Citrus, Inc. is a grower and processor of oranges located in central Florida. It has 24 stockholders, all first or second generation descendants of the founder of the company. The president and two vice presidents are sons of thefounder, and several grandsons and granddaughters are employed in various management positions. Salaries and dividends from the company are the sole or major source of income for most of the stockholders. About half of the stockholders are actively involved in the business while the other half are simply passive shareholders. The passive shareholders have complained lately that too much of the firm’s profits have been reinvested in the business instead of being paid out as dividends.Citrus is relatively highly levered in comparison to other firms in its industry. Although cash flows can be very high in the winter months, it tends to have low levels of liquidity throughout most of the year. Company sales and profit have grown at an annual rate of approximately 10 percent, except for a few years in which the orange crop was severely damaged by frost and a few years when unusually heavy crops resulted in low prices. Citrus’ CFO has observed that over the past 50 years weather-related price cycles faced by orange growers in South America have been negatively correlated with price cycles in the U.S.Citrus processes and sells both whole fresh orange juice and frozen orange juice concentrate. In addition, the rind, seeds, and pulp remaining after the juice is extracted are dried and sold as livestock feed. Inadequate drying of the mixture can promote the growth of harmful mold.Whole fresh orange juice, composing about 75 percent of Citrus’ sales volume, is packaged in quart glass containers. The companyuses about 100,000 of such containers daily. They are purchased from a local bottle manufacturer, Glassworks, under a long-term, fixed-price contract. Citrus agrees in the contract to hold Glassworks harmless for any and all liability arising from defects in the bottles. The contract has five years to run, and the company estimates that the bottles would cost about 15 percent more than the contract price if purchased on the open market at present prices. Citrus’ purchases constitute about half of Glassworks’ total sales. Glassworks recently was notified by its property insurer that its coverage will not be renewed due to poor loss experience. Twenty percent of Citrus’ whole fresh orange juice is sold to a Japanese wholesaler on FOB destination shipping terms. The contract is denominated in Yen and the sales price is guaranteed for up to six months.The patented dispenser top used with the glass bottle was designed by Citrus’ research department and is manufactured in the company’s plant on a custom-designed and -built machine. Management believes that the dispenser top gives the company a major sales advantage over its competitors. Citrus estimates that the combination of its premium brand name and the unique dispenser top represent 50 to 75 percentof the market value of the company.Citrus owns 3,000 acres of orange groves, which provide approximately one-fourth of its annual requirement of oranges. The rest are purchased from independent growers. Oranges are hauled from the groves to the factoryby company-owned trucks. In hiring its drivers Citrus only requires that each applicant show proof of a valid drivers’license. Citrus has 220 employees, of whom 15 are sales representatives located in the company’s fifteen-state sales territory. The company has instituted an aggressive return-to-work program that requires that injured employees who are unable to return to work within 45 days be dismissed.
a.Describe four different types of property exposures and loss consequences that Citrus faces. For each of these give specific risk management solutions for dealing with these consequences.
b.Describe four categories of liability loss exposures, other than premises liability, that Citrus faces. For each of these give specific risk management solutions for dealing with these consequences.
c.Describe four categories of financial or “non-hazard” loss exposures that Citrus faces. For each of these give specific risk management solutions for dealing with these consequences.
