write report as Wilson

GARDINER WHOLESALERS INCORPORATED (A) F. Mastrandrea wrote this case under the supervision of R.H. Mimick solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveypublishing.ca. Our goal is to publish materials of the highest quality; submit any errata to publishcases@ivey.ca. Copyright @ 1999, Richard Ivey School of Business Foundation Version: 2016-04-14 In early February 2013, Kathy Wilson, assistant credit manager of Gardiner Wholesalers Incorporated, sat at her desk reviewing the financial information she had gathered on two of her company's accounts - S.D. Taylor Jewellers Ltd. and Elegance Jewellers Inc. Gardiner Wholesalers Incorporated, a jewellery wholesaler located in Southwestern Ontario, had for many years followed a policy of thoroughly assessing the credit standing of each of its accounts about one month after Christmas. The assessment, which would be used to determine if changes in credit policy were necessary, had to be submitted to both the credit manager and the sales manager in one week. Wilson wondered what comments and recommendations concerning the two accounts should be put in her report. The retail jewellery trade was largely composed of national chain stores such as Birks, Peoples and Mappins plus smaller independent jewellers like S.D. Taylor Jewellers Lid. and Elegance Jewellers Inc. Most retail jewellers carried both jewellery lines, such as gold and diamond rings, and giftware items, such as silverplated items and crystal. Most jewellery chains purchased jewellery pieces from jewellery manufacturers, and mounted the finished products in-house. Independent jewellers were supplied by wholesalers, like Gardiner Wholesalers Incorporated, who received the jewellery and giftware from such manufacturers as Jolyn Jewellery Products, the French Jewellery Co. of Canada Ltd., the Royal Doulton Company, and Belfleur Crystal. The wholesalers distributed products to regional department stores, small regional jewellery chains, and independent jewellery stores. An independent jeweller would be supplied by at least five jewellery wholesalers. Jewellery store sales were lowest during the summer months and peaked during the Christmas season. The smaller, often family-owned, independent jewellers were much more affected by the seasonal pattern of jewellery sales than were the national chain-store operations. As a result, the independent jewellers relied heavily on their suppliers for financial support in the form of extended credit, in order to remain competitive with national chain stores. The competition among suppliers for the retail jewellery trade made credit terms and retailer financing necessary wholesale features. Factors that influenced the consumer purchase decision were style, selection, quality, and customer credit. In 2012, layaway sales accounted for 25 per cent of all retail jewellery store sales. Layaway sales were necessary in the jewellery business because people often balked at making large cash expenditures for luxury items. The layaway sales technique was also a powerful tool in influencing customers to purchase more expensive items.Exhibit 1 ELEGANCE JEWELLERS INC. STATEMENTS OF EARNINGS for years ending June 30 (000s) 2012 2011 Sales $ 1,982.8 $ 1,721.5 Cost of sales 945.6 774.0 Gross income $ 1,037.2 947.5 Operating Expenses: Selling and administrative $ 714.2 584.1 Depreciation 53.7 44.6 Total operating expenses $ 767.9 628.7 Earnings from operations $ 269.3 $ 318.8 Unusual income (loss) (11.7 ) (10.5) Subtotal EA 257.6 $ 308.3 Less: interest expense 152.1 34.8 Net earnings before tax $ 105.5 $ 273.5 Income taxes 26.4 68.4 Net earnings after tax1 $ 79.1 $ 205.1Exhibit 2 ELEGANCE JEWELLERS INC. BALANCE SHEETS as at June 30 (000s) 2012 2011 ASSETS Current assets: Cash $ 1.3 $ 1.2 Accounts receivable 43.2 9.2 Inventory 1, 155.4 1, 148.2 Prepaid expenses 6.0 5.3 Total current assets $ 1,205.9 $ 1, 163.9 Loans to employees $ 25.7 $ 26.4 Investment in subsidiary 686.2 Other investments 17.8 17.6 Fixed assets: Land $ 25.5 $ 25.5 Buildings 441.1 374.0 Furniture and fixtures 108.5 61.9 Fixed assets, cost $ 575.1 $ 461.4 Less: accumulated depreciation 221.0 167.3 Total fixed assets (net) $ 354.1 $ 294.1 Total Assets $ 2,289.7 $ 1,502.0 LIABILITIES AND EQUITY Liabilities Current liabilities: Working capital loan 10.4 $ 133.0 Accounts payable 223.7 379.8 Income taxes payable 2.5 123.7 Long-term debt due within one year 9.9 Total current liabilities $ 236.6 $ 646.4 Bank loan (due December 