Hello, Need help with the following:Please see Rubric

thks

Using information from"Are You Paying Too Much for That Acquisition?"

1. List and describe the components used to calculate synergy value.
2. Critically evaluate which component is most underestimated. Explain your answer.
3. Using the attached spreadsheet "Excel-Based M&A Valuation and Structuring Model," open the worksheet labeled BP APP B2 and study the Net Sales Growth Rate for 2002-2005. Next, open the worksheet labeled BP APP B1 and study the 2006-2010 Net Sales Growth Forecasts. Lastly, reference"Are You Paying Too Much for That Acquisition?"to identify the basis or rationale for justifying the 2006-2010 forecasts.

Practice Problems and Analysis 1 Unsatisfactory 0.00% 2 Less than Satisfactory 65.00% 100.0 %Criteria No answer Achieves an 30.0 %Accuracy of achieved or the answer to answer shown is question by financial not supported using correct answer by data or data and methodology. methodology. 3 Satisfactory 75.00% Accomplishes correct answer using correct analytical process and methodology and is able to elaborate on concepts. Analytical Selects and Demonstrates Demonstrates 20.0 utilized correct competency in professional %Application methodology and processing analytical selection of level of correct used is not process for correct analytical competency in analytical appropriate for solution. process and the selection of process solution. executes it best analytical correctly to reach processes. an answer. 20.0 %Concepts and Terminology Does not demonstrate familiarity with concepts and terminology. 8.0 %Thesis Paper lacks any Development discernible and Purpose overall purpose or organizing claim. 7.0 %Argument Logic and Construction Statement of purpose is not justified by the conclusion. The conclusion does not support the claim made. Argument is incoherent and uses noncredible sources. Accomplishes correct answer using correct analytical. 4 Good 85.00% 5 Excellent 100.00% Demonstrates professional level competency and accuracy. Demonstrates professional level competency in the selection of best analytical processes and communicates their strengths and weaknesses. Utilizes Demonstrates Demonstrates Demonstrates concepts and competency in professional professional terminology both concepts and level level appropriately. terminology. competency in competency in both concepts both concepts and terminology. (strengths and weaknesses) and terminology. Thesis and/or Thesis and/or main Thesis and/or Thesis and/or main claim are claim are apparent main claim are main claim are insufficiently and appropriate to clear and comprehensive. developed purpose. forecast the The essence of and/or vague; development of the paper is purpose is not the paper. It is contained within clear. descriptive and the thesis. reflective of the Thesis statement arguments and makes the appropriate to purpose of the the purpose. paper clear. Sufficient Argument is Argument shows Clear and justification of orderly, but may logical convincing claims is have a few progression. argument lacking. inconsistencies. Techniques of presents a Argument lacks The argument argumentation persuasive claim consistent unity. presents minimal are evident. in a distinctive There are justification of There is a and compelling obvious flaws in claims. Argument smooth manner. All the logic. Some logically, but not progression of sources are sources have thoroughly, claims from authoritative. questionable supports the introduction to credibility. purpose. Sources conclusion. Most used are credible. sources are Introduction and authoritative. conclusion bracket the thesis. Surface errors Frequent and Some mechanical Prose is largely Writer is clearly 5.0 repetitive errors or typos are free of in command of %Mechanics are pervasive enough that mechanical present, but are mechanical standard, of Writing they impede errors distract not overly errors, although written, (includes communication the reader. distracting to the a few may be academic spelling, Inconsistencies reader. Correct present. A English. punctuation, of meaning. Inappropriate in language sentence structure variety of grammar, choice and audiencesentence language use)word choice and/or sentence (register), appropriate structures and construction are sentence language are used. effective figures used. structure, of speech are and/or word used. choice are present. Template is not Appropriate Appropriate Appropriate All format 5.0 %Paper template is template is used. template is fully elements are Format (Use used appropriately, or used, but some Formatting is used. There are correct. of correct, although virtually no