VisuSon: Business Stress Testing

On the evening of Friday, October 10, 2008, Linda Ott sat alone in her office contemplating the
year to come. Linda was the founder of VisuSon, Inc. (VSI), a small manufacturer of medical
ultrasound equipment, and the only CEO the company had ever had, Linda reflected on the
meeting she had had that afternoon with Jonathan Foley, VSI’s CFO. At the meeting, they
reviewed the company’s result for the third quarter just ended and discaussed projections for the
rest of 2008 and for 2009. The last item on the agenda – the look at 2009 – dominated their
discussion and now occupied Linda thoughts.
Sales were at a record high in the third quarters of 2008. Furthermore, the company’s
book of confirmed orders provided ample assurance that the fourth quarter, and 2008 as a whole,
would continue VSI’s established pattern of double-digit growth (see Exhibits 1-3).
But there were dark clouds on the horizon. The Dow Jones Industrial Average had just
closed at 8451, nearly 20% below its level of a week before and down 40% from a year ago. Of
more direct importance to VSI, the February collapse of the auction-rate securities market
produced some delays in order and collections, while many US hospitals, VSI’s largest group of
customers, scrambled to replace their auction-rate debt with alternative sources of capital. Both
Linda and Jon believed that this on problem had reduced sales growth for the year by several
percentage point from what they had projected at the same meeting a year ago. Both Linda and
Jon agreed that a wider credit crisis would negatively impact 2009 sales, but there was no
historial precedent on which to based a reliable forecast.
Linda worried about the near-term impact on earnings and the long-term strategic
impactof a slowdown while VSI prepared to release its first entirely new product platform in
several years. The new platform accounted for nearly 30% of VSI’s research and development
budget plus more than $10 milion in capital expenditures over the last two years. Jon, however,
had cautioned against “fixating on sunk costs,” as he put it. He believed the company should be
focused on cash flow and VSI’s own access to financing as much as customer demand. As Linda
pored over the numbers and considered various scenarios, she wondered whether Jon might be
right.

ULTRASONOGRAPHY
Medical devices for ultrasound imaging (ultrasonography) use high-frequency sound waves to
generate graphical representations of soft tissue, organs and blood flow. This often can be
accomplished non-invasively throught the application of probes, called transducers, to the
surface of the patient’s skin. In some important applications, transducers are inserted into body
cavities or even into blood vessels to produce better images. Modern ultrasonography equipment
is capable of producing moving 3-D images of internal body structures in real time. With the use
of so-called doppler technology and color display, the speed and direction of fluid flow can be
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accurately measured and displayed. Ultrasonography is generally a less expensive form of
radiology than magnetic resonance imaging (MRI) and computed tomography (CT). In contrast
to CT and X-Ray imaging, ultrasonography does not expose the patient to potentially harmful
radiation. Consequently, ultrasonography has developed into the most common form of
radiology for some areas of medicine. Cardiology and obstetrics/gynecology, for example,
provide important applications for ultrasonography.
By 2008, the global market for ultrasonography equipment was dominated by four large
medical device manufactures that werw themselves divisions of global conglomerates. Industry
analystry estimated that Philips Healthcare, Siemens Healthcare, GE Healthcare, and Toshiba
together controlled approximately 80% of the worldwide market. But the medical ultrasound
market remined quite dynamic and innovative with more than a dozer smaller competitors vying
for the remaining share. In addition to new and niche competitors from North America and
Europe, new entrants into the global market were emerging from other parts of the world,
particularly China. Historically, as smaller competitors established themselves and grew, they
were often acquired and absorbed by one of the four dominant players.
Rapidly developing technology and above average growth drove the dynamism of the
ultrasonography equipment industry. The US domestic market for medical ultrasound had grown
at 4 to 6% annually for the last decade. Certain segments, especially cardiology and so-called
hand-carried ultrasound (HCU), were projected to grow much faster than the overall market. By
2008, industry analysts believed that the US market, which accounted for more than 40% of the
global market, had reached saturation. New sales were primarily replacing oldertechnology. In
contrast, markets in the developing world were expected ti grow at annual rates above 5% for at
least the next five to seven years.

