Colt: The Continued Soap Opera.

[Aragon]

I don't really see that happening, but if did you would have a company that for all practical purposes only had two products - the 1911 pistol platform and AR15 rifle - that are viable.

And it was surrounded by competitors, big and small, who were not going to roll over and play dead. The market itself for 1911 pistols is shrinking as polymer frame/striker fired/ large-cap pistols become more popular and because of they're design and construction offer a much better profit margin.

While Colt might be (in theory) debt-free, they would need millions of dollars to design, develop, tool, produce and sell new lines, and I highly doubt that they're would be a land rush of of new investors willing to throw money at them unless their investment was solidly secured.

I don't see Colt becoming debt-free anytime soon either, but that's what you inferred.

Like it or not, Colt is an American icon -- much like Harley Davidson. The Japanese, Germans and even other American companies build better bikes but they're not Hogs -- and there are many people who will buy nothing else.

I don't think that Colt will require millions of dollars to "design, develop, tool, produce and sell new lines." In addition to their military and LE sales, they're selling several variants of the AR-15 and the M1911. They are also selling their .380 Mustang (a surprisingly sweet like pistol) and M1873 single action revolvers.

I could easily see Colt introducing/re-introducing new models without huge design or hard tooling expenses in this day of CNC flexibility.

The real key is what's going to happen to the debt -- will it continue to be a boat anchor that hobbles Colt? And most important, will Colt management chart the right course for Colt's ultimate success and survival?

 

[Aragon]

I am a quality assurance manager for a very large international company, workmanship has more to do with the individual mindset and has little to do with age. Some trades do require a long period to master and the necessary experience may take several years to aquire.

I've looked at Colt's SEC filings for the last several years, without the debt Colt would be doing OK. Not burning the house down, but making a reasonable profit. If the company had been properly managed they would probably be expanding capacity and would have undoubtedly introduced new products. The debt payments are simply too large for their revenue.

I've bought a couple of new Colts in the last year and quality has been very good on both, and others I've seen have been the same. Their problem has been financial mismanagement, almost entirely. Harley Davidson also makes a supposedly technologically outdated line of products and are very successful, after nearly going under. The question is whether Colt can emulate HD's restructuring and resultant success. I think the amount of debt Colt has now built up may be too much to overcome no matter how well they reorganize.

Thanks for a great posting!

 

[Old Fuff]

Hey, that's one product more than Wilson Combat Seriously, though, unless Colt were to scale down to focus on production and semi-custom 1911s, SAA and ARs, they need to find at least one "Next Big Thing." And they can't scale down. In fact, Colt/Sciens forecasts 25%-30% revenue growth for the next several years. Growth the structured lenders must be buying into to support the Sciens bankruptcy scheme.

According to most analysts, it is expected that firearms sales in general will slow now, unless another push for gun control comes up unexpectedly. In the face of this prediction, and the likelihood that they're most profitable 1911 pistols and AR-15 rifles would be particularly impacted, they forecast a 25 to 30 percent increase in revenue. From what source?

The structured lender's investment is supposedly secure (or I will argue it is) so if Colt/Sciens actually succeed in crushing the unsecured bondholders and other current investors (if they're any) and eliminating the entire current debt (which I see as wishful thinking); Colt might still fall into bankruptcy if the suggested revenue increase fell short - leaving the secured lenders with all remaining assets and little or no debt.

If they are thinking in this direction they have everything to gain, and little or nothing to lose.

 

[Gearhead Jim]

Some Colt memories:

In the 1970's I read a history of Colt article, it said that Colt's labor-management relations and general management were so bad that the company almost shut down for good at the end of WII.

Back when I was a cop in the 1970's and carrying a 1911, I bought two new ones and used the best parts to assemble one good gun for duty use, kept the junker as a practice gun. Quality control was pretty poor.

Colt went through a long strike maybe 15 years ago, the bitterness (on both sides) of that can last for decades.

I bought a Colt 6920 AR15 a few years ago for the cop job, the only other Colt that has interested me in decades is the .32/.380 Pocket Model they were supposed to resurrect. That's probably dead now.

 

[PowerG]

According to most analysts, it is expected that firearms sales in general will slow now, unless another push for gun control comes up unexpectedly. In the face of this prediction, and the likelihood that they're most profitable 1911 pistols and AR-15 rifles would be particularly impacted, they forecast a 25 to 30 percent increase in revenue. From what source?

The structured lender's investment is supposedly secure (or I will argue it is) so if Colt/Sciens actually succeed in crushing the unsecured bondholders and other current investors (if they're any) and eliminating the entire current debt (which I see as wishful thinking); Colt might still fall into bankruptcy if the suggested revenue increase fell short - leaving the secured lenders with all remaining assets and little or no debt.

