More than two decades ago, Mitt Romney's business venture came to town with a bounty of highly anticipated manufacturing jobs. The new plant, just past the gas station off Interstate 85, needed skilled workers to churn out thousands of photo albums.
Four years later, the Holson Burns Group Inc. — the company controlled by Romney's Bain Capital LLC — closed the factory and laid off about 150 workers. Some jobs were sent north, where months later many of those were also eliminated. Other operations went overseas.
But Bain walked away with millions in profits.
Jim Cole / AP
Republican presidential candidate, former Massachusetts Gov. Mitt Romney speaks during a campaign stop with mill workers at the Madison Lumber Mill, Monday, Dec. 12, 2011 in Madison, N.H.
A review by The Associated Press of financial and regulatory documents in the case of Holson Burnes contrasts with statements Romney has made during his presidential campaign about his success creating jobs in the private sector. It shows how Bain, then headed by Romney, wrung profits out of the company by slashing costs and trimming its work force.
By coincidence, the economic fallout from Bain's decisions struck hardest in South Carolina and New Hampshire, early primary states that will shape the Republican race and Romney's White House prospects. Romney knows President Barack Obama — not to mention the other Republican hopefuls — will be picking apart his record at Bain.
"He's going to go after me and say, you know, in businesses that you've invested in, they didn't all succeed," Romney said at last week's Republican debate. "Some failed. Some laid people off. And he'll be absolutely right." Yet Romney said that, overall, his investments produced tens of thousands of jobs. "In the real world, some things don't make it," Romney added.
Under Romney, Bain Capital earned a reputation for turning around struggling companies and establishing well-known brands such as Domino's Pizza and the Staples office supply retailer.
But the little-known story of Holson Burnes shows the human toll in this town of about 12,000 people touched by Bain's pursuit of profit.
For Bain, the plan was a financial success: Holson Burnes raised $24 million from its initial public offering on the over-the-counter trading market, with Bain executives retaining the majority of the company's shares. Bain, in the end, reaped more than double the return on its initial investment. But workers were left jobless just as the local economy began to slump.
In 1987, Bain Capital pounced on a golden opportunity: It set its sights on Hallmark's Burnes of Boston, having bought the Holson Co. the year before. Executives organized the companies under the Holson Burnes Group, which by 1992 was one of the nation's largest makers of photo albums and picture frames.
Company executives quickly went to work growing their new venture. They foresaw "significant growth" for their products in the South, a local newspaper reported, so South Carolina officials lured the company to Gaffney with more than $5 million in industrial bonds. Officials in Cherokee County, about 60 miles from Charlotte, N.C., pushed for $200,000 in utility upgrades.
Within months, Holson Burnes opened its 114,000-square-foot factory, using land on the outskirts of Gaffney once owned by a farm-supply company. By April 1988, about 100 workers were fastening together photo albums for the growing business.
"It was a new, state-of-the-art plant with lots of people," recalled Robert Weaver, who worked there in the late 1980s and later became a county official.
But in time, the red ink grew. Although Holson Burnes' sales nearly doubled from 1987 to 1991 — to more than $110 million— it posted consecutive operating losses, reports stated. Executives blamed the recession and a shift in consumer habits.
To stem the losses, Holson Burnes closed the plant and sold the property in July 1992 for $2.8 million, county records show. The company paid off its mortgage and transferred a small number of remaining jobs to New Hampshire.
Undoubtedly, Bain executives had their eye on the bottom line as they were preparing to close the Gaffney plant. Just six months before, the company touted "improved efficiencies" and "stronger cost controls" in its regulatory filings, just as it reported losses in early 1992.
The cost-cutting worked, just as the company prepared its initial public offering. By 1993, Holson Burnes brought in more than $3 million in after-tax profit, a stark turnaround from its $12.4 million loss the year before.
Job cuts a pattern
Holson Burnes had brought new jobs to Gaffney amid a downtrodden economy. It was no surprise when county development officials worked quickly to find a surrogate after Bain closed up shop. The local plant manager formed a small spinoff company and rehired about 20 to 30 workers.
In the end, Holson Burnes saved millions of dollars. Yet its squeeze on Gaffney was hardly unique.
Just as executives closed down operations here and sold its South Carolina factory to the Bic Corp., residents 900 miles away in Claremont, N.H., were preparing for the new jobs. The company said in spring 1992 that the expansion in Claremont "will allow us to focus our attention on our rapidly growing base" of products.
But the prospect of new jobs — similar to expectations in Gaffney — was short lived.
Within seven months, Holson Burnes began issuing furloughs to half its Claremont employees. Even if things looked up, the company told its workers, it would not rehire most of its clerical or managerial staff.
Exact numbers of layoffs were never announced. Some workers estimated that 85 to 100 employees were affected, telling the local Claremont Eagle Times that entire departments had been "decimated."
The cost-cutting continued at Holson Burnes. By 1992, the company manufactured nearly 75 percent of its photo frames overseas, according to documents filed with the Securities and Exchange Commission. One of the company's clock-making divisions also shipped work overseas from a Rhode Island plant.
But the business decisions didn't come without risk or public scrutiny.
Two clockmakers sued Holson Burnes in U.S. District Court in August 1992, claiming executives convinced them to hold off on demanding $1.9 million in IOU payments so that Holson Burnes could pull its Cuckoo Clock Manufacturing Co. out of a financial tailspin. A judge dismissed the case three years later.
Tending a 'golden goose'
Since announcing his candidacy for the White House, Romney has touted his business experience to convince voters that he's a better alternative to Obama as the country grapples with a weak economy.
"This president doesn't know how the economy works," Romney said last week. "I believe to create jobs, it helps to have created jobs."
After working as a top official for Bain & Co., Romney founded Bain Capital, where he largely made his personal fortune of $190 million to $250 million. He headed Bain Capital for more than 15 years before leaving to run the Salt Lake Olympic organizing committee.
Under Romney, Bain Capital invested millions of dollars into dozens of private-equity ventures. Some produced staggering profitability — one company showed a return rate greater than 1,000 percent — and by the late 1990s Bain targeted tech firms that specialized in software and telecommunications.
Romney insists now that he was never about "buying things, taking them apart, closing them down," as he told "Fox News Sunday."
"My business was associated with trying to make enterprises more successful. Not always was I able to succeed. But in each case, we tried to grow an enterprise, and in doing so, hopefully provide a better future for those associated with that enterprise."
Holson Burnes was one of Romney's lesser-known investments. In 1986, just as it bought smaller companies to form the Holson Burnes Group, Bain sank roughly $10 million in its new project under Romney's leadership.
By 1992, Holson Burnes' photography products lined the shelves in major American department stores. Bain eventually earned roughly $22 million from its initial investment — an average rate of return that a Deutsche Bank financial prospectus said surpassed 20 percent.
Indeed, it was Bain's investment in Holson Burnes and other ventures that made Romney undoubtedly wary about leaving the company he founded — it now manages about $66 billion in assets — to organize the 2002 Winter Olympics.
"How could I walk away from the golden goose," Romney wrote in his 2004 book, "especially now that it was laying even more golden eggs?"