COMPANY BACKGROUND
VSI manufactured its ultrasonography system at a plant in Apple Valley, California, and sold
them worldwide through a network of independent distributors. The firm began as Visutech
Partners in 1998, commercializing and licensing novel signal processing and visualization
algorithms pioneered by Linda Ott’s former academic reearch laboratory.
After several years of initial development efforts, the fledgling firm signed a licensing
agreement with Bainbridge Manufacturing. At the time, Bainbridge was a contract manufacturer
of components for the medical ultrasound market. It possessed considerable manufacturing
expertise but lacked proprietary technology of its own. Bainbridge hoped to uesd the licensed
technology to move up from lower margin contract manufacturing into the more profitable
market for integrated ultrasonography systems. By the time Bainbridge’s new system had won
approval from the US Food and Drug Administration, Visutech had merged with a unit of
Bainbridge, forming VSI with Linda as a Chief Executive and the former head of the Bainbridge
unit as the newly independent firm’s Chief Operating Officer. Linda’s former principal research
collaborator, Dr. Simon Lee, was retained as Director of Engineering (see Exhibit 4).

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 As a new firm entering a market dominated by much larger firms, VSI chose to target a
mid-tier niche. It focused on cardiology applications where it believed its proprietary technology
conferred the greatest advantage. VSI targeted its initial offerings well. Within its first six years,
its systems were in used in hospitals and medical practices across all 50 states and in most
countries in Western Europe. One major competitor responded to VSI’s entry into their market
by negotiating an agreement under which they resold VSI’s top-of-the-line system under their
own brand. Though nearly 70% of its revenues still came from the domestic merket, with the
addition of two global distributors, VSI’s expansion into Asia and Latin America had begun.

VISUSON, INC. IN 2008

By the start of 2008, VSI had grown to just over 200 full-time employees. Of this number,
roughly half were in manufacturing. The engineering department employed a staff of 25
scientists an engineers supported by a dozen technicians. As most sales were handled through
distributors, the sales and marketing staff totaled just 25 employees. The accounting and finance,
information technology, human resources and payroll, and legal staffs, all reportingto Jon Foley,
made up the remainder.
As medical diagnostic devices, VSI’s products were subject to extensive regulations by a
number of governmental authorities. Chief among these was the US Food and Drug
Administration (FDA). In addition to its role of overseeing ang approving pre-clinical testing of
VSI’s products, the FDA also oversaw registration of VSI’s manufacturing facility and
compliance with the FDA Quality System Regulation. Consequently, all of VSI’s manufacturing
employees were required to learn and maintain proficiency with the company’s stringent quality
control and recording systems. Together with the skill and training required for the
manufacturing process, this slowed the process of bringing newly hired manufacturing
employees up to full productivity and placed a premium on the retention of skilled employees.
VSI’s only seasonal or part-time employees were clerical. Accounting and legal temps were used
to fill occasional staffing shortages.

Beyond the impact it had on the manufacturing process, regulation drove the new product
release process. All of VSI’s products were required to obtain pre-market clearance as FDA
510(k) Class II devices before they could be sold in the domestic market. Typically the process
of pre-market notification and clearance for VSI’s products required two to three months, but for
the most innovative products it could take substantially longer. For example, the process of
earning clearence for VSI’s first intravenous transducer catherer required well over a year.
VSI’s systems were modular platforms, enabling incremental expansion or enhancement
of their functionality. As transducer technology advanced, VSI introduced new and improved
probes. These new components could be added to existing platforms. Frequently this necessitated
concurrent upgrades to the processing and control software. Less frequently, VSI upgraded the
digital signal processing unit at the core of each system. Since the introduction of VSI’s original
platform, the Alpha-PD, it had introduced just one new platform, the smaller and less costly

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Delta-CV. In 2007, both platform were enhanced and were now marketed as Alpha-PDx and
Delta-CVx. Customers with older devices were able to purchase upgrades to bring their existing
devices up to the latest standard.
Sales to new customers typically resulted from a lengthy process. In general the time
from initial contact with a VSI distributor to the final delivery and acceptance was between 12
and 18 months. Existing customers periodically purchased new probes or other system upgrades,
but even these smaller sales could normally be measured in months from inception to delivery.
Platform sales to new customers and often to existing customers were competitive. It was not
uncommon for customers to require competing vendors to place equipment at the customer’s
location for direct comparison and evaluation. For especially promising or demanding accounts,
VSI provided not only equipment but staff sonographers to augment the distributors
representatives in demonstrating equipment and training customer personnel.
Due to the lenght of the sales cycle, VSI began each year with a strong indication of the
volume of sales to be expected in the coming year. For more than two thirds of their annual
platform sales, the sales cycle was already underway before the beginning of the year.
Moreover, VSI kept careful track of its end customers. The company’s knowledge of its
customers and their applications for its systems were invaluable in forecasting the numbers who
would purchase upgrades. This helped VSI develop quarterly and annual sales targets for its
distributors.

