DECEMBER 9, 2008
WILLIAM E. BRUNS
SHARON M. BRUNS
Merrimack Tractors and Mowers, Inc.:
LIFO or FIFO?
Ricardo “Rick” Martino, president and chief operating officer of Merrimack Tractors and Mowers,
Inc., of Nashua, New Hampshire, felt that his job had grown much more complicated during 2007 and 2008. Merrimack was a major regional manufacturer and seller of large commercial grass mowers based on a design developed by his grandfather in the years after World War II. The company’s major competitors were John Deere, The Toro Company, Simplicity, and Husqvarna—much older and larger corporations with extensive lines of lawn care and maintenance equipment.
Originally, Merrimack mowers were manufactured and assembled in a workshop and factory in
Nashua. However, by 2008 the company was buying all of its tractors and machines, manufactured to its specifications, from a contract manufacturer in China, and it was operating almost exclusively as a machine-and-parts designer and distributor. The company had incorporated in 1980, and an initial public offering was followed by additional offerings of shares over the next decade. By 2008 the company had about 4,000 shareholders, including some mutual funds. About 25% of the outstanding stock was held by members of the Martino family, and shares were traded on NASDAQ. Rick had been elected president after the death of his father late in 1995.
Martino’s father had initiated several changes and made decisions that led to the company’s current situation. In the early 1980s, management closed down the last manufacturing operations in
Nashua. Labor costs in Japan, and later in China, had historically been well below those in the United
States, so it made sense to outsource manufacturing to Japanese and, later, Chinese manufacturers.
Even with shipping costs, the mowers’ variable cost was substantially less than it would have been in
Nashua. The China arrangements had worked well, and