Tonka Corporation

Tonka Corporation, the fifth-largest toy company in the United States, had two o f the most successful years in its history in 1985 and 1986. The company=s sales of $293 mi llion and profitability of $22 million were unprecedented; Tonka had also issued more than one million shares of common stock in December 1986 and had retired its long-term debt in January 1 987, both of which contributed to its low leverage and high liquidity.

Becoming and remaining financially sound was a difficult task in the toy industr y because of the typically short life spans and hit-or-miss nature of most products. Now, in Fe bruary 1987, Tonka=s management was undergoing a capital-structure policy review in an effort to determine whether the company could use its financial resources more efficiently and yet r emain conservative.

The Toy Industry

Over the past several years, a trend toward consolidation was evident within the toy industry. In 1983 the top five toy companies in the United States were responsible for 32. 7 percent of total sales; by 1986 that figure had risen to an estimated 44.2 percent. In 1984, Hasb ro, Inc., acquired Milton Bradley, best known for the board game Monopoly, and in 1985, it acquired certain assets of another toy company, Child Guidance. In 1986 alone, Coleco Industries had acquir ed two other companies (including Selchow & Righter, the producer of Scrabble and the blockbu ster board game of 1984, Trivial Pursuit), the product line of another company, and the North Am erican subsidiary of Tomy Kogyo, a toy company that specialized in high-technology applications. The

results of these consolidations are shown in Exhibit 1.

Of the approximately 800 toy companies in the United States, only the largest we re able to minimize sales and profit volatility through diversification. Even they were not always successful, however, as shown in Exhibits 2 and 3. Each company=s fortunes rose and fell wit h the success or failure of its latest products, and even the biggest hits tended to have life cycl es of only one or two years. In 1984 Coleco=s sales, for example, rose from $597 million to $775 milli on, then declined to

$501 million in 1986. Kenner Parker=s sales rose from $539 million in 1983 to $6 48 million in 1984, before falling back to $503 million in 1986. Mattel=s sales rose rapidly f or two years then stabilized for two years at about $1.06 billion. Tonka=s sales, however, grew ra pidly for four straight years.

Exhibit 4 provides a breakdown of total industry sales by product type. With the exception of games and puzzles, plush toys, and infant and preschool toys, estimated 1986 sales by category were flat or down by as much as 25 percent, as was the case with action figures, dolls, and electronic games. As a result, overall industry sales were down $27 million in 1986. Within each segment, the basic and technology-enhanced toys did well, and industry analysts expected reta ilers to limit inventory risk in 1987 by concentrating on those types.

Regarding the strength of the toy industry as it moved into 1987, a December 198 6 report stated,

Aggregate industry shipments remain flat. . . . The industry has essentially bee n unable to offset this softening with any meaningful new or exciting category of products.1

The toy industry was also susceptible to changes in demographics, in seasons, an d in the economy. By early 1987, the factors that contributed to toy-company sales were s ending mixed messages. According to an August 1986 industry report,

Demographic trends are increasing demand for toy products. A rising number of births is creating more toy recipients for the next ten years. Also, an increasi ng percentage of births (over 40 percent) is now firstborn children, and more dolla rs (estimates as high as 45 percent more) are generally spent on firstborn. Finally , an expanding population of grandparents due to divorce and the increasing number of two-income families are resulting in more buyers with more money to spend on toys.2

As shown in Exhibit 5, the U.S. economy had just experienced its fourth straight year of economic growth. Growth of real gross national product was down, but so were une mployment and interest rates, and real per capita disposable income rose 2 percent in 1986.

