0000950131-95-002250.txt : 19950816 0000950131-95-002250.hdr.sgml : 19950816 ACCESSION NUMBER: 0000950131-95-002250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95563876 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, 1995 ------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----- ----- Commission File Number 1-9357 ------ TYCO TOYS, INC. -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 13-3319358 ------------------------ ------------------- (State of incorporation) (I.R.S. Employer Identification No.) 6000 Midlantic Drive, Mt. Laurel, New Jersey 08054 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (609) 234-7400 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Number of shares outstanding of each class of Registrant's Stock as of July 31, 1995 Common, $.01 par value..................................... 34,789,226 shares Preferred, $.10 par value.................................. 51,291 shares TYCO TOYS, INC. FORM 10-Q JUNE 30, 1995 INDEX Part I. Financial Information Page ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1995 and 1994 and December 31, 1994 3 Consolidated Statements of Operations - For the Quarters and Six Months Ended June 30, 1995 and 1994 4 Consolidated Statements of Stockholders' Equity - For the Six Months Ended June 30, 1995 and the Year Ended December 31, 1994 5 Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 1995 and 1994 6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 Part II. Other Information --------------------------- Item 1. Legal Proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 2 PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. TYCO TOYS, INC. Consolidated Balance Sheets (in thousands, except share amounts)
June 30, --------------------- December 31, 1995 1994 1994 --------- --------- ------------- (unaudited) ASSETS ------ Current assets Cash and cash equivalents $ 14,387 $ 18,300 $ 30,476 Receivables, net 189,159 195,713 211,400 Inventories, net 87,641 111,605 66,284 Prepaid expenses and other current assets 22,025 23,472 24,389 Deferred taxes 17,271 17,636 17,231 -------- -------- -------- Total current assets 330,483 366,726 349,780 Property and equipment, net 42,637 52,551 47,240 Goodwill, net of accumulated amortization 229,420 234,258 231,292 Deferred taxes 30,288 25,635 23,732 Other assets 21,984 18,757 18,591 -------- -------- -------- Total assets $654,812 $697,927 $670,635 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities Notes payable $ 87,337 $108,985 $ 77,831 Current portion of long-term debt 1,065 1,712 1,165 Accounts payable 53,092 46,482 51,325 Accrued expenses and other current liabilities 83,701 74,293 95,107 -------- -------- -------- Total current liabilities 225,195 231,472 225,428 Long-term debt 147,590 147,174 146,851 Other liabilities 2,342 1,449 2,124 Stockholders' equity Preferred stock, $.10 par value, $1,050 liquidation value per share, 1,000,000 shares authorized; 50,535, 47,619 and 49,055 shares issued and outstanding as of June 30, 1995 and 1994 and December 31, 1994, respectively 5 5 5 Common stock, $.01 par value, 75,000,000 shares authorized; 34,959,216, 34,852,316 and 34,893,516 shares issued as of June 30, 1995 and 1994 and December 31, 1994, respectively 349 348 349 Additional paid-in capital 344,920 342,143 343,213 Accumulated deficit (44,910) (5,495) (27,832) Treasury stock, at cost (1,595) (1,595) (1,595) Cumulative translation adjustment (19,084) (17,574) (17,908) -------- -------- -------- Total stockholders' equity 279,685 317,832 296,232 -------- -------- -------- Total liabilities and stockholders' equity $654,812 $697,927 $670,635 ======== ======== ========
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, -------------------- -------------------- 1995 1994 1995 1994 --------- --------- --------- --------- Net sales $151,692 $158,454 $267,752 $265,245 Cost of goods sold 87,862 89,015 154,819 151,585 -------- -------- -------- -------- Gross profit 63,830 69,439 112,933 113,660 Marketing, advertising and promotion 36,239 34,201 65,107 64,464 Selling, distribution and administrative expenses 28,429 28,324 55,828 56,220 Restructuring charge 4,900 - 4,900 - Amortization of goodwill 1,598 1,632 3,191 3,152 -------- -------- -------- -------- Total operating expenses 71,166 64,157 129,026 123,836 -------- -------- -------- -------- Operating income (loss) (7,336) 5,282 (16,093) (10,176) Interest expense, net 6,084 7,117 11,949 13,129 Other (income) expense, net 139 (105) (4,190) (998) -------- -------- -------- -------- Loss before income taxes (13,559) (1,730) (23,852) (22,307) Income tax benefit (4,724) (2,937) (8,348) (10,139) -------- -------- -------- -------- Net income (loss) (8,835) 1,207 (15,504) (12,168) Preferred stock dividends 790 625 1,574 625 -------- -------- -------- -------- Net income (loss) applicable to common shareholders $ (9,625) $ 582 $(17,078) $(12,793) ======== ======== ======== ======== Net income (loss) per common share $(0.28) $0.02 $(0.49) $(0.37) Weighted average number of common shares outstanding 34,762 34,677 34,760 34,676
