<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 June 30, 1996
[ ] 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 July 31, 1996
Common, $.01 par value...................................34,826,668 shares
Preferred, $.10 par value...................................826,431 shares
<PAGE>
TYCO TOYS, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets - As of June 30, 1996 and 1995
and December 31, 1995 3
Consolidated Statements of Operations - For the Quarters
and Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity - For the
Six Months Ended June 30, 1996 and for the Year
Ended December 31, 1995 5
Consolidated Statements of Cash Flows - For the Six Months
Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-13
Part II. Other Information
Item 1. Legal Proceedings 14
2
<PAGE>
Part I. Financial Information.
Item 1. Financial Statements.
TYCO TOYS, INC.
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30,
---------------------- December 31,
1996 1995 1995
-------- --------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $47,269 $ 14,387 $ 27,604
Receivables, net 159,719 189,159 187,503
Inventories, net 72,332 87,641 56,710
Prepaid expenses and other current assets 18,962 22,025 19,738
Deferred taxes 13,008 17,271 13,008
-------- --------- ---------
Total current assets 311,290 330,483 304,563
Property and equipment, net 32,600 42,637 33,021
Goodwill, net of accumulated amortization 222,418 229,420 226,112
Deferred taxes 35,881 30,288 28,560
Other assets 21,164 21,984 22,876
-------- --------- ---------
Total assets $623,353 $654,812 $615,132
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable 20,226 $ 87,337 $ 60,923
Current portion of long-term debt 859 1,065 1,053
Accounts payable 40,354 53,092 45,557
Accrued expenses and other current liabilities 68,704 83,701 93,179
-------- --------- ---------
Total current liabilities 130,143 225,195 200,712
Long-term debt 147,064 147,590 147,180
Other liabilities 2,174 2,342 1,900
Stockholders' equity
Preferred stock, Series B $.10 par value, $1,050 liquidation
value per share, 1,000,000 shares authorized; 53,631,
50,535 and 52,059 shares issued and outstanding as of
June 30, 1996 and 1995 and December 31, 1995,
respectively 6 5 5
Series C Mandatorily Convertible Redeemable Preferred Stock
$.10 par value, $5 liquidation value per share, 772,800
shares authorized, issued and outstanding as of
June 30, 1996 77 - -
Common stock, $.01 par value, 75,000,000 shares authorized;
35,017,158, 34,959,216 and 35,017,158 shares issued
as of June 30, 1996 and 1995 and December 31, 1995,
respectively 350 349 350
Additional paid-in capital 441,309 344,920 347,033
Accumulated deficit (73,943) (44,910) (58,261)
Treasury stock, at cost (1,676) (1,595) (1,676)
Cumulative translation adjustment (22,151) (19,084) (22,111)
-------- --------- ---------
Total stockholders' equity 343,972 279,685 265,340
-------- --------- ---------
Total liabilities and stockholders' equity $623,353 $654,812 $615,132
======== ========= =========
</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 Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $140,590 $151,692 $236,358 $267,752
Cost of goods sold 79,540 87,862 134,673 154,819
-------- -------- -------- --------
Gross profit 61,050 63,830 101,685 112,933
Marketing, advertising and promotion expenses 32,429 36,239 57,396 65,107
Selling, distribution and administrative expenses 26,901 28,429 51,948 55,828
Restructuring charge - 4,900 - 4,900
Amortization of goodwill 1,616 1,598 3,223 3,191
-------- -------- -------- --------
Total operating expenses 60,946 71,166 112,567 129,026
-------- -------- -------- --------
Operating income (loss) 104 (7,336) (10,882) (16,093)
Interest expense, net 5,564 6,084 10,840 11,949
Other (income) expense, net (57) 139 (631) (4,190)
-------- -------- -------- --------
Loss before income taxes (5,403) (13,559) (21,091) (23,852)
Income tax benefit (1,634) (4,724) (7,125) (8,348)
-------- -------- -------- --------
Net loss (3,769) (8,835) (13,966) (15,504)
Preferred stock dividends 889 790 1,716 1,574
-------- -------- -------- --------
Net loss applicable to common shareholders $ (4,658) $ (9,625) $(15,682) $(17,078)
======== ======== ======== ========
Net loss per common share $ (0.13) $ (0.28) $ (0.45) $ (0.49)
Weighted average number of common shares
outstanding 34,827 34,762 34,827 34,760
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TYCO TOYS, INC.