The Company

Tonka Corporation was best known for its traditional line of sturdy metal toy tr ucks, bulldozers, backhoes, and construction vehicles, which were responsible for abou t $70 million of corporate sales in recent years. Over the past several years, however, the compa ny had diversified 1Steven Eisenberg, Toy Industry Review (Bear, Stearns & Co., December 1986), 1. 2Keith J. DeVore and Stephen M. Carnes, Research Update (Piper, Jaffray & Hopwo od, August 1986), 2.

into other products, including dolls and other toys that would be more appealing to girls. One of Tonka=s greatest successes over the past two years had been GoBots small vehicles that could be changed into action figures; they competed directly with Hasbro=s Transformers, which generally outsold them. GoBots contributed $132 million to sales in 1985, but in 1986 even t hough 41 new characters were introduced, including large Super GoBots, and even though 33 epi sodes were added to the Saturday morning cartoon series Challenge of the Gobots only $25 million wo rth were sold, a signal of the end of the product=s life cycle. The company closed out the GoBo ts product line later in the year.

Even more successful for Tonka had been its line of Pound Puppies, which contrib uted $34 million to corporate sales in 1985 and $156 million (53 percent of sales) in 198 6. Pound Puppies were plush toys with broad age appeal across genders. In addition, Tonka introdu ced Puppy Newborns, Super Pound Puppies, and Pound Purries in 1986, as well as accessories such as a doghouse, dog dish, and clothing.

As a result of its recent successes, built on its relatively nonvolatile sales o f toy trucks, Tonka=s revenues rose from $81 million in 1982 to $293 million in 1986. (Exhibit 6 gives the last three years= income statements.) Between 1982 and 1986, earnings per share rose from !$0.12 to $3.04, despite the stock offering of 1.1 million shares in December 1986. Betwee n 1984 and 1986, return on assets rose from 6.9 to 14.1 percent, and return on average equity inc reased from 16.7 to 28.8 percent. See Exhibit 6 for information on Tonka=s consolidated income state ments. Exhibit 7 provides information on Tonka=s stock price during this growth period.

Tonka=s consolidated balance sheets for 1985 and 1986 (Exhibit 8) indicated a ri sing current ratio (from 1.66 to 2.52). This liquidity stemmed not only from the company=s st rong sales, but also from the December 1986 stock offering, which netted $22 million, or $20.27 per s hare. Exhibit 9 details the company=s debt structure, which totaled $8.1 million and $8.2 millio n for the past two years.

Company Prospects

Stephen Shank, Tonka=s president and chief executive officer, stated the greates t challenge facing the company:

First, Tonka=s performance is still too dependent on the success of a single lin e of products be it GoBots in 1985 or Pound Puppies in 1986. The challenge is to expand our base of stable toys.3

Tonka reviewed between 3,000 and 4,000 new toy ideas each year. For 1987, the co mpany=s hopes were pinned on Pound Puppies, its traditional line of trucks, and the nine other toy lines described in the Appendix. (See Exhibit 10 for current and projected Tonka sales by product line.) 3Tonka Corporation, 1986 Annual Report, 4.

The company=s objective was to increase the number of product lines to the poin t where no single toy would account for more than 25 percent of sales. One industry analyst stated , however,

After reviewing the company=s 1987 line, we can find nothing particularly distin ctive or exciting of a breakthrough nature that would dramatically enhance the company =s industry presence or market share.4

As another challenge, Mr. Shank also said, . . . we have the need and the opportu nity to build our sales base internationally, where Tonka=s market share is much smaller than in the U.S. 5

The estimated $5-billion developed-country toy market was witnessing increased p enetration by U.S. companies, except in Japan. In most markets, non-U.S. companies tended t o be smaller and, therefore, had fewer strong brands and weaker marketing programs than U.S. compa nies. Exhibit 11 provides information on Tonka=s domestic and international operations. The de cline in international revenues and the resulting $100,000 operating loss (which led to a $1-million net loss) were primarily caused by a sharp decline in GoBot sales in Canada. Total sales i n the United Kingdom and Australia improved in 1986. Management stated Tonka=s objective for its international business in 1987 was

. . . to achieve significant sales growth and a return to profitability. For the longer term, our goal is to build international sales to 30 percent of consolidated rev enues compared with 11 percent in 1986. Our strategy is to continue to strengthen Tonk a=s position in its existing international markets, primarily Canada, the United Kin gdom, and Australia, and to enter other major markets.6

In 1986, Tonka began to introduce other products in addition to its traditional line of trucks internationally, and it planned to make most of its toys available in its larger international markets in 1987. The company had also just agreed to become the exclusive distributor in Au stralia and New Zealand for Bandai Company, Ltd., Japan=s leading toy company.

