To: Professor Jamshed J. Mistry
From: Team 4
Subject: Memorandum for Wang Lab’s
Date: December 7, 2020
We, the undersigned students, analyzed the above case and prepared the attached
memorandum on our own. We neither sought nor received outside assistance of any kind in
analyzing the case or preparing the memorandum. Nor did we engage in discussions or
exchanges of information of any kind, including electronic, with anyone either in the course or
outside it, concerning the case study, our analysis of it, and our preparation of the attached
memorandum.
In signing this, each of us not only is stipulating that his/her hours are accurate, but also
that he/she has reviewed the hours spent by other team members, and agree that they are
accurate.
This statement is signed in full recognition of the Policy on Academic Conduct of
Rensselaer Polytechnic Institute, Lally School of Management.
Team Member Signature
Hours Spend on this Assignment
Allison Hunt
5
Eric Zeppa
4
Evan Dunn
4
Justin Miklos
4
Jack Vaccari
2
Charisse Stakutis
2
Nessa Costa
2
Joey Gutowski
2
Memorandum
From: Team 4
To: Wang President Richard Miller
Ref: Financial Problems
Recommendation:
We recommend that in order to avoid bankruptcy certain steps should be taken. These
steps include reducing the labor force, restructuring the organization with a focus on research
and development, and the assurance that IBM is not taking advantage of them.
Looking over the financial statements the financial problems had become apparent in
1987. In order to come to this conclusion the team analyzed the Income Statement and Balance
Sheet (Exhibit 1), the Additional Information from Annual Reports (Exhibit 2), and the
Consolidated Statement of Cash Flows (Exhibit 3) in order to calculate the Profitability, ShortTerm Liquidity Risk, and Long-Term Liquidity Ratios as seen in Exhibit 4. What makes Year
1987 stick out was how both the return on equity and return on assets both being negative.
Some causes that led to Wang’s financial problems were the changes in leadership, the
alliance with IBM, the economic recession, and the restructuring of the company. In late 1986
Frederick Wang became President of Wang Laboratories. During his two years revenue
increased, but expenses grew faster. This may have resulted due to the interest attached to the
debt, both long-term and short, that the company incurred. By the end of 1987, the company’s
net income dropped by $121.6 million compared to the previous fiscal year, with the profit
margin ratio dropping from 2.12 to -1.82. 1989 was also the start of a national economic
recession which resulted in rapid changes to technology. After a recovery year in 1988 where
Wang Laboratories saw an increase in net income to $90.7 million by years’ end, 1989 brought
about major obstacles as the company saw their long term debt rise to $627.4 million. Even
though the IBM alliance was supposed to benefit both sides, IBM took advantage of Wang Labs
in 1990 and capitalized on the first five deals instead of sharing the wealth.
In order to avoid bankruptcy Wang Labs should have followed the steps that Richard
Miller took to save the company. In August 1989 Richard Miller took Frederick’s place as
President and Wang Labs started to turn Wang Labs around financially. Miller sold fixed assets,
reduced the labor force, restructured the organization, and refocused its product lines. He split
the company into three divisions, Wang Information Systems, OFFICE 2000, and Personal
Computer Systems, which allowed each unit to focus on their respective roles and regain
leadership. Miller also placed an importance on Research and Development which allowed
Wang Labs. Placing importance on customers and quality would be how Wang Labs would
regain their footing that they almost lost. His partnership with IBM will also prove to be for the
best, but the company needs to make sure that IBM is not taking advantage of them and taking
all of the deals. These actions should have taken place in 1985 when the numbers started to go
south, but the change in presidency only made matters worse.
In conclusion, Wang Laboratories started to do poorly financially in 1987. This was
caused by the interest attached to the debt, both long-term and short, that the company incurred.
In order to avoid bankruptcy management should reduce the labor force, restructure the
organization with a focus on research and development, and assure that IBM is not taking
advantage of them. These steps should have taken place in 1987.
