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Financial Turnarounds: Preserving Value

Book Description

In Financial Turnarounds: Preserving Enterprise Value, leading corporate turnaround specialists teach key skills for managing financial turnarounds - and avoiding the need for them. This in-depth, insider's look at 20 turnarounds covers every key industry from manufacturing to retail, technology to services. It illuminates early warning signs, presents key financial findings, compares leading strategies, and offers incomparable insider's insights into the realities of making turnarounds work.

Table of Contents

  1. Copyright
  2. Advisory Committee
  3. Foreword
  4. 1. Introduction
    1. How This Book Is Organized
  5. 2. Executive Summary
    1. Causes and Remedies
      1. Short-term remedy
      2. Long-term remedies
    2. Summary and Implications for CFOs
  6. 3. Case-Study Summaries, Key Findings, and Early Warning Signs
    1. Manufacturing Sector (Asset-Heavy)
      1. Maytag Corporation
      2. Navistar International Corporation
      3. USG Corporation
    2. Manufacturing Sector (Asset-Light)
      1. Forstmann & Company
      2. Pepsi-Cola Bottling Company of Charlotte, N.C.
      3. Sampson Paint Company
    3. Retailing Sector
      1. Ames Department Stores, Inc.
      2. Jos. A. Bank Clothiers, Inc.
      3. Edison Brothers
      4. The Forzani Group, Ltd.
      5. Musicland Stores Corporation
      6. Red Rooster Auto Stores
    4. High Technology
      1. Computervision and Parametric Technology Corporation
      2. GenRad, Inc.
      3. Kollmorgen Corporation
    5. Real Estate
      1. Cadillac Fairview
    6. Service Sector (Asset-Heavy)
      1. Burlington Motor Carriers, Inc.
      2. Fairmont Hotels & Resorts
      3. St. Luke’s Hospital-San Francisco
    7. Service Sector (Asset-Light)
      1. Microserv Technology Services
    8. Key Findings
    9. Early Warning Signs
  7. 4. Comparison of Financial Turnarounds
    1. External Causes
    2. Internal Causes
    3. How Causes Vary by Industry
  8. 5. Comparison of Turnaround Methods
    1. The Turnaround Process
    2. Crisis Turnaround Management
      1. Management of Cash Receipts and Disbursements
      2. Asset Reduction
      3. Communication with Stakeholders
      4. Cooperation with Suppliers and Landlords
    3. Reorganization Methods
      1. New Ownership
      2. New Management
    4. Strategic Turnaround Management
      1. Focus on Core Competencies
      2. Contraction
      3. Marketing Measures
    5. Financial Management Measures
      1. Role of the Finance Function During a Turnaround
      2. Coordination with Marketing
      3. Improved Performance Measures
      4. Capital-Structure, Dividend and Budgeting Policies
      5. Improved Inventory Management
      6. Overhead Reduction
      7. Improved Information Systems
      8. Equity Infusion
      9. Financial Reporting and Control Systems
    6. Human Resource Management
      1. Change in Culture and Leadership Style
      2. Incentive Compensation
      3. Use of Outside Professionals
    7. Role of Boards of Directors
    8. Surviving the Turnaround
  9. 6. Preventive Medicine for Healthy Companies
  10. 7. Manufacturing Sector
    1. Maytag Corporation
      1. Background
      2. Causes of Financial Difficulty
        1. Problems with the Acquisitions
      3. The Company Turnaround
        1. Sale of European Business
        2. Capital Spending
        3. Product Development
        4. Investment Discipline
        5. Investment Priorities
        6. Intelligent Innovation
      4. Financial Results
      5. Key Findings
    2. Navistar International Corporation
      1. Background
      2. Causes of Financial Difficulty
      3. The Company Turnaround
        1. Financial Restructuring
        2. First Restructuring
        3. Second Restructuring
        4. Third Restructuring
        5. Fourth Restructuring
        6. To File or Not to File
        7. Cost Reduction and Divestitures
        8. Rebuilding the Company
        9. Health Care Buydown
        10. Next-Generation Vehicle Program
        11. Working with the Union
        12. Other Recent Initiatives
        13. Market Share
        14. Cash Reserves
        15. Financial Performance Measures
        16. Incentive Compensation
        17. Capital Structure
        18. Culture Change
        19. Role of the Finance Function
      4. Key Findings
    3. USG Corporation
      1. Background
      2. Causes of Financial Difficulty
        1. Hostile Takeover Attempt
        2. Leveraged Recapitalization
        3. Sale of Businesses and Cost Reduction
        4. Economic Conditions
        5. Loan Defaults
        6. Trade Credit
      3. The Company Turnaround
        1. Restructuring Plan
        2. Prepackaged Bankruptcy
        3. Threat of Bankruptcy
        4. Changing Players
        5. Most Influential Investors
        6. Fulcrum Security
        7. Bank Debt
        8. Equity Allocation
        9. Junior Subordinated: The Free Rider
        10. Venue Selection
        11. Sharing the Pain
        12. Management During the Restructuring Period
        13. Incentive to Maximize Enterprise Value
        14. Professional Services
        15. Emergence from Bankruptcy
