Assignment 1
Case Analysis:
Circuit Board Corporation

Sam Zenith
MKT 4510
May 18th, 2015

Maggie Adams, chairman of the board and Circuit Board Corporation’s largest shareholder faces a tough decision in 2002 in regards to the company’s future, as she was largely left in charge of running CBC and deciding its future as her husband, who has created the company in 1961, has recently passed away. Maggie’s decision was to take place in regards to the dire situation of the company given the implosion of the high-tech industry, as most companies have reported 50 to 75 percent declines in quarterly revenue compared to the prior year. By this time, the company was focused on the mid-complexity mid-volume (mid-range segment) printed circuit boards due to the collapse in demand of the low-range segment in 1995, which resulted from electronic manufacturers moving their business to Asian fabricators, and possibly the downfall of the Atari cartridges market as the time. The issue –that Maggie Adams must address- at hand began in 2001 as the total US electronic equipment orders entered a very turbulent time, which in turn plunged the sales for printed circuit boards given that the demand for these boards is positively correlated to the orders of electronic equipment ordered. Furthermore, in the midst of the technology recession in 2001, many of the larger companies must have shifted their manufacturing to China, as they chased lower-cost products that will help sustain their businesses amid the harder times. Another issue, albeit on a smaller scale, is that CBC’s management team is led by Maggie herself, a 62 year old woman with absolutely no management skills nor the long-life expertise to become a successful chairman, as her husband once was. Furthermore, Maggie’s son and daughter collectively earn an astoundingly exaggerated $600,000 a year, a s um that almost equaled the total company’s net losses in 2001. Given the downfall in sales, the company’s cash has drained and the balance sheet highlighted a $4 million in accounts payable, with only $2.7 in accounts receivable, and $141k in cash, and about $3 million in inventory. Given the previous information, and given the hardships that other companies were facing, including the ones that owed money to CBC thus not being able to pay their accounts, it was a grueling task for CBC to pay off the investors and suppliers, which are now threatening to sue. In conclusion, Maggie must listen to the insights of the board of directors, and decide on the company’s future given the issues the company –and market, as a whole- is facing.
Ben Cashman, Dane Lombard, Will Tatelman, and Don Armour all have distinct ideas to keep the company afloat in the recession, and have offered their solutions. Ben believed that the company must simply ‘endure’ the current situation and wait for a few more months until the profitability returns, as a rebound will occur. Thus, Ben believed that Maggi can create a sale/leaseback deal on the company’s building before investors came in, in order to take the mortgage off of CBC’s books and turn it into an annual rental expense. Also, Ben thought of simply requesting that the investors ‘keep faith’ in the company until they turn things around. That, or file for chapter 11 bankruptcy. Furthermore, Don Armour felt like enduring the situation is possible, and even more profitable if they takeover other struggling companies to further increase sales when the imminent rebound occurs. As for Dane Lombard and Will Tatelman, they both felt that the company will not be able to stand in the face of the recession, and that they should save the company from further losses. Other solutions that the board can consider include: offshoring operations and manufacturing to low-cost countries that include China and Vietnam, among others. Furthermore, a shift in the focus of manufacturing from the mid-range segment, to the high-end segment that included the 30 to 50 layer boards can also be looked into. Last but not least, the company could simply look into allowing another company to take over its assets and liabilities through an acquisition.
An analysis of the solutions is now required. As far as enduring the recession and writing off the mortgage off of CBC’s books, the plan is far from sturdy due to the fact that Maggie would be trapped into a $3.5 million mortgage of a building that is worth much less. Due to the lack of selflessness that Maggie (and her family) has shown towards the company, this route is much, much less likely to be considered by Maggie. Due to the previous statement, Maggie is somewhat likely to take the company in Chapter 11 bankruptcy, though she will be exposed when the creditors look into the company’s books, and grasp how much money the chairman and her son and daughter were vacuuming from the company. Acquiring other companies also looked unlikely as the investors’ lack of faith in CBC will most likely not net them further deals and new investors which would allow CBC to secure enough money to acquire other small, struggling companies, so that is not a thought Maggie can look into, either.
As far as off-shoring the manufacturing of the printed circuit boards, other companies have already overhauled their business models and have started producing lower-cost printed circuit boards in China. And even though CBC has always been a follower, this major crash in the market alongside the company’s lack of equity and operating income in 2001, this was out of the question. Lastly, shifting the focus to the high-end range pieces in order to accommodate the medical device and the telecom markets would have ruined the company. First, it would have taken a long and money to acquire the machinery needed for the high-end circuit boards. Secondly, the telecom market was in downfall, and the market effectively imploded as well at the time. Following the dot-com bubble, and amidst the great telecom implosion, shifting the focus would have been largely unprofitable as the demand for the high-end circuit boards from a company that did not market them as a staple product, would have been negligible.
The recommendation that makes the most sense stood apart: Maggie should file for bankruptcy, and allow the company to get acquired by another company. Maggie was there to protect her own family’s fate, and allowing another company to perform an acquisition and takeover CBC seems like the most logical move for such an inexperienced chairman. Ben is not likely going to purchase Maggie’s shares in order to become the decision maker in the company at such a rough time, thus Maggie should most likely save her company further losses and sell it.
To support the recommendation, we can now look at past data showing that the recession lasted until 2003, and the company and that the prediction of Henderson Ventures and DLouhy Merchant were both correct. There would be no recovery until 2003, the earliest. If we were looking at this case in 2002, we would still be looking at this the same way- trusting the information from reputable consultants trumps the ‘hopes’ of market rejuvenation. Thus, filing for the bankruptcy can effectively grant the company protection against the debts it owes its creditors, while allowing it to continue to function while it follows its debt repayment plan. Filing for chapter 11 and subsequently selling the company lets Maggie off the hook. A company like Dynamic Details seems like a good candidate to buy CBC, as their direction paralleled CBC in the “quick turn” strategy. Merix is another good company; even though they gathered 10% sales in Q3 in 2001, in relation to the total YTD sales of year 2000, they were expanding their assets and investing in plant/equipment in anticipation for the turnaround in the market. They had the resources that allowed them to float, when CBC cannot.