appropriate documentation elements are some minor errors errors in style for the format is rarely missing or followed mistaken. A lackmay be present. formatting style. major and of control with assignment) correctly. formatting is apparent. No reference Reference page Reference page is Reference page In-text citations 5.0 page is is present. included and lists is present and and a reference %Research Citations are sources used in fully inclusive of page are Citations (In- included. No inconsistently the paper. Sources all cited sources. complete and text citations citations are used. used. are appropriately Documentation correct. The for documented, is appropriate documentation paraphrasing although some and citation of cited sources and direct errors may be style is usually is free of error. quotes, and present. correct. reference page listing and formatting, as appropriate to assignment and style) 100 %Total Weightage Illustrating the Deal Structuring and Valuation Process The purpose of this Microsoft Excel spreadsheet model is to provide aan example of how the model building process outlined in Chapter 9 of the textbook (Mergers and Acquisitions and Other Corporate (3rd 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 model conttained on diskette this CD-ROM for constructing M&A financial models.1 As such, the spreadsheet model contained on this 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 selfexplanatory 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 1 2 3 4 Appendix A Appendix B Worksheet Title Determine Acquirer and Target Standalone Valuations Acquirer 5-Year Forecast and Standalone Valuation Acquirer Historical Data and Ratios Acquirer Debt Repayment Schedules Acquirer Cost of Equity and Capital Calculation Target 5-Year Forecast and Standalone Valuation Target Historical Data and Ratios Target Cost of Equity and Capital Calculation Short Name BP_App_B1 BP_App_B2 BP_App_B3 BP_App_B4 AP_App_B1 AP_App_B2 AP_App_B3 Value Combined Acquirer and Target Firms Including Synergy Combined Firm's 5-Year Forecast and Valuation Synergy Estimation AP_App_C AP_App_D Determine Initial Offer Price for Target Firm Offer Price Determination Alternative Valuation Summaries AP_App_E AP_App_F Determine Combined Firm's Ability to Finance Transaction Combined Firm's Financing Capacity AP_App_G Acquisition Timeline Summary: Milestones and Responsible Individual(s) AP_App_A1 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. 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. 1 MATTEL Business Plan 2001-2005 Step 1: Acquirer 5-Year Forecast and Standalone Valuation 2006 2007 2008 4.0% 4.0% 4.0% 52.5% 51.5% 51.0% 8.3% 8.3% 8.3% 14.5% 14.5% 14.5% 19.0% 18.5% 18.0% 5.0% 5.0% 5.0% 8.3% 8.3% 8.3% 18.0% 22.0% 25.0% 35.0% 35.0% 35.0% 35.0% 30.0% 25.0% 25.0% 25.0% 25.0% 4.5% 4.5% 4.5% 30.0% 30.0% 28.0% 426.0 426.0 426.0 Forecast Assumptions 2006 - 2010 Net Sales Growth Rate Cost of Sales (Variable) / Sales % Depreciation & Amortization / Gross Fixed Assets % Selling Expenses / Sales (%) G&A Expenses / Sales (%) Interest on Cash & Marketable Securities Interest Rate on New Debt (%) Marginal Tax Rate Other Current Operations Assets / Sales (%) Other Assets / Sales (%) Gross Fixed Assets / Sales (%) Minimum Cash Balance / Sales (%) Current Liabilities / Sales (%) Common Shares Outstanding (Mil) 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 $1,171 million 2002 Income Statement ($mil) Net Sales Less: Variable Cost of Sales Depreciation Total Cost of Sales Gross Profit Less: Sales Expense G&A Expense Amortization of Intangibles Other expense (income), net Total Sales and G&A Expense Operating Profits (EBIT) Plus: Interest Income Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes Mattel Business Plan Historical Financials 2003 2004 2005 Appendix B-1 Financial Forecast 2006 2007 2009 4.0% 50.5% 8.3% 14.5% 17.2% 5.0% 8.3% 30.0% 35.0% 20.0% 25.0% 4.5% 26.0% 426.0 Projected Financials 2008 2009 2010 4.0% 50.5% 8.3% 14.5% 16.4% 5.0% 8.3% 37.0% 35.0% 20.0% 25.0% 4.5% 25.0% 426.0 2010 1) 4,779 4,698 4,596 4,670 4,857 5,051 5,253 5,463 5,682 2,315 100 2,415 2,364 2,286 103 2,389 2,310 2,333 81 2,414 2,182 2,415 75 2,490 2,180 2,449 101 2,550 2,307 2,496 105 2,601 2,450 2,570 109 2,679 2,574 2,646 113 2,759 2,704 2,751 118 2,869 2,812 761 780 32 1 1,574 790 786 863 41 5 1,695 615 111 504 131 373 685 868 52 (5) 1,599 583 132 451 62 390 681 908 52 (19) 1,622 558 153 405 55 350 704 923 52 (16) 1,663 644 Err:522 127 Err:522 Err:522 Err:522 732 934 52 (16) 1,703 747 Err:522 128 Err:522 Err:522 Err:522 762 946 52 (16) 1,743 831 Err:522 121 Err:522 Err:522 Err:522 792 940 52 (16) 1,768 936 Err:522 96 Err:522 Err:522 