Exhibit 1: Selected Date from Financial Statements, 1982-1991 (In Millions of Dollars)
Income Statement
Accounts
1982
Total Revenues
$1,15 $1,53 $2,18 $2,35 $2,64 $2,83 $3,06 $2,86 $2,46 $2,09
9.30
8.00
4.70
1.70
2.50
6.70
8.40
8.80
1.10
1.50
Total Expenses
$1,02 $1,34 $1,92 $2,40 $2,58 $2,88 $2,94 $3,07 $2,96 $2,42
3.20
8.30
3.50
6.20
6.60
8.40
9.70
4.40
6.70
5.30
Operating Income
$136. $189. $261. $54.5 $55.9 $51.7 $118. $205. $505. $333.
10
70
20
0
0
0
70
60
60
80
Income Tax Provision
$29.0 $37.7 $51.0 $70.0
$19.0 $26.0 $218. $210. $51.7
0
0
0
0 -$5.00
0
0
70
30
0
Net Income
$107. $152. $210. $15.5 $50.9 $70.7 $92.7 $424. $715. $385.
10
00
20
0
0
0
0
30
90
50
Per Share Income
$0.90 $1.20 $1.50 $0.10 $0.40 -$0.40 $0.60 -$2.60 -$4.40 -$2.30
Balance Sheet Data
1982
Cash and Equivalents
$70.1 $232. $73.0 $48.3 $157. $179. $154. $258. $169. $233.
0
80
0
0
70
60
90
70
10
20
Accounts Receivables
$281. $320. $445. $479. $530. $576. $532. $536. $473. $316.
30
90
20
40
10
10
60
10
50
00
Inventories
$258. $316. $562. $469. $448. $412. $387. $359. $245. $162.
30
20
80
40
40
10
60
60
50
70
Other Current Assets
$40.7 $57.7 $46.9 $52.2 $68.0 $82.5 $102. $172. $187. $109.
0
0
0
0
0
0
50
90
60
60
Total Current Assets
$650. $927. $1,12 $1,04 $1,20 $1,25 $1,17 $1,32 $1,07 $821.
40
60
7.90
9.30
4.20
0.30
7.60
7.30
5.70
50
Other Assets
$537. $754. $1,12 $1,32 $1,44 $1,56 $1,66 $1,40 $863. $596.
50
20
4.00
6.60
5.10
2.10
0.40
4.00
80
40
Total Assets
$1,18 $1,68 $2,25 $2,37 $2,64 $2,81 $2,83 $2,73 $1,93 $1,41
7.90
1.80
1.90
5.90
9.30
2.40
8.00
1.30
9.50
7.90
Current Liabilities
$243. $308. $541. $455. $537. $653. $709. $973. $865. $727.
30
70
90
00
90
40
20
10
40
20
Long-Term Debt
$328. $363. $358. $666. $656. $667. $537. $627. $556. $499.
50
30
60
60
50
50
10
40
10
50
Other Liabilities
$39.0 $72.0 $102.
$103. $138.
0
0
00 $6.00 $7.30 $5.30 $5.60 $0.00
10
50
1983
1983
1984
1984
1985
1985
1986
1986
1987
1987
1988
1988
1989
1989
1990
1990
1991
1991
Total Liabilities
$610. $744. $1,00 $1,12 $1,20 $1,32 $1,25 $1,60 $1,52 $1,36
80
00
2.50
7.60
1.70
6.20
1.90
0.50
4.60
5.20
Common Stock
$274. $494. $612. $617. $788. $923. $962. $952. $952. $976.
60
40
00
40
70
50
60
00
80
10
Retained Earnings
$302. $443. $637. $630. $658. $562. $629. $178. $537. $923.
