SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: April 17, 1997
MATTEL, INC.
------------
(Exact name of registrant as specified in its charter)
Delaware 001-05647 95-1567322
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File No.) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 252-2000
----------------------------
N/A
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(Former name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits
- ------- ---------------------------------
(a) Financial statements of businesses acquired:
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Tyco Toys, Inc.
Mount Laurel, New Jersey
We have audited the accompanying consolidated balance sheets of Tyco Toys, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tyco Toys, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 4, 1997 except for note 15, as to which the date is March 27, 1997
Tyco Toys, Inc.
Consolidated Balance Sheets
As of December 31, 1996 and 1995
(in thousands, except share amounts)
1996 1995
--------- ---------
ASSETS
- ------
Current assets
Cash and cash equivalents (note 1) $ 49,646 $ 27,604
Receivables, net (note 3) 188,990 187,503
Inventories, net (note 1) 71,492 56,710
Prepaid expenses and other current assets 17,235 19,738
Deferred taxes (note 8) 19,736 13,008
-------- --------
Total current assets 347,099 304,563
Property and equipment, net (note 1) 36,668 33,021
Goodwill, net of accumulated amortization (note 1) 219,284 226,112
Deferred taxes (note 8) 23,163 28,560
Other assets 20,125 22,876
-------- --------
Total assets $646,339 $615,132
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities
Notes payable (note 5) $ 8,439 $ 60,923
Current portion of long-term debt (note 6) 998 1,053
Accounts payable 52,657 45,557
Accrued expenses and other current liabilities (note 4) 92,688 93,179
-------- --------
Total current liabilities 154,782 200,712
Long-term debt (note 6) 146,597 147,180
Other liabilities 1,378 1,900
Commitments and contingencies (notes 8, 9 and 10)
Stockholders' equity (notes 5, 6, 7 and 8)
Preferred stock, $.10 par value, 1,000,000 shares authorized;
826,431 and 52,059 shares issued and outstanding in 1996 and 1995 83 5
Common stock, $.01 par value, 75,000,000 shares authorized;
35,032,458 and 35,017,158 shares issued in 1996 and 1995 350 350
Additional paid-in capital 441,434 347,033
Accumulated deficit (74,452) (58,261)
Treasury stock, at cost (1,676) (1,676)
Cumulative translation adjustment (22,157) (22,111)
-------- --------
Total stockholders' equity 343,582 265,340
-------- --------
Total liabilities and stockholders' equity $646,339 $615,132
======== ========
See accompanying notes to consolidated financial statements.
F-2
Tyco Toys, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except per share amounts)
1996 1995 1994
---- ---- ----
Net sales $720,954 $709,109 $753,098
Cost of goods sold 404,093 416,236 445,394
-------- -------- --------
Gross profit 316,861 292,873 307,704
Marketing, advertising and promotion 174,189 160,779 172,462
Selling, distribution and administrative expenses 121,246 119,066 123,622
Restructuring charges (note 2) - 8,900 4,700
Amortization of goodwill 6,399 6,410 6,285
-------- -------- --------
Total operating expenses 301,834 295,155 307,069
-------- -------- --------
Operating income (loss) 15,027 (2,282) 635
Interest expense, net 23,826 28,026 30,913
Foreign currency (gain) loss 171 (250) 3,138
Other income, net 15 (1,824) (1,943)
-------- -------- --------
Loss before income taxes (8,985) (28,234) (31,473)
Provision (benefit) for income taxes (note 8) (185) (1,005) 1,500
-------- -------- --------
Net loss (8,800) (27,229) (32,973)
Preferred stock dividends 7,391 3,200 2,157
-------- -------- --------
Net loss applicable to common shareholders $(16,191) $(30,429) $(35,130)
======== ======== ========
Net loss per common share (notes 1, 6 and 7) $ (0.46) $ (0.87) $ (1.01)
======== ======== ========
Weighted average number of common shares outstanding 34,827 34,788 34,687
======== ======== ========
See accompanying notes to consolidated financial statements.
F-3
Tyco Toys, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands, except share data)
Preferred Stock Common Stock Additional Retained Treasury Stock Cumulative
--------------- ------------ Paid-in Earnings -------------- Transaction
Shares Amount Shares Amount Capital (Deficit) Shares Amount Adjustment Total
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 - $- 34,847,316 $348 $294,499 $ 7,298 (175,590) $(1,595) $(23,101) $277,449
Exercise of stock options - - 46,200 1 208 - - - - 209
Issuance of preferred stock 47,619 5 - - 46,995 - - - - 47,000
Preferred stock dividends 1,436 - - - 1,511 (2,157) - - - (646)
Foreign currency translation
adjustment - - - - - - - - 5,193 5,193
Net loss - - - - - (32,973) - - - (32,973)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 49,055 5 34,893,516 349 343,213 (27,832) (175,590) (1,595) (17,908) 296,232
Issuance of restricted stock - - 42,342 - 338 - - - - 338
Exercise of stock options - - 81,300 1 328 - - - - 329
Acquisition of treasury stock - - - - - - (14,900) (81) - (81)
Preferred stock dividends 3,004 - - - 3,154 (3,200) - - - (46)
Foreign currency translation
adjustment - - - - - - - - (4,203) (4,203)
Net loss - - - - - (27,229) - - - (27,229)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 52,059 5 35,017,158 350 347,033 (58,261) (190,490) (1,676) (22,111) 265,340
Exercise of stock options - - 15,300 - 125 - - - - 125
Issuance of preferred stock 772,800 77 - - 92,625 - - - - 92,702
Preferred stock dividends 1,572 1 - - 1,651 (7,391) - - - (5,739)
Foreign currency translation
adjustment - - - - - - - - (46) (46)
Net loss - - - - - (8,800) - - - (8,800)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 826,431 $83 35,032,458 $350 $441,434 $(74,452) (190,490) $(1,676) $(22,157) $343,582
===================================================================================================================================
See accompanying notes to consolidated financial statements.