See accompanying notes to consolidated financial statements. 4 TYCO TOYS, INC. Consolidated Statements of Stockholders' Equity For the Six Months Ended June 30, 1995 (unaudited) and the Year Ended December 31, 1994 (in thousands, except share data)
Preferred Retained Stock Common Stock Additional Earnings ---------------- ------------------ Paid - In (Accumulated Shares Amount Shares Amount Capital Deficit) ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 - $- 34,847,316 $348 $294,499 $ 7,298 Exercise of stock options - - 46,200 1 208 - Issuance of preferred stock 47,619 5 - - 46,995 - Preferred stock dividends 1,436 - - - 1,511 (2,157) Foreign currency translation adjustment - - - - - - Net loss - - - - - (32,973) ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 49,055 5 34,893,516 349 343,213 (27,832) ISSUANCE OF RESTRICTED STOCK - - 40,000 - 161 - EXERCISE OF STOCK OPTIONS - - 25,700 - 116 - PREFERRED STOCK DIVIDENDS 1,480 - - - 1,430 (1,574) FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - - NET LOSS - - - - - (15,504) ------------------------------------------------------------------------------------------------------------ BALANCE AT JUNE 30, 1995 50,535 $5 34,959,216 $349 $344,920 $(44,910) ============================================================================================================ Treasury Stock Cumulative ------------------- Translation Shares Amount Adjustment Total --------------------------------------------------------------------------------------------- Balance at December 31, 1993 (175,590) $(1,595) $(23,101) $277,449 Exercise of stock options - - - 209 Issuance of preferred stock - - - 47,000 Preferred stock dividends - - - (646) Foreign currency translation adjustment - - 5,193 5,193 Net loss - - - (32,973) --------------------------------------------------------------------------------------------- Balance at December 31, 1994 (175,590) (1,595) (17,908) 296,232 ISSUANCE OF RESTRICTED STOCK - - - 161 EXERCISE OF STOCK OPTIONS - - - 116 PREFERRED STOCK DIVIDENDS - - - (144) FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - (1,176) (1,176) NET LOSS - - - (15,504) --------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1995 (175,590) $(1,595) $(19,084) $279,685 =============================================================================================
See accompanying notes to consolidated financial statements. 5 TYCO TOYS, INC. Consolidated Statements of Cash Flows (in thousands)
Six Months Ended June 30, -------------------- 1995 1994 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES ------------------------------------ Net loss $(15,504) $(12,168) Adjustments to reconcile net loss to net cash provided (utilized) by operating activities: Non-cash interest expense 524 489 Depreciation 12,638 9,494 Amortization 5,237 4,086 Deferred tax benefit (6,427) (10,139) Decrease in allowance for bad debts, returns, discounts and other receivable reserves (20,515) (25,215) Decrease in allowance for obsolescence and other inventory reserves (1,145) (6,234) Change in assets and liabilities: Decrease in receivables 41,851 54,195 Increase in inventories (22,030) (5,500) Decrease in prepaid expenses and other current assets 4,317 4,194 Increase in other assets (1,913) (1,139) Increase (decrease) in accounts payable 2,000 (17,260) Decrease in accrued expenses and other current liabilities (11,082) (28,025) -------- -------- Total adjustments 3,455 (21,054) -------- -------- Net cash utilized by operating activities (12,049) (33,222) CASH FLOWS FROM INVESTING ACTIVITIES ------------------------------------ Disposition of property and equipment 700 1,200 Capital expenditures (7,551) (13,771) Acquisition (1,144) - -------- -------- Net cash utilized by investing activities (7,995) (12,571) CASH FLOWS FROM FINANCING ACTIVITIES ------------------------------------ Repayment of long-term debt (430) (7,297) Increase in (repayment of) notes payable, net 8,967 (1,378) Debt financing fees (5,222) - Proceeds from issuance of preferred stock - 50,000 Proceeds from issuance of common stock 116 23 -------- -------- Net cash provided by financing activities 3,431 41,348 -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 524 (9,291) --------------------------------------- -------- -------- Net decrease in Cash and Cash Equivalents (16,089) (13,736) Cash and Cash Equivalents, Beginning of Period 30,476 32,036 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,387 $ 18,300 ======== ======== CASH PAYMENTS DURING PERIOD FOR: Interest $ 13,174 $ 12,417 Taxes 300 282
