PITTSFIELD, Mass., Jan. 14, 2004 -- KB Toys, Inc. today announced that, in order to proactively address the financial challenges it has faced primarily due to competitor price wars, the Company and 69 of its affiliated entities have filed voluntary petitions for reorganization under chapter 11 of the U.S. Bankruptcy Code. In its filings in the United States Bankruptcy Court for the District of Delaware, KB Toys indicated that it has targeted emergence before the 2004 holiday season.
KB Toys also announced that, to fund its restructuring and continuing operations, it has secured from a lending group led by Fleet Retail Group, Inc. a $350 million senior secured debtor-in-possession (DIP) financing facility. The Company may convert the DIP facility, upon the satisfaction of certain conditions, to post-chapter 11 financing. The financing facility, which has a four-year term including the period during which the Company is in the chapter 11 proceedings, remains subject to Bankruptcy Court approval. KB Toys will use the DIP facility to supplement its existing cash flow during the reorganization process.
The Company also said it will pay vendors, suppliers and other business partners under normal terms for goods and services they provide during the reorganization process. KB Toys' will pay its employees in the usual manner and it expects that their medical, dental, life insurance, disability, and other benefits will continue without disruption. The Company also has requested that the Court allow it to honor its return policies and gift cards in the ordinary course of business.
"We have been assured by many of our vendors, landlords, and other interested parties that they see an important and continuing role for KB Toys in the retail toy market, and will work with us to achieve approval of the Company's reorganization plan," stated Michael L. Glazer, chief executive officer of KB Toys, Inc. "We regret any negative impact today's actions will have, but after considering a broad range of alternatives, it was clear that this course of action is in the best interests of the Company and its many stakeholders. Given the tremendous support we have already received, we are confident KB Toys will emerge as a stronger and more competitive organization, well-positioned to respond to and succeed in the changing toy industry."
KB Toys said early initiatives in the reorganization process would include closing unprofitable or underperforming stores, reengineering the organization to reduce annual expenses, and reducing staff.
The Company said its decision to reorganize under chapter 11 was driven primarily by the price war very early in the 2003 holiday season, mass merchants' increasing use of toys as loss leaders during the holiday season, and increasing price competition in the toy market during the remainder of the year. KB Toys noted that it experienced a rapid decline in its liquidity resulting from below-plan sales and earnings performance in the fourth quarter of 2003.
More information about KB Toys' reorganization case will be available at www.kbtinfo.com, or by calling 1-413-496-3350.
KB Toys, Inc. is the nation's largest combined mall-based and online specialty toy retailer. It is a more than 80-year old company, privately held and headquartered in Pittsfield, Massachusetts.