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Illustrating the Deal Structuring and Valuation Process
an
The purpose of this Microsoft Excel spreadsheet model is to provide an example of how the model
building process outlined in Chapter 9 of the textbook (Mergers and Acquisitions and Other Corporate
(5th edition) by Donald DePamphilis can be used to develop the initial offer price and subsequent
counter-offers during deal negotiations. The model is intended to serve as a template or pattern
for constructing M&A financial models.1 As such, the spreadsheet model contained on this diskette
tained
model contained on this CD-ROM
should be altered to reflect the unique characteristics of each situation.
The spreadsheet model follows a four-step model building process. Each step contains the number
of worksheets needed to satisfy the requirements of each step. Each worksheet is identified by a self-
explanatory title and the "short name" used in developing the worksheet linkages. Appendices A and
B include the projected timeline, milestones, and individual(s) responsible for each activity required to
complete the transaction.
Step Worksheet Title Short Name
1 Determine Acquirer and Target Standalone Valuations
Acquirer 5-Year Forecast and Standalone Valuation BP_App_B1
Acquirer Historical Data and Ratios BP_App_B2
Acquirer Debt Repayment Schedules BP_App_B3
Acquirer Cost of Equity and Capital Calculation BP_App_B4
Target 5-Year Forecast and Standalone Valuation AP_App_B1
Target Historical Data and Ratios AP_App_B2
Target Cost of Equity and Capital Calculation AP_App_B3
2 Value Combined Acquirer and Target Firms Including Synergy
Combined Firm's 5-Year Forecast and Valuation AP_App_C
Synergy Estimation AP_App_D
3 Determine Initial Offer Price for Target Firm
Offer Price Determination AP_App_E
Alternative Valuation Summaries AP_App_F
4 Determine Combined Firm's Ability to Finance Transaction
Combined Firm's Financing Capacity AP_App_G
Appendix A Acquisition Timeline AP_App_A1
Appendix B Summary: Milestones and Responsible Individual(s) AP_App_A2
Please be aware that a number of worksheets use the "iteration" calculation option of Excel.
This option may have to be turned on for the worksheets to operate correctly. If the program gives
you a "circular reference warning," please go to Tools, Options, Calculation and turn on the
iteration feature. Ten iterations will usually be enough to solve any circular reference; however,
the number may vary with different versions of Excel. Individual model simulations can be most
efficiently generated by making relatively small incremental changes to a few key assumptions
underlying the model. Key assumptions include such variables as sales growth and the cost of
sales as a percent of sales.
The use of Excel's interation capability will accommodate the "circularity or circular references"
inherent in the model. For example, the change in cash and investments impacts interest income,
which in turn affects net income and the change in cash and investments.
1
This illustration was adapted from a Loyola Marymount University MBA paper by Jon Murray,
Christian Klawitter, Kenin McConahey, and Addie Stalk entitled "Mattel Proposes to Buy JAKKS
Pacific," May 2, 2002. The author would like to acknowledge the special contribution Addie Stalk
made to this paper.
Appendix B-1
MATTEL Business Plan 2001-2005 Financial Forecast
Step 1: Acquirer 5-Year Forecast and Standalone Valuation
Forecast Assumptions 2006 - 2010 2006 2007 2008 2009 2010
Net Sales Growth Rate 4.0% 4.0% 4.0% 4.0% 4.0%
Cost of Sales (Variable) / Sales % 52.5% 51.5% 51.0% 50.5% 50.5%
Depreciation & Amortization / Gross Fixed Assets % 8.3% 8.3% 8.3% 8.3% 8.3%
Selling Expenses / Sales (%) 14.5% 14.5% 14.5% 14.5% 14.5%
G&A Expenses / Sales (%) 19.0% 18.5% 18.0% 17.2% 16.4%
Interest on Cash & Marketable Securities 5.0% 5.0% 5.0% 5.0% 5.0%
Interest Rate on New Debt (%) 8.3% 8.3% 8.3% 8.3% 8.3%
Marginal Tax Rate 18.0% 22.0% 25.0% 30.0% 37.0%
Other Current Operations Assets / Sales (%) 35.0% 35.0% 35.0% 35.0% 35.0%
Other Assets / Sales (%) 35.0% 30.0% 25.0% 20.0% 20.0%
Gross Fixed Assets / Sales (%) 25.0% 25.0% 25.0% 25.0% 25.0%
Minimum Cash Balance / Sales (%) 4.5% 4.5% 4.5% 4.5% 4.5%
Current Liabilities / Sales (%) 30.0% 30.0% 28.0% 26.0% 25.0%
Common Shares Outstanding (Mil) 426.0 426.0 426.0 426.0 426.0
Cost of Capital: 2006 - 2010 (%) 11.81% 1)
Cost of Capital: Terminal Period (%) 10.31% 1)
Sustainable Cash Flow Growth Rate (%) 4.00%
Market Value of Long-Term Debt $1,171 million
Historical Financials Projected Financials
2002 2003 2004 2005 2006 2007 2008 2009 2010
Income Statement ($mil) 1)
Net Sales 4,779 4,698 4,596 4,670 4,857 5,051 5,253 5,463 5,682
Less:
Variable Cost of Sales 2,315 2,286 2,333 2,415 2,449 2,496 2,570 2,646 2,751
Depreciation 100 103 81 75 101 105 109 113 118
Total Cost of Sales 2,415 2,389 2,414 2,490 2,550 2,601 2,679 2,759 2,869
Gross Profit 2,364 2,310 2,182 2,180 2,307 2,450 2,574 2,704 2,812
Less:
Sales Expense 761 786 685 681 704 732 762 792 824
G&A Expense 780 863 868 908 923 934 946 940 932
Amortization of Intangibles 32 41 52 52 52 52 52 52 52
Other expense (income), net 1 5 (5) (19) (16) (16) (16) (16) (16)
Total Sales and G&A Expense 1,574 1,695 1,599 1,622 1,663 1,703 1,743 1,768 1,792
Operating Profits (EBIT) 790 615 583 558 644 747 831 936 1,021
Plus: Interest Income - - - 23 40 47 74 96
Less: Interest Expense 90 111 132 153 127 128 121 96 96
Net Profits Before Taxes 700 504 451 405 540 659 757 915 1,021
Less: Taxes 201 131 62 55 97 145 189 274 378
Net Profits After Taxes 500 373 390 350 443 514 567 640 643
Mattel Business Plan 25 of 44 9/14/2012
Appendix B-1
MATTEL Business Plan 2001-2005 Financial Forecast
Historical Financials Projected Financials
2002 2003 2004 2005 2006 2007 2008 2009 2010
Balance Sheet (as of 12/31/2005)
Current Assets