THE BUDGETING PROCESS

The overall market for medical ultrasound equipment had historically expanded at an annual
growth rate of 4-6%, and the market segments on which VSI focused grew at an even faster clip.
Thus, from the early years of the firm, VSI’s management systems were designed to allow the
firm to cope with rapid growth. The budgeting process was a key element of the firm’s
management system. The budget provided the foundation for VSI’s planning, control and
incentive systems.
VSI’s planning and budgeting cycle started 13 month prior to the start of the company’s
fiscal year (see Exhibit 5). It began with the annual meeting of the Radiological Society of North
America (RSNA), which was held in late November of each year. This profesional conference
was well attended by radiologists and other physicians from across North America and beyond.
It also featured an exhibit space where virtually all of the radiology equipment vendors came to
show their latest offerings. The meeting was an opportunity for VSI to meet with its most
important North American distributors, key customers and prospects. Initial feedback gathered at
RSNA allowed VSI sales and marketing to develop business forecasts for the coming year.
Coincident with the RSNA meeting, industry analysts would release their annual updates
of market growth, market share, and five-year forecasts. VSI did not rely on these market
analyses for forecasting the next year’s sales. The state of the sales pipeline and distributors
quota commitments were far more useful for near-term sales forecasting. But the market

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analyses aided VSI’s marketing team in planning and positioning the firm and its products for
the years beyond.
Engineering managers, together with product managers from the marketing team, would
begin finalizing specifics and features for any new products to be introduced at the next year’s
RSNA meeting shortly after they returned from the current year’s meeting. This was necessary
as the FDA pre-market certification process required months and needed to be successfully
concluded ahead of the next meeting. A detailed understanding of the features of the product line
was required in order to anticipate unit costs and relative market competitiveness as well as to
develop pricing plans. Engineering personnel, together with specialists in the legal department,
were responsible for the FDA 510(k) pre-market notification process. Typically VSI sought
certification from foreign regulators.
By early February, on the basic of the plans provided by the engineering and marketing
departments, the manufacturing department would begin to generate bills of materials, labor
standards, and cost estimates. Capacity projections and capital equipment requirements were also
developed by manufacturing as part of this process. Manufacturing would initiate negotiations
with suppliers to meet their anticipated needs for components, subassemblies and any
additionalcapital equipment required by the manufacturing process. Thought underway by mid-
year, these agreement would not be finalized before December when the budgets were finalized
and then approved by VSI’s board of directors.
While engineering was navigating the approval process and manufacturing was
developing cost estimates, it fell to sales to begin working with the distributors. Although most
distributor agreement were renewed each December as part of the quota commitment process,
sales worked with the distributors throughtout the year. In additional to monitoring current sales
activity and achievements towards quota, the sales department worked through a formal review
and evaluation process with each distributor of the partnership’s performance over the previous
year. At the same time, the distributors provided feedback on developing sales leads for the
coming years. Together with the distributors, sales would formulate plans to support these sales
efforts with VSI demonstration and training staff as well as evaluation equipment. Sales would
also begin providing distributors with advanced marketing information concerning forthcoming
offering in order to elicit feedback on anticipated volume and market pricing. Through most
distribution and sales agreements included confidentiality clauses, the distribution network was a
valuable source of competitive intelligence regarding expected features and pricing by
competitors. This information was combined into a preliminary sales forecast provided to the
budget commitee by mid-August of each year.
On the basic of the preliminary forecast from sales and their own planning effort for any
new products, manufacturing developed and submitted a draft labor budget to human resources
(HR). The other departments also submitted staffing requests at this time, but the manufacturing
labor budget was the most critical. HR was responsible for developing the staffing and training
schedule for the coming years. As part of this process, HR reviewed the salary and wage surveys
it purchased from consultants to ensure that VSI kept pace with the competitive labor markets.
Salaries and wages were a significant cost category for VSI. This information was critical for
developing department managers’ merit pay budgets for the coming years as well as for refining
the direct labor budget.
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 The most intensive phase of the budget process took place each September. By this point
in the year, the volume of sales and product mix for the coming year was relatively predictable.
Combining the updated sales forecast distributed by the sales department at the beginning of the
month with salary, wage and staffing information provided by HR, department managers
developed detailed budgets for their departments using a standardized spreadsheet produced by
the Accounting department. The design of the spreadsheet largely automated the roll-up of
department budgets to higher organizational level. But in the budgeting review processes,
changes were inevitably suggested, forcing negotiation and revisions. The budgeting review
effort was intensive, but the process was not overly cumbersome because VSI’s management
consisted of fewer than 20 individuals. Finally, in December, VSI’s executive commitee, and
then the board of director, approved the consolidated budget.
Management of cash and working capital was a critical issue for this small, rapidly
growing company. VSI management and its bankers agreed that the firm should typically hold
six weeks of operating expenditures in its cash accounts. In an effort to be responsive to the
needs of its distributors and customers, VSI maintained a policy of holding 30 to 40 days foward
sales in finished goods inventory. Finished goods accounted for just more than 40% of thetotal
value of inventory, with the reminder split about equally between work in process and raw
materials. At the other end of its operating cycle, VSI’s accounts receivable balance hovered
between 60 and 80 days of trailing sales. In an effort to minimize net operating capital, VSI
maintained accounts payable and accrued liabilities at the highest level possible while still taking
advantage of all available trade credits for prompt payment. Likewise, expenses were only
prepaid when required. Nonetheless, its long operating cycle and high growthrate required VSI
to finance this growing investment in working capital throught short-term borrowing against the
value of its accounts receivable and inventories. Thus, before any budget could be considered
viable, it required review and approval by the finance department.
Anywhere from one-third to one-half of the managers’ cash compensation was tied to
achievement of objectives set by the executive commitee and the board at the start of each year.
For first-level managers, one-third of cash compensation was considered “at-risk”, with the level
rising to 50% for Linda. For managers, achievement of budget objectives was weighted 50% in
importance for determining the annual bonus. The remaining 50% was based on achievement of
other quantified goals and/or a subjective evaluation of performance.

