Apollo Box Inc. started in 2005, as a small design house and printing operation. In the competitive printing industry, Apollo became well known for its superior graphic design. Design had remained a hallmark of the company to this day. By 2009, the firm had $5,000,000 in sales annually and with 20 employees. Profit was $150,000 in 2009. In light of the slim profit margins on regular print goods, in 2009, Jim Herrington had begun to explore other printing related opportunities. A strategic re-direction took place with the firm moving from simple print material to fold down boxes. At the same time, a labour sponsored fund became an important equity partner in the firm with the firm restructuring its share capital. After the restructuring Jim Herrington and his family held 60% of shares, the labour fund 35% and a third silent partner 5%. At that time, a full-fledged corporate governance model was introduced to the company with regular board meetings and committees of the board. Fold down boxes are typically made from card type stock. Each 125 cm sheet can make 2 boxes. Apollo Box planned to operate (and continues to operate) 16 hours per day for 250 days each year. When there is a rush order, or equipment breakdowns the recovery occurs over weekends or by extending the shifts. Average salary for press operators is $25 per hour. Overtime is paid at time and a half. The injection of capital allowed Apollo to pursue their new mission, that being one of the top ten fold down box manufacturers in western Canada Prairies. It allowed for the acquisition of five printing presses and gluing equipment along with major expansion to the facility, which could hold up to 10 large printing presses. Expectations were it would lead to sales of $15,000,000 in 3 years, with 55 employees, and an estimated annually profit of $750,000. Platinum is a non union shop. Execution of the new business plan was difficult. First, suppliers were reluctant to offer reasonable terms for the purchase of the new printing equipment, especially to a new comer to the box printing industry. After failed negotiation with several large international printing press suppliers, Jim Herrington turned to an old friend. Jim Herrington has been a close friend of the grandson of the founder of Mid-Continent Printing Equipment and its current president, Conrad Thickwood since childhood. Mid- Continent presses were well known in the industry. Mid-Continent started in Winnipeg in the early 1900's. They had a reputation of having very good quality but notnecessarily the highest quality. Apollo Box was able to purchase five suitable presses, on reasonable terms. Conrad mentioned to Jim that it was a partially a favour to him and he expected him to remember it in the future. Card stock for printing boxes was also a difficult to acquire. The local paper distributors had established relationships with local print shops including the two other firms in the box business. In fact, one was a box manufacturer as well. The effect was overpriced card paper, relative to other markets. The Board of Apollo and management decided that they would move sourcing for paper further afield, with Apollo becoming a buyer of card stock in the southern United States. During the expansion, Apollo experienced severe cash flow shortage due to the costs of the expansion and the slow development of the market. Apollo overcame these and by 2012 had sales of $20,000,000, with 75 employees. Some of these were family members, with three of his children working in the business. In late 2012, Jim Herrington, the President of Apollo, along with the Board of Apollo announced a new market direction for the company, which is to expand into the United States, with high quality products. The push was to begin in six months and should reach its potential 1.5 years later. At that time, Apollo was expected to be selling 250,000,000 boxes per year in the US. Sales were expected to double in 3 years. Apollo existing box printing equipment is basically the same as acquired in 2009 with Mid-Continent presses. Although the have a normal service life of 10 years the Mid- Continent's that were purchased in 2009 are still going strong. To meet its goals of expanded production the thinking at Platinum is to acquire 5 more presses. During the years between 2005 and 2018, the company had restructured. Of the original shares issued in 2005, Jim Herrington had purchased the 5% silent partners shares. The Herrington family now held 65% of the shares, with Jim and his wife holding 51%, and his four children, 3.5% each. The labour fund now held 25% of the shares. The remainder had been bought back by the company and distributed to key employees. Fransico Rameriz, the general manager had 5% of the shares. Anthony Lewison, the plant manager held 2.5% and Sheila Brown, the head sales person held the remainder. Apollo uses the South Central Credit Union as its prime banker. Indications are that it will finance purchase up to $3,000,000 at an interest rate of 5.25% over ten years. James Jonathon (J.J) Herrington is the procurement manager for Apollo Box. James Jonathon along with his staff are charged with the task of making a recommendation to the Apollo Box Board for the new presses. James Jonathon and Franciso have had a tumultuous working relationship since James Jonathon joined the business in his late teens. Fransico considered Jared John as too young for his responsibilities, while J.J. saw Fernando as old and stuck in his ways. Fransico often overruled J.J. on decisions, even when they were good decisions. Many times, they would work it out, but recently Jim Herrington had to be the tiebreaker. J.J. has three staff members. Colin Smithson has the CSCMP designation. Judy Darling is working on her CSCMP, while Adrian Humphreys is a there as a technical specialist. The procurement group in consultation with plant management develop a specification for the presses and investigate potential sources. Colin who is leading this part of the effort concludes there are 3 potential presses that are available and would meet their need s. The Merakuri Luxo 10000. 