If they are thinking in this direction they have everything to gain, and little or nothing to lose.

If Colt could get out from under the debt they could lower the price of their products. And I have no doubt that if you could get a 6920 for say $650 they would put some competitors out of the AR business, the brand name is very strong.

 

[susieqz]

reading this entire thread tells me that colt has no chance unless upper management is completely replaced. they will fight tooth n nail to not let that happen.
can it happen?

 

[Old Fuff]

If Colt could get out from under the debt they could lower the price of their products. And I have no doubt that if you could get a 6920 for say $650 they would put some competitors out of the AR business, the brand name is very strong.

Yes and no. The "Grand Plan" calls for reorganization in 60 to 90 days. To accomplish this they would need the full support of the Bankruptcy Court (which is questionable) and a willingness on the part of the bondholders to not make any waves (even more questionable). It could happen, but the odds are not very good.

But if things did go "their way," they might arrive to find that the overall market had gone soft. Even now EBR makers are resorting to promotional offers that a year ago would have been unthinkable. Clearly, if nothing happens to reignite panic buying the extra-good sales in a short time frame are over. To do want Colt's current management wants will require strong demand in a very short time frame.

Colt, as well as others, can generate sales by discounting, but that would defeat the whole idea. Unlike some others they desperately need the money, and they need it now.

 

[Old Fuff]

reading this entire thread tells me that colt has no chance unless upper management is completely replaced. they will fight tooth n nail to not let that happen. Can it happen?

The current owners/management at Colt have placed the company's future into the hands of a Bankruptcy Court Judge. While this was risky they didn't - under the circumstances - have much choice. Ultimately the Judge will decide who gets what. All of us on the outside can only do what the insiders are doing...

Wait and see.

 

[susieqz]

thanks, fuff. i don't own a colt but i consider colt a part of america.
to me, it's important that it stays here.
if they ever make a small caliber gun i can use, i'll buy one.

 

[Old Fuff]

I bought a Colt 6920 AR15 a few years ago for the cop job, the only other Colt that has interested me in decades is the .32/.380 Pocket Model they were supposed to resurrect. That's probably dead now.

Colt never intended to make that gun (.32 Pocket Model/hammerless). What they did do is license another company that was interested in making it and wanted to use some of Colt's copyrighted markings and logo.

The proposed asking price for the non-Colt/sort of replica is $1,300+ with a WW2 Parkerized finish. Last I knew the maker's website was still under construction. Given that very nice to absolutely like new examples of the genuine Colt sell for around $600 to $1,000 I doubt that the world is beating a path to his door.

 

[Aragon]

Some Colt memories:

In the 1970's I read a history of Colt article, it said that Colt's labor-management relations and general management were so bad that the company almost shut down for good at the end of WII.

Back when I was a cop in the 1970's and carrying a 1911, I bought two new ones and used the best parts to assemble one good gun for duty use, kept the junker as a practice gun. Quality control was pretty poor.

Colt went through a long strike maybe 15 years ago, the bitterness (on both sides) of that can last for decades.

I bought a Colt 6920 AR15 a few years ago for the cop job, the only other Colt that has interested me in decades is the .32/.380 Pocket Model they were supposed to resurrect. That's probably dead now.

Colt DID close at the end of WWII for over 2 years. Lack of business and considerable inventory were the problems.

The Colt/UAW strike was the longest strike in US history. Colt labor has strongly supported their company when it has come under siege from state politicos.

 

[Old Fuff]

i don't own a colt but i consider colt a part of america.
to me, it's important that it stays here.

if they ever make a small caliber gun i can use, i'll buy one.

I agree with you, but be aware in past years Colt made a number of handguns, both pistols and revolvers, chambered in .22 RF. They can still be found in the second-hand market.

 

[susieqz]

thanks fuff.i didn't know that. i'm checking now.
i'd love to own a colt.

 

[CoalTrain49]

One of the biggest problems with union labor in the US is not wages and benies at all.... it's opposition to productivity improvements.

I've seen this in the gov't agency where I used to work. We were a union shop with too many bodies to do the work we had. I was constantly being asked to supervise people that I hadn't ask for and didn't need. The reason was 100% union contracts and union support of the politicians that ran the organization. I was constantly trying to show management a better more efficient way of working by taking advantage of newer technology and they were never interested.

If a person cares to check they will see a trend of less union membership in the private sector and more in the public sector. I've worked in both and understand how they both function. For the most part unions are status quo and static, and sometimes a business needs to be more flexible to be profitable to survive. Hence the trend.

