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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13, OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
TYCO TOYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
COMMISSION FILE NO. 1-9357
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items of its Annual
Report for the Year ended December 31, 1995 on Form 10-K as set forth in the
pages attached hereto:
PART I: ITEM 1. BUSINESS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
TYCO TOYS, INC.
By /s/ Harry J. Pearce
-----------------------------------
Harry J. Pearce
Vice Chairman and Chief Financial
Officer
Dated: June 11, 1996
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ITEM 1. BUSINESS
Tyco designs and markets, on a worldwide basis, a broad range of toy
products.
The Company includes Tyco Toys, Inc. (the Company, Tyco or Tyco Toys) and
its direct and indirect wholly-owned subsidiaries. Principal subsidiaries
include Tyco Industries Inc. (Tyco Industries), Tyco (Hong Kong) Ltd., Tyco
Manufacturing Corp., Tyco Distribution Corp., Tyco Manufacturing (Europe)
Inc., Tyco Funding I Corp., Tyco Funding II Corp., Tyco Toys (UK) Ltd.,
Matchbox Toys, Ltd., Tyco Toys (France) S.A., Tyco Toys (Canada) Inc., Tyco
Toys Europe n.v., Tyco Toys (Benelux) n.v., Tyco Matchbox (Deutschland) GmbH,
Tyco Toys (Espa|fna) S.A., Tyco Preschool Toys Inc. (Tyco Preschool), Ensue|fno-
Tyco Toys de Mexico, Tyco Services Inc., Universal Product Innovations, Inc.,
Tyco Toys (Switzerland) A.G., Tyco Toys GmbH and Tyco Toys (New Zealand) Pty.
Ltd.
Tyco owns a 75% interest in Croner-Tyco Toys Pty., Ltd., an Australian
Company, and a 50% interest in Rivergate Partnership L.P., an operator of
warehousing space in Portland, Oregon.
Tyco also owns interests in foreign joint venture entities including a
manufacturing entity in Thailand, and three manufacturing entities and one
tool-making entity in the Peoples Republic of China.
The Company markets its toys through three separate marketing groups:
Domestic (Tyco U.S.), International, and Tyco Preschool.
TYCO U.S.
In 1995, Tyco's domestic sales rose approximately 3% and the U.S.
division, which designs and develops most of the toys marketed by the Company
around the world, improved its operating results for the second successive
year. An ongoing focus on strengthening the Company's core brands and the
successful introduction of new toys contributed to the improved results of
this group in 1995. Core product categories of the Company include Radio
Control, Matchbox(Registered Trademark), Large Dolls, Magna Doodle(Registered
Trademark), Electric Racing, Games, View-Master(Registered Trademark), Plush,
Activity and Preschool Toys.
Radio Control
Tyco Radio Control toys are wireless battery-operated toy vehicles
designed for speed and perform- ance. Tyco maintains the largest market share
in the radio control toy category. In 1995, Tyco's line featured the top
selling 6.0V Jet Turbo(Registered Trademark) Rebound 4x4(Trademark) and the
Harley-Davidson(Registered Trademark) Radio Control Motorcycle. For 1996,
Tyco's line will include the 6.0V Jet Turbo Dagger(Trademark), a three
wheeled dragster, the 6.0V Jet Turbo Samurai(Trademark) racing motorcycle,
the 9.6V Turbo Mutator(Trademark) as well as the return of Rebound
4x4(Trademark).
Matchbox(Registered Trademark)
Matchbox(Registered Trademark) toys are authentic metal die-cast miniature
toy vehicles and push-around playsets. Matchbox(Registered Trademark) is
among the Company's largest core brands. In 1996, Tyco is expanding this line
to include Action System(Trademark), a new track system featuring
interconnecting, interchangeable track and traditional playsets. In 1995, the
line grew by over 5% primarily as a result of the Collectibles business and
the new Zero G(Trademark) action track system. In addition, the Company is
further developing the Matchbox Collectibles business in 1996 by adding new
product to the core line of vehicles including Peterbilt(Trademark) Tractor
Trailer replicas and an expansion of its fire engine series.