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 intercompany transactions have been eliminated in consolidation. Investments in unconsolidated joint ventures and other companies are accounted for on the equity method or cost basis depending upon the level of the investment and/or the Company's ability to exercise influence over operating and financial policies. In the opinion of management, all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation of results for interim periods have been made. Certain items in the prior period's financial statements have been reclassified to conform with the current period's presentation. Due to the seasonal nature of the Company's business, the results of operations for interim periods are not necessarily indicative of the results for a full year. The unaudited financial statements herein should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1994 which is on file with the Securities and Exchange Commission. (2) ACCOUNTING FOR INCOME TAXES --------------------------- The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), effective January 1, 1993. In accordance with SFAS 109, deferred income taxes reflect the impact of temporary differences between values recorded for assets and liabilities for financial reporting purposes and the values utilized for measurement in accordance with current tax laws. Management has determined, considering all available evidence, including the Company's history of earnings from prior years, it is more likely than not that the Company will generate sufficient taxable income in the appropriate carryforward periods to realize the benefit of certain net operating loss and tax credit carryforwards, and other temporary differences. The total net deferred tax assets (both current and noncurrent) have been reduced to the amount management considers realizable by establishing valuation allowances aggregating $59,483,000. Based on the weight of available evidence, management has concluded that more likely than not, its future taxable income will be sufficient to support the current recognition of the total net deferred tax assets of $47,559,000. The valuation allowances have been established due to management's analysis indicating that certain tax credit and net operating loss carryforwards, which are limited under the income tax laws, may expire prior to their full utilization. The valuation allowances include $16,836,000 related to the preacquisition net operating losses of Matchbox. Any subsequently recognized benefits related to these net operating losses will be allocated to reduce goodwill. 7 TYCO TOYS, INC. Notes to Consolidated Financial Statements (unaudited) (3) RECEIVABLES, NET (IN THOUSANDS): ----------------
June 30, ------------------ December 31, 1995 1994 1994 -------- -------- ------------ Trade receivables $208,038 $216,197 $251,141 Other receivables 11,387 10,967 11,040 Less: Doubtful accounts 5,485 7,057 6,312 Returns, markdowns, discounts and other reserves 24,781 24,394 44,469 -------- -------- -------- $189,159 $195,713 $211,400 ======== ======== ========
During 1994, the Company wrote-off receivables and corresponding reserves established in prior years of approximately $8,800,000 related to certain customers. (4) INVENTORIES, NET (IN THOUSANDS): ----------------
June 30, ----------------- December 31, 1995 1994 1994 ------- -------- ------------ Raw materials $16,905 $ 26,508 $16,655 Work-in-process 2,263 2,101 1,893 Finished goods 80,300 93,183 60,708 Less obsolescence and other reserves 11,827 10,187 12,972 ------- -------- ------- $87,641 $111,605 $66,284 ======= ======== =======
(5) ACQUISITION ----------- In accordance with the Purchase Agreement dated April 30, 1993, Tyco purchased the remaining 25% interest in its Mexican subsidiary, Ensueno-Tyco, for approximately $1,100,000. This transaction was completed in March 1995. (6) RESTRUCTURING 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 Playtime units. The restructuring program is expected to generate annual savings in excess of $10,000,000 through a combination of job eliminations, facility consolidation and streamlined operations. The pre-tax restructuring charge of $4,900,000 consists of approximately $3,000,000 in termination and other employee benefits and $1,300,000 of facility consolidation costs which includes moving and lease termination payments as well as a $350,000 non-cash write-off of assets. The program, including related cash payments, is expected to be substantially complete by the end of 1995. 