Vermont Castings, Majestic Products, CFM Corporation... Bankrupt !
Apr 29, 2008
Popular Products in Grill and Smoker AccessoriesThe Bottom Line Are you still a believer? The bigger they are....
How does a company start off in 1987, with $150,000 (Cdn) dollars in capital, grow into a conglomerate, with sales approaching 700 million dollars, in only 15 years (2002), then nosedive into bankruptcy in April 2008?
In 1987 Canadian Fireplace Manufacturers Limited (CFM) started off with bright ideas, ambition and very little cash. A sales manager, Colin Adamson and an engineer Heinz Reiger, meet up while working together at a little known wood stove manufacturing company, in southern Ontario. They wanted the company to move into gas fireplaces, the owner resisted, not believing in their vision, so they quit to form CFM and the rest is history, as they say.
However, these two individuals didn't simply start up an innovative fireplace company, they created the largest gas fireplace manufacturing entity in Canada, at one time, it was arguably the largest in North America. They captured the hearts of entrepreneurs everywhere, when after only about 10 years in business they gobbled up Vermont Castings, in Vermont and Majestic Products, out of Indiana, two of the best known brand names in the hearth products industry within the United States. These acquisitions were much more than mere marriages of convenience, they allowed CFM access to a huge network of established hearth product dealers and distributors across North America, who may not have otherwise even looked in their direction.
CFM/Insta-Flame was now intimately aligned with Vermont Castings, established in the 1970's and Majestic Products which was established in the early 1900's. Many hearth and HVAC dealers simply accepted the news that a relatively unknown Canadian company had made their moves on the well established Vermont and Majestic lines.
By 2002 CFM were already listed on the Toronto Stock Exchange, at stock highs of up to $16.00 a share, with more than 2400 employees worldwide, and sales that had blossomed to almost $700 million a year. By 2005 CFM Corporation was the parent to a host of sibling acquisitions including, Vermont Castings/Dutchwest, CFM Insta-Flame, Majestic Products, Temco Fireplaces, Century Stoves, Greenway, CFM Keanall, Great Outdoors Grills, and had opened a British division in England.
With numerous factories producing in Canada, The United States, Mexico, England and China, CFM Corporation sold every thing from water coolers to grill accessories, cost effective steel wood stoves by Century or cast enamel, state of the art, EPA approved Vermont Castings stoves, gas fireplaces of every size shape and type, electric fireplaces, wood fireplaces, patio heaters, gas grills, smokers, patio fire pits, and water purification systems.
Heinz had been ingenious and industrious in his designs, shepparding them through the research and development stages personally and nurturing them into the production process. He submitted dozens of ideas for patent protection, as he blazed the way for future manufacturers of the hearth industry, making products that were aesthetically pleasing, less complicated to build and easier to install.
Colin was a born salesman and quickly set up accounts with major gas utilities and distributors. Eventually tapping into the established dealer networks of both Vermont Castings and Majestic Products, he created nice problems for Heinz, how to keep the pace of production up with Colin's record blazing sales and continue to innovate.
Gradually they found their rhythm and CFM Insta-Flame was a household name. The company with the blueprint to copy for the fast track to success.
Near the beginning of the new millennium Heinz became less interested in corporate growth and acquiring more companies. He took a share of the profits due to him and quietly bowed out of the picture to pursue a quiet enjoyable life. Rumour has it he travels extensively and no one would dispute that he earned it.
That left Colin at the helm of the ever growing beast known as CFM. It was apparent to many of us in 2002 that the company had peaked and was slipping. Annual reports showed a steady increase in employees, to match a steady rise in sales, but from 1998 through 2002 the gross profit was declining by almost 5% per year. So although the company was selling more products, the overhead expenses were greater and the profit margins were smaller. These significant changes in profitability can be directly linked to Colin's decision to supply big box stores like Home Depot and Lowe's.
Selling large volumes of products to high maintenance customers like HD and Lowe's certainly increases overall sales figures, but ultimately, at a high cost. Margins are low to begin with and are further eroded by the need to add support staff that are required to tend to their customers. High levels of product returns are not only expected, but guaranteed.
Another downside to CFM Corporation selling goods like grills and wood or gas stoves at lower prices to the mammoth box stores, is that all of those life-long, loyal dealers, with the store front operations and the high overhead feel disenfranchised and betrayed. Those mom and pop operations that stood by their dealerships with Vermont Castings and Majestic Products for decades, simply can't compete with the Home Depot down the road who offers the same product at a lower price, with no product support costs and even no payments or interest for a year.