Large Dolls
Large Dolls are greater than 11 1/2 inches and usually incorporate
mechanical or electronic features. The Company is among the market leaders in
the large doll category. In 1996, the Company will market several
TV-advertised large dolls including a new version of My Newborn
Nancy(Trademark). Brand new for 1996 are the value-priced Baby Wiggles 'n
Giggles(Trademark), and Milk 'n Cookies Baby(Trademark). Tyco is also
expanding its line of promoted Kenya(Registered Trademark) African-American
dolls with Bedtime Kenya(Trademark), which comes with a book featuring an
African-American story, and Hairplay Fun Kenya(Trademark), which allows girls
to create designer hairstyles.
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Magna Doodle(Registered Trademark)
Magna Doodle(Registered Trademark) drawing toys and accessories feature
the Magna Doodle(Registered Trademark) erasable magnetic drawing board. Magna
Doodle(Registered Trademark) continues to be the number one selling drawing
toy worldwide. The Company's 'try-me' packaging and second year of
parent-directed advertising helped increase Magna Doodle sales in 1995. In
1995, the Company also introduced the Magna Doodle(Registered Trademark)
3-in-1 Play Center(Trademark), a child's table-top desk with three board
surfaces for doodling, drawing and playing with building blocks. In 1996, the
Color Doodler(Trademark), an erasable color marker board set is being added
to the line.
Electric Racing
Tyco electric racing sets include slot cars and slotted tracks in a
variety of configurations. Tyco continues to maintain a leading market share
in the electric racing category. For 1996, the Company will feature 1995's
successful Haunted Highway(Trademark) race set which highlights a monster's
rolling eyeball as an obstacle and Super Cliff Hangers(Trademark) race sets
with cars that race up a wall, upside down and through a loop. New in 1996
will be Gravity Twisting Cliff Hanger(Trademark) which, along with the
existing race sets for 1996, will offer Tyco's faster Magnum X-3(Trademark)
cars.
In 1996 Tyco will be introducing a new concept in racing. Combining Tyco's
skills in both the radio control and racing categories, the Radio Control
Speedway(Trademark) features two full function radio control trucks and a
racetrack layout.
Games
Tyco Classic Games, feature a variety of well-known games for children and
adults. Tyco's core game business growth is based on the continued strength
of classic games such as Toss Across(Registered Trademark), Rock 'em Sock 'em
Robots(Registered Trademark), Jeopardy!(Registered Trademark), Wheel of
Fortune(Registered Trademark), Magic 8 Ball(Registered Trademark),
Rebound(Registered Trademark) and Kerplunk(Registered Trademark). In 1996,
four new games are being introduced: Pickin Chickens(Trademark), an action
game of collecting chicken eggs; Power Zone(Trademark), an arcade-like
turbo-disk shooting action game; Up for Grabs(Trademark), an interactive word
game; and Game Babies(Trademark), a series of action games featuring
miniature baby-shaped playing pieces.
View-Master(Registered Trademark)
View-master(Registered Trademark) viewers, reels and toys provide 3-D
viewing images for children of all ages. Tyco's View-Master(Registered
Trademark) line continues to hold the dominant market share in this category.
In 1996, new story reels featuring Disney classics like the Hunchback of
Notre Dame, 101 Dalmatians and Toy Story, along with titles based upon
Flipper and Spiderman join the existing inventory of titles offered.
Other Toys
GIRLS' TOYS
Tyco's line of plush or soft toys has continued to expand in 1995 led by
the successful introduction of Doodle Bear(Trademark). In 1996, Doodle
Bear(Trademark) is further expanded to include Doodle Pets(Trademark) and
Secret Message Doodle Bear(Trademark). Two value-priced plush products,
Doggie Bag Doggies(Trademark), little puppies with a unique packaging concept
and the Lil' Fursons(Trademark) line of fluffy creatures will be added to the
1996 line. Tyco will also offer an electronic talking plush doll in 1996,
Real Talkin' Bubba(Trademark).
Tyco will be offering a new line of diecast kitchen, food and dining
miniatures in 1996 called Kitchen Littles(Trademark). The line is designed
for girls' role-playing and is scaled to be compatible with all fashion dolls
so that the products will also have a place in the fashion doll accessory
market.
ACTIVITY TOYS
Tyco's Doctor Dreadful(Trademark) 'looks gross, tastes great' playsets
were very successful in 1995, and an expanded line for 1996 will feature the
new Doctor Dreadful MD(Trademark) line of products. A more conventional
cooking line is also available with Tyco's Watch-It Bake!(Registered
Trademark) Oven and 3-Minute Ice Cream Maker(Registered Trademark). In
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addition, Tyco's lines of science and crafts sets return in 1996. Fingernail
Fun(Trademark), which provides for fingernail decorating play, and Scrunch 'n
Wear Minis(Trademark), which allows girls to make the latest fashion
hairwear, will also be joining the Fashion Magic(Registered Trademark) girls'
activity line.
