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John M Case Co.

Harvard Business School Case #291-008


Case Software #XLS072

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ithout the permission of Harvard Business School.

Year
1
2
3
4
5

% of Face Value
58%
71
81
96
100

Exhibit 1

Consolidated Income Statements, 1980 - 1984 ($ 000s)


1980

Net sales
Cost of sales
Gross profit on sales
Selling and administrative expenses
Other income and (expense), net
Profit before income taxes
Federal income taxes
Net profit

1981

1982

1983

1984

$9,740
5,836
$3,904
2,216
40
$1,728
816

$10,044
5,648
$4,396
2,072
108
$2,432
972

$11,948
6,994
$4,954
2,470
70
$2,554
920

$13,970
8,304
$5,666
3,022
128
$2,772
942

$15,260
9,298
$5,962
3,274
120
$2,808
842

$912

$1,460

$1,634

$1,830

$1,966

Exhibit 2

Consolidated Balance Sheet as of December 31, 1984 ($ 000s)

ASSETS
Current assets:
Cash and marketable securities
Accounts receivable
Inventories at lower of cost or market
Prepaid expenses
Total current assets
Property, plant, and equipment, net
Miscellaneous assets

Total assets

LIABILITIES AND SHAREHOLDERS EQUITY

$5,762
2,540
588
108
$8,998
2,110
74

$11,182

0.515292
0.804686

Current liabilities:
Accounts payable
Accrued expenses
Accrued income taxes
Total current liabilities
Common stock ($1.00 par value)
Retained profits
Shareholders equity
Total liabilities and
shareholders equity

$654
366
246
$1,266
200
9,716
9,916

$11,182

Exhibit 3

Ten-Year Summary of Operations, 1975 -1984 ($ 000s, except per share data)

Net sales

1975
$7,688

1976
$8,356

1977
$8,526

1978
$8,790

1979
$9,350

1980
$9,740

1981
$10,044

1982
$11,948

1983
$13,970

1984
$15,260

Net profit
Net profit margin
Dividends
Dividends payout ratio
Earnings per share
Share
Net profit margin

638
8.3%
600
94%
$3.19
200.00
8.3%

668
8.0%
200
30%
$3.34
200.00
8.0%

742
8.7%
280
38%
$3.71
200.00
8.7%

748
8.5%
280
37%
$3.74
200.00
8.5%

758
8.1%
440
58%
$3.79
200.00
8.1%

912
9.4%
440
48%
$4.56
200.00
9.4%

1,460
14.5%
480
33%
$7.30
200.00
14.5%

1,634
13.7%
1,220
75%
$8.17
200.00
13.7%

1,830
13.1%
1,374
75%
$9.15
200.00
13.1%

1,966
12.9%
1,480
75%
$9.83
200.00
12.9%

Exhibit 4

Monthly Working Capital Balances, 1984 ($ 000s)

Cash
% of sales
Accounts receivable
% of sales
Inventories
% of sales
Current liabilities
% of sales
Net working capital
Delta working capital

CAPEX
% of depreciation

Jan.
$5,536

Feb.
$5,714

Mar.
$5,396

Apr.
$4,784

May
$4,328

Jun.
$4,098

Jul.
$2,354

Aug.
$766

Sep.
$2,050

Oct.
$3,830

Nov.
$5,734

Dec.
$5,762

1,480

760

734

804

718

604

3,432

6,104

6,164

4,322

2,398

2,540

1,124

1,666

2,210

2,752

3,294

3,838

2,754

1,670

526

588

608

588

(1,186)

(1,220)

(1,242)

(1,146)

(1,422)

(1,344)

(1,072)

(1,216)

(1,174)

(1,384)

(1,340)

(1,266)