Conclusion

Tonka=s management wanted to determine what the possible financial results of di fferent degrees of leverage might be. Exhibit 12 provides pro forma financial summaries for Tonka in 1986 under alternative capital structures. The exhibit assumes debt-to-total capital ratios of 20 percent, 40 percent, and 60 percent, which reflects the range of leverage for the major toy companies in 1986, as shown in Exhibit 2. It also assumes that the recapitalizations would have been a chieved through stock repurchases. Revenues, cost of debt, and payout ratios are assumed to be t he same as Tonka=s actual 1986 results. 4Eisenberg, 8. 51986 Annual Report, 4. 6Ibid., 8.

As part of its review, Tonka=s management also studied the interest-rate data pr ovided in Exhibit 13. Management was trying to determine whether the company could use its financial resources more efficiently than at present; but in light of the cyclical and sea sonal nature of the business and the company=s dependence on strong toy introductions, it wanted Ton ka to remain conservative.

Exhibit 1

TONKA CORPORATION

Percentage of Industry Sales by Company (dollars in millions)

Est. 1982 1983 1984 1985 1986

Coleco Industries 7.8% 9.4% 10.2% 9.2% 6.0% Hasbro, Inc. 2.1 3.5 9.4 14.7 16.1 Kenner Parker Toys1 N.A. 8.5 8.5 7.6 6.0 Mattel, Inc.2 21.1 9.9 11.6 12.5 12.6 Tonka Corporation 1.2 1.4 1.8 2.9 3.5 Subtotal for 5 largest toy companies 32.2% 32.7% 41.6% 46.9% 44.2%

____________________________

1Kenner Parker was a wholly owned subsidiary of General Mills until November 198 5. 2In 1982, Mattel sales included revenues from Ringling Brothers, Barnum & Bailey circus.

Sources: Steven Eisenberg, Toy Industry Review (Bear, Stearns & Co., December 19 86), 1; Value Line Investment Survey.

Exhibit 2

TONKA CORPORATION

Comparative Financial Data, 1986 (dollars in millions, except per-share data and stock prices)

Kenner Coleco Hasbro Parker1 Mattel Tonka

Sales $500.7 $1,344.7 $502.8 $1,058.7 $293.4 Net income (111.3) 99.2 16.0 (1.0) 22.3

Current assets 393.5 601.5 329.1 587.5 134.6 Current liabilities 287.7 272.4 109.0 252.5 53.5 Long-term debt 307.9 125.0 99.6 297.5 8.2 Net worth (7.7) 580.3 199.7 152.4 96.3

Return on sales NMF 7.4% 3.2% NMF 7.6% Return on equity NMF 17.1 8.0 NMF 23.2

Earnings per share ($6.52) $1.71 $1.22 ($0.20) $3.04 Dividends per share 0.00 0.09 0.00 0.00 0.07

Average P/E NMF 14.0 16.8 NMF 8.1 Beta 1.30 1.15 N.A.2 1.20 1.10

Stock price range: High $20.5 $30.9 $24.0 $15.5 $32.3 Low 8.3 16.6 15.1 7.8 15.9 Book value (0.5) 10.4 17.1 2.5 12.6

_____________________________

NMF: Not a meaningful figure.

1Current assets and current liabilities as of 3/29/87. 2Insufficient data were available to calculate a beta, because Kenner Parker had been a wholly owned subsidiary of General Mills until November 1985.

Source: Value Line Investment Survey, 1986.

