John M. Case Summary
John M. Case Summary
Business and Operating Characteristics:
The company was established in 1920 to do contract printing of commercial calendars. Operations had been profitable since 1932 and sales increased every year since 1955. The compounded growth rate for the past five years has been 7%. Its expected growth is 5-6% per year. In 1984 standard desk calendar pads had contributed 80% of net sales and 90% of earnings before taxes. The company has high fixed costs since production is highly automated. John M. Case Co. holds 60-65% of calendar market. However, cutting production costs is imperative in order maintain the company’s dominant market share. Since customers can easily predict their needs for products, production is usually accurate.
John M. Case Co. is characterized by high fixed costs, high setup costs, and low variable costs. Its sales are highly seasonal (90% between June and December) but it operates under level production in order to drive costs down. Most sales are from customers who have placed prior orders (95%). The return on average invested capital in 1984 was around 20%. The company offers modest purchase discount in order to accurately predict production amounts since any over-production will result in an obsolete product. The average collection period was 60 days. The company operates with all-equity capitalization but maintains a $2 million line of credit at a major Eastern bank. Over the past three years the dividends averaged 70% of net earnings. The Case Company’s credit with suppliers was excellent.
John M. Case, sole owner of the company has decided to retire and sell his business. He is asking for $20 million with a minimum of $16 million in cash immediately. Case has agreed to hold off on selling the company for six weeks so that his employees can make a purchase proposal. Anthony Johnson, the vice president of finance, along with three other employees, are attempting to raise the $16 million cash upfront payment while maintaining management control. They raised $500,000
and Johnson arranged a commitment for a $6 million loan from a Philadelphia bank. Johnson needs to decide whether or not to take on the venture capitalism idea that Case had rejected earlier in order to raise the remaining capital.