<PAGE>
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
------------------
[_] 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 1-9357
------
TYCO TOYS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3319358
- ----------------------- ------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
6000 Midlantic Drive, Mt. Laurel, New Jersey 08054
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (609) 234-7400
- --------------------------------------------------------------------------------
________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark 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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO____
------
Number of shares outstanding of each class of Registrant's Stock as of November
14, 1995
Common, $.01 par value.................................... 34,817,568 shares
Preferred, $.10 par value................................. 52,059 shares
<PAGE>
TYCO TOYS, INC.
FORM 10-Q
SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995 and 1994
and December 31, 1994 3
Consolidated Statements of Operations - For the Quarters
and Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Stockholders' Equity - For the
Nine Months Ended September 30, 1995 and the Year
Ended December 31, 1994 5
Consolidated Statements of Cash Flows - For the Nine Months
Ended September 30, 1995 and 1994 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-14
Part II. Other Information
- -----------------------------
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
2
<PAGE>
Part I. Financial Information.
Item 1. Financial Statements.
TYCO TOYS, INC.
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
----------------------
1995 1994 1994
---------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
- ------
Current assets
Cash and cash equivalents $ 13,983 $ 16,488 $ 30,476
Receivables, net 284,620 289,161 211,400
Inventories, net 91,050 113,224 66,284
Prepaid expenses and other current
assets 21,048 23,086 24,389
Deferred taxes 16,733 17,389 17,231
------- ------- -------
Total current assets 427,434 459,348 349,780
Property and equipment, net 37,069 50,211 47,240
Goodwill, net of accumulated
amortization 228,249 232,738 231,292
Deferred taxes 26,929 25,635 23,732
Other assets 21,301 18,375 18,591
------- ------- -------
Total assets $740,982 $786,307 $670,635
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable $134,645 $141,233 $ 77,831
Current portion of long-term debt 930 1,572 1,165
Accounts payable 53,280 53,346 51,325
Accrued expenses and other current
liabilities 117,339 125,608 95,107
------- ------- -------
Total current liabilities 306,194 321,759 225,428
Long-term debt 147,343 147,302 146,851
Other liabilities 2,350 1,758 2,124
Stockholders' equity
Preferred stock, $.10 par value,
$1,050 liquidation value per
share, 1,000,000 shares
authorized; 51,291, 48,332
and 49,055 shares issued
and outstanding as of
September 30, 1995 and
1994 and December 31, 1994,
respectively 5 5 5
Common stock, $.01 par value,
75,000,000 shares authorized;
34,993,158, 34,878,316 and
34,893,516 shares issued
as of September 30, 1995
and 1994 and December 31,
1994, respectively 350 348 349
Additional paid-in capital 346,028 343,009 343,213
Accumulated deficit (40,172) (14,348) (27,832)
Treasury stock, at cost (1,595) (1,595) (1,595)
Cumulative translation adjustment (19,521) (11,931) (17,908)
------- ------- -------
Total stockholders' equity 285,095 315,488 296,232
------- ------- -------
Total liabilities and
stockholders' equity $740,982 $786,307 $670,635
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TYCO TOYS, INC.
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $226,285 $241,085 $494,037 $506,330
Cost of goods sold 130,702 143,501 285,521 295,086
------- ------- ------- -------
Gross profit 95,583 97,584 208,516 211,244
Marketing, advertising and
promotion 44,423 50,535 109,530 114,999
Selling, distribution and
administrative expenses 31,666 30,425 87,494 86,645
Restructuring charges - 4,700 4,900 4,700
Amortization of goodwill 1,634 1,617 4,825 4,769
------- ------- ------- -------
Total operating expenses 77,723 87,277 206,749 211,113
------- ------- ------- -------
Operating income 17,860 10,307 1,767 131
Interest expense, net 8,410 8,207 20,359 21,336
Other (income) expense, net 406 64 (3,784) (934)
------- ------- ------- -------
Income (loss) before
income taxes 9,044 2,036 (14,808) (20,271)
Income tax provision (benefit) 3,498 10,139 (4,850) -
------- ------- ------- -------
Net income (loss) 5,546 (8,103) (9,958) (20,271)
Preferred stock dividends 808 750 2,382 1,375
------- ------- ------- -------
Net income (loss)
applicable to common
shareholders $ 4,738 $ (8,853) $(12,340) $(21,646)
======= ======= ======= =======
Net income (loss) per
common share $ 0.14 $ (0.26) $ (0.35) $ (0.62)
Average common shares
outstanding 34,803 34,683 34,774 34,679
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TYCO TOYS, INC.
