Hobbico Bankruptcy

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So there are five ways Estes can be sold. By itself or in four combinations with the other companies.

I'm not sure if I read this right, but it sounds like they were already planning to sell Estes starting last April (when they hired Lincoln to look for potential buyers) and market conditions went south due to Chinese suppliers having financial problems, so the bankruptcy expanded it to all Hobbico's assets.
 
Other tidbits:

Cox trademarks are part of the Hobbico assets, not Estes'. Except for "Tee Dee" for some reason. A separate website, which Hobbico's "Coxmodels.com" (again, the domain name belongs to Hobbico, not Estes) website points to, says Estes shut down Cox in 2009 and sold off inventory. So please, future new owners of Estes whoever you are, change the name of the company to just "Estes", or "Estes Industries", or "Estes Rockets", whatever.
 
They may change their name to Kaitlyn....

Other tidbits:

Cox trademarks are part of the Hobbico assets, not Estes'. Except for "Tee Dee" for some reason. A separate website, which Hobbico's "Coxmodels.com" (again, the domain name belongs to Hobbico, not Estes) website points to, says Estes shut down Cox in 2009 and sold off inventory. So please, future new owners of Estes whoever you are, change the name of the company to just "Estes", or "Estes Industries", or "Estes Rockets", whatever.
 
Interesting data in the filing w.r.t. Estes business:
2016 Gross Revenue: $13.9M
2017 Gross Revenue: $11.3M

That's a lot less than I would have guessed, and others have speculated.
19% YOY revenue drop in 2017 is surprisingly bad.


a

Especially in this economy. I wonder if it has something to do with Toys R Us and Walmart... they both used to carry Estes products (R/C planes and RTF Starter Sets) but they don't anymore.
 
A lot of smaller hobby shops dropped Estes where they don't got HPR launch sites. Thus I joked LPR is dead and it pissed people off. These new kids be playing iPhone games obivious to what real fun is.
 
Especially in this economy. I wonder if it has something to do with Toys R Us and Walmart... they both used to carry Estes products (R/C planes and RTF Starter Sets) but they don't anymore.
Maybe that explains why Toys R Us is going out of business too. :)
 
Interesting data in the filing w.r.t. Estes business:
2016 Gross Revenue: $13.9M
2017 Gross Revenue: $11.3M

That's a lot less than I would have guessed, and others have speculated.
19% YOY revenue drop in 2017 is surprisingly bad.


a

It's about middling with the rest of Hobbico's businesses (Revell did a little better at only a 5-10% drop). Overall, Hobbico's business dropped by about a third.

Back in the late 70's, Dane Boles told me that Estes always did better in recessions than it did during good economies, and from occasional discussions with other insiders, I think this still holds.

We also would need a longer history of gross revenue (since the last years of the Tunick era) to get a sense of what has been going on. My WAG is that revenues were probably in the $20m range just a few years ago.
 
Interesting data in the filing w.r.t. Estes business:
2016 Gross Revenue: $13.9M
2017 Gross Revenue: $11.3M

That's a lot less than I would have guessed, and others have speculated.
19% YOY revenue drop in 2017 is surprisingly bad.


a

More interesting is the balance sheet, Estes has $170million in loan debt. Given those revenue figures that mean they had to be in negative cash flow mode for many years. How do you get $170M is arrears on $10M annual sales? Estes is toast. The only thing that will sell are their trademarks. That and there Primrose property wont cover the 170mil.
 
More interesting is the balance sheet, Estes has $170million in loan debt. Given those revenue figures that mean they had to be in negative cash flow mode for many years. How do you get $170M is arrears on $10M annual sales? Estes is toast. The only thing that will sell are their trademarks. That and there Primrose property wont cover the 170mil.

Where do you see $170 million? I see $119 million total liabilities on page 13. Still bad, but not as bad as 170 million.
 
More interesting is the balance sheet, Estes has $170million in loan debt. Given those revenue figures that mean they had to be in negative cash flow mode for many years. How do you get $170M is arrears on $10M annual sales? Estes is toast. The only thing that will sell are their trademarks. That and there Primrose property wont cover the 170mil.

That is for Hobbico as a whole (you can see the same debt in each company's financials). It basically says that any proceeds from each company goes to service the one debt. Whoever buys Estes gets the assets, and the proceeds go to pay down Hobbico's debt. What debt the buyer takes on to get the money to buy Estes is different from that. So, no, Estes isn't toast, unless the buyer is really dumb and stupid. After all, I would think this is playing out like in 1990 when Nomad collapsed and the bank took possession of Estes. Yea, we got Barry Tunick out of that, but he did keep the company going fairly well.
 
Where do you see $170 million? I see $119 million total liabilities on page 13. Still bad, but not as bad as 170 million.

two amounts, one group of banks with one investment of around $119 million, and a second investment group that had IIRC $42 million in. This infusion came in July of '14. Plus some other existing debt to get it to $170 million or so.
 