F-4
Tyco Toys, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,800) $(27,229) $(32,973)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 22,135 27,086 24,566
Amortization 10,151 9,935 7,594
Non-cash interest expense - 1,066 1,468
Deferred income tax provision (benefit) (1,310) - 1,161
Increase (decrease) in allowance for bad debts, returns,
markdowns, discounts and other receivable reserves 17,229 4,943 (5,885)
Increase (decrease) in allowance for obsolescence and
other inventory reserves 2,034 (5,104) (3,449)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) decrease in receivables (18,340) 17,824 18,273
(Increase) decrease in inventories (16,118) 16,040 37,582
Decrease in prepaid expenses and other current assets 2,078 5,381 3,011
Increase in other assets (700) (3,503) (3,957)
Increase (decrease) in accounts payable 7,036 (7,121) (13,354)
Increase (decrease) in accrued expenses and other current
liabilities (6,153) 1,086 (16,420)
Increase (decrease) in other liabilities (479) (185) 656
-------- -------- --------
Total adjustments 17,563 67,448 51,246
-------- -------- --------
Net cash provided by operating activities 8,763 40,219 18,273
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition of property and equipment 243 1,005 1,433
Capital expenditures (22,129) (15,959) (21,158)
Acquisitions - (1,144) (855)
-------- -------- --------
Net cash utilized by investing activities (21,886) (16,098) (20,580)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (1,282) (1,700) (30,052)
Repayment of notes payable, net (52,481) (16,079) (10,633)
Proceeds from issuance of preferred stock, net 92,702 - 47,000
Debt financing fees - (5,694) -
Proceeds from issuance of common stock, net 125 329 209
Payment of preferred dividends (3,726) - -
-------- -------- --------
Net cash provided (utilized) by financing activities 35,338 (23,144) 6,524
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (173) (3,849) (5,777)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 22,042 (2,872) (1,560)
Cash and Cash Equivalents, Beginning of Year 27,604 30,476 32,036
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 49,646 $ 27,604 $ 30,476
======== ======== ========
CASH PAYMENTS DURING YEAR FOR:
Interest $ 22,758 $ 25,031 $ 30,863
Taxes 4,502 1,523 2,843
See accompanying notes to consolidated financial statements.
F-5
TYCO TOYS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF ACCOUNTING POLICIES
------------------------------
Principles of Consolidation
The consolidated financial statements include the accounts of Tyco Toys, Inc.
("Tyco" or the "Company") and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments in
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.
Cash and Cash Equivalents
The Company considers all short-term investments with a maturity at the date of
purchase of three months or less to be cash equivalents. Short-term investments
included in cash and cash equivalents primarily represent money market funds at
December 31, 1996 and 1995 and are valued at cost, which approximates market
value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories, net, consist of (in thousands):
December 31,
-----------------
1996 1995
------- -------
Raw materials $13,961 $15,483
Work-in-process 1,339 1,534
Finished goods 66,094 47,561
Less obsolescence and
other reserves 9,902 7,868
------- -------
$71,492 $56,710
======= =======
Advertising
Media costs are charged to operations in the year in which the related product
is released.
F-6
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of property and equipment is
provided on a straight-line basis over estimated useful lives which range from
10 to 50 years for buildings, 18 months to 10 years for machinery, equipment and
fixtures, the lease term or life of improvements (whichever is less) for
leasehold improvements and the remaining lease term for assets under capital
leases. Property and equipment, net, consists of (in thousands):
December 31,
-----------------------
1996 1995
---- ----
Property and equipment owned:
Land and buildings, machinery,
equipment, and fixtures $138,258 $114,436
Leasehold improvements 9,824 10,309
Construction in progress 9,927 8,647
-------- --------
158,009 133,392
Less accumulated depreciation
and amortization 122,193 101,801
-------- --------
Net property and equipment owned 35,816 31,591
-------- --------
Machinery, equipment, and fixtures under
capitalized leases:
Machinery, equipment, and fixtures 2,241 2,602
Less accumulated amortization 1,389 1,172
-------- --------
Net property under capitalized leases 852 1,430
-------- --------
$ 36,668 $ 33,021
======== ========
Goodwill
Costs in excess of net assets acquired are amortized on a straight-line basis
over forty years. Accumulated amortization of goodwill was $35,540,000 and
$29,141,000 at December 31, 1996, and 1995, respectively.
Deferred Costs
Patent and trademark costs are deferred and amortized over a period of eighteen
months. Deferred financing costs are amortized over the term of the related
indebtedness.
Carrying Value of Noncurrent Assets
The Company periodically evaluates the carrying value of noncurrent assets,
including goodwill and other intangible assets. The determination of potential
impairment in carrying value is based upon current and anticipated undiscounted
operating income which the Company has determined to approximate future
undiscounted cash flows. Recognition of an impairment occurs when it is
probable that such estimated future operating income will be less than the
current carrying value of the asset being evaluated. Measurement of the amount
of impairment loss, if any, is based upon the difference between the carrying
value of the asset and its estimated fair market value. In 1996, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(SFAS 121). Adoption of SFAS 121 did not have a significant effect on the
financial position or results of operations of the Company.