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 1996 (Unaudited) and for the
Year Ended December 31, 1995 (in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------ -------------------- Paid - In
Shares Amount Shares Amount Capital
------ ------ ---------- ------ --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 49,055 $5 34,893,516 $349 $343,213
Issuance of restricted stock - - 42,342 - 338
Exercise of stock options - - 81,300 1 328
Acquisition of treasury stock - - - - -
Preferred stock dividends 3,004 - - - 3,154
Foreign currency translation
adjustment - - - - -
Net loss - - - - -
- -------------------------------------------------------------------------------------------
Balance at December 31, 1995 52,059 5 35,017,158 350 347,033
Issuance of Series C preferred
stock 772,800 77 - - 92,625
Preferred stock dividends 1,572 1 - - 1,651
Foreign currency translation
adjustment - - - - -
Net loss - - - - -
- -------------------------------------------------------------------------------------------
Balance at June 30, 1996 826,431 $83 35,017,158 $350 $441,309
===========================================================================================
Treasury Stock Cumulative
Accumulated ------------------- Translation
Deficit Shares Amount Adjustment Total
----------- ------ ------ ----------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $(27,832) (175,590) $(1,595) $(17,908) $296,232
Issuance of restricted stock - - - - 338
Exercise of stock options - - - - 329
Acquisition of treasury stock - (14,900) (81) - (81)
Preferred stock dividends (3,200) - - - (46)
Foreign currency translation
adjustment - - - (4,203) (4,203)
Net loss (27,229) - - - (27,229)
- -----------------------------------------------------------------------------------------------
Balance at December 31, 1995 (58,261) (190,490) (1,676) (22,111) 265,340
Issuance of Series C preferred
stock - - - - 92,702
Preferred stock dividends (1,716) - - - (64)
Foreign currency translation
adjustment - - - (40) (40)
Net loss (13,966) - - - (13,966)
- -----------------------------------------------------------------------------------------------
Balance at June 30, 1996 $(73,943) (190,490) $(1,676) $(22,151) $343,972
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TYCO TOYS, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $(13,966) $(15,504)
Adjustments to reconcile net loss to net cash utilized by operating activities:
Non-cash interest expense - 524
Depreciation 10,333 12,638
Amortization 4,886 5,237
Decrease in allowance for bad debts, returns, markdowns, discounts
and other receivable reserves (24,109) (20,515)
Decrease in allowance for obsolescence and other inventory reserves (209) (1,145)
Change in assets and liabilities:
Decrease in receivables 52,266 41,851
Increase in inventories (14,801) (22,030)
Decrease in prepaid expenses and other current assets 1,103 4,317
Increase in deferred taxes (7,309) (6,427)
Increase in other assets (239) (1,913)
Increase (decrease) in accounts payable (5,282) 2,000
Decrease in accrued expenses and other current liabilities (24,203) (11,082)
Increase in other liabilities 313 -
-------- --------
Total adjustments (7,251) 3,455
-------- --------
Net cash utilized by operating activities (21,217) (12,049)
Cash Flows From Investing Activities
Disposition of property and equipment - 700
Capital expenditures (11,280) (7,551)
Acquisition payment - (1,144)
-------- --------
Net cash utilized by investing activities (11,280) (7,995)
Cash Flows From Financing Activities
Repayment of long-term debt (278) (430)
Increase in (repayment of) notes payable, net (40,812) 8,967
Debt financing fees - (5,222)
Proceeds from issuance of preferred stock 92,702 -
Proceeds from issuance of common stock - 116
-------- --------
Net cash provided by financing activities 51,612 3,431
-------- --------
Effect of exchange rate changes on cash 550 524
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 19,665 (16,089)
Cash and Cash Equivalents, Beginning of Period 27,604 30,476
-------- --------
Cash and Cash Equivalents, End of Period $ 47,269 $ 14,387
======== ========
Cash Payments During Period For:
Interest $ 9,516 $10,804
Taxes 3,264 300
</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 significant 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
financial statements have been reclassified to conform with the current periods
presentation. Due to the seasonal nature of the Company's business, the results
of operations for the 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, 1995.
