Golfsmith Might File for Bankruptcy

[Ron]

15 minutes ago, newtogolf said:

Poor management shouldn't be rewarded in any way and while stock prices and credit terms are negatively impacted short term it's hardly a sufficient penalty to account for the financial impact it has on the businesses that extended credit to the failed company and the losses they must absorb.  

IMO, all corporate executive management of any business that is permitted to file Chapter 11/13 should incur some pain as well.  We can't continue to have CEO's making $20M+ per year running a business into the ground and walk away without a mark.  

Sadly, it really seems unfair that "Bankruptcy" allows people or corporations who do not know how to properly manage their money or run their  business to; not have to pay their debts.  They reorganize and just go on their merry way.  I'm not well versed in this but, don't they get penalized in some way?  Just seems unfair.

[Ron]

5 hours ago, Liko81 said:

Would you rather have debtor's prisons, like in bygone ages, where if you didn't have friends willing to pay your debt or a creditor willing to forgive it, you'd spend the rest of your life in jail? And when it's a corporate entity that defaults on debt, not an individual, then who goes to jail? It's popular to say "upper management", but not really helpful in a situation like this.

Bankruptcy, as a concept, is a good thing, because it allows a person or a company who has failed to start over from scratch, instead of being burdened with past debts for the rest of their lives (and even burdening their next of kin with the same). Alternate forms like Chapter 11/13 reorganization encourage people/companies to file earlier, when they see themselves circling the drain, instead of when there's no other option and the damages to that person and their creditors is much higher.

As far as penalties, there are some. The market itself will be more hesitant to get in bed with a company that's newly reorganized; suppliers, distributors, investors etc will demand higher interest/fees and more control than a company that's never gone to bankruptcy court. Stock prices for that company will be low enough that the company could be targeted for a hostile takeover. The Bankruptcy Court itself will be watching that company's finances and management uncomfortably closely to ensure they're living up to the terms of their reorganization. If they don't, the court can order them into liquidation.

Sorry.  I don't buy this for one second!  You're taking the position of the guy that gets out of paying his debts.  Put the shoe on the other foot.  You extended credit to this guy, placed inventory in his store, he sold it, and goes to the court and says he can't pay you, but he wants a "Do Over."  Are you going to be as forgiving from that end of the story?  

29 minutes ago, newtogolf said:

Poor management shouldn't be rewarded in any way and while stock prices and credit terms are negatively impacted short term it's hardly a sufficient penalty to account for the financial impact it has on the businesses that extended credit to the failed company and the losses they must absorb.  

IMO, all corporate executive management of any business that is permitted to file Chapter 11/13 should incur some pain as well.  We can't continue to have CEO's making $20M+ per year running a business into the ground and walk away without a mark.  

Well stated!  I totally agree.  

[Liko81]

On 9/20/2016 at 3:30 PM, newtogolf said:

Poor management shouldn't be rewarded in any way and while stock prices and credit terms are negatively impacted short term it's hardly a sufficient penalty to account for the financial impact it has on the businesses that extended credit to the failed company and the losses they must absorb.  

IMO, all corporate executive management of any business that is permitted to file Chapter 11/13 should incur some pain as well.  We can't continue to have CEO's making $20M+ per year running a business into the ground and walk away without a mark.  

Except that's the whole point of having corporate entities; liability protection. Whether the reasons the business went under are your fault or not, an LLC or corporation exists for the sole purpose of protecting its investors (including upper management) from liability for the debts incurred as the business went under. We could get rid of them, require at least one individual person to always bear general liability for business failures (an LLP, for instance, requires at least one "general partner" who bears unlimited liability). But then, sauce for the goose; all the small-business LLCs and startups would have to play by the same rules, appointing one business owner or investor to be the fall guy. Nobody wants to be the fall guy, not you or I, or Sue Gove or Donald Morrison. That's the point.

Golfsmith's failure and bankruptcy is, in the grand scheme, not a huge deal. They failed to react quickly and significantly enough to an increasingly online marketplace and a decline in the casual popularity of golf. Things like this are quite common; Blockbuster was once the #1 video rental business in the world, but they failed to react appropriately to new competitors like Redbox and Netflix until it was far too late. K-Mart used to be one of the Big-3 big-box department stores, but they couldn't compete on price with Wal-Mart or with dollar stores, and couldn't reinvent its image as something more upscale like Target did. Sports Authority, similar to Golfsmith but more generally sports-oriented, fell behind Academy and Dick's in consumer name recognition and thus in market share. This is corporate survival of the fittest, plain and simple. If investors want clawbacks of executive compensation for corporate misfeasance or malfeasance, that's usually an option (it's not yet required under Dodd-Frank but 85% of Fortune 100 companies have it in their bylaws), but there usually has to be some real evidence that the managers acted directly against the best interests of the stakeholders, or broke the law. Simply making what turned out to be the wrong decisions that led to a downturn is not evidence of wrongdoing; wrong decisions are not necessarily bad decisions.