Cash 695 213 247 232 219 227 236 246 256
Other Operating Assets 1,767 1,845 1,605 1,519 1,700 1,768 1,839 1,912 1,989
Total Current Assets 2,462 2,058 1,852 1,752 1,918 1,995 2,075 2,158 2,244
Investments 245 582 711 1,235 1,674
Gross Fixed Assets 939 1,159 1,147 1,121 1,214 1,263 1,313 1,366 1,420
Less: Accum. Depr. & Amort. 337 422 422 473 574 679 788 901 1,019
Net Fixed Assets 602 737 725 648 640 584 526 465 402
Other Assets 852 1,819 2,097 1,914 1,914 1,913 1,913 1,913 1,913
Total Assets 3,915 4,613 4,674 4,313 4,718 5,075 5,224 5,771 6,233
Current Liabilities 1,173 1,317 1,565 1,502 1,457 1,515 1,471 1,420 1,420
Long-Term Debt
Existing Debt 664 984 983 1,242 1,242 1,021 640 589 400
New Debt - - - - - - - - -
Other Liabilities 144 141 163 166 172 179 186 194 201
Total Liabilities 1,982 2,442 2,711 2,910 2,872 2,715 2,297 2,203 2,022
Common Stock 728 2,041 1,923 1,836 1,836 1,836 1,836 1,836 1,836
Retained Earnings 1,205 130 40 (433) 10 524 1,091 1,731 2,375
Shareholders' Equity 1,933 2,171 1,963 1,403 1,846 2,360 2,927 3,568 4,211
Total Liabilities & Shareholders' Equity 3,915 4,613 4,674 4,314 4,718 5,075 5,224 5,771 6,233
Addendum: Check (0) 1 0 (0) - - - - -
Shares Outstanding (millions) 291.6 390.8 421.6 426.0 426.0 426.0 426.0 426.0 426.0
Effective Tax Rate 28.6% 26.0% 13.7% 13.6% 18.0% 22.0% 25.0% 30.0% 37.0%
Earnings per Share $ 1.71 $ 0.95 $ 0.92 $ 0.82 $ 1.04 $ 1.21 $ 1.33 $ 1.50 $ 1.51
Long-Term Debt/Equity 37% 48% 53% 93% 70% 46% 24% 18% 11%
Addendum: Working Capital 1,288 741 287 249 461 480 604 738 824
Free Cash Flow
EBIT (1-t) 564 455 503 482 528 583 623 655 643
Plus: Depreciation and Amortization 132 144 133 127 153 157 161 165 170
Less: Gross Capital Expenditures 201 221 (12) (26) 93 49 51 53 55
Less: Change in Working Capital (200) (548) (454) (37) 212 18 124 133 86
Free Cash Flow 695 926 1,102 672 375 672 609 635 672
PV: 2006 - 2010 $ 2,100
PV: Terminal Value $ 6,342 Notes:
Total PV (Market Value of the Firm) $ 8,442 1) The historical financial statements have been adjusted for the discontinued operations.
Less: Market Value of Long-Term Debt $ 1,171 2) For the long-term, the Acquirer believes its weighted average cost of funds is the appropriate measure
Plus: Excess Cash (Investments) $ 245 to discount cash flows.
Equity Value $ 7,517
Equity Value per Share $ 17.64
Mattel Business Plan 26 of 44 9/14/2012
MATTEL Business Plan 2001-2005 Historical Ratios and Explanations of Assumptions Appendix B-2
Step 1 Continued: Acquirer Historical Data and Ratios
Historical Ratios Historical Financial Ratios
2002 2003 2004 2005 Average Minimum Maximum
Net Sales Growth Rate 1) -1.7% -2.2% 1.6% -0.8% -2.2% 1.6%
Cost of Sales (Variable) / Sales % 2) 50.5% 50.8% 52.5% 53.3% 51.8% 50.5% 53.3%
Depreciation & Amortization / Gross Fixed Assets % 3) 10.7% 8.9% 7.1% 6.7% 8.3% 6.7% 10.7%
Selling Expenses / Sales (%) 4) 15.9% 16.7% 14.9% 14.6% 15.5% 14.6% 16.7%
G&A Expenses / Sales (%) 5) 16.3% 18.4% 18.9% 19.4% 18.3% 16.3% 19.4%
Interest on Cash & Marketable Securities 6) 3.0% 3.5% 4.0% 5.0% 3.9% 3.0% 5.0%
Interest Rate on Debt (%) 7) 6.0% 5.6% 5.5% 6.7% 6.0% 5.5% 6.7%
Tax Rate 8) 28.6% 26.0% 13.7% 13.6% 20.5% 13.6% 28.6%
Other Assets / Sales (%) 9) 17.8% 38.7% 45.6% 41.0% 35.8% 17.8% 45.6%
Gross Fixed Assets / Sales (%) 10) 19.6% 24.7% 25.0% 24.0% 23.3% 19.6% 25.0%
Cash Balance / Sales (%) 11) 14.5% 4.5% 5.4% 5.0% 7.4% 4.5% 14.5%
Other Current (Operations) Assets / Sales (%) 12) 37.0% 39.3% 34.9% 32.5% 35.9% 32.5% 39.3%
Current Liabilities / Sales (%) 13) 24.6% 28.0% 34.1% 32.2% 29.7% 24.6% 34.1%
Debt / Equity 34.4% 45.3% 50.1% 88.5% 54.6% 34.4% 88.5%
Notes:
1) The Acquirer's business plan refocuses the company to capitalize on its core strengths. The firm's traditional markets are mature.
Annual average market growth of 2% is expected over the next five years. The Acquirer's initiatives are expected to provide an additional 2% by
gaining market share in the U.S. and expanding into new markets.
2) Bringing down the Cost of Sales to 50.5% over the next four years will be achieved through the following actions:
- the reduction of excess manufacturing capacity,
- the termination of a variety of licensing and other contractual arrangements that did not deliver adequate profitability,
- the elimination of product lines that did not meet required levels of profitability, and
- the improvement of supply chain performance and economics.
3) Depreciation as percent of Gross Fixed Assets has been estimated at the average ratio over the historical period.
4) The elimination of underperforming product lines will allow the company to spend sales dollars more effectively.
5) Although G&A expense shows an increase in 2004 and 2005, this percentage is expected to decrease over the next
few years to 16.5% as a result of major efficiency initiatives, including
- the elimination of approximately 350 positions at the US-based headquarters and in certain other subsidiaries.
- the closing of certain international offices, and
- an increase in efficiency in supply chain communication.
6) A blended rate, combining non-interest bearing deposits and marketable securities, is used in the forecast.
7) The interest on Current Debt is calculated based on the existing interest rates on the debt.
The interest rate on future debt will be estimated at the interest rate on Moody's A rated debt as of December 2000.
8) The tax rate shown is the tax on income after exclusion of non-recurring charges. The actual tax rate was 24.5% for 2000, 5,
36.3% for 2004 and 28.6% for 2003. As of December 31, 2005, the Acquirer had US Net Operating loss carry-forwards totalling $1.1 billion.
Utilization of these carry-forwards is subject to annual limitations. As a result of the loss carry-forwards, the income tax rate for
2006-2008 is estimated at 18%, 22% and 25%.The tax rate is estimated to increase to 30% in 2009 and 37% in 2010.