8 TYCO TOYS, INC. Notes to Consolidated Financial Statements (unaudited) (7) LEGAL PROCEEDINGS ----------------- Italian Litigation ------------------ In 1994, the former managing director of the Company's Italian sales and marketing subsidiary initiated two court actions against the Company in Italy as the result of the Company's decision in 1993 to close or sell the subsidiary. One action, alleging violations of Italian employment laws and regulations, has been dismissed. The second action, alleging breach of a letter of intent with the plaintiff for the sale of the subsidiary, resulted in the sequestration of the Company's shares in the subsidiary and prevented the completion of the announced sale of the subsidiary to Giochi Preziosi S.A., an Italian toy distributor. The Company's Italian subsidiary has been closed and is in the process of being liquidated. In the opinion of management and its outside counsel, the Company has meritorious legal and factual defenses to the claims made in this litigation; therefore, the outcome is not likely to have a material adverse impact on the Company's earnings, financial condition or liquidity. The liquidating Trustee has also lodged claims against the former managing director on behalf of the subsidiary. Shareholder Suits ----------------- In October 1994, the U.S. District Court in New Jersey entered judgment in favor of the Company in litigation filed in 1992 on behalf of the stockholders alleging violations of federal securities laws. The plaintiff's appeal of this judgment was dismissed. In December 1993 and January 1994, two additional stockholders filed litigation in the same court asserting claims under federal and state securities laws as a result of the Company's financial performance in 1993. Both cases were denied class action certification and an agreement in principle has been reached pursuant to which the cases will be dismissed with prejudice. U.S. Customs ------------ In 1992, the U.S. Customs Service issued a penalty notice of an assessment for lost duty in the amount of $1,500,000, penalties for gross negligence of $5,800,000, and penalties for fraud of $5,600,000. All of the claims arise from activities of the Company's View-Master subsidiary for periods prior to its acquisition by the Company in 1989. Management and the Company's outside counsel are of the opinion that the Company has legal and factual defenses to the penalty claims made by the U.S. Customs Service, and that the outcome of the proceedings relating to these claims, which proceedings may be protracted, are not likely to have a material adverse impact on the earnings, financial condition or liquidity of the Company. 9 TYCO TOYS, INC. --------------- Notes to Consolidated Financial Statements (unaudited) Environmental Litigation ------------------------ Tyco Industries, a subsidiary of the Company, is a party to three matters arising out of waste hauled by a transporter to various sites, including the GEMS Landfill. In litigation relating directly to remediation of the landfill, Tyco Industries has signed a Consent Order and Trust Agreement and made a settlement contribution of an amount not material to Tyco Industries. In another matter, homeowners near the GEMS Landfill have filed class action claims against approximately 150 defendants, including Tyco Industries, for various types of unspecified monetary damages, including punitive damages. In management's opinion, there are meritorious factual and legal defenses to these claims. In the third matter, the New Jersey Department of Environmental Protection is asserting claims for remediation expenses at a different site in Sewell, New Jersey used as a waste transfer station by the same transporter involved in the other two matters. In the opinion of management of the Company and its outside counsel, none of these three matters is likely to have a material adverse impact on the earnings, financial condition or liquidity of the Company. In addition, the Company will receive a contribution from a third party towards certain expenses in these matters. Other Litigation ---------------- The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's earnings, financial condition or liquidity. (8) NET INCOME (LOSS) PER SHARE --------------------------- Net income (loss) per share is computed by dividing the income (loss) applicable to common shareholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding during the period. Outstanding options, convertible subordinated notes and convertible preferred stock were determined to be anti-dilutive for the quarters and six months ended June 30, 1995 and 1994 and were therefore excluded from the per share calculations. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS. ----------------------------------- RESULTS OF OPERATIONS --------------------- Net sales for the quarter and six months ended June 30, 1995 were $151,692,000 and $267,752,000, respectively, compared to $158,454,000 and $265,245,000, respectively, for the same periods last year. Sales for the Tyco Domestic unit increased 5.6% to $90,616,000 for the quarter and 7.4% to $164,762,000 for the six months over the comparable periods in the prior year. Increases during the quarter were primarily attributable to the introduction of several new toy lines, including the Casper and Little Kiddles lines, as well as improved sales in both Soft Toys and Radio Control. The year to date increase resulted primarily from sales of Radio Control, Soft Toys, Dr. Dreadful products and new product introductions. In the International division, sales for the quarter and year to date were 16.9% and 9.7% lower, respectively, than the 1994 comparable periods. These decreases were primarily attributable to weaker sales in Europe, particularly in France, Germany and the United Kingdom, which more than offset the increases in the Company's other international operations. In the Company's Playtime unit, sales for the quarter were $2,100,000 or 11% lower than the prior year quarter. Year to date sales for Tyco Playtime were unchanged from 1994. Improved shipments of Sesame Street toys (5% for the quarter and 13% for the year) were offset by reduced sales in Playtime's non-core product lines. Gross profit as a percentage of sales for the quarter and six months ended June 30, 1995 was 42.1% and 42.2%, respectively, compared to 43.8% and 42.9%, respectively, for the same periods in 1994. Improved domestic margins were more than offset by lower margins generated by the Company's International and Playtime operations. Domestic margins improved for both the quarter and year to date, respectively, as a result of higher margin products generating the sales increases described above. Reduced duty costs also contributed to overall margin improvement. International margins decreased for both the quarter and year to date primarily as a result of the weak sales performance in France, Germany and the United Kingdom described above. Each of these markets were negatively impacted by carryover of product from the fourth quarter of 1994. At Tyco Playtime, delays in the expected timing of price increases coupled with increased vendor costs contributed to the decline in margins for both the quarter and year to date. Operating expenses were $71,166,000 and $129,026,000 for the quarter and six months ended June 30, 1995, respectively, compared to $64,157,000 and $123,836,000 for the same periods in 1994. The increase for the quarter and six months was largely attributable to a $4,900,000 pre-tax 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 Playtime units. The restructuring program is expected to generate annual savings in excess of $10,000,000 through a combination of job eliminations, facility consolidation and streamlined operations. 11 The Company's restructuring program includes the elimination of 10% of the Company's worldwide salaried workforce. As part of the restructuring, the Company has consolidated the marketing and administrative functions of its subsidiaries in Germany, France and Benelux at the Company's recently established European Headquarters in Belgium. In the United Kingdom, the Company will consolidate its Tyco (UK) and Matchbox (UK) operations. The restructuring also includes a reorganization of Tyco Playtime, with its non- preschool products and certain administrative functions being consolidated into Tyco U.S., and the newly-named Tyco Preschool division focusing on the profitable long-term growth of the remaining preschool business, primarily Sesame Street(R) toy products. The reduction in workforce includes the elimination of 72 positions in Continental Europe and the UK and 61 positions at Tyco Playtime and Tyco U.S. The charge primarily consists of approximately $3,000,000 in termination and other employee benefits and $1,300,000 of facility consolidation costs which includes moving and lease termination payments as well as a $350,000 non-cash write-off of assets. The program, including related cash payments, is expected to be substantially complete by the end of 1995. Interest expense, net, for the quarter and six months ended June 30, 1995 was $6,084,000 and $11,949,000, respectively, compared to $7,117,000 and $13,129,000, respectively, for the same periods last year. The decrease in interest expense for the quarter and six months ended June 30, 1995 reflects lower domestic borrowings as a result of the Company's continuing cost management efforts coupled with lower effective borrowing rates. Total average borrowings for the six months ended June 30, 1995 and 1994 were $205,520,000 and 226,803,000, respectively. The average interest rate for both periods was approximately 10%. Reflected in other income for the six months ended June 30, 1995 is a gain of approximately $2,500,000 resulting from the Company's sale of its distribution rights for Kidsongs Music Videos. The