Alliance Concrete

Alliance Concrete Case Analysis

Executive Summary:

As the demand for the cement continues to rise, the cost for making the ready-mix also rises. The main cause of the shortage of cement is ocean shipping costs, rail distributions, and port congestion. The U.S. Labor Department Producer Price Index showed the cost of cement was 11% higher compare to a year earlier. The domestic U.S. cement production had remained unchanged and the consumption is on a 6% increase per year, which had result in the increase share of cement import from 22.7% at the end of 2004 to just 25% by the end of 2005. As the cost making the cement continues to rise, I suggest that we should increase the price by 7% to $95.36 per cubic yard. The sales manager had predicted that there will not be a noticeable demand impart if the price raised by 7%. For the coming year, Alliance is facing 3 options: make principle repayment to the bank, make capital investment, and make dividend payment to national. Alliance is facing necessary needs of capital investment, the principle repayment to the bank was scheduled at the time of borrowing, and there was a promise made to the National of paying $3 million in dividend. Alliance is having difficulties to fulfill all three requirements.

Base on the forecast financial statements of 2006, I suggest Alliance to make the following decision: 1) Make necessary capital expenditure of $16 million. The plants have problem with some of the mixing drum and it had caused unexpected shutdown and costs. The unexpected shutdown has delayed the delivering for customers and had cause customer concerns; 2) Renegotiate with the bank. In the 2003 renegotiated loan covenants stipulated that Alliance could not make major capital expenditures without written approval. In the meeting with the bank, Alliance should convince the bank with the 2006 forecast financial statements that the firm is on a great position and expect to have an increase of sales that will result in higher...