Delaware 95-1567322
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number) (310) 252-2000
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Name of each exchange
Title of each class on which registered
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Common stock, $1 par value (and New York Stock Exchange
the associated Preference Pacific Exchange, Inc.
Share Purchase Rights)
Depositary Shares, each representing New York Stock Exchange
one twenty-fifth of a share of
Series C Mandatorily Convertible
Redeemable Preferred Stock
6-3/4% Senior Notes Due 2000 (None)
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on March 16, 1998 was $13,433,546,049.
Number of shares outstanding of registrant's common stock as of March 16, 1998:
Common Stock - $1 par value -- 294,433,886 shares
1. Portions of the Mattel, Inc. Annual Report to Shareholders for the year ended December 31, 1997 (Incorporated into Parts I, II and IV).
2. Portions of the Mattel, Inc. 1998 Notice of Annual Meeting of Stockholders and Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the close of the registrant's fiscal year (Incorporated into Part III).
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 dolls and accessories); 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). Revenues for 1997 of $4.8 billion were a record level for the
Company. (Results for all periods have been restated retroactively to
reflect the March 1997 merger of Tyco Toys, Inc., a Delaware corporation
("Tyco"), into Mattel, accounted for as a pooling of interests.)
As used herein, unless the context requires otherwise, "Mattel" or the "Company" refers to Mattel, Inc., and its subsidiaries, and "Fisher-Price" refers to Fisher-Price, Inc., a Delaware corporation and wholly-owned subsidiary of Mattel.
Mattel was incorporated in California in 1948 and reincorporated in Delaware in 1968. Its executive offices are located at 333 Continental Boulevard, El Segundo, California 90245-5012, telephone (310) 252-2000.
COMPETITION AND INDUSTRY BACKGROUND
Competition in the toy industry is based primarily on price, quality and play value. In recent years, the toy industry has experienced rapid consolidation driven, in part, by the desire of industry competitors to offer a range of products across a broader variety of categories. In the United States, the Company competes with several large toy companies, including Hasbro, Inc., as well as a number of smaller toy companies. The larger toy companies have pursued a strategy of focusing on core product lines. Core product lines are those lines which are expected to be marketed for an extended period of time, and which historically have provided relatively consistent growth in sales and profitability. By focusing on core product lines, toy manufacturers have been able to reduce their reliance on new product introductions and the associated risk and volatility. The juvenile products market, in which Fisher-Price is one of the leading companies, is more fragmented.
The toy industry is also experiencing a shift toward greater consolidation of retail distribution channels, such as large specialty toy stores and discount retailers, including Toys R Us, Wal-Mart, Kmart and Target, which have increased their overall share of the retail market. This consolidation has resulted in an increased reliance among retailers on the large toy companies because of their financial stability and ability to support products through advertising and promotion and to distribute products on a national basis. These retailers' growing acceptance of electronic data interchange has provided toy manufacturers with an ability to more closely monitor consumers' acceptance of a particular product or product line.
Over the last ten years, toy companies based in the United States have expanded their international marketing and manufacturing operations. The Company believes a strong international distribution system can add significantly to the sales volume of core product lines and extend the life cycles of newly-developed products.
SEASONALITY
Sales of toy products at retail are seasonal, with a majority of retail sales occurring during the period from September through December. Consequently, shipments of toy products to retailers are typically greater in the third and fourth quarters than in each of the first and second quarters combined. As the large toy retailers become more efficient in their control of inventory levels, this seasonality is increasing.
In anticipation of this seasonal increase in retail sales, the Company significantly increases its production in advance of the peak selling period, resulting in a corresponding build-up of inventory levels in the first three quarters of the year. In addition, the Company and others in the industry develop sales programs, including offering extended payment terms, to encourage retailers to purchase merchandise earlier in the year. These sales programs, coupled with seasonal shipping patterns, result in significant peaks in the third and fourth quarters in the respective levels of inventories and accounts receivable, which contribute to a seasonal working capital financing requirement. See "Seasonal Financing."
PRODUCTS
The Company has historically achieved consistent sales and earnings growth by focusing on a number of core brands supplemented by various new product introductions. The Company's principal core brands are grouped in the following five categories: Fashion Dolls (BARBIE dolls and accessories); 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). Core brands are expected to be marketed for an extended period of time and historically have provided relatively consistent growth in sales and profitability. In order to provide greater flexibility in the manufacture and delivery of products, and as part of a continuing effort to reduce manufacturing costs, the Company has concentrated production of most of its core brands in Company-owned facilities and generally uses independent contractors for the production of non-core products.
