{"id":175,"date":"2011-01-05T18:51:02","date_gmt":"2011-01-05T18:51:02","guid":{"rendered":"http:\/\/www.department99.com\/bobamter\/?page_id=175"},"modified":"2014-08-26T12:28:27","modified_gmt":"2014-08-26T12:28:27","slug":"case-study-jones-plumbing-systems-inc","status":"publish","type":"page","link":"https:\/\/bobamter.com\/?page_id=175","title":{"rendered":"Case Study: Jones Plumbing Systems Inc."},"content":{"rendered":"

Jones Plumbing Systems Inc., <\/em><\/h2>\n

Birmingham, Alabama<\/em><\/h2>\n


\n<\/em><\/p>\n

Simultaneous with being Chief Executive Officer of Drexel, Robert Amter was appointed Chief Executive Officer of Jones in a last ditch effort to save the company.<\/p>\n

Jones, a $40 million in sales manufacturer of plastic and cast iron drain and pipe connector products sold to plumbing wholesalers and direct to retail chains, such as Home Depot.\u00a0 Jones was owned by The Jordan Company, the New York leveraged buy-out firm.<\/p>\n

Problems:<\/strong><\/p>\n

\u00bb For seven months year-to-date, operating losses totaled $2.8 million and 14% of sales.\u00a0 Net losses totaled $5 million and 25% of sales.<\/p>\n

\u00bb Net losses had been registered in 1991, 1993 and 1994 of $2.5, $1.1 and $1.1 million respectively<\/p>\n

\u00bb Net sales had declined 19% from $21.6 million to $17.5 million for the six months year-to-date in 1995 versus 1994.<\/p>\n

\u00bb Gross profit margin had dropped from 30.0% of sales to 16.7% while selling, general and administrative expenses had increased from 24.9% of sales to 30.3%.<\/p>\n

\u00bb Cash flow was a negative $880,000 for the six months year-to-date.<\/p>\n

\u00bb Bank loans totaled $11.5 million and were 103% of total capital.<\/p>\n

\u00bb 45% of the $7.0 million inventory had turnover of less than 2, and 35% had turns of less than one.<\/p>\n

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/strong><\/p>\n

Priorities:<\/strong><\/p>\n

\u00bb Consolidate the Alabama manufacturing operation from 13 buildings and 339,000 square feet into one building and 130,000 square feet.\u00a0 Move into the 130,000 square foot finished goods warehouse.<\/p>\n

~ Prior to moving, complete a plant layout and flow diagrams to determine if manufacturing and warehousing operations would fit.\u00a0 Confirm the feasibility of reducing direct labor from 270 employees to 151.<\/p>\n

\u00bb Establish a buy-out source for the viable cast iron product line and close the money losing foundry.\u00a0 A one shift operation, Jones\u2019 foundry was a large contributor to the operating losses.\u00a0 Prior to closing the foundry:<\/p>\n

~ Complete engineering drawings and specifications.\u00a0 Of the 300 part numbers, over 200 did not have drawings or specifications that potential suppliers could use to establish a price quotation.<\/p>\n

\u00bb In addition to its manufacturing business, Jones had developed itself into a \u201cmaster distributor\u201d<\/em> of purchased product which was unrelated to its core business.\u00a0 The slow moving inventory had over $2 million tied up in this product line, some of which was obsolete.\u00a0 The goal was to reduce the product line by 30% and convert the $2 million in discontinued inventory into cash.<\/p>\n

\u00bb Implementing product pricing discipline.\u00a0 Jones\u2019s had reduced its selling prices to gain sales and market share.\u00a0 Manufacturing inefficiencies and this strategy had been the main causes of the lower gross profit margin and lost sales.\u00a0 September\u2019s increase in the gross profit margin to 12.1% from a low of 9.3% was related to improved product pricing disciplines.<\/p>\n

