Gibson financial problems ?

[j45nick]

Here's an interesting quote from a 2014 Billboard interview with Henry. Gives some idea of how he views the business:

 

Billboard:

"What inspired you to take over the former Tower Records location?"

 

Henry:

"One objective was to show that we're not really a guitar company anymore: We're a music company with a lot of different assets, many of which are in the consumer electronics field. This is a dream I've had for an experience store not unlike what Nike does in their field. Their stores demonstrate their products but are also learning centers for consumers."

[JuanCarlosVejar]

His people skills is a different subject.

 

Regarding the mess you’ve referenced, what mess? There is no actual indication there is a mess except an article speculating. Henry knows exactly what he is doing and created. And, despite the article’s BK speculation, any creditor who has any brains knows it’s in their best interests to continue working with Gibson by renewing their loans with assets being sold to reduce their debt upon their sale and profits continuing to come in. Plus, the recent corporate tax change to 21%, means more profits and more of a cash flow to produce further loan paydowns, provided the company keeps operating. Creditors forcing a BK would only hurt them. They are better off continuing to work with Henry.

 

Henry’s eventual exit plan? Go public and raise tons of cash or sell to one of this foreign Epiphone partners in China who have tons of monies. But, for now he still seems to be Henry the entrepreneur doing his thing to expand and hedge the company’s risk by diversifying into the electronics business through building the Phillips leg of the company., which in the long run may make the entire company more saleable.

 

Just my thoughts.

 

QM aka Jazzman Jeff

Ps. Another string should be started about his people skills, if you want to go there.

 

QM,

 

Just to make it clear ...I have always respected you and still do now.

It's ok that we don't see Henry in the same light .

 

Whatever we think of him ...You and I both still want Gibson to continue

 

 

 

JC

[rct]

And, despite the article’s BK speculation, any creditor who has any brains knows it’s in their best interests to continue working with Gibson by renewing their loans with assets being sold to reduce their debt upon their sale and profits continuing to come in.

 

I'm not sure you understand how bonds work, but you don't just keep debting yourself out of debt, it doesn't work that way. Creditors want returns, not glowy descriptions of great guitars. The bondholders are organinzing, that means that Gibson is in serious doubt about making good on the bonds they sold the holders. That is not good no matter how you phrase it. It is in their best interests to recoup less pennies on the dollar than to continue extending debt down to nothing on their dollars.

 

Plus, the recent corporate tax change to 21%, means more profits and more of a cash flow to produce further loan paydowns, provided the company keeps operating. Creditors forcing a BK would only hurt them. They are better off continuing to work with Henry.

 

Tax rates are not ever an indicator of glorious days ahead. Nobody extends credit and goes deeper in debt on a company in anticipation of lower taxes, it just doesn't happen. They extend credit and go deeper into debt in exchange for equity in a healthy company, equity that it is apparent Gibson will not give up even if they were a healthy company, so nobody wants that equity in this currently, apparently, unhealthy company. I say apparently because they are privately held and as such we have no idea just how ill or not they are, they don't have to tell anyone except those they are trying to get credit from or sell bonds to.

 

Henry’s eventual exit plan? Go public and raise tons of cash

 

Really? Do you know how "go public" works and the 90% probability that they will not raise tons of cash? Do you remember Fender attempting to go public just a few years ago and scrapping the idea because, drumroll please, TOO MUCH DEBT?

 

or sell to one of this foreign Epiphone partners in China who have tons of monies.

 

Having "tones of monies" does not mean one will automatically invest it in an unhealthy company, no matter how great their J-45s are. It just doesn't work that way.

 

But, for now he still seems to be Henry the entrepreneur doing his thing to expand and hedge the company’s risk by diversifying into the electronics business through building the Phillips leg of the company., which in the long run may make the entire company more saleable.

 

You are not paying attention. Buying electronics companies that are already on the ropes is in no way "hedge(ing) the company's risk by diversifying". Hedging means adding healthy investments to an already healthy portfolio. You may have noticed that by all accounts Gibson Guitars is not healthy and neither were or are the electronics companies they diversified into.