$6,954

$6,920

$7,098

$7,194

$6,918

$7,196

$7,468

$7,324

$7,566

$7,356

$7,400

$7,624
$428
2.80%

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

$1,664
10.90%
1,936
12.69%
2,166
-14.19%
(1,266)
-8.30%
$168
156

$1,763
11.00%
$2,003
12.50%
$2,243
-14.00%
$1,362
-8.50%
$160
162

$1,853
11.00%
$2,106
12.50%
$2,358
-14.00%
$1,432
-8.50%
$168
170

$1,945
11.00%
$2,211
12.50%
$2,476
-14.00%
$1,503
-8.50%
$177
180

$2,043
11.00%
$2,321
12.50%
$2,600
-14.00%
$1,578
-8.50%
$186
190

$2,145
11.00%
$2,437
12.50%
$2,730
-14.00%
$1,657
-8.50%
$195
200

$2,252
11.00%
$2,559
12.50%
$2,866
-14.00%
$1,740
-8.50%
$205
$205

$2,365
11.00%
$2,687
12.50%
$3,009
-14.00%
$1,827
-8.50%
$215
$215

$2,483
11.00%
$2,821
12.50%
$3,160
-14.00%
$1,918
-8.50%
$226
$226

$2,607
11.00%
$2,962
12.50%
$3,318
-14.00%
$2,014
-8.50%
$237
$237

$2,737
11.00%
$3,110
12.50%
$3,484
-14.00%
$2,115
-8.50%
$249
$249

$2,874
11.00%
$3,266
12.50%
$3,658
-14.00%
$2,221
-8.50%
$261
$261

134
82.72%

142
83.53%

150
83.33%

466
245.26%

600
300.00%

174.012 182.7126 191.8482 201.4406 211.5127 222.0883


85%
85%
85%
85%
85%
85%

Exhibit 4

Monthly Working Capital Balances, 1984 ($ 000s)

Cash
% of sales
Accounts receivable
% of sales
Inventories
% of sales
Current liabilities
% of sales
Net working capital
Delta working capital

CAPEX
% of depreciation

Jan.
$5,536

Feb.
$5,714

Mar.
$5,396

Apr.
$4,784

May
$4,328

Jun.
$4,098

Jul.
$2,354

Aug.
$766

Sep.
$2,050

Oct.
$3,830

Nov.
$5,734

Dec.
$5,762

1,480

760

734

804

718

604

3,432

6,104

6,164

4,322

2,398

2,540

1,124

1,666

2,210

2,752

3,294

3,838

2,754

1,670

526

588

608

588

(1,186)

(1,220)

(1,242)

(1,146)

(1,422)

(1,344)

(1,072)

(1,216)

(1,174)

(1,384)

(1,340)

(1,266)

$6,954

$6,920

$7,098

$7,194

$6,918

$7,196

$7,468

$7,324

$7,566

$7,356

$7,400

$7,624
$428
2.80%

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

$1,664
10.90%
1,936
12.69%
2,166
-14.19%
(1,266)
-8.30%
$168
156

$1,763
11.00%
$2,003
12.50%
$2,243
-14.00%
$1,362
-8.50%
$160.24
162

$1,853
11.00%
$2,106
12.50%
$2,358
-14.00%
$1,432
-8.50%
$218.44
170

$1,945
11.00%
$2,211
12.50%
$2,476
-14.00%
$1,503
-8.50%
$246.86
180

$2,043
11.00%
$2,321
12.50%
$2,600
-14.00%
$1,578
-8.50%
$283.70
190

$2,145
11.00%
$2,437
12.50%
$2,730
-14.00%
$1,657
-8.50%
$332.18
200

$2,252
11.00%
$2,559
12.50%
$2,866
-14.00%
$1,740
-8.50%
$362.50
$363

$2,365
11.00%
$2,687
12.50%
$3,009
-14.00%
$1,827
-8.50%
$394.83
$395

$2,483
11.00%
$2,821
12.50%
$3,160
-14.00%
$1,918
-8.50%
$430.75
$431

$2,607
11.00%
$2,962
12.50%
$3,318
-14.00%
$2,014
-8.50%
$468.70
$469

$2,737
11.00%
$3,110
12.50%
$3,484
-14.00%
$2,115
-8.50%
$484.02
$484

$2,874
11.00%
$3,266
12.50%
$3,658
-14.00%
$2,221
-8.50%
$499.99
$500

134
82.72%

142
83.53%

150
83.33%

466
245.26%

600
300.00%

213.112 221.9477 232.0204


100%
85%
85%

242.683 244.0732 245.4843


85%
85%
85%

Standard & Poors


425 Industrial
Stocks

Standard & Poors


Publishing
Averages

9.9
11.8
10.4

14.6
19.6
14.4

Trading market
Current market price
Indicated dividend yield
Price-earnings ratio
1984
1983
1982
Price range
1984
1983

