Lumber City Corporation, f.k.a. Neiman-Reed Lumber and Supply Company, Inc. - Page 31

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          backs) for that year was negative $3,599,000.  In addition, at              
          the time that Mr. Ruf became petitioner's CEO, petitioner was               
          facing increased competition from the entry of large discount               
          home centers into its market.  Despite that competition, under              
          Mr. Ruf's direction, petitioner achieved, according to its                  
          financial statements, a positive net income after taxes (but                
          before utilization of net operating loss carryforwards/carry-               
          backs) for each of its fiscal years ended February 28, 1987,                
          through February 28, 1991.                                                  
               After Mr. Ruf became petitioner's CEO in March 1986, he                
          undertook a number of initiatives in order to return petitioner             
          to profitability.  Shortly after becoming petitioner's CEO, he              
          negotiated with petitioner's suppliers to extend petitioner's               
          credit even though petitioner had not been paying its bills.                
          Petitioner's suppliers extended petitioner's credit in part                 
          because of Mr. Ruf's reputation in the industry for turning                 
          around troubled home centers.                                               
               To improve employee morale, Mr. Ruf started having 7 a.m.              
          "donuts with Jess" meetings with petitioner's store employees.              
          As a result of his efforts, employee morale improved as evidenced           
          by fewer workmen's compensation claims and reduced inventory                
          shrinkage.                                                                  
               Within approximately three to six months after becoming                
          petitioner's CEO, Mr. Ruf reduced petitioner's office staff by              





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