With respect to new product introductions, the Company's strategy is to begin production on a limited basis until a product's initial success has been proven in the marketplace. The production schedule is then modified to meet anticipated demand. The Company further limits its risk by generally having independent contractors manufacture new product lines in order to minimize capital expenditures associated with new product introductions. This strategy has reduced inventory risk and significantly limited the potential loss associated with new product introductions.
New product introductions for 1997 included an aspirational-themed
Dentist BARBIE [registered trademark] doll; University BARBIE [registered
trademark] dolls dressed in the school colors of certain universities
across the United States; SHARE A SMILE [trademark] BECKY [registered
trademark] doll in a wheel chair; Talking BARBIE [trademark] doll with
interactive CD ROM; BARBIE [trademark] MAGIC HAIR STYLER [trademark] CD ROM
which allows children to cut, style and color computer BARBIE doll's hair;
Collector BARBIE [registered trademark] dolls such as BARBIE [registered
trademark] Loves Elvis Giftset, BARBIE [registered trademark] as the Sugar
Plum Fairy in "The Nutcracker," and BARBIE [registered trademark] as Marilyn
in "The Seven Year Itch"; HOT WHEELS [registered trademark] Mars Rover Action
Pack; HOT WHEELS [registered trademark] PLANET MICRO [trademark] stacking
playsets and vehicles; HOT WHEELS [registered trademark] X-V RACERS [trademark]
CYCLONE [trademark] stunt set; CABBAGE PATCH KIDS [registered trademark]
BRUSHIN' TEETH BABY [trademark] doll with real tooth brush and liquid gel;
Disney 11-1/2" collector dolls; relaunch of Mattel classic games; TYCO RC
[registered trademark] TANTRUM [trademark] radio control vehicle;
the addition of Sing & Snore Ernie plush toy to the SESAME STREET line of
Tyco Preschool; REAL TALKIN' BUBBA [trademark] plush talking bear;
MAGNA DOODLE [registered trademark] LEARNING BUS [trademark] drawing toy;
FISHER-PRICE [registered trademark] POWER WHEELS [registered trademark]
Caterpillar Dump Truck and POWER WHEELS [registered trademark] Rock `n Roll
vehicle; and FISHER-PRICE [registered trademark] LITTLE PEOPLE [registered
trademark] Play Inside Schoolhouse.
New product introductions planned for 1998 include Olympic Skater BARBIE
[registered trademark] & KEN [registered trademark] dolls with a special
waist band and wind up mechanism to spin; WNBA BARBIE [registered trademark]
doll; KELLY [registered trademark] & TOMMY [trademark] dolls and their battery
operated POWER WHEELS [registered trademark] JEEP [registered trademark]
vehicle; Detective BARBIE [registered trademark] CD ROM clue game; HARPIST
ANGEL [trademark] BARBIE [registered trademark] Collector doll;
BARBIE [registered trademark] & KEN [registered trademark] Collector doll
as Agent Scully & Agent Mulder X-Files Gift Set; HOT WHEELS [registered
trademark] Touchstone Pictures Armaggedon themed vehicles and action figures;
HOT WHEELS [registered trademark] Apollo Mission Action Pack; HOT WHEELS
[registered trademark] CYBER RACERS [trademark] vehicles with virtual reality
computer screen in chassis; HOT WHEELS [registered trademark] LEGENDS TO
LIFE [trademark] 1:24 scale Collector vehicle with real drag race sounds
and action; CABBAGE PATCH KIDS [registered trademark] 15th Anniversary doll,
a reproduction of the doll that started the craze in 1983; the addition of
a series of action figures and playsets based on the Disney movie "A Bug's
Life"; FASHION MAGIC [registered trademark] girls fashion activities sets;
Talking POOH plush bear with interactive CD-ROM and transmitter; reproduction
of classic FISHER-PRICE [registered trademark] wooden Disney toys; POOH line
expansion into activity toys; NBA sports games; FISHER-PRICE [registered
trademark] Children's Products PROP `N CARRY [trademark] infant carrier;
FISHER-PRICE [registered trademark] RESCUE HEROES [trademark] playsets and
action figures; FISHER-PRICE [registered trademark] SHOP & COOK [trademark]
kitchen playcenter; and TYCO [registered trademark] REVOLVER [trademark] and
TYCO [registered trademark] PSYCHO [trademark] radio control vehicles.