1l,is is the most modem press in Merakuri's group, offering, according to Merakuri, the highest standard in reproduction with a capacity to handle up to 150 cm stock. Tile press can run, 10,000 sheets per hour. Operating costs are $.05 per sheet produced. Merakuri is located in Seoul South Korea and sells it products in Canada through a distributor located in Regina. Each Merakuri press is $500,000 delivered to Vancouver. The presses have a 10 year life span. The value of the scrap is estimated at $5,000. The cost of removal form the plant is estimated at $4,000. Transportation front Vancouver to Winnipeg is about $5,000. Once in Winnipeg, Merakuri will send a set up team from the Regina office to assist in the commissioning of each press. Merakuri promises next day service on major press failures with a full warranty on parts for 3 years. Merakuri provides financing at a rate of 5% per year over 10 years. Mid-Continent is located in Winnipeg, about 70 kilometres from Apollo Box plant. They can also handle up to 125 cm paper. Typical operating cost per sheet is $.07 based on average production of 7,000 sheets per hour. Each press is $400,000. Mid-Continent will install the presses at the Apollo Box plant as well as dispose of them at the end of their 10-year service life. They will provide Apollo with a credit for the disposal value at that time. Mid-Continent also provides a 3-year warranty on its equipment, inclusive of parts and labour to install the parts. Mid-Continent does not provide financing on its equipment. Mid-Continent is a union shop. The Union, the Amalgamated Association of Printers and Related Equipment Suppliers, (AAPRES) has worked relatively co-operatively with Mid-Continent since unionizing their plant in the early 1990s. AAPRES has established a goal of unionizing all print shops in the area over the next two years. They have mad e no bones about the fact they consider the platform offered from their base at Mid- Continent as a valuable asset in achieving their goal. Phenom Press is the third possible source. Phenom is a new and aggressive firm that has adopted pylaser print technology. The technology, which is new to the market, has proven to produce extremely high quality output. The operating costs of the Phenom Press unit is $.04 per sheet. It can produce 7,500, 125 cm sheets per hour. The press costs $675,000 commissioned and operating in the Apollo Box plant. Phenom builds it presses in Jacksonville North Carolina. Phenom has been building presses for only 2.5 years. The press is estimated to last 10 years. Decommissioning is expected to cost $4,000 with a scrap value of $4,500. Phenom warrants its equipment for 5 years for parts and labour to install the parts. Service is provided from corporate headquarters. Phenom provides 5 years financing at a rate of 4% per year. Further refinancing is available at 5 years, at the prevailing prime rate plus 2%. Merakmi has offered J.J, Colin, Fransico and Jim a trip to South Korea to see their plant for a demonstration of the equipment. All are enthusiastic except Colin who suggests that perhaps the y could simply go to Regina to see the press in operation. Mid-Continent also offers a tour and show of the equipment in operation. Conrad has talked to Jim over the phone about the purchase, where he mentioned the Length of their relationship. Phenom has bee n a little less enthusiastic. Adrian has been at the Phenom plant previously when he worked for a different company. He describes it as a first class operation with outstanding products, which use technology that is very environmentally sound. Judy has been investigating the maintenance and repair costs for the three presses. Based on experience the Mid-Continent presses at Apollo Box have had average maintenance costs of $20,000 per year. Non-normal downtime is 4 days per year per press. Maintenance and repair costs were $40,000 per year for each of the last two years. Judy had checked with staff in other printing firms and found that indeed the Merakuri presses produced the highest of quality output. They were, however, costly to repair when they broke down. Based on conversations with colleagues they suggested that a budget of $35,000 per year for repairs and maintenance was reasonable. They indicated average downtime was about 3 days per year. Few Merakuri presses, it was noted made it beyond 12 years. She only found one person who had experience with the Phenom presses. Their comment was that they ran strong with no maintenance problem s on the press they had. Jim has been very specific with his staff about controlling costs of this buy, as a new director has been appointed by the labour sponsored fund, who is quite well known as a being very cost conscious. Accordingly, staff have been keeping track of their time spent on the project. Costs to date are as follows: The long awaited day arrives or J.J. to make his presentation to the Apollo Board of Directors. Assignment: Prepare a Formal Case Analysis with your recommendations to the Board of Directors.