Remington reeling from lawsuits and slump in sales, prepares to enter bankruptcy
Remington Outdoor Co. said Monday it will enter Chapter 11 bankruptcy protection with a restructuring plan designed to reduce much of its $950 million debt and provide $145 million in new capital.
Remington, based in Madison, plans to enter voluntary bankruptcy protection in the U.S. Bankruptcy Court in Delaware.
The company also has been overshadowed by lawsuits filed following the 2012 Newtown school shooting tragedy in which 20 first-graders and six educators were killed. The assailant used a Remington-made rifle.
According to a news release, creditors, identified as term loan lenders, would own 82.5 percent of the equity in a reorganized Remington. Another group of creditors would hold the other 17.5 percent.
Creditors will provide a $100 million debtor-in-possession loan to Remington to help it maneuver through the bankruptcy filing.
“As I understand it, Remington has transferred control of the company to creditors, thus wiping out all shareholder equity,” said Zagros Madjd-Sadjadi, an economics professor at Winston-Salem State University.
“Creditors may choose to continue to operate the company or they might try to sell it off piecemeal. Normally, without a prepackaged deal to sell it to another company, these types of endeavors last between six and 12 months before the company emerges from bankruptcy, is sold in total to pay off creditors, or has its assets liquidated.
“The Remington name still has some value as a brand, but whether that can keep the company intact remains to be seen.”
Like most firearms manufacturers, Remington has struggled recently with declining sales amid decreasing consumer demand following the election of President Donald Trump in November 2016.
It is not clear how many employees Remington has in the Triad. At last count, it had 150 in Madison, down from 260 in 2016, and 2,700 companywide.
Rumors of a potential bankruptcy filing have been swirling for several weeks.
The company said the agreement with its creditors will reduce its overall debt by $700 million. Reuters reported in January that Remington had at least $950 million in debt.
The company said the new capital will markedly strengthen the company’s consolidated liquidity, balance sheet and long-term competitiveness.
Remington said it “will continue to operate in the normal course and will not be disrupted by the restructuring process.” That includes payments to vendors, employee wages and other benefits and customer support.
“Difficult industry conditions make today’s agreement prudent,” said Jim Geisler, Remington’s executive chairman. “I am confident this regrouping ensures that Remington will continue as both a strong company and an indelible part of our national heritage.”
Remington’s fiscal 2017 sales were down 27.5 percent to $466.7 million through the third quarter. It had a $60.5 million loss as of Oct. 1, compared with net income of $19.1 million a year ago.
Remington has taken to date a $33.2 million impairment charge for fiscal 2017, compared with $2.3 million a year ago.
The bulk of the 2017 impairment charge was related to decreasing its goodwill by $28.5 million, as well as a $4.5 million charge related to intangible assets impairment.
Goodwill arises when a company acquires another business. The amount of goodwill is the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase. A company typically writes down its goodwill when the value of certain assets declines.
Anthony Acitelli, Remington’s chief executive, said that “the fundamentals of our core business remain strong.”
“We have an outstanding collection of brands and products, the unqualified support of a vibrant community across the industry, and a deep and powerful culture.
“We will emerge from this process with a deleveraged balance sheet and ample liquidity, positioning Remington to compete more aggressively and to seize future growth opportunities,” Acitelli said.
Before Trump’s presidential victory in November 2016, pro-gun advocates had expressed concern that Democratic challenger Hillary Clinton would continue former President Barack Obama’s push to close “loopholes” on gun purchases and background checks through Congress and possibly through future appointments to the U.S. Supreme Court.
Investment expert Louis Navellier, chairman of Navellier Associates, has said Obama “is the best gun salesman on the planet.”
Since Trump’s win, the sales and share prices of firearms manufacturers, including Sturm, Ruger & Co. and American Outdoors Brands Co., have slumped.
The National Instant Criminal Background Check System, conducted by the Federal Bureau of Investigation, said the number of firearm background checks declined in 2017 for the first time since 2002. That included the checks declining in 10 of 12 months, and by an 8.4 percent decline overall to 25.2 million.
Ruger confirmed Jan. 8 it has eliminated 50 non-production jobs companywide. Ruger has a production plant in Mayodan.
A lawsuit filed by family members of the Newtown tragedy victims says Remington should not have sold such a dangerous weapon to the public. Remington’s lawyers have disputed the allegations. At that time, Remington was known as Freedom Group.
However, Remington, which is controlled by buyout firm Cerberus Capital Management LP, was abandoned by some of Cerberus’ private equity fund investors at that time.
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