F-7
Revenue Recognition
Sales are recorded as product is shipped. The Company provides for defective
returns and other allowances at the time of shipment as a percentage of gross
sales, based on historical experience.
Foreign Currency Translation
Assets and liabilities of the Company's foreign subsidiaries are translated into
the U.S. dollar at exchange rates at the balance sheet date. Income, expenses
and cash flows are translated at exchange rates prevailing during the year. The
resulting currency translation adjustments are accumulated in a separate
component of stockholders' equity. The Company enters into foreign currency
forward exchange contracts and options as a hedge against currency fluctuations.
Realized and unrealized foreign currency transaction gains and losses are
included in earnings when incurred, except for those relating to intercompany
transactions of a long-term investment nature which are accumulated in
stockholders' equity. The Company does not speculate in foreign currencies.
Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109), the Company recognizes deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse (see note 8).
The Company does not provide deferred federal income taxes on the undistributed
earnings of its foreign subsidiaries since such earnings are not expected to be
remitted to the Company in the foreseeable future. Federal income taxes are
provided currently on that portion of undistributed foreign earnings required to
be included in accordance with the U.S. tax laws.
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 year. Outstanding options, and the Company's
convertible notes and preferred securities were determined to be anti-dilutive
for the three years ended December 31, 1996, and were therefore excluded from
the per share calculations.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates and
assumptions.
Accounting for Stock-Based Compensation - As permitted by SFAS No. 123,
Accounting for Stock-Based Compensation, the Company has elected to measure
stock-based compensation expense using the method prescribed by Accounting
Principles Board of Opinion No. 25, Accounting for Stock Issued to Employees.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the
1996 presentation.
F-8
(2) RESTRUCTURING AND OTHER SPECIAL CHARGES
---------------------------------------
During the second quarter of 1995, the Company adopted a restructuring program
focused on reducing the overhead costs of its European, United Kingdom and Tyco
Preschool (formerly Tyco Playtime) units. The restructuring program generated
annual savings through the combined effect of job eliminations, facility
consolidations and streamlined operations. 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.
During the fourth quarter of 1995, the Company adopted an additional
restructuring program to further reduce European operating expenses. As part of
the restructuring program, the Company closed its manufacturing facility located
in Temse, Belgium and its distribution facility located in the United Kingdom.
The program resulted in a pre-tax charge of $4,000,000 and generated annual
savings primarily from reduced product costs resulting from the transfer of
production to lower cost sources in the Far East and Portland. Approximately 75
positions were eliminated as a result of this restructuring. The program was
substantially completed by April 1996. The 1995 fourth quarter charge consisted
primarily of termination benefits which totalled $3,500,000.
As of December 31, 1996 and 1995, $1,738,000 and $4,434,000, respectively, of
the 1995 restructuring charges (primarily termination benefits) were reflected
in accrued expenses (see note 4).
During 1994, the Company recorded a $4,700,000 pre-tax charge related to
additional costs to close its Italian subsidiary, including legal costs
associated with the lawsuit filed by the former managing director of Tyco Italy
against the Company (see note 10). In 1994, the Company entered into a five-
year agreement with an Italian distributor to market the Company's products in
Italy. The Company is entitled to minimum royalty payments in accordance with
this agreement.
(3) RECEIVABLES, NET
----------------
Receivables, net, consist of (in thousands):
December 31,
-------------------
1996 1995
-------- --------
Trade receivables $257,742 $237,041
Other receivables 4,201 6,186
Less:
Doubtful accounts 6,655 6,052
Returns, markdowns, discounts
and other reserves 66,298 49,672
-------- --------
$188,990 $187,503
-------- --------
F-9
(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
----------------------------------------------
Accrued expenses and other current liabilities consist of (in thousands):
December 31,
-----------------
1996 1995
------- -------
Advertising and promotion $20,147 $23,295
Income taxes 16,455 19,498
Royalties 14,224 13,825
Compensation 12,867 7,593
Taxes other than income 5,269 4,362
Interest 4,849 4,907
Reserves for restructuring costs 1,738 4,434
Other 17,139 15,265
------- -------
$92,688 $93,179
------- -------
(5) NOTES AND ACCEPTANCES PAYABLE
-----------------------------
In February and March 1995, the Company entered into $290,000,000 of new credit
facilities (the "Credit Facilities"). These Credit Facilities were terminated
on March 27, 1997 in connection with the Company's merger with Mattel, Inc. (see
note 15). The Credit Facilities consisted of three separate three-year
revolving credit facilities with General Electric Capital Corporation ("GECC")
and affiliates in an aggregate amount of $90,000,000 and a $200,000,000 five-
year domestic receivables securitization facility arranged by General Electric
Capital Corporation.
The revolving credit facilities consisted of up to $35,000,000 for certain
domestic entities (of which up to $10,000,000 was available to 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 was based upon inventory, as defined, and availability
under the foreign revolving credits was based upon an aggregate of eligible
accounts receivable and inventory, as defined. The revolving credit facilities
were secured by a lien on substantially all of the Company's domestic assets and
were also guaranteed by certain foreign subsidiaries. Subject to the maximum
commitment under each of these facilities, borrowings were permitted 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 securitization facility, Tyco Industries sold substantially all of its
domestic accounts receivable to Tyco Funding I Corporation ("TFC I") and Tyco
Funding II Corporation ("TFC II"). These companies are bankruptcy remote
subsidiaries of Tyco Industries and are consolidated in the financial statements
of the Company. TFC I and TFC II purchased the accounts receivable with proceeds
from their borrowings under a commercial paper facility (limited to a maximum of
75% of eligible accounts receivable, as defined) and certain deferred payments.
The interest rate on the facility was the market rate for commercial paper plus
1.30.
At December 31, 1996, total utilization under the Credit Facilities was
$5,511,000 in letters of credit.
F-10
Under the terms of the Credit Facilities, the Company and its subsidiaries were
(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 cash 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. During the fourth quarter
of 1996, the Company was not in compliance with certain financial covenants
under the Credit Facilities as amended and received waivers from GECC and
affiliates. The Company further amended the Credit Facilities to reflect
revisions to its financial covenants.
Certain foreign subsidiaries of the Company have agreements with various banks
which provide for credit extensions of $74,435,000 and $35,764,000 at December
31, 1996 and 1995, respectively. Short-term borrowings under these facilities
were $8,439,000 and $15,503,000, at December 31, 1996 and 1995, respectively.
Borrowings under these agreements are subject to a variety of terms and
conditions, including collateral requirements. These subsidiaries also had
outstanding letters of credit aggregating $3,524,000 and $7,826,000 at December
31, 1996 and 1995, respectively.
(6) LONG-TERM DEBT
---------------
Long-term debt consists of (in thousands):
December 31,
-----------------------
1996 1995
---- ----
Subordinated notes $142,534 $142,534
Mortgage 4,041 4,143
Other 1,020 1,556
-------- --------
147,595 148,233
Less amounts due within
one year 998 1,053
-------- --------
$146,597 $147,180
======== ========
Subordinated notes include $126,500,000 of Senior Subordinated Notes and
$16,034,000 of Convertible Subordinated Notes.
Senior Subordinated Notes mature in 2002 and bear interest at 10.125% payable on
February 15 and August 15. The Notes are redeemable at the option of the
Company in whole or in part after August 15, 1997, at redemption prices equal to
103.797% of the principal amount reducing annually to 100% by August 15, 2000.
The Senior Subordinated Notes are guaranteed by Tyco Industries (a subsidiary of
Tyco) and certain of its subsidiaries.
The Convertible Subordinated Notes, which are to be repaid in four equal annual
payments commencing in 1998, bear interest at 7% payable on June 30 and December
31. During 1995, $1,066,000 of additional Convertible Subordinated Notes were
issued in lieu of interest payments. The Notes are convertible at a price of
$10 per share into approximately 1,603,000 shares of common stock of the Company
at December 31, 1996.
F-11
The Company's variable rate mortgage (7.4% at December 31, 1996) is secured by
land and building having a net book value of approximately $8,100,000 at
December 31, 1996. The mortgage is payable in annual installments of $527,000
and matures in 2004.
Long-term debt is scheduled to mature as follows: 1997 - $998,000; 1998 -
$5,077,000; 1999 - $4,544,000; 2000 - $4,536,000; 2001 - $4,534,000, and
thereafter - $127,906,000.
(7) STOCKHOLDERS' EQUITY
--------------------
Stock Option Plans
At December 31, 1996, the Company has four stock option plans: 1985 Tyco Toys
Incentive Stock Option Plan, 1986 Non-Qualified Stock Option Plan, 1986 Non-
Qualified Stock Option Plan 2 and 1992 Non-Qualified Stock Option Plan. A total
of 4,520,000 shares of common stock were originally reserved for issuance
pursuant to options to be granted under these stock option plans. At December
31, 1996, there are approximately 725,000 options available for grant. The
plans provide for option grants at exercise prices not less than the closing
market value as listed on the New York Stock Exchange on the date the option is
granted, subject to adjustment for such changes as stock splits.
Options granted prior to 1995 are fully exercisable from the date of grant.
Options granted during 1996 and 1995 generally become exercisable in equal
installments over three years. Of the options outstanding, 988,935 were
exercisable as of December 31, 1996. In 1994, new stock options were issued
subject to the surrender and cancellation of certain outstanding stock options.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its stock
option plans. Had compensation cost for the Company's four stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of FASB Statement 123,
the Company's net loss and per share would have been adjusted to pro forma
amounts indicated below:
1996 1995
--------- ---------
Net Loss As reported ($16,191) ($30,429)
Pro forma (16,634) (30,704)
Loss Per Share As reported ($.46) ($.87)
Pro forma ($.48) ($.88)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995 respectively: zero dividend yield
for all years; expected volatility of approximately 47, and approximately 50
percent, risk-free interest rates of 6.2 and 6.3 percent; and expected lives of
5 years for all plans.