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended September 30, 1995 (unaudited) and the Year Ended
December 31, 1994
(in thousands, except share data)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Preferred Stock Common Stock Paid - In (Accumulated
-------------- ------------------
Shares Amount Shares Amount Capital Deficit)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 - $- 34,847,316 $348 $294,499 $ 7,298
Exercise of stock options - - 46,200 1 208 -
Issuance of preferred stock 47,619 5 - - 46,995 -
Preferred stock dividends 1,436 - - - 1,511 (2,157)
Foreign currency
translation adjustment - - - - - -
Net loss - - - - - (32,973)
- -------------------------------------------------------------------------------------------
Balance at December 31,
1994 49,055 5 34,893,516 349 343,213 (27,832)
Issuance of restricted
stock - - 40,000 - 215 -
Exercise of stock options - - 59,642 1 254 -
Preferred stock dividends 2,236 - - - 2,346 (2,382)
Foreign currency
translation adjustment - - - - - -
Net loss - - - - - (9,958)
- -------------------------------------------------------------------------------------------
Balance at September 30,
1995 51,291 $5 34,993,158 $350 $346,028 $(40,172)
===========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Treasury Stock Translation
------------------
Shares Amount Adjustment Total
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1993 (175,590) $(1,595) $(23,101) $277,449
Exercise of stock options - - - 209
Issuance of preferred stock - - - 47,000
Preferred stock dividends - - - (646)
Foreign currency
translation adjustment - - 5,193 5,193
Net loss - - - (32,973)
- --------------------------------------------------------------------------
Balance at December 31,
1994 (175,590) (1,595) (17,908) 296,232
Issuance of restricted
stock - - - 215
Exercise of stock options - - - 255
Preferred stock dividends - - - (36)
Foreign currency
translation adjustment - - (1,613) (1,613)
Net loss - - - (9,958)
- --------------------------------------------------------------------------
Balance at September 30,
1995 (175,590) $(1,595) $(19,521) $285,095
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TYCO TOYS, INC.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net loss $(9,958) $(20,271)
Adjustments to reconcile net loss to net cash
utilized by operating activities:
Non-cash interest 524 489
Depreciation 21,366 16,579
Amortization 7,522 6,240
Deferred tax benefit (5,194) -
Decrease in allowance for bad debts, returns,
discounts and other
receivable reserves (9,920) (13,246)
Decrease in allowance for obsolescence and other
inventory reserves (2,649) (2,176)
Change in assets and liabilities:
Increase in receivables (64,918) (47,457)
Increase in inventories (23,690) (9,789)
Decrease in prepaid expenses and other current
assets 4,646 5,041
Increase in other assets (836) (4,874)
Increase (decrease) in accounts payable 3,140 (11,022)
Increase in accrued expenses and other current
liabilities 25,720 12,720
------ ------
Total adjustments (44,289) (47,495)
------ ------
Net cash utilized by operating activities (54,247) (67,766)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital expenditures (10,428) (18,157)
Acquisition (1,144) -
------- ------
Net cash utilized by investing activities (11,572) (18,157)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Repayment of long-term debt (829) (10,894)
Increase in notes payable, net 56,706 48,570
Debt financing fees (5,920) -
Proceeds from issuance of preferred stock - 47,000
Proceeds from issuance of common stock 255 139
------ ------
Net cash provided by financing activities 50,212 84,815
------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (886) (14,440)
- --------------------------------------- ------- ------
Net Decrease in Cash and Cash Equivalents (16,493) (15,548)
Cash and Cash Equivalents, Beginning of Year 30,476 32,036
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $13,983 $16,488
====== ======
CASH PAYMENTS DURING PERIOD FOR:
Interest $24,614 $24,656
Taxes 1,464 343
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(unaudited)
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The consolidated financial statements
include the accounts of Tyco Toys, Inc. (the Company, Tyco or Tyco Toys) and
its subsidiaries. All intercompany transactions have been eliminated in
consolidation. Investments in unconsolidated joint ventures and other companies
are accounted for on the equity method or cost basis depending upon the level of
the investment and/or the Company's ability to exercise influence over operating
and financial policies. In the opinion of management, all adjustments
(consisting of a normal recurring nature) considered necessary for a fair
presentation of results for interim periods have been made. Certain items in
the prior period's financial statements have been reclassified to conform with
the current period's presentation. Due to the seasonal nature of the Company's
business, the results of operations for interim periods are not necessarily
indicative of the results for a full year. The unaudited financial statements
herein should be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1994 which is on file with the Securities
and Exchange Commission.
