OM_Scott_%26_Sons-Epilogue - O.M. Scott & Sons Company Case...

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What happened Scott first approached its creditors with the bad news in early 1962. The company succeeded, or apparently succeeded, in negotiating a relatively moderate adjustment of its loan conditions. Then the top management of one of the leading creditors balked and seemed inclined to take much tougher action, perhaps to force Scott into a merger with a financially stronger company. Eventually, however, after some reshuffling of creditors, a new set of workable restrictions on Scott’s loan was worked out. Changes were made in the company’s board of directors to add strength in the areas of finance and control. A company official reported that three other main remedial actions were taken in early 1962: 1. Action to curb shipments to trust receipt dealers with excessive inventories. 2. Action to set up cost and expense controls. (Over time Scott developed and refined a sampling system that reliably measured consumer purchases of Scott’s products on a nationwide basis.) 3. Action to step up the tempo of consumer purchases. (No dramatic changes, however, took place in this area.) The company did not cut its prices or sell through discount houses at cut rates. It also maintained its aggressive research and product development. In this sense it held to its long-run strategy. Market surveys in 1962 showed that Scott was still way ahead of other national brands on sales to consumers. These surveys were instrumental in alleviating the worst of the creditors’ fears. The actual financial results reported by Scott in the ensuing years are shown in Table TN-A. Table TN-A Net Income (Loss) Price Range Sales Before Taxes After Taxes of Common Stock ($000s) ($000s) ($000s) (Bid Prices) 1962 $28,817 ($2,987) ($1,522) $34-1/4 - 10 1963 26,136 (2,226) (999) 16-3/4 - 8 1964 30,109 968 573 15-1/2 - 8-3/8 1965 36,240 2,822 1,685 15- 3/4 - 10—1/4 1966 41,734 3,579 2,012 22-1/2 - 12 1967 48,353 4,814 2,508 31-1/4 - 14-3/4 1968 59,818 7,940 3,890 57 - 29 1969 66,944 8,458 4,390 84-1/2 - 46 The instructor may find it interesting to read the following excerpts from Scott’s annual reports to the class to add a bit of color to the case.
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Excerpts from 1961 Annual Report, Dated January 15, 1962 Again it is a pleasure to inform you of the state of our company. This has been both a frustrating and a satisfying year. Frustrating, in that the weather has been against us
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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OM_Scott_%26_Sons-Epilogue - O.M. Scott & Sons Company Case...

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