Carter Company (A)
Dubuque, Iowa
In December 2006, Jacob Carter, owner of Carter Company (CC), finalized a new sales contract with John Deere Company (JDC). With his 40 years of experience in manufacturing and his close personal relationship with JDC, he was able to acquire a five-year contract (his fifth consecutive 5-year contract with JDC) that not only tripled sales, but did so at a price that was fair to both CC and JDC. CC was a single product company producing high quality cast iron gizmos for JDCâs Dubuque Plant, which is located across the street from CCâs production facility. Gizmos, although large, very heavy and bulky, are a critical element in JDCâs automatic transmissions. CC was providing the JDC Dubuque Plant with almost one-half of its need for gizmos on the condition that CC participates in JDCâs just-in-time inventory system.
In February 2007, Jacob Carter, confident that he had achieved his dream of providing a good income for his family, retired and turned the business over to his son, Robert. Robert had graduated from Harvard University in June 2006 and had worked in marketing since graduation. Robert had also worked a couple of summers on the production line in the CC manufacturing plant while attending high school. Although ownership of CC was shared equally among the family (father, mother, son, and three sisters), only Robert worked in the company. Robertâs three sisters were in school; Janis was a sophomore at Harvard University, Beverly was in her first year at Princeton Law School, and Alice was in her second year at Berkeley Medical School.
In January 2008, Robert Carter was reviewing his ten months as president and was thinking about the future. In the summer of 2007, Robert had replaced his fatherâs plant manager of 20 years with a close friend and fraternity brother. Although the employees respected the old plant manager, Robert felt that a more humanistic and participative management style was needed. The loyal, long-term employees of CC were dissatisfied with the new plant managerâs change from an assembly line operation to a job enrichment program and went out on strikeâthe first strike in CCâs history. The just-in-time inventory requirement by JDC necessitated that CC settle the labor dispute quickly to avoid the possibility of losing the contract. To complicate matters even more, the purchasing manager quit and Robert has rotated two purchasing managers through the position with no success. JDC has recently notified CC that, although it had been pleased with CCâs performance in the past, some recent problems with product quality and delivery concern top level JDC management. Robert believed he had learned a great deal about business during the past ten months and was now ready to put his personal stamp on CC.
Many of Robertâs classmates at Harvard had taken jobs in international business. At the December 2007 class reunion, Robert found that manufacturing gizmos in Dubuque, Iowa was hard to make glamorous to his classmates. Robert was thinking of pursuing a new strategy of moving CCâs production facilities to a more exciting location, but keeping its sales office in Dubuque. Since Robert had majored in African history at Harvard and he wanted to continue his exploration of that area, he was considering Uganda as a possible location for CC.
Uganda is a landlocked, agrarian based country surrounded by Zaire, Sudan, Kenya, and Tanzania. Since gaining independence from Great Britain in 1962, Uganda has been through a violent transformation. Military governments have overthrown military governments. Hundreds of thousands of people have been murdered by dictators. Foreign property has been nationalized and foreigners expelled. Poverty and illiteracy is rampant. Uganda presently has among the highest levels of AIDS in the world. Although Uganda currently still has serious political and economic problems, Robert believes that, with his knowledge of Africa, he could open a manufacturing facility that could help bring peace and economic success to that war-torn country. He was anxious to prove his undergraduate thesis that postulated continuing civil strife in African nations was caused solely by poverty, which could be eliminated with large injections of foreign capital. By moving its production facilities to Uganda, CC could reduce its labor costs by 75%, help an underdeveloped country, and also teach CCâs ungrateful employees something about respect for management authority.
Carter Company
Financial Statements
Balance Sheet
(in $1,000)
Dec. 31,2006 Dec. 31, 2007
Assets
Cash 2,000 1,000
Accounts Receivable 750 2,000
Inventories 250 3,000
Fixed Assets 3,000 12,000
Total Assets 6,000 18,000
Liabilities & Equity
Accounts Payable 500 4,000
Short-term Notes Payable 500 2,000
Long-term Debt 1,000 6,000
Capital Stock 1,000 1,000
Retained Earnings 3,000 5,000
Total Liabilities & Equity 6,000 18,000
Income Statement
(in $1,000)
FY 2006 FY 2007
Sales 12,000 36,000
Labor 3,000 15,000
Materials 1,400 8,000
Factory Overhead 1,000 3,000
Marketing 3,000 5,000
General Administrative 1,200 3,800
Profit Before Taxes 2,400 1,200
Taxes 960 480
Profit 1,440 720
Questions:
1. How would you assess Carter Companyâs present liquidity situation? How has it changed since 2006? What are the implications?
2. Assess Carter Companyâs present leverage situation? How has it changed since 2006? What are the implications?
3. How would you assess Carter Companyâs present fixed asset utilization, inventory turnover and collections. How have they changed since 2006? What are the implications?
4. What do you see as the major issue facing Robert now?
5. What are the major reasons for Carter Companyâs decrease in net profits to net sales over the past year?
6. Has Robert Carterâs vision of Carter Company changed from that of his fatherâs?