F-12
A summary of the status of the Company's stock option plans as of December 31,
1996, 1995 and 1994, and changes during the years ending on those dates is
presented below:
1996 1995 1994
-------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
-------------------------------------------------------------------------------------------------
Outstanding at Beginning of Year 1,661,171 $7.72 1,199,028 $8.61 1,451,560 $13.67
Granted 281,375 $4.90 716,009 $5.71 991,762 $ 9.00
Exercised (15,300) $8.17 (81,300) $4.50 (46,200) $ 4.50
Forfeited (236,371) $9.08 (172,566) $7.13 (1,198,094) $15.11
------- ------- ---------
Outstanding at End of Year 1,690,875 $7.13 1,661,171 $7.72 1,199,028 $ 8.61
========= ========= =========
Fair Value of Options Granted $2.42 $2.93
The following table summarizes information about stock options outstanding at
December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------- -----------------------------------------
RANGE OF NUMBER WEIGHTED- WEIGHTED- NUMBER WEIGHTED-
EXERCISE PRICES OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
REMAINING EXERCISE PRICE EXERCISE PRICE
CONTRACTUAL
LIFE
- ------------------------------------------------------------------------------------------------------------------------------------
$4.13 TO $5.63 889,022 4 Years $ 5.40 206,770 $ 5.63
$ 7.00 TO $7.38 59,831 3 Years $ 7.19 40,143 $ 7.19
$ 9.00 TO $11.50 724,522 2 Years $ 9.03 724,522 $ 9.03
$14.69 TO $17.00 17,500 * $16.01 17,500 $16.01
------ ------
1,690,875 988,935
========= =======
* Less than one year
Long-Term Incentive Plan
During 1995, the Board of Directors and shareholders of the Company approved the
establishment of a new Long-Term Incentive Plan for certain senior executive
managers of the Company. Under the Plan, the Company has the authority to issue
up to 2,000,000 restricted stock units (Restricted Stock Units). This Plan was
designed to supplement the Company's 1992 Non-Qualified Stock Option Plan. The
Restricted Stock Units entitle participants to receive a prescribed number of
shares of Company stock after seven years of continued employment. A
participant's vesting of Restricted Stock Units can be accelerated if total
return to shareholders exceeds targeted levels. During 1996 and 1995, the
Company granted 160,000 and 759,000, respectively, Restricted Stock Units to
senior executive managers of the Company pursuant to the Plan. The aggregate
fair market value of the Restricted Stock Units, which is determined to be
equivalent to the Company's common stock price at the date of award, is being
amortized to compensation expense over the restriction period. Total
compensation expense reflected in the Consolidated Statements of Operations for
1996 and 1995 was $748,000 and $464,000, respectively. During 1995, the Company
issued 2,342 shares of Common Stock pursuant to the Long-Term Incentive Plan.
F-13
Preferred Stock
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 (Series C Preferred Stock). The Series C Preferred
Stock has a liquidation value of $125 per share. 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 Series C
Preferred Stock, were sold as part of the offering at an issue price of $5 per
share. Each of the 19,320,000 Depositary Shares 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 Series C Preferred Stock is not
redeemable by the Company prior to July 1, 1999. At that date until June 30,
2000, the Company may redeem the Series C 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.
On April 15, 1994, the Company issued $50,000,000 of 6% Series B Voting
Convertible Exchangeable Preferred Stock (Series B Preferred Stock) to an
investment group consisting of Corporate Partners, L.P., Corporate Offshore
Partners, L.P., and the State Board of Administration of Florida, collectively
referred to as the Purchasers. The $47,000,000 of net proceeds after issuance
costs were used to reduce net borrowings of the Company and for general
corporate purposes. The Series B Preferred Stock has an annual dividend yield of
6% which was paid in the form of additional shares of Series B Preferred Stock
through April 15, 1996. Dividends issued in shares of Series B Preferred Stock
in lieu of cash during 1996 and 1995 were valued at $1,651,000 and $3,154,000,
respectively. The Series B Preferred Stock has a liquidation value of $1,050 per
share and is convertible into shares of common stock of the Company at a
conversion price of $10 per share. Commencing in 1999, the shares of Series B
Preferred Stock are convertible into shares of common stock for designated
periods at the then market price but not less than $5 per share. The Company has
the option, at any time, to exchange the Series B Preferred Stock for 6%
Convertible Subordinated Notes. The Company, at its option, may redeem the
Series B Preferred Stock at any time after April 15, 1997, at an amount equal to
105.25% of the liquidation value which reduces annually to 100% of the
liquidation value in 2004. On April 15, 2004, the Company is required to redeem
all outstanding Series B Preferred Stock. The redemption price shall be paid, at
the Company's option, in cash or in shares of common stock. The Series B
Preferred Stock issued to the Purchasers entitles the holder to vote (on an as-
converted basis) with the common shares as a single class on all matters on
which the Company's common shareholders vote. A Registration Agreement, dated
April 15, 1994, gives the Purchasers demand and incidental registration rights,
as defined, with respect to the Series B Preferred Stock, common stock issued
upon conversion, or notes issued in an exchange for such Series B Preferred
Stock.
F-14
Cash Dividends
As a result of the dividend restrictions imposed by its credit facilities, the
Company was precluded from paying cash dividends on its capital stock for the
three years ended December 31, 1996. The terms of the Company's Series B and
Series C Preferred Stock, 10.125% Senior Subordinated Notes and 7% Convertible
Subordinated Notes also have limitations on the payment of cash dividends.
GECC has agreed that, for as long as there is no default in the payment of
principal or interest or any other default causing the acceleration of
indebtedness, the Company would be permitted to pay cash dividends on its Series
C Preferred Stock. A similar agreement was also entered into with respect to
payment of cash dividends under the Series B Preferred Stock for 1996 with
respect to the July and October quarterly dividend payments.
(8) INCOME TAXES
------------
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.
