-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pgnse+5NwCLtlgWb9hR8ArA1mmFFg7MyqeTiFCKo3ALIVnNi9KiIDk4gWTlZrw/4 nnQwHTfAAv+KC/QsjUakAg== 0000063276-98-000009.txt : 19980513 0000063276-98-000009.hdr.sgml : 19980513 ACCESSION NUMBER: 0000063276-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATTEL INC /DE/ CENTRAL INDEX KEY: 0000063276 STANDARD INDUSTRIAL CLASSIFICATION: DOLLS & STUFFED TOYS [3942] IRS NUMBER: 951567322 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05647 FILM NUMBER: 98617113 BUSINESS ADDRESS: STREET 1: 333 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3102522000 10-Q 1 1ST QUARTER 1998 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 -------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-05647 ---------------------------------- MATTEL, INC. ------------ (Exact name of registrant as specified in its charter) Delaware 95-1567322 - ------------------------------------------------------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 333 Continental Boulevard, El Segundo, California 90245-5012 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (310) 252-2000 -------------- (Former name, former address and former fiscal year, None if changed since last report) -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Number of shares outstanding of registrant's common stock as of May 8, 1998: Common Stock - $1 par value -- 293,515,239 shares PART I -- FINANCIAL INFORMATION ------------------------------- MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, March 31, Dec. 31, (In thousands) 1998 1997 1997 - -------------- ----------- ----------- ----------- ASSETS Current Assets Cash $ 331,884 $ 144,659 $ 694,947 Accounts receivable, net 987,906 977,479 1,091,416 Inventories 531,623 512,847 428,844 Prepaid expenses and other current assets 251,397 193,636 246,529 ----------- ----------- ----------- Total current assets 2,102,810 1,828,621 2,461,736 ----------- ----------- ----------- Property, Plant and Equipment Land 28,730 32,144 29,556 Buildings 201,400 216,291 198,396 Machinery and equipment 459,892 443,138 453,978 Capitalized leases 24,485 25,498 24,625 Leasehold improvements 73,301 72,826 68,179 ----------- ----------- ----------- 787,808 789,897 774,734 Less: accumulated depreciation 350,415 333,885 336,946 ----------- ----------- ----------- 437,393 456,012 437,788 Tools, dies and molds, net 165,400 152,338 163,809 ----------- ----------- ----------- Property, plant and equipment, net 602,793 608,350 601,597 ----------- ----------- ----------- Other Noncurrent Assets Intangible assets, net 548,957 596,883 542,759 Sundry assets 189,234 227,860 197,699 ----------- ----------- ----------- $ 3,443,794 $ 3,261,714 $ 3,803,791 =========== =========== =========== See accompanying notes to consolidated financial information.
2 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
March 31, March 31, Dec. 31, (In thousands, except share data) 1998 1997 1997 - --------------------------------- ----------- ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings $ 18,204 $ 16,865 $ 17,468 Current portion of long-term liabilities 13,577 105,393 13,659 Accounts payable 193,431 180,816 310,117 Accrued liabilities 443,253 532,025 629,445 Income taxes payable 134,284 113,358 202,735 ----------- ----------- ----------- Total current liabilities 802,749 948,457 1,173,424 ----------- ----------- ----------- Long-Term Liabilities 6-3/4% Senior Notes due 2000 100,000 100,000 100,000 10-1/8% Senior Subordinated Notes - 126,500 - Medium-Term Notes 520,500 260,000 520,500 Mortgage note 43,437 43,962 43,573 Other 136,862 146,101 144,224 ----------- ----------- ----------- Total long-term liabilities 800,799 676,563 808,297 ----------- ----------- ----------- Shareholders' Equity Preferred stock, Series B $1.00 par value, $1,050.00 liquidation preference per share, 0.1 million shares authorized, issued and outstanding at March 31, 1997 - 54 - Preferred stock, Series C $1.00 par value, $125.00 liquidation preference per share, 0.8 million shares authorized, issued and outstanding 772 773 772 Common stock $1.00 par value, 600.0 million shares authorized; 300.4 million shares issued at March 31, 1998 and December 31, 1997 and 296.7 million shares issued at March 31, 1997 300,381 296,729 300,381 Additional paid-in capital 489,323 512,463 509,172 Treasury stock at cost; 6.2 million shares, 4.8 million shares and 8.8 million shares, respectively (207,695) (127,299) (285,420) Retained earnings 1,480,866 1,069,971 1,490,804 Accumulated other comprehensive (loss) (223,401) (115,997) (193,639) ----------- ----------- ----------- Total shareholders' equity 1,840,246 1,636,694 1,822,070 ----------- ----------- ----------- $ 3,443,794 $ 3,261,714 $ 3,803,791 =========== =========== =========== See accompanying notes to consolidated financial information.
3 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended ---------------------- March 31, March 31, (In thousands, except per share amounts) 1998 1997 - ---------------------------------------- ---------- ---------- Net Sales $ 705,164 $ 693,520 Cost of sales 381,246 370,709 ---------- ---------- Gross Profit 323,918 322,811 Advertising and promotion expenses 98,081 102,626 Other selling and administrative expenses 183,791 185,286 Interest expense 16,392 19,636 Integration and restructuring costs - 275,000 Other expense, net 7,898 7,882 ---------- ---------- Income (Loss) Before Income Taxes 17,756 (267,619) Provision (benefit) for income taxes 5,087 (62,995) ---------- ---------- Net Income (Loss) 12,669 (204,624) Less: preferred stock dividend requirements 1,990 2,840 ---------- ---------- Net Income (Loss) Applicable to Common Shares $ 10,679 $ (207,464) ========== ========== Basic Income (Loss) Per Common Share - ------------------------------------ Net income (loss) $ 0.04 $ (0.72) ========== ========== Average number of common shares 293,048 288,382 ========== ========== Diluted Income (Loss) Per Common Share - -------------------------------------- Net income (loss) $ 0.04 $ (0.72) ========== ========== Average number of common and common equivalent shares 298,164 288,382 ========== ========== Dividends Declared Per Common Share $ 0.07 $ 0.06 ========== ========== See accompanying notes to consolidated financial information. March 1997 consolidated results are restated for the merger with Tyco Toys, Inc. ("Tyco"), accounted for as a pooling of interests.
4 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended ----------------------- March 31, March 31, (In thousands) 1998 1997 - -------------- ---------- ---------- Cash Flows From Operating Activities: - ------------------------------------- Net income (loss) $ 12,669 $ (204,624) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Noncash restructuring and integration charges - 90,382 Depreciation 41,760 39,113 Amortization 8,078 8,550 Increase (decrease) from changes in net assets and liabilities: Accounts receivable 96,439 (48,626) Inventories (105,785) (82,524) Prepaid expenses and other current assets (5,781) 4,207 Accounts payable, accrued liabilities and income taxes payable (365,098) (220,107) Deferred compensation and other retirement plans (901) 693 Deferred income taxes (2,653) (16,009) Other, net (3,552) (719) ---------- ---------- Net cash used in operating activities (324,824) (429,664) ---------- ---------- Cash Flows From Investing Activities: - ------------------------------------- Purchases of tools, dies and molds (26,045) (23,672) Purchases of other property, plant and equipment (38,848) (27,900) Purchase of other long-term investments (1,456) (5,952) Proceeds from sales of other property, plant and equipment 11,379 8,374 Investment in acquired businesses (11,057) (8,625) Other, net (1,239) (173) ---------- ---------- Net cash used in investing activities (67,266) (57,948) ---------- ---------- Cash Flows From Financing Activities: - ------------------------------------- Short-term borrowings, net 702 (11,365) Issuance of Medium-Term Notes - 40,000 Long-term foreign borrowings (958) 2,100 Tax benefit of employee stock options exercised 29,867 1,926 Exercise of stock options 60,348 5,181 Sale of treasury stock - 71,295 Purchase of treasury stock (32,339) (1,557) Dividends paid on common and preferred stock (24,521) (19,113) Other, net (164) (1,125) ---------- ---------- Net cash provided by financing activities 32,935 87,342 Effect of Exchange Rate Changes on Cash (3,908) (5,342) ---------- ---------- Decrease in Cash (363,063) (405,612) Cash at Beginning of Period 694,947 550,271 ---------- ---------- Cash at End of Period $ 331,884 $ 144,659 ========== ========== See accompanying notes to consolidated financial information. March 1997 consolidated results are restated for the effects of the merger with Tyco, accounted for as a pooling of interests.
