Case: SureCut Shears, Inc
Daryanti Suyam Eka Camelia Elizabeth Juvena Erlin Octavia Lizty Agisnia 1106147426 1106147653 1106147685 1106147741 1106113293
MAGISTER MANAJEMEN UNIVERSITAS INDONESIA JAKARTA 2013
Manajemen Tresuri 1 Case: SureCut Shears, Inc I. Synopsis SureCut Shears manufactured a complete line of household scissors and industrial shears. Its quality lines were distributed through wholesalers to specialty, hardware, and department stores located throughout the country. Although competition was severe, particularly from overseas companies, SureCut Shears had made profits in every year since 1958. Sales and profits had grown fairly steadily, if not dramatically, throughout the period. The company had sufficient capital to cover its permanent requirements over the immediate future. The company in this position is actively pursued by bankers who want to lend the money to and via their bank deposit relationship. Hudson National Bank prospected SureCut for many years and successfully won their business. The company uses their line of credit to fund its peak season sales which occurs during the month July—December of each year for back to school, seasonal yard work, and holiday sales. In June 1995, Mr. Fisher, treasurer of SureCut Shears arranged a line of credit of $3.5 million with the. Much of these funds were used to fund the capital modernization program. Facing the declining sales, SureCut is facing difficulty in paying its short term loan obligations to Hudson National Bank. After thorough analysis, the need for short term fund requirements should not be used in capital expenses since the cash needed to repay the short term fund requirements comes from the sales of inventory which was the intention of the additional cash to stock up more inventories. In June 1995 Surecut Shears got a working capital loan amount of $3,5 million from Hudson National Bank to cover the seasonal sales peak, which would be completely paid off by December 1995. In early September 1995, Mr. Fischer requested additional loan of $350,000 because of their expenditures for plant renovations were higher than expected. To note, the company was on the progress of plant modernization, the total expenditure required about $6 million and was about half completed and would be finished by Aug 1995. In additon to these requirements, the forecast showed a need for about $1 million by June 1996 for the modernization plant. After completion, the modernization is needed to save about $900,000 per year before taxes in manufacturing costs. During 1995-1996, sales began to fall from projected levels due to a retailing downturn. After the extension loan request by SureCut in Jan 1996, Hudson National Bank officer have been notified that SureCut will not be able to repay the outstanding balance of the line of credit in accordance with the loan term and aggrement, and is asking for an extension until June.
Problem Identification SureCut Shears faced a credit problem because they cannot pay off the seasonal loan by the forecasted schedule. The concern is whether the inability of SureCut to pay down its line of credit is due to a temporary cyclical downturn or other long-term financial problems. The company's treasurer has requested an extension (actually, a second one) and indicated that the loan will probably have to be increased in a couple of months. Should the Hudson Bank agree to extend the loan facility of the company based on the actual financial result data given by SureCut.
Manajemen Tresuri 2 Case: SureCut Shears, Inc III. Theoretical Framework Type of Loans There are several type of loans and the characteristics of those loans differ considerably as follow: 1. Short-Term Loans: used to raise cash for accounts payable, inventory needs, and working capital. The positives with this type of loan are that they usually require less collateral and have a smaller interest rate. 2....