FINANCIAL REVIEW

Financial Review

© 1991 United Research04/22/23 – 04:38XXXX/UR product Analysis

APPROACH

• Top level review of product financial results

• Business trend analysis

• Cost analysis

• Supports targeting further areas to study

product BUSINESS TRENDS

Financial Review


HISTORICAL AND ANTICIPATED REVENUE GROWTHFOR product . . .

Source: product Earnings Detail

Revenue($MM)

650

700

750

800

850

'88 Actual '89 Actual '90 Actual '91Profit Objective

'92 "Projection"

759

719

746

826

675

Financial Review


. . . DRIVEN BY PRICE INCREASES


Shipments(% Changefrom '88)

Price($/lb)

(% Changefrom '88)

0%

+5%

+10%


'92 "Projection"

-5%

-10%1.90

2.00

2.10

2.20

2.30

2.40

2.50

2.60

2.70

2.80

0%

+10%

+20%

+30%

-10%

316MM lb

332MM lb

299MM lb

308MM lb

317MM lb

ShipmentsPrice

2.13

2.28

2.41 2.42

2.61

'88 Shipments = 316 MM lbs.

Financial Review


VARIABLE COSTS RISING FASTER THAN PRICE

0%

10%

20%

30%

40%

50%

60%


'92 "Projection"

Unit Variable Cost

Price% Changefrom '88

Source: product Earnings Detail'88 Price = $2.13/lb'88 Unit Variable Cost = $0.56/lb

Financial Review


FIXED COSTS HAVE ALSO INCREASED SIGNIFICANTLY

390

400

410

420

430

440

450

460

'88 Actual '89 Actual '90 Actual '91 Estimate '92 "Projection"

400

452

439442

393


FixedCosts($MM)

% Changefrom '88

+15%

+10%

+5%

0%

ProfitObjective

'91

Financial Review


ULTIMATELY, AFTER TAX MARGINS SUFFER

4%

6%

8%

10%

12%

14%


'92 "Projection"


ATOM(%)

7/91Estimate

Financial Review


IN THE CORPORATE CONTEXT, product HAS SHIFTEDFROM BEING A HIGH PERFORMER TO A LOW PERFORMER AND ...

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Chemicals Fibers Polymers Petroleum Coal Diversified Businesses

Consolidated

Source: XXXX Annual Report 1990

ATOM

product XXXX 3-Year Range

XXXX Industry Segment Performance

1988 1989 1990

Financial Review


. . . COMPETES IN A LARGE INTERNAL MARKETWHERE . . . XXXX Sales

TOTAL = $40,047 MM/year

product = 12% of Fibers2% of XXXX

Fibers15%

Polymers14%

Chemicals9%

Petroleum40%

Diversified Businesses17%

Coal 5%


Financial Review


. . . "ATTRACTIVE" BUSINESSES APPEAR TOCAPTURE INVESTMENTS

XXXX Capital Spending Pattern

AnnualIndustrySegmentCapital

Expenditures(% of Sales)

20%

15%

10%

5%

5% 10% 15% 20% 25%

Return on Assets in Previous Year

XXXX Industry Segments• Chemicals • Polymers • Diversified Business• Fibers • Petroleum • Coal

Segment DataXXXX Consolidated1988 & 1989 Data


Fibers

Financial Review


AGGRESSIVE IMPROVEMENTS REQUIRED TOSUSTAIN THE product BUSINESS

GlobalizationNew

Products

CostManagement

Modernization

OperatingEfficiency

COST ANALYSIS

Financial Review


COST ANALYSIS IDENTIFIES MAJOR AREAS OFOPPORTUNITY

TotalCost

FixedCost

VariableCost

DirectFactory

IndirectFactory

Non-Factory(Overhead)

UnitCost

Unavoidable

Avoidable

Non-Improvable

Improvable

FIXED COSTS

Financial Review


FIXED COSTS HAVE DROPPED AS A PERCENT OFTHE TOTAL COST BASE

0%

50%

100%


'92 "Projection"


% of TotalCost Base

Variable

Fixed

69%64%

68%64% 63%

$570 MM $626 MM $666 MM $666 MM $707MM

Financial Review


72% OF FIXED COSTS RESIDE IN THE PLANTS

TOTAL Fixed Costs = $425 MMSource: product Profit Objective '91

Other 3%

Period Mill(excluding

Depreciation & VTI)$262 MM

62%

Interest &Inventory

5%

FPDE6%

Marketing, AdminResearch &Mfg Support

14%

Depreciation& VTI

$45 MM11%

Financial Review


86% OF PERIOD MILL IN U.S. FILAMENT; ONLY 8%IN NON-U.S. FACILITIES

Source: product Profit Objective '91* Without Depreciation & VTI

0

50

100

150

200

250

U.S. Filament

U.S. Staple Canada Argentina U.S. Other

Period Mill*($MM)

