<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number 1-9599
LEWIS GALOOB TOYS, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1716574
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
500 Forbes Boulevard, South San Francisco, California 94080
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 952-1678
Former name, former address and former fiscal year,
if changed since last report
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Common stock, par value $.01, 10,065,589 as of June 30, 1994.
<PAGE> 2
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
- - --------------------------------
Item 1 Page
----
<S> <C>
- Condensed Consolidated Balance Sheets 1
- Condensed Consolidated Statements of Operations 2
- Condensed Consolidated Statements of Cash Flows 3
- Notes to Condensed Consolidated Financial Statements 4-5
Item 2
- Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-10
PART II - OTHER INFORMATION
- - -----------------------------
Item 1
- Legal Proceedings 11-12
Item 3
- Defaults Upon Senior Securities 12
Item 4
- Submission of Matters to a Vote of Security Holders 12-13
Item 6
- Exhibits and Reports on Form 8-K 13
SIGNATURE 14
- - ---------
</TABLE>
<PAGE> 3
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Audited)
June 30 June 30 December 31
ASSETS 1994 1993 1993
- - ------ ---------- ---------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,524 $ 1,178 $ 2,325
Accounts receivable 36,636 22,601 33,383
Inventories 14,528 15,207 12,979
Tooling and related costs 4,507 3,359 5,020
Prepaid expenses and other assets 5,046 7,159 7,341
------- ------- -------
TOTAL CURRENT ASSETS 63,241 49,504 61,048
LAND, BUILDING AND EQUIPMENT, NET 8,452 8,920 8,562
OTHER ASSETS 1,379 577 1,395
------- ------- -------
$73,072 $59,001 $71,005
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Notes payable $ - $ 9,515 $ -
Accounts payable 8,260 6,836 10,834
Accrued expenses 11,169 9,316 18,916
Income taxes payable 400 817 282
Current portion of long-term debt 205 194 203
------- ------- -------
TOTAL CURRENT LIABILITIES $20,034 $26,678 $30,235
LONG-TERM DEBT 18,510 4,706 18,608
SHAREHOLDERS' EQUITY:
Preferred stock
Authorized 1,000,000 shares
Issued and outstanding 183,950
shares of $17 Convertible
Exchangeable Preferred Stock
at $200 liquidation value
per share 36,790 36,790 36,790
Common stock, par value $.01 per share
Authorized 50,000,000 shares
Issued and outstanding 10,065,589
shares, 9,548,057 shares and
9,559,357 shares 101 95 96
Additional paid-in capital 31,585 26,728 27,293
Retained earnings (deficit) (33,501) (35,581) (41,596)
Cumulative translation adjustment (447) (415) (421)
------- ------ ------
TOTAL SHAREHOLDERS' EQUITY 34,528 27,617 22,162
------- ------- -------
$73,072 $59,001 $71,005
======= ======= =======
</TABLE>
The "Notes to Condensed Consolidated Financial Statements" are an integral part
of these statements.
1
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LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues $33,720 $26,769 $63,955 $54,110
Costs of products sold 21,119 17,713 38,681 33,804
------- ------- ------- --------
Gross margin 12,601 9,056 25,274 20,306
Operating expenses:
Advertising and promotion 6,253 4,149 12,216 7,975
Other selling and administrative 5,546 6,320 11,326 12,850
Research and development 2,485 1,889 4,540 3,788
------- ------- ------- --------
Total operating expenses 14,284 12,358 28,082 24,613
------- ------- ------- --------
Earnings (loss) from operations (1,683) (3,302) (2,808) (4,307)
Net proceeds from Nintendo award 12,124 - 12,124 -
Interest expense (576) (313) (1,133) (723)
Other income (expense), net 202 125 236 101
------- ------- ------- --------
Earnings (loss) before
income taxes 10,067 (3,490) 8,419 (4,929)
Provision for income taxes 314 - 314 -
------- ------- ------- --------
Net earnings (loss) 9,753 (3,490) 8,105 (4,929)
Preferred stock dividends
in arrears 782 782 1,564 1,564
------- ------- ------- --------
Net earnings (loss) applicable
to common shares $ 8,971 $ (4,272) $ 6,541 $ (6,493)
======= ======== ======= ========
Common shares and common share
equivalents outstanding - average 9,881 9,548 9,889 9,547
Net earnings (loss) per common share:
Primary $0.91 $ (0.45) $0.66 $ (0.68)
Fully diluted $0.74 $ (0.45) $0.62 $ (0.68)
</TABLE>
The "Notes to Condensed Consolidated Financial Statements" are an integral part
of these statements.
2
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LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended June 30
------------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 8,105 $ (4,929)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used in)
operating activities:
Depreciation 331 344
Changes in assets and liabilities:
Accounts receivable (3,253) 13,305
Inventories (1,549) (1,537)
Tooling and related costs 513 (551)
Prepaid expenses and other assets 2,311 323
Accounts payable (2,574) (2,549)
Accrued expenses (3,701) (8,556)
Income taxes payable 118 (14)
------ -------
Net cash provided by (used in) operating
activities 301 (4,164)
------ -------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in land, building and
equipment, net (221) (102)
------ ------
Net cash provided by (used in) investing
activities (221) (102)
------ ------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings under notes payable - 3,817
Repayments under long-term debt agreements (96) (102)
Proceeds from issuance of common stock 241 303
Other, net (26) (3)
------ ------
Net cash provided by (used in) financing
activities 119 4,015
------ ------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 199 (251)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,325 1,429
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,524 $1,178
====== ======
</TABLE>
Supplemental disclosure of non-cash activity:
The Company issued 449,732 shares of common stock which were valued at
$4,046,000 in connection with the termination of the 1992 Senior Management
Stock Option Plan.
The "Notes to Condensed Consolidated Financial Statements" are an integral part
of these statements.
3
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LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1994
(Unaudited)
NOTE A - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheets as of June 30, 1994 and 1993 and the
condensed consolidated statements of operations for the three and six month
periods ended June 30, 1994 and 1993 and the condensed consolidated statements
of cash flows for the six month periods ended June 30, 1994 and 1993 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
The results of operations for the three and six month periods ended June 30,
1994 and 1993 are not necessarily indicative of the operating results for the
full year.
NOTE B - CREDIT AGREEMENT
The Company is party to a loan and security agreement (the "Loan Agreement")
with Congress Financial Corporation (Central) (the "Lender") which makes
available to the Company through March 31, 1995 a line of credit up to $30
million, with provisions to increase to $40 million if an acquisition is made.
Borrowing availability is determined by a formula based on qualified assets.
The current interest rate is at prime rate plus 2%; the rate will increase by
0.25% if the increase in the credit occurs. In consideration for entering into
the Loan Agreement, the Company has paid a $375,000 fee. The Company has also
agreed to pay an unused line fee of 0.25% and certain management fees. The
deferred loan fee is included in other assets and is being amortized using a
straight-line method over the term of the loan. The Loan Agreement contains a
restrictive covenant that sets a minimum requirement for shareholders' equity.
Dividend payments may only be made with the consent of the Lender.
4
<PAGE> 7
LEWIS GALOOB TOYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1994
(Unaudited)
NOTE C - INVENTORIES
(in thousands)
<TABLE>
<CAPTION>
June 30 December 31
--------------------- -----------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Finished goods $11,195 $10,584 $10,363
Raw materials and parts 3,333 4,623 2,616
------- ------- -------
$14,528 $15,207 $12,979
======= ======= =======
</TABLE>
NOTE D - INCOME TAXES
The income tax provision reflects the quarterly application of the estimated
annual rate based on projected full year earnings and includes the affect of
the utilization of net operating loss carryforwards.
In 1993, the Company retroactively adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Adoption of SFAS
109 had no effect on the financial statements.
At December 31, 1993, the Company had federal and California net operating loss
carryforwards for income tax purposes of approximately $31,700,000 and
$17,000,000, respectively. The federal and California carryforwards expire in
different years through the year 2008 and 1998, respectively. The Company also
has federal minimum tax credit carryforwards of $537,000 that are allowed to be
carried forward indefinitely and federal research and development credits of
$765,000, which will expire in different years through the year 2003. If
certain substantial changes in the Company's ownership should occur, there
would be an annual limitation on the amount of operating loss carryforwards
which can be utilized.
NOTE E - LEGAL PROCEEDINGS
The current status of litigation is described in Part II, Item 1, herein.
5
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth for the periods indicated the percentage
relationships between revenues and certain expense and earnings items:
<TABLE>
<CAPTION>
Percentage of Net Revenues
--------------------------
Three Six
Months Ended Months Ended
June 30 June 30
-------------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Costs of products sold 62.6 66.2 60.5 62.5
----- ----- ----- -----
Gross margin 37.4 33.8 39.5 37.5
Advertising and promotion 18.5 15.4 19.1 14.7
Other selling and
administrative 16.5 23.6 17.7 23.8
Research and development 7.4 7.1 7.1 7.0
----- ----- ----- -----
Earnings (loss) from
operations (5.0) (12.3) (4.4) (8.0)
Net proceeds from Nintendo
award 35.9 - 19.0 -
Interest expense (1.7) (1.2) (1.8) (1.3)
Other income (expense), net 0.6 0.5 0.4 0.2
Provision for income taxes (0.9) - (0.5) -
------ ------- ------ -------
Net earnings (loss) 28.9% (13.0)% 12.7% (9.1)%
====== ======= ====== =======
</TABLE>
1994 Compared to 1993
Net revenues of $33.7 million for the second quarter of 1994 represented a 26%
increase from net revenues of $26.8 million for the second quarter of 1993.
This sales increase was led by strong demand for the Micro Machines(R)
Z-Bots(R)and Biker Mice From Mars (TM) lines.
Second quarter sales of Micro Machines and Z-Bots increased by 46% to $20.3
million in 1994 from $13.9 million in 1993. This increase was due primarily to
the extensions of the Micro Machines line featuring Star Trek(R)and Star
Wars(R)space vehicles along with net revenues from a one-time Z-Bots promotion
program. Biker Mice From Mars sales were $9.4 million for the quarter. This
product line was introduced in late 1993.
Second quarter sales of the Company's Game Genie (TM) products were $0.8
million in 1994 as compared to $5.7 million in the same period in 1993. This
decrease reflected the normal maturity cycle for such products. The decreasing
sales trend for these products is expected to continue.
6
<PAGE> 9
LEWIS GALOOB TOYS, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
continued
Net revenues of $64.0 million for the six months ended June 30, 1994
represented a 18% increase from the same period in 1993. Micro Machines and
Z-Bots sales were $34.1 million during the first six months of 1994 as compared
to $26.0 million during the same period in 1993. This increase reflects the
same factors as noted for the quarter increase. Biker Mice From Mars sales
were $18.9 million during the first six months of 1994.
Game Genie sales were $1.9 million during the first six months of 1994 compared
to $14.9 million for the same period in 1993. The decreasing sales trend for
these products is expected to continue.
Gross margins were $12.6 million in the second quarter of 1994 compared to $9.1
million in the second quarter of 1993. Approximately $2.3 million of the
increase was due to higher sales volume. The balance of the increase, $1.2
million, was due to a higher gross margin rate. The gross margin rate improved
to 37.4% in 1994 from 33.8% in 1993. This was mainly due to an increase in
domestic sales as a percentage of second quarter net revenues to 68.2% from
52.6% for the same period in 1993. The Company's gross margin on domestic
sales is significantly higher than on foreign sales because foreign prices are
lower as the customer is responsible for the cost of importing and promoting
the products. This was partially offset by the fixed costs included in the
cost of sales, primarily the amortization of tooling costs, which were a higher
percentage of total revenues as compared to last year.
The gross margin percentage increased for the six month period ended June 30 to
39.5% in 1994 from 37.5% in 1993. This increase was due to the same factors
described above that resulted in the increase for the second quarter.
Advertising and promotion expenses were $6.3 million in the second quarter of
1994 as compared to $4.1 million in 1993. On a six month period ended June 30
basis, these expenses were $12.2 million in 1994 compared to $8.0 million in
1993. Both the three and six month increases were a result of a higher
television advertising expense domestically. Advertising and promotion
expenses as a percentage of net revenues for the six month period ended June 30
were 19.1% in 1994 compared to 14.7% in 1993.
7
<PAGE> 10
LEWIS GALOOB TOYS, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
continued
Other selling and administrative expenses were $5.5 million in the second
quarter of 1994 as compared to $6.3 million in 1993. On a six month period
ended June 30 basis, these expenses were $11.3 million in 1994 compared to
$12.9 million in 1993. Both the three and six month decreases were due mainly
to lower sales support costs. Other selling and administrative expenses as a
percentage of net revenues for the six month period ended June 30 were 17.7% in
1994 compared to 23.8% in 1993.
Research and development were $2.5 million in the second quarter of 1994 as
compared to $1.9 million in 1993. On a six month period ended June 30 basis,
these expenses were $4.5 million in 1994 compared to $3.8 million in 1993.
However, research and development expense as a percentage of net revenues was
approximately equal to the prior year.
Net proceeds from the Nintendo award represents the receipt, net of associated
legal and related expenses, of the Company's share of proceeds from the
Nintendo litigation. (See Part II, Item I. Legal Proceedings.)
Interest expense increased to $0.6 million in 1994 as compared to $0.3 million
in 1993. On a six month period ended June 30 basis, these expenses were $1.1
million in 1994 compared to $0.7 million in 1993. The increase was due mainly
to interest expense related to the 8% Convertible Subordinated Debentures (the
"8% Debentures") which were issued in November 1993.
Other income (expense), net was $0.2 million in the second quarter of 1994 as
compared to $0.1 million in 1993. On a six month period ended June 30 basis,
these expenses were $0.2 million in 1994 compared to $0.1 million in 1993.
The income tax provision reflects the quarterly application of the estimated
annual rate based on projected full year earnings and includes the effect of
the utilization of net operating loss carryforwards.
The earnings per share calculations include the dilutive effect of common stock
equivalents, the Company's $17.00 Convertible Exchangeable Preferred Stock (the
"Preferred Stock") and the 8% Debentures. These three items were anti-dilutive
in prior periods.
8
<PAGE> 11
LEWIS GALOOB TOYS, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
continued
The Company's products are produced principally in China which currently is
designated with "most favored nation" ("MFN") status by the United States.
This allows products imported into the United States from China to be accorded
the most favored import duties. The loss of MFN status for China would result
in a substantial increase in import duty for the Company's products produced
in China and imported into the United States and would materially affect the
Company's business. Products shipped to other countries should not be
affected. Other toy companies also source product from China and would be
affected to various degrees. However, the ultimate impact on the Company would
depend on several factors including, but not limited to, the Company's ability
to procure alternative manufacturing sources outside of China and its ability
to pass resultant cost increases through as product price increases.
Liquidity, Financial Resources and Capital Expenditures
The Company is party to a Loan Agreement with the Lender which makes available
to the Company through March 31, 1995 a line of credit up to $30 million, with
provisions to increase to $40 million if an acquisition is made. Borrowing
availability is determined by a formula based on qualified assets. The current
interest rate is at prime rate plus 2%; the rate will increase by 0.25% if the
increase in the credit limit occurs. In consideration for entering into the
Loan Agreement, the Company has paid a $375,000 fee. The Company has also
agreed to pay periodically an unused line fee of 0.25% and certain management
fees. The Loan Agreement contains a restrictive covenant that sets a minimum
requirement for shareholders' equity. Dividend payments may only be made with
the consent of the Lender.