Err:522 824 932 52 (16) 1,792 1,021 Err:522 96 Err:522 Err:522 Err:522 90 700 201 500 3 of 23 09/06/2017 MATTEL Business Plan 2001-2005 2002 Balance Sheet (as of 12/31/2005) Current Assets Cash Other Operating Assets Total Current Assets Investments Gross Fixed Assets Less: Accum. Depr. & Amort. Net Fixed Assets Other Assets Total Assets Current Liabilities Long-Term Debt Existing Debt New Debt Other Liabilities Total Liabilities Common Stock Retained Earnings Shareholders' Equity Total Liabilities & Shareholders' Equity Addendum: Check Shares Outstanding (millions) Effective Tax Rate Earnings per Share Long-Term Debt/Equity Addendum: Working Capital Free Cash Flow EBIT (1-t) Plus: Depreciation and Amortization Less: Gross Capital Expenditures Less: Change in Working Capital Free Cash Flow PV: 2006 - 2010 PV: Terminal Value Total PV (Market Value of the Firm) Less: Market Value of Long-Term Debt Plus: Excess Cash (Investments) Equity Value Equity Value per Share Mattel Business Plan $ Historical Financials 2003 2004 2005 695 1,767 2,462 213 1,845 2,058 247 1,605 1,852 232 1,519 1,752 939 337 602 852 3,915 1,173 1,159 422 737 1,819 4,613 1,317 1,147 422 725 2,097 4,674 1,565 664 144 1,982 728 1,205 1,933 3,915 (0) 291.6 28.6% 1.71 $ 37% 1,288 984 141 2,442 2,041 130 2,171 4,613 1 390.8 26.0% 0.95 $ 48% 741 983 163 2,711 1,923 40 1,963 4,674 0 421.6 13.7% 0.92 $ 53% 287 564 132 201 (200) 695 Err:522 Err:522 Err:522 $ 1,171 Err:522 Err:522 Err:522 455 144 221 (548) 926 503 133 (12) (454) 1,102 Appendix B-1 Financial Forecast 2006 2007 Projected Financials 2008 2009 2010 1,121 473 648 1,914 4,313 1,502 219 1,700 1,918 Err:522 1,214 574 640 1,914 Err:522 1,457 227 1,768 1,995 Err:522 1,263 679 584 1,913 Err:522 1,515 236 1,839 2,075 Err:522 1,313 788 526 1,913 Err:522 1,471 246 1,912 2,158 Err:522 1,366 901 465 1,913 Err:522 1,420 256 1,989 2,244 Err:522 1,420 1,019 402 1,913 Err:522 1,420 1,242 166 2,910 1,836 (433) 1,403 4,314 (0) 426.0 13.6% 0.82 93% 249 1,242 Err:522 172 Err:522 1,836 Err:522 Err:522 Err:522 Err:522 426.0 Err:522 Err:522 Err:522 461 1,021 Err:522 179 Err:522 1,836 Err:522 Err:522 Err:522 Err:522 426.0 Err:522 Err:522 Err:522 480 640 Err:522 186 Err:522 1,836 Err:522 Err:522 Err:522 Err:522 426.0 Err:522 Err:522 Err:522 604 589 Err:522 194 Err:522 1,836 Err:522 Err:522 Err:522 Err:522 426.0 Err:522 Err:522 Err:522 738 400 Err:522 201 Err:522 1,836 Err:522 Err:522 Err:522 482 127 (26) (37) 672 Err:522 153 93 212 Err:522 Err:522 157 49 18 Err:522 Err:522 161 51 124 Err:522 Err:522 165 53 133 Err:522 Err:522 170 55 86 Err:522 Err:522 426.0 Err:522 Err:522 Err:522 824 Notes: 1) The historical financial statements have been adjusted for the discontinued operations. 2) For the long-term, the Acquirer believes its weighted average cost of funds is the appropriate measure to discount cash flows. 4 of 23 09/06/2017 MATTEL Business Plan 2001-2005 Historical Ratios and Explanations of Assumptions Step 1 Continued: Acquirer Historical Data and Ratios Historical Financial Ratios 2002 2003 2004 2005 Net Sales Growth Rate 1) -1.7% -2.2% 1.6% Cost of Sales (Variable) / Sales % 2) 50.5% 50.8% 52.5% 53.3% Depreciation & Amortization / Gross Fixed Assets % 3) 10.7% 8.9% 7.1% 6.7% Selling Expenses / Sales (%) 4) 15.9% 16.7% 14.9% 14.6% G&A Expenses / Sales (%) 5) 16.3% 18.4% 18.9% 19.4% Interest on Cash & Marketable Securities 6) 3.0% 3.5% 4.0% 5.0% Interest Rate on Debt (%) 7) 6.0% 5.6% 5.5% 6.7% Tax Rate 8) 28.6% 26.0% 13.7% 13.6% Other Assets / Sales (%) 9) 17.8% 38.7% 45.6% 41.0% Gross Fixed Assets / Sales (%) 10) 19.6% 24.7% 25.0% 24.0% Cash Balance / Sales (%) 11) 14.5% 4.5% 5.4% 5.0% Other Current (Operations) Assets / Sales (%) 12) 37.0% 39.3% 34.9% 32.5% Current Liabilities / Sales (%) 13) 24.6% 28.0% 34.1% 32.2% Debt / Equity 34.4% 45.3% 50.1% 88.5% Appendix B-2 Historical Ratios Average Minimum Maximum -0.8% -2.2% 1.6% 51.8% 50.5% 53.3% 8.3% 6.7% 10.7% 15.5% 14.6% 16.7% 18.3% 16.3% 19.4% 3.9% 3.0% 5.0% 6.0% 5.5% 6.7% 20.5% 13.6% 28.6% 35.8% 17.8% 45.6% 23.3% 19.6% 25.0% 7.4% 4.5% 14.5% 35.9% 32.5% 39.3% 29.7% 24.6% 34.1% 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 Mattel Business Plan e426b4d01f86b1833283472ae999b1c8f9fb913a.xlsBP_App_B2 09/06/2017 MATTEL Business Plan 2001-2005 Historical Ratios and Explanations of Assumptions Appendix B-2 provisions for elimination of redundant positions (see item 5). This percentage is expected to be reduced gradually over the forecast period. Mattel Business Plan e426b4d01f86b1833283472ae999b1c8f9fb913a.xlsBP_App_B2 09/06/2017 MATTEL Business Plan 2001 - 2005 Debt Maturity Schedule and Interest Payments Appendix B-3 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 