UNITED STATES SECURITIES AND 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 quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission file numer 1-13638
TOY BIZ, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3711775
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 EAST 38TH STREET, NEW YORK, NY 10016
- -------------------------------------------------------------------------------
(Address of principal executive offices)
212-682-4700
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(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 (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At May 3, 1996, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 17,134,529 shares of Class A Common Stock
and 9,894,000 shares of Class B Common Stock, totaling 27,028,529 shares of
Common Stock.
<PAGE>
TOY BIZ, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31,
1996 DECEMBER 31,
(unaudited) 1995*
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents ....................... $8,551 $22,484
Accounts receivable, net ........................ 66,382 74,748
Inventories ..................................... 14,698 17,195
Deferred income taxes ........................... 4,141 4,141
Prepaid expenses and other ...................... 7,750 4,476
-------- --------
Total current assets ......................... 101,522 123,044
Molds, tools and equipment, net ................... 13,333 12,102
Product and package design costs, net ............. 8,778 6,971
Goodwill and other intangibles, net ............... 10,130 10,101
-------- --------
Total assets ................................. $133,763 $152,218
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $4,309 $8,830
Accrued expenses and other ...................... 13,206 29,040
-------- --------
Total current liabilities .................... 17,515 37,870
-------- --------
Total liabilities ............................ 17,515 37,870
-------- --------
Redeemable preferred stock ........................ 1,611 3,016
-------- --------
Stockholders' equity:
Common stock .................................... 270 270
Additional paid-in capital ...................... 61,290 61,158
Retained earnings ............................... 53,077 49,904
-------- --------
Total stockholders' equity ................... 114,637 111,332
-------- --------
Total liabilities and stockholders' equity ... $133,763 $152,218
======== ========
* Derived from the audited Financial Statements for the year ended
December 31, 1995.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
2
<PAGE>
TOY BIZ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31,
----------------------
1996 1995*
(unaudited)
------- --------
Net sales ...................................... $38,369 $27,888
Cost of sales .................................. 19,733 13,398
-------- --------
Gross profit ................................... 18,636 14,490
Operating expenses:
Selling, general and administrative .......... 11,369 7,717
Depreciation and amortization ................ 2,144 1,695
-------- --------
Total operating expenses .................. 13,513 9,412
-------- --------
Operating income ............................... 5,123 5,078
Interest (income) expense, net ................. (166) 233
-------- --------
Income before provision for income taxes ..... 5,289 4,845
Provision for income taxes ................... 2,116 1,986
-------- --------
Net income ..................................... $3,173 $2,859
======== ========
Earnings per share ............................. $0.12 $0.11
======== ========
Weighted average number of common and common
equivalent shares outstanding ................ 27,201 27,000
======== ========
* Derived from the audited Financial Statements for the year ended
December 31, 1995.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE>
TOY BIZ, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1996 1995*
(unaudited)
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $3,173 $2,859
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................... 2,144 1,695
Changes in assets and liabilities:
Decrease in accounts receivable, net ....................... 8,366 27,303
Decrease in inventories .................................... 2,497 2,666
Increase in prepaid expenses and other ..................... (3,274) (2,453)
Decrease in accounts payable ............................... (4,521) (3,511)
Decrease in accrued expenses and other ..................... (15,834) (14,215)
-------- --------
Total adjustments .............................................. (10,622) 11,485
-------- --------
Net cash (used in) provided by operating activities........ (7,449) 14,344
-------- --------
Cash flows from investing activities:
Capital expenditures for molds, tools and equipment, net ..... (2,588) (1,867)
Product development and package design costs, net ............ (2,525) (1,613)
Other investments ............................................ (98) (29)
-------- --------
Net cash used in investing activities ..................... (5,211) (3,509)
-------- --------
Cash flows from financing activities:
Redemption of preferred stock ................................ (1,440) --
Exercise of stock options .................................... 167 --
IPO net proceeds ............................................. -- 45,527
Net repayments under credit agreement ........................ -- (21,500)
Notes payable - stockholders ................................. -- (15,119)
-------- --------
Net cash (used in) provided by financing activities ....... (1,273) 8,908
-------- --------
Net (decrease) increase in cash ................................ (13,933) 19,743
Cash, at beginning of period ................................... 22,484 4,142
-------- --------
Cash, at end of period ......................................... $8,551 $23,885
======== ========
Supplemental disclosures of cash flow information:
Interest paid during the period ............................. $28 $2,278
Income taxes paid during the period ......................... $6,979 $5,885
Other non-cash transactions:
Accretion of preferred dividend ............................. $35 --
</TABLE>
* Derived from the audited Financial Statements for the year ended
December 31, 1995.
