Jackson Auto Memo

Jackson Automotive has a long history in the automotive business. Larry Edwards has been running this business since the mid-90s until now (2013). Larry was able to move the company through the great recession when many other similar companies did not make it. In 2013, Jackson automotive was on pace to have a year of capacity sales, first since 2007. With the help of Michigan State Bank, Jackson Automotive should be able to work through the financial challenges of 2013.

Currently, June 2013, and over the previous 7 months (Aug 2012 – May 2013) Jackson Automotive has been having trouble paying off its loan as originally promised. Some of the Key developments make it unable to pay:

• Repurchased 40% of outstanding stock using the bank loan.

• The inventory and steadily increased (largest use funds). This inevitably also lowers the amount of working capital and makes paying the loan difficult.

• Interruption caused by updating components of the new air conditioning system (attributed to the order backlog)

• This increase in current assets (inventory and A/R) made is hard to convert net income into cash.

Jackson Automotive is in a difficult spot, they have used the initial bank loan of $5M to buy back 40% of their issued stock. This buyback, along with some equipment that needs to be updated, has put them in a situation where they will need to borrow an additional $2.4M to get through the season. Because of the backlog of sales and the need for the new equipment the loan need is very urgent.

Based on the monthly cash budget and pro forma income statements and balance sheets for the last four months of the fiscal year, Jackson Automotive should have no trouble paying off its original debt plus the new debt (see appendix 1). Also, by doing a sensitivity analysis, it can be seen that even with a difference of