In November 1993, the Company sold in a private placement $14 million in
principal amount of the 8% Debentures at par. The interest is to be paid
semi-annually at a rate of 8%. The 8% Debentures mature on November 30, 2000
and are convertible into shares of the Company's common stock at $9.26,
calculated based upon 115% of the average of the Company's closing common stock
price for the ten business days ended November 12, 1993. The Company has used
the net proceeds received from the 8% Debentures to invest in the expansion of
the production, advertising and promotion of the Company's Biker Mice From Mars
line and other product lines.
9
<PAGE> 12
LEWIS GALOOB TOYS, INC., AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
continued
Working capital was $43.2 million at June 30, 1994 compared to $30.8 million at
December 31, 1993 and $22.8 million at June 30, 1993. The ratio of current
assets to current liabilities was 3.2 to 1.0 at June 30, 1994 compared to 2.0
to 1.0 at December 31, 1993 and 1.9 to 1.0 at June 30, 1993.
Capital expenditures are generally not significant for the Company. The
Company's current facilities are considered adequate to support expected future
levels of business.
On June 10, 1992, the Company announced it would not pay the July 1, 1992 $.425
per share quarterly dividend on its Depositary Shares which represent shares of
the Company's Preferred Stock. The Company also did not pay the subsequent
dividends. The cumulative dividend, as of July 1, 1994, is nine quarters in
arrears, a total amount of $7.0 million. The net earnings (loss) per share
calculation includes a provision for the Preferred Stock dividends in arrears.
No common stock dividends may be paid unless all Preferred Stock dividend
payments are current. As a result of the cumulative dividend being six or more
quarters in arrears the number of directors of the Company was subject to being
increased by two and the holders of the Preferred Stock had the right to elect
such two directors. On July 15, 1994, two new directors were elected by the
holders of the Preferred Stock.
The Company believes that with its own assets, the results of operations and
the Loan Agreement it has adequate liquidity and capital resources to meet its
current and anticipated needs.
10
<PAGE> 13
PART II
Item 1. Legal Proceedings
On May 17, 1990, the Company filed a complaint against Nintendo of America Inc.
("Nintendo") seeking a declaratory judgment and injunctive relief in the United
States District Court, Northern District of California (the "District Court").
This complaint sought confirmation of the Company's right to market, distribute
and sell its Game Genie product. On June 1, 1990, Nintendo filed a complaint
in the same District Court alleging copyright and trademark infringement and
seeking a preliminary and permanent injunction and unspecified damages.
On July 3, 1991, the District Court reversed an earlier preliminary injunction
against the Company and ruled that the sale of Game Genie did not infringe on
Nintendo's copyrights. Nintendo appealed this ruling through the Ninth Circuit
Court of Appeals (the "Appeals Court") and ultimately filed a petition for a
Writ of Certiorari with the United States Supreme Court. On March 22, 1993,
the Supreme Court rejected Nintendo's petition and, in essence, affirmed the
District Court ruling.
Separately, the Company pursued recovery of damages from Nintendo that resulted
from the original issuance of the preliminary injunction. On July 6, 1992, the
District Court awarded the Company a $15 million damage judgment against
Nintendo, which was the maximum amount that could be awarded in light of the
$15 million bond that Nintendo had been required to post in the proceedings.
Nintendo appealed this damage award, and on February 17, 1994 the Appeals Court
unanimously affirmed the District Court's ruling. Subsequently, the Appeals
Court denied and rejected an additional Nintendo petition on March 21, 1994.