INTERNATIONAL OPERATIONS
Revenues from the Company's international operations represented approximately 34% of total consolidated revenues in 1997. Generally, products marketed internationally are the same as those marketed domestically, although some are developed or adapted for particular international markets. The Company's products are sold directly in most of the European and Asian countries, and mainly through distributors in certain Latin American countries. It also licenses some of its products to other toy companies for sale in various other countries. See "Licenses and Distribution Agreements."
The strength of the US dollar relative to other currencies can significantly affect the revenues and profitability of the Company's international operations. From time to time, 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. See "Financial Instruments." For financial information by geographic area, see Note 8 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference.
PRODUCT DESIGN AND DEVELOPMENT
Through its product design and development group, the Company regularly refreshes, redesigns and extends existing product lines and develops innovative new product lines. The Company's success is dependent on its ability to continue this activity. Product design and development are principally conducted by a group of professional designers and engineers employed by the Company.
License agreements with third parties permit the Company to utilize
the trademark, character or product of the licensor in its product line. A
principal licensor is The Walt Disney Company, which licenses many of its
characters and entertainment properties for use on the Company's products.
The Company also has entered into license agreements with, among others:
Children's Television Workshop relating to its SESAME STREET properties;
Viacom International, Inc. relating to its Nickelodeon properties; NBA
Properties, Inc. for a master toy license for the NBA, WNBA and USA
Basketball; and Original Appalachian Artworks, Inc. for CABBAGE PATCH KIDS.
A number of these licenses relate to product lines that are significant to
the Company.
Independent toy designers and developers bring products to the Company and are generally paid a royalty on the net selling price of products licensed by the Company. These independent toy designers may also create different products for other toy companies.
The Company devotes substantial resources to product design and development. During the years ended December 31, 1997, 1996 and 1995, the Company expended approximately $156 million, $147 million and $132 million, respectively, in connection with the design and development of products, exclusive of royalty payments. See Note 10 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference.
ADVERTISING AND PROMOTION
The Company supports its product lines with extensive advertising and consumer promotions. Advertising continues at varying levels throughout the year and peaks during the Christmas season. Advertising includes television and radio commercials and magazine and newspaper ads. Promotions include in-store displays, coupons, merchandising materials and major events focusing on products and tie-ins with various consumer product companies. To further promote the Company and its products, the Company participates in the attractions "It's A Small World" at Disneyland and Walt Disney World and "Autopia" and "Storybook Land" at Disneyland Paris under a ten and one-half year agreement with The Walt Disney Company. The Company also participates in toy stores in Disneyland, near Disneyland Paris and in the Disney Village Market Place near Walt Disney World. Separately, a total of twenty-eight BARBIE Boutiques are located in F.A.O. Schwarz toy stores, including the "BARBIE on Madison" boutique at the F.A.O. Schwarz flagship store in New York City.
During the years ended December 31, 1997, 1996 and 1995, Mattel spent approximately $779 million (16% of net sales), $779 million (17% of net sales) and $732 million (17% of net sales), respectively, on worldwide advertising and promotion.
MARKETING AND SALES
The Company's toy products are sold throughout the world. In the United States, the Company's products are distributed directly to large retailers, including discount and free-standing toy stores, chain stores, department stores, other retail outlets and, to a limited extent, wholesalers. Discount and free-standing toy stores continue to increase their market share. During the year ended December 31, 1997, Toys R Us and Wal-Mart accounted for approximately 18% and 15%, respectively, of worldwide consolidated net sales and were the only customers accounting for 10% or more of consolidated net sales.
In general, the Company's major domestic and international customers review its product lines and product concepts for the upcoming year at showings beginning in late summer. The Company also participates in the domestic and international toy industry trade fairs in the first quarter of the year. A majority of the full-year orders are received by May 1. As is traditional in the toy industry, these orders may be canceled at any time before they are shipped. Historically, the greater proportion of shipments of products to retailers occurs during the third and fourth quarters of the year. See "Seasonality."
Through its marketing research departments, the Company conducts basic consumer research and product testing and monitors demographic factors and trends. This information assists the Company in evaluating consumer acceptance of products, including an analysis of increasing or decreasing demand for its products.
The Company bases its production schedules on customer orders, modified by historical trends, results of market research and current market information. The actual shipments of products ordered and the order cancellation rate are affected by consumer acceptance of the product line, the strength of competing products, marketing strategies of retailers and overall economic conditions. Unexpected changes in these factors can result in a lack of product availability or excess inventory in a particular product line.