CHILDREN'S ELECTRONICS
In 1996, Tyco will be entering a new category, Children's Electronics. The
Company's proprietary product in this category is Tyco VideoCam(Trademark), a
child's video camera. Key features of this product are its $100 retail price,
which is significantly less than adult video cameras, its point-and-shoot,
easy-to-use design, and its durability.
DIRECT IMPORT
For 1996, Tyco US will be marketing a line of products offered on a letter
of credit basis (direct import) which was previously sold by its Tyco
Playtime division. Certain of the products are lower cost versions of Tyco's
promoted brand names, for example, Matchbox(Registered Trademark) or Doodle
Bear(Trademark). In addition, 1996 direct import products will continue to
include well known dolls from the past, such as Tiny Tears(Registered
Trademark) and Betsy Wetsy(Registered Trademark). A new line of plush toys
also will be introduced in 1996 using the brand name of the successful direct
marketing company, Vermont Teddy Bears(Trademark).
TYCO INTERNATIONAL
In 1996, the Company's International subsidiaries will continue to market
products developed by the Tyco U.S. business unit as well as, in select
countries, third-party product. The Company's International subsidiaries
accounted for approximately 34% of 1995's consolidated sales. In order to
reduce its operating costs, the Company extensively reorganized its
International operations in 1995. As part of the restructuring, the Company
consolidated the marketing and administrative functions of its subsidiaries
in Germany, France and Benelux into the Company's newly created European
Headquarters in Belgium. In the United Kingdom, the Company consolidated its
Tyco and Matchbox operations. The Company is also closing its manufacturing
facility located in Temse, Belgium and its distribution facility located in
the United Kingdom.
TYCO PRESCHOOL
In 1996, new Sesame Street(Registered Trademark) toys will be added to the
historically popular line of Sesame Street products including new plush,
talking and promotional lines. Tyco Preschool will also expand the product
offering of its Looney Tunes Lovables(Trademark) line, which is based on
Warner Bros.' characters as toddlers. Two new Sesame Street products, 1-2-3
Melody Keys(Trademark) and Tickle me Elmo(Trademark), will be marketed with
television advertising in 1996.
During 1995, the Company also restructured its Tyco Playtime Unit whereby
its non-preschool products and certain administrative functions were
consolidated into Tyco U.S. As part of the program, Tyco Playtime was renamed
Tyco Preschool with its focus on the profitable long-term growth of the
preschool business, primarily Sesame Street(Registered Trademark) toy
products. In connection with this focus, Children's Television Workshop
(CTW), designated the Company as its primary toy licensee in June 1995. Under
the terms of the agreement, Tyco will nearly double the number of Sesame
Street(Registered Trademark) product categories, including the plush toy
category. The Company was also awarded the rights to several additional
categories including pop-up toys, figurines, talking phones, and diecast
vehicles.
SEASONALITY AND BACKLOG
The toy industry is highly seasonal due to heavy consumer demand for toy
products during the December holiday season. Traditionally, orders received
by toy manufacturers in the first six months range between 55% to 90% of
total calendar year orders, while shipments for that period represent 30% to
40% of the year's total. Due to these significant fluctuations, the results
of operations for any quarterly period are not necessarily indicative of the
results of operations for the full year.
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The timing of orders is largely influenced by the degree of consumer
demand for a product line, inventory levels at retailers, marketing
strategies and overall economic conditions. The Company's fulfillment of its
order backlog is dependent upon manufacturing capacity and the extent to
which orders may be received and/or cancelled due to changes in consumer
demand. The backlog of orders for the Company's products at December 31, 1995
was approximately $70,000,000. The Company believes that the backlog at
December 31, 1995 will be filled by December 31, 1996, however, product
shortages, cancellations, returns and allowances may reduce the amount of net
sales realized from the fulfillment of backlog orders.