 

rct

[JuanCarlosVejar]

 

You are not paying attention. Buying electronics companies that are already on the ropes is in no way "hedge(ing) the company's risk by diversifying". Hedging means adding healthy investments to an already healthy portfolio. You may have noticed that by all accounts Gibson Guitars is not healthy and neither were or are the electronics companies they diversified into.

 

rct

 

This is my point exactly ...Henry poisoned his company by doing this exact thing.

You can't be the poison and cure at the same time.

 

 

 

 

JC

[QuestionMark]

QM,

 

Just to make it clear ...I have always respected you and still do now.

It's ok that we don't see Henry in the same light .

 

Whatever we think of him ...You and I both still want Gibson to continue

 

 

 

JC

 

For sure and likewise! I respect you, too!

 

QM aka Jazzman Jeff

[Mr. Gibson]

Hope Henry isn't reading this. Break his heart in two.

[QuestionMark]

This is my point exactly ...Henry poisoned his company by doing this exact thing.

You can't be the poison and cure at the same time.

 

 

 

 

JC

 

Appreciate your comments, too.

 

I have to say, my comments are based a lot on that I sat on a major Chicago bank committee for a good period of time where the committee would review criticized asset companies who had significant debt outstanding to us and formulated plans to renew loans, require pay downs, call loans in, force bankruptcy, force litigation, foreclose businesses, etc. Based on my past bank committee experience and the little Gibson information from a couple of articles, Gibson would only be a candidate to keep working with to maximize the bank’s chances of protecting its interests in eventually getting repaid by working with Gibson and monitoring their progress as they work through their plan to improve their financial situation. And, while one would not base lending to a company on the benefits they will receive from tax cuts, in this case the monies are already out the door, so considering the tax cut’s positive implications on their financials would be a factor for a creditor to consider whether they should work with a customer. Since the tax cuts should benefit Gibson, It woukdn’t be the only factor, but it would figure in to working with them as a creditor as it will improve their cash flow and 2018/2019 interest or principal payments. As would what steps they are taking to improve their financials, what their financial projections are, their track record of working through financial stress, etc. etc. Gibson has hired a new CFO, hired an outside firm to help them, is selling off some significant property assets, and meeting their investor obligations from profits. And, has a long term plan to strengthen their company by buying up another company at a cheap price to increase their financial diversity...some of which these very creditors have been helping them to do. Plus, they have a cash cow with Epiphone (I believe) being a world leader in the mass market segment of guitars which they run efficiently by outsourcing their manufacturing and running a niche high end guitar manufacturing business that they then market authorized copies of through their Epiphone segment. Who wouldn’t work with them if they’ve already invested monies in them through loans or bond financing. To topple the house of cards, would be costly to the creditors and bond holders who would have to hire liquidation managers one way or another who are nowhere skilled as Henry is with his business (the reason they lent monies to or invested in him to begin with.)

 

They’d have to be crazy to shoot themselves in the foot by bailing on Henry now and eating losses, destroying the company, when they stand to gain by working with him.

 

Don’t get me wrong, he will need to sell them on sticking with him, but he’s done that in the past, and the article indicates he is preparing to do so again.

 

Being on a past unrelated bank committee, I can’t imagine any creditor committee not working with him. Having a lot of questions, yes. But, Henry should be able to answer them with his management plans.

 

Poison? A lot of companies operate as he does. Always on the edge, always using their money (that keeps banks in business). He always gets creditors to buy into what he’s doing. And, keeping ownership control of his company because he’s always balancing the line to keep growing and being successful even when some plans fail. If he didn’t do all the things he does (and produce a world class leader with Epiphone and Gibson), had no plans, stuck past creditors, keeps giving up ownership control, etc. I’d say the future is doubtful. But, none of that has occurred. His loans are coming due. I’ve seen Commercial Loans get renewed every year for 20 years as long as their interest is being paid and there are pay-downs periodically occurring, and there are good company management plans, audited statements, etc.

 

Just my thoughts. No disrespect or hard feelings if you disagree. We all love Gibson and want them to continue being around!