86%

5% 4.5% 3.5% 1%

TOTAL = $262 MMTOTAL = $262 MM

Financial Review


IT TAKES 41% OF FIXED MANUFACTURING COSTS TOPRODUCE 21% OF product OUTPUT (AT MARTINSVILLE)

Period Mill($MM/yr)

Source: product Profit Objective '91

Shipments(MM/lb)

0

20

40

60

80

100

120

Martinsville Seaford Chattanooga Camden

0

20

40

60

80

100

120

41%

26%

17%16%

65

79

44 50

Shipments

4 Plant Total: $270 MM/yr

238 MM/lbs.

Financial Review


$38-68 MILLION POTENTIAL OPPORTUNITY IN IMPROVING FIXED MANUFACTURING COST UTILIZATION

BDP

U.S. Filaments Total Period Cost at Period atShipments Period Utilization Best Demo. Average

('91) Cost $/lb Performance Opportunity (or Current) Opportunity

Martinsville 65 MMlb $111 MM/yr $1.17/lb $56 MM/yr $55 MM $73 MM $38 MM

Seaford 79 69 0.07 65 4 69 N/A

Chattanooga 44 47 1.07 38 9 47 N/A

Camden 50 43 0.86 43 0 43 N/A

TOTAL 238 MMlb $270M $1.13/lb $202 MM $68 MM $232 MM $38 MM


Avg

0.87

Financial Review


MANUFACTURING INVESTMENT HAS BEEN CHANNELEDAWAY FROM THE HIGH FIXED COST CENTERS

Period MillCosts

($MM/yr)


Depreciation(% of Period

Mill)

0

20

40

60

80

100

120

Martinsville Seaford Chattanooga Camden

0%

10%

20%

30%

40%

50%111

69

47 43

7%

10%

19%

33%Depreciation

0%

10%

20%

30%

Financial Review


PERIOD MILL CAN BE CATEGORIZED AS DIRECTFACTORY OR INDIRECT FACTORY

Period Mill

LaborOff Plant ProcessingOther Expenses

• Operating Supplies• Contract Services• Operating Expenses

LaborOff Plant ProcessingOther Expenses

• Operating Supplies• Contract Services• Operating Expenses

SalariesMaintenancePower OperationsSupport

• Quality• Environmental• Administrative• Systems• Technical (SMO)

Other• DUCs• Taxes• Warehouse• Abnormals

Management AdjustmentDepreciation

SalariesMaintenancePower OperationsSupport

• Quality• Environmental• Administrative• Systems• Technical (SMO)

Other• DUCs• Taxes• Warehouse• Abnormals

Management AdjustmentDepreciation

Direct Factory(Value Chain)

Indirect Factory(Supply Chain)

Financial Review


SUPPLY CHAIN COSTS ARE ABOUT THE SAME ASVALUE CHAIN COSTS IN THE PLANTS


TOTAL U.S. Period Mill = $262 MM/yr

Indirect

48%

Direct

52%$126MM $136MM

Financial Review


WHERE THE FACTORY COSTS LIE

-25

0

25

50

75

100D

ep

rec

iati

on

Ma

inte

na

nc

e

Po

we

r O

pe

rati

on

s

Oth

er

(DU

Cs

, e

tc.)

Tec

h S

up

po

rt t

o M

fg

Qu

ali

ty S

up

po

rt

Sa

lari

es

(M

fg)

Sy

ste

ms

Su

pp

ort

Ad

min

istr

ati

ve

Su

pp

ort

En

vir

on

me

nta

l S

up

po

rt

Ma

na

ge

me

nt

Ad

jus

tme

nt

Op

era

tin

g L

ab

or

Oth

er

Op

Ex

pe

ns

es

Off

Pla

nt

Pro

ce

ss

ing

36

14 13 11 10 105 4 3

(19)

94

27

15

39


Period MillCosts

($MM/yr)

Indirect Factory= $126 MM

Direct Factory= $136 MM

60%

69%

Financial Review


28% OF FIXED COSTS ARE NON-FACTORY EXPENSES

TOTAL Fixed Costs = $425 MMSource: product Profit Objective '91

Other 3%

Period Mill(excluding

Depreciation & VTI)$262 MM

62%

Interest &Inventory

5%FPDE

6%

Marketing, AdminResearch &Mfg Support

14%

Depreciation& VTI

$45 MM11%

Non-Factory$118 MM

28%

Financial Review


TRANSPORTATION COSTS COMPRISE THE LARGESTSINGLE COMPONENT OF NON-FACTORY FIXED COSTS


Non-FactoryFixed Costs

$MM/yr

TOTAL = $118 MM/yrTOTAL = $118 MM/yr

0

10

20

30F

PD

E

Ma

na

ge

me

nt

Ex

pe

ns

e

Ma

rke

tin

g

Ex

pe

ns

e

PD

Ad

min

&

Re

se

arc

h

Fib

ers

W.C

. In

tere

st

Re

se

arc

h

PD

Ab

no

rma

ls

Fib

ers

LIF

O

Ma

nu

fac

turi

ng

S

up

po

rt

PD

W.C

. In

tere

st

Ro

ya

lty

/In

tere

st

PD

LIF

O

23

20

17

12 12

75 4

21 1

26

53% of Non-FactoryFixed Costs

Financial Review


ALL OVERHEAD COSTS WARRANT INVESTIGATIONOF THE TASKS BEHIND THEM

Value Added

Non Value Added

Costs to Support

For example . . .