DeLuther, Inc.a
OTC
$22
5.5%

Wakefield Co.b
OTC
$14
8.7%

Officomp, Inc.c
OTC
$29
3.7%

John M. Case Company


-

8.7
6.4
10.8

7.2
5.0
11.9

10.5
10.2
13.8

$2416
$1812

$148
$115

$3326
1912

Earnings per share (E) and Index (I)


(E)
$2.48
2.26

(I)
110
100

(E)
$1.62
1.97

(I)
82
100

(E)
$2.98
1.68

(I)
177
100

(E)
$9.83
4.56

(I)
216
100

Sales (S)
($ 000s) and Index (I)
1984
1980

(S)
$16,427
11,568

(I)
142
100

(S)
$12,223
11,317

(I)
108
100

(S)
$18,608
11,630

(I)
160
100

(S)
$15,260
9,740

(I)
157
100

Net earnings (N)


(in thousands) and Index (I)
1984
1980

(N)
$1,051
902

(I)
117
100

(N)
$501
600

(I)
84
100

(N)
$1,656
930

(I)
178
100

(N)
$1,966
912

(I)
216
100

1984
1980

Net profit margins


1984
1980

6.4%
7.8

4.1%
5.3

8.9%
8.0

12.9%
9.4

Profit/Net worth
1984
1983
1982

16.6%
14.2
15.4

6.0%
5.7
8.8

16.9%
15.0
14.7

19.8%
19.0
19.2

Book capitalizationd
($ 000s)
Long-term debt
Common stock and surplus
Total

$3,995
6,318
$10,313

38.7%
61.3
100.0%

$1,822
8,298
$10,120

18.0%
82.0
100.0%

$4,173
9,783
$13,956

29.9%
70.1
100.0%

$9,916
$9,916

100.0
100.0%

Total market value (000s)

$9,456

$4,573

$16,234

Shares outstanding (000s)

425

310

555

200

Producer of desk-top accessories, advertising specialty calendars, office stationery.

Producer of advertising specialty calendars.

Producer of broad line of office paper products and desk accessories.

All companies, December 31, 1984

Exhibit 7

Cash Flow Forecasts 1985 - 1990 ($ 000s)


1985
1

Net sales
YOY
Earnings before interest and taxesa
% of sales
Interest expenseb
Profit before tax
Taxes
% of EBT
Profit after tax
Add back: Noncash charges
% of sales
Cash flow from operations
Less: Increase in working capital
Less: Capital expenditures
Available for debt retirement
Risk primium on Equity
Present value factor
Present value
NPV
Assume share
P/share

1986
2

$16,024
5.01%
3,433
21.42%
1,675
$1,758
274
15.59%
$1,484
240
1.50%
$1,724
156
$1,448

$16,844
5.12%
3,640
21.61%
1,538
$2,102
364
17.32%
$1,738
260
1.54%
$1,998
162
134
$1,702

11.79%
0.894497 0.800125
$1,295
$1,362
$22,586
200
112.93

Bank loan
Cases loan
Subordinated loan
Debt as % of total capital

$1,448
0
0
89%

$1,702
0
0
80%

Reflects elimination of John Cases salary.

9% coupon on subordinated loan of $6 million; 4% coupon on sellers note of $6 million; 12% rate on bank term loan; 10% rate on seasonal loan.

John Cases note is retired from cash flow and a $2.8 million new bank term loan in 1989.

1987
3

1988
4

$17,686
5.00%
3,757
21.24%
1,369
$2,388
440
18.43%
$1,948
284
1.61%
$2,232
170
142
$1,920

1989
5

$18,570
5.00%
3,608
19.43%
908
$2,700
556
20.59%
$2,144 $
300
1.62%
$2,444
180
150
$2,114

0.71571
$1,374

$1,920
0
0
70%

loan; 10% rate on seasonal loan.