(2) ACCOUNTING FOR INCOME TAXES
---------------------------
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), effective January 1, 1993. In
accordance with SFAS 109, deferred income taxes reflect the impact of temporary
differences between values recorded for assets and liabilities for financial
reporting purposes and the values utilized for measurement in accordance with
current tax laws.
Management has determined, considering all available evidence, including the
Company's history of domestic earnings from prior years, it is more likely than
not that the Company will generate sufficient taxable income in the appropriate
carryforward periods to realize the benefit of certain net operating loss and
tax credit carryforwards, and other temporary differences. The total net
deferred tax assets (both current and noncurrent) have been reduced to the
amount management considers realizable by establishing valuation allowances
aggregating $58,483,000. Based on the weight of available evidence, management
has concluded that more likely than not, its future taxable income will be
sufficient to support the current recognition of the total net deferred tax
assets of $43,662,000.
The valuation allowances have been established due to management's analysis
indicating that certain tax credit and net operating loss carryforwards, which
are limited under the income tax laws, may expire prior to their full
utilization. The valuation allowances include $16,836,000 related to the
preacquisition net operating losses of Matchbox. Any subsequently recognized
benefits related to these net operating losses will be allocated to reduce
goodwill.
7
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(unaudited)
(3) RECEIVABLES, NET (IN THOUSANDS):
----------------
<TABLE>
<CAPTION>
September 30, December 31,
---------------------
1995 1994 1994
---- ---- -----------
<S> <C> <C> <C>
Trade receivables $315,231 $323,256 $251,141
Other receivables 10,250 9,325 11,040
Less:
Doubtful accounts 6,563 7,465 6,312
Returns, markdowns, discounts
and other reserves 34,298 35,955 44,469
------- ------- -------
$284,620 $289,161 $211,400
======= ======= =======
(4) INVENTORIES, NET (IN THOUSANDS):
----------------
September 30, December 31,
---------------------
1995 1994 1994
---- ---- -----------
<S> <C> <C> <C>
Raw materials $19,070 $ 22,515 $16,655
Work-in-process 2,096 2,606 1,893
Finished goods 80,207 102,348 60,708
Less obsolescence and other
reserves 10,323 14,245 12,972
------ ------- ------
$91,050 $113,224 $66,284
====== ======= ======
</TABLE>
(5) ACQUISITION
-----------
In accordance with the Purchase Agreement dated April 30, 1993, Tyco purchased
the remaining 25% interest in its Mexican subsidiary, Ensueno-Tyco, for
approximately $1,100,000. This transaction was completed in March 1995.
