Gainesboro Machine Tools Case Summary

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Name: Jimmy Nguyen                       Case:  Gainesboro Machine Tools                Section: MW 11-12:30    

Case Background (who, what, when, where?):

Ashley Swenson, CFO of Gainesboro Machine Tools Corporation (GMTC), needed to submit a recommendation for a new dividend policy for the company. GMTC could either use fund to pay shareholder dividends or buy back stock. Gainesboro had three years in a row where dividends exceeded earnings, a year where dividends were below earnings, and a small dividend in 2004 when the company had extraordinary losses. In the first two quarters of 2005, the company declared no dividend, but the company wants to resume dividend payments as soon as possible. GMTC is thinking about changing its name to promote that GMTC has great potential for growth and profitability. The newly developed machine tools showed signs of being well received in the market, and promised to render the competitors’ products obsolete.

GMTC was founded in 1923 in Concord, New Hampshire by two mechanical engineers, James Gaines and David Scarboro. GMTC designed and manufactured numerous machinery parts, including metal presses, dies, and molds. In the 1940s, GMTC produced armored-vehicle and tank parts and miscellaneous equipment for the war effort. After the war, GMTC concentrated on the production of industrial presses and molds. GMTC developed a reputation as an innovative producer of industrial machinery and machine tools.

In the early 1980s, GMTC entered the field of computer-aided design and manufacturing (CAD/CAM). GMTC developed a line of presses that could manufacture metal parts by responding to computer commands. GMTC merged with the software company and perfected the CAM equipment. GMTC also designed CAD software that would allow an engineer to design a part to exacting specifications on a computer. Bt the end of 2004, CAD/CAM equipment and software were responsible for 45% of sales.

CAD/CAM firms began entering the industry and competed for the growing market. Gainesboro fell behind some of its competition in the development of user-friendly software and the integration of design and manufacturing, causing revenues to slip. To combat a decline in revenues and to improve weak margins, GMTC devoted a greater share of its R&D budget to CAD/CAM and underwent two massive restructurings. In 2002, GMTC sold two unprofitable lines of business, sold two plants, eliminated five leased facilities, and reduced personnel. In 2004, GMTC altered its manufacturing strategy, refocused its sales and marketing approach, and adopted administrative procedures that allowed a further reduction in staff and facilities. This allowed the company to be leaner, and the new research from the CAD/CAM department developed a system that would redefine the industry. Known as Artificial Workforce (AW), the system was an array of advanced control hardware, software, and applications that could distribute information throughout a plant. AW would allow an engineer to design a part on CAD software and input the data into CAM equipment that could control the mixing of chemicals or the molding of parts from any number of different materials on different machines. A product could be designed, manufactured, and packaged solely by computer no matter how intricate it was.

In October 2004, when the first AW was shipped, GMTC had orders totaling $75 million, and the backlog was $100 million by the end of the year. Although GMTC had successfully patented several processes used by AW, management received hints that competitors were developing comparable products and would introduce them within the next twelve months.  The US economy is not expecting to perform well, so GMTC is worried about sales in the future.

Primary Problem and Precipitating Issue(s):

Corporate goals: