-----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, AcycIK5aDYya2JRTrI87gb3QxHtg/ygJZRRu6pUb7LbVXOSKsvWS3HrsOAXrL/eT swAcKX8zkFFtU5uVxRRvjA== 0000898430-99-002450.txt : 19990610 0000898430-99-002450.hdr.sgml : 19990610 ACCESSION NUMBER: 0000898430-99-002450 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990513 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990609 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: 8-K/A SEC ACT: SEC FILE NUMBER: 001-05647 FILM NUMBER: 99643306 BUSINESS ADDRESS: STREET 1: 333 CONTINENTAL BLVD CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3102522000 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A (Amendment No. 1) Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of Earliest Event Reported): May 13, 1999 MATTEL, INC. ------------ (Exact name of registrant as specified in its charter) Delaware 001-05647 95-1567322 - ------------------------------------------------------------------------------ (State or other jurisdiction (Commission (I.R.S. Employer of incorporation) File No.) 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 -------------- N/A - ------------------------------------------------------------------------------ (Former name or former address, if changed since last report) Item 2. Acquisition or Disposition of Assets. ------------------------------------ On May 13, 1999, pursuant to an Agreement and Plan of Merger, dated as of December 13, 1999 (the "Merger Agreement"), between Mattel, Inc. ("Mattel") and The Learning Company, Inc. ("Learning Company"), Learning Company was merged with and into Mattel, with Mattel as the surviving corporation (the "Merger"). Learning Company developed and published a broad range of high-quality branded consumer software for personal computers that educated across every age category, from young children to adults. Pursuant to the Merger Agreement, each outstanding share of common stock of Learning Company, $.01 par value per share ("Learning Company Common Stock"), was converted into the right to receive 1.2 shares of common stock of Mattel, $1.00 par value per share ("Mattel Common Stock"). The formula in the Merger Agreement for determining the exchange ratio was determined through arm's length negotiations. Based on the capitalization of Learning Company as of May 13, 1999, the former Learning Company stockholders have the right to receive approximately 126 million shares of Mattel Common Stock. No fractional shares are issuable in the Merger. Learning Company stockholders otherwise entitled to receive a fraction of a share of Mattel Common Stock in the Merger instead are entitled to receive, pursuant to the Merger Agreement, an amount of cash equal to such fraction multiplied by $26.15, which is the average of the closing prices of the Mattel Common Stock on the New York Stock Exchange for 10 randomly selected trading days out of the 20 trading days ending on the fifth trading day preceding the Merger. All options to purchase Learning Company Common Stock outstanding immediately prior to the Merger were assumed by Mattel and converted into options to purchase Mattel Common Stock pursuant to the Merger Agreement. Additionally, pursuant to the Merger Agreement, each outstanding exchangeable non-voting share of Learning Company's Canadian subsidiary, Softkey Software Products Inc., remains outstanding, but under the terms of the exchangeable shares, becomes exchangeable into 1.2 shares of Mattel Common Stock. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ------------------------------------------------------------------ (a) Financial Statements of Businesses Acquired. ------------------------------------------- The financial statements of Learning Company set forth on pages 34 through 60 of Learning Company's Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on Form 10-K for the fiscal year ended January 2, 1999 filed with the Securities and Exchange Commission on April 2, 1999 are filed as Exhibit 99.1 hereto pursuant to Rule 12b-23(a)(3) of the Exchange Act. The financial statements of Learning Company for the three-month period ended April 3, 1999 are filed as Exhibit 99.4 hereto. (b) Pro Forma Financial Information. ------------------------------- The Unaudited Pro Forma Condensed Combined Financial Statements of Mattel and Learning Company for the years ended December 31, 1996, 1997 and 1998 are filed as Exhibit 99.2 hereto. The unaudited Pro Forma Condensed Combined Financial Statements of Mattel and Learning Company as of and for the three- month periods ended March 31, 1998 and 1999 are filed as Exhibit 99.5 hereto. (c) Exhibits. -------- 2.1 Agreement and Plan of Merger dated as of December 13, 1998, between Mattel and Learning Company (incorporated by reference to Exhibit 2.1 of Mattel's Current Report on Form 8-K filed December 15, 1998) 23.1** Consent of PricewaterhouseCoopers LLP 99.1** Financial Statements of Learning Company 99.2** Unaudited Pro Forma Condensed Combined Financial Statements of Mattel and Learning Company 99.3** Press Release dated May 13, 1999 99.4* Financial Statements of Learning Company for Three-month Period Ended April 3, 1999 99.5* Unaudited Pro Forma Condensed Combined Financial Statements of Mattel and Learning Company as of and for the Three-month Periods Ended March 31, 1998 and 1999 ---------- * Filed herewith. ** Previously filed. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MATTEL, INC. Registrant By: /s/ Robert Normile ------------------------- Robert Normile Date: June 9, 1999 Senior Vice President, General Counsel and ------------ Secretary EX-99.4 2 FINANCIAL STATEMENTS OF LEARNING COMPANY EXHIBIT 99.4 THE LEARNING COMPANY, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, 1999 1998 ----------------- -------------- (unaudited) ASSETS CURRENT ASSETS: Cash $ 191,863 $ 256,759 Accounts receivable (less allowances for returns of $101,419 and $83,873, respectively) 188,646 167,001 Inventories 79,901 59,912 Prepaid expenses and other current assets 89,953 56,514 ------------ --------------- Total current assets 550,363 540,186 PROPERTY, PLANT AND EQUIPMENT Machinery and equipment 58,701 57,203 Leasehold improvements 15,761 15,757 ------------ --------------- 74,462 72,960 Less: accumulated depreciation 48,559 46,296 ------------ --------------- Property, plant and equipment, net 25,903 26,664 OTHER NONCURRENT ASSETS Intangible assets, net 218,557 225,282 Other assets 30,334 28,669 ------------ --------------- $ 825,157 $ 820,801 ============ =============== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Short-term borrowings $ 65,000 $ 65,000 Current portion of long-term liabilities - 148 Accounts payable 42,058 69,046 Accrued liabilities 103,691 97,824 Income taxes payable 101,211 93,805 ------------ --------------- Total current liabilities 311,960 325,823 ------------ --------------- LONG-TERM LIABILITIES 5-1/2% senior notes 200,955 200,955 Other long-term obligations 6,462 7,837 ------------ --------------- Total long-term liabilities 207,417 208,792 ------------ --------------- STOCKHOLDERS' EQUITY Series A preferred stock 8 8 Common stock 876 873 Additional paid-in capital 1,443,478 1,440,620 Deferred compensation (11,933) (12,265) Retained deficit (1,115,834) (1,138,099) Other comprehensive loss (10,815) (4,951) ------------ --------------- Total stockholders' equity 305,780 286,186 ------------ --------------- $ 825,157 $ 820,801 ============ ===============
The accompanying notes are an integral part of these consolidated financial statements. THE LEARNING COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) (unaudited)
Three Months Ended March 31, ---------------------------- 1999 1998 ------------ ------------ Net Sales $ 186,843 $ 179,336 Cost of sales 65,083 63,366 ---------- ---------- Gross Profit 121,760 115,970 Advertising and promotion expenses 24,708 21,094 Other selling and administrative expenses 50,080 58,301 Amortization of intangibles 9,856 41,887 Charge for incomplete technology - 40,000 Restructuring and other charges 3,889 15,230 Interest expense 4,272 6,702 Other income, net (6,307) (2,332) ---------- ---------- Income (Loss) Before Income Taxes 35,262 (64,912) Provision for Income Taxes: 12,997 -- ---------- ---------- Net Income (Loss) $ 22,265 $ (64,912) ========== ========== Net Income (Loss) Per Share - Basic $ 0.24 $ (0.93) Diluted $ 0.20 $ (0.93) Weighted Average Number of Shares Outstanding - Basic 91,939,000 69,430,000 Diluted 112,052,000 69,430,000
The accompanying notes are an integral part of these consolidated financial statements. THE LEARNING COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Three Months Ended March 31, -------------------------------------------- 1999 1998 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 22,265 $ (64,912) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Noncash restructuring and integration -- 4,000 Depreciation 2,282 2,825 Amortization 9,959 41,887 Charge for incomplete technology -- 40,000 Increase (decrease) from changes in net assets and liabilities: Accounts receivable (21,645) 12,728 Inventories (19,989) (2,101) Prepaid expenses and other current assets (5,398) (1,060) Accounts payable, accrued liabilities and income taxes payable (24,322) 9,493 Other, net (6,018) 780 ----------------- ----------------- NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (42,866) 