Hanson Ski Products Essay

1672 words - 7 pages

Hanson Ski Products
I
n early July 1986, Alden (Denny) Hanson, president and chief executive officer of Hanson Ski Products, was preparing for a meeting with his executive commit¬tee on the company's current and longer-term financing needs. For one thing, Mr. Hanson wanted to review the plans for fiscal year (FY) 1987.1 Although the com-pany's bankers had provided a $4-2 million line of credit to meet the year's seasonal cash needs, Denny wanted to recheck his figures to be sure that this credit would be sufficient, particularly since Hanson Ski Products was scheduled to repay stock¬holder loans of $841,000 in November.
COMPANY BACKGROUND
Hanson Ski Products was a leading manufacturer of ...view middle of the document...

The first year of operations, FY 1974, was devoted to development of boot design and preparation for production. In FY 1975, Hanson shipped 2,300 pairs of boots to retailers. By FY 1986, this figure had grown to 85,000 pairs, and revenues had reached $9.8 million (see Exhibits 1 and 2).

Hanson management expected net revenues to continue to grow at an impressive rate during FY 1987. Sales projections made early in the planning process had later been revised upward so that it was now expected that net sales would reach $12 mil¬lion for the year. By FY 1991, Hanson predicted revenues from ski boots would ap¬proximate $26 million; beyond that point it was expected that unit volume of sales would only increase proportionately to the overall growth in the market.
1 Fiscal year 1987 at Hanson Ski Products began on April 1, 1986, and ended on March 31, 1987.
THE ORDER CYCLE
Hanson's boot business was extremely seasonal and could be broken down into the ordering, shipment, and collection phases. The ordering phase was composed of two parts: the stocking order period and the reorder period. During the stocking order period from March through June, sales representatives conducted an intensive mar¬keting campaign, commencing with the equipment dealers' annual Ski Show held in Las Vegas in March. The timing of this show was important in that it was held just after the end of the previous ski season when both manufacturers and equipment dealers were aware of past equipment sales performance and retail inventory levels.
Hanson usually received 25% to 30% of its total orders at this ski show and another 55% to 60% of the orders between April and June, when its sales representatives contacted all dealers who had not attended the show. Discounts ranging from 4% to 12% were offered to customers, and accounts were typically payable on the tenth day of the second or third month following shipment, depending upon the date of their requested shipment. These terms were similar to and slightly tighter than the terms offered by Hanson's competitors.

The reorder period accounted for the remaining 10% to 20% of Hanson's sales and started in July, when dealers reordered to replenish their supplies. A 2% dis¬count was available to these customers for payment by the tenth of the month fol¬lowing shipment.

Sparse snow years affected the order phase in two fiscal years. The first effect was felt almost immediately in the year there was no snow and manifested itself as a re¬duction in the reorders received. The second and more pronounced effect was felt during the stocking order period in the following spring. At that time, dealers' in¬ventories were higher than their normal levels, and dealers were wary of placing large initial stocking orders for fear of experiencing two consecutive poor snow years and the consequent falloff in demand.

Shipments began in July, peaked in August, and remained at a high level until December, when they trailed off. The...

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