1990
6

$19,498
5.00%
3,788
19.43%
800
$2,988
660
22.09%
2,328 $
310
1.59%
$2,638
190
466
$1,982

1991
7

$20,472
5.00%
3,976
19.42%
800
$3,176
714
22.48%
2,462
340
1.66%
$2,802
200
600
$2,002

1992
8

$21,496
5%
$4,176.60
19.43%
780
$3,397
1189
35.00%
$2,207.79
338
1.58%
$2,546
$
215
$
183
$2,148

1993
9

$22,570
5%
$4,385.42
19.43%
780
$3,605
1262
35.00%
$2,343.53
338
1.58%
$2,682
$
226
$
192
$2,264

$
$

$23,699
5%
4,604.70
19.43%
780
$3,825
1339
35.00%
2,486.05
338
1.58%
$2,824
237
201
$2,386

0.6402 0.57265723 0.51224025 0.4581974 0.4098563 0.36661527


$1,353
$1,135
$1,026
$984
$928
$875

$930
1,184
0
58%

$0
4,766c
0
47%

$2,002
0
0
35%

$4,004
4,767c
0
23%

$6,006
0
0
11%

1994
10

$8,008
4,768c
0
-1%

$
$

$24,884
5%
4,834.93
19.43%
780
$4,055
1419
35.00%
2,635.71
338
1.58%
$2,974
249
212
$2,513

0.3279363
$824

$10,010
0
0
-13%

1995
11

$
$

$26,128
5%
5,076.68
19.43%
780
$4,297
1504
35.00%
2,792.84
338
1.58%
$3,131
261
222
$2,647

0.29333808
$11,429.63

$12,012
4,769c
0
-25%

Terminal Value
$38,964

Exhibit 7

Cash Flow Forecasts 1985 - 1990 ($ 000s)


1985
1

Net sales
YOY
Earnings before interest and taxesa
% of sales
New business line before IT
Sum EBIT
Interest expenseb
Profit before tax
Taxes
% of EBT
Profit after tax
Add back: Noncash charges
% of PPE
Cash flow from operations
Less: Increase in working capital
% of sales
Less: Capital expenditures
Available for debt retirement
risk primium for equity
Present value factor
Present value
NPV
Assume share
P/share

1986
2

$16,024
5.01%
3,433
21.42%
(650.00)
2,783.00
1,675
$1,108
274
24.73%
$1,484
240
11.37%
$1,724
168

$16,844
5.12%
3,640
21.61%
(590.00)
3,050.00
1,538
$1,512
364
24.07%
$1,738
260
12.32%
$1,998
160

134
$1,448

142
$1,696

12.24%
0.890910998 0.793722406
$1,290
$1,346
$20,684
200
103.42

Bank loan
Cases loan
Subordinated loan
Debt as % of total capital

$1,448
0
0
89%

$1,702
0
0
80%

Reflects elimination of John Cases salary.

9% coupon on subordinated loan of $6 million; 4% coupon on sellers note of $6 million; 12% rate on bank term loan; 10% rate on seasonal loan.

John Cases note is retired from cash flow and a $2.8 million new bank term loan in 1989.

1987
3

1988
4

$17,686
5.00%
3,757
21.24%
84.00
3,841.00
1,369
$2,472
440
17.80%
$1,948
284
13.46%
$2,232
218
150
$1,864

% rate on seasonal loan.

1990
6

1991
7

$18,570
$19,498
$20,472
5.00%
5.00%
5.00%
3,608
3,788
3,976 $
19.43%
19.43%
19.42%
117.60
164.64
189.34
3,725.60
3,952.64
4,165.34
908
800
800
$2,818
$3,153
$3,365
556
660
714
19.73%
20.93%
21.22%
$2,144 $
2,493 $
2,651 $
300
310
340 $
14.22%
14.69%
16.11%
$2,444
$2,638
$2,991
247
284
332
466
$1,731