5 MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Additional Preferred Common Paid-In Treasury Retained (In thousands) Stock Stock Capital Stock Earnings - ------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 $772 $300,381 $509,172 $(285,420) $1,490,804 Comprehensive income/(loss): Net income 12,669 Currency translation adjustments --------- -------- -------- --------- ---------- Comprehensive income/(loss) 12,669 Purchase of treasury stock (32,339) Issuance of treasury stock (49,716) 110,064 Exercise of stock options 29,867 Dividends declared on common stock (20,617) Dividends declared on preferred stock (1,990) --------- -------- -------- --------- ---------- BALANCE, MARCH 31, 1998 $772 $300,381 $489,323 $(207,695) $1,480,866 ========= ======== ======== ========= ========== See accompanying notes to consolidated financial information. MATTEL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Accumulated Other Total Comprehensive Shareholders' (In thousands) (Loss) Equity - ------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 $(193,639) $1,822,070 Comprehensive income/(loss): Net income 12,669 Currency translation adjustments (29,762) (29,762) ------------- ------------- Comprehensive income/(loss) (29,762) (17,093) Purchase of treasury stock (32,339) Issuance of treasury stock 60,348 Exercise of stock options 29,867 Dividends declared on common stock (20,617) Dividends declared on preferred stock (1,990) ------------- ------------- BALANCE, MARCH 31, 1998 $(223,401) $1,840,246 ============= ============= See accompanying notes to consolidated financial information.
6 MATTEL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL INFORMATION ------------------------------------------- 1. The accompanying unaudited consolidated financial statements and related disclosures have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation of Mattel, Inc. and its subsidiaries' ("the Company's") financial position and interim results as of and for the periods presented have been included. Certain amounts in the financial statements for prior periods have been reclassified to conform with the current period's presentation. Because the Company's business is seasonal, results for interim periods are not necessarily indicative of those which may be expected for a full year. The financial information included herein should be read in conjunction with the Company's consolidated financial statements and related notes in its 1997 Annual Report to Shareholders. 2. Accounts receivable are shown net of allowances for doubtful accounts of $25.2 million (March 31, 1998), $23.3 million (March 31, 1997), and $30.7 million (December 31, 1997). 3. Inventories are comprised of the following:
March 31, March 31, Dec. 31, (In thousands) 1998 1997 1997 - -------------- --------- --------- --------- Raw materials and work in progress $ 57,283 $ 86,068 $ 48,620 Finished goods 474,340 426,779 380,224 --------- --------- --------- $ 531,623 $ 512,847 $ 428,844 ========= ========= =========
4. Net cash flows from operating activities include cash payments for the following:
For the Three Months Ended -------------------------- March 31, March 31, (In thousands) 1998 1997 - -------------- ----------- ----------- Interest $ 6,499 $ 18,018 Income taxes 45,686 17,525 --------------------------
5. In the current quarter, the Board of Directors declared cash dividends of $0.07 per common share, compared to $0.06 per common share in the first quarter of 1997. On May 6, 1998, the Company announced an increase in future quarterly dividends to $0.08 per share effective in July 1998. 7 6. In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share. Accordingly, March ------------------ 1997 results have been restated to present basic and diluted loss per common share. Basic income (loss) per common share is computed by dividing earnings available to common shareholders by the average number of common shares outstanding during each period. Earnings available to common shareholders represent reported net income (loss) less preferred stock dividend requirements. Diluted income (loss) per common share is computed by dividing diluted earnings available to common shareholders by the weighted average number of common and common equivalent shares outstanding during each period. Weighted average share computations assume the exercise of dilutive stock options and warrants, net of assumed treasury share repurchases at average market prices, and conversion of dilutive preferred stock and convertible debt, as applicable. Diluted earnings available to common shareholders represent earnings available to common shareholders plus preferred stock dividend requirements and interest savings resulting from assumed conversions of dilutive securities. 7. In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, which ------------------------------ establishes standards for reporting and display of comprehensive income and its components (revenue, expenses, gains, and losses) in a full set of general-purpose financial statements. Accordingly, comprehensive income has been reported as a separate component of shareholders' equity in the consolidated balance sheets and the consolidated statement of shareholders' equity. 8. On March 30, 1998, Mattel made an offer to purchase Bluebird Toys PLC ("Bluebird") at a price of approximately 46 million pounds sterling. Bluebird is the company from which Mattel licenses the product designs for its POLLY POCKET and Disney Tiny Collections brands, as well as the POLLY POCKET trademarks. Bluebird's Board of Directors has recommended that its shareholders accept Mattel's offer. Mattel's offer is currently scheduled to expire on May 22, 1998. 