(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. SFAS 109 requires the Company to record the net deferred tax
benefits of net operating loss and tax credit carryforwards, if realization is
more likely than not.
Management believes, considering all available evidence, including the Company's
history of earnings from prior years (after adjustments for nonrecurring items,
restructuring charges and permanent differences and other appropriate
adjustments) and after considering appropriate tax planning strategies, 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 losses and future deductible 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 $82,207,000. 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 $48,889,000.
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 $16,168,000 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>
June 30, December 31,
------------------------ ---------------
1996 1995 1995
-------- -------- --------
<S> <C> <C> <C>
Trade receivables $185,079 $208,038 $237,041
Other receivables 6,255 11,387 6,186
Less:
Doubtful accounts 4,998 5,485 6,052
Returns, markdowns, discounts
and other receivable reserves 26,617 24,781 49,672
-------- -------- --------
$159,719 $189,159 $187,503
======= ======= =======
</TABLE>
(4) Inventories, Net (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
------------------------ ---------------
1996 1995 1995
-------- -------- --------
<S> <C> <C> <C>
Raw materials $17,775 $16,905 $15,483
Work-in-process 1,939 2,263 1,534
Finished goods 60,277 80,300 47,561
Less obsolescence and other
inventory reserves 7,659 11,827 7,868
-------- -------- --------
$72,332 $87,641 $56,710
======== ======= =======
</TABLE>
(5) Restructuring Charge
During the second quarter of 1995, the Company adopted a restructuring program
focused on reducing overhead costs of its European, United Kingdom and Tyco
Preschool (formerly Tyco Playtime) units. The pre-tax restructuring charge of
$4,900,000 primarily consisted of approximately $3,000,000 in termination and
other employee benefits; $1,300,000 of facility consolidation costs and lease
termination payments; and an approximate $300,000 non-cash write-off of assets.
The program was substantially completed by December 31, 1995.
8
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(6) Legal Proceedings
Italian Litigation
In 1994, court action was initiated against the Company in Milan, Italy by a
plaintiff who is the former managing director of the Company's Italian
subsidiary; the claims alleged breach of a letter of intent for the sale of the
subsidiary. In May 1996, the Company received a favorable ruling in this
litigation, and the Milan Tribunal assessed damages, certain costs, and
attorney's fees against the plaintiff. In the opinion of the management and its
outside counsel any appeal of this decision is not likely to have a material
adverse impact on the Company's earnings, financial condition or liquidity.
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, has been a party to three matters
arising out of waste hauled by a transporter to various sites, including the
GEMS Landfill. Two of the matters have been settled for monetary amounts that
were not material to Tyco Industries. The third matter, a claim by the New
Jersey Department of Environmental Protection for a share of remediation costs
at a different site in Sewell, New Jersey, is still pending, but the Company
believes that there are meritorious factual and legal defenses to this claim and
that its share of a negotiated settlement would not be material to the Company.
In addition, the Company will receive a contribution from a third party towards
certain expenses in this matter.
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.
9
<PAGE>
TYCO TOYS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
(7) Net Loss Per Share
Net loss per share is computed by dividing the loss applicable to common
shareholders by the weighted average number of common and common equivalent
shares outstanding during the period. Outstanding options, and the Company's
convertible notes and preferred securities were determined to be anti-dilutive
for the quarters and six months ended June 30, 1996 and 1995 and were therefore
excluded from the per share calculations.
(8) Preferred Offering
On June 28, 1996, the Company received net proceeds of $92,702,000 after fees
and expenses from the sale of 772,800 shares of Series C Mandatorily Convertible
Redeemable Preferred Stock (the Preferred Stock). Dividends are payable
quarterly commencing October 1, 1996 at a rate of 8 1/4% per annum. The net
proceeds were used to retire certain short-term indebtedness and for working
capital purposes. Depositary Shares, each representing one-twenty-fifth of a
share of Preferred Stock were sold as part of the Preferred Stock offering at an
issue price of $5 per share. Each of the 19,320,000 Depositary Share issued will
mandatorily convert into 1.111 shares of the Company's Common Stock on July 1,
2000 unless previously converted by the holder or redeemed by the Company.