9) Other Assets include $515 million in deferred income taxes. Without this amount the ratio of Other Assets / Sales would have
been 29%. As losses are used, the percentage of Other Assets will be reduced over the next three years.
10) Elimination of excess capacity will be balanced by increased investment in new equipment. Gross Fixed Assets are
expected to grow in line with sales during the forecast period.
11) To ensure sufficient liquidity a minimum cash balance of 4.5% is included in the forecast.
12) Working capital has been reduced to below desirable levels over the last few years putting a strain on the funding of current operations.
To ensure sufficient Current Assets to fund operations a minimum level of 35% for Other Current Operating Assets is included in the forecast.
13) Current Liabilities as a % of Sales are above average in 2005 as a result of severance pay and other charges resulting from the
provisions for elimination of redundant positions (see item 5). This percentage is expected to be reduced gradually over the forecast period.
Mattel Business Plan 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xlsBP_App_B2 9/14/2012
MATTEL Business Plan Appendix B-3
2001 - 2005
Debt Maturity Schedule and Interest Payments
Step 1 Continued: Acquirer Debt Repayment Schedules
Maturity Schedule and Interest Rates - Existing Long-Term Debt for Forecast Period
(Amounts in thousands)
Maturity Schedule Total Debt 2006 2007 2008 2009 20010 2011 2012
Maturing Interest Maturing Interest Maturing Interest Maturing Interest Maturing Interest
Debt Category 12/31/2005 Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount % Amount
Long-Term Debt 1) 690,710 190,710 5.500% 350,000 5.500% 150,000 5.500%
Medium-Term Notes 540,500 30,500 7.500% 30,000 7.500% 30,000 7.500% 50,000 7.500% - 0.000% 50,000 7.500% 50,000
Mortgage Note 42,380 694 10.150% 767 10.150% 849 10.150% 939 10.150% 39,131 10.150%
Total Debt 2) 1,273,590 31,194 7.559% 221,477 5.787% 380,849 5.668% 50,939 7.549% 189,131 6.462% 50,000 7.500% 50,000
Remaining Balance Beg. Bal 2006 2007 2008 2009 2010
Ending Interest Ending Interest Ending Interest Ending Interest Ending Interest
Debt Category 1/1/2006 Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
Long-Term Debt 690,710 690,710 5.500% 500,000 5.500% 150,000 5.500% 150,000 5.500% - 5.500%
Medium-Term Notes 540,500 510,000 7.500% 480,000 7.500% 450,000 7.500% 400,000 7.500% 400,000 7.500%
Mortgage Note 42,380 41,686 10.150% 40,919 10.150% 40,070 10.150% 39,131 10.150% - 10.150% -
Total Debt 1,273,590 1,242,396 6.477% 1,020,919 6.627% 640,070 7.197% 589,131 7.167% 400,000 7.500% -
Interest Payments
2006 2007 2008 2009 2010
Interest Rate 6.477% 6.627% 7.197% 7.167% 7.500%
Beginning Balance 1,273,590 1,242,396 1,020,919 640,070 589,131
Interest on LT, MT, & Mort. Debt 82,491 82,330 73,478 45,872 44,185
Credit Facility 3) 700,000 728,000 757,120 787,405 818,901
Interest on Credit Facility 44,380 46,155 48,001 49,921 51,918
Total Interest 126,871 128,485 121,479 95,794 96,103 -
Notes:
1) Long-Term Debt consists of:
- Euro Notes 190,710
- Unsecured term loan-2008 200,000
- Senior Notes-2008 150,000
- Senior Notes - 2010 150,000
Total 690,710
2) Including short-term portion that matures in 2005 that is included in Current Liabilities. Interest rate is calculated as a weighted average of long-term, medium term, and mortgage note interest rates.
Note the weighted average interest rates associated with the principal repayments are used on Worksheet BP_App_B4 to calculate the dollar value of coupon in estimatin
3) The Acquirer has a $1 billion unsecured committed facility for seasonal financing, as well
as $400 million in foreign credit line.
Average usage is 50% or $700 million.
Interest rate is Commercial Paper rate 6.34%
Need for credit lines is assumed to keep pace with sales growth at 4.00%
Mattel Business Plan 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xls - BP_App_B3 9/14/2012
MATTEL Business Plan Appendix B-3
2001 - 2005
Debt Maturity Schedule and Interest Payments
2012 2013 2014 2015
% Amount % Amount % Amount %
7.500% 100,000 7.500% 100,000 7.500% 100,000 7.500%
7.500% 100,000 7.500% 100,000 7.500% 100,000 7.500%
ote interest rates.
Mattel Business Plan 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xls - BP_App_B3 9/14/2012
Appendix B-4
MATTEL Business Plan 2001 - 2005
Supplemental Financial Data
Step 1 Continued: Acquirer Cost of Equity and Capital Calculations
Financial Benchmarks as of December 31, 2005
Prime 9.50%
10 -Year T-Note 5.24%
Commercial Paper 3-months 6.34%
Federal Funds Rate 6.40%
CD's 6 months 6.30%
Moody's A 8.33%
Industry Long-term Debt/Equity 50.00%
Calculation of Cost of Equity and Capital
Risk-free Rate 5.24%
Acquirer's Unlevered Beta 1.40 1)
Acquirer's Target D/(D+E) Ratio 50%
Acquirer's Target Tax Rate 37%
Acquirer's Levered Beta 1.84
Market Risk Premium 5.50%
Acquirer's Cost of Debt 8.33%
Acquirer's Cost of Equity 15.37%
Acquirer's Weighted Cost of Capital 10.31%
Additional Risk Premium 1.50% 2)
Adjusted Cost of Capital 11.81%
Calculation of Market Value of Current Long-Term Debt
Discount Rate - Moody's Aaa 8.33%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total
Int. Rate 7.56% 5.79% 5.67% 7.55% 6.46% 7.50% 7.50% 7.50% 7.50% 7.50%
BegBal 1,273,590 1,242,396 1,020,919 640,070 589,131 400,000 350,000 300,000 200,000 100,000 -
Payments: Principal 31,194 221,477 380,849 50,939 189,131 50,000 50,000 100,000 100,000 100,000 1,273,590
Interest 95,091 65,489 47,072 46,395 31,959 28,125 24,375 18,750 11,250 3,750
Total Debt Int+Principal 126,285 286,966 427,921 97,334 221,090 78,125 74,375 118,750 111,250 103,750
Discounted Value $1,170,762
1) If the firm is a public company, the levered beta may be estimated directly. However, if it is a private firm, an unlevered beta associated with a comparable
company may be adjusted for the leverage of the firm for which the levered beta is to be calculated.
2) The analyst in this instance believes the estimated cost of debt and equity does not adequately account for risk that is specific to the firm. Therefore,
1.5% is added to the cost of capital to create the adjusted cost of capital. The magnitude of this adjustment is based on what the analyst believes
to be the cost of capital for firms exhibiting risk comparable to the Acquirer.