Debt Category Long-Term Debt 1) Medium-Term Notes Mortgage Note Total Debt 2) 12/31/2005 690,710 540,500 42,380 1,273,590 Remaining Balance Debt Category Long-Term Debt Medium-Term Notes Mortgage Note Total Debt Beg. Bal 1/1/2006 690,710 540,500 42,380 1,273,590 2006 Maturing Interest Amount Rate 2007 Maturing Interest Amount Rate 190,710 5.500% 7.500% 30,000 7.500% 10.150% 767 10.150% 7.559% 221,477 5.787% 30,500 694 31,194 2006 Ending Balance 690,710 510,000 41,686 1,242,396 2007 Interest Ending Rate Balance 5.500% 500,000 7.500% 480,000 10.150% 40,919 6.477% 1,020,919 Interest Rate 5.500% 7.500% 10.150% 6.627% 2008 2009 20010 Maturing Interest Maturing Interest Maturing Interest Amount Rate Amount Rate Amount Rate 350,000 5.500% 150,000 5.500% 30,000 7.500% 50,000 7.500% 0.000% 849 10.150% 939 10.150% 39,131 10.150% 380,849 5.668% 50,939 7.549% 189,131 6.462% 2008 2009 2010 Ending Interest Ending Interest Ending Interest Balance Rate Balance Rate Balance Rate 150,000 5.500% 150,000 5.500% 5.500% 450,000 7.500% 400,000 7.500% 400,000 7.500% 40,070 10.150% 39,131 10.150% - 10.150% 640,070 7.197% 589,131 7.167% 400,000 7.500% Interest Payments Interest Rate Beginning Balance Interest on LT, MT, & Mort. Debt Credit Facility 3) Interest on Credit Facility Total Interest Mattel Business Plan 2006 2007 2008 6.477% 6.627% 7.197% 1,273,590 1,242,396 1,020,919 82,491 82,330 73,478 700,000 728,000 757,120 44,380 46,155 48,001 126,871 128,485 121,479 2009 2010 7.167% 7.500% 640,070 589,131 45,872 44,185 787,405 818,901 49,921 51,918 95,794 96,103 - e426b4d01f86b1833283472ae999b1c8f9fb913a.xls - BP_App_B3 09/06/2017 MATTEL Business Plan 2001 - 2005 Supplemental Financial Data Appendix B-4 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 Acquirer's Unlevered Beta Acquirer's Target D/(D+E) Ratio Acquirer's Target Tax Rate Acquirer's Levered Beta Market Risk Premium Acquirer's Cost of Debt Acquirer's Cost of Equity Acquirer's Weighted Cost of Capital Additional Risk Premium Adjusted Cost of Capital 5.24% 1.40 1) 50% 37% 1.84 5.50% 8.33% 15.37% 10.31% 1.50% 2) 11.81% Calculation of Market Value of Current Long-Term Debt Discount Rate - Moody's Aaa 8.33% 2006 2007 2008 Int. Rate 7.56% 5.79% 5.67% BegBal 1,273,590 1,242,396 1,020,919 Payments: Principal 31,194 221,477 380,849 Interest 95,091 65,489 47,072 Total Debt Int+Principal 126,285 286,966 427,921 Discounted Value $1,170,762 2009 7.55% 640,070 50,939 46,395 97,334 2010 2011 2012 6.46% 7.50% 7.50% 589,131 400,000 350,000 189,131 50,000 50,000 31,959 28,125 24,375 221,090 78,125 74,375 2013 2014 2015 Total 7.50% 7.50% 7.50% 300,000 200,000 100,000 100,000 100,000 100,000 1,273,590 18,750 11,250 3,750 118,750 111,250 103,750 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 e426b4d01f86b1833283472ae999b1c8f9fb913a.xls - BP_App_B4 09/06/2017 Acquisition Plan - JAKKS Financial Forecast 2001 - 2005 and Valuation JAKKS Appendix B-1 Step 1 Continued: Target 5- Year Forecast and Standalone Valuation Forecast Assumptions 2006 - 2010 Net Sales Growth Rate Cost of Sales (Variable) / Sales % Depreciation & Amortization / Gross Fixed Assets % Selling Expenses / Sales (%) G&A Expenses / Sales (%) Interest on Cash & Marketable Securities 1) Interest Rate on New Debt (%) Marginal Tax Rate Other Current Operations Assets / Sales (%) Other Assets / Sales ($5 million decrease per year) Gross Fixed Assets / Sales (%) Minimum Cash Balance / Sales (%) Current Liabilities / Sales (%) Common Shares Outstanding (Mil) 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 $1.4 million 2002 Income Statement ($mil) Net Sales Less: Variable Cost of Sales Depreciation Total Cost of Sales Gross Profit Less: Sales Expense G&A Expense Amortization of Intangibles Other expense (income), net 2) Total Sales and G&A Expense Operating Profits (EBIT) Plus: Interest Income Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes Acquisition Plan JAKKS Historical Financials 2003 2004 2005 2006 15.0% 60.2% 10.0% 15.0% 14.5% 5.0% 7.2% 29.0% 30.0% 5.00 12.0% 6.0% 25.0% 19.1 2007 15.0% 59.7% 10.0% 15.0% 14.5% 5.0% 7.2% 29.5% 30.0% 5.00 12.0% 6.0% 25.0% 19.1 2006 2007 2008 10.0% 59.5% 10.0% 15.0% 14.1% 5.0% 7.2% 30.0% 30.0% 5.00 12.0% 6.0% 25.0% 19.1 Projected Financials 2008 2009 8.0% 59.5% 10.0% 15.0% 14.1% 5.0% 7.2% 30.5% 30.0% 5.00 12.0% 6.0% 25.0% 19.1 2010 5.0% 59.5% 10.0% 15.0% 14.1% 5.0% 7.2% 31.0% 30.0% 5.00 12.0% 6.0% 25.0% 19.1 2009 2010 42 85 184 252 290 334 367 396 416 25 1 26 16 49 3 52 33 103 5 108 76 141 9 150 102 171 3 175 115 195 4 199 134 214 4 218 149 231 5 236 161 243 5 248 169 6.30 5.60 0 12 4 0 3 1 2.8 13 11 ### 1 25 9 ### 0 8 2 6 28 24 (4) 47 29 2 30 8 22 