9. On January 8, 1998, the Company acquired PrintPaks, a Portland, Oregon- based publisher of multimedia craft products. The purchase price included net cash consideration of $11.1 million. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the results of PrintPaks have been included in the Company's consolidated financial statements since the date of acquisition. The asset purchase agreement also provides for future contingent consideration in the event that net sales of PrintPaks product lines reach or exceed certain levels in each of calendar years 1998, 1999, and 2000. 8 10. On March 27, 1997, the Company completed its merger with Tyco, accounted for as a pooling of interests. Accordingly, all financial information for the period ended March 31, 1997 has been restated to include Tyco. 11. In connection with the Tyco merger, the Company commenced an integration and restructuring plan and recorded a $275 million pre-tax charge against operations in March 1997. The plan consisted of consolidating certain manufacturing and distribution operations, eliminating duplicative marketing and administrative offices, terminating various distributor and licensing arrangements and abandoning certain product lines. Included in the charge was approximately $86 million for estimated severance costs related to the elimination of 2,700 positions principally associated with facilities to be closed. The remainder of the charge consisted of transaction costs related to the merger, asset write-downs, and contract termination expenses. Of the total pre-tax charge, approximately $90 million represents non-cash asset write-downs. Through March 31, 1998, the total integration and restructuring expenditures and write-offs were approximately $190 million, $58 million of which related to severance payments. The plan is expected to be substantially completed in 1998. 9 MATTEL, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS QUARTERLY REPORT PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY, WHICH INCLUDE, BUT ARE NOT LIMITED TO, THE MATTEL AND TYCO RESTRUCTURING CHARGE, COST SAVINGS, AND PROFITABILITY, ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH STATEMENTS. THESE INCLUDE WITHOUT LIMITATION: THE COMPANY'S DEPENDENCE ON THE TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER ACCEPTANCE OF NEW PRODUCTS; SIGNIFICANT CHANGES IN BUYING PATTERNS OF MAJOR CUSTOMERS; POSSIBLE WEAKNESSES OF INTERNATIONAL MARKETS; THE IMPACT OF COMPETITION ON REVENUES AND MARGINS; THE EFFECT OF CURRENCY FLUCTUATIONS ON REPORTABLE INCOME; UNANTICIPATED NEGATIVE RESULTS OF LITIGATION OR ENVIRONMENTAL MATTERS; AND OTHER RISKS AND UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S PUBLIC ANNOUNCEMENTS AND SEC FILINGS. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE," "CONTINUE," "PLANS," "INTENDS," OR OTHER SIMILAR TERMINOLOGY. Mattel, Inc. designs, manufactures, markets and distributes a broad variety of toy products on a worldwide basis. The Company's business is dependent in great part on its ability each year to redesign, restyle and extend existing core products and product lines and to design and develop innovative new toys and product lines. New products have limited lives, ranging from one to three years, and generally must be updated and refreshed each year. The Company plans to continue to focus on core brands that have fundamental play patterns and worldwide appeal, are sustainable, and have delivered consistent profitability and stable growth. The Company's core brands can be grouped in the following five categories: Fashion Dolls (BARBIE fashion dolls and accessories, Collector dolls, and Fashion Magic); Infant and Preschool (FISHER-PRICE, Disney Preschool and Plush, POWER WHEELS, SESAME STREET, SEE 'N SAY, MAGNA DOODLE, and VIEW-MASTER); Entertainment (Disney, Nickelodeon, games and puzzles); Wheels (HOT WHEELS, MATCHBOX, Tyco Electric Racing and Tyco Radio Control); and Large and Small Dolls (CABBAGE PATCH KIDS, POLLY POCKET and Tyco large dolls and plush). 10 RESULTS OF OPERATIONS --------------------- The Company's business is seasonal, and, therefore, results of operations are comparable only with corresponding periods. Following is a percentage analysis of operating results:
For the Three Months Ended ------------------------ March 31, March 31, 1998 1997 ----------- ----------- Net sales 100% 100% =========== =========== Gross profit 46% 47% Advertising and promotion expenses 14 15 Other selling and administrative expenses 26 27 Restructuring and integration charges - 40 Other expense, net 1 1 ----------- ----------- Operating profit (loss) 5 (36) Interest expense 2 3 ----------- ----------- Income (loss) before income taxes 3% (39)% =========== ===========