        16. New Goals after Bankruptcy
        17. Plan to Achieve Investment Grade
        18. Improvement in Performance
        19. Amortization of Fresh Start Charge
        20. Refocused Business Strategy
        21. Recent Priorities
        22. Corporate Valuation
        23. Cultural Changes
      4. Key Findings
    4. Forstmann & Company
      1. Background
      2. Business Characteristics
      3. The Manufacturing Process
        1. Market Changes
        2. Capital Investment Program
        3. Financial History
        4. Chapter 11 Filing
      4. Causes of Financial Difficulty
      5. The Company Turnaround
        1. Communication with Stakeholders
        2. Cash-Flow Management
        3. Management Reorganization
        4. Business Strategy Development
        5. Cost Analysis
        6. Product Rationalization
        7. Inventory Management
        8. Customer Service
        9. Quality Control
        10. Overhead Reduction
        11. Key Performance Indicators
        12. Financing and Capital Structure
        13. Financial Reorganization Plan
        14. Second Bankruptcy Filing
      6. Key Findings
    5. Pepsi-Cola Bottling Company of Charlotte, N.C.
      1. Background
      2. Causes of Financial Difficulty
        1. Accounting and Cash Management
        2. Production and Warehouse Facilities
        3. Security
      3. The Company Turnaround
        1. Accounting and Cash Management
        2. Data Processing and Reporting
        3. Production
        4. Personnel
        5. Compensation
        6. Distribution
        7. Fountain Sales
        8. Vending Machines
        9. Schools and Special Events
        10. Market Share
        11. Management Style
      4. Key Findings
    6. Sampson Paint Company
      1. Background
      2. Causes of Financial Difficulty
        1. Comparative Ratios
      3. The Company Turnaround
        1. Buyer’s Background
        2. The Buyout
        3. Personnel
        4. Pricing
        5. Vendor Negotiations
        6. Working-Capital Reduction
        7. Capital Expenditures
        8. Production
        9. Marketing
        10. Financial Reporting and Controls
        11. Personnel Management and Employee Benefits
        12. Sale of the Company
      4. Key Findings
  11. 8. Retailing Sector
    1. Ames Department Stores, Inc.
      1. Background
      2. Causes of Financial Difficulty
        1. G. C. Murphy Acquisition
        2. Zayre Acquisition
        3. Bankruptcy Filing
        4. Problems with Zayre
      3. The Company Turnaround
        1. Emergence from Bankruptcy
        2. Living Through Bankruptcy
        3. Wertheim Suit
        4. Merchandising Strategy
        5. CFO’s Role
        6. SG&A Expenses
        7. Expansion Plans
        8. Capital-Structure Strategy
        9. Hills and Caldor Acquisitions
        10. Financial Communications
      4. Key Findings
    2. Jos. A. Bank Clothiers, Inc.
      1. Background
      2. Causes of Financial Difficulty
      3. The Company Turnaround
        1. New Management
        2. Financial Restructuring
        3. Merchandise Mix
        4. Promotions and Inventory Management
        5. Information Systems
        6. Manufacturing
        7. Cost Structure
        8. Store Design and Expansion
        9. Internet Sales
        10. Store Sales Staff
        11. Role of Finance Function
        12. Cost of Financial Difficulty
      4. Surviving the Turnaround
      5. Key Findings
    3. Edison Brothers
      1. Background
        1. Bankruptcy Filing
        2. Corporate and Liability Structure
        3. Creditors’ Committee
        4. Import Letters of Credit
        5. Debtor-in-Possession Financing
        6. Reclamation Program
        7. Store Closings
        8. Board of Directors
        9. Exclusivity
        10. Claims Trading
        11. Equity Committee
        12. Reorganization Plan
        13. Dave & Buster’s Spin-Off
        14. Reexamination of the Business
        15. Information Systems
        16. New Management
        17. Second Bankruptcy Filing
      2. Key Findings
    4. The Forzani Group, Ltd.
      1. Background
      2. Causes of Financial Difficulty
      3. The Company Turnaround
        1. New Top Management
        2. Structural Issues
        3. Cash-Flow Management
        4. Inventory and Product Mix
        5. Selling, General, and Administrative Expenses
        6. The Board’s Role
        7. Cooperation from Key Constituents
        8. Reengineering the Merchandise Mix
        9. Reengineering the Stores
        10. Employees: Store Level
        11. Consolidating Banners
        12. Key Performance Indicators
        13. Information Systems
        14. Equity Infusion
        15. Capital Structure and Dividends
        16. Acquisitions and Investments
        17. Most Helpful Parties
        18. Conflicts Between Shareholders and Management
        19. Taxation
        20. Corporate Valuation
      4. Reasons Not to File for Court Protection
      5. Key Findings
    5. Musicland Stores Corporation
      1. Background
      2. Business Performance Indicators
      3. Causes of Financial Difficulty
      4. The Company Turnaround
        1. Bank and Vendor Negotiations
        2. Store Closings
        3. Distribution Center Closing
        4. Working Capital