38 43 (15) 66 37 4 40 12 29 44 42 (16) 70 46 Err:522 0 Err:522 Err:522 Err:522 50 48 (16) 83 52 Err:522 0 Err:522 Err:522 Err:522 55 52 (16) 91 58 Err:522 0 Err:522 Err:522 Err:522 59 56 (16) 99 61 Err:522 0 Err:522 Err:522 Err:522 62 59 (16) 105 63 Err:522 Err:522 Err:522 Err:522 9 of 23 09/06/2017 Acquisition Plan - JAKKS Financial Forecast 2001 - 2005 and Valuation JAKKS 2002 Balance Sheet Current Assets Cash Other Operating Assets Total Current Assets Investments Gross Fixed Assets Less: Accum. Depr. & Amort. Net Fixed Assets Other Assets Total Assets Current Liabilities Long-Term Debt Existing Debt New Debt Other Liabilities Total Liabilities Common Stock Retained Earnings Shareholders' Equity Total Liabilities & Shareholders' Equity Addendum: Check Shares Outstanding (millions) Effective Tax Rate Earnings per Share Addendum: Working Capital Free Cash Flow EBIT (1-t) Plus: Depreciation and Amort. Less: Gross Capital Expenditures Less: Change in Working Capital Free Cash Flow PV: 2006 - 2010 PV: Terminal Value Total PV (Market Value of the Firm) Less: Market Value of Long-Term Debt Plus: Excess Cash (Investments) Equity Value Equity Value per Share $ Historical Financials 2003 2004 2005 2006 3 12 15 12 16 29 97 61 158 43 86 129 4 1 3 26 44 12 6 2 4 26 59 15 17 5 12 64 233 44 6 6 ### 0 0 18 21 22 27 4 11 26 38 44 59 (0) (0) 6.9 8.5 18.8% 22.6% 0.40 $ 0.75 $ 0 1 45 155 32 188 233 0 13.9 27.5% 1.58 $ 2007 Appendix B-1 Projected Financials 2008 2009 2010 30 11 19 101 249 42 17 87 104 Err:522 35 14 21 96 Err:522 73 20 100 120 Err:522 40 18 22 91 Err:522 83 22 110 132 Err:522 44 23 21 86 Err:522 92 24 119 143 Err:522 48 27 20 81 Err:522 99 25 125 150 Err:522 50 32 18 76 Err:522 104 1 1 44 144 61 205 249 (0) 19.1 29.0% 1.50 1 Err:522 2 Err:522 144 Err:522 Err:522 Err:522 Err:522 19.1 Err:522 Err:522 1 Err:522 2 Err:522 144 Err:522 Err:522 Err:522 Err:522 19.1 Err:522 Err:522 1 Err:522 2 Err:522 144 Err:522 Err:522 Err:522 Err:522 19.1 Err:522 Err:522 0 Err:522 2 Err:522 144 Err:522 Err:522 Err:522 Err:522 19.1 Err:522 Err:522 Err:522 2 Err:522 144 Err:522 Err:522 Err:522 3 14 113 87 32 37 40 44 3 1 3 (4) 6 7 3 3 10 (3) 21 5 10 99 (84) 26 9 13 (26) 49 Err:522 3 5 (55) Err:522 Err:522 4 5 5 Err:522 Err:522 4 4 4 Err:522 Err:522 5 4 3 Err:522 Err:522 19.1 Err:522 Err:522 46 Err:522 5 2 2 Err:522 Err:522 Err:522 3) Err:522 $1.4 Err:522 Err:522 Err:522 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 10 of 23 09/06/2017 Acquisition Plan - JAKKS Historical Rates and Explanations for Rates Used in Forecast / Valuation JAKKS Appendix B-2 Step 1 Continued: Target Historical Data and Ratios Historical Ratios Net Sales Growth Rate Cost of Sales (Variable) / Sales % Depreciation & Amortization / Gross Fixed Assets % Selling Expenses / Sales (%) G&A Expenses / Sales (%) Interest on Cash & Marketable Securities Interest Rate on Debt (%) Tax Rate Other Current Operations Assets / Sales (%) Other Assets / Sales (%) Gross Fixed Assets / Sales (%) Cash Balance / Sales (%) Current Liabilities / Sales (%) Capital Expenditures / Gross Fixed Assets Debt / Equity 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) Historical Financial Ratios 2002 2003 2004 2005 103.2% 115.5% 37.3% 61.7% 61.0% 58.6% 59.4% 27.8% 46.2% 27.1% 31.3% 15.0% 15.0% 15.0% 15.0% 13.3% 13.2% 12.8% 16.9% 0.0% 0.0% 1.6% 8.9% 7.0% 7.1% 0.0% 0.0% 18.8% 22.6% 27.5% 29.0% 29.5% 19.0% 33.0% 34.0% 61.4% 30.3% 34.7% 40.1% 9.4% 7.6% 9.2% 11.7% 6.0% 14.6% 52.7% 17.0% 27.6% 17.5% 24.1% 16.5% 74.2% 38.8% 61.7% 43.1% 23.0% 15.7% 0.0% 0.5% Average Minimum Maximum 85.4% 37.3% 115.5% 60.2% 58.6% 61.7% 33.1% 27.1% 46.2% 15.0% 15.0% 15.0% 14.1% 12.8% 16.9% 2.6% 0.0% 8.9% 3.5% 0.0% 7.1% 24.5% 18.8% 29.0% 28.9% 19.0% 34.0% 41.6% 30.3% 61.4% 9.5% 7.6% 11.7% 22.6% 6.0% 52.7% 21.4% 16.5% 27.6% 54.4% 38.8% 74.2% 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%. 10) Other Assets include about $70 million in Goodwill resulting from a number of acquisitions during the period from 1 2002-2005 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. Acquisition Plan JAKKS e426b4d01f86b1833283472ae999b1c8f9fb913a.xls 09/06/2017 Acquisition Plan - JAKKS Historical Rates and Explanations for Rates Used in Forecast / Valuation JAKKS Appendix B-2 We have projected a decrease in capital expenditures as the forecast does not include projections for acquisitions. 