Exhibit 3

TONKA CORPORATION

Toy IndustryCCompany Sales (dollars in millions)

1982 1983 1984 1985 1986

Coleco $510.4 $596.5 $774.9 $776.0 $500.7 Hasbro 137.9 225.4 719.0 1,233.4 1,344.7 Kenner Parker N.A. 539.3 648.1 638.3 502.8 Mattel 1,341.9 633.4 880.9 1,050.9 1,058.7 Tonka 81.1 87.8 139.0 244.4 293.4

Source: Value Line Investment Survey.

Exhibit 4

TONKA CORPORATION

Toy IndustryCSales by Category (dollars in millions)

Est. 1982 1983 1984 1985 1986

Action figures/dolls $882 $1,036 $2,316 $3,000 $2,300 Electronic games 2,605 2,397 1,094 800 600 Games/puzzles 617 514 1,043 1,100 1,300 Cars, boats, planes, trains 752 707 789 800 850 Infant/pre-school 459 508 715 900 1,000 Plush animals 281 300 544 800 1,300 Sports/outdoor 348 328 419 400 423 Arts/crafts/models 353 326 391 350 300 Riding toys 232 255 285 250 300

Total $6,529 $6,371 $7,596 $8,400 $8,373

Source: Steven Eisenberg, Toy Industry Review (Bear, Stearns & Co., December 198 6), 1.

Exhibit 5

TONKA CORPORATION

Summary U.S. Economic Data 1980 86

Per Capita Annualized Disposable Change in Average Net Real Personal Consumer Prime Merchandise GNP Income Unemployment Price Lending Exports Growth (1982 $) Rate1 Index Rate1 ($ in MM) 1980 !0.2% $9,722 7.1% 13.5% 15.27% ($25,480) 1981 1.9 9,769 7.6 10.4 18.87 (27,978) 1982 !2.5 9,725 9.7 6.1 14.86 (36,444) 1983 3.6 9,930 9.6 3.2 10.79 (67,080) 1984 6.8 10,419 7.5 4.3 12.04 (112,522) 1985 3.0 10,622 7.2 3.6 9.93 (122,148) 1986 2.9 10,947 7.0 1.9 8.33 (144,339)

1986CQ1 5.4 10,842 7.1 (0.4) 9.00 (34,978) Q2 0.6 11,024 7.1 0.3 8.50 (33,651) Q3 1.4 10,968 7.0 0.5 7.50 (37,115) Q4 1.5 10,956 6.7 0.6 7.50 (38,595)

________________________________

1Quarterly figures are end of period.

Source: Economic Report of the President.

Exhibit 6

TONKA CORPORATION

Consolidated Income Statements (dollars in millions, except per-share data)

Fiscal year 1984 1985 1986

Net revenues $139.0 $244.4 $293.4 Cost of goods sold 93.9 131.9 159.3

Gross profit 45.1 112.5 134.1

Advertising expense 13.8 40.2 45.7 Selling, general, & administrative 19.4 29.9 43.1 Other expenses (income) !1.9 2.6 1.2 Interest expense, net 5.5 3.6 3.8

Earnings before income taxes 8.3 36.2 40.3

Income taxes 3.3 16.7 18.0

Net earnings $5.0 $19.5 $22.3

Net earnings per average share $0.78 $2.99 $3.04 Shares outstanding (millions) 6.46 6.56 7.67

____________________________

Source: Annual Reports.

Exhibit 7

TONKA CORPORATION

Common Stock Prices1 1985 86

Tonka S&P 500 1985 Jan. $21.250 179.63 Feb. 29.750 181.18 Mar. 15.750 180.66 Apr. 18.750 179.83 May 20.375 189.55 June 21.750 191.85 July 29.750 190.92 Aug. 26.875 188.63 Sept. 22.750 182.08 Oct. 23.500 189.82 Nov. 28.625 202.54 Dec. 27.500 211.28 1986 Jan. 29.125 208.19 Feb. 27.625 219.37 Mar. 33.750 232.33 Apr. 22.125 237.97 May 25.250 238.46 June 28.000 245.30 July 28.325 240.18 Aug. 29.625 245.00 Sept. 24.875 238.27 Oct. 26.625 237.36

Nov. 26.625 245.09 Dec.2 19.875 248.61 1987 Jan. 2 20.500 246.45 9 21.325 258.73 16 21.625 266.28 23 22.625 270.10 30 23.000 274.08 Feb. 6 24.500 280.04

__________________________________________________________ 1Adjusted for 2-for-1 stock split July 15, 1985. 21.1-million-share stock offering.