What we should be talking about is that it's been almost ten years since the bottom fell out of the housing market, and not only has nobody gone to jail for blatant SEC violations, most of the people in middle and upper management of the banking cartel at the time still have their jobs, and they're still making serious and often illegal mistakes for which nobody in charge is being personally held accountable. We heard just a week or so ago that Wells Fargo pressured tellers to open new accounts without their customers' knowledge. The tellers and account managers were fired, but their bosses and their bosses' bosses, with one exception, still have their jobs, and the one senior manager no longer with the bank still has all her compensation earned for running this incentive program.

[newtogolf]

22 minutes ago, Liko81 said:

Except that's the whole point of having corporate entities; liability protection. Whether the reasons the business went under are your fault or not, an LLC or corporation exists for the sole purpose of protecting its investors (including upper management) from liability for the debts incurred as the business went under. We could get rid of them, require at least one individual person to always bear general liability for business failures (an LLP, for instance, requires at least one "general partner" who bears unlimited liability). But then, sauce for the goose; all the small-business LLCs and startups would have to play by the same rules, appointing one business owner or investor to be the fall guy. Nobody wants to be the fall guy, not you or I, or Sue Gove or Donald Morrison. That's the point.

Golfsmith's failure and bankruptcy is, in the grand scheme, not a huge deal. They failed to react quickly and significantly enough to an increasingly online marketplace and a decline in the casual popularity of golf. Things like this are quite common; Blockbuster was once the #1 video rental business in the world, but they failed to react appropriately to new competitors like Redbox and Netflix until it was far too late. K-Mart used to be one of the Big-3 big-box department stores, but they couldn't compete on price with Wal-Mart or with dollar stores, and couldn't reinvent its image as something more upscale like Target did. Sports Authority, similar to Golfsmith but more generally sports-oriented, fell behind Academy and Dick's in consumer name recognition and thus in market share. This is corporate survival of the fittest, plain and simple. If investors want clawbacks of executive compensation for corporate misfeasance or malfeasance, that's usually an option (it's not yet required under Dodd-Frank but 85% of Fortune 100 companies have it in their bylaws), but there usually has to be some real evidence that the managers acted directly against the best interests of the stakeholders, or broke the law. Simply making what turned out to be the wrong decisions that led to a downturn is not evidence of wrongdoing; wrong decisions are not necessarily bad decisions.

What we should be talking about is that it's been almost ten years since the bottom fell out of the housing market, and not only has nobody gone to jail for blatant SEC violations, most of the people in middle and upper management of the banking cartel at the time still have their jobs, and they're still making serious and often illegal mistakes for which nobody in charge is being personally held accountable. We heard just a week or so ago that Wells Fargo pressured tellers to open new accounts without their customers' knowledge. The tellers and account managers were fired, but their bosses and their bosses' bosses, with one exception, still have their jobs, and the one senior manager no longer with the bank still has all her compensation earned for running this incentive program.

I'm sure there are a number of reasons that caused Golfsmith revenue and profits to decline but those aren't what forced them into Chapter 11.  The reason they failed is because they didn't manage their debt properly.  They expected manufacturers to continue to extend them credit despite their failure to pay for past invoices.  

They accumulated so much debt they were cut off by the manufacturers and without products to sell they couldn't pay off delinquent invoices they had and had no choice but to file Chapter 11 to clear up all the debt they racked up.  

[StefanUrkel]

Who cares what the CEO makes?  

[boogielicious]

8 hours ago, StefanUrkel said:

Who cares what the CEO makes?  

Shareholders should.

[newtogolf]

14 hours ago, Liko81 said:

Except that's the whole point of having corporate entities; liability protection. Whether the reasons the business went under are your fault or not, an LLC or corporation exists for the sole purpose of protecting its investors (including upper management) from liability for the debts incurred as the business went under. We could get rid of them, require at least one individual person to always bear general liability for business failures (an LLP, for instance, requires at least one "general partner" who bears unlimited liability). But then, sauce for the goose; all the small-business LLCs and startups would have to play by the same rules, appointing one business owner or investor to be the fall guy. Nobody wants to be the fall guy, not you or I, or Sue Gove or Donald Morrison. That's the point.