Mattel Business Plan 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xls - BP_App_B4 9/14/2012
Acquisition Plan - JAKKS Appendix B-1
Financial Forecast 2001 - 2005 and Valuation JAKKS
Step 1 Continued: Target 5- Year Forecast and Standalone Valuation
Forecast Assumptions 2006 - 2010 2006 2007 2008 2009 2010
Net Sales Growth Rate 15.0% 15.0% 10.0% 8.0% 5.0%
Cost of Sales (Variable) / Sales % 60.2% 59.7% 59.5% 59.5% 59.5%
Depreciation & Amortization / Gross Fixed Assets % 10.0% 10.0% 10.0% 10.0% 10.0%
Selling Expenses / Sales (%) 15.0% 15.0% 15.0% 15.0% 15.0%
G&A Expenses / Sales (%) 14.5% 14.5% 14.1% 14.1% 14.1%
Interest on Cash & Marketable Securities 1) 5.0% 5.0% 5.0% 5.0% 5.0%
Interest Rate on New Debt (%) 7.2% 7.2% 7.2% 7.2% 7.2%
Marginal Tax Rate 29.0% 29.5% 30.0% 30.5% 31.0%
Other Current Operations Assets / Sales (%) 30.0% 30.0% 30.0% 30.0% 30.0%
Other Assets / Sales ($5 million decrease per year) 5.00 5.00 5.00 5.00 5.00
Gross Fixed Assets / Sales (%) 12.0% 12.0% 12.0% 12.0% 12.0%
Minimum Cash Balance / Sales (%) 6.0% 6.0% 6.0% 6.0% 6.0%
Current Liabilities / Sales (%) 25.0% 25.0% 25.0% 25.0% 25.0%
Common Shares Outstanding (Mil) 19.1 19.1 19.1 19.1 19.1
Cost of Capital: 2006 - 2010 (%) 13.55%
Cost of Capital: Terminal Period (%) 11.50% 3)
Sustainable Cash Flow Growth Rate (%) 4.00%
Market Value of Long-Term Debt $1.4 million
Historical Financials Projected Financials
2002 2003 2004 2005 2006 2007 2008 2009 2010
Income Statement ($mil)
Net Sales 42 85 184 252 290 334 367 396 416
Less:
Variable Cost of Sales 25 49 103 141 171 195 214 231 243
Depreciation 1 3 5 9 3 4 4 5 5
Total Cost of Sales 26 52 108 150 175 199 218 236 248
Gross Profit 16 33 76 102 115 134 149 161 169
Less:
Sales Expense 6.30 13 28 38 44 50 55 59 62
G&A Expense 5.60 11 24 43 42 48 52 56 59
Amortization of Intangibles - - - - - - - - -
Other expense (income), net 2) 0 1 (4) (15) (16) (16) (16) (16) (16)
Total Sales and G&A Expense 12 25 47 66 70 83 91 99 105
Operating Profits (EBIT) 4 9 29 37 46 52 58 61 63
Plus: Interest Income - - 2 4 6 8 10 13 16
Less: Interest Expense 0 0 - - 0 0 0 0 -
Net Profits Before Taxes 3 8 30 40 51 60 68 74 80
Less: Taxes 1 2 8 12 15 18 20 23 25
Net Profits After Taxes 2.8 6 22 29 36 42 48 52 55
Acquisition Plan JAKKS 31 of 44 9/14/2012
Acquisition Plan - JAKKS Appendix B-1
Financial Forecast 2001 - 2005 and Valuation JAKKS
Historical Financials Projected Financials
2002 2003 2004 2005 2006 2007 2008 2009 2010
Balance Sheet
Current Assets
Cash 3 12 97 43 17 20 22 24 25
Other Operating Assets 12 16 61 86 87 100 110 119 125
Total Current Assets 15 29 158 129 104 120 132 143 150
Investments 95 136 186 240 300
Gross Fixed Assets 4 6 17 30 35 40 44 48 50
Less: Accum. Depr. & Amort. 1 2 5 11 14 18 23 27 32
Net Fixed Assets 3 4 12 19 21 22 21 20 18
Other Assets 26 26 64 101 96 91 86 81 76
Total Assets 44 59 233 249 317 369 425 484 544
Current Liabilities 12 15 44 42 73 83 92 99 104
Long-Term Debt
Existing Debt 6 6 0 1 1 1 1 0 -
New Debt - - - - - - - - -
Other Liabilities 0 0 1 1 2 2 2 2 2
Total Liabilities 18 21 45 44 76 86 94 102 106
Common Stock 22 27 155 144 144 144 144 144 144
Retained Earnings 4 11 32 61 97 139 187 239 294
Shareholders' Equity 26 38 188 205 241 283 331 382 437
Total Liabilities & Shareholders' Equity 44 59 233 249 317 369 425 484 544
Addendum: Check (0) (0) 0 (0) - - - - -
Shares Outstanding (millions) 6.9 8.5 13.9 19.1 19.1 19.1 19.1 19.1 19.1
Effective Tax Rate 18.8% 22.6% 27.5% 29.0% 29.0% 29.5% 30.0% 30.5% 31.0%
Earnings per Share $ 0.40 $ 0.75 $ 1.58 $ 1.50 $ 1.91 $ 2.20 $ 2.50 $ 2.70 $ 2.88
Addendum: Working Capital 3 14 113 87 32 37 40 44 46
Free Cash Flow
EBIT (1-t) 3 7 21 26 33 37 40 42 44
Plus: Depreciation and Amort. 1 3 5 9 3 4 4 5 5
Less: Gross Capital Expenditures 3 3 10 13 5 5 4 4 2
Less: Change in Working Capital (4) 10 99 (26) (55) 5 4 3 2
Free Cash Flow 6 (3) (84) 49 86 31 37 40 44
PV: 2006 - 2010 $172.4
PV: Terminal Value $324.3 3)
Total PV (Market Value of the Firm) $496.7
Less: Market Value of Long-Term Debt $1.4
Plus: Excess Cash (Investments) $95.4
Equity Value $590.7
Equity Value per Share $30.99
Notes:
1) Blended rate on interest-bearing cash accounts and short-term money market instruments.
2) The Target receives certain licensing income from a joint venture. In 2000 this licensing income was $15.9 million.
The Target expects an increase in licensing income but for the valuation this income has been held stable through 2005.
3) The terminal period cost of capital is reduced to 11.5%. The Target's cost of capital will remain higher than that of the Acquirer's because of its low leverage.