(6) RESTRUCTURING CHARGES
---------------------
During the second quarter of 1995, the Company adopted a restructuring program
focused on reducing the overhead costs of its European, United Kingdom and Tyco
Playtime units. The restructuring program is expected to generate annual
savings in excess of $10,000,000 through combinations of job eliminations,
facility consolidations and streamlined operations. The pre-tax restructuring
charge of $4,900,000 consists of approximately $3,000,000 in termination and
other employee benefits and $1,300,000 of facility consolidation costs which
includes moving and lease termination payments as well as a $350,000 non-cash
write-off of assets. The program, including related cash payments, is expected
to be substantially complete by the end of 1995.
Included in operating expenses for the third quarter of 1994 was a $4,700,000
restructuring charge. This charge reflected the additional costs to close the
Company's Italian subsidiary.
8
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(unaudited)
(7) LEGAL PROCEEDINGS
-----------------
Italian Litigation
- ------------------
In 1994, the former managing director of the Company's Italian subsidiary
initiated court action against the Company in Italy. The action, alleging
breach of a letter of intent with the plaintiff for the sale of the subsidiary,
resulted in the sequestration of the Company's shares in the subsidiary and
prevented the completion of the announced sale of the subsidiary to Giochi
Preziosi S.A., an Italian toy distributor. The case is set for trial in 1996.
In the opinion of management and its outside counsel, the Company has
meritorious legal and factual defenses to the claims made in this litigation,
and the outcome is not likely to have a material adverse impact on the
Company's earnings, financial condition or liquidity. The liquidating Trustee
has also lodged claims against the former managing director on behalf of the
subsidiary.
U.S. Customs
- ------------
In 1992, the U.S. Customs Service issued a penalty notice of an assessment for
lost duty in the amount of $1,500,000, penalties for gross negligence of
$5,800,000, and penalties for fraud of $5,600,000. All of the claims arise from
activities of the Company's View-Master subsidiary for periods prior to its
acquisition by the Company in 1989. Management and the Company's outside
counsel are of the opinion that the Company has legal and factual defenses to
the penalty claims made by the U.S. Customs Service, and that the outcome of the
proceedings relating to these claims, which proceedings may be protracted, are
not likely to have a material adverse impact on the earnings, financial
condition or liquidity of the Company.
9
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(unaudited)
Environmental Litigation
- ------------------------
Tyco Industries, a subsidiary of the Company, is a party to three matters
arising out of waste hauled by a transporter to various sites, including the
GEMS Landfill. In litigation relating directly to remediation of the landfill,
Tyco Industries has signed a Consent Order and Trust Agreement and made a
settlement contribution of an amount not material to Tyco Industries. In
another matter, homeowners near the GEMS Landfill have filed class action claims
against approximately 150 defendants, including Tyco Industries, for various
types of unspecified monetary damages, including punitive damages. In
management's opinion, there are meritorious factual and legal defenses to these
claims. In the third matter, the New Jersey Department of Environmental
Protection is asserting claims for remediation expenses at a different site in
Sewell, New Jersey used as a waste transfer station by the same transporter
involved in the other two matters.
In the opinion of management of the Company and its outside counsel, none of
these three matters is likely to have a material adverse impact on the earnings,
financial condition or liquidity of the Company. In addition, the Company will
receive a contribution from a third party towards certain expenses in these
matters.
Other Litigation
- ----------------
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's earnings, financial condition or liquidity.
(8) NET INCOME (LOSS) PER SHARE
---------------------------
Net income (loss) per share is computed by dividing the loss applicable to
common shareholders by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the period. Outstanding
options, convertible subordinated notes and convertible preferred stock were
determined to be not dilutive for the periods presented, and were therefore
excluded from the per share calculations.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales for the quarter and nine months ended September 30, 1995 were
$226,285,000 and $494,037,000, respectively, compared to $241,085,000 and
$506,330,000, respectively, for the same periods last year. Sales for the Tyco
Domestic unit decreased 4.2% to $108,637,000 for the quarter compared to the
comparative period in the prior year primarily due to the exclusion of certain
discontinued lines from 1995 results (approximately 60% of the decrease)
coupled with other net changes in sales mix. Domestic sales for the nine months
were up 2.5% to $273,389,000 over the prior year, reflecting improved
performance of certain categories (i.e. Radio Control and Dr. Dreadful) as well
as new product introductions (i.e. Doodle Bear, BattleTech, Casper and Little
Kiddles). In the International division, sales for the quarter and year to date
were 7.3% and 8.5% lower, respectively, than the 1994 comparable periods. These
decreases were primarily attributable to weaker sales in Europe, particularly in
France, Germany and the United Kingdom, which more than offset the increases in
the Company's other international operations. In the Company's Playtime unit,
sales for the quarter and year to date were 3.8% and 3.1% lower, respectively,
than the comparable periods in the prior year, primarily as a result of reduced
sales of non-preschool products.