Financial Review


40% OF TOTAL FREIGHT BILL IS FOR BRINGING

PACKAGING BACK FROM CUSTOMERS


Finished ProductDistribution

Expense($MM/yr)

TOTAL = $26 MM/yrTOTAL = $26 MM/yr

0

2

4

6

8

10

Returnables Freight Off Plant Warehouse

Off Shore Freight

Mgmt Expense

U.S. Plant

40%

24%

14%

9% 8%5%

10.4

6.3

3.7

2.4 2.01.2

VARIABLE COSTS

Financial Review


REPORTED VARIABLE COSTS ARE UNDERSTATEDDUE TO FIBERSTOCK CREDITS

We will focus on the "Out-of-Pocket" costs.

"Out-of-Pocket"Variable Cost

FiberstockCredit

ReportedVariable Cost

Financial Review


SALT COST IS CONSISTENTLY ONE-HALF OF"OUT-OF-POCKET" VARIABLE COSTS

0%

20%

40%

60%

80%

100%

'89 Actual

'90 Actual

'91Profit Objective

% ofOut-of-PocketVariable Cost

$0.72/lb $0.85/lb $0.87/lb

Salt Price

Chemical Loss

Cost Book Yield Loss

Other Material

Power Energy

Adjustment

Source: product Cost Detail (6/91)

Financial Review


SALT COSTS HAVE INCREASED NEARLY 20%SINCE 1989

0.35

0.40

0.45

'89 Actual '90 Actual '91Profit Objective

0.42

0.44

0.37

Source: product Cost Detail (6/91)

Salt Cost($/lb)

+20%

0%

+10% % Changefrom '88

Financial Review


MOST VARIABLE COSTS ARE UNAVOIDABLE,BUT CAN STILL BE IMPROVED

Variable Cost (Out-of-Pocket)

Salt Prices

• Adipic Acid

• Diamine

Power Energy

Chemical Loss

Adjustments

Salt Prices

• Adipic Acid

• Diamine

Power Energy

Chemical Loss

Adjustments

Cost Book Yield LossCost Book Yield Loss

Unavoidable* Avoidable

Other Material

• Salt Additives

• Finishes

• Packaging

• Tubes, etc.

Other Material

• Salt Additives

• Finishes

• Packaging

• Tubes, etc.

*Unavoidable:Cannot manufacture product without incurring these costs

Non-Improvable Improvable

Financial Review


27% OF VARIABLE COSTS CAN BE ADDRESSED

TOTAL Variable Costs (Out-of-Pocket) = $268MM/yrSource: product Profit Objective '91

$73 MM/yrto Address

Avoidable$38 MM/yr

AvoidableImprovable$35 MM/yr

AvoidableNon-Improvable

$195 MM/yr

Cost BookYield Loss

14%

OtherMaterial

13%Salt51%

Energy10%

ChemicalLoss8%

Adjust4%

Financial Review


COSTS DUE TO COST BOOK YIELD LOSS VARYGREATLY – HOWEVER, THE TREND IS UP

Source: product Cost Detail (6/91)*Calculated

Cost BookYield Loss

Cost($/lb)

+80%

0%

% Changefrom '88

0.080

0.100

0.120

0.140

0.160

0.180

'89 Actual '90 Actual '91Profit Objective

0.167

0.124

0.095

+60%

+40%

+20%

CBY*= 82% 74% 80%

Financial Review


SIGNIFICANT OPPORTUNITIES EXIST ACROSS THETOTAL COST BASE

Total Cost

Fixed Cost

Variable Cost

Direct Factory

Indirect Factory

Non-Factory(Overhead)

Unavoidable

Avoidable

Improvable

BenchmarkedOpportunity

To Be Scrutinized}$666MM

$425MM

$265MM

$136MM

$126MM

$118MM

$38-68MM}

$118MM

$207MM

$38MM

$35MM

Non-Improvable

$176MM

Financial Review


SUMMARY

• Deteriorated financial position due to flat shipments and eroded gross margin

• Must improve near term performance in order to attract XXXX internal investment for the product Business

• Significant opportunity to reduce fixed costs, both non-factory and factory

• A major portion of variable costs can also be addressed and potentially reduced

FINANCIAL REVIEW

Documents

Transcript of FINANCIAL REVIEW