Rushway Brothers Case Study Answers

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RUSHWAY BROTHERS LUMBER AND BUILDING SUPPLIES LTD.

David C. Shaw prepared this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University
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(RLBS) was established by George Rushway in 1922 in Ilderton, Ontario as an extension of his lumber mill near Denfield, Ontario. At first the business sold only lumber, but when his two sons, Gordon and Douglas, joined the business in 1945 and 1951 respectively, the variety of products grew rapidly. In addition to serving the retail market for home improvement enthusiasts, the business served the wholesale contractor market for single family dwellings and other buildings. Douglas Rushway started a construction business as part of RLBS, specializing in barns, agricultural warehouses and other such buildings to be constructed within 50 kilometers of Ilderton. The business achieved a reputation for quality products, good service and fine workmanship. The business was reorganized in 1959 after the death of George Rushway with each of the brothers owning 50 per cent of the common stock. In 1985, after 40 years in the business and upon reaching 60 years of age, Gordon Rushway, Charlotte’s father, decided to retire from the business on an active basis and just consult and perform special tasks. He kept his 50 per cent share in the business and participated in the dividends to common shareholders. Douglas Rushway took over the running of the business in 1985 and ran it single-handedly for three years, delegating the day-to-day work to supervisors. Finally in 1988, he appointed Jack Fairlee as manager of the construction operation …show more content…
While relations were cordial at this time, only two years before they had been strained indeed. Metropolitan had extended a $440 thousand operating line to RLBS, but in 1989, during the Conway term, the manager demanded a personal guarantee from Gordon to continue the loan. Bradley assumed the guarantee after she took over the business. In late 1991, she requested that the bank remove the personal guarantees. The bank was anxious to develop new business. At the time Bradley offered to borrow $175,000 on a term loan basis from the bank to repay an existing term loan from Commercial Mortgages. The bank agreed to the proposal, but increased the rate on the operating loan from prime plus one-half per cent to prime plus three-quarters per cent. The bank held receivables and inventory as security for the operating line and a mortgage on the property for the term loan. In addition, there were covenants that RLBS had to maintain a working capital amount of $330 thousand and stockholder’s equity of $275

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