1. Seasonal vs Level Production
Heavy strain on work force and equipment
Overtime = Overtime Premiums ($185,000 in 1993)
Estimated savings of $225,000 in 2014
Equipment usage of 16 hours a day
Irregular operations make it difficult for workers to maintain/relearn skills
Storage & Handling costs for level production = $115,000 annually; included in operating costs
70% sales in seasonal; 65.1% sales in level
2. Low Cash = Low Liquidity
3. Receivables Turnover (Working Capital)
4. Low leverage; roughly 35% Debt-to-Equity (Working Capital)
Continental Carriers
Issues:
1. Acquisition of Midland Freight, Inc.
Need to raise funds
2. Low value in common stock
Callable Convertible bonds
3. Sinking fund $.56 each year (Ignore)
4. P/E ratio lowest in the trucking industry
5. One of the few major common carriers with no LTD
6. *Possibility of $50 million of bonds sale to California insurance company
Interest rates would mature in 15 years @ 10%
Sinking fund of $2.5 million; $12.5 million outstanding at maturity
7. *Possibility of Common Stock
$5 million a year after taxes; dividends $1.50/share = $4.5 million p.a.
8. *Possibility of Preferred Stock
500,000 preferred stock bearing dividend of $10.50/share and par value of $10
9. Receivables turnover
10. Other assets?
11. Low Leverage = 25% Debt-to-equity
12. Possible recession = $1.00 EPS w/bond, $1.00 EPS w/stock; Expected level after acquisition = $3.87 w/bonds, $2.72 w/bonds
