-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SnbRTHigIRZJKSeUWW5nRuW+9zGGG911ORAprSKQYIVYdQpzAYqKRpscqJn2PfTa 2evbNnEjCBucOOi7BI+eUA== 0000950116-96-000769.txt : 19960812 0000950116-96-000769.hdr.sgml : 19960812 ACCESSION NUMBER: 0000950116-96-000769 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYCO TOYS INC CENTRAL INDEX KEY: 0000786130 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 133319358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09357 FILM NUMBER: 96606995 BUSINESS ADDRESS: STREET 1: 6000 MIDLANTIC DR CITY: MT LAUREL STATE: NJ ZIP: 08054-1516 BUSINESS PHONE: 6092347400 MAIL ADDRESS: STREET 1: BAER MARKKS & UPHAM STREET 2: 805 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 10-Q 1 FORM 10-Q 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 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 Part I. Financial Information. Item 1. Financial Statements. TYCO TOYS, INC. Consolidated Balance Sheets (in thousands, except share amounts)
June 30, ---------------------- December 31, 1996 1995 1995 -------- --------- ------------ (Unaudited) 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 ======== ========= =========
See accompanying notes to consolidated financial statements. 3 TYCO TOYS, INC. Consolidated Statements of Operations (in thousands, except per share amounts) (Unaudited)
Quarters Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1996 1995 1996 1995 -------- -------- -------- -------- 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
See accompanying notes to consolidated financial statements. 4 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)
Preferred Stock Common Stock Additional ------------------ -------------------- Paid - In Shares Amount Shares Amount Capital ------ ------ ---------- ------ -------- 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 ----------- ------ ------ ----------- ----- 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 ===============================================================================================
See accompanying notes to consolidated financial statements. 5 TYCO TOYS, INC. Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1996 and 1995 (Unaudited) (in thousands)
1996 1995 -------- -------- 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
See accompanying notes to consolidated financial statements. 6 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 TYCO TOYS, INC. Notes to Consolidated Financial Statements (Unaudited) (3) Receivables, Net (in thousands):
June 30, December 31, ------------------------ --------------- 1996 1995 1995 -------- -------- -------- 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 ======= ======= =======
(4) Inventories, Net (in thousands):
June 30, December 31, ------------------------ --------------- 1996 1995 1995 -------- -------- -------- 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 ======== ======= =======
(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 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 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 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 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 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 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 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 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 EX-11 2 Exhibit 11 TYCO TOYS, INC. Computation of Loss Per Share (in thousands, except per share amounts)
Quarters Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1996 1995 1996 1995 --------- -------- --------- -------- 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) ========= ======== ========= ========
* 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. EX-27 3
5 0000786130 TYCO TOYS INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 APR-01-1996 JUN-30-1996 1 47,269 0 191,334 (31,615) 72,332 311,290 143,574 (110,974) 623,353 130,143 142,534 92,702 53,313 295,727 (97,770) 623,353 236,358 236,358 134,673 111,128 (631) 1,439 10,840 (21,091) (7,125) (13,966) 0 0 0 (13,966) (0.45) (0.45)
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