        5. Capital Spending
        6. Gross Margins
        7. Overhead
        8. Music Sales
      5. Avoiding Bankruptcy
      6. Who Was Most Helpful
        1. Financial Advisors
        2. Board of Directors
      7. Cost of Financial Difficulty
        1. Interests of Shareholders and Management
        2. Investor Relations
        3. Managing the Risk of Financial Difficulty
        4. Tax Issues
      8. Observations on Bankruptcy Law
      9. Surviving the Turnaround
      10. Key Findings
    6. Red Rooster Auto Stores
      1. Background
      2. Causes of Financial Difficulty
        1. Sales Culture
        2. Employee Compensation
        3. Profit Margins
        4. Buyout Financing
        5. Job Design
        6. Financial Controls
        7. Information Sharing
      3. The Company Turnaround
        1. New Management
        2. Role of Outside Professionals
        3. Employee Compensation
        4. Expense Control
        5. Communication
        6. New Performance Measures
        7. Job Design
        8. Workforce Reduction
        9. Computer System
        10. Inventory Management
        11. Store Rationalization
        12. Corporate Reorganization
        13. New Partners
      4. Key Findings
  12. 9. High-Technology Sector
    1. Parametric Technology Corporation and Computervision
      1. Background of Computervision
      2. Recapitalization
      3. Background of Parametric
        1. Parametric’s Acquisition of Computervision
        2. Unexpected Benefits
        3. The Merger
      4. Key Findings
    2. GenRad, Inc.
      1. Background
      2. Causes of Financial Difficulty
      3. The Company Turnaround
        1. Financial Targets
        2. Changes in the Board of Directors and Management
        3. Sale of Real Estate
        4. Identification of Core Businesses
        5. Skunkworks
        6. New Business Paradigm
        7. Customer Relationships
        8. Market Share
        9. Approval of Capital Expenditures
        10. Reorganizing to Realize the Vision
        11. Enterprise Resource Planning Software
        12. Management Style and Corporate Culture
        13. The Role of the CFO
        14. Capital Structure
        15. Financial Performance Measures
        16. Taxes
      4. Key Findings
    3. Kollmorgen Corporation
      1. Background
      2. Causes of Financial Difficulty
        1. Diversification
        2. Defense Business
        3. Unsolicited Takeover Attempt
      3. The Company Turnaround
        1. New Management Team
        2. Workforce Reduction
        3. Divestitures
        4. Acquisitions
        5. Outsourcing
        6. Leverage Reduction
        7. Corporate Staff
      4. Key Findings
  13. 10. Real-Estate Sector
    1. Cadillac Fairview
      1. Background
      2. Business Characteristics
      3. Causes of Financial Difficulty
        1. The LBO
        2. Decline in Real-Estate Values
      4. Managing in Default
        1. Three Creditor Groups
      5. Finding a Strategic Investor
        1. Canadian Banks’ Role
        2. Distressed-Security Investors’ Role
        3. Restructuring Proposals
      6. The Company Turnaround
        1. Reorganization
        2. New Management Team
        3. Corporate Strategy
        4. Capital Structure
      7. Later Performance and Sale
      8. Key Findings
  14. 11. Service Sector
    1. Burlington Motor Carriers, Inc.
      1. Background
      2. Business Characteristics
      3. Causes of Financial Difficulty
      4. The Company Turnaround
        1. Bankruptcy Process
        2. Purchase from Bankruptcy
        3. Issues with Unliquidated Administrative Claims
        4. Cost Reduction
        5. Product and Customer Focus
        6. Information Systems
        7. Financial Targets
      5. Key Findings
    2. Fairmont Hotels & Resorts
      1. Background
      2. Business Characteristics
      3. Causes of Financial Difficulty
      4. The Company Turnaround
        1. New Management
        2. Product Profitability
        3. Market Segmentation
        4. Market Research
        5. Sales
        6. Pricing
        7. Key Performance Indicators
        8. Operating Margins
        9. Valuing the Business
      5. Key Findings
    3. St. Luke’s Hospital—San Francisco
      1. Background
      2. Causes of Financial Difficulty
      3. Addressing the Financial Challenges
        1. Guiding Principles
      4. Cost Reduction
      5. Care for the Needy
      6. Diversification
      7. Mission
      8. Management Style
      9. Finance Staff
      10. Key Findings
    4. Microserv Technology Services
      1. Background
      2. Industry Characteristics
      3. Causes of Financial Difficulty
        1. Sense of Priorities
        2. Capital Spending
        3. Cash-Flow Management
        4. Vulnerability to Large Customers
        5. Changes in Customer Needs
      4. The Company Turnaround
        1. Cash-Flow Management
        2. Change in Marketing Strategy
        3. Parts and Logistics
        4. Strategic Choices
        5. Management: Investment in the Future
        6. CFO’s Role
        7. Exit Strategy
      5. Key Findings
  15. A. Annotated Bibliography
  16. B. Glossary
  17. C. Turnaround Specialists Interviewed
  18. D. Epilogue
  19. About The Authors
  20. Acknowledgments