Harvard Business School 9-193-053
Rev. March 6, 1997
Research Associate Marc H. Zablatsky prepared this case under the supervision of Professors Amy Patricia Hutton and
William J. Bruns, Jr., as the basis for class discussion rather than to illustrate either effective or ineffective handling of an
administrative situation.
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1
Summit Distributors (A)
Kathy Hutton, chief executive officer of Summit Distributors, was concerned with the poor
economic outlook for the coming year. Continued deterioration of the economy could place the
future viability of Summit Distributors in jeopardy. After a decade of steady growth in earnings per
share (EPS), the company had experienced a 32% decline in EPS for 1990 and a 40% decline for 1991
(see Exhibit 1). Furthermore, the 1992 operating budget forecasted the company's first loss in over
two decades.
Because of the deterioration of general economic conditions in the United States and
elsewhere, Summit began a program of selling, liquidating, or otherwise disposing of unprofitable
domestic and foreign operations. In the fiscal year 1992, a provision for losses of $3.7 million was
expected for disposal and restructuring of domestic operations, and a provision for losses of $2.4
million was expected for disposal of foreign operations. The forecasted losses would cause retained
earnings to decline from $11.6 million in 1991 to $5.6 million by the end of 1992.
Summit Distributors was in danger of default on financial...