0.707136021 0.629995258
$1,318
$1,091

$1,920
0
0
70%

1989
5

$930
1,184
0
58%

600
$1,754

222
$2,101

0.5612697 0.50004135
$985
$1,223

0.44549234
$936

$2,002
0
0
35%

1993
9

1994
10

$21,496
$22,570
$23,699
$24,884
5%
5%
5%
5%
4,176.60 $4,385.42 $ 4,604.70 $ 4,834.93
19.43%
19.43%
19.43%
19.43%
215.84
246.06
278.05
282.22
4,392.44
4,631.49
4,882.75
5,117.15
780
780
780
780
$3,612
$3,851
$4,103
$4,337
1264
1348
1436
1518
35.00%
35.00%
35.00%
35.00%
2,348.08 $2,503.47 $ 2,666.78 $ 2,819.15
338 $
338 $
338 $
338
16%
16%
16%
16%
$2,686
$2,841
$3,004
$3,157
363
395
431
469

213
$2,446

$0
4,766c
0
47%

1992
8

$4,004
4,767c
0
23%

232
$2,214

243
$2,331

244
$2,444

0.396894 0.35359725 0.31502368


$879
$824
$770

$6,006
0
0
11%

$8,008
4,768c
0
-1%

$10,010
0
0
-13%

1995
11
$26,128
5%
$ 5,076.68
19.43%
286.45
5,363.13
780
$4,583
1604
35.00%
$ 2,979.03
$
338
16%
$3,317
484
245
$2,587

0.28065806
$10,022.54

$12,012
4,769c
0
-25%

Terminal Value
$35,711

Cost of capital

Risk primium

WACC

1985

E/A
D/A
Tax rate
Kd
Ke
Rf
Rm
B

Explaination
65%

Equity/asset

35%

Debt/asset

15.59%

tax rate 1988

9.15%

10 year AAA industrial company bonds

13.99%

Ke=Rf+B(Rm-Rf)

6.75%

10 years treasury bund

13.39%

Nasdaq return average 1978-1988

1.09
13.99%

Beta

11.79%

DeLuth Wakef Officom


er
eld
p
1.25
1.57
1.09
35%
35%
35%
9.25% 9.05%
9%

Nasdaq
Year
BeginningPrice
EndingPrice
GainorLoss
PercentGainorLoss
1975
77.62
17.8
29.76%
59.82
1976
77.62
97.88
20.26
26.10%
1977
97.88
105.05
7.17
7.33%
1978
105.05
117.98
12.93
12.31%
1979
117.98
151.14
33.16
28.11%
1980
151.14
202.34
51.2
33.88%
1981
202.34
195.84
-6.5
-3.21%
1982
195.84
232.41
36.57
18.67%
1983
232.41
278.6
46.19
19.87%
1984
278.6
247.35
-31.25
-11.22%
1985
247.35
324.93
77.58
31.36%
1986
324.93
348.83
23.9
7.36%
1987
348.83
330.47
-18.36
-5.26%
1988
330.47
381.38
50.91
15.41%
1989
381.38
454.82
73.44
19.26%
1990
454.82
373.84
-80.98
-17.80%
1991
373.84
586.34
212.5
56.84%
1992
586.34
676.95
90.61
15.45%
1993
676.95
776.8
99.85
14.75%
1994
776.8
751.96
-24.84
-3.20%
1995
751.96
1052.13
300.17
39.92%
1996
1052.13
1291.03
238.9
22.71%
1997
1291.03
1570.35
279.32
21.64%
1998
1570.35
2192.69
622.34
39.63%
1999
2192.69
4069.31
1876.62
85.59%
2000
4069.31
2470.52
-1598.79
-39.29%
2001
2470.52
1950.4
-520.12
-21.05%
2002
1950.4
1335.51
-614.89
-31.53%
2003
1335.51
2003.37
667.86
50.01%
2004
2003.37
2175.44
172.07
8.59%
2005
2175.44
2205.32
29.88
1.37%
2006
2205.32
2415.29
209.97
9.52%
2007
2415.29
2652.28
236.99
9.81%
2008
2652.28
1577.03
-1075.25
-40.54%
2009
1577.03
2269.15
692.12
43.89%
2010
2269.15
2652.87
383.72
16.91%
2011
2652.87
2605.15
-47.72
-1.80%
2012
2605.15
3019.51
414.36
15.91%
2013
3019.51
4176.59
1157.08
38.32%
2014
4176.59
4736.05
559.46
13.40%
2015
4736.05
5007.41
271.36
5.73%

