Colt Defense having money problems...again...

[variablebinary]

Given the amount of guns Colt makes for LEO, the military and allies, its really hard to understand their cash flow problems. This is not the first time either...

Full story here.

http://www.thefirearmblog.com/blog/2010/11/17/colt-defenses-credit-rating-dropped-to-b/


Nov 16 - Standard & Poor's Rating Services said today that it has lowered its corporate credit rating on Colt Defense LLC [CDEFHC.UL] (Colt) to 'B' from 'B+'. At the same time, we lowered the issue-level rating on the company's unsecured notes to 'B' from 'B+', although the '4' recovery rating remains unchanged. We have placed both the corporate credit and issue ratings on CreditWatch Negative.

[Complication]

Given the amount of guns Colt makes for LEO, the military and allies, its really hard to understand their cash flow problems.

I have no clue what their actual situation is but I've been to business school--it's not as hard as you'd think to have customers out the wazoo and be hard-up for cash.

Maybe they're taking forever to collect on accounts receivable (probably not the case with their gov customers), maybe their raw materials or labor costs have risen but their contracts lock them into a set selling price, maybe a lot of overhead or inefficiencies have cropped up, eating into their costs.

Or it's a debt problem:
If they took out loans a few years ago to expand or replace machinery and projected sales to be X in order to pay off the loans and their sales are a lot below X, they've got to fork over a bigger chunk of revenue to pay off the loans.
Or, perhaps more likely, the shrinking credit markets is forcing them to finance new expenditures with capital rather than debt, further eating into profits.

Often selling more isn't the solution and can actually make the problem worse (if you're losing money for every 10,000/mo bit of capacity you have, adding more capacity and churning out more guns is only going to make the problem worse).

[armakraut]

They could make a run of 1,000 fiberlite stocks or M16A4 clones and sell them all in a week.

No sympathy for people who invested in tooling, molds and machines, but won't deliver the products. Like the retards at arsenal inc who spent all that time and money to be able to produce type III receivers, yet don't sell them. I come from the school of thought that says if you can make money by making things, you light the fires, roll the tires and do some business.

In this economy you could find a businessman that would make you twice as much money for half the salary of whatever goon they have running that place.

[Complication]

They could make a run of 1,000 fiberlite stocks or M16A4 clones and sell them all in a week.

....unless their problem isn't sales volume.

Running a company isn't as simple as making a lot of things. There's such a thing as competition as well as all the other crap that goes into a business besides the finished good (customer support, labor, sales, etc.).

It could totally be an issue of mis-management, or it could be something else.

[ForTehNguyen]

little to no diversification from being on the govt gravy train for so long, what did one expect?

[Heavy Metal]

It's a union shop in a Yankee ban state. What more do you need to know?

[variablebinary]

....It could totally be an issue of mis-management.


It's a union shop in a Yankee ban state. What more do you need to know?


little to no diversification from being on the govt gravy train for so long, what did one expect?

I will take all of the above as the correct answer

[Business_Casual]

It's a union shop in a Yankee ban state. What more do you need to know?

I would guess it is half this and half the fact that as soon as the public wants to buy one of their guns they stop making it. The margin on .gov sales is pretty slim.

B_C

[30 cal slut]

It's a union shop in a Yankee ban state. What more do you need to know?

yeah, and their stuff is banned in that yankee ban state. :sarcastic:

i mean :sad:

[austinN4]

The answer is in the posted link. I am posting some of it here as it is from a press release and not copyrighted:

"West Hartford, Conn.-based Colt, a manufacturer of small arms for the military and law enforcement, has been experiencing lower revenues and earnings over the past year due to decreased demand for its M4 carbine from its main customer, the U.S. military, as well as law enforcement customers, ," said Standard & Poor's credit analyst Christopher DeNicolo.

"The company had planned to replace this demand with orders from international customers and new products, but has had only limited success, since a large order it had expected this year has been delayed. The lower volumes have also resulted in deteriorating margins, mitigated somewhat by cost-reduction efforts."

The reduced earnings and higher debt levels following a refinancing in 2009, have resulted in total debt to EBITDA increasing to almost 7x for the 12 months ended Oct. 3, 2010, from 3x in the same period in 2009, and funds from operations to debt of around 0%, down from 16%. Although we expect some modest improvement in revenues and earnings in fourth-quarter 2010, Colt's results will likely be much lower than the same period in 2009--which we believe will probably result in further deterioration in its credit protection measures.

[DragonDoc]

If this is the case then it is time for Colt to do what the other Legacy manufacturers did and close up shop in the North and move to the South. I know FL, TX, or SC would welcome them.


It's a union shop in a Yankee ban state. What more do you need to know?

[DragonDoc]

Looks like they leveraged themselves into a hole. They should have known that eight years of troops squawking about the shortfalls of the M-4 (whether justified or not) may have a negative impact on their sales. Yet they failed to do anything about it. All the other top manufacturers seem to be releasing new hardware that is selling well. Colt is lagging behind.


The answer is in the posted link. I am posting some of it here as it is from a press release and not copyrighted:

"West Hartford, Conn.-based Colt, a manufacturer of small arms for the military and law enforcement, has been experiencing lower revenues and earnings over the past year due to decreased demand for its M4 carbine from its main customer, the U.S. military, as well as law enforcement customers, ," said Standard & Poor's credit analyst Christopher DeNicolo.

"The company had planned to replace this demand with orders from international customers and new products, but has had only limited success, since a large order it had expected this year has been delayed. The lower volumes have also resulted in deteriorating margins, mitigated somewhat by cost-reduction efforts."

The reduced earnings and higher debt levels following a refinancing in 2009, have resulted in total debt to EBITDA increasing to almost 7x for the 12 months ended Oct. 3, 2010, from 3x in the same period in 2009, and funds from operations to debt of around 0%, down from 16%. Although we expect some modest improvement in revenues and earnings in fourth-quarter 2010, Colt's results will likely be much lower than the same period in 2009--which we believe will probably result in further deterioration in its credit protection measures.

[rubberneck]

If this is the case then it is time for Colt to do what the other Legacy manufacturers did and close up shop in the North and move to the South. I know FL, TX, or SC would welcome them.

They can't. The state owns almost half of Colt and the union has three seats on the board. There is no way they are going to let Colt walk.

[The_War_Wagon]

It's a union shop in a Yankee ban state. What more do you need to know?

THIS!

I'd love to see their tax burden there in CT. I wonder how many "special" taxes Colt gets to pay, being the producer of eeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeevil firearms, such as they are. :rolleyes:

[ForTehNguyen]

moral of the story: you cant have the govt as practically your entire customer base.