The components of loss before income taxes consist of (in thousands):
Year ended December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
Domestic $(12,249) $ (3,337) $(14,539)
Foreign 3,264 (24,897) (16,934)
-------- -------- --------
$ (8,985) $(28,234) $(31,473)
======== ======== ========
The provision (benefit) for income taxes consists of (in thousands):
Year ended December 31,
-----------------------------------
1996 1995 1994
-------- -------- --------
Current :
Federal $ (740) $ - $ -
State - - -
Foreign 1,865 (1,005) 339
-------- -------- --------
1,125 (1,005) 339
-------- -------- --------
Deferred:
Federal (1,310) (3,038) (127)
State - - (1,327)
Foreign - 3,038 2,615
-------- -------- --------
(1,310) - 1,161
-------- -------- --------
$ (185) $ (1,005) $ 1,500
======= ======== ========
F-15
Income taxes recorded by the Company differ from the amounts computed by
applying the statutory U.S. federal income tax rate to the loss before income
taxes. The following schedule reconciles the income tax benefit at the statutory
rate and the actual income tax provision (benefit) as reflected in the
Consolidated Statements of Operations (in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
Loss before income taxes $(8,985) $(28,234) $(31,473)
======= ======== ========
Tax benefit at the federal statutory rate (3,055) (9,600) (10,701)
Tax on deemed repatriation of
foreign earnings 5,896 861 3,233
State income taxes, net of the
federal tax provision (benefit) - - (2,567)
U.S. benefit for foreign tax credits (645) - (798)
Impact of foreign operations 478 10,498 9,139
Limitation on utilization of domestic
tax benefits (3,821) 271 883
Deductible shutdown expenses (1,176) ( 4,438) -
Amortization of nondeductible expenses 1,568 1,716 1,678
Other 570 (313) 633
------- -------- --------
$ (185) $ (1,005) $ 1,500
======= ======== ========
The tax effects of the significant temporary differences giving rise to the
Company's deferred tax assets (liabilities) for the years ended December 31,
1996, 1995 and 1994, which the adoption of SFAS 109 has required the Company to
recognize, are as follows (in thousands):
1996 1995 1994
---- ---- ----
Current:
Sales and product allowances $ 7,149 $ 3,524 $ 4,240
Co-operative advertising 4,855 4,320 4,343
Receivable reserves 1,147 1,071 811
Obsolescence reserve 2,112 1,503 4,451
State temporary differences 4,214 3,195 3,307
Other 5,790 2,865 3,551
------- -------- --------
25,267 16,478 20,703
Valuation allowance (5,531) (3,470) (3,472)
------- -------- --------
$19,736 $ 13,008 $ 17,231
======= ======== ========
Noncurrent:
Net operating losses $73,698 $ 85,337 $ 61,134
State temporary differences 13,866 11,186 9,672
Foreign tax credits - 7,221 6,068
Depreciation 4,304 1,517 (1,002)
Other 3,167 2,036 1,371
------- ------- -------
95,035 107,297 77,243
Valuation allowance (71,872) (78,737) (53,511)
------- -------- -------
$23,163 $ 28,560 $ 23,732
======= ======== =======
F-16
Management believes, considering all available evidence, including the Company's
history of earnings from prior years (after adjustments for nonrecurring items,
restructuring charges, 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 $77,403,000. 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 total net deferred tax assets
of $42,899,000.
The valuation allowances have been established due to management's analysis
indicating that certain tax credit and net operating loss carryforwards, the use
and life of which are limited under the income tax laws, may expire prior to
their full utilization. The valuation allowances include $15,865,000 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.
The net decrease of $4,804,000 in the valuation allowance for deferred tax
assets in 1996 relates primarily to expired foreign net operating loss
carryforwards and deducted domestic foreign tax credit carryforwards for which
valuation allowances had been previously provided.
As of December 31, 1996, the Company had domestic net operating loss
carryforwards for federal income tax purposes of $46,843,000, exclusive of the
Matchbox net operating loss carryforwards discussed below. These net operating
loss carryforwards are available to reduce future federal taxable income and
expire in the years 2008, 2009 and 2010. The Company's international
subsidiaries have, in the aggregate, approximately $131,015,000 of tax loss
carryforwards available at December 31, 1996. These tax losses are available to
reduce the originating subsidiary's future taxable income and have varying
expiration dates.
The Company has general business credit carryovers of $702,000 at December 31,
1996. The Company's future federal income tax liability can be reduced by the
general business tax credits through the year 2009 and the credits expire as
follows (in thousands):
Year of Expiration General Business
------------------ ----------------
1997 $ 24
1998 47
1999 112
2000 60
2001 to 2009 459
----
$702
----
The Company also has nonexpiring alternative minimum tax credits totalling
$1,422,000. Additionally, the Matchbox domestic companies have regular and
alternative minimum tax net operating loss carryforwards of approximately
$46,662,000 which may expire during the years 2001 to 2004. These Matchbox loss
carryforwards are subject to an annual limitation and can only be used to offset
taxable income of the Matchbox domestic companies.
Accumulated net undistributed earnings of the Company's foreign subsidiaries
included in accumulated deficit were $113,616,000 at December 31, 1996. The
Company has not recognized a deferred tax liability of $28,445,000 for the
undistributed earnings of its foreign subsidiaries at
F-17
December 31, 1996 since the Company currently does not expect these earnings to
be remitted to the U.S. in the foreseeable future. A deferred tax liability will
be recognized when the Company expects that it will recover the undistributed
earnings in a taxable manner, such as through receipt of dividends, a loan of
the unremitted earnings to the Company or one of its U.S. affiliates, or a sale
of a foreign subsidiary's stock.