Source: ISL Daily Stock Price Index.

Exhibit 8

TONKA CORPORATION

Consolidated Balance Sheets (dollars in millions)

December 28, January 3, 1985 1987

Cash & short-term investments $22.9 $44.8 Accounts receivable, net 44.1 58.4 Inventories 25.7 20.8 Prepaid items 6.0 5.8 Other current assets 4.5 4.8

Total current assets 103.2 134.6

Property, plant, & equipment 53.0 56.5 Less: accumulated depreciation (33.1) (34.1)

Net property, plant, & equipment 19.9 22.4

Other assets 0.2 1.6

Total assets $123.3 $158.6

Accounts payable $21.4 $17.6 Accrued liabilities 34.7 23.5 Current portion long-term debt 0.1 7.9

Other current liabilities 6.0 4.5

Total current liabilities 62.2 53.5

Long-term debt 8.1 8.2 Other liabilities 1.7 0.6

Total liabilities 72.0 62.3

Common equity 4.3 5.1 Additional paid-in capital 3.0 25.3 Retained earnings 46.4 68.2 Cumulative translation adjustments (2.4) !2.3

Total stockholders

equity 51.3 96.3

Total liabilities & equity $123.3 $158.6

_____________________________

Source: 1987 Annual Report.

Exhibit 9

TONKA CORPORATION

Debt Structure (dollars in millions)

December 28, January 3, 1985 1987

Bank term loanCinterest due on a current basis 12.1%, due January 5, 1987 $7.8 $7.8 Revolving credit agreement -.- 8.0 Other notes 0.2 0.1

Total notes 8.0 15.9

Capital lease obligations 0.2 0.2

Total debt 8.2 16.1 Less amounts due within 1 year included in current portion of long-term debt !0.1 !7.9

Total long-term debt $8.1 $8.2

In January 1986, Tonka established a $20 million revolving-credit and term-loan

facility. The company had the option of converting borrowings under the facility into term bor rowings of up to 5 years at a time prior to December 31, 1987. The $8 million outstanding carried a n average interest rate of 7.5 percent.

In 1986, Tonka had seasonal credit lines that allowed the company to borrow from $32.6 million to $80.3 million. At this time, the company had $46.3 million of credit lines avail able.

Interest expense on all debt was $4.3 million in 1986 and $4.3 million in 1985.

__________________________

Source: 1987 Annual Report.

Exhibit 10

TONKA CORPORATION

Company Sales by Product (dollars in millions)

1984 1985 1986E 1987E

Trucks $73.7 $68.4 $73.0 $75.0 GoBots 52.8 132.0 25.0 10.0 Pound Pets 0.0 34.2 130.0 100.0 Rock Lords 30.0 15.0 Steel Monsters 10.0 15.0 Legions of Power 10.0 15.0 Keypers 12.0 20.0 Bathing Beauties and Hollywoods 10.0 30.0 Other1 13.0 9.8 15.0 90.0

Total $139.5 $244.4 $315.02 $370.0

_____________________________________________________

1Includes licensing fees and incremental international sales in truck line. 2Actual sales in 1986 were $293.4 million.

Source: Keith J. DeVore and Stephen M. Carnes, Research Update (Piper, Jaffray & Hopwood, August 1986).