The big box stores and the consumers win with bigger gross profits and better prices, but the dealers, distributors and most importantly, supplying companies like CFM lose, in the long run.
Colin was also blinded by his own dazzling reflection in the mirror and refused to give up the corporate jet until he had to forfeit the reins of the company. That was the day in 2005 that CFM stock prices plummeted from around 10.00 per share to $1.50 and Colin packed up his bags and left. Rumour has it that he walked away with almost $10 million for his shares, so he isn't going to have to work for a living.
The Ontario Teachers Pension Plan (OTPP), who publicly boast a fund portfolio that is valued at over $87 billion dollars, were already on the hook for a couple of hundred million dollars in secured loans to CFM, decided to take control and put in a turn around expert. Imagine, Vermont Castings and Majestic Products were suddenly under the control of the Ontario Teachers. (?) No one would have bought the premise for this story, if it had been written for TV.
They employed the services of one Larry Robinette, whose opening comments in a company wide address were, "I know nothing about this industry." Larry wasted no time proving it by firing all the seasoned upper management and hiring several acquaintances to assist him in this new adventure, literally referring to himself and his new management team, as "The Wheel of Success".
They attended the next hearth and barbecue expo in early 2006 with one of the most expensive displays ever seen at these shows and held a lavish party with an aging but very much alive Mickey Dolenz (of The Monkee's fame) singing, "I'm A Believer". This became the company's newest slogan for 2006 and Mr. Robinette chanted it in the corporate halls like an evangelist from Virginia (his home state). He continued to sing it, even as some of the best minds in the industry quietly resigned and fled. He continued to sing it when new product introductions failed and products were being recalled. He continued to sing it when the first waves of lay-offs swept through the company and he announced plans to move more production to Mexico and China due to their extremely low labor costs. (I.E. China at .50 per hour) Never mind the dwindling dealer base, increases in defects or the product recalls.
Month by month I watched as the key spokes in their "Wheel of Success", broke away and disappeared. Key management quitting and running away like vermin on a doomed ship. However, Mr. Robinette continued to sing, "I'm A Believer". Finally, with the closing of almost all manufacturing operations in Canada, grills, electric fireplaces and some gas fireplaces moved to China, previously acquired money losing companies disposed of, massive lay-offs in Huntington Indianna and other U.S. locations, and increased production in Mexico. Mr. Robinette, the "turnaround expert", on behalf of the Ontario Teacher's Pension Plan, has tossed in the towel and taken protection under the bankruptcy acts in both Canada and the United States, listing liabilities of about $650 million against assets of only about $400 million.
How does a "turnaround expert", take the reins of a company like CFM, with the support of the OTPP's $87 billion, continue to lose money at such a fantastic pace?
The "turnaround expert", Robinette is blaming the strength of the Canadian dollar, the U.S. economy, a loss of sales due to abandoning sales of barbecues to the mass markets and a slow down in the housing markets. The odd thing about that comment is that I saw Vermont Castings grills in Home Depot just last week. Gee...it couldn't possibly be the fault of the person who was charged with the job of turning the company around, could it?
In a statement from John Walker, the acting CFO, most of the company's overhead costs are incurred in Canadian dollars while most of it's revenue comes from the U.S. so the strong Canadian dollar compounded other problems. The problem I have with that statement, is that almost all of the high volume Canadian production was shut down in 2006/07 leaving only a head office, some warehouse space and the Century wood stove plant. Grills, gas fireplaces, and electric fireplaces were all taken out of Canada in favour of either China or Mexico. On the face of it, this excuse for bankruptcy seems pretty thin. Unless the high Canadian overhead he refers to are the salaries of the surviving members of the "Wheel of Success".
So ends another era, Vermont Castings, and Majestic Products, two of the best known brand names in the hearth industry are in bankruptcy, and it's through no fault of theirs.
I wonder what people will do with their Limited Lifetime Warranty that came with their Vermont Castings grills and fireplaces? Read the fine print, it may say "limited to our lifetime".
I hope a responsible group are stepping in to pick up the pieces of companies like Vermont Castings and Majestic Products. Both are good viable companies with seasoned workers in states that are receptive to tax incentives to save jobs.
I think the whole business is a disgrace.