TRU Receives Final Court Approval for $3.1 Billion of New Financing
The U.S. Bankruptcy Court for the Eastern District of Virginia entered a final order granting Toys “R” Us (TRU) authority to access the full amount of its more than $3.0 billion in debtor-in-possession (DIP) financing. The Court also granted final approvals for the company’s “First Day Motions” intended to support the business, including continuing to pay employee wages and benefits, honoring customer programs, and paying foreign vendors in full for all goods and services under normal terms.
As previously announced, on September 18, 2017, TRU and certain of its U.S. subsidiaries and its Canadian subsidiary voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond, Va. In addition, the company’s Canadian subsidiary sought and was granted protection in parallel proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) in the Ontario Superior Court of Justice. TRU intends to use these court-supervised proceedings to restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth and fuel its aspirations to bring play to kids everywhere and be a best friend to parents.
Additional information can be accessed by visiting the company’s restructuring website at www.toysrusinc.com/restructuring.
Kirkland & Ellis LLP is serving as principal legal counsel to TRU, Alvarez & Marsal is serving as restructuring advisor, and Lazard is serving as financial advisor.
WIT Outsources Management Services to Toy Association
Women in Toys, Licensing & Entertainment (WIT) will outsource its association management services to The Toy Association.
To best keep pace with its growth while maintaining control of administrative costs, WIT will outsource to The Toy Association services including administrative, financial management, legal coordination, and back-end membership support. This will afford WIT the opportunity to improve productivity and efficiency, and allow its volunteers and small staff to place greater focus on its mission, member services, and programming. With this agreement, WIT will continue to run as an independent nonprofit organization, without any changes to its governance structure.
WIT has more than 1,200 members worldwide and chapters across the U.S., Canada, Hong Kong, France, the UK, and Australia. WIT’s resources, events, educational and empowerment initiatives, and scholarship programs are funded in part by its sponsors and partners, including Mattel, Nickelodeon, Spin Master, Hasbro, PlayMonster, Bandai, and Toys “R” Us.
Summer Infant Amended Credit Agreement in Response to TRU Bankruptcy
Summer Infant, Inc. has amended its existing credit facility to provide near-term financial flexibility as a result of the bankruptcy filing by Toys “R” Us (TRU) on September 18, 2017. As part of the amendment, Summer Infant’s lenders waived any loan violations that may have occurred due to “overadvances” made after TRU receivables were no longer deemed “eligible accounts” for purposes of the revolver borrowing base, reflecting the bankruptcy filing. The amendment also includes certain provisions to provide additional flexibility to the company in light of the TRU insolvency proceedings, including permitting post-bankruptcy-filing TRU receivables to qualify as eligible accounts, as is further detailed in the company’s Current Report on Form 8-K, which was filed with the SEC.
The bankruptcy of TRU negatively impacted net revenue of Summer Infant by approximately $2.3 million during the third quarter, primarily related to delayed shipments to Babies “R” Us. In addition, the company expects to record a charge in the third quarter of approximately $2.1 million as an allowance for bad debt related to pre-bankruptcy petition accounts receivable from TRU.
The estimated impact of the TRU bankruptcy on the Summer Infant’s Q3 results is based on management’s preliminary financial analysis. The unaudited consolidated condensed financial statements for the three and nine months ended September 30, 2017 are not yet available and subject to adjustments. These preliminary estimates may differ materially from the actual results that will be reflected in the company’s unaudited consolidated condensed financial statements for the three and nine months ended September 30, 2017 when completed.
Hasbro Q3 Results Show Net Revenues Up 7 Percent
Hasbro reported financial results for the third quarter 2017. Net revenues for the third quarter 2017 increased 7 percent to $1.79 billion versus $1.68 billion in 2016. Third quarter 2017 revenues include a favorable $29.6 million impact from foreign exchange.
Net earnings for the third quarter 2017 increased 3 percent to $265.6 million, or $2.09 per diluted share, compared to $257.8 million, or $2.03 per diluted share, in 2016. Reported net earnings include a $0.04 per diluted share benefit versus third quarter 2016 from the adoption of FASB ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting.
“The global Hasbro team delivered another good quarter. Our Brand Blueprint strategy is successfully driving the business despite a challenging economic environment in the U.K. and Brazil, as well as a short-term retailer disruption,” said Brian Goldner, Hasbro’s chairman and chief executive officer. “As a result of the Toys”R”Us bankruptcy filing in the U.S. and Canada, there was a negative impact on our quarterly revenues and operating profit. However, our multi-platform content strategy, combined with an industry leading investment in innovation and an omni-channel commercial approach, is driving strong consumer takeaway heading into the holiday season as consumers engage with Hasbro brands across a multitude of experiences.”
“The quarter presented several obstacles, but the team delivered with higher revenue and earnings, as well as executing nearly $93 million of share repurchases,” said Deborah Thomas, Hasbro’s chief financial officer. “We are well positioned for the holiday, including good quality inventory at Hasbro and at retail, backed by strong consumer momentum. We continue to work closely with Toys”R”Us as we head into the holiday period. Given our new view to the holiday based on Toys”R”Us and the economic outlook in certain markets, our updated expectation is fourth quarter revenues will increase in a range of 4% to 7% versus the fourth quarter 2016.”
