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The O.M.

Scoott & Sons Company


Scotts was founded in 1868 by Orlando Scott as a premium seed
company for the U.S. agricultural industry. Scotts also became a processor of
the countrys first clean, weed-free grass clean. By 1940 Scottss sales had
reached an all-time record high of $1.000.000 and the company boasted 66
associates. Between 1955 and 1961, management of the O.M. Scott & sons
company launched a number of new programs aimed at maintaining and
increasing the companys past success and growth. In response to these
program the sales force grew from 6 to 150. Sales increased from about $10
million to $43 million. By 1955 management was convinced that neither Scott
nor its competitors had begun to develop and tap the national inherent in the
national lawn care market. This failure to develop and tap the national market
in Scotts own case was attributed to the fact that the companys customers
could not buy its products easily where and when they expected to find them.
Consumer could only purchase Scott seed through mail. Scotts distribution
system had not developed adequately in response to developing market
opportunities, and in many instances the companys dealers were either poorly
stocked or not in the right kind of dealer for the companys product. Thus
began a new stage in Scotts development. Early in 1955 the company
launched a program of building a national field sales organization to increase
the number, quality, and performance of its distributors. The program produce
field sales force increase from 6 to 150 by 1960. This program also kept pace
with the buildup in the direct selling force, so by the end of the 1950s the
company was engaged in the purchase, processing and sale of grass seed, as
well as the manufacture and sale of fertilizers. After reviewing again in early
1959, management was still not satisfied that the company was marketing its
products as effectively as possible. After many factors the led management
conclude that the most effective way for Scott to preserve its preeminent
market position would be to push for immediate further market penetration. If
this strategy success it would enable Scott to eclipse competition before its
competitors could establish a firm market position against the company. an
annual growth rate in sales and profits of up to 25% was thought to be a
reasonable goal for the company over the next few years.
In early 1959, management thought that the most important factor
standing in the way of further rapid growth ad market penetration was the
inability of the typical Scott dealer to carry an adequate inventory of Scott
products. Because of the highly seasonal character of retail sales of the
companys products it was essential that dealers have enough inventory on

hand to meet local sales peaks when they came. Failure to supply this demand
when it materialized most often resulted in a lost sale to a competitor, although
sometimes a customer simply postponed-buying. Because of their small size
and often weak working capital position, most of Scotts dealers could not
realistically be expected to increase their inventory investment in Scott
products. This meant that any desired buildup in dealer inventory would have
to be financed by Scott itself. In the past, the company extended generous
seasonal datings to its dealers, as was industry practice. Normal patterns is
winter and early spring shipments became due at the end of April or May,
depending on the geographical area. Shipments during the summer months
were due in October or November. These seasonal datings were made to
enable and encourage as many dealers as possible to be well stocked the
goods in advance of seasonal sales peaks. Anticipation at the rate of 0.6% a
month was offered on payments made in advance of these seasonal dates.
There is a problem rise in the Scott company :

The companys past experience with seasonal datings suggested that


certain change must be made if Scott proceeded to finance a higher
level of dealer inventories. Because of the seasonal nature of the
business, and the fact that most dealers were thinly capitalized,
payment was not often received by Scott until the merchandise involved
was sold. This means that many dealers were continually asking for
credit extensions.
The seasonal dating policy was that Scott retained little or no effective
security interest in the goods involved
The past Scott had followed a policy of not selling to dealers who could
not be relied upon to maintain prices at reasonable levels. It was thought
that widespread selling at discount prices would undermine the company
and the market image it was trying to project

After considerable study, it was decided to continue the traditional, seasonal


dating plan and to introduce a new trust receipts plan as well. The particular
plan adopted by Scott worked, a trust receipt dealer was required to sign a
trust receipt that provided for :

Immediate transfer to the dealer of title to any Scott products shipped in


response to a dealer order
Retention of a security interest by Scott in merchandise so shipped until
sold by the dealer acting as a retailer
Segregation of a sufficient proportion of the funds received from such
sales to provide for payment to Scott as billed.

Dealers using the trust receipt charged an extra 3% on the cost of purchases
from Scott. They also had to place all purchase orders directly through Scotts
field salespeople, in as much as these account executives were held
responsible by the company for controlling dealer inventories in connection
with the trust receipt plan. This last role of Scotts sales force was absolutely
central to the proper functioning of the trust receipt plan. Apart from
simplifying policing the level and character of dealer inventories, the account
executives also periodically inventoried the trust receipt dealers so that Scott
could bill the dealers for merchandise sold.

Balance Sheet
Balance Sheet

Cash
Account Receivable
Inventories
Total current assets

Land, buildings, equipment


Less accumulated depreciation
Net fixed assets
Investment in and advances to
affiliates
Other assets

Total assets

Accounts payables
Notes payable, bank
Accrued taxes, interest and other

1960

1961

2328.
7
15749
.7
3914.
3
21992
.7

1454.
3
21500
.5
5590.
5
28545
.3

8003.
4
1687.
1
6316.
3

8370.
2
2247.
1
6123.
1

462
1132

133.6
937.8

29903

35739
.8

2791

6292.
2

1941.

1207.

expenses
Current sinking fund
requirements
Total current liabilities
Long-term debt:
of parent company
of subsidiary
Total liabilities

Preferred stock
Common stock and surplus
Total liabilities and net worth

382.5
5114.
7

512.5
7959.
4

9000
4649.
5
18764
.2

12000
4170.
4
24182
.8

2347.
5
8791.
3

2254.
3
9355.
7
35792
.8

29903

Income Statement

Net sales
Cost of sales and operating expenses
Cost of products sold including processing,
warehousing, delivery, and merchandising (including
lease rentals of $872,557)
General and administrative research and
development expenses
Depreciation and amortization
Interest charges

1961

38396
.4

43140
.1

30416
.8

34331
.7

2853.
6
584.2

3850.
7
589.6
1131.
5
39903
.5
3236.
6
1665.
9
1570.
7

881.6
34736
.2
3660.
2
1875.
2

Total cost of sales


Earnings before taxes on income
Federal and state taxes on income
Net income after taxes

Ratio :
change in current
assets
change in current
liabilities

1960

1785

1960
0.7354
68
0.1710
43

1961
0.7986
98
0.2241
87

increa
se
increa
se

profit
decrea
se
increa
se

risk
decrea
se
increa
se