Acquisition Plan JAKKS 32 of 44 9/14/2012
Acquisition Plan - JAKKS Appendix B-2
Historical Rates and Explanations for Rates Used in Forecast / Valuation JAKKS
Step 1 Continued: Target Historical Data and Ratios
Historical Ratios Historical Financial Ratios
2002 2003 2004 2005 Average Minimum Maximum
Net Sales Growth Rate 1) 103.2% 115.5% 37.3% 85.4% 37.3% 115.5%
Cost of Sales (Variable) / Sales % 2) 61.7% 61.0% 58.6% 59.4% 60.2% 58.6% 61.7%
Depreciation & Amortization / Gross Fixed Assets % 3) 27.8% 46.2% 27.1% 31.3% 33.1% 27.1% 46.2%
Selling Expenses / Sales (%) 4) 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0%
G&A Expenses / Sales (%) 5) 13.3% 13.2% 12.8% 16.9% 14.1% 12.8% 16.9%
Interest on Cash & Marketable Securities 6) 0.0% 0.0% 1.6% 8.9% 2.6% 0.0% 8.9%
Interest Rate on Debt (%) 7) 7.0% 7.1% 0.0% 0.0% 3.5% 0.0% 7.1%
Tax Rate 8) 18.8% 22.6% 27.5% 29.0% 24.5% 18.8% 29.0%
Other Current Operations Assets / Sales (%) 9) 29.5% 19.0% 33.0% 34.0% 28.9% 19.0% 34.0%
Other Assets / Sales (%) 10) 61.4% 30.3% 34.7% 40.1% 41.6% 30.3% 61.4%
Gross Fixed Assets / Sales (%) 11) 9.4% 7.6% 9.2% 11.7% 9.5% 7.6% 11.7%
Cash Balance / Sales (%) 12) 6.0% 14.6% 52.7% 17.0% 22.6% 6.0% 52.7%
Current Liabilities / Sales (%) 13) 27.6% 17.5% 24.1% 16.5% 21.4% 16.5% 27.6%
Capital Expenditures / Gross Fixed Assets 14) 74.2% 38.8% 61.7% 43.1% 54.4% 38.8% 74.2%
Debt / Equity 15) 23.0% 15.7% 0.0% 0.5% 9.8% 0.0% 23.0%
Notes:
1) During the last few years, the Target has acquired several small companies which have contributed to its large growth in net sales. For purposes of the valuation,
we assume a higher growth rate than the mature industry (2-4%) in which the Target competes, because the Target derives a large portion of its sales from
segments whose growth is exceeding the overall market growth rate. We assume 10% growth for the next 2 years, after which we expect growth to decline gradually
to 5% in 2010. Beyond 2010, the Target's growth is expected to mirror the industry's long-term 4% rate of growth.
2) The Target has realized cost of sales efficiencies in their recent acquisitions. They have reduced licensing and royalty payouts by acquiring technology
and viable brands with extended life. However, the use of outside manufacturers results in inherently higher manufacturing costs than those of the Acquirer.
3) Depreciation of Gross Fixed Assets has been set at 10% to assume a 10 year depreciation cycle which is standard for most long-lived assets in this industry.
4) Selling expenses will remain flat as a percentage of sales within our model.
5) The Target has experienced some growth in G&A expenses due to acquisition related overhead. In a stable environment we expect overhead to normalize
at 14.1% by 2008 and continue at that level through 2010.
6) A blended rate, combining non-interest bearing deposits and marketable securities at federal funds rate, is used in the forecast.
7) The interest on Current Debt is calculated based on the existing interest rates on the debt.
The interest rate on future debt will be calculate at Moody's Aaa rate for debt as of December 31, 2005.
8) The Target's tax rate in 2005 was 29%. The company's overall tax rate is favorably impacted by Hong Kong operations that pay tax at 16.5%.
The tax rate is assumed to increase slightly during the forecast period.
9) Other Current Operations assets are assumed to be maintained at about the average rate of the past years at 30%.
2002-2005
10) Other Assets include about $70 million in Goodwill resulting from a number of acquisitions during the period from 1997-2000.
The forecast assumes no acquisitions. As a result of amortization Other Assets will decline by $5 million a year. Note that at the time of this acquisition
financial accounting standards still required the amortization of acquisition-related goodwill.
11) Fixed assets as a percentage of sales will be increased to 12% to sustain growth of the business. Fixed assets mainly consists of molds and tooling
and 12% will provide a reasonable replenishment rate of these assets.
12) The Target is producing cash balances in excess of financing needs. Cash balances for the projected years have been forecast at a minimum
level of 6%. This is slightly higher than the minimum level for the Acquirer (4.5%) because the Target's smaller balance sheet provides
less flexibility in meeting unanticipated cash needs.
13) Current Liabilities have decreased substantially over the last few year as allowances and reserves for obsolescence have gone down as a percentage of sales.
In our model we assume 25% to be conservative.
14) Capital Expenditures have been high in the past as the Target has been acquiring fixed assets as part of their recent acquisitions.
We have projected a decrease in capital expenditures as the forecast does not include projections for acquisitions.
Acquisition Plan JAKKS 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xls 9/14/2012
Acquisition Plan - JAKKS Appendix B-2
Historical Rates and Explanations for Rates Used in Forecast / Valuation JAKKS
15) The target's management is assumed to continue its 2004-2005 trend and keep debt to a minimum through 2010.
Acquisition Plan JAKKS 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xls 9/14/2012
Acquisition Plan - JAKKS Appendix B-3
Supplemental Financial Data JAKKS
Step 1 Continued: Target Cost of Equity and Capital Calculation
Financial Benchmarks as of December 31, 2005 As of 12/31/2005
Industry
Average
Prime 9.50% Key Valuation Indicators 1) Acquirer Target
10 -Year T-Note 5.24% P/E 14.5 17.7 6.1 2)
Commercial Paper 3-months 6.34% P/S 1.5 1.3 0.7 2)
Federal Funds Rate 6.40% LT Debt/Equity 50% 89% 1% 2)
CD's 6 months 6.30% ROI - 5 year avg. 12.6% 4.7% 15.1% 1)
Moody's A 8.30% ROE - 5 year avg. 17.3% 8.1% 16.2% 1)
Supplemental Financial Data Stock Price as of 12/31/2000 $ 14.55 $ 9.13
Risk-free Rate 5.24% Current stock price $ 16.03 $ 14.25
Target's Unlevered Beta 1.51
Market Risk Premium 5.50%
Target's Cost of Equity 13.55%
Target's level of D/E 0%
Target Tax Rate 31%
Levered Beta 1.51
Market Value of Current Long-Term Debt (in thousands)
Discount Rate - Moody's Aaa 7.21%
2006 2007 2008 2009 2010
Int. Rate 7.75% 7.75% 7.75% 7.75% 7.75%
BegBal 1,400 1,000 600 200 -
Payments: Principal 400 400 400 200 200
Interest 93 62 31 8 -
Total Debt Cash Flow 493 462 431 208 200
Discounted Value $1,369
Notes:
1) From investment research reports.
2) Based on financial data in statements and year-end stock price.