43,640 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of other property, plant and equipment (1,522) (6,141) Proceeds from sale of investments 7,218 -- Payment for acquisitions, net of cash acquired -- (116,972) Software development costs (28,000) (6,156) ----------------- ----------------- NET CASH USED FOR INVESTING ACTIVITIES (22,304) (129,269) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments of long-term debt (330) (6,266) Exercise of stock options including related tax benefit 3,045 14,427 Proceeds from the issuance of special warrants, net -- 134,346 Other, net (584) (2,207) ----------------- ----------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 2,131 140,300 ----------------- ----------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,857) (207) ----------------- ----------------- EFFECT OF BRODERBUND EXCLUDED PERIOD -- 1,348 ----------------- ----------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (64,896) 55,812 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 256,759 188,956 ----------------- ----------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $191,863 $ 244,768 ================= ================= The accompanying notes are an integral part of these consolidated financial statements.
THE LEARNING COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands) (unaudited)
Three Months Ended March 31, ------------------------------------------ 1999 1998 ---------------- ---------------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Common stock issued to acquire Mindscape $ -- $ 30,000
The accompanying notes are an integral part of these consolidated financial statements. THE LEARNING COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share amounts) (unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements of The Learning Company, Inc. ("TLC" or the "Company") for the three months ended March 31, 1999 and 1998 are unaudited and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements previously filed with the Securities and Exchange Commission (the "SEC") in the Company's Annual Report on Form 10-K, as amended, for the fiscal year ended January 4, 1999. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results for the entire year ending December 31, 1999. The first quarter reporting period for 1999 ended on April 3, 1999, and the first quarter reporting period for 1998 ended on April 4, 1998. The periods from January 3, 1999 to April 3, 1999 and from January 4, 1998 to April 4, 1998 are referred to as the "First Quarter 1999" and the "First Quarter 1998" or the "Three Months Ended March 31, 1999" and the "Three Months Ended March 31, 1998", respectively, throughout these financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make assumptions regarding items such as return reserves and allowances, net realizable value of intangible assets and valuation allowances for deferred tax assets that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include: return reserves, inventory reserves, valuation of deferred tax assets and valuation and useful lives of intangible assets. Actual results could differ from these estimates. 2. BORROWINGS On August 7, 1998, the Company amended its revolving line of credit (the "Line") to provide a maximum availability of $147,500, of which $40,000 was outstanding at March 31, 1999 and was subsequently repaid. Borrowings under the Line are due July 1, 2000 and bear interest at variable rates. The Line is subject to certain financial covenants and is secured by a general security interest in certain operating subsidiaries of the Company and by a pledge of the stock of certain of its subsidiaries. Upon consummation of the May 1999 merger with Mattel, Inc. ("Mattel"), all outstanding borrowings under the Line were repaid and the agreement was terminated by Mattel. 3. COMPREHENSIVE INCOME (LOSS) Effective January 4, 1998, the Company adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income." The Company's comprehensive income (loss) was as follows:
Three Months Ended March 31, ----------------------------------------------- 1999 1998 ------------------- --------------------- Net income (loss) $22,265 $(64,912) Other comprehensive loss (5,864) (2,760) ------------------- --------------------- Total comprehensive income (loss) $16,401 $(67,672) =================== =====================
Other comprehensive loss represents losses on foreign currency translation and unrealized gains and losses on investments. 4. INVENTORIES Inventories are stated at the lower of weighted average cost or net realizable value and include third-party assembly costs, CD-ROM discs, manuals and an allocation of fixed overhead.
