Case Study 4

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KHF CORPORATION
SEEDS OF DISTRESS
Jim Layton, controller for Kitty (Hawk Food), Inc. (KHF) was under considerable stress as he walked toward the chief executive's office. Marshall Horne, the CEO, was not known to take bad news well. In his hands, Jim held two letters from food suppliers that threatened to cancel KHF's trade credit accounts. KHF had developed difficulties in cash flow such that their payments on the accounts had been late, at best. The suppliers provided normal trade terms to KHF, with a 2% discount for early payment (within 10 days), and a 30 day limit. No purchase limits had been placed on the firm.

KHF had depended heavily on trade credit for the recent expansion of its service area into the Outer Banks of North Carolina. Jim, of course, was ultimately responsible for the firm's financial condition and performance. He fully expected to get a strong reprimand from Horne.

Mr. Horne was a big, burly man, never really seen without a faded baseball cap on his head. Not the sort of look a CEO might be expected to have. He was rather eccentric, as well, which complicated Jim's interaction with him. Horne had taken the firm from being a small food supplier in Edenton, North Carolina, to a moderate size regional supplier for restaurants throughout the northeastern part of the state. Horne seemed to have a way of appealing to the "good ole' boy" restauranteur, a personality very prevalent in this part of the state. Horne always had a mind full of jokes to share. Recently, he had somehow convinced the shareholders to vote in a name change from "Swamp Foods" to "Kitty (Hawk Food)." To Jim, the new name was rather silly and he thought to himself that it might even hurt business to have such an absurd title. Horne, however, appeared to be able to promote the humor of the name, and really seemed to enjoy traveling from business to business, picking up new customers. He had been almost solely responsible for the new business recently acquired in Nag's Head, Kill Devil Hills, and Kitty Hawk.

The entry into the resort areas of the Outer Banks had both doubled the firm's sales and had increased the firm's dependence on trade credit to accomplish the growth. It had also

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introduced a large degree of seasonality in KHF's business, because the major restaurant activity on the Outer Banks catered to summer tourism. Although Jim had been hired as controller, he had inherited the operational management that Horne had abandoned in preference to cajoling with his good ole' boy 'business associates.' J im's time had been flooded with the operational concerns generated by rapid growth. Jim had been hired fresh out of business school. He had attended a large state university in the area, and had looked forward to applying what he had learned to his work. He liked the company, and the position for which he was hired, controller. He felt challenged with the amount of work he had taken on, even overwhelmed at times. He also knew there were problems needy of solutions. He had double-majored in accounting and finance. The operational tasks were not his strength but he had felt obligated to take them on.

THE MEETING WITH HORNE
Jim's anxiety increased as he approached Horne's office, a 2,000 square foot 'luxury playroom' at the rear of the warehouse. It resembled a billiards/bar room. Horne often held beer parties there during televised football games. Jim had been to only a couple of these gatherings, mainly to preserve his relationship with Horne, but preferred to avoid the venue. It was only 9:00 am. Horne had not left for his regular rounds yet. Jim knocked on the door. "Come on!" called Horne. Jim opened the door and silently groaned. He had interrupted a game of pool with Tibbs, one of Horne's 'associates,' a customer. "Hello, Mr. Horne," Jim said. "Sorry to bother you, but I need to discuss some things with you."

Horne replied "Come on in - grab a cue." Horne was obviously in no mood to discuss serious business....
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