Exhibit 11

TONKA CORPORATION

Summary of World Operations (in millions of dollars)

Fiscal Year_______________ 1984 1985 1986

Net revenues: United States $117.2 $216.2 $265.5 International 25.8 33.4 32 Transfers !4.0 !5.2 !4.1

Total net revenues 139.0 244.4 293.4 Operating profits: United States 10.6 39.4 45.4 International 1.3 3 !0.1

Total operating profits 11.9 42.4 45.3 Other 1.9 !2.6 !1.3 Interest, net !5.5 !3.6 !3.7

Earnings before taxes $8.3 $36.2 $40.3

Assets: United States $57.2 $106.2 $141.7 International 14.9 17.1 16.9

Total assets $72.1 $123.3 $158.6

Liabilities United States $34.4 $64.0 $54.8 International 5.8 8 7.6

Total liabilities $40.2 $72.0 $62.4

____________________________

Source: Annual Reports.

Exhibit 12

TONKA CORPORATION

Pro Forma Capitalization Changes, 1986 (dollars in millions except per-share data)

Debt/Total Capital Actual 20% 40% 60%

Earnings before income taxes $44.1 $44.1 $44.1 $44.1 Interest expense--net (1) 3.8 4.4 6.5 8.7 Earnings before taxes 40.3 39.7 37.6 35.4 Income taxes (45%) 18.0 17.9 16.9 16.0 Net income $22.3 $21.9 $20.7 $19.5

Dividends (millions)(2) $0.50 $0.49 $0.46 $0.44 Shares outstanding (millions) 7.67 7.38 6.37 5.47 Earnings per share (3) $2.91 $2.96 $3.25 $3.56 Dividends per share (2,3) $0.07 $0.07 $0.07 $0.07

Book value: Net working capital $89.0 $89.0 $89.0 $89.0 Long-term assets 24.0 24.0 24.0 24.0 Total assets (4) $113.0 $113.0 $113.0 $113.0

Debt (5) 16.7 22.7 45.2 67.8 Equity 96.3 90.3 67.8 45.2 Total capital $113.0 $113.0 $113.0 $113.0

Market value: Net working capital $89.0 $89.0 $89.0 $89.0 Long-term assets 75.7 75.7 75.7 75.7 PV of debt tax shield (45%) 7.5 10.2 20.4 30.5 Total assets $172.2 $174.9 $185.0 $195.2

Debt (6) 16.7 22.7 45.2 67.8 Equity 155.5 152.2 139.8 127.4 Market value of capital $172.2 $174.9 $185.0 $195.2

Price per share (7) $20.27 $20.62 $21.94 $23.27 Shares repurchased (millions) 0.00 0.29 1.30 2.20

Assumes: 1) Interest expense of 9.5% on new debt + $3.8 million net interest on old debt (January 1986 prime lending rate). 2) Dividends of 2.24% of earnings (actual 1986 rate). 3) No dividends paid or earnings per share calculated on treasury stock. 4) Total assets remain constant. 5) The debt balance as of January 3, 1987, includes the $16.1 million of total d ebt indicated in Exhibit 9, plus $.6 million of other liabilities indicated in Exhibit 8. The analyst assumed the o ther liabilities were fixed-interest obligations. 6) Assumes market values of debt equal book values. 7) Stock repurchase prices based on maintaining actual end-of-year 1986 company market value of net assets.

__________________________

Source: Casewriter estimates.

Exhibit 13

TONKA CORPORATION

Interest Rates and Yields

Treasuries_________________ Bills Notes & Bonds Moody s Prime 3-Mo 1-Yr 3-Yr 10-Yr 20-Yr Aaa Baa Lending