DESIGN AND DEVELOPMENT
The Company is engaged in a continuing product development and packaging
design program. The Company spent $20,740,000, $17,519,000 and $19,062,000 in
the years ended December 31, 1995, 1994 and 1993, respectively, for this
program. The Company employs its own designers, artists, model makers, and
product engineers, and also utilizes independent inventors who submit their
ideas and designs. Typically, the Company acquires exclusive rights from
inventors to market such items under agreements which provide for royalty
payments to the designer or inventor for varying periods.
MARKETING AND DISTRIBUTION
The Company markets its products in the United States to large retail
chains, wholesalers and independent retailers through full-time salesmen and
several independent sales representative organizations. The Company markets
its products internationally in various foreign countries through its
subsidiaries and licensees. International sales accounted for approximately
34%, 40% and 41% of the Company's sales in the three years ended December 31,
1995, 1994 and 1993, respectively.
For the years ended December 31, 1995, 1994 and 1993, approximately 62%,
59% and 54%, respectively, of the Company's net sales were attributable to
its ten largest customers. For the years ended December 31, 1995, 1994 and
1993, Toys "R" Us, Inc. (Toys "R" Us), a chain of retail toy stores,
accounted for 25%, 27% and 24%, respectively, of Company revenues. During the
three years ended December 31, 1995, Wal-Mart Stores, Inc. (Wal-Mart), a
chain of discount stores, accounted for approximately 13%, 10% and 9%,
respectively, of net sales. No other customer accounted for more than 10% of
net sales during these periods. The Company's business would be adversely
impacted in the event that it lost either Toys "R" Us or Wal-Mart as a
customer. Based on its dealings with Toys "R" Us and Wal-Mart, to date, the
Company believes that its relationships with them are good and it has no
reason to expect such a development.
The primary competitive factors with respect to the Company's products are
consumer identification, price, play-value and quality of manufacturing. The
Company utilizes a high level of product promotion primarily through
advertising in order to retain consumer recognition of, and commercial
success for, its product lines. The Company's advertising program is similar
to other companies in the toy industry in that most of its advertising budget
is allocated to children-oriented television programming. In 1995, 1994 and
1993, the Company's expenditures for marketing, advertising and promotion
were approximately 23%, 23% and 25% of net sales, respectively.
TRADEMARKS
The Company markets its products under a variety of trademarks, some of
which are not owned by the Company and for which the Company pays a royalty.
In 1995, the most important of these were Tyco(Registered Trademark),
View-Master(Registered Trademark), 9.6V Turbo(Registered Trademark),
Matchbox(Registered Trademark), Doctor Dreadful(Trademark), 6.0V Jet Turbo
Rebound(Trademark), Doodle Bear(Trademark) and Kenya(Registered Trademark),
all of which are owned by the Company, and the licensed trademarks, Sesame
Street(Registered Trademark), Kitty Kitty Kittens(Registered Trademark),
Looney Tunes(Registered Trademark), Magna Doodle(Registered Trademark) and
Harley-Davidson(Registered Trademark).
License agreements for certain trademarks require minimum guaranteed
royalty payments over the term of the license. Reference is made to note 10
of the Notes to Consolidated Financial Statements.
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COMPETITION
The toy industry is highly competitive. Among the Company's competitors
are larger toy companies, such as Mattel and Hasbro, which are better
capitalized, and some small domestic and foreign toy and entertainment
product manufacturers, importer and marketers. Some of these competitors make
and distribute radio controlled toys, large dolls, games and activity toys,
diecast vehicles, preschool toys and other products in the Company's core
categories. The Company's principal strength in this competition are its
large market share in core categories, dominance of certain categories, and
its reputation for high quality, high performance products.
MANUFACTURING AND SUPPLIERS
Tyco (Hong Kong) Ltd. negotiates with factories throughout the Orient for
the manufacture of various Tyco products. Products obtained by Tyco (Hong
Kong) Ltd. are shipped to facilities of the Company or its licensees where
they are packaged and/or distributed. The Company's radio control toy
products are manufactured in the Orient exclusively by Taiyo Kogyo Co., Ltd.,
a company in which Tyco holds an 18.5% ownership interest. Reference is made
to note 14 of the Notes to Consolidated Financial Statements. The View-Master
product line is manufactured in Beaverton, Oregon. The Matchbox product line
is manufactured primarily at joint venture facilities in Thailand and the
People's Republic of China. The Company's suppliers utilize manufacturing
facilities located in China, Hong Kong and other Asian countries. The Company
could be adversely affected by political or economic disruptions affecting
businesses in or trade with such countries. The most favored nation (MFN)
status for China was extended until June 1996. If the United States Congress
were to override such extension or place significant conditions on MFN status
for China or if such MFN status should terminate for any other reason, the
result would be the imposition of burdensome duties on toys made in China and
imported into the United States. The European Community has also imposed
limitations on the importation of Chinese products. To date, such regulations
have not materially affected the Company.