Holders may convert each Depositary Share into 0.8197 of a share of the
Company's Common Stock at any time prior to July 1, 2000. The Preferred Stock is
not redeemable by the Company prior to July 1, 1999. At such time thereafter
until July 1, 2000, the Company may redeem the Preferred Stock and therefore the
Depositary Shares in whole or in part. Upon such redemption, each holder will
receive in exchange for each Depositary Share, the greater of (i) the number of
shares of the Company's Common Stock equal to the quotient of (a) the sum of (1)
$5.103 at July 1, 1999 declining to $5.00 at July 1, 2000 and (2) all accrued
and unpaid dividends thereon for each Depositary Share called divided by (b) the
current market price, as defined, of a share of the Company's Common Stock as of
the redemption date and (ii) 0.8197 of a share of the Company's Common Stock.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
The Company markets its toys through three separate groups: Domestic,
International and Tyco Preschool. Net sales for the quarter and six months ended
June 30, 1996 were $140,590,000 and $236,358,000, respectively, compared to
$151,692,000 and $267,752,000, respectively, for the same periods last year. The
consolidated decrease in 1996 second quarter and six month sales was primarily
attributable to the discontinuance of certain 1995 product categories, in
particular, action figures, small dolls and videos in conjunction with the
Company's focus on core product lines. Additionally, many new 1996 products,
such as TycoVideoCam(TM) and Kitchen Littles(TM) were not scheduled to ship
until late in the second quarter. Sales for the Company's Domestic unit were
$86,253,000 and $147,110,000 for the quarter and six months ended June 30, 1996,
compared to $90,616,000 and $164,752,000 in the prior year. The decreases in
sales were solely attributable to the discontinued product categories described
above. International sales decreased $7,627,000 and $13,240,000 to $37,331,000
and $65,243,000 for the comparable three and six month periods of 1996. These
reductions were primarily due to the discontinuance of certain action figure
categories in 1996. Preschool sales were slightly higher than 1995 for both the
second quarter and six month periods. As part of the Company's 1995
restructuring, the marketing and sales responsibility of certain non-preschool
products were transferred to the Company's Domestic operations. Approximately
$4,000,000 in sales of these transferred non-preschool products were included in
the Company's 1996 Domestic operating results.
Gross profit for the quarter and six months ended June 30, 1996 was $61,050,000
and $101,685,000, respectively, (43.4% and 43.0%, of net sales) compared to
$63,830,000 and $112,933,000, respectively, (42.1% and 42.2%, of net sales) for
the comparable 1995 periods reflecting the reduction in sales volume. Gross
profit as a percent of net sales in the Company's Domestic unit decreased when
compared to 1995 by 2.3% in the quarter and 1.3% for the six months ended June
30, 1996 primarily due to product mix including the timing of shipments of
higher margin new products in 1996 versus 1995. Gross profit margins increased
substantially in both the International and Preschool units. International
margins as a percent of sales improved by 6.9% and 4.4% for the second quarter
and six months ended June 30, 1996, reflecting improved performance and product
mix particularly in Europe and Australia. Preschool margins improved by nearly
10% in 1996 compared to both the three and six month periods ended June 30,
1995. Approximately one-third of the increase is attributable to reduced
depreciation and the remainder is due to an improved product mix resulting from
new product introductions, the exclusion of non-preschool products in the 1996
results and reduced resin costs.
11
<PAGE>
Total operating expenses for the quarter and six months ended June 30, 1996 were
$60,946,000 and $112,567,000, respectively, compared to $71,166,000 and
$129,026,000, respectively, for the same periods last year. During the second
quarter of 1995, the Company adopted a restructuring program focused on reducing
overhead costs of its European, United Kingdom and Tyco Preschool (formerly Tyco
Playtime) units. The related pre-tax restructuring charge of $4,900,000
primarily consisted of approximately $3,000,000 in termination and other
employee benefits; $1,300,000 of facility consolidation costs and lease
termination payments; and an approximate $300,000 non-cash write-off of assets.