Net sales in the first quarter of 1998 increased $11.6 million or 2% over the 1997 first quarter, including a net $14.7 million unfavorable effect from the generally stronger US dollar relative to last year. Sales of the Company's Infant and Preschool brands increased 36%, led by strength in SESAME STREET and Disney's WINNIE THE POOH. The Entertainment category increased 16%, primarily due to higher sales of Nickelodeon products. The Wheels category increased 9%, led by an increase in HOT WHEELS vehicles and playsets, partially offset by a decline in Tyco Radio Control. Sales of BARBIE and BARBIE-related products, including Fashion Magic products, decreased 17% primarily due to high retail inventory levels of certain dolls entering the year and a change in buying practices by Toys R Us, the Company's largest customer. Sales to customers within the United States grew 4% and accounted for 69% of consolidated gross sales compared to 67% in the year-ago quarter. Sales to customers outside the United States decreased 2% compared to 1997, including the unfavorable effect of the generally stronger US dollar relative to the year-ago quarter. At comparable foreign currency exchange rates, sales internationally grew 4%. Gross margin as a percentage of net sales declined one percentage point to 46%, principally due to reduced sales of BARBIE and BARBIE-related products. Advertising and promotion as a percentage of net sales decreased one percentage point to 14% primarily due to synergies realized from the merger with Tyco. As a percentage of net sales, other selling and administrative expenses decreased one percentage point over the year-ago quarter, reflecting the Company's effort to control costs, and direct savings realized from the Tyco integration and Mattel restructuring. As a percentage of net sales, interest expense decreased 1% primarily due to realization of savings from the refinancing of Tyco debt and the Company's favorable cash position. 11 ACQUISITIONS AND NONRECURRING ITEM ---------------------------------- On March 30, 1998, Mattel made an offer to purchase Bluebird at a price of approximately 46 million pounds sterling. Bluebird is the company from which Mattel licenses the product designs for its POLLY POCKET and Disney Tiny Collections brands, as well as the POLLY POCKET trademarks. Bluebird's Board of Directors has recommended that its shareholders accept Mattel's offer. Mattel's offer is currently scheduled to expire on May 22, 1998. On January 8, 1998, the Company acquired PrintPaks, a Portland, Oregon- based publisher of multimedia craft products. The purchase price included net cash consideration of $11.1 million. The acquisition has been accounted for using the purchase method of accounting and, accordingly, the results of PrintPaks have been included in the Company's consolidated financial statements since the date of acquisition. The asset purchase agreement also provides for future contingent consideration in the event that net sales of PrintPaks product lines reach or exceed certain levels in each of calendar years 1998, 1999, and 2000. On March 27, 1997, the Company completed its merger with Tyco, accounted for as a pooling of interests. Accordingly, all financial information for the period ended March 31, 1997 has been restated to include Tyco. In connection with the Tyco merger, the Company commenced an integration and restructuring plan and recorded a $275 million pre-tax charge against operations in March 1997. The plan consisted of consolidating certain manufacturing and distribution operations, eliminating duplicative marketing and administrative offices, terminating various distributor and licensing arrangements and abandoning certain product lines. Included in the charge was approximately $86 million for estimated severance costs related to the elimination of 2,700 positions principally associated with facilities to be closed. The remainder of the charge consisted of transaction costs related to the merger, asset write-downs, and contract termination expenses. Of the total pre-tax charge, approximately $90 million represents non-cash asset write-downs. Through March 31, 1998, the total integration and restructuring expenditures and write-offs were approximately $190 million, $58 million of which related to severance payments. The plan is expected to be substantially completed in 1998. FINANCIAL CONDITION ------------------- The Company's financial position remained strong during the first quarter of 1998. The Company's cash position as of March 31, 1998 was $331.9 million compared to $144.7 million as of the first quarter 1997, primarily due to profitable operating results. Cash decreased by $363.1 million since December 31, 1997 primarily due to funding of operating activities. 12 Inventory balances increased $102.8 million since year end and $18.8 million over the 1997 quarter end, primarily as a result of the Company's production in support of future sales volume. Prepaid expenses and other current assets increased $57.8 million over the 1997 quarter end, mainly due to higher deferred income tax benefits related to the Tyco integration and Mattel restructuring charge. Intangibles decreased $47.9 million, compared to the year-ago quarter, primarily due to amortization and the disposal of certain intangibles resulting from the sale of the Company's sports product lines. Current portion of long-term liabilities decreased $91.8 million over the 1997 quarter end, primarily due to the repayment of the $100.0 million 6-7/8% Senior Notes which matured on August 1, 1997. Accrued liabilities decreased $88.8 million compared to the year-ago quarter, mainly due to the completion of certain activities related to the Tyco integration and Mattel restructuring. Seasonal financing needs for the next twelve months are expected to the satisfied through internally generated cash, issuance of commercial paper, issuance of long-term debt, and use of the Company's various short-term bank lines of credit. Details of the Company's capitalization are as follows:
(In millions) March 31, 1998 March 31, 1997 Dec. 31, 1997 - ------------- ---------------------------------------------- Medium-Term Notes $ 520.5 20% $ 260.0 11% $ 520.5 20% 6-3/4% Senior Notes 100.0 4 100.0 4 100.0 4 10-1/8% Notes - - 126.5 6 - - Convertible Subordinated Notes - - 16.0 1 - - Other long-term debt obligations 54.1 2 59.4 2 55.0 2 ---------------------------------------------- Total long-term debt 674.6 26 561.9 24 675.5 26 Other long-term liabilities 126.2 5 114.7 5 132.8 5 Shareholders' equity 1,840.2 69 1,636.7 71 1,822.1 69 ---------------------------------------------- $2,641.0 100% $2,313.3 100% $2,630.4 100% ==============================================
Total long-term debt increased as a percentage of total capitalization compared to the year-ago quarter, primarily due to the issuance of $270.0 million of Medium-Term Notes, partially offset by the redemption of the 10-1/8% Notes, and conversion of Convertible Subordinated Notes into 892.7 thousand shares of Mattel common stock. Future long-term capital needs are expected to be satisfied through the retention of corporate earnings and the issuance of long-term debt instruments. Shareholders' equity increased $203.5 million since March 31, 1997, primarily due to the Company's profitable 1997 operating results and exercises of employee stock options, partially offset by treasury stock repurchases, dividends declared to common and preferred shareholders, and unfavorable currency translation adjustments. FOREIGN CURRENCY RISK --------------------- The Company enters into foreign currency forward exchange and option contracts primarily as hedges of inventory purchases, sales and other intercompany transactions denominated in foreign currencies, to limit the effect of exchange rate fluctuations on the results of operations and cash flows. 13 Market risk exposures exist with respect to the settlement of foreign currency transactions during the year because currency fluctuations cannot be predicted with certainty. The Company's primary market risk exposures are in Europe and Asia. The Company seeks to mitigate its exposure to market risk by monitoring its currency exchange exposure for the year and partially or fully hedging such exposure. In addition, the Company manages it exposure through the selection of currencies used for international borrowings and intercompany invoicing. The Company does not trade in financial instruments for speculative purposes. 14 PART II -- OTHER INFORMATION ---------------------------- Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits -------- 11.0 Computation of Income (Loss) per Common and Common Equivalent Share 12.0 Computation of Ratio of Earnings (Loss) to Fixed Charges and Ratio of Earnings (Loss) to Combined Fixed Charges and Preferred Stock Dividends 27.0 Financial Data Schedule (EDGAR filing only) 27.1 Restated Financial Data Schedule (EDGAR filing only) 27.2 Restated Financial Data Schedule (EDGAR filing only) (b) Reports on Form 8-K ------------------- Mattel, Inc. filed the following Current Reports on Form 8-K during the quarterly period ended March 31, 1998: Financial Date of Report Items Reported Statements Filed ----------------- -------------- ---------------- January 23, 1998 5, 7 None February 5, 1998 5, 7 None 15 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MATTEL, INC. ------------ (Registrant) Date: As of May 12, 1998 By: /s/ KEVIN M. FARR ------------------ ------------------------- Kevin M. Farr Senior Vice President and Controller 16 EX-11.0 2 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 1 of 2) COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE ------------------------------------------------------------------- (In thousands, except per share amounts)
For The Three Months Ended ---------------------- March 31, March 31, BASIC 1998 1997 - ----- --------- --------- Net income (loss) $ 12,669 $(204,624) Less: Dividends on convertible preferred stock (1,990) (2,840) --------- --------- Net income (loss) applicable to common shares $ 10,679 $(207,464) ========= ========= Applicable Shares for Computation of Income (Loss) per Share: - -------------------------------------------------- Weighted average common shares outstanding 293,048 288,382 ========= ========= Basic Income (Loss) Per Common Share: - ------------------------------------- Net income (loss) per common share $ 0.04 $ (0.72) ========= =========
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0 (Page 2 of 2) COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE ------------------------------------------------------------------- (In thousands, except per share amounts)
For The Three Months Ended ---------------------- March 31, March 31, DILUTED 1998 (a) 1997 (a) - ------- --------- --------- Net income (loss) $ 12,669 $(204,624) Add: Interest savings, net of tax, applicable to: Assumed conversion of 7% Notes - 182 --------- --------- Net income (loss) applicable to common shares $ 12,669 $(204,442) ========= ========= Applicable Shares for Computation of Income (Loss) per Share: - -------------------------------------------------- Weighted average common shares outstanding 293,048 288,382 Weighted average common equivalent shares arising from: Dilutive stock options 4,422 2,911 Assumed conversion of Series B convertible preferred stock - 2,753 Assumed conversion of Series C convertible preferred stock 7,731 7,740 Assumed conversion of 7% Notes - 783 Disney warrant 29 - Stock subscription warrants 665 616 --------- --------- Weighted average number of common and common equivalent shares 305,895 303,185 ========= ========= Diluted Income (Loss) Per Common Share: - --------------------------------------- Net income (loss) per common share $ 0.04 $ (0.67) ========= ========= (a) This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11), although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.