The Company believes that it has the ability to develop, over a period of
time, adequate alternative sources for the products obtained from its present
foreign suppliers should such alternative sources be required. However, if
the Company is prevented from acquiring products from its joint venture
partners and suppliers in the Far East, the Company's operations would be
seriously disrupted, resulting in a significantly adverse financial impact.
The Company maintains close contact with its subcontractors in Hong Kong,
China, Singapore, Malaysia, Taiwan, Thailand and Indonesia through its
employees in various Far East locations.
Packaging materials, plastics and resins and other raw materials essential
to the production and marketing of the Company's products are obtained from a
variety of sources around the world. These materials are currently in
adequate supply and the Company does not anticipate shortage of any such raw
materials in the foreseeable future.
ENVIRONMENTAL REGULATION
The Company also complies with various federal, state and local provisions
relating to the protection of the environment. These provisions do not have
any material effect on the Company.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 2,200 people,
including approximately 1,000 in various foreign countries. In the opinion of
management, the Company has good working relations with its employees.
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ITEM 3. LEGAL PROCEEDINGS
Reference is made to note ten of the Notes to Consolidated Financial
Statements and to pages 18 and 19 of Item 7 of this report.
Italian Litigation
In May, 1994, Johnny Fassi, the former managing director of the Company's
Italian sales and marketing subsidiary initiated actions before a Milan
Tribunal in Italy against the Company alleging breach of a letter of intent
with the plaintiff for the sale of the subsidiary. The Company is awaiting
the court's decision in this matter. 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 Trustee liquidating the Italian subsidiary 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.
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 GEMS
Landfill operation pending since 1984 in U.S. District Court in Camden, New
Jersey, and captioned "State of New Jersey Department of Environmental
Protection (NJDEP) vs. Gloucester Environmental Management Services, Inc.,"
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 pending in Superior Court in Gloucester County, New Jersey and
captioned "Keating and Diegal vs. Tyco Industries et al," homeowners adjacent
to 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, an NJDEP administrative proceeding commenced in 1990 and captioned
"In Re Jonas Transfer Station, Deptford Township, Gloucester County, NJ," the
NJDEP 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, the Company issued to Corporate Advisors, L.P. and its
affiliates additional shares of Series B Voting Convertible Preferred shares
valued at $3,200,000 in lieu of cash dividends, pursuant to the terms of the
Series B Preferred shares issued in 1994. Jonathan Kagan and David Golub,
Directors of the Company, are officers of Corporate Advisors L.P., which made
the original investment on behalf of others.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TYCO TOYS, INC.
(Registrant)
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
- ---------------------------------- ------------------------------ -----------------
<S> <C> <C>
* Chairman of the Board and June 11, 1996
- ----------------------------------- Director
Richard E. Grey
/s/Gary Baughman President, Chief Executive June 11, 1996
- ----------------------------------- Officer, and Director
Gary Baughman (Principal Executive Officer)
/s/Harry J. Pearce Vice Chairman, Chief Financial June 11, 1996
- ----------------------------------- Officer, and Director
Harry J. Pearce (Principal Financial and
Accounting Officer)
* Director June 11, 1996
- -----------------------------------
Arnold Thaler
* Director June 11, 1996
- -----------------------------------
Joel M. Handel
* Director June 11, 1996
- -----------------------------------
John A. Canning, Jr.
* Director June 11, 1996
- -----------------------------------
David B. Golub
* Director June 11, 1996
- -----------------------------------
Jerome I. Gellman
* Director June 11, 1996
- -----------------------------------
Jonathan H. Kagan
* Director June 11, 1996
- -----------------------------------
Timothy J. Danis
* Director June 11, 1996
- -----------------------------------
Dr. LaSalle D. Leffall, Jr.
By: /s/R. MICHAEL KENNEDY, JR.
- -----------------------------------
R. Michael Kennedy, Jr.
Attorney-in-Fact
</TABLE>
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