 

 

QM aka Jazzman Jeff

[rct]

Appreciate your comments, too.

 

I have to say, my comments are based a lot on that I sat on a major Chicago bank committee for a good period of time where the committee would review criticized asset companies who had significant debt outstanding to us and formulated plans to renew loans, require pay downs, call loans in, force bankruptcy, force litigation, foreclose businesses, etc. Based on my past bank committee experience and the little Gibson information from a couple of articles, Gibson would only be a candidate to keep working with Gibson to maximize the bank’s chances of protecting its interests in eventually getting repaid by working with Gibson and monitoring their progress as the work through their plan to improve their financial situation.

Except, Gibson is not dealing with just banks. They are dealing with bondholders who are organizing. They usually organize on or about bankruptcy. They have been sold debt, and they either want payback or equity, because their committee sees a company that is not going to pay back their bonds.

And, while one would not base lending to a company on the benefits they will receive from tax cuts, in this case the monies are already out the door, so considering he tax cut’s positive implications on their financials would be a factor for a creditor to consider whether they should work with a customer. It woukdn’t be the only factor, but it would figure in.

Whatever their tax rate is, it is a liability. That liability is not somehow less because their tax rate is less than it was last year, it is still a liability. There is no place on the balance sheet to say we have more money because our tax rate went down. You can do this yourself, go to the bank and show them the same financial picture as last year, but I got a tax cut, so lend me 50 grand for a new car. By all means, let me know how that works out for you.

As would what steps they are taking to improve their financials, what their financial projections are, their track record of working through financial stress, etc. etc. Gibson has hired a new CFO, hired an outside firm to help them, is selling off some significant property assets, and meeting their investor obligations from profits.

But...again, the bondholders are organizing. Whatever steps to improve their financials we are talking about have apparently not worked, the bondholders are getting really serious, and they are really seriously concerned about their money. They hired a new CFO because the last guy didn't last a year. Maybe he thought geewiz these guys are in a world of hurt? Maybe?

And, has a long term plan to strengthen their company by buying up another company at a cheap price to increase their financial diversity...some of which these very creditors have been helping them to do.

What other company? You just buy companies and it's all good? No! You buy companies and leverage that debt into revenues that allow you to service your debt reasonably in a timely manner so the bondholders don't organize in an effort to take back equity!

Plus, they have a cash cow with Epiphone being a world leader in the mass market segment of guitars which they run efficiently by outsourcing their manufacturing and running a niche high end guitar manufacturing business that they then market authorized copies of through their Epiphone segment.

That "cash cow" isn't working. If it was, we wouldn't be having this discussion.

Who wouldn’t work with them if they’ve already invested monies in them through loans or bond financing. To topple the house of cards, would be costly to the creditors and bond holders who would have to hire liquidation managers one way or another who are nowhere skilled as Henry is with his business (the reason they lent monies to or invested in him to begin with.)

He is supposed to be skilled at paying back the bondholders. If he was, they wouldn't be organizing.

Being on a past unrelated bank committee, I can’t imagine any creditor committee not working with him. Having a lot of questions, yes. But, Henry should be able to answer them with his management plans.

But this isn't a bank committee. This isn't a bank looking to lend at .23 above window and collecting 1.7 above that over 5 years. This is bondholders that want what they paid for, their principle plus interest or equity, ownership, of Gibson. That's a really big difference. They are organizing because in bankruptcy they are above shareholders, the other owners of the company however many there are. They want to maximize their chances of recouping their investments.

 

I do get what you are saying, but all the glowing entrepreneurial spirit in the world won't pay back current bondholders, only money or ownership will. He has done his good and there should be no personal ill will towards him. But business is business, and you can't debt your way out of debt, nobody has, no matter how good they are or how great their lower tier guitars are.

