SHELL ROCK, IOWA - Gerald Hobson points to a busy office wall as an article of proof of the glory days that once defined the recently defunct Hobson Mould Works Inc.
On that wall of Hobson's Victorian-style office in Shell Rock hangs a set of framed certificates for 21 former apprentices, many of whom have gone on to start companies or climb the ladder of success elsewhere. Hobson speaks proudly of giving them their first opportunities.
His blow mold shop was a player, helping speed the introduction of standard-setting automotive projects such as blow molded bumper systems or fan shrouds or evolutionary interior parts. His company's yearly seminars in rural Iowa were regularly attended by more than 100 people. Hobson, as national president of the Medinah, Ill.-based American Mold Builders Association, became an engaging spokesman for tooling.
``We helped change the blow molding industry,'' said former plant manager Mike Klinefelter. ``We felt like the leaders. Whatever needed to be done was done.''
Maybe appropriately, a construction crew is tearing up the road in front of Hobson's new office domain. At the advice of a friend, Hobson is reading a bestseller about coping with change, Who Moved My Cheese?
``In school, you never take a lesson in failure,'' said Hobson, former president of the Shell Rock-based company, over the jackhammers' roar. ``So when it happens, it's a humbling experience. And, unfortunately, although you can take some good out of the bad, my company definitely failed.''
Hobson is not alone in feeling humbled. The surprise shutdown of Hobson Mould Works earlier this year - after attempts to find a buyer and a bank seizure of its assets - also left more than 140 employees in the farming community without jobs and retirement benefits.
About 95 of them had poured as much as $70,000 apiece in the employee-owned company in December 1996, only to see that money vanish.
Some still seethe with anger. One of them, who did not want to be identified, said that financial restraint went awry after the employee stock buyout, and Hobson himself is mainly to blame. He took numerous side trips to Asia and spent lavishly on entertainment while his personal Rome burned at home, the employee said.
``They couldn't spell business plan,'' the former worker said. ``Let alone write one that was an accurate reflection of the company and its abilities. Budgets? That's a whole different mess of its own.''
Finances to blame?
Meanwhile, lawsuits from more than a dozen former vendors and customers simmer in Butler County, Iowa, District Court. The empty Hobson Mould building sits like a tomb at Shell Rock city limits, a for sale sign near the gravel driveway.
``We've still got that 120,000-square-foot reminder,'' said former Hobson process manager Jay Rogers. ``At the end, we could hardly buy a breath of air. We were definitely ahead in technology and manufacturing, but that didn't last as long as it should have.''
The company's plight has been shared by other once-strong toolmakers in 2001, a year some in the industry call the worst ever. In Hobson's case, the problems run deeper than a cyclical downturn.
Hobson ticked off several other factors in the company's demise: An employee stock ownership plan that made it unwieldy to lay off workers; tough automotive customers held back some payments; a risky expansion into blow molding ladled on debt, as did a successful but draining, year-long lawsuit against former employees for stealing trade secrets.
Both Hobson and other sources agreed that loose financial controls hurt the company. As the business grew during good times, capital expenses climbed at a faster clip.
``We realize that we took the eye off the ball a little bit,'' Hobson said during an Aug. 24 interview at his office. ``But eventually, we thought that things were going to be better. At the time, our philosophy was that we had to grow or die.''
Some ex-employees put the blame squarely on top management. Hobson Mould's employment swelled in the late 1990s from 80 to 140, an outsized number for a shop with sales of $10 million annually.
``The whole bottom line was that spending at the company was completely out of control,'' said former sales manager David Backer. ``They'd continue to throw people at problems. A good manager could walk through that company and shed 15 people in one department without missing a beat.''
Too much spending?
Change was the company byword in the mid-1990s. Essef Corp. of Chardon, Ohio, decided to sell the former aluminum foundry in 1996. But when a buyer did not meet Essef's price, Hobson put together an employee stock ownership plan and raised $1.6 million in financing, much of it from workers' 401K retirement funds.
The buyout was reason to celebrate, keeping Hobson in the town of 1,200 people. And the company was growing, adding industrial blow molding to its repertoire and selling equipment from Placo Co. Ltd., a blow mold machine maker in Iwatsuki, Japan.
The diversification strategy has its second-guessers. Consultant Peter Mooney, who recently conducted a study on the industrial blow molding industry, said the move might have cost Hobson valuable customers.
``Their need to gear up for blow molding and bring in machines came at a very awkward time,'' said Mooney of Plastics Custom Research Services in Advance, N.C. ``From what I heard, it teed off some of Hobson's customer base.''
Gerald Hobson said he knew that was a possibility when the company moved into blow molding. But the company won enough new business to more than offset the losses, and it helped Hobson expand at a time when the economy was heating up, he said.
Money was being spent in other areas. A 1995 fire had meant rebuilding the plant. In 1998, an expansion added 40,000 square feet.
A 1997 trade-secrets lawsuit against Waverly, Iowa-based BLM Molds Inc. was a gut-wrenching experience. The fight with the former Hobson employees who managed the shop also turned attention away from day-to-day operations, Hobson said.
``We won the battle, but it was a mess to fight it,'' he said.
The activity also meant more bank loans from Milwaukee-based Firstar Bank NA. According to court documents, Firstar loaned notes worth almost $6.5 million in 1998. Gerald Hobson guaranteed $100,000 personally for those loans, a move he would later regret.