March 31, December 31, 1999 1998 ----------------- ------------------ Components $ 5,797 $ 5,622 Finished goods 74,104 54,290 ------- ------- $79,901 $59,912 ======= =======
5. COMPUTATION OF EARNINGS PER SHARE Dilutive income per share is computed using the weighted average number of shares of the Company's common stock outstanding during the period, plus the dilutive effect of common stock equivalents. Common stock equivalents consist of convertible debentures, preferred stock, stock options and warrants. The dilutive computations do not include common stock equivalents for the Three Months Ended March 31, 1998, as their inclusion would be antidilutive. Dilutive elements would include the 750,000 shares of Series A Convertible Participating Preferred Stock (which is ultimately convertible into 15,000,000 shares of common stock) issued on December 5, 1997, special warrants to acquire 8,687,500 exchangeable non-voting shares of Softkey Software Products Inc., the Company's Canadian subsidiary, and employee stock options totaling 12,483,000 at March 31, 1998. 6. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, gains or losses, depends on the intended use of the derivative and its resulting designation. The statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133 by January 1, 2001 and does not expect SFAS No. 133 to have a material impact on its financial statements. In December 1998, AcSEC issued SOP 98-9, "Software Revenue Recognition, with Respect to Certain Arrangements," which required recognition of revenue using the "residual method" in a multiple element arrangement when fair value does not exist for one or more of the undelivered elements in the arrangement. Under the "residual method," the total fair value of the undelivered elements is deferred and subsequently recognized in accordance with SOP 97-2. The Company does not expect the adoption of SOP 98-9 will have a material impact on its results of operations. 7. SUBSEQUENT EVENTS Mattel Merger Pursuant to an Agreement and Plan of Merger, dated as of December 13, 1998, a merger was consummated between Mattel and TLC on May 13, 1999. The stock-for- stock transaction was approved by the stockholders of both companies, after which TLC was merged with and into Mattel, with Mattel being the surviving corporation. Under the terms of the merger agreement, each share of TLC Series A Preferred Stock was converted into 20 shares of TLC common stock just prior to the consummation of the merger. Each outstanding share of TLC common stock was then converted into the right to receive 1.2 shares of Mattel common stock. As a result, approximately 126 million Mattel common shares will be issued in exchange for all shares of TLC common stock outstanding as of the merger date. The outstanding share of TLC special voting stock was converted into the right to receive one share of Mattel Special Voting Preferred Stock. Each outstanding exchangeable non-voting share of TLC's Canadian subsidiary, Softkey Software Products Inc., remains outstanding, but becomes exchangeable into the right to receive 1.2 shares of Mattel common stock. EX-99.5 3 UNAUDITED PRO FORMA FINANCIAL STATEMENTS Exhibit 99.5 MATTEL Unaudited Pro Forma Condensed Combined Financial Statements We have provided unaudited condensed combined financial statements of Mattel after giving effect to the merger, which are referred to as "pro forma" information. In presenting these unaudited pro forma condensed combined financial statements, we treated our companies as if they had always been combined for accounting and financial reporting purposes. This method is known as the "pooling of interests" method of accounting. You should be aware that these unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and may not be indicative of the operating results or financial position that would have occurred or that will occur after the consummation of the merger. We have provided an unaudited pro forma condensed combined balance sheet as of March 31, 1999 that includes the impact of transaction costs related to the