I don't think the primary problem at Colt was created by their union. Generally, unions will make concessions in tough times to insure that the jobs aren't eliminated.

 

[DPris]

Just a side note on the Post-WWII Colt shutdown-

Two factors contributed to that much more than any management problem.

One was that civilian sales were suspended after 1941 (all makers, not just Colt), and the other was that Colt geared up immensely for wartime government production.
The company was a MAJOR war materiel provider and deserves full credit for that.

When the war ended, so did the demand and government contracts for those materials.

Colt was left with a large workforce & no immediate market.
The civilian sector was still recovering from wartime rationing & shortages of all types, and adjusting to a decrease in jobs for Rosies as well as the reduction in war-specific jobs for men.

The economy took some time to recover before the firearms industry fully transitioned back to a civilian-oriented market, and before regular people began buying guns in volume again. As probably the biggest government contractor, Colt was hardest hit.

The company was praised for its war efforts for this country then, it shouldn't be criticized (at least over that 2-year shutdown) for them now.
Denis

 

[susieqz]

fuff pointed me to the colt woodsman yesterday. i am now saving up for it.
but ithot i'd post just to point out that inventive management might have more than 2 options.
from the reviews, this 22 could compete head to head with the smith 41. possibly reissuing discontinued lines could restore colt to profitability, at least til they come up with something new..

 

[Aragon]

Just a side note on the Post-WWII Colt shutdown-

Two factors contributed to that much more than any management problem.

One was that civilian sales were suspended after 1941 (all makers, not just Colt), and the other was that Colt geared up immensely for wartime government production.
The company was a MAJOR war materiel provider and deserves full credit for that.

When the war ended, so did the demand and government contracts for those materials.

Colt was left with a large workforce & no immediate market.
The civilian sector was still recovering from wartime rationing & shortages of all types, and adjusting to a decrease in jobs for Rosies as well as the reduction in war-specific jobs for men.

The economy took some time to recover before the firearms industry fully transitioned back to a civilian-oriented market, and before regular people began buying guns in volume again. As probably the biggest government contractor, Colt was hardest hit.

The company was praised for its war efforts for this country then, it shouldn't be criticized (at least over that 2-year shutdown) for them now.
Denis

Colt was no where near the largest US private mil contractor during WWII. That would have been General Motors in my Estimation. I doubt Colt made the top 20, possibly even the top 50/100. Colt would have been miles behind the car companies, steel companies, petrochemical companies, aircraft, food, etc., etc. The guns made by GM's Inland Division alone dwarfed all of Colt's production.

Further, the economy went nuts following the victory over Japan -- at least for products where there was a demand.

 

[SSN Vet]

Yeah... I don't think Colt's problems are really union related at all... pretty clear case of pirate capitalism when you look closely. Most of that huge pile of borrowed money was paid out to the controlling individuals (over and above their salaries) as consulting fees. What did they consult the company on? How to get a big loan! :banghead:

 

[Aragon]

fuff pointed me to the colt woodsman yesterday. i am now saving up for it.
but ithot i'd post just to point out that inventive management might have more than 2 options.
from the reviews, this 22 could compete head to head with the smith 41. possibly reissuing discontinued lines could restore colt to profitability, at least til they come up with something new..

I suspect S&W sells very few M41s...

Yes, the Colt Woodsman Match Target did and could compete with the M41, but like the M41 it was always an expensive, specific use pistol.

What would intrigue me is Colt Woodsman/Huntsman/Challenger/Targetsman that had been completely redesigned for manufacturability. Something that was actually better than the Browning Buckmark or the Ruger MKIII or 22/45 even if it cost a bit more.

It's a way for new generations to be introduced to Colt.

 

[Aragon]

I wonder if the bankruptcy judge can take into consideration the years of corporate looting by Colt's management? Could the judge be more supportive of the bondholders because of this history?

 

[DPris]

Aragon,
You take me out of context.
We were discussing GUN companies.

I should have been more clear, didn't realize I needed to be.
"As probably the biggest government contractor IN THE FIREARMS INDUSTRY...."
Denis

 

[wojownik]

I wonder if the bankruptcy judge can take into consideration the years of corporate looting by Colt's management? Could the judge be more supportive of the bondholders because of this history?

The judge sure can. Colts bondholders are explicitly placing that argument before the judge. One of the attorneys for the bondholders flat out told the judge that Sciens was to blame for Colt's problems and inability to compete. As quoted below:

"What do they (Sciens) do with the cash? They take it for themselves," said Robert Stark, of Brown Rudnick, which represents a group of large bondholders. "There is no corporate governance here. There is only Sciens."