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Toy Biz, Inc. and its subsidiary (collectively, the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. For further information, refer to the
consolidated financial statements and footnotes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995, as filed with the Securities and Exchange Commission.
2. INITIAL PUBLIC OFFERING and CAPITAL STOCK
On March 2, 1995, the Company completed an initial public offering
("IPO") by issuing 2,750,000 new shares of its class A Common Stock ("Common
Stock") at $18 per share. The net proceeds to the Company of $44,145, after
deducting fees and expenses, were used to pay outstanding amounts due under
subordinated notes which totalled $15,119 in principal and $1,961 in interest,
with the balance used for working capital and general corporate purposes.
5
<PAGE>
TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(unaudited)
3. ACQUISITION
On September 11, 1995, pursuant to an Asset Purchase Agreement dated
as of August 17, 1995, as amended, between the Company and Spectra Star, Inc.
("Spectra Star"), the Company acquired certain assets and assumed certain
liabilities of Spectra Star (the "Acquisition"). The purchase price, including
fees related to the Acquisition, totaled approximately $13.6
million, consisting of approximately $10.6 million of cash and assumed
liabilities and the issuance of a maximum of 130,303 shares of Series A
Preferred Stock (the "Preferred Stock") with a maximum redemption value of
$4.3 million. The Preferred Stock is convertible at any time after March 10,
1996 at the option of the holders into 130,303 shares of Class A Common Stock
or cash at the then present value of the Preferred Stock. On March 18, 1996,
53,030 shares of the Preferred Stock were redeemed for cash at an aggregate
present value of approximately $1.4 million. The present value of the
remaining Preferred Stock was approximately $1.6 million as of March 31, 1996.
The Company utilized available cash to finance the Acquisition and the
redemption of the Preferred Stock.
The Acquisition was accounted for using the purchase method of
accounting. Based on a preliminary allocation of purchase price, the fair
value of the assets acquired is summarized below.
Current assets..................... $3,470
Noncurrent assets.................. $521
Intangibles........................ $9,566
-------
$13,557
=======
The following unaudited pro forma consolidated financial information
gives effect to the Acquisition as if it occurred at the beginning of the
period presented. These pro forma results include certain adjustments, such as
increased amortization, decreased interest expense and the elimination of a
discontinued product line, and are not necessarily indicative of what results
would have been had the Acquisition occurred at the beginning of the period.
Three Months Ended
March 31, 1995
------------------
Net sales.......................... $38,718
Net income......................... $4,424
Earnings per share................. $0.16
6
<PAGE>
TOY BIZ, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
March 31, December 31,
1996 1995
-------- --------
Accounts receivable, net:
Accounts receivable ........................ $71,823 $86,019
Less allowances ............................ (5,441) (11,271)
-------- --------
Total .................................. $66,382 $74,748
======== ========
Inventories:
Finished goods, net ........................ $11,651 $13,504
Component parts, raw materials and
work-in-process ......................... 3,047 3,691
-------- --------
Total .................................. $14,698 $17,195
======== ========
Goodwill and other intangibles, net:
Goodwill ................................... $9,815 $9,815
Patents and other intangibles .............. $507 $409
Less accumulated amortization .............. (192) ($123)
-------- --------
Total .................................. $10,130 $10,101
======== ========
Accrued expenses and other:
Accrued advertising costs .................. $1,723 $9,459
Accrued royalties .......................... 2,158 3,956
Income taxes payable ....................... 2,495 7,374
Accrued inventory purchases ................ 3,658 4,694
Other accrued expenses ..................... 3,172 3,557
-------- --------
Total .................................. $13,206 $29,040
======== ========
5. EARNINGS PER SHARE
Earnings per share have been computed based on the weighted average
number of common and common equivalent shares assuming 27 million shares were
outstanding during the period prior to the IPO in March, 1995.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company designs, markets and distributes in the United States and
internationally new and traditional toys in the boys', girls', preschool,
activity and electronic toy categories featuring major entertainment and
consumer brand name properties. The Company also designs, markets and
distributes its own line of proprietary toys.
RESULTS OF OPERATIONS
Three months ended March 31, 1996 compared with the three months ended
March 31, 1995
The Company's net sales increased 38% to approximately $38.4 million for
the first quarter of 1996 from approximately $27.9 million in the first
quarter of 1995. Sales in the activity toys category increased approximately
$6.9 million in the first quarter of 1996 due primarily to kite sales from the
new Spectra Star division, partially offset by a decrease in sales of various
discontinued activity toys. Sales in the girls' toys category increased
approximately $6.3 million in the first quarter of 1996 due to the introduction
of a new promotional doll line as well as the continued sales of products which
were introduced in late 1995. Net sales of other products decreased
approximately $2.7 million due to the closeout of various items in the first
quarter of 1995 which did not recur in the first quarter of 1996.