Gross profit as a percentage of sales for the quarter and nine months ended
September 30, 1995 was 42.2%, compared to 40.5% and 41.7%, respectively, for the
same periods in 1994. Improved domestic and international margins were partially
offset by lower margins generated by the Company's Playtime operation. Domestic
margins improved for the quarter and nine months ended September 30, 1995
primarily as a result of reduced duty costs. International margins improved for
both the quarter and year to date over the comparable periods in 1994 which had
been negatively impacted by sales of carryover inventory. At Tyco Playtime,
increased tooling and royalty cost coupled with higher vendor costs contributed
to the decline in margins for both the quarter and year to date.
Operating expenses were $77,723,000 and $206,749,000 for the quarter and nine
months ended September 30, 1995, respectively, compared to $87,277,000 and
$211,113,000 for the same periods in 1994. The reduction in operating expenses
for the quarter was primarily attributable to reduced marketing expenses and a
$4,700,000 restructuring charge reflected in the third quarter of 1994. This
charge reflected the additional costs to close the Company's Italian subsidiary.
The reduction in the Company's year to date operating expenses was attributable
to decreased marketing expenses. During the second quarter of 1995, the Company
adopted a restructuring program focused on reducing overhead costs in its
European, United Kingdom and Tyco Playtime units. The restructuring program is
expected to generate annual savings in excess of $10,000,000 through
combinations of job eliminations, facility consolidations and streamlined
operations.
11
<PAGE>
The Company's 1995 restructuring program included the elimination of 10% of the
Company's worldwide salaried workforce. As part of the restructuring, the
Company consolidated the marketing and administrative functions of its
subsidiaries in Germany, France and Benelux at the Company's recently
established European Headquarters in Belgium. In the United Kingdom, the Company
consolidated its Tyco (UK) and Matchbox (UK) operations. The restructuring also
includes a reorganization of Tyco Playtime, with its non-preschool products and
certain administrative functions being consolidated into Tyco U.S., and the
newly-named Tyco Preschool division focusing on the profitable long-term growth
of the remaining preschool business, primarily Sesame Street/(R)/ toy products.
The reduction in workforce includes the elimination of 72 positions in
Continental Europe and the United Kingdom and 61 positions at Tyco Preschool and
Tyco U.S.
The 1995 restructuring charge primarily consists of approximately $3,000,000 in
termination and other employee benefits and $1,300,000 of facility consolidation
costs which includes moving costs and lease termination payments as well as a
$350,000 non-cash write-off of assets. The program, including related cash
payments, is expected to be substantially complete by the end of 1995.
Interest expense, net, for the quarter and nine months ended September 30, 1995
was $8,410,000 and $20,359,000, respectively, compared to $8,207,000 and
$21,336,000, respectively, for the same periods last year. The decrease in
interest expense for the nine months ended September 30, 1995 reflects lower
borrowings as a result of the Company's continuing cost management efforts.
Total average borrowings for the nine months ended September 30, 1995 and 1994
were $223,403,000 and $231,712,000, respectively. The average interest rate for
both periods was approximately 11%.
Reflected in other income for the nine months ended September 30, 1995 is a gain
of approximately $2,500,000 resulting from the Company's sale of its
distribution rights for Kidsongs music videos. The sale was made in conjunction
with the Company's focus on the continued development of its core brands. Also
included in other income for the nine months ended September 30, 1995 are net
foreign currency transaction gains of $1,341,000 primarily related to the
devaluation of the dollar against most European currencies.
