-9-
market price to provide a return. Dividends were therefore
important to shareholders, and Kohler recognized that.
The Plans
Kohler generally used two types of projections to plan for
its business. These projections were called the management plan
and the operations plan, and each had different uses. The
management plan was a set of achievable targets and reflected the
realities of the business and management’s best judgment of where
the company would be. The management plan was given to outsiders
intending to transact with Kohler, such as insurance companies
and banks. Kohler also used the management plan internally for
capital planning, acquisition planning, and tax planning.
Management intended the management plan to be a good predictor of
the company’s performance and updated the management plan
throughout the year to reflect Kohler’s actual results.
Kohler also developed an operations plan, which was a
projection of what could theoretically be achieved in a perfect
environment. The operations plan was built on the assumptions
that each business unit would maximize its results and no
contingencies or unforeseen events would occur. The operations
plan was not generally updated throughout the year to incorporate
new information or unforeseen events.
The management plan projected earnings for 1999 to be below
those for 1998 and 1997, reflecting the difficulties in the
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