The Internal Revenue Service ("IRS") has examined the consolidated federal
income tax returns of Tyco Toys, Inc. for the fiscal years ended August 31, 1987
through December 31, 1992. The Company reached a settlement that did not
materially affect the results of operations (including realization of net
operating loss and tax credit carryforwards), financial condition or liquidity
of the Company. In addition, the IRS has notified Tyco that they will be
examining the December 31, 1993 and 1994 consolidated Tyco Toys, Inc. and
Subsidiaries federal income tax returns. While there are no assurances as to the
outcome of the examinations, the Company does not believe that the outcome will
materially affect the results of operations (including realization of net
operating loss and tax credit carryforwards), financial condition or liquidity
of the Company.
(9) LEASE COMMITMENTS
-----------------
The Company leases facilities and equipment under noncancellable operating
leases generally with terms of up to ten years. Most leases contain escalation
and renewal clauses and require the Company to pay real estate taxes and utility
charges. Aggregate rental expense for operating leases was $12,943,000,
$15,523,000 and $14,945,000 for the years ended December 31, 1996, 1995 and
1994, respectively.
Future minimum lease commitments aggregating $57,677,000 are payable as follows:
1997 - $12,187,000; 1998 - $10,194,000; 1999 - $8,146,000; 2000 - $5,935,000;
2001 - $4,891,000 and thereafter - $16,324,000.
(10) COMMITMENTS AND CONTINGENCIES
-----------------------------
Letters of Credit
The Company was contingently liable for open letters of credit of approximately
$9,035,000 at December 31, 1996.
Foreign Exchange Risk Management
The primary focus of the Company's foreign exchange risk management program is
to reduce earnings and cash flow volatility due to foreign exchange rate
fluctuations. In accordance with this policy, the Company enters into foreign
currency forward exchange contracts and options as hedges of inventory purchases
and various other intercompany transactions. The credit risks associated with
the Company's foreign currency forward exchange contracts and options are
controlled through the evaluation and monitoring of the creditworthiness of the
counterparties. Although the Company may be exposed to losses in the event of
nonperformance by the counterparties, the Company does not expect such losses,
if any, to be significant.
At December 31, 1996, the Company had outstanding foreign currency forward
exchange contracts totalling $67,509,000 to purchase U.S. dollars. The principal
currencies being hedged are the Belgian
F-18
franc, British pound, Australian dollar and Canadian dollar. The Company also
had an option to purchase US dollars with Mexican Pesos totalling $5,500,000
which was settled in February 1997. Foreign currency forward exchange contracts
and options expire within twelve months.
Guaranteed Royalties
The Company markets its products under a variety of trademarks, some of which
are not owned by the Company and for which the Company pays a royalty. For the
years ended December 31, 1996, 1995 and 1994, the Company incurred $34,491,000,
$33,016,000 and $33,079,000 in royalty expense, respectively. Certain license
agreements require minimum guaranteed royalty payments over the term of the
license. At December 31, 1996, the Company was committed to pay total minimum
guaranteed royalties aggregating $79,252,000 which are payable as follows:
1997 - $13,648,000; 1998 - $12,652,000; 1999 - $14,027,000; 2000 - $12,601,000;
2001 - $13,129,000 and thereafter - $13,195,000.
Guaranteed Purchases
In the ordinary course of business, the Company has entered into guaranteed
purchase agreements with certain suppliers to ensure the timely delivery and
availability of product. As of December 31, 1996, the Company was committed for
purchases aggregating $9,158,000 from its suppliers.
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.
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.
F-19
(11) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
----------------------------------------------------
The estimated fair value amounts have been determined by the Company using
available market information and appropriate methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The Company believes that the carrying amounts of cash and cash
equivalents, accounts receivable, accounts payable and other current liabilities
are a reasonable estimate of their fair values at December 31, 1996 and 1995.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Long-term debt - The fair value of the Company's publicly-issued debt is based
- --------------
on the quoted market prices for that debt. Interest rates that are currently
available to the Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt issues not quoted on an
exchange. The carrying amounts and estimated fair values of long-term debt are
as follows (in thousands):
December 31,
--------------------------------------------
1996 1995
--------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Publicly-issued $126,500 $132,667 $126,500 $114,324
Privately-issued 21,095 21,095 21,733 21,733
Investments - It was not practicable to estimate the fair value of privately-
- -----------
held investments of $5,200,000 and $5,800,000 at December 31, 1996 and
1995, respectively, due to the lack of quoted market prices and the excessive
cost involved in determining such fair value.
Foreign currency forward exchange contracts - The Company had commitments
- -------------------------------------------
under foreign currency forward exchange contracts in various foreign currencies
totalling approximately $67,509,000 and $33,141,000 as of December 31, 1996, and
1995, respectively. Based on quoted market rates, the carrying amounts of these
items approximated their fair value at December 31, 1996 and 1995.
The fair value estimates presented herein were based on pertinent information
available to management of the Company as of December 31, 1996 and 1995.
Although management is not aware of any factors that would have a significant
adverse effect on the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates and current estimates of fair value may differ significantly from the
amounts presented herein.