Acquisition Plan JAKKS 136eca3f-e3ef-4afe-87b3-b48e75e4e4d6.xls 9/14/2012
Acquisition Plan - JAKKS Appendix C
Forecast 2001 -2005 and Valuation of Combined Companies
Step 2: Combined Firm's 5-Year Forecast and Valuation
Consolidated Acquirer and Target - including Synergy
Forecast Assumptions 2006 - 2010 2006 2007 2008 2009 2010 Sum
Cost of Sales Synergy 3.9 10.8 13.8 13.8 14.3 56.5
Selling Expenses Synergy 1.6 3.3 3.3 3.3 3.3 14.9
G&A Expenses Synergy 1.6 3.3 3.3 3.3 3.3 14.7
Integration Expenses (1.1) - - - - (1.1)
Cost of Capital: 2006 - 2010 (%) 11.81% 1) 85.0
Cost of Capital: Terminal Period (%) 10.31% 1)
Sustainable Cash Flow Growth Rate (%) 4.0% 1)
Market Value of Long-Term Debt $1,172
Historical Financials Projected Financials
2002 2003 2004 2005 2006 2007 2008 2009 2010
Income Statement ($mil) 1)
Net Sales of Combined Firms 4,821 4,784 4,779 4,922 5,147 5,385 5,620 5,859 6,098
Incremental Sales Due to Synergy
Total Sales 4,821 4,784 4,779 4,922 5,147 5,385 5,620 5,859 6,098
Less: - - - - -
Variable Cost of Sales 2,339 2,335 2,436 2,556 2,620 2,692 2,784 2,877 2,994
Depreciation 101 106 86 84 104 109 113 118 123
Cost of Sales Synergy (4) (11) (14) (14) (14)
Total Cost of Sales 2,440 2,441 2,521 2,640 2,721 2,790 2,884 2,981 3,103
Gross Profit 2,380 2,343 2,258 2,282 2,426 2,595 2,736 2,879 2,995
Less: - - - - -
Sales Expense 767 799 712 719 748 782 817 852 886
Sales Expense Synergy (2) (3) (3) (3) (3)
G&A Expense 785 874 891 951 965 983 997 996 990
G&A Expense Synergy (2) (3) (3) (3) (3)
Integration Expenses 1 - - - -
Amortization of Intangibles 32 41 52 52 52 52 52 52 52
Other expense (income), net 2 6 (9) (34) (32) (32) (32) (32) (32)
Total Sales and G&A Expense 1,586 1,720 1,646 1,688 1,731 1,779 1,828 1,861 1,890
Operating Profits (EBIT) 794 623 612 594 696 816 909 1,018 1,105
Plus: Interest Income - - 2 4 29 48 58 87 113
Less: Interest Expense 91 111 132 153 127 129 122 96 96
Net Profits Before Taxes 704 512 482 445 597 736 845 1,009 1,122
Less: Taxes 201 133 70 67 112 163 210 297 402
Net Profits After Taxes 502 379 411 378 485 573 635 712 719
Acquisition Plan JAKKS 36 of 44 9/14/2012
Acquisition Plan - JAKKS Appendix C
Forecast 2001 -2005 and Valuation of Combined Companies
Historical Financials Projected Financials
2002 2003 2004 2005 2006 2007 2008 2009 2010
Balance Sheet
Current Assets
Cash 698 225 344 275 236 247 258 270 281
Other Operating Assets 1,779 1,861 1,665 1,605 1,787 1,868 1,949 2,031 2,113
Total Current Assets 2,477 2,086 2,009 1,880 2,023 2,115 2,207 2,301 2,394
Investments - - - - 347 742 940 1,539 2,059
Gross Fixed Assets 942 1,165 1,164 1,150 1,249 1,303 1,357 1,413 1,470
Less: Accum. Depr. & Amort. 338 424 427 484 588 697 810 928 1,051
Net Fixed Assets 604 741 737 667 661 606 547 485 419
Other Assets 877 1,844 2,161 2,015 2,010 2,005 1,999 1,994 1,989
Total Assets 3,958 4,672 4,907 4,562 5,040 5,468 5,693 6,319 6,861
Current Liabilities 1,185 1,332 1,610 1,544 1,530 1,599 1,563 1,520 1,524
Long-Term Debt
Existing Debt 670 989 983 1,243 1,244 1,022 641 589 400
New Debt - - - - - - - - -
Other Liabilities 144 141 164 167 174 181 188 196 204
Total Liabilities 1,999 2,463 2,757 2,954 2,947 2,802 2,392 2,305 2,128
Common Stock 750 2,068 2,078 1,980 1,980 1,980 1,980 1,980 1,980
Retained Earnings 1,210 141 72 (372) 113 687 1,322 2,034 2,753
Shareholders' Equity 1,959 2,209 2,150 1,608 2,093 2,666 3,302 4,014 4,733
Total Liabilities & Shareholders' Equity 3,959 4,672 4,907 4,562 5,040 5,468 5,693 6,319 6,861
Addendum: Check 0 0 0 0 0 0 0 0 0
Shares Outstanding (millions) 299 399 435 445 445 445 445 445 445
Effective Tax Rate 29% 26% 15% 15% 19% 22% 25% 29% 36%
Addendum: Working Capital 1,292 754 400 336 493 517 644 781 870
Free Cash Flow
EBIT (1-t) 567 462 523 505 565 636 683 718 708
Plus: Depreciation and Amort. 133 147 138 136 156 161 165 170 175
Less: Gross Capital Expenditures 204 223 (2) (13) 99 54 55 56 57
Less: Change in Working Capital (204) (537) (355) (64) 157 23 128 137 88
Free Cash Flow 701 923 1,016 718 466 720 666 696 738
PV: 2006 - 2010 $2,336
PV: Terminal Value $6,964
Total PV (Market Value of the Firm) $9,300
Less: Market Value of Long-Term Debt $1,171
Plus: Excess Cash (Investments) $347
Equity Value $8,475
Notes:
1) The acquisition will make up a minor part of the Acquirer's total value. The Acquirer's target D/E ratio remains unchanged. Therefore, the Acquirer's cost of capital
has been used in the valuation of the combined companies. Although the Acquirer expects certain product lines to grow faster than the overall market for a number of
years, the long-term industry growth is forecast at 4%, because the market is rapidly maturing.
Acquisition Plan JAKKS 37 of 44 9/14/2012
Acquisition Plan - JAKKS Appendix D
Financial Summary of Synergy
Step 2 Continued: Synergy Estimation
Summary of Expected Synergy
Assumes Deal closes on March 31, 2006 and actions take effect July 1, 2006.