THE NEW CHALLENGE

The budget that Jon Foley delivered to Linda earlier in the day was based on an assumption of
10% revenue growth for 2009 (see Exhibits 6 and 7), a level that had been cosidered quite
conservative just a month earlier. It included plans to bolster Asia/Pacific and Latin America
sales support by hiring more account managers and sonographers and by devoting additional
demonstration equipment to these markets. While it included no plans for major product releases
in 2009, engineering and marketing planned to begin the FDA 510(k) process for approval of the
new hand-carried ultrasound (HCU) platform targeted for release in 2010. Recently, the HCU
market had grown faster than the cart-based segment where VSI currently competed. Analysts

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were forecasting an acceleration of the shift towards greater use of HCUs. Linda and the board
were eager to enter this new market segment.
With the assumption of 10% growth, most first level management perceived that they
would face tight resource constraints. Manufacturing headcount and manufacturing
compensation were budgeted to grow by only 6.4% and 9.0%, respectively. Capital expenditures
were actually budgeted to fall significantly as the firm more fully utilized existing capacity.
Additional investments were expected to accompany the new HCU platform introduction in
2010. By far the most significant growth in operating expenses would come from expansion of
the sales staff, with total compensation expenses in sales and marketing budgeted to increase by
slightly less than 40%. This was considered an investment required to maximize the potential
growth from new product introductions in subsequent years. Growth in engineering head count
of 12% and engineering compensation of just over 15% was in equal parts justified by growth in
manufacturing capacity and the installed base and by development of the new product line.
Finally, the roughly 12% growth in headcount and compensation expense within finance was
deemed necessary to support growth in the other three functions.
However, while the strategic importance of growing into new markets and keeping ahead
of the technology would not change, continuation of the market’s and VSI’s high rates of growth
could not be assured. The US domestic market was dominated by private no-for-profit hospitals
which rely in part on endowments like those of some private universities. The nearly 40% fall in
equity markets values was sure to adversely affect such investment portfilios. Goverment-owned
hospitals were already anticipating funding shortages because the slowdown was reducing tax
revenues. In addition, the crisis was likely to reduce demand for elective procedures, further
reducing all hospitals’ revenues and spending. Consequently, analysts were beggining to
speculate about a decrease in capital spending by US hospitals of as much as 14% in 2009. Yet,
it was unclear how capital spending on radiology generally, and sonography in particular, might
be affected. As the bulk of sales in the domestic market were replacements for older technology,
many customers could defer purchases.
Customers had already shifted purchases to later in the year during 2008. Linda and
others at VSI feared that this pattern could become more pronounced due to the developing
recession. With limited workforce flexibility, VSI would be forced to choose between building