15) The target's management is assumed to continue its 2004-2005 trend and keep debt to a minimum through 2010. Acquisition Plan JAKKS e426b4d01f86b1833283472ae999b1c8f9fb913a.xls 09/06/2017 Acquisition Plan - JAKKS Supplemental Financial Data JAKKS Appendix B-3 Step 1 Continued: Target Cost of Equity and Capital Calculation Financial Benchmarks as of December 31, 2005 Prime 10 -Year T-Note Commercial Paper 3-months Federal Funds Rate CD's 6 months Moody's A Supplemental Financial Data Risk-free Rate Target's Unlevered Beta Market Risk Premium Target's Cost of Equity Target's level of D/E Target Tax Rate Levered Beta 9.50% 5.24% 6.34% 6.40% 6.30% 8.30% Key Valuation Indicators P/E P/S LT Debt/Equity ROI - 5 year avg. ROE - 5 year avg. Industry Average 1) 14.5 1.5 50% 12.6% 17.3% Stock Price as of 12/31/2000 Current stock price 5.24% 1.51 5.50% 13.55% 0% 31% 1.51 As of 12/31/2005 Acquirer 17.7 1.3 89% 4.7% 8.1% $ $ 14.55 16.03 Target 6.1 0.7 1% 15.1% 16.2% $ $ 2) 2) 2) 1) 1) 9.13 14.25 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 ### 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 e426b4d01f86b1833283472ae999b1c8f9fb913a.xls 09/06/2017 Acquisition Plan - JAKKS Forecast 2001 -2005 and Valuation of Combined Companies Appendix C Step 2: Combined Firm's 5-Year Forecast and Valuation Consolidated Acquirer and Target - including Synergy Forecast Assumptions 2006 - 2010 Cost of Sales Synergy Selling Expenses Synergy G&A Expenses Synergy Integration Expenses Cost of Capital: 2006 - 2010 (%) Cost of Capital: Terminal Period (%) Sustainable Cash Flow Growth Rate (%) Market Value of Long-Term Debt 2006 3.9 1.6 1.6 (1.1) Acquisition Plan JAKKS 2008 13.8 3.3 3.3 - 2009 13.8 3.3 3.3 - 2010 14.3 3.3 3.3 - 11.81% 1) 10.31% 1) 4.0% 1) $1,172 2002 Income Statement ($mil) Net Sales of Combined Firms Incremental Sales Due to Synergy Total Sales Less: Variable Cost of Sales Depreciation Cost of Sales Synergy Total Cost of Sales Gross Profit Less: Sales Expense Sales Expense Synergy G&A Expense G&A Expense Synergy Integration Expenses Amortization of Intangibles Other expense (income), net Total Sales and G&A Expense Operating Profits (EBIT) Plus: Interest Income Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes 2007 10.8 3.3 3.3 - Historical Financials 2003 2004 2005 2006 2007 Projected Financials 2008 2009 Sum 56.5 14.9 14.7 (1.1) 85.0 2010 1) 4,821 4,784 4,779 4,922 5,147 5,385 5,620 5,859 6,098 4,821 4,784 4,779 4,922 2,339 101 2,335 106 2,436 86 2,556 84 2,440 2,380 2,441 2,343 2,521 2,258 2,640 2,282 767 799 712 719 785 874 891 951 32 2 1,586 794 91 704 201 502 41 6 1,720 623 111 512 133 379 52 (9) 1,646 612 2 132 482 70 411 52 (34) 1,688 594 4 153 445 67 378 5,147 2,620 104 (4) 2,721 2,426 748 (2) 965 (2) 1 52 (32) 1,731 696 Err:522 127 Err:522 Err:522 Err:522 5,385 2,692 109 (11) 2,790 2,595 782 (3) 983 (3) 52 (32) 1,779 816 Err:522 129 Err:522 Err:522 Err:522 5,620 2,784 113 (14) 2,884 2,736 817 (3) 997 (3) 52 (32) 1,828 909 Err:522 122 Err:522 Err:522 Err:522 5,859 2,877 118 (14) 2,981 2,879 852 (3) 996 (3) 52 (32) 1,861 1,018 Err:522 96 Err:522 Err:522 Err:522 6,098 2,994 123 (14) 3,103 2,995 886 (3) 990 (3) 52 (32) 1,890 1,105 Err:522 96 Err:522 Err:522 Err:522 14 of 23 09/06/2017 Acquisition Plan - JAKKS Forecast 2001 -2005 and Valuation of Combined Companies 2002 Balance Sheet Current Assets Cash Other Operating Assets Total Current Assets Investments Gross Fixed Assets Less: Accum. Depr. & Amort. Net Fixed Assets Other Assets Total Assets Current Liabilities Long-Term Debt Existing Debt New Debt Other Liabilities Total Liabilities Common Stock Retained Earnings Shareholders' Equity Total Liabilities & Shareholders' Equity Addendum: Check Shares Outstanding (millions) Effective Tax Rate Addendum: Working Capital Free Cash Flow EBIT (1-t) Plus: Depreciation and Amort. Less: Gross Capital Expenditures Less: Change in Working Capital Free Cash Flow Historical Financials 2003 2004 2005 2006 2007 Appendix C Projected Financials 2008 2009 2010 698 1,779 2,477 942 338 604 877 3,958 1,185 225 1,861 2,086 1,165 424 741 1,844 4,672 1,332 344 1,665 2,009 1,164 427 737 2,161 4,907 1,610 275 1,605 1,880 1,150 484 667 2,015 4,562 1,544 236 1,787 2,023 Err:522 1,249 588 661 2,010 Err:522 1,530 247 1,868 2,115 Err:522 1,303 697 606 2,005 Err:522 1,599 258 1,949 2,207 Err:522 1,357 810 547 1,999 Err:522 1,563 270 2,031 2,301 Err:522 1,413 928 485 1,994 Err:522 1,520 281 2,113 2,394 Err:522 1,470 1,051 419 1,989 Err:522 1,524 670 144 1,999 750 1,210 1,959 3,959 0 299 29% 989 141 2,463 2,068 141 2,209 4,672 0 399 26% 983 164 2,757 2,078 72 2,150 4,907 0 435 15% 1,243 167 2,954 1,980 (372) 1,608 4,562 0 445 15% 1,244 Err:522 174 Err:522 1,980 Err:522 Err:522 Err:522 Err:522 445 Err:522 1,022 Err:522 181 Err:522 1,980 Err:522 Err:522 Err:522 Err:522 445 Err:522 641 Err:522 188 Err:522 1,980 Err:522 Err:522 Err:522 Err:522 445 Err:522 589 Err:522 196 Err:522 1,980 Err:522 Err:522 Err:522 Err:522 445 Err:522 400 Err:522 204 Err:522 