The Internal Revenue Service has examined the consolidated federal income tax
returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987 through
August 31, 1990 and has proposed an assessment to the Company, which the Company
has elected to appeal. Management believes that the final outcome of this
appeal will not materially affect the results of operations (including
realization of net operating loss and tax credit carryforwards), financial
condition or liquidity of the Company.
12
<PAGE>
Additionally, the consolidated federal income tax returns of Tyco Toys, Inc. for
the fiscal years ended December 31, 1990 through December 31, 1992 are presently
being examined by the Internal Revenue Service. While the final outcome of this
examination is not determinable at this time, management of the Company believes
that any proposed adjustments, if sustained, will not materially affect the
financial condition, results of operations (including realization of net
operating loss carryforwards) or liquidity of the Company.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Nine Months Ended September 30, 1995
- ------------------------------------
For the nine months ended September 30, 1995, cash and cash equivalents
decreased $16,493,000 to $13,983,000. Cash on hand and increased borrowings of
$56,706,000 under the Company's credit facilities funded the Company's cash
requirements. The requirements consisted primarily of $54,247,000 of cash
utilized by operations which include the year to date loss of $9,958,000, the
seasonal increase in receivables and inventories, capital expenditures of
$10,428,000, and fees and expenses associated with the Company's New Credit
Facilities (as further described below).
New Credit Facilities
- ---------------------
In February and March 1995, the Company entered into $290,000,000 of new credit
facilities (the New Credit Facilities). The New Credit Facilities consist of
three separate three-year revolving credit facilities with General Electric
Capital Corporation and affiliates in an aggregate amount of $90,000,000 and a
$200,000,000 five-year receivables securitization facility arranged through
General Electric Capital Corporation. Borrowings under the New Credit
Facilities were used to refinance outstanding indebtedness under the principal
credit facility with a bank group led by NationsBank of North Carolina, N.A. and
certain other credit facilities of the Company's foreign subsidiaries.
The revolving credit facilities consist of up to $35,000,000 for certain
domestic entities (of which up to $10,000,000 may be used for letters of
credit), $20,000,000 for Tyco Canada, and $35,000,000 for the Company's
subsidiaries in the United Kingdom (UK). Availability under the domestic
revolving credit is based upon inventory, as defined, and availability under the
foreign revolving credits is based upon an aggregate of eligible accounts
receivable and inventory, as defined. The revolving credit facilities are
secured by a lien on substantially all of the Company's domestic assets and are
also guaranteed by certain foreign subsidiaries. Subject to the maximum
commitment under each of these facilities, borrowings are permitted on up to 60%
of eligible inventory and, in the Canadian and UK agreements, up to 80% of
eligible accounts receivable. Interest rates on borrowings are determined at
the option of the borrower based on various indices, including LIBOR or bankers'
acceptance rate, plus 2.5%
Under the terms of the New Credit Facilities, the Company and its subsidiaries
are (1) subject to covenants and conditions relating to the maintenance of net
worth, fixed charge coverage and income; (2) restricted from incurring
additional indebtedness or certain obligations and from acquiring any other
entities, whether by asset purchase, merger or otherwise; (3) restricted in the
ability to pay dividends on capital stock subject to certain limitations; and
(4) permitted to guarantee additional amounts of debt incurred by certain of its
subsidiaries up to an aggregate of $70,000,000. During the second quarter
ended June 30, 1995, the Company was not in compliance with certain financial
covenants under the New Credit Facilities and received a waiver from General
Electric Capital Corporation. The Company has amended the New Credit Facilities
to reflect revisions to its financial covenants.
13
<PAGE>
The Company has the following sources of liquidity to support the cyclical
working capital requirements of its business: existing cash balances and
related interest earnings, internally-generated funds, available borrowings
under its credit facilities, and proceeds from potential equity or debt
offerings. The Company believes that its existing credit facilities and
internally-generated funds will provide adequate financing for its current and
foreseeable levels of operation.