31, 2013) EA 418.4 Long-term notes payable 902.8 152.8 Total liabilities $ 1,557.8 $ 799.2 Equity Common stock $ 110.0 $ 110.0 Retained earnings 621.9 592.8 Total equity $ 731.9 $ 702.8 Total liabilities and equity $ 2,289.7 $ 1,502.0Exhibit 3 ELEGANCE JEWELLERS INC. STATEMENT OF CASH FLOWS for the year ending June 30, 2012 (000s) 2012 OPERATIONS: Net Income $ 79.1 Adjustments to Cash Basis? Depreciation 53.7 Accounts receivable (34.0) Inventory (7.2) Prepaid expenses (0.7) Accounts payable (156.1) Income taxes payable (121.2) Net cash flow from operations $ (186.4) FINANCING ACTIVITIES: Working Capital Loan $ (122.6) Long-term debt due within 1 year (9.9) Bank Loan 418.4 Long term notes payable 750 Dividends (50) Net cash flow from financing $ 985.9 INVESTING ACTIVITIES: Building $ (67.1) Furniture and Fixtures (46.6) Loans to employees 0.7 Investment in Subsidiary (686.2) Other Investment (0.2) Net cash flow from investing (799.4) Net cash flow ).1 Beginning cash EA EA EA 1.2 Ending cash 1.3Exhibit 4 S.D. TAYLOR JEWELLERS LTD. STATEMENTS OF EARNINGS FOR YEARS ENDING JUNE 30 (00OS) 2011 2012 $ 2,059.5 Sales $ 2,325.0 968.5 Cost of sales 1,133.8 $ 1,091.0 Gross income $ 1, 191.2 Operating expenses: 370.3 Salaries and benefits $ 430.7 $ 123.4 Overheads 147.0 74.0 Advertising 93.6 Supplies 70.0 83.5 Depreciation 39.4 35.1 Bad debt 6.9 4.1 Other miscellaneous 93.4 80.5 Total operating expenses $ 893.6 $ 757.3 Earnings from operations $ 297.6 $ 333.6 Plus: other income 37.4 32.8 Subtotal $ 335.0 $ 366.5 Less: interest expense 53.7 37.0 Net earnings before tax $ 281.3 $ 329.5 Income taxes 70.3 82.4 Net earnings3 $ 211.0 $ 247.1Exhibit 5 S.D. TAYLOR JEWELLERS LTD. BALANCE SHEETS AS AT JUNE 30 (000S) 2011 2012 Current assets: ASSETS $ 9.6 Cash $ 10.1 105.3 Accounts receivable 126.5 885.5 Inventories 1,076.7 16.6 Prepaid expenses 23.3 $ 1,017.0 Total current assets $ 1,236.6 $ 28.3 Loans to employees $ 28.3 120.7 Investment in subsidiary 79.2 17.4 Other investments 18.2 Fixed assets: Land 29.8 $ 29.8 $ Buildings 512.6 442.0 Less: accumulated depreciation 319.6 280.2 Total fixed assets (net) $ 222.8 $ 191.6 Total assets $ 1,585.1 $ 1,375.0 LIABILITIES AND EQUITY Liabilities Current liabilities: Working capital loan 69.5 30.2 Notes payable (bank) 328.9 212.3 Accounts payable 184.9 183.0 Income taxes payable 21.4 84.1 Total current liabilities 604.7 $ 509.6 Long-term debt 12.2 24.4 Total liabilities $ 616.9 $ 534.0 Equity $ Capital stock 40.7 Retained earnings 927.5 $ 40.7 800.3 $ 968.2 Total equity 841.0 $ 1,585.1 Total liabilities and equity $ 1,375.0Exhibit 6 S. D. TAYLOR JEWELLERS LTD. STATEMENT OF CASH FLOWS FOR THE YEAR ENDING JUNE 30, 2012 (00OS) 2012 OPERATIONS: Net Income $ 211.0 Adjustments to Cash Basis: Depreciation 39.4 Accounts receivable (21.2) Inventory (191.2) Prepaid expenses (6.7) Accounts payable 1.9 Income taxes payable (62.7) Net cash flow from operations $ (29.5) FINANCING ACTIVITIES: Working Capital Loan $ 39.3 Notes payable 116.6 Long term debt (12.2) Dividends (83.8) Net cash flow from financing $ 59.9 INVESTING ACTIVITIES: Building and fixtures $ (70.6) Investment in subsidiary 41.5 Other Investment (0.8) Net cash flow from investing $ (29.9) Net cash flow 0.5 Beginning cash EA EA EA 9.6 Ending cash 10.1Page 9 9A84J002 Exhibit 7 S.D. TAYLOR JEWELLERS LTD. RATIO ANALYSIS For the years ended June 30, 2011 and 2012 2012 2011 PROFITABILITY Sales 100.0% 100.0% Cost of goods sold 48.8% 47.0% Gross income 51.2% 53.0% Operating expenses 38.4 36.8% Operating income 12.8% 16.2% Other income 1.6% 1.6% Interest expense 2.3% 1.8% Net earnings 9.1 12.0% Return on average equity 23.3% 32.2%4 LIQUIDITY Current ratio 2.05:1 2.00:1 Acid test 0.23:1 0.23:1 Working capital $631,800 $507,400 EFFICIENCY 19.9 days 18.7 days Age of receivables Age of inventory 346.6 days 333.8 days 69.0 days Age of payables5 59.5 days $0.093 Net fixed assets/sales $0.096 STABILITY 61.1% 61.2% Net worth/total assets 6.2 X 9.9X Interest coverage 2011-2012 GROWTH 12.9% Sales (14.6%) Profit/income 15.3% Assets 15.1% Equity equity = $692.9 ($841.0 + $99 - $247.1). f goods sold.9A84J002 Page 10 Exhibit 8 GARDINER WHOLESALERS INCORPORATED AGING OF ACCOUNTS RECEIVABLE AS AT DECEMBER 31, 2012 Prior Sept. Oct. Due From Nov. Dec. Total $30,846 $4,852 S.D. Taylor Jewellers Ltd. $18,732 $5,464 $59,894 $2,640 $33,832 $7, 108 $30, 146 $63,202 $136,928 Elegance Jewellers Inc. Introduction to Business at Richard Ivey School of Business from Sep 01, 2022 to Apr 30, 2023. ide