Clarkson Lumber Co.

Harvard Business School Case #297-028

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Exhibit 1 Operating Expenses for Years Ending December 31, 1993-1995, and for First
Quarter 1996 (thousands of dollars)

Net sales
Cost of Goods Sold:
Beginning inventory
Purchases
Ending inventory
Total Cost of Goods Sold
Gross profit
Operating expensesb
Earnings before interest and taxes
Interest expense
Net income before income taxes
Provision for income taxesc
Net income

1993

1994

1995

1st Quarter 1996

$2,921

$3,477

$4,519

$1,062a

330
2,209
$2,539
337
$2,202

337
2,729
$3,066
432
$2,634

432
3,579
$4,011
587
$3,424

587
819
$1,406
607
$799

719
622
$97
23
$74
14
$60

843
717
$126
42
$84
16
$68

1,095
940
$155
56
$99
22
$77

263
244
$19
13
$6
1
$5

In the first quarter of 1995, sales were $903,000 and net income was $7,000

Operating expenses include a cash salary for Mr. Clarkson of $75,000 in 1993; $80,000 in 1994; $85,000 in 1995; and
$22,500 in the first quarter of 1996.
b

Clarkson Lumber was required to estimate its income tax liability for the current tax year and pay four quarterly estimated
tax installments during that year. The first $50,000 of pretax profits were taxed at a 15% rate; the next $25,000 were taxed
at a 25% rate; the next $25,000 were taxed at a 34% rate; and profits in excess of $100,000 but less than $335,000 were
taxed at a 39% rate.
c

Assignment 1: Clarkson Lumber Case

Name: Areeb Javaid
ID: 2013-02-0334
Proforma Income Statement

Net sales
Cost of goods sold:
Beginning inventory
Purchases

1995
$ ('000s)
$ 4,519

$
Ending inventory
Total cost of goods sold
Gross Profit
Operating expenses
Earnings before interest and taxes
Purchase Discountsa
Interest expenseb
Net income before income taxes
Provision for income taxesc
Net income

432
3,579
4,011
587
3,424
1,095
940
155
56
99
22
77

1996
$ ('000s)
$ 5,500

$
$

587
4,277 (77.77% of sales)
4,864
704
4,160 (75.64% of sales)
1,340
1,150 (20.91% of sales)
190
69
93
167
49
118

Assume purchase discounts of 2% taken on all purchases. The amount has been shown separately instead of accumulating

11% on the average outstanding balanceof 95 and projected 96.

Clarkson Lumber was required to estimate its income tax liability for the current tax year and pay four
quarterly estimated tax installments during that year. The first $50,000 of pretax profits were taxed at a 15%
rate; the next $25,000 were taxed at a 25% rate; the next $25,000 were taxed at a 34% rate; and profits in
excess of $100,000 but less than $335,000 were taxed at a 39% rate.
c

arately instead of accumulating in COGS.

Exhibit 2
dollars)

Balance Sheets at December 31, 1993-1995, and March 31, 1996 (thousands of

1993
Cash
Accounts receivable, net
Inventory
Current assets
Property, net
Total Assets

Notes payable, banka

Note payable to Holtz, current portionb
Notes payable, trade
Accounts payable
Accrued expenses
Term loan, current portionc
Current liabilities
Term loanc
Note payable, Mr. Holtzb
Total Liabilities
Net worth
Total Liabilities and Net Worth

1994

$43
306
337
$686
233
$919

1995

$52
411
432
$895
262
$1,157

$0
0
0
213
42

$60
100
0
340
45

20
$275

20
$565

140
0

120
100

$415
504

$785
372

$919

$1,157

1st Quarter
1996

$56
606
587
$1,249
388
$1,637

$53
583
607
$1,243
384
$1,627

$390
100
127
376
75
20
$1,088
100
0
$1,188
449

$399
100
123
364
67
20
$1,073
100
0
$1,173
454

$1,637

$1,627

Interest is computed on the average outstanding loan balance at the rate of prime plus 2%.

Interest is fixed at 11% times the outstanding balance.

Interest is fixed at 10.0% times the outstanding balance; the term loan is secured by the fixed assets and is repayable in
semiannual installments of $10,000.
c

Assignment 1: Clarkson Lumber Case

Name: Areeb Javaid
ID: 2013-02-0334
Proforma Balance Sheet
1995
$ ('000s)

1996
$ ('000s)

Assets
Cash
Accounts receivable, net
Inventory
Current assets
Property, net
Total Assets

56
606
587
$1,249
388
$1,637

77
655
704
$1,436
442
$1,878

Note payable to Holtz, current portion

Notes payable, trade
Accounts payable
Accrued expenses
Term loan, current portion
Notes payable, bank (plug figure)
Current liabilities
Term loan
Note payable to Mr. Holtz
Total Liabilities
Net worth

100
127
376
75
20
390
$1,088
100
$1,188
449

117
80
20
1,014
$1,231
80

Total Liabilities and Net Worth

$1,637

$1,878

(1.40% of sales)
(11.90% of sales)

(8.03% of sales)

Liabilties and Equiy

(for 10 days of purchases)
(1.46% of sales)

$1,311
567

Assignment 1: Clarkson Lumber Case

Name: Areeb Javaid
ID: 2013-02-0334
Statement of Cashflows
1994
$ ('000s)
Cashflow from Operating Activities
Increase in A/R
(105.00)
Increase in Inventory
(95.00)
Increase in A/P
127.00
Increase in Accrued Expense
3.00
Increase in N/P -Trade
Net Income/(Loss)
68.00
Net Cashflow from Operations

Cashflow from Investing Activities

Increase in PP&E
Net Cashflow from Investments

Cashflow from Financing Activities

Decrease in Term Loan
Increase in N/P -Bank
Buyout of Holtz's Equity
Change in N/P - Holtz Buyout
Net Cashflow from Financing
Net Change in Cash

1995
$ ('000s)
(195.00)
(155.00)
36.00
30.00
127.00
77.00

(2.00) $

(29.00)

(126.00)

(29.00) $

(126.00)

(20.00)
60.00
(200.00)
200.00
$
$

(80.00)

40.00
9.00

(20.00)
330.00
(100.00)
$
$

210.00
4.00

Exhibit 3

Selected Statistics on Lumber Outlets

Percent of sales:
Cost of goods
Operating expense
Cash
Accounts receivable
Inventory
Fixed assets, net
Total Assets
Percent of Total Assets:
Current liabilities
Long-term liabilities
Equity
Current ratio
Return on sales
Return on assets
Return on equity

Low-Profit Outletsa

High-Profit Outletsa

76.9%
22.0
1.3
13.7
12.0
12.1
39.1

75.1%
20.6
1.1
12.4
11.6
9.2
34.3

52.7%
34.8
12.5
1.31
(0.7%)
(1.8%)
(14.3%)

29.2%
16.0
54.8
2.52
4.3%
12.2%
22.1%

Defined as the bottom 25% and as the top 25% of all contributors, based on return on sales.