Gross profit increased 29% to approximately $18.6 million for the first
quarter of 1996 from approximately $14.5 million in the first quarter of 1995.
Gross profit as a percentage of net sales decreased to approximately 49% in
the first quarter of 1996 from approximately 52% in the first quarter of 1995
due to changes in the Company's product mix and the effect of a higher
percentage of international sales, which typically has a lower gross margin
than domestic sales, in the 1996 period.
Selling, general and administrative expenses increased 47% to
approximately $11.4 million (approximately 30% of net sales) in the first
quarter of 1996 from approximately $7.7 million (approximately 28% of net
sales) in the first quarter of 1995. The increase of $3.7 million was due to
increased royalties, advertising and miscellaneous selling and administrative
expenses as a result of sales growth, and additional salaries and consulting
expense attributable to the Company's expanded product lines.
Liquidity and Capital Resources
Net cash used by operating activities was approximately $7.4 million in
the first quarter of 1996, while net cash provided by operating activities was
approximately $14.3 million in the first quarter of 1995. The net decrease
results primarily from increased sales in late 1995 and in the first quarter
of 1996, the receivables which, due to industry dating practices in 1995/1996,
were not due as of March 31, 1996. The decrease in the Company's current
liabilities from December 31, 1995 to March 31, 1996 is due to the higher costs
of associated sales occurring in the fourth quarter of 1995 vs. sales occurring
in the first quarter of 1996.
8
<PAGE>
On March 2, 1995, the Company completed an IPO by issuing 2,750,000 new
shares of its Common Stock at $18 per share. The net proceeds to the Company of
$44.1 million, after deducting fees and expenses, were used to pay outstanding
amounts due under subordinated notes which totalled approximately $15.1
million in principal and approximately $2.0 million in interest, with the
balance used for working capital and general corporate purposes.
In March, 1995, the Company entered into a three year $30 million
revolving line of credit with a syndicate of banks for which Chemical Bank
serves as administrative agent. Substantially all of the assets of the Company
were pledged to secure borrowings under this credit facility. Borrowings under
the credit facility bear interest at either Chemical Bank's alternate base
rate or at the Eurodollar rate plus the applicable margin. The applicable
margin is 3/4 of 1% to 1% to be determined based on the Company's financial
performance. The credit facility requires the Company to pay a commitment fee
of 3/8 of 1% per annum on the average daily unused portion of the credit
facility. The Company had no outstanding indebtedness under the line of credit
as of May 3, 1996.
The credit facility contains various financial covenants, as well as
restrictions, on new indebtedness, prepaying or amending subordinated debt,
acquisitions and similar investments, the sale or transfer of assets, capital
expenditures, limitations on restricted payments, dividends, issuing
guarantees and creating liens. The credit facility also requires an annual
reduction, commencing January 1, 1996, of outstanding borrowings to zero for a
period of 45 consecutive days, commencing during the first six months of each
calendar year. In addition, the credit facility also requires that (a) Marvel
continue to control a majority of the voting power of the Company's Common
Stock and (b) the toy license agreement between the Company and Marvel remain
in effect. The credit facility is not guaranteed by Marvel.
The Company believes that it has sufficient funds available from
operating activities and borrowings under the credit facility to meet peak
working capital needs and capital expenditure requirements.
PART II. Other Information.
Item 1. Legal Proceedings.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
9
<PAGE>
SIGNATURES
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, thereto duly authorized.
TOY BIZ, INC.
(Registrant)
Dated: May 13, 1996 By: /s/ Bobby G. Jenkins
-----------------------------------
Bobby G. Jenkins
Chief Financial Officer
and Treasurer
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Toy Biz,
Inc. Condensed Consolidated Balance Sheets and Statements of Income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<CIK> 0000933730
<NAME> TOY BIZ, INC.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MARCH-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 8,551
<SECURITIES> 0
<RECEIVABLES> 71,823
<ALLOWANCES> 5,441
<INVENTORY> 14,698
<CURRENT-ASSETS> 101,522
<PP&E> 41,066
<DEPRECIATION> 18,955
<TOTAL-ASSETS> 133,763
<CURRENT-LIABILITIES> 17,515
<BONDS> 0
1,611
0
<COMMON> 270
<OTHER-SE> 114,367
<TOTAL-LIABILITY-AND-EQUITY> 133,763
<SALES> 38,369
<TOTAL-REVENUES> 38,369
<CGS> 19,733
<TOTAL-COSTS> 19,733
<OTHER-EXPENSES> 13,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (166)
<INCOME-PRETAX> 5,289
<INCOME-TAX> 2,116
<INCOME-CONTINUING> 3,173
<DISCONTINUED> 00
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,173
<EPS-PRIMARY> $0.12
<EPS-DILUTED> 0
</TABLE>