sale was made in conjunction with the Company's focus on the continued development of its core brands. Also included in other income in 1995 are foreign currency transaction gains of $1,407,000 primarily related to the devaluation of the dollar against most European currencies. The Company recorded income tax benefits of $4,724,000 and $ 8,348,000 for the quarter and six months ended June 30, 1995, respectively, compared to $2,937,000 and $10,139,000 for the same periods last year. The Internal Revenue Service has examined the consolidated federal income tax returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987 through August 31, 1990 and has proposed an assessment to the Company, which the Company has elected to appeal. Management believes that the final outcome of this appeal will not materially affect the results of operations (including realization of net operating loss and tax credit carryforwards), financial condition or liquidity of the Company. Additionally, the consolidated federal income tax returns of Tyco Toys, Inc. for the fiscal years ended December 31, 1990 through December 31, 1992 are presently being examined by the Internal Revenue Service. While the final outcome of this examination is not determinable at this time, management of the Company believes that any proposed adjustments, if sustained, will not materially affect the financial condition, results of operations (including realization of net operating loss carryforwards) or liquidity of the Company. 12 FINANCIAL CONDITION AND LIQUIDITY --------------------------------- Six Months Ended June 30, 1995 ------------------------------ For the six months ended June 30, 1995, cash and cash equivalents decreased $16,089,000 to $14,387,000. Cash on hand and net borrowings of $8,967,000 under the Company's credit facilities funded the Company's cash requirements. The requirements consisted primarily of $12,049,000 of cash utilized by operations which include the year to date loss of $15,504,000, capital expenditures of $7,528,000 and fees and expenses associated with the Company's New Credit Facilities. New Credit Facilities --------------------- In February and March 1995, the Company entered into $290,000,000 of new credit facilities (the New Credit Facilities). The New Credit Facilities consist of three separate three-year revolving credit facilities with General Electric Capital Corporation and affiliates in an aggregate amount of $90,000,000 and a $200,000,000 five-year receivables securitization facility arranged through General Electric Capital Corporation. Borrowings under the New Credit Facilities were used to refinance outstanding indebtedness under the principal credit facility with a bank group led by NationsBank of North Carolina, N.A. and certain other credit facilities of the Company's foreign subsidiaries. The revolving credit facilities consist of up to $35,000,000 for certain domestic entities (of which up to $10,000,000 may be used for letters of credit), $20,000,000 for Tyco Canada, and $35,000,000 for the Company's subsidiaries in the United Kingdom (UK). Availability under the domestic revolving credit is based upon inventory, as defined, and availability under the foreign revolving credits is based upon an aggregate of eligible accounts receivable and inventory, as defined. The revolving credit facilities are secured by a lien on substantially all of the Company's domestic assets and are also guaranteed by certain foreign subsidiaries. Subject to the maximum commitment under each of these facilities, borrowings are permitted on up to 60% of eligible inventory and, in the Canadian and UK agreements, up to 80% of eligible accounts receivable. Interest rates on borrowings are determined at the option of the borrower based on various indices, including LIBOR or bankers' acceptance rate, plus 2.5% Under the terms of the New Credit Facilities, the Company and its subsidiaries are (1) subject to covenants and conditions relating to the maintenance of net worth, fixed charge coverage and income; (2) restricted from incurring additional indebtedness or certain obligations and from acquiring any other entities, whether by asset purchase, merger or otherwise; (3) restricted in the ability to pay dividends on capital stock subject to certain limitations; and (4) permitted to guarantee additional amounts of debt incurred by certain of its subsidiaries up to an aggregate of $70,000,000. For the six months ended June 30, 1995, the Company was not in compliance with certain covenants under the New Credit Facilities and has received a waiver from General Electric Capital Corporation. The Company is currently negotiating an amendment to the New Credit Facilities regarding revised financial covenants. The Company believes that it will satisfactorily finalize an amendment to the New Credit Facility during the third quarter. The Company has the following sources of liquidity to support the cyclical working capital requirements of its business: existing cash balances and related interest earnings, internally-generated funds, available borrowings under its credit facilities, and proceeds from potential equity or debt offerings. The Company believes that its existing credit facilities (when amended) and internally-generated funds will provide adequate financing for its current and foreseeable levels of operation. 