So, if blocked by the judge, Colt could just give up on the sale idea, and move forward with a conventional Chapter 11 turnaround. In that case, the secured creditors could convert some or all debt into equity and take a controlling interest in Colt. The bondholders (unsecured creditors) again would likely see zero. And the other unsecured creditors (and there are like 600 more of them, of all sizes) would also probably see zero.

At the the moment, that seems like a more likely outcome.

It's not likely that Colt could execute either strategy in their desired summer-time strategy, as they could face numerous lawsuits from any number of these impaired unsecured creditors.

EDIT: p.s. - a conventional restructuring may push Sciens out as the sole or majority private equity holder. But it would not necessarily move existing management out. That might not change. Probably won't. Same management. Same production capabilities. Insignificant line of credit (unless the from the former secured lenders). And still the likely gap between its optimistic revenue forecasts and reality in a flaccid firearms market (compared to the runup over the past few years.

 

[Old Fuff]

Colt it appears, expects a 25 to 30 percent increase in sales, presumably because of considerably (?) stepped-up production.

Could be, but Smith & Wesson, who are far from bankrupt, reported this today.

Smith & Wesson shares drop after hours on weak outlook

By Sue Chang and Mark DeCambre Published: June 18, 2015 5:24 p.m. ET

Smith & Wesson SWHC, -3.73% reported its fiscal fourth-quarter earnings fell to $21.9 million, or 40 cents a share, from $25 million, or 44 cents a share, a year earlier. Excluding one-time items, Smith & Wesson would have earned 45 cents a share, ahead of Wall Street’s estimate of 35 cents a share. Meanwhile, the company forecast per-share earnings of 21 cents to 23 cents, below analysts’ consensus estimate of 45 cents a share in a Thomson Reuters survey. Shares of Smith & Wesson were off 3.9%

http://www.marketwatch.com/story/ri...-in-focus-2015-06-18?link=MW_home_latest_news

But of course if your current production is way down it might be possible to get some improvement, but this likely wouldn't bring in enough to restore the company's position as a major manufacturer during a time when the entire industry expects a downward trend.

The secured lenders could dump in more money, but given the market's forward-looking outlook the question arises, how are they going to make any money on this investment?

 

[DPris]

I THINK those Colt projections MAY be based at least partly on anticipated new model sales.
Still somewhat shaky, though, in the face of the general industry downturn.
Denis

 

[wojownik]

Colt it appears, expects a 25 to 30 percent increase in sales, presumably because of considerably (?) stepped-up production.

Could be, but Smith & Wesson, who are far from bankrupt, reported this today.



But of course if your current production is way down it might be possible to get some improvement, but this likely wouldn't bring in enough to restore the company's position as a major manufacturer during a time when the entire industry expects a downward trend.

The secured lenders could dump in more money, but given the market's forward-looking outlook the question arises, how are they going to make any money on this investment?

S&W's earning reports really grounds what I said earlier.

Regardless of whether Sciens or the secured creditors take the controlling equity interest, a restructured Colt is going to have a real challenge just balancing the spreadsheet, let alone striving for double-digit revenue growth. It's beyond whatever wizardry management thinks they can come up with (increased production, new models, etc...). The firearms market itself is contracting - less sales, and at lower prices, in Colt's core AR and 1911 markets.

What can a company do in a contracting market?

Colt needs to strive for minimum profitability requirements. At 5% pre-tax profit, Colt would still be on life support, at 10% Colt is ... meh, OK. At 15% percent, life is good..

Colt needs to RETAIN profits to self fund growth. Sciens needs to knock it off with sucking the blood out of the company. Or the bankruptcy judge needs to make proper corporate governance a condition of the restructuring. Or, she needs to boot Sciens completely in favor of the secured creditors. Of course, this is an empty statement unless Colt can start making some real profits (see above).

Colt needs to continue to enhance productivity and quality. Not just manufacturing. Direc sales, fulfillment, the entire organization. And Colt needs to become nimble enough to measure an adjust month by month. Not year by year, or decade by decade. Almost in real time.

The fourth thing a business like Colt could do, may be one thing they are too tainted to do. That is, if they are looking at new product lines, etc., Colt may need growth capital. And this would come from outside capital - long term investors.

If Sciens is moved out, the secured creditors (now as converted equity holders) may need to play that role. Or, the new equity owners could dilute themselves to offer equity to another long term strategic investor to propel the business. But that would mean that the secured creditors cum converted equity owners would need to be prepared to take a loss in their investment, to try and save the remainder of their investment.

Anyway, those are some typical survival strategies in a shrinking or slow-growth market. And how Colt may be challenged in implementing most key strategies.