merger and tax benefits relating to Learning Company's net operating loss carryforwards and deductible temporary differences. The impact of merger integration and Mattel restructuring costs to be recognized in the second quarter of 1999 are not included in this balance sheet. We have also provided unaudited pro forma condensed combined statements of operations for the three-month periods ended March 31, 1998 and 1999 assuming the merger had occurred as of January 1, 1996. The unaudited pro forma condensed combined statements of operations for all periods presented exclude the positive effects of potential cost savings that the companies may achieve upon combining the resources of Mattel and Learning Company, transaction costs of approximately $75 to $85 million, including investment banking, legal and accounting fees and contractual incentive benefits, and merger integration and Mattel restructuring costs to be recognized in the second quarter of 1999. On March 5, 1998, Learning Company purchased Mindscape, Inc. Since the acquisition of Mindscape, Inc. is material to Learning Company's results of operations, we have included the preacquisition results of Mindscape, Inc. in the unaudited pro forma condensed combined statement of operations for the three-month period ended March 31, 1998 as if the acquisition had occurred on January 1, 1998. The historical financial statements of Mattel as of and for the three-month periods ended March 31, 1998 and 1999 are derived from Mattel's unaudited consolidated financial statements previously filed with the Securities and Exchange Commission on Forms 10-Q and 10-Q/A. The historical financial statements of Learning Company as of and for the three-month period ended March 31, 1998 are derived from Learning Company's unaudited consolidated financial statements previously filed with the Securities and Exchange Commission on Form 10-Q/A. The historical financial statements of Learning Company as of and for the three-month period ended March 31, 1999 are derived from Learning Company's unaudited consolidated financial statements previously filed with the Securities and Exchange Commission on Mattel's Form 8-K/A filed on June 9, 1999. These financial statements were prepared in accordance with generally accepted accounting principles applied to interim financial information. In the opinion of Mattel's and Learning Company's management, all adjustments necessary for a fair presentation of financial information for such interim periods have been included. Mattel Unaudited Pro Forma Condensed Combined Balance Sheet As of March 31, 1999
Historical Pro Forma ----------------------------- ---------------------------- Learning Mattel Company Adjustments Combined ------------ ------------ ------------- ----------- (In millions) ASSETS Current Assets: Cash, cash equivalents and marketable securities $ 50.2 $191.9 $ - $ 242.1 Accounts receivable, net 880.4 188.6 - 1,069.0 Inventories 567.6 79.9 - 647.5 Prepaid expenses and other current assets 290.7 90.0 37.3 (a) 418.0 ----------- ------------ ------------ ----------- Total current assets 1,788.9 550.4 37.3 2,376.6 ----------- ------------ ------------ ----------- Property, plant and equipment, net 733.5 25.9 - 759.4 Other noncurrent assets 1,454.9 248.9 27.2 (a) 1,731.0 ----------- ------------ ------------ ----------- Total Assets $3,977.3 $825.2 $64.5 $4,867.0 =========== ============ ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term borrowings and current portion of long- term liabilities $ 292.8 $ 65.0 $ - $ 357.8 Accounts payable, accrued liabilities and income taxes payable 796.0 246.9 49.3 (b) 1,092.2 ----------- ------------ ------------ ----------- Total current liabilities 1,088.8 311.9 49.3 1,450.0 ----------- ------------ ------------ ----------- Long-term debt 983.4 201.0 - 1,184.4 Other long-term liabilities 148.9 6.5 - 155.4 ----------- ------------ ------------ ----------- Total long-term liabilities 1,132.3 207.5 - 1,339.8 ----------- ------------ ------------ ----------- Stockholders' equity 1,756.2 305.8 15.2 (c) 2,077.2 ----------- ------------ ------------ ----------- Total Liabilities and Stockholders' Equity $3,977.3 $825.2 $64.5 $4,867.0 =========== ============ ============ ===========