1,980 Err:522 Err:522 Err:522 Err:522 445 Err:522 1,292 754 400 336 493 517 644 781 870 567 133 204 (204) 701 462 147 223 (537) 923 523 138 (2) (355) 1,016 505 136 (13) (64) 718 Err:522 156 99 157 Err:522 Err:522 161 54 23 Err:522 Err:522 165 55 128 Err:522 Err:522 170 56 137 Err:522 Err:522 175 57 88 Err:522 PV: 2006 - 2010 Err:522 PV: Terminal Value Err:522 Total PV (Market Value of the Firm) Err:522 Less: Market Value of Long-Term Debt $1,171 Plus: Excess Cash (Investments) Err:522 Equity Value Err:522 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 15 of 23 09/06/2017 Acquisition Plan - JAKKS Financial Summary of Synergy Appendix D 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: - Rent 250,000 - Elimination of 15 back office positions at $35,000 each 525,000 - Elimination of 10 professional positions at 90,000 each 900,000 Total 1,675,000 2006 0.13 2007 0.25 2008 0.25 2009 0.25 0.26 0.53 0.53 0.53 0.53 G&A 0.45 0.84 0.90 1.68 0.90 1.68 0.90 1.68 0.90 50% COS/50% Sales Expense 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 - 3 Months Rent 62,500 0.06 - 1 Month's pay for back office positions 43,750 0.04 - Average 3 months' pay for professional positions 225,000 0.23 Total 331,250 0.33 3) 2006 2007 2008 2009 2010 Expense Category 0.25 50% COS/50% Sales Expense 2010 50% COS / 50% Sales Expense Integration Expense Integration Expense 3.00 2007 9.00 2008 12.00 2009 12.00 2010 12.50 100% COS 2006 0.50 0.20 0.40 0.75 1.85 2007 1.00 0.40 0.80 1.50 ### 3.70 2008 1.00 0.40 0.80 1.50 3.70 2009 1.00 0.40 0.80 1.50 3.70 2010 1.00 0.40 0.80 1.50 3.70 5) Termination of employees in U.S.: 4) - 75 employees with average pay of $40,000, including benefits. 1.50 3.00 3.00 3.00 6) Severance pay as a result of terminations. 5) 0.37 Integration Expense 7) Retention bonuses for key employees 6) 0.50 Integration Expense Termination of 3rd Party manufacturing agreements:2) 4) Termination of rental contracts: 3) Malibu Headquarters (CA) Dexter Michigan Office (MI) International Toy Center New York (showroom) (NY) Warehouse space in City of Industry (CA) Warehouse space in New Brunswick (NJ) Total Grand total Acquisition Plan JAKKS 6.0 16 of 23 17.4 20.4 20.4 50% G&A/25% Sales/25% COS 50% COS/ 50% Sales 100% Sales 100% Sales 3.00 75% G&A/25%COS 20.9 85.0 09/06/2017 Acquisition Plan - JAKKS Financial Summary of Synergy Appendix D 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 17 of 23 09/06/2017 Acquisition Plan - JAKKS Initial Offer Price Determination Appendix E Step 3: Offer Price Determination Offer Price Supporting Data Acquirer Share Price 1) Target Share Price 1) Proposed % of Synergy Shared with Target Target Shares Outstanding (Mil) Acquirer Shares Outstanding (Mil) Cash Portion of Offer Price (%) $ $ 16.03 14.25 30% 19.1 426.0 0 Standalone Value Discounted Cash Flow Valuations ($Mil) Minimum Offer Price (PVMIN) ($Mil) Maximum Offer Price (PVMAX) ($Mil) Acquirer Err:522 $ Target Err:522 Consolidated Acquirer + Target Without Synergy (1) Err:522 With Synergy (2) Err:522 Value of Synergy PVNS (1) - (2) Err:522 272 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Initial Offer Price ($Mil) Initial Offer Price Per Share ($) Purchase Price Premium Per Share Cash Per Share ($) Share Exchange Ratio New Shares Issued by Acquirer Total Shares Outstanding Acquirer after acquisition Ownership Distribution in New Firm Acquirer shareholders (%) Err:522 Target shareholders (%) Err:522 EPS at Initial Offer Price Acquirer's Forecast of EPS after Acquirer's Forecast of EPS after Acquisition Acquisition 2006 Err:522 Err:522 2007 Err:522 Err:522 Weighted Average Valuation Calculation Value Weighting Factor Discounted Cash Flow Valuation Err:522 50% Comparable Firms - Earnings Valuation 3) Err:522 25% $ 413 25% Comparable Firms - Sales Valuation 3) Weighted Average Valuation 2008 Err:522 Err:522 2009 Err:522 Err:522 2010 Err:522 Err:522 Weighted Value Err:522 Err:522 $ 103 Err:522 Offer Offer Resulting Earnings Per Share After Acquisitions4 Price Price % Shared 2006 2007 2008 2009 2010 Per Share $-millions Synergy Err:522 Err:522 30% Err:522 Err:522 Err:522 Err:522 Err:522 Notes Err:522 Err:522 40% Err:522 Err:522 Err:522 Err:522 Err:522 1) Share prices as of close of business on March 31, 2006.. Err:522 Err:522 50% Err:522 Err:522 Err:522 Err:522 Err:522 2) The initial offer price will be based on 30% synergy sharing. Err:522 Err:522 60% Err:522 Err:522 Err:522 Err:522 Err:522 3) See "Relative Valuations Summary". Err:522 Err:522 70% Err:522 Err:522 Err:522 Err:522 Err:522 4) Post-acquisition EPS for different offer prices equals consolidated net income after taxes divided by the sum of acquirer shares