1982 10.61 11.07 12.92 13.00 12.92 13.79 16.11 14.86 1983 8.61 8.80 10.45 11.10 11.34 12.04 13.55 10.79 1984 9.52 9.92 11.89 12.44 12.48 12.71 14.19 12.04 1985 7.48 7.81 9.64 10.62 10.97 11.37 12.72 9.93 1986 Jan. 7.04 7.31 8.41 9.19 9.59 10.05 11.44 9.50 Feb. 7.06 7.11 8.10 8.70 9.08 9.67 11.11 9.50 Mar. 6.56 6.59 7.30 7.78 8.09 9.00 10.50 9.00 April 6.06 6.06 6.86 7.30 7.50 8.79 10.19 8.50 May 6.15 6.25 7.27 7.71 7.81 9.08 10.29 8.50 June 6.21 6.32 7.41 7.80 7.69 9.13 10.34 8.50 July 5.83 5.90 6.86 7.30 7.29 8.88 10.16 8.00 August 5.53 5.60 6.49 7.17 7.28 8.72 10.18 7.50 Sept. 5.21 5.45 6.62 7.45 7.56 8.89 10.20 7.50 Oct. 5.18 5.41 6.56 7.43 7.61 8.86 10.24 7.50 Nov. 5.35 5.48 6.46 7.25 7.42 8.68 10.07 7.50 Dec. 5.53 5.55 6.43 7.11 7.28 8.49 9.97 7.50 1987 Jan. 5.43 5.46 6.41 7.08 7.25 8.36 9.72 7.50

____________________________

Source: Federal Reserve Bulletin.

Appendix

TONKA CORPORATION

Sales Prospects for 1987

Pound Puppies and Pound Purries, the company=s line of plush toys, were to be su pported by continued airing of an ABC-TV show and a feature-length movie, Dog Days of Summe r, later in 1987. This product line was the company=s strongest in 1986.

Keypers were plastic and plush characters for girls aged 4 to 10, based on a col lection of greeting cards. Plastic Keypers had a hidden storage compartment and a large plastic key. Plush Keypers were more like handbags. They were introduced in the second quarter of 1 986 and had good initial sales ($10 million, estimated).

Bathing Beauties and Hollywoods were for girls aged 3 and up. They both had hair that changed color either in warm water or by touch. Bathing Beauties, introduced in the thir d quarter of 1986, were 14-inch baby dolls, and newer Hollywoods were 5 inches long and had a modern, trendy appearance.

Love Me Tender was designed to be a girl=s first doll. It was soft and frilly, t o appeal to girls aged 18 months and older.

Aurora was a line of fashion dolls with shiny metallic or crystal-like bodies, l ong brightly colored hair, and gemlike eyes.

Maple Town was composed of a broad line of poseable vinyl miniature animal chara cters and play sets for children aged 4 to 7. Its introduction in Japan had been successful, an d its sales in the United States were to be supported by a 52-part syndicated Maple Town TV show th at would begin airing later in 1987.

SuperNaturals were the first action figures that used holographic technology (mi rrors) to create three-dimensional images on the surface of photographic film. They were designed to appeal to boys 5 years and older.

Spiral Zone characters were futuristic action figures with accessories based on a military theme. The line was to be introduced through a 65-part syndicated TV show in the fall of 19 87. Spiral Zone targeted boys aged 7 to 11.

Appendix (continued)

Rock Lords, based on the GoBots theme, were rocks that sprouted heads (sometimes more than one), legs, and arms to become action figures. The toys were to be introduced th rough a movie, GoBots: Battle of the Rock Lords, to be released at Easter 1987; a comic book to be released at the same time; and 13 episodes of the Challenge of the GoBots TV ser ies. Revenue estimates in 1986 were between $20 million and $30 million.

Tonka Trucks had been the company=s longest success. The company was estimated t o hold about 75 percent of the mature, preschool toy truck market. Tonka began to raise the o peration=s gross margins in 1985. In 1986, it introduced a new line for even younger childr en: My First Tonka.

Steel Monsters, based on the Tonka Truck line, were designed to appeal to boys a ged 5 to 9. They were similar in construction to the traditional line of trucks, but with names l ike Assassin and Executioner, they looked like vehicles from the postapocalyptic Mad Max movies. Revenue estimates in 1986 were between $10 million and $20 million.