Gordon Lankton has no plans to retire, but he's worked very hard for the past few years to prepare his custom injection molding company for the day he does.
To that end, the 68-year-old Nypro Inc. president and owner last week revealed details of a complex employee stock ownership plan that the Clinton, Mass.-based company is preparing to implement.
The ESOP will allow some 2,500 U.S. Nypro employees to assume ownership of the company, whose fiscal-1998 global sales reached $458.6 million.
``It fits my desires very well,'' Lankton said in Jan. 28 telephone interview. ``The worst thing that can happen to a private company is if the owner dies without a succession plan, because then there is chaos. If there is no plan, then the company would have to be sold or go public, and I didn't want to go either route.
``I'm not a strong advocate of contract manufacturers being public companies, because it destroys them,'' he said. He believes employees and managers of public companies tend to focus on the stock price, which does not mesh well with the dynamic, fast-moving contract manufacturing business that is filled with ups and downs.
As an example, he said Nypro lost money in Singapore for years after starting a molding operation there. A public company probably would have pulled the plug to stem the bleeding; now, that operation has the highest profit margin of Nypro's 24 manufacturing sites worldwide.
Lankton said he decided about 18 months ago to go the ESOP route, after years of weighing various succession options.
Nypro, which started with two molding presses in Clinton in 1955, has offered an employee stock bonus program for the past 25 years. By now, about 115 workers — and not just senior managers — have earned points, based on years of service, earnings level, and job performance, which translate into shares of Nypro stock. Those employees, over the years, have earned shares amounting to about 30 percent of the company. Lankton — who bought half of the company in 1962 and the rest of it seven years later (when its annual sales were $4 million) — held the remaining 70 percent share.
In October, Lankton sold most of his stock to employees through the ESOP. This stock is being held in a trust so it can be distributed to employees over time. The action has reduced Lankton's holding in Nypro to less than 5 percent.
Converting Nypro to an ESOP was more difficult, and costly, than it would be for most companies, because of its large size, global scope of operations and the existing stock bonus plan, which Lankton insisted remain in place and unaffected.
Corporate controller Ted Lapres estimates the entire process, including legal fees and implementation, will cost $400,000-$500,000.
Including all its joint ventures, Nypro currently employs nearly 5,000 at 24 locations in 11 countries. The 2,500 workers currently eligible for the ESOP are those at the 12 U.S. operations in which Nypro owns an 80 percent or higher stake.
``We wanted to involve all employees worldwide,'' Lankton said, ``and we fought hard to do so. We won in some cases, as in Puerto Rico,'' but not in all — yet. ``We intend to bring additional employees into this program, but the laws are very complex, and are different in every country. Our ultimate objective is to have all employees covered, but we're not sure if that will be achievable.''
Even at its current size, Nypro's situation is unusual. Michael Keeling, president of the ESOP Association, a Washington trade group of employee-owned companies, said there are about 10,000 ESOPs in the United States today — and the typical such company has 100-300 employees working under one roof.
``Nypro is probably one of no more than 50 closely held companies in America that has such a sizable employee ownership base,'' out of the 5 million or so U.S. corporations that exist, he said.
Nypro had to borrow the money to buy his shares, making this a leveraged ESOP. Lankton is trustee of the fund that now holds the affected shares.
Borrowing through an ESOP offers two attractive tax incentives, according to the ESOP Association (www.theesopem plovner.inter.net):
First, since ESOP contributions are tax deductible, a corporation that repays an ESOP loan in effect gets to deduct the principal as well as interest from taxes.
Second, ESOP stock dividends that are either passed through to employees or used to repay the ESOP loan also are tax deductible.
Meanwhile, Nypro's participating employees benefit by becoming shareholders and owners, at no cost to them, and without losing any existing benefits. Lankton sees it as a potential tool for recruiting new workers.
Nypro is planning an ``ESOP Week'' celebration and indoctrination for employees across its U.S. plants in early March.
Separately in March, the firm officially starts operations at its new injection molding plant in the Dominican Republic, where Lankton said Nypro recently picked up ``sizable new business'' in the health-care market. He declined to elaborate.
In Russia, the reports are not so positive. Nypro has three companies in Moscow, including one that does injection molding. Lankton said all its multinational customers there have virtually stopped activity, following Russia's August 1998 financial crisis.
``The ruble has gone from six to the dollar to 22 to the dollar,'' said Lankton, who visited the operations in mid-January. It's difficult for potential customers even to get a letter of credit.
``We're running at very low capacity, and the prices are terrible,'' he said. ``But we've decided to ride it out.''
Stronger business prospects exist in Asia, where Lankton said Nypro — which runs some 900 injection presses worldwide — is considering building a second molding plant in India and a third in China. But he stressed that nothing has been decided yet.