Third Quarter 2017 Major Segment Performance
Third quarter 2017 U.S. and Canada segment net revenues increased 7 percent to $993.8 million compared to $932.8 million in 2016. The segment was negatively impacted by the Toys “R” Us bankruptcy in the U.S. and Canada. In combination with a shift in product mix, this contributed to the 5 percent decline in the U.S. and Canada segment quarterly operating profit to $217.3 million, or 21.9 percent of net revenues, compared to $228.0 million, or 24.4 percent of net revenues, in 2016.
International segment net revenues increased 7 percent to $739.2 million compared to $690.7 million in 2016. Third quarter 2017 International segment revenues include a favorable $27.9 million impact of foreign exchange. On a regional basis, Europe revenues increased 3 percent, Latin America increased 13 percent and Asia Pacific increased 17 percent. Emerging markets revenues increased 8 percent in the quarter. International segment operating profit decreased $1.1 million to $132.0 million, or 17.9 percent of net revenues, compared to $133.1 million, or 19.3 percent of net revenues, in 2016.
Entertainment and Licensing segment net revenues grew 4 percent to $58.4 million compared to $56.1 million in 2016, behind higher consumer products and entertainment revenues. The Entertainment and Licensing segment operating profit increased 20 percent, to $16.9 million, or 28.9 percent of net revenues, compared to $14.1 million, or 25.1 percent of net revenues, in 2016.
Third Quarter 2017 Brand Portfolio Performance
Hasbro’s total gaming category, including all gaming revenue, most notably Magic: The Gathering and Monopoly, totaled $424.8 million for the third quarter 2017, up 4 percent, versus $409.5 million in the third quarter 2016 and up 10 percent to $951.4 million for the nine months 2017 versus $868.4 million for the nine months 2016.
Third quarter 2017 Franchise Brand revenues increased 7 percent to $827.3 million driven by revenue growth in Nerf, Transformers, My Little Pony, and Monopoly. Franchise Brand revenue grew in all three major operating segments.
Partner Brand revenues decreased 2 percent to $485.7 million. Beyblade, Star Wars, Disney Descendants, and Sesame Street posted revenue gains in the quarter. This was more than offset by declines in certain brands, including YO-KAI Watch as well as DreamWorks’ Trolls which was down versus last year’s launch of movie product. Partner Brand revenues increased in the U.S. and Canada segment and declined in the International segment.
Hasbro Gaming revenues grew 22 percent to $280.1 million driven by Hasbro’s gaming portfolio, including face-to-face and digital gaming. New social games drove significant growth, including Speak Out and Fantastic Gymnastics along with revenue growth in several other games brands. Hasbro Gaming revenue grew in the U.S. and Canada and International segments. Hasbro’s total gaming category grew 4 percent to $424.8 million, including revenue growth from Mmonpoly and an expected decline in Magic: The Gathering.
Emerging Brands revenue increased 9 percent to $198.3 million, driven primarily by growth in Baby Alive and Furreal Friends. Emerging Brand revenue grew in the U.S. and Canada and Entertainment and Licensing segments.
Dividend and Share Repurchase
The Company paid $71.4 million in cash dividends to shareholders during the third quarter 2017. The next quarterly cash dividend payment of $0.57 per common share is scheduled for November 15 to shareholders of record at the close of business on November 1.
During the third quarter, Hasbro repurchased 947,300 shares of common stock at a total cost of $92.9 million and an average price of $98.06 per share. Hasbro repurchased $111.5 million worth of common stock during the first three quarters of 2017. At quarter-end, $216.5 million remained available in the current share repurchase authorization.
Hearst Acquires Rodale
Hearst will acquire the magazine and book businesses of Rodale, the global health and wellness content company based in New York and Emmaus, Pa.
The announcement was made by Hearst President and CEO Steven R. Swartz, Rodale CEO Maria Rodale and Hearst Magazines President David Carey. The transaction is expected to close in early 2018, following receipt of necessary government approvals. Terms were not disclosed.
With 93 editions in 64 countries, Rodale publishes the largest, most established health and wellness lifestyle brands, including Men’s Health, Women’s Health, Prevention, Rodale’s Organic Life, Runner’s World and Bicycling, while Rodale Books is known for conversation-changing titles including Former Vice President Al Gore’s An Inconvenient Truth, Starbucks CEO Howard Schultz’s Onward and Dave Asprey’s The Bulletproof Diet. The division’s highly successful series include Thug Kitchen, Wheat Belly and The South Beach Diet.
Upon completion of the acquisition, Rodale’s multi-platform content business will be managed by Hearst Magazines, a unit of Hearst with more than 300 editions and websites around the world, including 20 titles in the U.S.
Allen & Company LLC acted as financial advisor to Rodale in its sale and Wachtell, Lipton, Rosen & Katz acted as legal advisor.