outstanding plus new shares issued by the acquirer. New shares issued equals the number of target shares outstanding times the share exchange ratio (SER). Consolidated EPS will decline Acquisition Plan JAKKS 09/06/2017 Acquisition Plan - JAKKS Initial Offer Price Determination Appendix E as the offer price increases as more shares of acquirer stock must be issued for each share of target stock outstanding. Acquisition Plan JAKKS 09/06/2017 Acquisition Plan - JAKKS Relative Valuations Summary Appendix F Step 3 Continued: Alternative Valuation Summaries As of 12/31/05 As of 12/31/05 PRICE/SALES VALUATION PRICE/ EARNINGS VALUATION COMPARABLE COMPANIES PRICE/SALES COMPARABLE COMPANIES P/E Company 1 1.3 Company 1 14.6 Company 2 1.5 Company 2 11.0 Company 3 1.4 Company 3 12.0 Company 4 1.5 Company 4 10.0 Company 5 1.4 Company 5 11.0 TOTAL 7.1 TOTAL 58.6 AVERAGE 1.4 AVERAGE 11.7 TARGET PROJECTED SALES (2001) 290.1 TARGET PROJECTED EARNINGS (2001) Err:522 PROJECTED VALUE OF TARGET (In millions) 412.6 PROJECTED VALUE OF TARGET (In millions) Err:522 Acquisition Plan JAKKS 09/06/2017 Acquisition Plan - JAKKS Consolidated Financial Statements based on Initial Offer Price 2006 Income Statement ($Millions) Net Sales Less: Cost of Sales Gross Profit Less: Sales, General & Admin. Exp. Integration Expenses Operating Profits (EBIT) Plus: Interest Income Less: Interest Expense Net Profits Before Taxes Less: Taxes Net Profits After Taxes Earnings per share ($/Share) Balance Sheet (12/31) Current Assets Cash & Marketable Securities Other Current Assets Total Current Assets Gross Fixed Assets Less: Accumulated Depreciation Net Fixed Assets Other Assets Total Assets Current Liabilities Long-term debt Exiting Debt Transaction related debt Total Long-term Debt Other Liabilities Common Stock Retained Earnings Shareholders' Equity Total Liabilities+Shareholders' Equity Addendum: Long-term debt / Equity Acquisition Plan JAKKS Step 4: Combined Firms' Financing Capacity Projected Financials 2007 2008 2009 2010 Appendix G Forecast Comments 5,147 2,721 2,426 1,730 (1) 696 Err:522 127 Err:522 Err:522 Err:522 Err:522 5,385 2,790 2,595 1,779 816 Err:522 129 Err:522 Err:522 Err:522 Err:522 5,620 2,884 2,736 1,828 909 Err:522 122 Err:522 Err:522 Err:522 Err:522 5,859 2,981 2,879 1,861 1,018 Err:522 96 Err:522 Err:522 Err:522 Err:522 6,098 3,103 2,995 1,890 1,105 Err:522 96 Err:522 Err:522 Err:522 Err:522 Based on 426 million existing Acquirer shares and 23,836 million new shares (total shares after acquisition 449.836 million). Err:522 1,787 Err:522 1,249 588 661 2,010 Err:522 1,530 Err:522 1,868 Err:522 1,303 697 606 2,005 Err:522 1,599 Err:522 1,949 Err:522 1,357 810 547 1,999 Err:522 1,563 Err:522 2,031 Err:522 1,413 928 485 1,994 Err:522 1,520 Err:522 2,113 Err:522 1,470 1,051 419 1,989 Err:522 1,524 1,244 1,244 174 1,980 Err:522 Err:522 Err:522 Err:522 1,022 1,022 181 1,980 Err:522 Err:522 Err:522 Err:522 641 641 188 1,980 Err:522 Err:522 Err:522 Err:522 589 589 196 1,980 Err:522 Err:522 Err:522 Err:522 400 400 204 1,980 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Value Creation Summary ($Millions) Consolidated Value after Acquisition Pre-acquisition Equity Value Acquirer Target Total Value Created Distribution of Value Acquirer Err:522 Target Err:522 Total Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 Err:522 09/06/2017 Appendix A January February March April May June July August SeptembeOctober NovemberDecember wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk wk5 wk1 wk4 wk1 wk4 wk1 wk4 wk1 wk5 wk1 wk4 wk1 wk5 wk1 wk4 wk1 wk4 wk1 wk5 wk1 wk4 wk1 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 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 wk1 KEY ACTIVITIES 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 Staff Relocation Program Interview Initiate Action Complete Initiate Action Complete Communication Program Public Relations (ongoing) Advertising (ongoing) Announcement Corporate Materials Announcement Website Launch Initiate Action Acquisition Plan JAKKS Holiday Ad Campaign Development/Ongoing Fully Integrated Target Completion Date 09/06/2017 KEY ACTIVITIES Estimated Time Frame Duration Manager Deadline Pre-Acquisition Search 3 weeks 30-Dec COO/Exec Staff Screen 3 weeks 13-Jan President First Contact 3 weeks 20-Jan President 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 Negotiation CFO 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 Hong Kong Office COO 18 weeks 30-Jun Director of Finance Third Party Manufacturing Agreement Term18 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 Corporate Materials 11 weeks Website 27 weeks Vice Pres Mrktg Vice Pres Mrktg 4-Aug Vice Pres Mrktg