financial performance analysis

Company’s Operations

Your company currently produces footwear at 2 plants—a 2 million-pair plant in North America and a newer 4 million-pair plant in Asia. Both plants can be operated at overtime to boost annual capacity by 20%, thus giving the company a current annual capacity of 7,200,000 pairs. Sales volume in Year 10 equaled 5.2 million pairs, so there’s no immediate urgency to add more capacity. At management’s direction, the company’s design staff can come up with more footwear models, new features, and stylish new designs to keep the product line fresh and in keeping with the latest fashion. The company markets its brand of athletic footwear to footwear retailers worldwide and to individuals buying online at the company’s Web site. In years past, whenever the company had more production capacity than was needed to meet the demand for its branded footwear, it entered into competitive bidding for contracts to produce footwear sold under the private-label brands of large chain retailers. In Year 10 the company sold 4.5 million pairs of branded shoes to retailers and individuals, and it bid successfully for contracts to supply 740,000 pairs of private label shoes to large multi-outlet retailers of athletic footwear.

Materials to make the company’s footwear are purchased from a variety of suppliers, all of whom have the capability to make daily deliveries to the company’s plants; the company’s just-in-time supply chain eliminates the need for maintaining materials inventories at its plants. Newly produced footwear is immediately shipped in bulk containers to one of the company’s four regional distribution centers. The distribution center for Europe-Africa is in Milan, Italy. The distribution center for the Asia-Pacific region is in Bangkok, Thailand. The Latin American distribution center is in Rio de Janeiro, Brazil, and the North American distribution center is in Memphis, Tennessee. Many countries have import duties on footwear produced at plants outside their geographic region; import tariffs, which become payable when your company ships footwear to foreign distribution centers, currently average $4 per pair in Europe-Africa, $6 per pair in Latin America, and $8 in Asia-Pacific. However, the Free Trade Treaty of the Americas allows tariff-free movement of footwear between all the countries of North America and Latin America. The countries of North America, which strongly support free trade policies worldwide, currently have no import tariffs on footwear made in either Europe-Africa or Asia-Pacific. Your instructor has the option to alter tariffs as the game progresses, so the current tariff arrangements should be viewed as temporary.

Shipping and Distribution Center Operations.

Personnel at the company’s distribution centers open the bulk shipments from plants, pack each incoming pair in individual boxes, store the shoe boxes in bins numbered by model and size, retrieve the pairs/boxes from bins as needed to fill incoming orders from footwear retailers and online buyers, and ready orders for shipment. Arrangements are made with independent freight carriers to pick up outgoing orders at the loading docks of the distribution centers and deliver them to customers. Each distribution center maintains sufficient inventory of each model and size to enable orders to be delivered within 1 to 4 weeks from the time the order is placed. You and your comanagers will decide whether to staff for 1-week, 2-week, 3-week, or 4-week delivery to retailers.

Competitive Efforts in the Marketplace.

From-time-to-time the company enhances its footwear with new styling and performance features and alters the number of models/styles in its product lineup. In addition, the company strives to enhance its sales volume and competitive standing against rivals via attractive pricing, advertising, mail-in rebates, contracting with celebrities to endorse its brand, convincing footwear retailers to carry its brand, providing merchandising and promotional support to retailers, good delivery times on shipments to retailers, and promoting online purchases at its website.

Stock Listings and Financial Reporting.

The company's stock price has risen from $11.00 in Year 6, when the company went public, to $30 at the end of Year 10. There are 10 million shares of the company's stock outstanding. The company’s financial statements are prepared in accord with generally accepted accounting principles and are reported in U.S. dollars. The company’s financial accounting is in accordance with the rules and regulations of all securities exchanges where its stock is traded.