 

rct

[QuestionMark]

They have a Billion $ in revenue. I would say they are doing something right. CFOs leaving can also be because they are not implementing the plan they were hired to do or personality conflicts. If a replacement is better, it can be a good thing. The article says bond holders are talking about BK, not organizing...although that may be the same thing. It also says the bond maturities are about 6 months off. That is time for Henry to find other avenues to retire/replace the existing bond debt to bide more time, although it may not be a long term solution. Plus, the non-priority creditors in a BK have some incentive to protect their interests by helping Henry to retirie the bonds so they gain a priority status should a BK eventually be necessary. Just trying to be optimistic.

 

The Gibson story is still being written. I sure wouldn’t want some BK Trustee or Hedge fund or Bond manager or Turnaround Company running/liquidating Gibson who does not understand what it does or is. I am all for Henry keeping control of the business. Not BK. Although, realistically some companies do end up coming out okay.

 

QM aka Jazzman Jeff

[Lars68]

At least the Philips Fidelio X2 is one seriously good headphone. One of the best in the world at it's price point, no doubt. I wonder if Henry knows...

 

Lars

[fortyearspickn]

Seems the greatest detriment to Gibson is this forum, should anybody read it and take it to heart. Gibson has done well in the past, in which these instruments value will continue to climb. My guess is that 90% of the participants here abouts have never known or played a "real Gibson". Depending on my amount of replies to this post will let us know. he he he!

 

Exactly.

[zombywoof]

Indeed, Henry and his partners did pull the brand from the fire........32 years ago. There have obviously been some bad decisions made along the way or the business wouldn't be in the state it is now in.

 

Nothing new for Gibson. They were an inefficient and disorganized company through the 1940s with a sales force that sat in an office only taking an order if a store wanted to buy a Gibson. But they came roaring back in 1950/51 by re-organizing and re-tooling. The saving grace of Gibson was that it had always been run by guys who knew how to build guitars for a living. That all ended in 1965 when Gibson for the first time came under the control of college educated bean counters. That is when they brought in the new automatic neck machines and a high speed finishing system and then expanded the plant. The beginning of the end though came as Gibson and others got hit by a pretty hefty drop in the music business in general. By 1975, Gibson was reporting pre-tax losses equal to twice the company's net value. That they were not the subject of a hostile take over earlier then they were is amazing.

[fortyearspickn]

Funny - this same article (they speculate every time Gibson has a bond payment due) is being debated over in The Gibson Lounge.

Two of the most 'anti-Henry' posters state they do not own Gibson acoustics.

One of them has never owned one and has no intention of owning one. He only buys used Gibson electrics but went on to post this about Henry - "And he could not care less about what us Gibson players want on our guitars that we buy. F that guy. I'd like to send him a bag of d-icks to eat as a snack." (The Gibson Lounge, "In The News" Pos t# 47)

With quality comments like this - I'm pre-disposed to take the other side every time.

This forum tolerates this kind of BS - and folks who regularly bash and trash the Gibson brand. As well as folks who seem to be here only to promote other brands. All of which is fine in my personal opinion.

But I really have to draw a line in keeping silent when commenters brag they do not own or ever intend to own a Gibson Acoustic - but go on rants here.

Of course most of the bashers begin their comment with "I don't want Gibson to fail, but...) and post their fantasies of how they would run Gibson. No business courses, no investors, no corporate experience. Sort of like believing because you buy an airline ticket, you should get to fly the plane.

[zombywoof]

I am as guilty as those guys in the Lounge as I have only owned Gibsons built in Kalamazoo. There are a few Bozeman-made guitars though that I am still kicking myself in the butt for not jumping on when I had the chance - the Jackson Brown Model 1, the 2013 run of Banners, the CS J-35 with the three tone bars - to name just a few. Part of my problem is the way I acquire guitars. I am lazy and just tend to wait for them to fall into my lap rather than go seek them out. And I just cannot bring myself to buy a guitar that I have not held in my sweaty little hands first.

 

I always figured though it would take a warehouse to hold all of the rumors that have floated around about Gibson and Fender.

[Hall]

Dunno.

[Hogeye]

This is my point exactly ...Henry poisoned his company by doing this exact thing.

You can't be the poison and cure at the same time.