The program was substantially completed by December 31, 1995. Excluding the
restructuring charge of $4,900,000, operating expenses were reduced by
$5,320,000 and $11,559,000 for the quarter and six months ended June 30, 1996,
respectively. In the Domestic business unit, operating expenses were reduced in
line with the lower sales volume for the three and six month periods ended June
30, 1996 primarily due to lower marketing expenses. Operating expenses in the
International and Preschool units decreased by approximately $5,400,000 and
$400,000, respectively, for the six months ended June 30, 1996, primarily
reflecting the effects of the Company's restructuring programs.
Interest expense, net, for the quarter and six months ended June 30, 1996 was
$5,564,000 and $10,840,000, respectively, compared to $6,084,000 and
$11,949,000, respectively, for the same periods last year. The decrease reflects
substantially lower average borrowings as a result of the Company's working
capital requirements. Total average borrowings for the six months ended June 30,
1996 were $192,807,000 compared to total average borrowings of $205,520,000 for
the first six months of 1995. The average borrowing rates for both 1996 and 1995
were approximately 10%. Excluding long-term debt, average short-term borrowings
were $44,851,000 and $57,124,000 during the first six months of 1996 and 1995,
respectively.
Included in other income for 1996 is a net foreign currency gain of $584,000
compared to a net gain of $1,407,000 in 1995. The prior year also included a
pre-tax profit of approximately $2,500,000 from the sale of the Company's
distribution rights for the Kidsongs Music Video line.
The Company recorded an income tax benefit of $1,634,000 and $7,125,000,
respectively, for the quarter and six months ended June 30, 1996 compared to
$4,724,000 and $8,348,000, respectively, for the same periods last year,
reflecting a slightly reduced overall effective rate in 1996 applied to the
lower consolidated pre-tax losses.
In July 1996, the Internal Revenue Service completed the examination of the
consolidated federal income tax returns of Tyco Toys, Inc. for the fiscal years
ended December 31, 1990 through December 31, 1992. The resolution of the
examination was not material to the Company. In addition, the consolidated
federal income tax return of Tyco Toys, Inc. for the fiscal year ended December
31, 1993 is currently subject to examination. 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.
12
<PAGE>
Financial Condition and Liquidity
Six Months Ended June 30, 1996
For the six months ended June 30, 1996, cash and cash equivalents increased
$19,665,000 to $47,269,000. Cash provided from financing activities included
$92,702,000 in net proceeds from the sale of $96,600,000 of Series C Mandatorily
Convertible Redeemable Preferred Stock (see note 8 of the Notes to Consolidated
Financial Statements). The net proceeds were received on June 28, 1996 and were
used to retire approximately $56,000,000 in short-term bank borrowings, with the
remainder included in cash at June 30, 1996. Cash utilized by operating
activities was $21,217,000 which included the loss for the six months
($13,966,000), and the seasonally-related a) increase in inventories
($15,010,000), b) payment of year-end accruals ($29,485,000) and c) reduction of
receivables ($28,157,000). Capital expenditures were $11,280,000 through June
30, 1996.
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
existing credit facilities, and proceeds from potential equity or debt
offerings. The Company believes that its cash balances, existing credit
facilities and internally-generated funds will provide adequate financing for
its current and foreseeable levels of operation.
Credit Facility
During the fourth quarter of 1995, the Company was not in compliance with
certain financial covenants under its principal credit facilities and received
waivers from General Electric Capital Corporation and affiliates. The Company
has amended these credit facilities to reflect revisions to its financial
covenants. As a result of the amendment, the interest rate on the facilities was
increased by .25% beginning in 1996.
Dividends
The Company's credit facilities restrict the Company's ability to pay cash
dividends on capital 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 8 1/4% Series C Mandatorily Convertible Redeemable
Preferred Stock, the 10.125% Senior Subordinated Notes and the 7% Convertible
Subordinated Notes also have limitations on the payment of cash dividends. The
Company, during the six months of 1996 and 1995, issued additional shares of
Series B Preferred Stock in lieu of cash dividends valued at $1,651,000 and
$1,430,000, respectively.