50
40
40
90
90
70
10
80
90
40
Total Shareholders' Equity
$577. $937. $1,24 $1,24 $1,44 $1,48 $1,59 $1,13 $414. $52.7
10
80
9.40
8.30
7.60
6.20
1.70
0.80
90
0
Total Liabilities and Equity
$1,18 $1,68 $2,25 $2,37 $2,64 $2,81 $2,84 $2,73 $1,93 $1,41
7.90
1.80
1.90
5.90
9.30
2.40
3.60
1.30
9.50
7.90
Exhibit 2: Additional Information from Annual Reports, 1982-1991
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
High
37.88 42.50 41.00 31.88 22.88 19.13 19.13 11.13
8.00
5.00
Low
24.00 12.31 23.75 15.00 14.88 10.50
9.63
7.13
3.75
2.00
Dividends
0.12
0.16
0.16
na
na
Average Shares
Outstanding (millions)
121.7 130.6 138.1 141.1 146.6 159.8 165.7 163.6
na
na
Average Number of
Employees
17700 21700 27700 31700 31000 29700 29300 29200 22300 18100
Stock Prices:
0.09
0.12
0.16
0.16
0.16
Exhibit 3: Consolidated Statement of Cash Flows, 1982-1991 (In Millions of Dollars)
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
High
37.88 42.50 41.00 31.88 22.88 19.13 19.13 11.13
8.00
5.00
Low
24.00 12.31 23.75 15.00 14.88 10.50
9.63
7.13
3.75
2.00
Dividends
0.12
0.16
0.16
na
na
Average Shares
Outstanding (millions)
121.7 130.6 138.1 141.1 146.6 159.8 165.7 163.6
na
na
Average Number of
Employees
17700 21700 27700 31700 31000 29700 29300 29200 22300 18100
Stock Prices:
0.09
0.12
0.16
0.16
0.16
Operating Activities
1982
1983
1984
1985
1986
1987
1988
Net Income (loss)
107.1 152.0 210.2
15.5
50.9
(70.7)
92.7
Depreciation
62.8
1989
1990
1991
(320.6 (623.5 (377.9
)
)
)
108.2 139.9 177.3 223.2 253.6 276.2 253.3 220.1 168.4
Amortization of
Capitalized Software
39.1
Gain from Sale of
Investments and Other
Assets
58.2
41.4
(119.0
)
(16.6)
Restructuring and Other
Unusual Items
125.3 384.1 135.5
Changes in Other
Accounts Affecting
Operations:
Accounts Receivable
(45.2)
73.4
160.8
Inventory
(3.0)
100.9
80.2
Other Current Assets
(13.0)
(1.2)
17.0
Accounts Payable and
Other Current Liabilities
Change in Working
Capital
41.0
(59.8) (74.9)
(285.1
)
87.6
56.5
113.5
80.8
1.3
(2.0)
0.3
Deferred Income Taxes
20.2
33.0
30.0
96.0
Other
(1.1)
1.7
(5.7)
2.7
Net Cash Provided by
Continuing Operations
129.2 220.0 89.3
9.0
379.1 331.9 303.4 450.0 66.4
Net Cash Provided (Used)
by Discontinued
Operations
Net Cash Provided by
Operating Activitites
(10.5)
(29.7)
129.2 220.0 89.3
379.1 331.9 303.4 450.0 36.7
(21.3) (91.3)
14.1
2.8
85.8
120.3
3.5
4.9
89.3
125.2
Investing Activities
Investment in Depreciable (146.4 (132.9 (265.5 (282.5 (133.8 (128.0 (156.8 (303.6 (174.4 (129.7
Assets
)
)
)
)
)
)
)
)
)
)
Proceeds from Disposals
of Depreciable and Other
