You Can't Run A Company By The Numbers Alone

When Ken Carpenter looked at the finances of Curtis-Toledo, he saw a few simple problems. After he bought the company, he found the reality was more complicated.

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Curtis-Toledo Inc., sits on the fringes of some of the worst urban blight in St. Louis. Police occasionally use the company parking lot as a shooting range; thieves hacked their way through a cyclone fence recently and stole a valuable shipment of aluminum castings right off the loading dock. Some Curtis-Toledo employees even refuse to venture into the tough ghetto neighborhood around the plant, and instead take a roundabout route to work through safer neighborhoods.

For most of the last three years since Ken Carpenter bought the company, the future at Curtis-Toledo has looked about as grim as the neighborhood. A former chief financial officer with the $240-million conglomerate that used to own Curtis-Toledo, Carpenter bought the company in 1978 because he thought the numbers on its balance sheet added up in the right ways. From the moment he took over, though, he began to learn a hard lesson: Numbers alone don't give you a true picture of what a small company is really like.

Back in 1978, Carpenter was well insulated from the hands-on problems of managing a small business. His job with Wyle Laboratories, a California-based high-technology company, ketp him busy with balance sheets and graphs and income statements. Still, he could spend lunch hours playing chess with board chairman Frank Wyle, and the company rewarded Carpenter generously. There was a Cadillac, a house on the beach, a fat salary, ski vacations in the mountains of Utah and Colorado. For a 47-year-old midwesterner whose first job was working on a General Motors assembly line, Carpenter had done well for himself in California. "But the routine was kind of boring," he says. Carpenter was ready for a change.

The opportunity came when Wyle Laboratories decided to get rid of a division that had never been more than bad news for the company. Wyle Labs had gone on an acquisitions binge in the 1960s, gobbling up 13 small manufacturing firms around the country. One of these acquisitions was the Curtis Manufacturing Co. in Cleveland, which had a St. Louis subsidiary that made clutch disks and air compressors, and another subsidiary in Toledo, Ohio, that produced pipe-threading equipment and dies. Wyle's management decided to put the two subsidiaries under one roof in St. Louis, and cut overhead in half by eliminating overlapping functions.

The plan looked great on paper. In late 1976, Wyle Labs ordered the 75-year-old Toledo subsidiary to pack up its operations and move down to St. Louis. Excess equipment was sold off, and dozens of semiskilled workers were given their walking papers.

When the newly merged operation got under way again, though, Wyle Labs discovered there were a few nasty problems that the plan hadn't anticipated. Some essential manufacturing equipment had been sold off by mistake, and -- far worse -- product blueprints were hopelessly out of date. Workers had jotted down changes in tolerances and specifications over the years in little black books they carried around in their back pockets. When the new work force in St. Louis tried to make pipe-threading machines without the new tolerances, the parts wouldn't fit together.

By the fall of 1977, the plant manager at Curtis-Toledo was ready to write off the whole mess. But that admission of failure wouldn't look good to the board and stockholders of Wyle Labs, so the plant manager found himself under tremendous pressure to show a profit.

Maintenance, quality control, and training quickly fell by the wayside. Products were shipped, but often with the hope that customers would figure out by themselves how to fix manufacturing defects. When equipment broke down it was simply taken out of production and workers were laid off.

By the summer of 1978, Wyle Labs decided it was time to sell its troubled division, and the company began inviting prospective buyers to inspect the plant.

Wyle Labs got a few responses, but no one seriously offered to take Curtis-Toledo off its hands -- except Ken Carpenter who believed he could tell from the financials that the company was worth buying. He gave Stan Wainer, Wyle's president, an offer of $4.5 million in September 1978. "It took me two weeks to work up the courage," he recalls. "It traumatized me -- the thought of giving up the Cadillac, the stock options, and California. And I wasn't sure what I was doing."

Wainer promptly turned down Carpenter's proposal. In October, after some anxious jiggling with his adding machine, Carpenter came back with a new offer of $5.6 million. For two months, Wainer and Frank Wyle shopped around, trying to find a better offer than Carpenter's. On December 15, they gave up. If Carpenter wanted their St. Louis stepchild, he was welcome to buy it.

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