage ratios is given in Exhibit 2. The company has a leverage ratio close to the Industry average Leverage in 2010: 27.7%.
Source : http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/dbtfund.htm).
Short and long-term financial strategy of the company
The Company uses a variety of financing arrangements, both short-term and long-term, to fund...