Gainesboro Machines

Tools Corp.
Adil Bouzoubaa
Med Amine Bekkal
Hafida Hannaoui
Zineb Abdou

Outline
Overview of Gainesboro Machine Tools
Case Issues
Technical Part
Conclusion

Background
Gainesboro Corporation was founded in 1923 in Concord, New
Hampshire by James Gaines and David Scarboro.
Designed and manufactured of machinery parts including presses,
dies and molds.
In the 1940s: armored-vehicle and tank parts, miscellaneous
equipment for the world war two .
After the war; the company concentrated on the production of
industrial presses and molds, for plastics as well as metals
By 1975, the company had developed a reputation as an innovative
producer of industrial machinery and machine tools.

Background
In the 1980s : entered the CAD/ CAM field
In the 1990s: Gainesboro helped set the standard for CAD/CAM
1990s-2000s: Gainesboro fell behind some of its competition

Companys Goal and

Strategy

Goal : Average annual compound rate of 15%

Strategy
- The mix of production would shift substantially
-Expand aggressively in the international area
-Expand through joint ventures and acquisitions of small software
companies

Companys Goal and

Strategy

Goal : Average annual compound rate of 15%

Strategy
- The mix of production would shift substantially
-Expand aggressively in the international area
-Expand through joint ventures and acquisitions of small software
companies

Issues
The impact of hurricane katrina
The stock of gainseboro had fallen 18% to
$22,15

Issues
Ashley swenson, the chief financial officer, has
to decide whether to payout dividends or
repurchase the stock
she has to decide the number of payout
Swenson thought of 3 options of the dividends
policy and she has to decide which one she
should recommend

1st Option
Zero-dividends payout policy
Transition from a traditional industry to high-tech
entreprise

2nd Option
40% dividends payout policy
Using debt to pay dividends

3rd Option
Residual-dividend payout policy only after
financing all the projects that provide positive
NPV
Less pressure on cash flow and future growth
than other option

Name Change Campaign

Pros
Cons

Signals to shareholders that

Gainesboro commits to Futur
Growth and International
Expanding
Implies that Gainesboro is
shifting its Traditional
machine tool to CAD/CAM

The campaign is costly

approximately $10 Mil
No Empirical Evidence ever
showed that theres a
positive corelation between
name change and Stock price

Dividend Payout Policy

40% Dividend Payout

40% of dividend payout
Sales Growth Rate
Net Income as % of sales
Diveidend-Payout Ratio

2005
15%
2.1%
40%

Sales

2005 2006 2007 2008 2009 2010 2011

870.1 1000.7 1150.8 1323.4 1521.9 1750.1 2012.7

Sources:
Net Income
Depreciation
Total

Uses:
Capital Expenditures
Change in working
capital
Total
Excess Cash/ Borrowing
Needs
Dividend
Total excess
cash/borrowing

2006
15%
4.0%
40%

2007
15%
5.0%
40%

2008
15%
5.5%
40%

2009
15%
6.0%
40%

2010
15%
5.6%
40%

2011
15%
8.0%
40%

18.1
22.5
40.6

40.0
25.5
65.5

57.5
30
87.5

72.8
34.5
107.3

91.3
40.5
131.8

98.0
46.5
144.5

160.0
52.5
212.5

43.8

50.4

57.5

66.2

68.5

78.8

90.6

19.5
63.3

22.4
72.8

25.8
83.3

29.6
95.8

34
102.5

38.5
117.3

44.3
134.9

-22.7
7.2

-7.3
16.0

4.2
23.0

11.5
29.1

29.3
36.5

27.2
39.2

77.6
64.0

-29.9

-23.3

-18.8

-17.6

-7.2

-12.0

13.6

0% Dividend Payout
0% of dividend payout
2005
Sales Growth Rate
15%
Net Income as % of sales 2.1%
Diveidend-Payout Ratio
0%

Sales
Sources:
Net Income
Depreciation
Total

Uses:
Capital Expenditures
Change in working
capital
Total
Excess Cash/ Borrowing
Needs
Dividend
Total excess
cash/borrowing

