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Jackson Automotive Systems

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by

Mike Eisenberg

on 10 June 2014

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Transcript of Jackson Automotive Systems

Industry
OEMs in the U.S. experienced a severe slump in 2008 with sales dropping more than 30%.
The industry as a whole was running at about 55% capacity during the financial crisis.
Overseas producers from countries such as China and India were competing for U.S. market share given low-cost of labor.
Competition from overseas producers coupled with higher cost structures forced many U.S. OEM's into bankruptcy.




Industry (cont.)
Industry has rebounded since 2010 and has returned to profitability as of 2011.
As of June 2013, less than 4% of all automobile parts suppliers had annual sales of more than $100 million (highly fragmented market).
Small companies such as JAS rely on sales to local customers and given their location, they are in a great market for this.
Issues
Shortfalls hindered Jackson the ability to pay back 5 million dollars that was due in June.
Shipment delays due to material shortages caused the shortfall in April-May sales (Decrease in WIP of $5,040,000 in June).
Equipment is old and if not replaced soon it will start causing disruptions in the production of goods.
Current backlog of orders captures 90% of the company's annual capacity.
Conclusion
Jackson Automotive Systems has the orders currently needed to produce at capacity.
Requesting a 4 month short term extension on the current 5 million dollar loan.
Additional 2.4 million dollar short-term loan due in a year to upgrade equipment needed to produce an efficient volume of product
Jackson has had no debt on its balance sheet since 2004 and has traditionally maintained a conservative financial policy.
Jackson Automotive Systems
Background
Jackson Automotive Systems was founded in 1961 as an OEM (Original Equipment Manufacturer) focused on advanced heating and air conditioning systems for automobiles.
Larry Edwards took over in the mid-1990s.
Fast growth and record production in mid-2000s.
Located in Detroit, MI with the big three (Ford, General Motors, Chrysler).
Jackson relied on its specialized production lines and their design of energy efficient auto systems to survive as a small private company.
As of June 2013, Jackson was on pace for its first year of capacity sales since 2007.



Pro Forma Income Statement
Projections as of June 1, 2013
Edwards was driven to repurchase 40% of the outstanding common shares of stock for $10 million dollars due to a group of dissident shareholders.
$5 million of this came from reserves of cash and the other $5 million came from a 10 month short term loan.
Issues
Forecasting the last four months of fiscal year 2013 as of June 1, 2013
JAS has the orders needed to produce at capacity.
Requesting a 4 month extension on the $5 million loan that was taken out in 2012 to finance a stock repurchase.
Requesting an additional $2.4 million short-term to upgrade equipment due to Edward's emphasis on specialized production lines .
The key reason why Jackson is not been able to repay its loan is because the interruption in key electronic components for the newly designed air conditioning systems.
This interruption severely hindered our sales for April-May.
We now have the parts and are able to fulfill the April-May orders as of June 1st, reducing our WIP by $5,040,000.
Issues
Where We Stand
Full transcript