See accompanying notes to unaudited pro forma condensed combined financial statements. Mattel Unaudited Pro Forma Condensed Combined Statement of Operations For the Three Months Ended March 31, 1999
Historical Pro Forma -------------------------- ------------------------- Learning Mattel Company Adjustments Combined --------- ---------- -------------- --------- (In millions, except per share data) Net Sales $692.1 $186.8 $ - $878.9 Cost of sales 375.4 65.0 - 440.4 ------- ---------- ----------- -------- Gross Profit 316.7 121.8 - 438.5 Advertising and promotion expenses 92.0 24.7 - 116.7 Other selling and administrative expenses 209.4 50.1 - 259.5 Amortization of intangibles 13.1 9.9 - 23.0 Restructuring and other charges - 3.9 - 3.9 Interest expense 24.9 4.3 - 29.2 Other expense (income), net 2.3 (6.3) - (4.0) ------- ---------- ----------- -------- (Loss) Income from Continuing Operations Before Income Taxes (25.0) 35.2 - 10.2 (Benefit) provision for income taxes (7.2) 13.0 (0.7) (e) 5.1 ------- ---------- ----------- -------- (Loss) Income from Continuing Operations (17.8) 22.2 0.7 5.1 Preferred stock dividend requirements 2.0 - - 2.0 ------- ---------- ----------- -------- (Loss) Income from Continuing Operations Applicable to Common Shares $(19.8) $ 22.2 $ 0.7 $ 3.1 ======= ========== =========== ======== Basic (Loss) Income Per Common Share (f): (Loss) Income Per Share from Continuing Operations $(0.07) $ 0.24 $ 0.01 ======= ========== ======== Average Number of Common Shares 286.2 91.9 396.5 ======= ========== ======== Diluted (Loss) Income Per Common Share (f): (Loss) Income Per Share from Continuing Operations $(0.07) $ 0.20 $ 0.01 ======= ========== ======== Average Number of Common and Common Equivalent Shares 286.2 112.1 422.3 ======= ========== ========
See accompanying notes to unaudited pro forma condensed combined financial statements. Mattel Unaudited Pro Forma Condensed Combined Statement of Operations For the Three Months Ended March 31, 1998
Historical Pro Forma ---------------------------------- ----------------------------- Learning Mattel Company Mindscape Adjustments Combined --------- -------- ----------- ------------- ----------- (Preacquisition) (In millions, except per share data) Net Sales $705.1 $179.4 $ 9.1 $ - $ 893.6 Cost of sales 381.2 63.4 9.8 - 454.4 --------- -------- ----------- ------------- ----------- Gross Profit 323.9 116.0 (0.7) - 439.2 Advertising and promotion expenses 98.0 21.1 12.5 - 131.6 Other selling and administrative expenses 183.8 58.3 11.8 - 253.9 Amortization of intangibles 7.7 81.9 2.6 2.6 (d) 94.8 Restructuring and other charges - 15.2 16.6 - 31.8 Interest expense 16.4 6.7 - - 23.1 Other expense (income), net 0.2 (2.3) - - (2.1) --------- -------- ----------- ------------- ----------- Income (Loss) from Continuing Operations Before Income Taxes 17.8 (64.9) (44.2) (2.6) (93.9) Provision for income taxes 5.1 - 1.1 3.7 (e) 9.9 --------- -------- ----------- ------------- ----------- Income (Loss) from Continuing Operations 12.7 (64.9) (45.3) (6.3) (103.8) Preferred stock dividend requirements 2.0 - - - 2.0 --------- -------- ----------- ------------- ----------- Income (Loss) from Continuing Operations Applicable to Common Shares $ 10.7 $(64.9) $(45.3) $(6.3) $(105.8) ========= ======== =========== ============= =========== Basic Income (Loss) Per Common Share (f): Income (Loss) Per Share from Continuing Operations $ 0.04 $(0.93) $ (0.27) ========= ======== =========== Average Number of Common Shares 293.0 69.4 387.2 ========= ======== =========== Diluted Income (Loss) Per Common Share (f): Income (Loss) Per Share from Continuing Operations $ 0.04 $(0.93) $ (0.27) ========= ======== =========== Average Number of Common and Common Equivalent Shares 298.2 69.4 387.2 ========= ======== =========== See accompanying notes to unaudited pro forma condensed combined financial statements.