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/strong><\/p>\n

Results Achieved the first 3 months:<\/strong><\/p>\n

\u00bb Reduced the operating loss 28% from $2.0 million to $1.4 million, an annualized improvement of $2.2 million.<\/p>\n

\u00bb Increased free cash flow 27% and $575,000 from $2.2 million to $2.7 million<\/p>\n

\u00bb Reduced selling, general and administrative expenses $838,000 from $3.0 million to $2.1 million.<\/p>\n

\u00bb Reduced inventory 13% from $7.0 million to $6.1 million.<\/p>\n

\u00bb Reduced salaried headcount 28% for an annual savings of over $700,000.<\/p>\n

\u00bb Reversed the downward trend in the gross profit margin.\u00a0 At its lowest point it was 9.3%.\u00a0 In September it was 12.1% – the highest in six months.<\/p>\n

\u00bb In September 1995, sufficient progress had been made in implementing the operating plan\u2019s priorities to be able to forecast when the turnaround would be completed, the financial results and the cash required.<\/p>\n

\u00bb By October 1995, just 4 months after starting to implement the operating plan, 50% of it had been completed:<\/p>\n

Started the consolidation of 13 manufacturing buildings into one building. The finished goods warehouse had been physically reorganized and computerized to allow the transfer of manufacturing equipment into the same building.<\/em><\/p>\n

Completed engineering drawings of over 200 cast iron parts. Identified and negotiated the outsourcing of cast iron product from foreign and domestic sources to facilitate closing the foundry.<\/em><\/p>\n

Reduced the \u201cmaster distributor\u201d product line to allow the discontinued products to be converted into cash.\u00a0 Home Depot committed to purchasing its discontinued product.<\/em><\/p>\n

\u00bb Sufficient progress had been made to assure the Bank that the \u201cMost Likely\u201d financial statement scenario could be achieved.\u00a0 This meant that Jones would become profitable in less than one year for the first time in three years.<\/p>\n

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~<\/strong><\/p>\n

Conclusion:<\/strong><\/p>\n

Despite this progress, it became apparent that because of a shortage of working capital and the debt repayment obligations to the Bank, the remainder of the turnaround could only be accomplished with the support of the Bank.<\/p>\n

~ The Jordan Company was willing to make an equity infusion.<\/p><\/blockquote>\n

The Bank acknowledged that the operating plan was correct and the company was progressing to a turnaround.\u00a0 However, the Bank was unwilling to extend the loan and give Jones more time.\u00a0 This forced Jones to file for Chapter 11 bankruptcy protection in November 1995.<\/p>\n

Jones requested the Court to authorize the use of the Bank\u2019s cash collateral for a debtor-in-possession loan.<\/p>\n

~ During Robert Amter\u2019s testimony, the Judge agreed that Jones had progressed at a surprisingly rapid pace and seemed able to achieve the operating plan and financial results presented.<\/p>\n

~ The Bank officer\u2019s testimony agreed, but he testified that the Bank had tired of this loan and preferred to take its chances on liquidation to recover its loan principal.\u00a0 The Judge said he had no choice but to deny Jones\u2019 petition.<\/p>\n

A short time later Jones entered Chapter 7 bankruptcy and liquidation.\u00a0 The Bank lost most of its principal in liquidation.<\/p>\nTweet<\/a>","protected":false},"excerpt":{"rendered":"

Jones Plumbing Systems Inc., Birmingham, Alabama Simultaneous with being Chief Executive Officer of Drexel, Robert Amter was appointed Chief Executive Officer of Jones in a last ditch effort to save the company. Jones, a $40 million in sales manufacturer of plastic and cast iron drain and pipe connector products sold to plumbing wholesalers and direct […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"open","template":"page_full.php","meta":{"footnotes":""},"class_list":["post-175","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages\/175","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bobamter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=175"}],"version-history":[{"count":9,"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages\/175\/revisions"}],"predecessor-version":[{"id":1420,"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages\/175\/revisions\/1420"}],"wp:attachment":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=175"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}