 

 

 

 

JC

 

JC I remember when you first started posting here. You knew nothing about guitars but you asked questions and learned. Now you act as though you are some kind of Financial wizard? Gibson is not your company and you have no idea how it's structured. You talk to a few people at the plant level and now you are a business expert? I don't think so.

 

You have never met Henry? Have you ever been to the Factory in Nashville or Bozeman? Do you even own a business? Have you ever owned a music store? Did you go Wharton? What exactly are your credentials for basing your opinions? Henry poisoned his company? Good grief this is the most successful music company ever. You know nothing of what you are talking about.

 

Anyone that has spent time on this forum knows that every 10 years or so there is this exact same scenario played out. Gibson is going broke. It has been predicted from the time Henry first bought the company and it will be the same rant in 10 years. Remember the rumors that Peavey was going to buy Gibson? How'd that work out? If it wasn't so pathetic it would be laughable.

 

You are entitled to your opinion. You just need to be better informed before you express them to folks that know better. Pitiful.

Let the real discussion begin.

[Morkolo]

JC I remember when you first started posting here. You knew nothing about guitars but you asked questions and learned. Now you act as though you are some kind of Financial wizard? Gibson is not your company and you have no idea how it's structured. You talk to a few people at the plant level and now you are a business expert? I don't think so.

 

You have never met Henry? Have you ever been to the Factory in Nashville or Bozeman? Do you even own a business? Have you ever owned a music store? Did you go Wharton? What exactly are your credentials for basing your opinions? Henry poisoned his company? Good grief this is the most successful music company ever. You know nothing of what you are talking about.

 

Anyone that has spent time on this forum knows that every 10 years or so there is this exact same scenario played out. Gibson is going broke. It has been predicted from the time Henry first bought the company and it will be the same rant in 10 years. Remember the rumors that Peavey was going to buy Gibson? How'd that work out? If it wasn't so pathetic it would be laughable.

 

You are entitled to your opinion. You just need to be better informed before you express them to folks that know better. Pitiful.

Let the real discussion begin.

 

And yet none of that matters. Tours, acquaintances, owning a business.... I could go on. But none of it matters, it's Henry's company and what he does with it is none of my business. I just hope Gibson keeps putting out great guitars and I'd rather play mine than argue with strangers on the internet over what might happen.

[JuanCarlosVejar]

JC I remember when you first started posting here. You knew nothing about guitars but you asked questions and learned. Now you act as though you are some kind of Financial wizard? Gibson is not your company and you have no idea how it's structured. You talk to a few people at the plant level and now you are a business expert? I don't think so.

 

You have never met Henry? Have you ever been to the Factory in Nashville or Bozeman? Do you even own a business? Have you ever owned a music store? Did you go Wharton? What exactly are your credentials for basing your opinions? Henry poisoned his company? Good grief this is the most successful music company ever. You know nothing of what you are talking about.

 

Anyone that has spent time on this forum knows that every 10 years or so there is this exact same scenario played out. Gibson is going broke. It has been predicted from the time Henry first bought the company and it will be the same rant in 10 years. Remember the rumors that Peavey was going to buy Gibson? How'd that work out? If it wasn't so pathetic it would be laughable.

 

You are entitled to your opinion. You just need to be better informed before you express them to folks that know better. Pitiful.

Let the real discussion begin.

I ain't gonna play your game HG.

I have respected you all these years so cut the crap it doesn't work with me.

 

As you said I knew nothing back then ...And have never claimed to ...

I ain't trying to school anyone ...My opinions are my opinions only.

I never gave data or facts ...I never claimed to talk to anyone but one person who worked for Nashville and he told me about the warehouses of stuff that didn't sell .That's it.

 

 

I never claimed to be informed or "in the know "of diddly squat.

And you're wrong ... I don't need to be better informed about anything ,because an opinion is just an opinion be it right or wrong.

Sorry I ruffled you feathers HG ... But the only WIZARD here is you.

 

I came knowing nothing to this forum and I still don't know much.

 

If you find what I said pitiful that's your problem.

I never wanted to be relevant on this forum and still don't want to.

 

I still think what Henry did by buying up all those companies is stupid.

Big Deal? I don't think so ... You and I have never had a problem.