(In millions)
1) The total annual savings of the closing of the Hong Kong office will be: 2006 2007 2008 2009 2010 Expense Category
- Rent 250,000 0.13 0.25 0.25 0.25 0.25 50% COS/50% Sales Expense
- Elimination of 15 back office positions
at $35,000 each 525,000 0.26 0.53 0.53 0.53 0.53 G&A
- Elimination of 10 professional positions
at 90,000 each 900,000 0.45 0.90 0.90 0.90 0.90 50% COS/50% Sales Expense
Total 1,675,000 0.84 1.68 1.68 1.68 1.68
2) As a result of the closure of the Hong Kong Office the following additional expenses
will be incurred in 2006: 1) 2006 2007 2008 2009 2010
- 3 Months Rent 62,500 0.06 50% COS / 50% Sales Expense
- 1 Month's pay for back office positions 43,750 0.04 Integration Expense
- Average 3 months' pay for professional
positions 225,000 0.23 Integration Expense
Total 331,250 0.33
3) 2006 2007 2008 2009 2010
Termination of 3rd Party manufacturing agreements:2) 3.00 9.00 12.00 12.00 12.50 100% COS
3)
4) Termination of rental contracts: 2006 2007 2008 2009 2010
Malibu Headquarters (CA) 0.50 1.00 1.00 1.00 1.00 50% G&A/25% Sales/25% COS
Dexter Michigan Office (MI) 0.20 0.40 0.40 0.40 0.40 50% COS/ 50% Sales
International Toy Center New York (showroom) (NY) 0.40 0.80 0.80 0.80 0.80 100% Sales
Warehouse space in City of Industry (CA) 0.75 1.50 1.50 1.50 1.50 100% Sales
Warehouse space in New Brunswick (NJ) - - - - -
Total 1.85 3.70 3.70 3.70 3.70
4)
5) Termination of employees in U.S.:
- 75 employees with average pay of 1.50 3.00 3.00 3.00 3.00 75% G&A/25%COS
$40,000, including benefits.
5)
6) Severance pay as a result of terminations. 0.37 Integration Expense
6)
7) Retention bonuses for key employees 0.50 Integration Expense
Grand total 6.0 17.4 20.4 20.4 20.9 85.0
Acquisition Plan JAKKS 38 of 44 9/14/2012
Acquisition Plan - JAKKS Appendix D
Financial Summary of Synergy
Notes:
1) The rental market is tight in Hong Kong. Although we are contractually allowed
to sublet the office, we would prefer not to be involved in managing a new tenant.
We expect the landlord will be pleased to let us out of the rental agreement, because
he will be able to increase the rent. At most we expect to pay an estimated 3 months of rent as
compensation for the inconvenience.
2) The Acquirer will terminate 3rd party contracts as soon as possible. This will occur either at the end of
the contract or earlier if a financially favorable agreement can be reached.
The Acquirer expects to save approximately 10% of manufacturing costs by manufacturing
in-house, as a result of using excess manufacturing capacity and economies of scale as
a result of the Acquirer's buying power.
3) Rental contract for Malibu Headquarters expires in July 2006.
Rental contract for Showroom in International Toy Center expires December 2006.
Rental contract for office space in Dexter, Michigan does not expire until 2008. We will
attempt to come to a financial agreement with landlord or sublet space.
Rental contract for warehouse in City of Industry expires in 2008. Because the new
Alameda corridor commercial space is at a premium in the City of Industry, we see no problem
terminating the agreement or subletting space at a higher rental rate.
The warehouse in New Brunswick fits well with the Acquirer's distribution organization and will be
retained.
4) The Target has 155 employees in U.S. None of the employees is represented by a union.
The 45 employees involved in the design, sales and marketing of toys will be integrated into
the Acquirer's divisions. The 25 employees working at the New Brunswick warehouse will be retained.
All other (75) employees, involved in back-office, customer service, distribution
and warehousing functions will be terminated.
5) Because there is no union contract, the Acquirer has no obligation to provide severance pay; however,
to prevent disputes, the Acquirer will provide a severance package that includes from 1 to 3 months of pay
depending on period of employment. Because average seniority is less than 3 years, the Acquirer expects
to pay an average of 1.5 months of severance pay per employee. (1.5 * $3,300 * 75 = $371,250)
6) Retention bonuses for key creative employees. An estimated 25 employees will be offered average
retention bonuses of $20,000 to stay on for at least 18 months.
Acquisition Plan JAKKS 39 of 44 9/14/2012
Acquisition Plan - JAKKS Appendix E
Initial Offer Price Determination
Step 3: Offer Price Determination
Offer Price Supporting Data
Acquirer Share Price 1) $ 16.03
Target Share Price 1) $ 14.25
Proposed % of Synergy Shared with Target 30%
Target Shares Outstanding (Mil) 19.1
Acquirer Shares Outstanding (Mil) 426.0
Cash Portion of Offer Price (%) 0
Consolidated Acquirer +
Standalone Value Target Value of Synergy
Without
Synergy
Acquirer Target (1) With Synergy (2) PVNS (2) - (1)
Discounted Cash Flow Valuations ($Mil) $ 7,517 $ 591 $ 8,107 $ 8,475 $ 368
Minimum Offer Price (PVMIN) ($Mil) $ 272
Maximum Offer Price (PVMAX) ($Mil) $ 640
Initial Offer Price ($Mil) $ 383
Initial Offer Price Per Share ($) $ 20.03
Purchase Price Premium Per Share 41%
Cash Per Share ($) $ -
Share Exchange Ratio 1.25
New Shares Issued by Acquirer 23.867
Total Shares Outstanding Acquirer after acquisition 449.867
Ownership Distribution in New Firm
Acquirer shareholders (%) 95%
Target shareholders (%) 5%
EPS at Initial Offer Price 2006 2007 2008 2009 2010
Acquirer's Forecast of EPS after Acquisition $ 1.04 $ 1.21 $ 1.33 $ 1.50 $ 1.51
Acquirer's Forecast of EPS after Acquisition $ 1.08 $ 1.27 $ 1.41 $ 1.58 $ 1.60
Weighted Average Valuation Calculation Value Weighting Factor Weighted Value
Discounted Cash Flow Valuation $ 591 50% $ 295
Comparable Firms - Earnings Valuation 3) $ 427 25% $ 107
Comparable Firms - Sales Valuation 3) $ 413 25% $ 103
Weighted Average Valuation $ 505
Offer Offer Resulting Earnings Per Share After Acquisitions4
Price Price % Shared 2006 2007 2008 2009 2010
Per Share $-millions Synergy
$20.03 383 30% $ 1.08 $ 1.27 $ 1.41 $ 1.58 $ 1.60
Notes $21.96 419 40% $ 1.07 $ 1.27 $ 1.41 $ 1.58 $ 1.59
1) Share prices as of close of business on March 31, 2006.. $23.88 456 50% $ 1.07 $ 1.26 $ 1.40 $ 1.57 $ 1.58
2) The initial offer price will be based on 30% synergy sharing. $25.81 493 60% $ 1.06 $ 1.26 $ 1.39 $ 1.56 $ 1.57
3) See "Relative Valuations Summary". $27.74 530 70% $ 1.06 $ 1.25 $ 1.38 $ 1.55 $ 1.57
4) Post-acquisition EPS for different offer prices equals consolidated net income after taxes divided by the sum of acquirer shares outstanding plus new shares issued
by the acquirer. New shares issued equals the number of target shares outstanding times the share exchange ratio (SER). Consolidated EPS will decline
as the offer price increases as more shares of acquirer stock must be issued for each share of target stock outstanding.