That is for Hobbico as a whole (you can see the same debt in each company's financials). It basically says that any proceeds from each company goes to service the one debt.

Oh ok, I didn't look at the other balance sheets, its funny they would list balance sheets that way...
 
It's because it's not really a balance sheet, just assets and revenue.

Yep. Not a GAAP defined financial statement in the bunch. Without those, anything re: the financial conditions of the respective legal entities is a bit of a semi-educated guess.
 
That is for Hobbico as a whole (you can see the same debt in each company's financials). It basically says that any proceeds from each company goes to service the one debt. Whoever buys Estes gets the assets, and the proceeds go to pay down Hobbico's debt. What debt the buyer takes on to get the money to buy Estes is different from that. So, no, Estes isn't toast, unless the buyer is really dumb and stupid. After all, I would think this is playing out like in 1990 when Nomad collapsed and the bank took possession of Estes. Yea, we got Barry Tunick out of that, but he did keep the company going fairly well.

So, somebody ponies up $10M or $15M and buys Estes' assets, they don't have to assume any of their debts because they're all assigned to Hobbico? Sounds like a pretty good gig...
 
It's leisure time activities in general. Gibson Guitars is heading down the same path as Hobbico but they might not survive this time . Their debt is enormous and it turns out that they damaged the product line with ill-conceived ideas like chambering hollows into Les Paul guitars and the big killer, the ENTIRE Gibson Guitar line-up for 2015 had, with no option, auto-tuners. They ruined the sales for an entire year. I hope they make it through, same with the hobby companies but I just have my doubts....
 
So, somebody ponies up $10M or $15M and buys Estes' assets, they don't have to assume any of their debts because they're all assigned to Hobbico? Sounds like a pretty good gig...

That's the whole thing about bankruptcy. The court decides how assets and liabilities are handled. I'm sure that there are some operating debts that have to be paid -- there's another document on that. I saw things like maintenance contracts on equipment and facilities, a big chunk of change to a Chinese plastics vendor, and a very small payment to Mike Dorffler's widow. Whether those are paid out of the sale proceeds or are taken on after the sale I didn't pay attention to.
 
It's leisure time activities in general. Gibson Guitars is heading down the same path as Hobbico but they might not survive this time . Their debt is enormous and it turns out that they damaged the product line with ill-conceived ideas like chambering hollows into Les Paul guitars and the big killer, the ENTIRE Gibson Guitar line-up for 2015 had, with no option, auto-tuners. They ruined the sales for an entire year. I hope they make it through, same with the hobby companies but I just have my doubts....

Not to mention the CEO is as dumb as a doorknob and an a-hole, quality control is a crap shoot, they stopped selling to small shops who can't afford a yearly $100,000+ order, and all their old experienced employees left due to poor treatment.
 
Not to mention the CEO is as dumb as a doorknob and an a-hole, quality control is a crap shoot, they stopped selling to small shops who can't afford a yearly $100,000+ order, and all their old experienced employees left due to poor treatment.

Off topic but yeah, there is only chain you can get a Gibson from in Canada. Others retailers have to use their competition as their source. They will never go out of business though. Somebody will always make guitars with Gibson stickers on them because there’s no shortage of wanna-be rock stars who will buy one. Or two. Or more depending on how much they’re compensating for their lack of talent. (sheepishly looks at the les Paul that has spent 12 years adorning a wall)

Somebody will buy Estes. What the company will look like afterwards is anybodies guess but it’s not like they’re sitting in valuable assets or intellectual property that can be carved out. The value is in their brand and it’s ability to generate income selling bags of balsa and cardboard and cheap bp motors. One assumes the new owners will make sure they keep doing exactly that in some form.




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Just curious..

Could Wal-Mart have a stake in their demise? From what I understand / have been lead to believe, Wal-Mart will make demands of suppliers, to meet their intended purchasing prices. And if those cannot be met, then you won't sell to / thru Wal-Mart. But, once you've made a commitment to them (Wal-Mart) they (Wal-Mart) have no obligation to see you thru to the end of your stock. They (Wal-mart) can cut you off at any time.

So, having said that, could it have been, that Wal-Mart made their demands of Estes. Estes (Hobbico) worked to meet those demands. And then Wal-Mart decided not to continue with the Estes / Cox line. And therefore, Estes (Hobbico) is now stuck with a massive production chain that can no longer be supported..
 
Just curious..

Could Wal-Mart have a stake in their demise?

There is no "demise." Estes is doing well. It was their parent company that took on too much debt and needed to restructure.
 
So, having said that, could it have been, that Wal-Mart made their demands of Estes.

Nothing good can come from engaging with Walmart. I've posted this link here before in earlier discussions, but it is a fascinating view into how Walmart views their vendors as a sequence of disposable product suppliers. Use one up, discard them, get a new one.

https://www.fastcompany.com/54763/man-who-said-no-wal-mart

James
 
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