EX-12.0 3 STATEMENT RE COMPUTATION OF RATIOS MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0 (Page 1 of 2) COMPUTATION OF RATIO OF EARNINGS (LOSS) TO FIXED CHARGES -------------------------------------------------------- (Amounts in thousands, except ratios) (Unaudited)
FOR THE THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a) --------------------- ---------------------------------------------------- MARCH 31, MARCH 31, 1998 1997(a) 1997 1996 1995 1994 1993(b) --------- --------- ---------------------------------------------------- EARNINGS (LOSS) AVAILABLE FOR FIXED CHARGES: Income (loss) before income taxes, cumulative effect of changes in accounting principles and extraordinary items $ 17,756 $(267,619) $425,082 $536,756 $504,668 $362,157 $153,306 Less (plus) minority interest and undistributed income (loss) of less-than-majority-owned affiliates, net (5) 66 (144) 303 (36) (649) 124 Add: Interest expense 16,392 19,636 90,130 100,226 102,983 87,071 86,101 Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221 --------- --------- -------- -------- -------- -------- -------- Earnings (loss) available for fixed charges $ 38,090 $(242,965) $532,733 $656,812 $627,065 $464,803 $255,752 ========= ========= ======== ======== ======== ======== ======== FIXED CHARGES: Interest expense $ 16,392 $ 19,636 $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101 Capitalized interest - 218 991 1,789 693 285 - Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221 --------- --------- -------- -------- -------- -------- -------- Fixed charges $ 20,339 $ 24,806 $108,786 $121,542 $123,126 $103,580 $102,322 ========= ========= ======== ======== ======== ======== ======== Ratio of earnings (loss) to fixed charges 1.87X (9.79)(d) 4.90X 5.40X 5.09X 4.49X 2.50X ========= ========= ======== ======== ======== ======== ======== (a) Consolidated financial information for 1997 through 1993 has been restated for the effects of the March 1997 merger of Tyco Toys, Inc. ("Tyco") into the Company, accounted for as a pooling of interests. (b) Consolidated financial information for 1993 has been restated for the effects of the November 1993 merger of Fisher-Price, Inc. into a wholly-owned subsidiary of the Company, accounted for as a pooling of interests. (c) Portion of rental expenses which is deemed representative of an interest factor, not to exceed one-third of total rental expense. (d) As a result of an approximately $275 million restructuring charge to earnings taken in the first quarter of 1997, earnings did not cover fixed charges by $267.8 million for the three month period ended March 31, 1997.
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0 (Page 2 of 2) COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS --------------------------------------------------------- (Amounts in thousands, except ratios) (Unaudited)
FOR THE THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a) --------------------- ---------------------------------------------------- MARCH 31, MARCH 31, 1998 1997(a) 1997 1996 1995 1994 1993(b) --------- --------- ---------------------------------------------------- EARNINGS (LOSS) AVAILABLE FOR FIXED CHARGES: Income (loss) before income taxes, cumulative effect of changes in accounting principles and extraordinary items $ 17,756 $(267,619) $425,082 $536,756 $504,668 $362,157 $153,306 Less (plus) minority interest and undistributed income (loss) of less-than-majority-owned affiliates, net (5) 66 (144) 303 (36) (649) 124 Add: Interest expense 16,392 19,636 90,130 100,226 102,983 87,071 86,101 Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221 --------- --------- -------- -------- -------- -------- -------- Earnings (loss) available for fixed charges $ 38,090 $(242,965) $532,733 $656,812 $627,065 $464,803 $255,752 ========= ========= ======== ======== ======== ======== ======== FIXED CHARGES: Interest expense $ 16,392 $ 19,636 $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101 Capitalized interest - 218 991 1,789 693 285 - Dividends - Series B preferred stock - 846 2,537 3,406 3,200 2,157 - Dividends - Series C preferred stock 1,090 1,994 7,968 3,985 - - - Dividends - Series F preference stock - - - - 3,342 4,689 4,894 Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221 --------- --------- -------- -------- -------- -------- -------- Fixed charges $ 21,429 $ 27,646 $119,291 $128,933 $129,668 $110,426 $107,216 ========= ========= ======== ======== ======== ======== ======== Ratio of earnings (loss) to fixed charges 1.78X (8.79)(d) 4.47X 5.09X 4.84X 4.21X 2.39X ========= ========= ======== ======== ======== ======== ======== (a) Consolidated financial information for 1997 through 1993 has been restated for the effects of the March 1997 merger of Tyco Toys, Inc. ("Tyco") into the Company, accounted for as a pooling of interests. (b) Consolidated financial information for 1993 has been restated for the effects of the November 1993 merger of Fisher-Price, Inc. into a wholly-owned subsidiary of the Company, accounted for as a pooling of interests. (c) Portion of rental expenses which is deemed representative of an interest factor, not to exceed one-third of total rental expense. (d) As a result of an approximately $275 million restructuring charge to earnings taken in the first quarter of 1997, earnings did not cover fixed charges by $270.6 million for the three month period ended March 31, 1997.