inventory early 2009 or risking stocking out later in the year. Fortunately,the sales mix was
expected to remain essentially fixed, as it was driven by customers’ clinical requirements rather
than by financial factors.
As Linda reviewed the spreadsheet Jon Foley had prepared for the 2009 budget, she
considered his words of caution. Jon believed that in the short term VSI’s fate could be
determined by how well they managed cash and by their ability to access bank financing. He felt
that all plans should be built upon an assumption of reduced gross debt levels and improved debt
ratios. He suggested that they “prepare for the worst and hope for the best,” and advocated
beginning a policy of “deferring expenditures and wringing cash that committing to plans for
growth was risky and that “modest cut now [could] avert severe cuts later.” While Linda had
come to rely on Jon’s financial expertise, her trusted friend and collaborator, Simon Lee, had
privately criticized the CEO as overly cautious and Peter Beeson had no more than one occasion
dissmissed him as “just a bean counter.” In contrast, Tom Nelson, VSI’s COO, who had worked
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with Jon at Bainbridge, never made a significant proposal without having Jon first vet the
numbers.

EXHIBIT 1 Income Statements

9 month
2008 ended
Income Statement (estimated) 9/30/08 2007 2006
Revenues (net) $59,766 $44,227 $52,994 $47,443
Cost of goods sold 27,269 20,224 24,806 22,930
Gross margin 32,498 24,003 24,288 24,513

Operating expenses
Selling 10,633 7,921 9,581 8,705
R&D 7,566 5,744 6,646 5,856
General and administrative 7,458 5,611 7,028 6,673
Operating income 6,811 4,728 4,933 3,279

Interest expense 1,060 773 886 653

Income before tax 5,751 3,955 4,046 2,626
Tax 2,013 1,384 1,416 919
Income before extraordinary item 3,738 2,570 2,630 1,707

Extraordinary item (net of tax) - -

Net income $3,738 $2,570 $2,630 $1,707

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 EXHIBIT 2 Balance sheets

9 month
2008 ended
Balance sheet (estimated) 9/30/08 2007 2006 2005
Current assets
Cash $5,930 $5,448 $5,258 $4,701 $4,178
Accounts receivable (net) 12,898 12,153 11,436 10,238 9,093
Inventories 6,767 6,216 6,000 5,371 4,770
Prepaid expenses 2,030 1,835 1,800 1,611 1,431
Total current assets 27,625 25,652 24,494 21,922 19,472

Non-current assets
Property, plant, and equiptment 26,531 26,945 24,108 21,583 19,167
Less accumulated depreciation 6,323 6,353 6,356 6,430 6,483
20,208 20,592 17,752 15,152 12,685

Other assets 4,282 4,209 3,522 2,988 2,466

- -
Total assets $52,155 $50,454 $45,767 $40,063 $34,624

Current liabilities
Accounts payable 4,496 4,348 4,423 3,960 3,516
Notes payable 14,860 14,640 12,040 9,470 6,210
Tax payable 384 253 368 239 111
Accrued liabilities 2,437 2,357 2,397 2,146 1,906
Current portion of long-term debt 339 339 339 339 339
Total current liabilities 22,516 21,938 19,568 16,154 12,083

Non-current liabilities
Long-term debt 348 433 687 1,027 1,366

Total liabilities 22,865 22,371 20,255 17,180 13,448

Owners’ equity
Common stock 189 189 189 189 189
Additional paid-in-capital 4,546 4,546 4,546 4,546 4,546
Retained earnings 24,516 23,348 20,777 18,147 16,440
Total owners’ equity 29,251 28,083 25,512 22,882 21,175

Total liabilities and equity $52,115 $50,454 $45,767 $40,063 $34,624

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EXHIBIT 3 Statement of cash flows