F-20
(12) BUSINESS SEGMENT INFORMATION
----------------------------
Product Development and Packaging Design Costs
The Company incurred product development and packaging design costs of
approximately $20,933,000, $20,740,000 and $17,519,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Major Customer Information
For the years ended December 31, 1996, 1995 and 1994, Toys "R" Us, Inc., a chain
of retail toy stores, accounted for approximately 27%, 25% and 27%,
respectively, of net sales. For the three years ended December 31, 1996, Wal-
Mart Stores, Inc., a chain of discount stores, accounted for approximately 14%,
13% and 10%, respectively, of net sales. No other customer accounted for more
than 10% of the Company's net sales for these periods.
Product Line Information
The Company is engaged primarily in one segment which is the design,
development, manufacture and distribution of a variety of toy products.
Geographic Information
Information with respect to legal entity net sales, operating income (loss), and
identifiable assets by geographic area for the three years ended December 31,
1996 is presented as follows (in thousands):
Year ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
Net sales:
North America $ 476,377 $ 470,045 $ 464,751
Far East 273,910 222,625 239,208
Europe and Pacific Rim 195,392 189,889 264,736
--------- ---------- ---------
945,679 882,559 968,695
Intercompany (224,725) (173,450) (215,597)
--------- ---------- ---------
$ 720,954 $ 709,109 $ 753,098
========= ========== =========
Operating income (loss):
North America $ (1,659) $ 8,299 $ (11,240)
Far East 23,023 10,176 13,221
Europe and Pacific Rim (6,532) (20,746) (1,830)
--------- ---------- ---------
14,832 (2,271) 151
Intercompany 195 (11) 484
--------- ---------- ---------
$ 15,027 $ (2,282) $ 635
========= ========== =========
Identifiable assets:
North America $ 537,983 $ 510,547 $ 525,389
Far East 89,393 104,717 125,449
Europe and Pacific Rim 116,125 133,023 182,994
--------- ---------- ---------
743,501 748,287 833,832
Intercompany (97,162) (133,155) (163,197)
--------- ---------- ---------
$ 646,339 $ 615,132 $ 670,635
========= ========== =========
F-21
Intercompany Pricing
Intercompany sales are made on a basis intended to reflect the market value of
the products. Sales generated by the Company's operations in the Far East
substantially represent export sales to the Company's subsidiaries and
unaffiliated customers in North America, Europe and the Pacific Rim.
(13) SELECTED QUARTERLY FINANCIAL DATA
---------------------------------
(UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as follows (in
thousands, except per share data):
QUARTER
----------------------------------------------------
1996 FIRST SECOND THIRD FOURTH
- ---- ----- ------ ----- ------
Net Sales $ 95,768 $140,590 $256,369 $228,227
Gross Profit 40,635 61,050 112,809 102,367
Net Income (Loss) (10,197) (3,769) 12,523 (7,357) [3]
Net Income (Loss) Applicable to
Common Shareholders (11,024) (4,658) 9,685 (10,194) [3]
Net Income (Loss) Per Common
Share:
Primary (0.32) (0.13) 0.28 (0.29)[3]
Fully Diluted (0.32) (0.13) 0.22 (0.29)[3]
1995
- ----
Net sales $116,060 $151,692 $226,285 $215,072
Gross profit 49,103 63,830 95,583 84,357
Net income (loss) (6,669) (8,835) [1] 5,546 (17,271) [2]
Net income (loss) applicable to
common shareholders (7,453) (9,625) [1] 4,738 (18,089) [2]
Net income (loss) per common share (0.21) (0.28) [1] 0.14 (0.52) [2]
[1] Reflects a $4,900,000 restructuring charge representing the consolidations
in the International and Preschool businesses.
[2] Reflects a $4,000,000 restructuring charge primarily related to the closure
of a manufacturing facility in Temse, Belgium.
[3] Reflects approximately $7,000,000 of merger related costs (primarily
employee benefits).
(14) RELATED PARTIES
---------------
Taiyo Kogyo
The Company owns an 18.5% interest in Taiyo Kogyo Co., Ltd. (Taiyo Kogyo), the
Company's exclusive radio control vehicle manufacturer. No single manufacturer
other than Taiyo Kogyo supplies the Company with more than 10% of its products.
F-22
(15) MATTEL MERGER
-------------
On November 17, 1996 the Company and Mattel, Inc. ("Mattel") entered into a
definitive Merger Agreement ("the Merger Agreement"). On March 27, 1997,
pursuant to the Merger Agreement, as amended, (i) Tyco was merged into Mattel
(the Merger), (ii) each outstanding share of Tyco common stock was converted
into the right to receive common stock of Mattel having a value of $12.50 in
accordance with an exchange ratio provided that no more than .51129 or less than
.37791 of a share of Mattel's common stock will be issued for each Tyco common
share, (iii) each outstanding share of Series B Preferred Stock of Tyco was
converted into one share of Series B Preferred Stock of Mattel with economic
terms as nearly equivalent as possible to and with the same voting and other
rights as corresponded to the Tyco Series B Preferred Stock and (iv) each
outstanding share of Series C Preferred Stock of Tyco was converted into the
right to receive one share of Mattel Series C Preferred Stock having
substantially the same rights and preference as the Tyco Series C Preferred
Stock.
The merger was approved by shareholder vote on March 20, 1997 and consummated on
March 27, 1997.
F-23
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 hereunto duly authorized.
MATTEL, INC.
Registrant
By: /s/ Leland P. Smith
-----------------------------
Leland P. Smith
Assistant Secretary and
Date: April 17, 1997 Assistant General Counsel
--------------