EX-27.0 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 331,884 0 1,013,132 25,226 531,623 2,102,810 953,208 350,415 3,443,794 802,749 674,589 300,381 0 772 1,539,093 3,443,794 705,164 705,164 381,246 381,246 289,770 0 16,392 17,756 5,087 12,669 0 0 0 12,669 0.04 0.04 Notes - Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and Diluted Earnings per Share as required by Statement of Financial Accounting Standards No. 128 "Earnings per Share." Diluted earnings per share for the three months ended March 31, 1998 has been submitted in accordance with Regulation S-K, Item 601 (b)(11), although it is contrary to paragraph 13 of FAS No. 128 because it produces an anti-dilutive result. Mattel, Inc. has reviewed its quarterly Financial Data Schedules filed during 1997 and has determined that no restatement is necessary since amounts reported as Primary and Fully Diluted Earnings Per Share are the same as those that would have been reported as Basic and Diluted Earnings Per Share under FAS No. 128 for the same reporting periods.
EX-27.1 5 RESTATED FINANCIAL DATA SCHEDULES
5 THESE SCHEDULES HAVE BEEN RESTATED IN ACCORDANCE WITH REGULATION S-K, ITEM 601(c)(2)(iii) TO DISCLOSE EARNINGS PER SHARE AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE" AND THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS WITH TYCO TOYS, INC. IN MARCH 1997. 1,000 YEAR YEAR DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1995 550,271 493,686 0 17,375 969,949 903,184 21,009 16,840 444,178 407,551 2,139,062 2,014,940 939,377 825,073 323,096 292,738 3,581,142 3,341,370 1,141,877 1,067,951 519,806 627,067 296,091 296,080 0 0 827 52 1,509,005 1,255,548 3,581,142 3,341,370 4,535,332 4,369,816 4,535,332 4,369,816 2,315,574 2,302,076 2,315,574 2,302,076 1,582,775 1,460,089 0 0 100,226 102,983 536,756 504,668 164,532 166,779 372,224 337,889 0 0 0 0 0 0 372,224 337,889 1.26 1.13 1.23 1.12 Notes - Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and Diluted Earnings per Share as required by Statement of Financial Accounting Standards No. 128 "Earnings per Share." Diluted earnings per share for the year ended December 31, 1995 has been submitted in accordance with Regulation S-K, Item 601(b)(11), although it is contrary to paragraph 13 of FAS No. 128 because it produces an anti-dilutive result.
EX-27.2 6 RESTATED FINANCIAL DATA SCHEDULES
5 THESE SCHEDULES HAVE BEEN RESTATED IN ACCORDANCE WITH REGULATION S-K, ITEM 601(c)(2)(iii) TO DISCLOSE EARNINGS PER SHARE AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE" AND THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS WITH TYCO TOYS, INC. IN MARCH 1997. 1,000 3-MOS 6-MOS 9-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 68,036 91,996 126,924 0 0 0 908,194 1,153,917 1,593,323 19,345 18,152 20,842 498,197 562,922 566,625 1,658,419 2,016,285 2,506,651 849,431 883,684 916,059 293,771 306,516 321,781 3,004,911 3,377,698 3,899,300 708,514 963,625 1,552,529 626,841 626,878 521,377 296,091 296,091 296,091 0 0 0 53 827 827 1,270,896 1,386,383 1,419,994 3,004,911 3,377,698 3,899,300 683,999 1,605,582 3,103,498 683,999 1,605,582 3,103,498 361,125 846,684 1,593,827 361,125 846,684 1,593,827 274,184 595,628 1,049,974 0 0 0 19,893 41,883 70,134 28,797 121,387 389,563 8,263 37,483 124,284 20,534 83,904 265,279 0 0 0 0 0 0 0 0 0 20,534 83,904 265,279 0.07 0.28 0.89 0.07 0.28 0.88 Notes - Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and Diluted Earnings per Share as required by Statement of Financial Accounting Standards No. 128 "Earnings per Share." Diluted earnings per share for the quarters ended March 31 and June 30, 1996 have been submitted in accordance with Regulation S-K, Item 601(b)(11), although it is contrary to paragraph 13 of FAS No. 128 because it produces an anti-dilutive result.
-----END PRIVACY-ENHANCED MESSAGE-----