Work-force issues also became a burden, Hobson said. The ESOP made it difficult for the company to fire or even lay off any worker-owners, he said. Business slowed in 1999, but staffing levels remained steady. Many employees were not as productive as before, he said. According to several sources, Hobson needed to ship about $890,000 of work each month to meet its budget outlays. That proved difficult.
The company made a profit of $660,000 in the first quarter of 2000, after losing money in 1999, Hobson said. Yet the year-end results for 2000 showed a loss of more than $400,000.
Running out of cash
By Hobson's estimate, if the company would have laid off 50 workers in June 2000, it would not have been forced to close. But the company decided to wait, knowing that a skilled work force was difficult to rehire in a small community.
About $4 million in orders were booked for 2001, giving the company hope for continued life.
``We were on the 99 yardline before we ran out of cash,'' Hobson said. ``If we had downsized, we'd still be in business today. But being employee-owned made it very difficult. I didn't want to mess with it legally.''
But the company's bankers were getting impatient. According to one source close to Hobson, the company had told Firstar in 1998 that its sales would soar to about $20 million annually by 2000. That did not happen.
Meanwhile, with the 1998 loans, Hobson Mould was what the bank termed ``out of formula,'' meaning that its debt was out of balance with sales. Patience was wearing thin with loan repayment, Hobson said.
The company shopped for a buyer in late 2000 and came close: One company was poised to buy half the operation before balking when the economy continued to tank. If the sale had gone through, Hobson Mould would have had about $2.5 million in new financing.
Other toolmakers looked at Hobson, said Martin Cass, president of blow mold competitor Fremont Plastic Molds Inc. of Fremont, Ohio. His parent company, Midwest Tooling Group of Chagrin Falls, Ohio, had considered buying Hobson but ultimately turned away.
``They were openly bleeding,'' Cass said. ``Unfortunately, you can build too much fat during the good times if you don't concentrate. Once the genie goes back in the bottle and the economy is down the tubes, it sometimes is too late to pare back.''
The final straw might have come from one of Hobson's customers, a large automotive supplier. Hobson already was beset by demands for price rebates from customers and had lowered its tooling prices to gain business. Then one supplier in 2000 signed a tooling contract worth $750,000, a large payday for Hobson Mould. But the payment did not come until about 200 days after parts approval, Hobson said. And when it did, the supplier kept $260,000 for itself, shorting Hobson by about a third of the final price.
The reason given: The part had developed a leak and needed retooling. However, Hobson said the responsibility lay with the supplier, who had disregarded Hobson's original tool design and had used a faulty drawing that the supplier insisted was needed, he said.
``They told us it had to be this way,'' Hobson said. ``But it couldn't pass the original leak test. So they cut off our legs.''
In late December 2000 the bank had enough. Assets were seized, freezing about $1 million in tooling business that was never completed. Hobson Mould owed Firstar about $5.4 million.
Turnaround specialist Ken Mann of Equity Partners Inc. was brought in to find a buyer, and he almost succeeded in selling the business for $3.3 million. But that deal fell through, and Mann quickly found it difficult to shop a company that had already stopped producing tools.
``That was the single biggest problem,'' said Mann, based in Easton, Md. ``But the second problem was that Hobson had too much facility and equipment for its recent sales history. They had big potential in blow molding sales, but it had not been developed yet.''
On May 30, Firstar took possession of Hobson's equipment - with value estimated at about $2.5 million - and its building. Firstar decided to hold an auction, selling equipment piecemeal in more than 1,000 lots. Gerald Hobson said he could not bring himself to attend the event.
``It would be just like going to the sale of a child's body parts,'' he said.
At the June 28 auction, most equipment only fetched 10-20 cents on the dollar, according to several sources. The building still is for sale.
Ed Roach, president of Lockport, Ill.-based blow mold producer Speedy Tool Inc., came to view the equipment and witness the dismantling of a once-mighty tooling war horse. Cars were lined up and down the highway in front of the plant.
``It was a sad thing,'' he said. ``The company worked too hard to have it end up like that.''
A trail of vendors and former customers still would like their cut of the proceeds. More than a dozen have filed claims in the Butler County courthouse in Allison, Iowa. One molder, Regency Plastics Inc. of Ubly, Mich., had given Hobson a $25,900 down payment for a mold on Dec. 19, days before the bank closed the doors.
In retrospect, Hobson said the best advice he could give a mold maker is to watch every dollar. He is working temporarily as a manufacturer's representative for several smaller molders while he sorts through his options.
Meanwhile, he has lost his $100,000 bank guarantee, his retirement funds and his company.
The next step
Other former employee-investors also are rebuilding careers. In February, Hobson program manager Joe Sands helped start a new tooling company, Hawkeye Mold & Design Co. in Charles City, Iowa. The 11-year Hobson veteran said the closing was a hard pill to swallow.
``I'm fairly young, so I have time to make up what was lost,'' Sands said. ``But older people in the community will be hard-pressed to make up the difference.''
Former plant manager Klinefelter is one of those. At 51 and without a retirement nest egg, he still is considering what to do next.
Still, he does not blame the company's diversification strategy, nor the ESOP. At the time, the company's moves seemed like the right thing to do, he said.
``It's kind of like saying you can win any football game on Monday after watching it on Sunday,'' Klinefelter said. ``The same thing happened to Hobson Mould. Everybody points a finger now because it's easy to do.''