13
<PAGE>
Part II. Other Information.
Item 1. Legal Proceedings.
Reference is made to note 6 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 Loss Per Share-
Quarters and Six Months Ended June 30, 1996 and 1995.
14
<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: August 8, 1996 By: /s/ Harry J. Pearce
-------------- -------------------
Harry J. Pearce
Vice Chairman,
Chief Financial Officer,
and Director
15
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
11 Statements Regarding Computation of
Per Share Loss for the Quarters and Six
Months Ended June 30, 1996 and 1995. 17
17
<PAGE>
Exhibit 11
TYCO TOYS, INC.
Computation of Loss Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Primary Loss Per Share:
1. Net loss $ (3,769) $ (8,835) $ (13,966) $(15,504)
2. Less preferred dividends 889 790 1,716 1,574
--------- -------- --------- --------
3. Net loss applicable to common shareholders $ (4,658) $ (9,625) $ (15,682) $(17,078)
--------- -------- --------- --------
4. Weighted average shares outstanding 34,827 34,762 34,827 34,760
5. Add additional shares issuable upon the assumed exercise
of outstanding stock options * - - - -
--------- -------- --------- --------
6. Adjusted weighted average shares outstanding 34,827 34,762 34,827 34,760
--------- -------- --------- --------
7. Net loss per share (3 / 6) $ (0.13) $ (0.28) $ (0.45) $ (0.49)
========= ======== ========= ========
Fully Diluted Loss Per Share:
8. Line 3 above $ (4,658) $ (9,625) $ (15,682) $ (17,078)
9. Add back preferred dividends (line 2) 889 790 1,716 1,574
10. Add back interest, net of tax, on assumed conversion of
the Company's 7% Convertible Subordinated Notes 196 170 372 341
--------- -------- --------- --------
11. Adjusted net loss $ (3,573) $ (8,665) $ (13,594) $ (15,163)
--------- -------- --------- --------
12. Weighted average shares outstanding (line 4) 34,827 34,762 34,827 34,760
13. Add additional shares issuable upon the assumed exercise
of outstanding stock options* - - - -
14. Add additional shares issuable upon assumed
conversion of the Company's 7% Convertible
Subordinated Notes 1,603 1,498 1,603 1,497
15. Add additional shares issuable upon assumed
conversion of preferred shares 6,041 5,039 5,788 4,969
--------- -------- --------- --------
16. Adjusted weighted average shares outstanding 42,471 41,299 42,218 41,226
--------- -------- --------- --------
17. Net loss per share (11/16) ** $ (0.08) $ (0.21) $ (0.32) $ (0.37)
========= ======== ========= ========
</TABLE>
* For the calculation of loss per share, the inclusion of the assumed exercise
of options for the quarters and six months ended June 30, 1996 and 1995 is
anti-dilutive and, therefore, such assumed exercise is excluded from the per
share calculations.
** The fully diluted loss per share is anti-dilutive and is therefore not
presented in the Consolidated Statements of Operations.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000786130
<NAME> TYCO TOYS INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 47,269
<SECURITIES> 0
<RECEIVABLES> 191,334
<ALLOWANCES> (31,615)
<INVENTORY> 72,332
<CURRENT-ASSETS> 311,290
<PP&E> 143,574
<DEPRECIATION> (110,974)
<TOTAL-ASSETS> 623,353
<CURRENT-LIABILITIES> 130,143
<BONDS> 142,534
92,702
53,313
<COMMON> 295,727
<OTHER-SE> (97,770)
<TOTAL-LIABILITY-AND-EQUITY> 623,353
<SALES> 236,358
<TOTAL-REVENUES> 236,358
<CGS> 134,673
<TOTAL-COSTS> 111,128
<OTHER-EXPENSES> (631)
<LOSS-PROVISION> 1,439
<INTEREST-EXPENSE> 10,840
<INCOME-PRETAX> (21,091)
<INCOME-TAX> (7,125)
<INCOME-CONTINUING> (13,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,966)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
