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How America's Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery
Source: New York Times
How America’s Oldest Gun Maker Went Bankrupt: A Financial Engineering Mystery
When a secretive private equity firm bought Remington, sales were strong and the future bright. A decade later, the company couldn’t escape its debts.
By JESSE BARRON MAY 1, 2019
-snip-
The dream was lofty and ambitious, and Huntsville was only a piece of it. Cerberus had been trying for years to assemble a dominant American gun company. First, in 2006, it purchased Bushmaster, known for its AR-15-style rifles. Then it paid $118 million in cash for Remington and assumed the company’s debt. Other acquisitions followed, until by 2013, 18 businesses were rolled up together under Cerberus’s roof. One of Kollitides’s jobs was to oversee the necessary layoffs. In Ilion, where Remington has operated for 191 years on the same site — unfinished weapons had to travel from one brick building to the next — 231 people lost their jobs. There were 160 layoffs at Montana Rifleman in Kalispell, Mont. The Advanced Armament Corporation, a manufacturer of suppressors and silencers, closed its plant in Georgia, and 68 people were let go from D.P.M.S. Panther Arms in St. Cloud, Minn.; 65 from Para USA in Pineville, N.C. What remained was to increase profit margins by combining all these scattered production lines into a single megafactory.
As Chandler flew with Kollitides on the plane from New Hampshire, there was every indication that success awaited them below. When Cerberus bought Remington, the company was earning $500 million a year in revenue. In 2014, it earned $939 million. Guns sales are driven by anti-gun rhetoric; a popular joke in the industry is that Barack Obama was the greatest gun salesman of all time. The numbers bear this out. In 2013, the year following his second electoral victory, American gun companies produced 10,844,792 firearms, 222 percent more than they produced in the year after the 9/11 terrorist attacks. In 2015, expecting another Democrat in the White House, many manufacturers thought the party would continue, stoked by a combination of gun-control rhetoric and the right-wing media’s confiscation conspiracies.
There was, however, a hidden, vaguely mysterious quirk of the company’s finances. In 2012, more or less in the middle of the best climate for gun makers in a generation, America’s oldest continually operating manufacturer abruptly, and for no easily discernible reason, borrowed hundreds of millions of dollars. When the company came to Alabama, it owed $828 million to its creditors. While this number, compared with the company’s earnings, represented a comfortable ratio on the balance sheet, it was nonetheless curious. The debt could conceivably have been explained by the cost of opening a new factory were it not for the fact that Remington got its factory free.
-snip-
He was hired, the executive explained, as the plant was coming online, and he was tasked with wrangling together some scattered acquisitions. The business was, according to him, “in shambles.” It seemed that the companies Cerberus had moved to Alabama had been “bought and forgot.” He explained that he was “a realist” about business, a game in which not everyone gets “a shiny rose at the end,” but even so he sensed that something had gone deeply wrong. Executives were fired at a fast clip. Line employees came and went. Parts piled up on the factory floor. Most worrying, Cerberus, which was trying to integrate disparate brands — the father-son pastoralism of Remington with the urban-militia aesthetic of AAC, for instance — seemed to him miserly when it came to marketing. “The decisions were all about: Where can I save another dime?” he told me.
Despite all this frenzy, he was certain that Cerberus had somehow made a great deal of money on Remington even before opening the Huntsville factory. According to him, Cerberus had made “hundreds of millions of dollars” almost immediately. “They pulled out all that money up front, took as much cash as they could.”
-snip-
Read more: https://www.nytimes.com/interactive/2019/05/01/magazine/remington-guns-jobs-huntsville.html
When a secretive private equity firm bought Remington, sales were strong and the future bright. A decade later, the company couldn’t escape its debts.
By JESSE BARRON MAY 1, 2019
-snip-
The dream was lofty and ambitious, and Huntsville was only a piece of it. Cerberus had been trying for years to assemble a dominant American gun company. First, in 2006, it purchased Bushmaster, known for its AR-15-style rifles. Then it paid $118 million in cash for Remington and assumed the company’s debt. Other acquisitions followed, until by 2013, 18 businesses were rolled up together under Cerberus’s roof. One of Kollitides’s jobs was to oversee the necessary layoffs. In Ilion, where Remington has operated for 191 years on the same site — unfinished weapons had to travel from one brick building to the next — 231 people lost their jobs. There were 160 layoffs at Montana Rifleman in Kalispell, Mont. The Advanced Armament Corporation, a manufacturer of suppressors and silencers, closed its plant in Georgia, and 68 people were let go from D.P.M.S. Panther Arms in St. Cloud, Minn.; 65 from Para USA in Pineville, N.C. What remained was to increase profit margins by combining all these scattered production lines into a single megafactory.
As Chandler flew with Kollitides on the plane from New Hampshire, there was every indication that success awaited them below. When Cerberus bought Remington, the company was earning $500 million a year in revenue. In 2014, it earned $939 million. Guns sales are driven by anti-gun rhetoric; a popular joke in the industry is that Barack Obama was the greatest gun salesman of all time. The numbers bear this out. In 2013, the year following his second electoral victory, American gun companies produced 10,844,792 firearms, 222 percent more than they produced in the year after the 9/11 terrorist attacks. In 2015, expecting another Democrat in the White House, many manufacturers thought the party would continue, stoked by a combination of gun-control rhetoric and the right-wing media’s confiscation conspiracies.
There was, however, a hidden, vaguely mysterious quirk of the company’s finances. In 2012, more or less in the middle of the best climate for gun makers in a generation, America’s oldest continually operating manufacturer abruptly, and for no easily discernible reason, borrowed hundreds of millions of dollars. When the company came to Alabama, it owed $828 million to its creditors. While this number, compared with the company’s earnings, represented a comfortable ratio on the balance sheet, it was nonetheless curious. The debt could conceivably have been explained by the cost of opening a new factory were it not for the fact that Remington got its factory free.
-snip-
He was hired, the executive explained, as the plant was coming online, and he was tasked with wrangling together some scattered acquisitions. The business was, according to him, “in shambles.” It seemed that the companies Cerberus had moved to Alabama had been “bought and forgot.” He explained that he was “a realist” about business, a game in which not everyone gets “a shiny rose at the end,” but even so he sensed that something had gone deeply wrong. Executives were fired at a fast clip. Line employees came and went. Parts piled up on the factory floor. Most worrying, Cerberus, which was trying to integrate disparate brands — the father-son pastoralism of Remington with the urban-militia aesthetic of AAC, for instance — seemed to him miserly when it came to marketing. “The decisions were all about: Where can I save another dime?” he told me.
Despite all this frenzy, he was certain that Cerberus had somehow made a great deal of money on Remington even before opening the Huntsville factory. According to him, Cerberus had made “hundreds of millions of dollars” almost immediately. “They pulled out all that money up front, took as much cash as they could.”
-snip-
Read more: https://www.nytimes.com/interactive/2019/05/01/magazine/remington-guns-jobs-huntsville.html
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