Assets
23.6
94.1
242.0 157.0
Spare Parts and Rentals
(10.3) (85.0)
(117.7 (119.5
(107.2 (116.8
)
)
(99.8)
)
)
Proceeds from the Sale of
Discontinued Operations
407.3
Investment in Capitalized
Software
(20.3) (38.5)
(176.3
)
Other
(13.9) (30.8)
52.9
19.3
(19.3)
(8.5)
25.3
(43.1) (59.5) (43.1) (27.8)
(25.8) (41.1) (25.1) (28.3)
14.2
(13.0)
(6.0)
Net Cash Provided (Used) (190.9 (287.2 (506.6 (408.5 (294.0 (245.2 (345.0 (254.8
by Investing Activities
)
)
)
)
)
)
)
)
418.8 18.8
Financing Activities
Proceeds from Long-Term
Debt
4.9
20.2
151.4
(132.9
)
(27.6)
84.3
174.8
95.2
311.9
Payment of Long-Term
Debt
(69.5) (41.8)
Proceeds from Sale of
Common Stock
9.6
Purchase of Treasury
Stock
Dividends Paid
Other
22.2
(222.6
)
(2.6)
305.0 167.7
44.4
139.8
(145.3
(544.8 (126.5
)
(91.7)
)
)
205.7 122.8
25.1
198.1
15.9
22.5
17.5
8.7
5.0
(3.0)
(4.0)
(2.7)
(9.0)
(7.1)
(7.5)
(5.0)
(18.8)
(0.6)
(0.3)
(6.8)
(9.5)
(15.3) (20.6) (22.4) (25.1) (26.2) (26.0)
(7.2)
7.7
Net Cash Provided (Used)
by Financing Activities
96.7
(157.3
)
(93.9)
22.2
0.0
229.9 257.5 196.7 71.5
0.0
0.0
(129.7
(598.8
(36.3) )
325.8 )
(80.0)
Effect of Changes in
Foreign Exchange Rates
Increase (Decrease) in
Cash and Equivalents
24.3
(3.9)
1.1
0.1
162.7
(159.8
)
(24.7) 109.4
21.9
Cash and Equivalents at
Beginning of Year
70.1
232.8
157.7 179.6 154.9 258.7 169.1
Cash and Equivalents at
End of Year
70.1 232.8 73.0
35.0
73.0
48.3
Exhibit 4: Financial Statement Ratios, 1982-1991
48.3
(24.7) 103.8 (89.6)
64.1
157.7 179.6 154.9 258.7 169.1 233.2
Profitability Ratios
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Return on Equity
0.14
0.14
0.17
0.01
0.03
-0.05
0.07
-0.55
-3.06
-7.31
Return on Assets
0.07
0.08
0.09
0.01
0.02
-0.03
0.03
-0.18
-0.43
-0.27
11.74 12.33 11.96
-2.32
2.12
-1.82
3.87
-7.17 -20.54 -15.96
Profit Margin
Various Expense Ratios
0.86
0.80
0.85
1.01
0.98
1.03
1.04
1.13
1.53
1.71
Fixed-Asset Turnover
Ratio
0.98
0.91
0.97
0.99
1.00
1.01
1.08
1.05
1.27
1.48
Financial Leverage Ratio
1.06
0.79
0.80
0.90
0.83
0.89
0.79
1.42
3.67 25.91
Current Ratio
2.67
3.00
2.08
2.31
2.24
1.91
1.66
1.36
1.24
1.13
Quick or Acid Test Ratio
1.61
1.98
1.04
1.27
1.41
1.28
1.11
0.99
0.96
0.91
Liabilities to Assets Ratio
0.51
0.44
0.45
0.47
0.45
0.47
0.44
0.59
0.79
0.96
Long-Term Debt Ratio
0.28
0.22
0.16
0.28
0.25
0.24
0.19
0.23
0.29
0.35
Debt-Equity Ratio
0.57
0.39
0.29
0.53
0.45
0.45
0.34
0.55
1.34
9.48
Cash Flow from
Operations to Total
Liabilities Ratio
0.19
0.25
0.08
0.33
0.26
0.24
0.32
0.02
0.06
0.09
Short-Term Liquidity
Risk Ratios
Long-Term Liquidity
Ratios