9 month
2008 ended
Statement of cash flows (estimated) 9/30/08 2007 2006
OPERATIONS:
Net income $3,738 $2,570 $2,630 $1,707
Adjustmentto reconcile:
Depreciation and amortization 5,182 3,836 4,275 3,813
Accounts receivable (1,462) (717) (1,198) (1,146)
Inventories (767) (216) (628) (601)
Prepaid expenses (230) (35) (189) (180)
Accounts payable 73 (75) 463 443
Tax payable 15 (115) 129 128
Accrued liabilities 40 (41) 251 240
Cash flow from operating activities 6,590 5,208 5,734 4,405

INVESTING:
Additions to PP&E 6,509 5,845 5,978 5,482
Acquisitions of technology licenses 1,889 1,519 1,430 1,321
Cash flow used for investing activities 8,398 7,364 7,409 6,803

FINANCING:
Borrowing of notes payable 14,860 11,510 12,040 9,470
Repayments of notes payable (12,040) (8,910) (9,470) (6,210)
Long-term borrowing - - - -
Repayment of long-term debt (339) (254) (339) (339)
Cash dividens paid - - - -
Cash flow from (used by) financing 2,481 2,346 2,231 2,921
Net increase (decrease) in cash $673 $190 $557 $523

Cash paid for income taxes $1,621 $1,122 $1,287 $791

Cash paid for interest $1,054 $780 $846 $614

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 EXHIBIT 4 VisuSon, Inc.: organization chart

Linda Ott, Ph.D.

CEO

Dr. Simon Lee Peter Beeson

Jonathon Foley Director of Director of Sales Thomas Nelson
CFO Engineering and Marketing COO

Accounting & Research Domestic Sales Manufacturing

Finance

Human Resources Software Canadian & Product Support

& Payroll Development European Sales

Legal Hardware Design Global Markets

& Engineering

Marketing &
Information Product
Technology Management

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 EXHIBIT 5 Budget timeline

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 EXHIBIT 6 Staffing

Anticipated
Current Estimated Requested Estimated
need
FTE attrition FTE wage increase
Staffing Budget (excess)

Manufacturing:
Management 4 - 4 - 3.0%
Supervisory 8 1 8 1 2.0%
Labor & Technical 92 4 98 10 2.0%
Clerical 5 1 6 2 0.0%
109 6 116 13

Engineering:
Management 4 - 4 - 3.5%
Science 5 - 5 - 3.0%
Engineering 16 1 16 1 3.6%
Technical 11 1 14 4 2.6%
Clerical 6 1 8 3 0.0%
42 3 47 8

Sales & Marketing:

Management 5 - 5 - 2.0%
Commissioned 4 1 5 2 1.5%
Professional 6 - 9 3 2.7%
Technical 10 2 15 7 3.0%
25 3 34 12

Finance Division:
Management 5 - 5 - 3.0%
Professional 9 1 9 1 3.0%
Technical 6 8 2 1.8%
Clerical 12 2 13 3 0.0%
32 3 35 6

208 15 232 39

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 EXHIBIT 7 Summary budget

2009 Budgeted
Income summary Comments and analysis
Revenues (net) $65,743 10% growth
Cost of goods
Direct materials 12,742
Direct labor 6,959
Manufacturing overhead
Salary and wages 4,078 Includes $160 for management bonuses
Depreciation and amortization 3,148 Includes $596 om 2009 investment
Miscellaneous 2,919 10,145 29,846 Includes indirect materials, utilities, and
maintainance: 74% fixed
Gross margin 35,897

Operating expense
Selling
Salary and wages 2,807 Includes estimated commissions of $965
+ $190 management bonus
Marketing and advertising 5,036 85% discretionary / 15% variable
Shipping 1,747 95% variable, based on estimated
forward rates
Sales promotion funding 1,972 11,562 Discretionary-variable

Research and developement

Salary and wages 4,934 Includes $210 for management bonuses
Depreciation and amortization 1,712 Includes $430 om 2009 investment
Consulting 1,640 Discretionary
Miscellaneous 39 8,325 Discretionary

General and admin.

Salary and wages 6,567 Includes $445 for management bonuses
Travel and training 2,060 Discretionary
Depreciation and amortization 791
Miscellaneous 395 9,813 29,700 Includes $105 of contract labor: 20%
variable
Operating income 6,197
Interest expense 1,250 At assumed rate of working capital
growth
Before tax income $4,947
Capital expenditure $5,960 92% for replacements and licese
renewals

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