So again cut the crap out ... If you want to tear apart what I said Go Ahead.

 

You won't hurt my feelings if you correct me .It's just an opinion and opinions can change over time.

 

Sometimes this forum seems pointless ...

 

 

JC

[jvi]

shoulda stuck to talking about guitars perhaps...

[Murph]

 

Sometimes this forum seems pointless ...

 

 

 

Bashing Gibson in the Gibson Forum just seems weird to me.

 

I'm a Gibson enthusiast.

 

It's why I'm here.

[J45fan]

I think the guitar business in general is having problems with sales. From the 90's on they sold and made so many guitars I was always wondering where all these instruments go. The used guitar market shows that there are great deals today.

How many more Stratocaster, Telecaster, Les Pauls, SG's, ES-335, J-45', AJ's, D-28 etc. does the market need. I bought and sold many guitars in my life, but in the past few years I hardly go to guitar stores anymore. I purchase strings over the net, I have too many guitars anyway and I own great instruments. Lot's of my guitar playin' friends feel the same.

Fender wanted to go public and stopped it because they didn't deliver the numbers, Martin worked short shifts..... I think the guitar market has cooled down in the past years and Gibson is also a victim of that.

['Scales]

I think the guitar business in general is having problems with sales. From the 90's on they sold and made so many guitars I was always wondering where all these instruments go. The used guitar market shows that there are great deals today.

How many more Stratocaster, Telecaster, Les Pauls, SG's, ES-335, J-45', AJ's, D-28 etc. does the market need. I bought and sold many guitars in my life, but in the past few years I hardly go to guitar stores anymore. I purchase strings over the net, I have too many guitars anyway and I own great instruments. Lot's of my guitar playin' friends feel the same.

Fender wanted to go public and stopped it because they didn't deliver the numbers, Martin worked short shifts..... I think the guitar market has cooled down in the past years and Gibson is also a victim of that.

 

Yes, makes you wonder how the other manufacturers of decent scale (Fender, PRS, Martin...) are faring? Has Gibsons expansion into other businesses helped shield it from any decline in new guitar sales or been an added administrative and operational burden and distraction? - one thing about financial deadlines is that an answer will become clear at a distinct point in time, but basically it seems all the news articles are rehashing each other's text and a couple of media grabs so not too much substance to go one just yet.

[uncle fester]

The guitar industry needs a fix - too hard to find a decent line up without flying to Houston or Denver... that just doesn't work.

[Mr. Paul]

Love Gibson acoustics, new and old.

 

Gibson Brand's debt is crushing and I see a very different Gibson at the end of 2018.

 

I have not had a beer with Henry, but I've rescued a four year old company that had never made a nickel and ran it profitably for 25 years.

[jannusguy2]

I ain't gonna play your game HG.

I have respected you all these years so cut the crap it doesn't work with me.

 

As you said I knew nothing back then ...And have never claimed to ...

I ain't trying to school anyone ...My opinions are my opinions only.

I never gave data or facts ...I never claimed to talk to anyone but one person who worked for Nashville and he told me about the warehouses of stuff that didn't sell .That's it.

 

 

I never claimed to be informed or "in the know "of diddly squat.

And you're wrong ... I don't need to be better informed about anything ,because an opinion is just an opinion be it right or wrong.

Sorry I ruffled you feathers HG ... But the only WIZARD here is you.

 

I came knowing nothing to this forum and I still don't know much.

 

If you find what I said pitiful that's your problem.

I never wanted to be relevant on this forum and still don't want to.

 

I still think what Henry did by buying up all those companies is stupid.

Big Deal? I don't think so ... You and I have never had a problem.

So again cut the crap out ... If you want to tear apart what I said Go Ahead.

 

You won't hurt my feelings if you correct me .It's just an opinion and opinions can change over time.

 

Sometimes this forum seems pointless ...

 

 

JC

 

Don't mind Hogeye, JC, he fancies himself the Grand Poo-Bah of all things Gibson. He's the Bozeman Blow-Hard. But, you've been around here long enough to know that. I know I have.