Dividends
- ---------
The New Credit Facilities restrict the Company's ability to pay cash dividends
on common stock until the Company achieves a defined level of tangible net
worth. The terms of the 6% Series B Voting Convertible Exchangeable Preferred
Stock, the 10.125% Senior Subordinated Notes and the 7% Convertible Subordinated
Notes also have limitations on the payment of common stock dividends by the
Company.
The Company issued additional shares of Preferred Stock in lieu of cash
dividends on its preferred shares. Preferred Stock dividends totalled $2,382,000
during the nine months ended September 30, 1995.
14
<PAGE>
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
-----------------
Reference is made to note 7 of the Notes to Consolidated Financial
Statements included in Part I, Item 1 of this report.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
--------
11. Statements Regarding Computation of Income (Loss) Per Share-
Quarters and Nine Months Ended September 30, 1995 and 1994.
(b) Reports on Form 8-K.
-------------------
None.
15
<PAGE>
SIGNATURE
---------
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.
TYCO TOYS, INC.
---------------
Registrant
Date: November 14, 1995 By: /s/ Harry J. Pearce
----------------- -------------------
Harry J. Pearce
Vice Chairman,
Chief Financial Officer,
and Director
16
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
11 Statements regarding computation of
income (loss) per share for the quarters and nine
months ended September 30, 1995 and 1994. 18
</TABLE>
17
<PAGE>
Exhibit 11
TYCO TOYS, INC.
Computation of Income (Loss) Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY INCOME (LOSS) PER SHARE:
1. Net income (loss) $ 5,546 $ (8,103) $ (9,958) $(20,271)
2. Less preferred dividends 808 750 2,382 1,375
------ ------- ------ ------
3. Net income (loss)
applicable to common
shareholders $ 4,738 $ (8,853) $(12,340) $(21,646)
====== ======= ====== ======
4. Weighted average shares
outstanding 34,803 34,683 34,774 34,679
5. Add additional shares
issuable upon the assumed
exercise of outstanding stock
options * - - - -
------ ------- ------ ------
6. Adjusted weighted average
shares outstanding 34,803 34,683 34,774 34,679
====== ======= ====== ======
7. Net income (loss) per share
(3 + 6) $ 0.14 $ (0.26) $ (0.35) $ (0.62)
====== ======= ====== ======
FULLY DILUTED INCOME (LOSS) PER SHARE:
8. Line 3 above 4,738 (8,853) (12,340) (21,646)
9. Add back preferred
dividends (line 2) 808 750 2,382 1,375
10. Add back interest, net of
tax, on assumed conversion of
the Company's 7%
Convertible
Subordinated Notes 165 253 535 759
------ ------- ------ ------
11. Adjusted net income (loss) $ 5,711 $ (7,850) $(9,423) $(19,512)
====== ======= ====== ======
12. Weighted average shares
outstanding (line 4) 34,803 34,683 34,774 34,679
13. Add additional shares
issuable upon the assumed
exercise
of outstanding stock
options * - - - -
14. Add additional shares
issuable upon the assumed
conversion of the
Company's 7% Convertible
Subordinated Notes 1,549 1,446 1,515 1,414
15. Add additional shares
issuable upon the assumed
conversion of the
Company's Convertible
Preferred Stock 5,373 5,062 5,294 3,098
------ ------- ------ ------
16. Adjusted weighted average
shares outstanding 41,725 41,191 41,583 39,191
====== ======= ====== ======
17. Net income (loss) per share
(11+16) ** $ 0.14 $ (0.19) $ (0.23) $ (0.50)
====== ======= ====== ======
</TABLE>
* For the calculation of income (loss) per share, the inclusion of the assumed
exercise of options is not dilutive for the periods presented and, therefore,
such assumed exercise is excluded from the per share calculations.
** Fully diluted income (loss) per share is not presented in the Consolidated
Statements of Operations as the assumed conversions of the Company's
Convertible Preferred Stock and Convertible Subordinated Notes are not
dilutive for the periods presented.
18