Golfsmith's failure and bankruptcy is, in the grand scheme, not a huge deal. They failed to react quickly and significantly enough to an increasingly online marketplace and a decline in the casual popularity of golf. Things like this are quite common; Blockbuster was once the #1 video rental business in the world, but they failed to react appropriately to new competitors like Redbox and Netflix until it was far too late. K-Mart used to be one of the Big-3 big-box department stores, but they couldn't compete on price with Wal-Mart or with dollar stores, and couldn't reinvent its image as something more upscale like Target did. Sports Authority, similar to Golfsmith but more generally sports-oriented, fell behind Academy and Dick's in consumer name recognition and thus in market share. This is corporate survival of the fittest, plain and simple. If investors want clawbacks of executive compensation for corporate misfeasance or malfeasance, that's usually an option (it's not yet required under Dodd-Frank but 85% of Fortune 100 companies have it in their bylaws), but there usually has to be some real evidence that the managers acted directly against the best interests of the stakeholders, or broke the law. Simply making what turned out to be the wrong decisions that led to a downturn is not evidence of wrongdoing; wrong decisions are not necessarily bad decisions.

What we should be talking about is that it's been almost ten years since the bottom fell out of the housing market, and not only has nobody gone to jail for blatant SEC violations, most of the people in middle and upper management of the banking cartel at the time still have their jobs, and they're still making serious and often illegal mistakes for which nobody in charge is being personally held accountable. We heard just a week or so ago that Wells Fargo pressured tellers to open new accounts without their customers' knowledge. The tellers and account managers were fired, but their bosses and their bosses' bosses, with one exception, still have their jobs, and the one senior manager no longer with the bank still has all her compensation earned for running this incentive program.

I support liability protection as it's important to safeguard individuals from certain types of business failure.  I also believe there are instances where gross negligence and criminal intent cause a business to fail and in those cases the individuals responsible should not be protected, imo.  

I've owned three businesses and about to start a fourth.  As a responsible business owner you should know what your cash flow is and what your payables and receivables are.  In retail businesses vendors are key as without product you can't maintain cash flow.  We always paid our vendors according to terms and as a result, when we needed to extend our credit terms or credit line, we were often accommodated.  

Golfsmith management knew what they were doing, they intentionally slow paid the manufacturers so they could pay the vendors they had less "leverage" over.  Given their size and market share in the brick and mortar golf industry, they like others before them thought they were too big and important to have their manufacturers demand payment or threaten to reduce or cancel their credit line.  

It was a gamble that didn't work, likely because Adidas wasn't going to rack up huge receivables from Golfsmith while trying to sell TM and the others upon hearing Adidas had cut them off from making credit purchases followed suit.  

When a business fails, other businesses and individuals get hurt.  Personal bankruptcy laws have changed recently to make it more penal and less beneficial for an individual to file.  The Chapter 7,11 and 13 laws need to also be revised so it's not so easy for a business to just file Chapter 11 to escape their debt and then continue to operate without any serious implications.  In situations where criminal intent or gross negligence appear to be in play, investigations should be performed and executive management should be made to answer for any charges.  

[Ron]

On 9/21/2016 at 6:45 PM, newtogolf said:

I'm sure there are a number of reasons that caused Golfsmith revenue and profits to decline but those aren't what forced them into Chapter 11.  The reason they failed is because they didn't manage their debt properly.  They expected manufacturers to continue to extend them credit despite their failure to pay for past invoices.  

They accumulated so much debt they were cut off by the manufacturers and without products to sell they couldn't pay off delinquent invoices they had and had no choice but to file Chapter 11 to clear up all the debt they racked up.  

Very good posts NTG!  It's not really all that complicated.  The Chinese have a worldwide reputation for business savvy.  Here is a sign that was posted in a Chinese Laundry:   "You ask credit.  We no give.  You mad.  We give credit.  You no pay.  We mad.  Better you mad!"

[David in FL]

14 hours ago, boogielicious said:

Shareholders should.

Why?

[Hardspoon]

50 minutes ago, David in FL said:

Why?

Because CEO pay is a factor in company performance and public perception, both of which affect share price.

[David in FL]

12 minutes ago, Hardspoon said:

Because CEO pay is a factor in company performance and public perception, both of which affect share price.

CEO pay is such a minuscule part of company "performance", as to be almost completely irrelevant in an organization of that size.