On April 11, 1994, Nintendo paid the Company $16.1 million representing the
full damage award plus interest and related costs. The Company is entitled to
approximately $12.2 million of this amount, and the Company's Game Genie
licensors are entitled to the remaining $3.9 million. Notwithstanding such
payment, on June 20, 1994, Nintendo filed a petition for a Writ of Certiorari
with the United States Supreme Court, which asks the Supreme Court to review
the damage award on a discretionary basis. The Company believes the Supreme
Court will reject Nintendo's petition and that the likelihood of Nintendo
ultimately prevailing in its efforts to reverse the damage judgment is remote.
Nintendo's original trademark claim and the Company's original anti-trust
cross-claim against Nintendo were severed from the copyright claims that were
adjudicated on July 3, 1991. No date has been set for hearing these severed
claims.
11
<PAGE> 14
The Company is involved in other litigation and various legal matters which are
being defended and handled in the ordinary course of business. None of these
matters is expected to result in outcomes having a material adverse effect on
the Company's consolidated financial position.
Item 3. Defaults Upon Senior Securities
On June 10, 1992, the Company announced it would not pay the July 1, 1992 $.425
per share quarterly dividend on its Depositary Shares which represent shares of
the Company's Preferred Stock. The Company also did not pay the subsequent
dividends. The cumulative dividend, as of July 1, 1994, is nine quarters in
arrears, a total amount of $7.0 million. As a result of the cumulative
dividend being six or more quarters in arrears the number of directors of the
Company was subject to being increased by two and the holders of the Preferred
Stock had the right to elect such two directors. On July 15, 1994, two new
directors were elected by the holders of the preferred stock.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on June 21, 1994. At the
Annual Meeting, the following matters were approved by the shareholders:
1. The election of Mark Goldman and Martin Nussbaum to the Board of
Directors for a term expiring at the 1997 Annual Meeting of Shareholders
and until the election and qualification of their respective successors.
There were 8,332,191 votes in favor of Mr. Goldman and 731,981 withheld.
There were 8,333,806 votes in favor of Mr. Nussbaum and 730,366
withheld. Scott R. Heldfond, Paul A. Gliebe, Jr., Roger Kowalsky, S.
Lee Kling and Andrew J. Cavanaugh are other directors of the Company
whose terms continue after the meeting.
2. The approval of the 1994 Senior Management Stock Option Plan and the
grant of shares of common stock in connection with the termination of
the 1992 Senior Management Stock Option Plan. There were 3,851,179 votes
in favor, 1,434,678 votes against and 147,679 abstentions.
3. The approval of the Amended and Restated 1984 Employee Stock Option
Plan. There were 3,666,516 votes in favor, 1,635,066 votes against and
131,954 abstentions.
4. The ratification of the appointment of Price Waterhouse as the Company's
independent accountants for fiscal 1994. There were 8,845,828 votes in
favor, 171,254 votes against and 47,090 abstentions.
12
<PAGE> 15
On July 15, 1994 a special meeting of the holders of the Company's
Preferred Stock was held. The Company sent out an information statement
regarding the meeting but did not solicit proxies. The purpose of the
meeting was to elect two directors as discussed in Item 3, above. All
183,950 shares were represented at the meeting and not less than 133,642
shares voted in favor of the election of Hoffer Kaback and George
Riordan as directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) No reports were filed for the quarter ended June 30, 1994.
13
<PAGE> 16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEWIS GALOOB TOYS, INC.
(Registrant)
DATE: August 12, 1994
BY:______________________
Mark C. Shepherd
Senior Vice President,
Finance and Chief
Financial Officer
(Principal Accounting
Officer)
14
<PAGE> 17
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEWIS GALOOB TOYS, INC.
(Registrant)
DATE: August 12, 1994 BY: /s/ Mark C. Shepherd
Mark C. Shepherd
Senior Vice President,
Finance and Chief
Financial Officer
(Principal Accounting
Officer)
14