2006
15%
4.0%
0%

2007
15%
5.0%
0%

2008
15%
5.5%
0%

2009
15%
6.0%
0%

2010
15%
5.6%
0%

2011
15%
8.0%
0%

2005 2006 2007 2008 2009 2010 2011

870.1 1000.7 1150.8 1323.4 1521.9 1750.1 2012.7
18.1
22.5
40.6

40.0
25.5
65.5

57.5
30
87.5

72.8
34.5
107.3

91.3
40.5
131.8

98.0
46.5
144.5

160.0
52.5
212.5

43.8

50.4

57.5

66.2

68.5

78.8

90.6

19.5
63.3

22.4
72.8

25.8
83.3

29.6
95.8

34
102.5

38.5
117.3

44.3
134.9

-22.7
0.0

-7.3
0.0

4.2
0.0

11.5
0.0

29.3
0.0

27.2
0.0

77.6
0.0

-22.7

-7.3

4.2

11.5

29.3

27.2

77.6

0% Dividend Payout

Pros
Cons

Its a growing company and

needs to invest back the
retained earnings
Borrowing for dividend
Payement can be avoided
Can be positioned as high
growth and high technology
firm
Cash flow will be positive by
2007
The board of directors will break
their Commitment to
shareholders
DPS fallen from 1.03 to near
zero
Stock brokers have a negative
sentiments
Value oriented investors(13%),
Long-term retirement
people(26%)

Residual Dividend Payout

Residual dividend
payout
Sales Growth Rate
Net Income as % of
sales
Diveidend-Payout
Ratio

Sales
Sources:
Net Income
Depreciation
Total

Uses:
Capital
Expenditures
Change in working
capital
Total
Excess Cash/

2005
15%

2006
15%

2007
15%

2008
15%

2009
15%

2010
15%

2011
15%

2.1%

4.0%

5.0%

5.5%

6.0%

5.6%

8.0%

0%

0%

0%

0%

0%

0%

0%

2005
870.1

2006
2007
2008
2009
2010
2011
1000.7 1150.8 1323.4 1521.9 1750.1 2012.7

18.1
22.5
40.6

40.0
25.5
65.5

57.5
30
87.5

72.8
34.5
107.3

91.3
40.5
131.8

98.0
46.5
144.5

160.0
52.5
212.5

43.8

50.4

57.5

66.2

68.5

78.8

90.6

19.5
63.3

22.4
72.8

25.8
83.3

29.6
95.8

34
102.5

38.5
117.3

44.3
134.9

Residual Dividend Payout

Pros
Cons

The return of all excess

funds builds up trust with
Investors
Debt capacity used at its
minimum only first 2
years

High Volatility and

Unpredictable Dividend
Payements
The Dividend cuts in 2005
and 2006 will negatively
influence Stock prices

20% Dividend Payout

40% of dividend payout
Sales Growth Rate
Net Income as % of sales
Diveidend-Payout Ratio

2005
15%
2.1%
20%

Sales

2005 2006 2007 2008 2009 2010 2011

870.1 1000.7 1150.8 1323.4 1521.9 1750.1 2012.7

Sources:
Net Income
Depreciation
Total

Uses:
Capital Expenditures
Change in working
capital
Total
Excess Cash/ Borrowing
Needs
Dividend
Total excess
cash/borrowing

2006
15%
4.0%
20%

2007
15%
5.0%
20%

2008
15%
5.5%
20%

2009
15%
6.0%
20%

2010
15%
5.6%
20%

2011
15%
8.0%
20%

18.1
22.5
40.6

40.0
25.5
65.5

57.5
30
87.5

72.8
34.5
107.3

91.3
40.5
131.8

98.0
46.5
144.5

160.0
52.5
212.5

43.8

50.4

57.5

66.2

68.5

78.8

90.6

19.5
63.3

22.4
72.8

25.8
83.3

29.6
95.8

34
102.5

38.5
117.3

44.3
134.9

-22.7
3.6

-7.3
8.0

4.2
11.5

11.5
14.6

29.3
18.3

27.2
19.6

77.6
32.0

-26.3

-15.3

-7.3

-3.0

11.0

7.6

45.6

20% Dividend Payout

Pros
Cons

Consistent with Gainesboro

historical Dividend payout Policy
( Avg Payout Ratio 1989
2000= 28% )
The Continuous Div Growth may
attract additional Investors
Cash flow will be positive by
2009

Borrowing for Dividend

Payement needed for the first 4
years
Not a strong signal that the
Management is confident about
the companys futur growth

20% Dividend Payout

Share Repurchase
Assumption
Share repurchase price
Excess Cash year 2007 (0% Div)
# Shares Repurchased

Repurchase at Current Price

$22.15
$4 200 000
189 616

# Outstanding Shares Before Repurchase

18 600 000

# Outstanding Shares after Repurchase

18 789 616

Earnings 2007

$87 500 000

EPS before repurchase

$4.70

EPS after repurchase

$4.66

Conclusion

20%
Div

Maintains Board Commitment

to pay Dividends
Comprising strategy for
Investors who want to receive
Dividends and value growth
Positive future Cash Flows >
2009
Stable Div/share Growth

Name
Change

The new name will better

reflect the companys shift to
CAD/CAM
Gainesboro Advanced
Systems International Inc
transfers two main strategies
to Investors: High Technology
& International Expanding