MATTEL Notes to Unaudited Pro Forma Condensed Combined Financial Statements 1. Basis of Presentation The unaudited pro forma condensed combined financial statements assume a business combination between Mattel and Learning Company accounted for using the pooling of interests method and are based upon the respective historical financial statements and the accompanying notes of Mattel and Learning Company, as well as the historical financial statements of Mindscape, Inc. Each share of Learning Company series A preferred stock was converted into 20 shares of Learning Company common stock just prior to consummation of the merger. According to the merger agreement, each outstanding share of Learning Company common stock was then converted into the right to receive 1.2 shares of Mattel common stock. Although the transaction has been completed, the costs of the merger can only be estimated at this time. The unaudited pro forma condensed combined statements of operations for all periods presented exclude the positive effects of potential cost savings that the companies may achieve upon combining the resources of Mattel and Learning Company, transaction costs of approximately $75 to $85 million, including investment banking, legal and accounting fees and contractual incentive benefits, and merger integration and Mattel restructuring costs to be recognized in the second quarter of 1999. The unaudited pro forma condensed combined balance sheet as of March 31, 1999 includes the impact of all transactions, whether of a recurring or nonrecurring nature, that can be reasonably estimated and should be reflected as of that date. The impact of merger integration and Mattel restructuring costs to be recognized in the second quarter of 1999 are not included in this balance sheet. Certain historical Learning Company and Mindscape, Inc. results have been reclassified to conform with Mattel's basis of presentation. 2. Pro Forma Adjustments Intercompany Transactions--There were no material intercompany transactions that required elimination from the unaudited pro forma condensed combined statements of operations or balance sheet. Balance Sheet (a) Other Current and Noncurrent Assets--The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the recognition of the estimated tax benefits related to Learning Company's net operating loss carryforwards and deductible temporary differences under the combined company's income tax position. (b) Accounts Payable, Accrued Liabilities, and Income Taxes Payable--The pro forma adjustment in the amount of $50 million, net of taxes, reflects accruals in connection with the estimated transaction costs of $75 million related to the merger. These costs are not considered in the unaudited pro forma condensed combined statements of operations. These estimated transaction costs will be charged against the results of operations in the second quarter of 1999. MATTEL Notes to Unaudited Pro Forma Condensed Combined Financial Statements (Continued) (c) Stockholders' Equity--Stockholders' equity has been adjusted to reflect the following: --Common stock accounts are adjusted for the assumed issuance of approximately 123 million shares of Mattel common stock in exchange for approximately 102 million shares of Learning Company common stock (which includes shares of Learning Company common stock issued upon conversion prior to the merger of Learning Company Series A preferred stock at the rate of 20 common shares for each preferred share outstanding as of March 31, 1999) using the exchange ratio of 1.2. --Additional paid-in capital is adjusted for the effects of issuance of shares of Mattel common stock having a $1.00 par value per share in exchange for Learning Company Series A preferred stock and Learning Company common stock, each having a $0.01 par value per share, and the recognition of the tax benefits related to the exercise of Learning Company non- qualified stock options due to utilization of Learning Company's net operating losses in the unaudited pro forma condensed combined statements of operations. --Retained earnings is adjusted for the effects of: (1) accrual for the minimum of the estimated range for transaction costs related to the merger; (2) compensation expense related to the Learning Company restricted common stock; and (3) recognition of estimated tax benefits from the assessment of income tax valuation allowances under the combined company's expected income tax position. Statement of Operations (d) Amortization of Intangibles--In connection with its acquisition of Mindscape, Inc., Learning Company recorded goodwill and other intangible assets, which reflected the allocation of the purchase price paid to brands and trade names and completed technology and products. The pro forma adjustment reflects the amortization of the identifiable intangible assets acquired and goodwill over their estimated useful lives on a straight-line basis. The estimated useful lives of brands and trade names, completed technology and products, and goodwill are 10, 2 and 10 years, respectively. (e) Provision (Benefit) for Income Taxes--The unaudited pro forma adjustment reflects the reduction of valuation allowances established in Learning Company's historical financial statements resulting in the recognition of estimated benefits of net operating losses incurred by Learning Company in the unaudited pro forma condensed combined financial statements due to the combined company's expected income tax position. (f) Income (Loss) per Common Share--Historical and unaudited pro forma per share data of Mattel and Learning Company include the retroactive effect of the August 1998 merger of Broderbund Software, Inc. into Learning Company accounted for as a pooling of interests. Unaudited pro forma weighted average common shares outstanding for all periods presented are based upon Mattel's and Learning Company's combined historical weighted average shares, adjusted for dilutive common stock equivalents, as appropriate, and after adjustment of Learning Company's historical number of shares using the exchange ratio of 1.2. -----END PRIVACY-ENHANCED MESSAGE-----