Acquisition Plan JAKKS 9/14/2012
Acquisition Plan - JAKKS Appendix F
Relative Valuations Summary
Step 3 Continued: Alternative Valuation Summaries
As of 12/31/05 As of 12/31/05
PRICE/SALES VALUATION PRICE/ EARNINGS VALUATION
COMPARABLE COMPANIES PRICE/SALES COMPARABLE COMPANIES P/E
Company 1 1.3 Company 1 14.6
Company 2 1.5 Company 2 11.0
Company 3 1.4 Company 3 12.0
Company 4 1.5 Company 4 10.0
Company 5 1.4 Company 5 11.0
TOTAL 7.1 TOTAL 58.6
AVERAGE 1.4 AVERAGE 11.7
TARGET PROJECTED SALES (2001) 290.1 TARGET PROJECTED EARNINGS (2001) 36.4
PROJECTED VALUE OF TARGET (In millions) 412.6 PROJECTED VALUE OF TARGET (In millions) 427.2
Acquisition Plan JAKKS 9/14/2012
Acquisition Plan - JAKKS Appendix G
Consolidated Financial Statements based on Initial Offer Price
Step 4: Combined Firms' Financing Capacity
Projected Financials
2006 2007 2008 2009 2010 Forecast Comments
Income Statement ($Millions)
Net Sales 5,147 5,385 5,620 5,859 6,098
Less: Cost of Sales 2,721 2,790 2,884 2,981 3,103
Gross Profit 2,426 2,595 2,736 2,879 2,995
Less: Sales, General & Admin. Exp. 1,730 1,779 1,828 1,861 1,890
Integration Expenses (1) - - - -
Operating Profits (EBIT) 696 816 909 1,018 1,105
Plus: Interest Income 29 48 58 87 113
Less: Interest Expense 127 129 122 96 96
Net Profits Before Taxes 597 736 845 1,009 1,122
Less: Taxes 112 163 210 297 402
Net Profits After Taxes 485 573 635 712 719
Earnings per share ($/Share) $ 1.08 $ 1.27 $ 1.41 $ 1.58 $ 1.60 Based on 426 million existing Acquirer shares and
Balance Sheet (12/31) 23,836 million new shares (total shares after acquisition 449.836 million).
Current Assets
Cash & Marketable Securities 582 989 1,198 1,809 2,340
Other Current Assets 1,787 1,868 1,949 2,031 2,113
Total Current Assets 2,369 2,857 3,147 3,840 4,453
Gross Fixed Assets 1,249 1,303 1,357 1,413 1,470
Less: Accumulated Depreciation 588 697 810 928 1,051
Net Fixed Assets 661 606 547 485 419
Other Assets 2,010 2,005 1,999 1,994 1,989
Total Assets 5,040 5,468 5,693 6,319 6,861
Current Liabilities 1,530 1,599 1,563 1,520 1,524
Long-term debt
Exiting Debt 1,244 1,022 641 589 400 Value Creation Summary
Transaction related debt - - - - - ($Millions)
Total Long-term Debt 1,244 1,022 641 589 400 Consolidated Value after Acquisition 8,475
Other Liabilities 174 181 188 196 204 Pre-acquisition Equity Value
Common Stock 1,980 1,980 1,980 1,980 1,980 Acquirer 7,517
Retained Earnings 113 687 1,322 2,034 2,753 Target 591
Shareholders' Equity 2,093 2,666 3,302 4,014 4,733 Total 8,107
Total Liabilities+Shareholders' Equity 5,040 5,468 5,693 6,319 6,861 Value Created 368
- - - - - Distribution of Value
Addendum: Acquirer 95% 348
Long-term debt / Equity 59% 38% 19% 15% 8% Target 5% 20
Total 368
Acquisition Plan JAKKS 9/14/2012
Appendix A
Appendix A: Acquisition Timeline
January February March April May June July August October
September D
November ecember
wk1 wk wk wk wk5 wk1 wk wk wk4 wk1 wk wk wk4 wk1 wk wk wk4 wk1 wk wk wk wk5 wk1 wk wk wk4 wk1 wk wk wk wk5 wk1 wk wk wk4 wk1 wk wk wk4 wk1 wk wk wk wk5 wk1 wk wk wk4 wk1 wk wk wk wk5
2 3 4 2 3 2 3 2 3 2 3 4 2 3 2 3 4 2 3 2 3 2 3 4 2 3 2 3 4
KEY ACTIVITIES 31 7 14 21 28 4 11 18 25 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22 29 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 2 9 16 23 30
Pre-Acquisition
Search
Screen
First Contact
Negotiation
Refine Value
Structure Deal
Due Diligence
Financing
Plan Financial Detail
DECISION: Proceed/Walk Away
Implementation Planning
CLOSING
Post-Acquisition
Office Closures
Hong Kong Office
Third Party Manufacturing Agreement Termination
Termination of Rental Contract
Malibu Headquarters
Dexter Office
City of Industry Warehouse
New York Showroom
Reduction of Work Force Interview Initiate Action Complete
Staff Relocation Program Interview Complete
Initiate Action
Communication Program
Public Relations (ongoing)
Advertising (ongoing) Announcement Holiday Ad Campaign
Corporate Materials Announcement
Website Launch Fully Integrated
Initiate Action Development/Ongoing Target Completion Date
Acquisition Plan JAKKS 9/14/2012
Appendix B: Summary: Milestones and Responsible Individual(s)
KEY ACTIVITIES Estimated Time Frame Manager
Duration Deadline
Pre-Acquisition
Search 3 weeks 0-Jan COO/Exec Staff
Screen 3 weeks 13-Jan President
First Contact 3 weeks 20-Jan President
Negotiation CFO
Refine Value 11 weeks 24-Mar President/CFO
Structure Deal 9 weeks 24-Mar CFO
Due Diligence 8 weeks 24-Mar COO
Financing 11 weeks 24-Mar Treasurer
Plan Financial Detail 11 weeks 24-Mar Exec Staff
DECISION: Proceed/Walk Away 1 week 24-Mar President/COO
Implementation Planning 11 weeks 24-Mar Exec Staff
CLOSING 3 weeks 7-Apr Exec Staff
Post-Acquisition
Office Closures COO
Hong Kong Office 18 weeks 30-Jun Director of Finance
Third Party Manufacturing Agreement Termination
18 weeks 30-Jun COO
Termination of Rental Contract COO
Malibu Headquarters 18 weeks 30-Jun COO
Dexter Office 18 weeks 30-Jun COO
City of Industry Warehouse 18 weeks 30-Jun COO
New York Showroom 18 weeks 30-Jun COO
Reduction of Work Force 24 weeks 4-Aug Vice Pres HR
Staff Relocation Program 24 weeks Vice Pres HR
Communication Program Vice Pres Communications
Public Relations (ongoing) weekly ongoing Vice Pres Communications
Advertising (ongoing) weekly ongoing Vice Pres Mrktg
Corporate Materials 11 weeks Vice Pres Mrktg
Website 27 weeks 4-Aug Vice Pres Mrktg