CEO performance is another issue entirely...

[boogielicious]

8 hours ago, David in FL said:

Why?

Because CEO salary and benefits go against the bottom line. Excessive salary and golden parachutes can affect share value. As a shareholder, the compensation should be reasonable but not excessive. When companies struggle, these items factor in. Basic Finance.

[Hardspoon]

8 hours ago, David in FL said:

CEO pay is such a minuscule part of company "performance", as to be almost completely irrelevant in an organization of that size.

CEO performance is another issue entirely...

You think those two are unrelated? If you are a (significant) shareholder of a company, you don't look at all available information?

[newtogolf]

13 minutes ago, Hardspoon said:

You think those two are unrelated? If you are a (significant) shareholder of a company, you don't look at all available information?

A CEO's salary should be linked to the company's financial performance with the exception of a few circumstances.  In small business, if the company doesn't perform well the owner / CEO doesn't get paid well.  

Golfsmith debt to equity is .89 times which means creditors have almost an equal stake to shareholders.  Sue E. Gove is CEO and Virginia Bunte is CFO, their compensation packages are not disclosed.  You don't rack up a near 1 time debt to equity overnight, someone was asleep at the wheel.  

[David in FL]

1 hour ago, boogielicious said:

Because CEO salary and benefits go against the bottom line. Excessive salary and golden parachutes can affect share value. As a shareholder, the compensation should be reasonable but not excessive. When companies struggle, these items factor in. Basic Finance.

I don't know a single investor that looks at CEO compensation as part of their due diligence in purchasing stock.  CEO experience, knowledge, and track record, yes, but not compensation.  Although not disclosed, I doubt that Golfsmith's CEO's comp represents more than a small percentage of a point of their entire compensation cost.  Generally, it simply isn't significant enough to move the needle financially.

37 minutes ago, Hardspoon said:

You think those two are unrelated? If you are a (significant) shareholder of a company, you don't look at all available information?

Of course they're generally unrelated.  If they weren't, the higher paid CEO's would be the best performers, and we wouldn't be having this discussion.

23 minutes ago, newtogolf said:

A CEO's salary should be linked to the company's financial performance with the exception of a few circumstances.  In small business, if the company doesn't perform well the owner / CEO doesn't get paid well.  

Golfsmith debt to equity is .89 times which means creditors have almost an equal stake to shareholders.  Sue E. Gove is CEO and Virginia Bunte is CFO, their compensation packages are not disclosed.  You don't rack up a near 1 time debt to equity overnight, someone was asleep at the wheel.  

Agree completely.

[boogielicious]

28 minutes ago, David in FL said:

I don't know a single investor that looks at CEO compensation as part of their due diligence in purchasing stock.  CEO experience, knowledge, and track record, yes, but not compensation.  Although not disclosed, I doubt that Golfsmith's CEO's comp represents more than a small percentage of a point of their entire compensation cost.  Generally, it simply isn't significant enough to move the needle financially.

 

OT, but:

Spoiler

https://www.bloomberg.com/view/articles/2012-07-19/more-shareholders-are-just-saying-no-on-executive-pay

http://www.wsj.com/articles/caterpillar-executive-pay-plans-to-be-put-to-shareholder-test-1433942147

https://www.theguardian.com/business/2016/apr/14/bp-pledge-shareholder-anger-ceo-bob-dudleypay-deal

Just a quick search. As the comp gets larger, it becomes significant. Shareholder get concerned when performance does not meet compensation. This is how I approach investments as do others I know. Investors need to be wary of inflated compensation as it could be a sign of poor management.

 

[David in FL]

24 minutes ago, boogielicious said:

OT, but:

  Reveal hidden contents

https://www.bloomberg.com/view/articles/2012-07-19/more-shareholders-are-just-saying-no-on-executive-pay

http://www.wsj.com/articles/caterpillar-executive-pay-plans-to-be-put-to-shareholder-test-1433942147

https://www.theguardian.com/business/2016/apr/14/bp-pledge-shareholder-anger-ceo-bob-dudleypay-deal

Just a quick search. As the comp gets larger, it becomes significant. Shareholder get concerned when performance does not meet compensation. This is how I approach investments as do others I know. Investors need to be wary of inflated compensation as it could be a sign of poor management.

 

Again, it's the comp in light of performance that's concerning.  

[iacas]

On 9/23/2016 at 9:16 AM, boogielicious said:

This is how I approach investments as do others I know.

Now @David in FL knows an investor who looks at CEO compensation as part of their due diligence.