13.39%

Interest e loan
interest
Loan
6,000
9%
Note
6,000
4%
Bank
0
12%
seasonal
0
10%

1985
1,675

1986
1,538

1987
1,369

1988
908

1989
800

1990
800

9% coupon on subordinated loan of $6 million; 4% coupon on sellers note of $6 million; 12% rate on bank term loan; 10% rate
on seasonal loan.
b

1991
780
540
240
0
0

1992
780
540
240
0
0

1993
780
540
240
0
0

1994
780
540
240
0
0

1995
780
540
240
0
0

New business line


Sales
growth%
margin%
margin
expense
expense % of Sales
capex
EBIT

1985

1986
$1,000.00

1987
1988
1989
1990
$1,400.00 $1,960.00 $2,744.00 $3,155.60
40%
40%
40%
15%
6%
6%
6%
6%
6%
$ 60.00 $ 84.00 $ 117.60 $ 164.64 $ 189.34
$ 450.00 $ 450.00 $
$
$
$
0%
0%
0%
0%
0%
0%
200
$(650.00) $ (590.00) $

risk primium for equity


12.24%
Present value
$(650.00) $ (525.64) $
NPV $(297.88)

84.00 $

66.67

117.60

$ 164.64

$ 189.34

83.16

$ 103.72

$ 106.27

1991
1992
1993
1994
1995
$3,597.38 $4,101.02 $4,634.15 $4,703.66 $4,774.22
14%
14%
13%
2%
2%
6%
6%
6%
6%
6%
$ 215.84 $ 246.06 $ 278.05 $ 282.22 $ 286.45
$
$
$
$
$
0%
0%
0%
0%
0%

$ 215.84

$ 246.06

$ 278.05

$ 107.93

$ 109.62 $

110.36

$ 282.22

$ 286.45

99.79

90.24

Exhibit 7

Cash Flow Forecasts 1985 - 1990 ($ 000s)


1985
1

Net sales
YOY
COGS
% sales
SG&A
% sales
Earnings before interest and taxesa
% of sales
Interest expenseb
Profit before tax

1986
2

$16,024
$12,819
5.01%
-20.00%
8,012
6,890
50.00%
86.00%
4,578.06
4,028.69
28.57%
88.00%
3,434
2,862
3,433 $1,900.19
21.42%
14.82%
1,675
1,538
$1,758
$362

$1
0.01%

Reflects elimination of John Cases salary.

9% coupon on subordinated loan of $6 million; 4% coupon on sellers note of $6 million; 12% rate on bank term loan; 10% rate on seasonal loan.

John Cases note is retired from cash flow and a $2.8 million new bank term loan in 1989.

1987
3

1988
4

1989
5

1990
6

1991
7

1992
8

1993
9

1994
10

$10,255
$8,204
$6,563
$5,251
$4,201
$3,360
$2,688
$2,151
-20.00% -20.00%
-20.00%
-20.00%
-20%
-20%
-20%
-20%
5,926
5,096
4,383
3,769
3,241
2,788
2,397
2,062
86.00%
86.00%
86.00%
86.00%
86.00%
86.00%
86.00%
86.00%
3,545.25 3,119.82
2,745.44
2,415.99
2,126.07
1,870.94
1,646.43
1,448.86
88.00%
88.00%
88.00%
88.00%
88.00%
88.00%
88.00%
88.00%
2,380
1,976
1,637
1,353
$ 784.44 $ (11.61) $ (564.64) $ (934.30) $ (1,166.87) $ 652.94 $ 522.35 $ 417.88
7.65%
-0.14%
-8.60%
-17.79%
19.43%
19.43%
19.43%
19.43%
1,369
908
800
800
780
780
780
780
$585
$920
$1,365
$1,734
$1,947
$127
$258
$362

; 10% rate on seasonal loan.

1995
11
$1,721
-20%
1,773
86.00%
1,274.99
88.00%
$

334.31
19.43%
780
$446