13 Dividends --------- The New Credit Facilities restrict the Company's ability to pay cash dividends on common stock until the Company achieves a defined level of tangible net worth. The terms of the 6% Series B Voting Convertible Exchangeable Preferred Stock, the 10.125% Senior Subordinated Notes and the 7% Convertible Subordinated Notes also have limitations on the payment of common stock dividends by the Company. The Company was able to issue additional shares of Preferred Stock in lieu of cash dividends on its preferred shares. Preferred Stock dividends totalled $1,574,000 during the first six months of 1995. 14 PART II. OTHER INFORMATION. Item 1. Legal Proceedings. ----------------- Reference is made to note 7 of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this report. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits. -------- 11. Statements Regarding Computation of Income (Loss) Per Share- Quarters and Six Months Ended June 30, 1995 and 1994. (b) Reports on Form 8-K. ------------------- On April 5, 1995, the Company filed a current report on Form 8-K with the Securities and Exchange Commission for the purpose of updating the exhibits relating to certain of the Company's credit facilities. 15 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 14, 1995 By: /s/ Harry J. Pearce --------------- ------------------- Harry J. Pearce Vice Chairman, Chief Financial Officer, and Director 16 EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ---- 11 Statements regarding computation of income (loss) per share for the quarters and six months ended June 30, 1995 and 1994. 17 17 EX-11 2 INCOME/LOSS PER SHARE Exhibit 11 TYCO TOYS, INC. Computation of Income (Loss) Per Share (in thousands, except per share amounts)
Quarters Ended Six Months Ended June 30, June 30, ------------------ -------------------- 1995 1994 1995 1994 --------- ------- --------- --------- PRIMARY INCOME (LOSS) PER SHARE: 1. Net income (loss) $(8,835) $ 1,207 $(15,504) $(12,168) 2. Less preferred dividends 790 625 1,574 625 ------- ------- -------- -------- 3. Net income (loss) applicable to common shareholders $(9,625) $ 582 $(17,078) $(12,793) ======= ======= ======== ======== 4. Weighted average shares outstanding 34,762 34,677 34,760 34,676 5. Add additional shares issuable upon the assumed exercise of outstanding stock options * - - - - ------- ------- -------- -------- 6. Adjusted weighted average shares outstanding 34,762 34,677 34,760 34,676 ======= ======= ======== ======== 7. Net income (loss) per share (3 + 6) $ (0.28) $ 0.02 $ (0.49) $ (0.37) ======= ======= ======== ======== FULLY DILUTED INCOME (LOSS) PER SHARE: 8. Line 3 above $(9,625) $ 582 $(17,078) $(12,793) 9. Add back preferred dividends (line 2) 790 625 1,574 625 10. Add back interest, net of tax, on assumed conversion of the Company's 7% Convertible Subordinated Notes 170 147 341 293 ------- ------- -------- -------- 11. Adjusted net income (loss) $(8,665) $ 1,354 $(15,163) $(11,875) ======= ======= ======== ======== 12. Weighted average shares outstanding (line 4) 34,762 34,677 34,760 34,676 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 1,498 1,397 1,497 1,397 15. Add additional shares issuable upon assumed conversion of preferred shares 5,039 4,121 4,969 2,072 ------- ------- -------- -------- 16. Adjusted weighted average shares outstanding 41,299 40,195 41,226 38,145 ======= ======= ======== ======== 17. Net income (loss) per share (11+16) ** $ (0.21) $ 0.03 $ (0.37) $ (0.31) ======= ======= ======== ========
* For the calculation of income (loss) per share, the inclusion of the assumed exercise of options for the quarters ended June 30, 1995 and 1994 is anti- dilutive and, therefore, such assumed exercise is excluded from the per share calculations. ** Fully diluted income (loss) per share is not presented in the Consolidated Statements of Operations as the assumed conversions of the Company's Convertible Preferred Stock and Convertible Subordinated Notes are anti- dilutive. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1995 JUN-30-1995 14,387 0 219,425 (30,266) 87,641 330,483 133,543 (90,906) 654,812 225,195 147,590 349 0 5 0 0 267,752 267,752 154,819 129,026 (4,190) 0 11,949 (23,852) (8,348) (15,504) 0 0 0 (15,504) (0.49) (0.49)