MANUFACTURING
The Company's products are manufactured in Company-owned facilities and by independent contractors. Products are also purchased from unrelated entities that design, develop and manufacture the products. In order to provide greater flexibility in the manufacture and delivery of products, and as part of a continuing effort to reduce manufacturing costs, the Company has concentrated production of most of its core products in the Company's facilities and generally uses independent contractors for the production of non-core products.
Mattel's manufacturing facilities are located in the states of Indiana, Kentucky, Georgia, and Oregon, and in Mexico, China, Indonesia, Malaysia, Thailand and Italy. The Company also utilizes independent contractors to manufacture products in the United States, Mexico, the Far East and Australia. To protect the stability of its product supply, the Company produces many of its key products in more than one facility.
All foreign countries in which the Company's products are manufactured (principally China, Indonesia, Malaysia and Mexico) currently enjoy "most favored nation" ("MFN") status under US tariff laws, which provides a favorable category of US import duties. As a result of continuing concerns in the United States Congress regarding China's human rights policies, and disputes regarding Chinese trade policies, including the country's inadequate protection of US intellectual property rights, there has been, and may be in the future, opposition to the extension of MFN status for China.
The loss of MFN status for China would result in a substantial increase in the import duty for toys manufactured in China and imported into the United States and would result in increased costs for the Company and others in the toy industry. The impact of such an event on the Company would be significantly mitigated by the Company's ability to source product for the US market from countries other than China and ship product manufactured in China to markets outside the US. Toward that end, the Company has expanded its production capacity in other countries. A number of other factors, including the Company's ability to pass along the added costs through price increases and the pricing policies of vendors in China, could further mitigate the impact of a loss of China's MFN status.
On February 8, 1994, the European Union ("EU") adopted quotas on the importation of certain classes of toys (as well as other products) manufactured in China. The impact of these quotas on the Company's business has been significantly mitigated by shifts in demand in favor of toy categories not subject to the quotas, and by the ability of the Company to source product for the EU from countries other than China and ship product manufactured in China elsewhere.
With the implementation of the Uruguay Round agreement effective January 1, 1995, all US duties on dolls and traditional toys were completely eliminated. Canada also eliminated its tariffs on dolls and most toy categories in 1995, with the exception of certain toy sets and board games which will have their duties eliminated over ten years. Meanwhile, both the EU and Japan began implementing Uruguay Round tariff reductions that, by 1999, will lower the tariffs on dolls by over 40% in the EU and by 15% in Japan. The EU and Japan are fully eliminating tariffs on several other toy categories over a period of ten years.
COMMITMENTS
In the normal course of business, the Company enters into contractual arrangements to obtain and protect the Company's right to create and market certain toys and for future purchases of goods and services to ensure availability and timely delivery. Such arrangements include royalty payments pursuant to licensing agreements and commitments for future inventory purchases. Certain of these commitments routinely contain provisions for guaranteed or minimum expenditures during the terms of the contracts. Current and future commitments for guaranteed payments reflect the Company's focus on expanding its product lines through alliances with businesses in other industries, such as television and motion picture entertainment companies. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Commitments" and Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference.
LICENSES AND DISTRIBUTION AGREEMENTS
The Company's level of licensing activity has expanded in recent years. Royalty expense during the years ended December 31, 1997, 1996 and 1995 was approximately $194 million, $155 million and $137 million, respectively. See Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference.
The Company also distributes products which are independently designed and manufactured.
FINANCIAL INSTRUMENTS
From time to time, the Company enters into foreign currency forward exchange and option contracts primarily as hedges for payment of inventory purchases, sales and other intercompany transactions. The contracts are intended to fix a portion of the Company's product cost and intercompany cash flows, and thereby limit the effect of foreign currency fluctuations on the Company's results of operations and cash flows. The Company does not trade in financial instruments for speculative purposes.
For additional information regarding foreign currency contracts, see "International Operations" above, and the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Foreign Currency Risk" and Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference.
SEASONAL FINANCING
The Company's financing of seasonal working capital typically grows throughout the first half of the year and peaks in the third or fourth quarter, when accounts receivable are at their highest due to increased sales volume and Company sales programs, and when inventories are at their highest in anticipation of expected second half sales volume. See "Seasonality." Domestic short-term borrowings for seasonal financing under the Company's revolving credit agreement are generally repaid in full by year-end from cash flows generated in the fourth quarter from sales and collection of accounts receivable.
The Company maintains and periodically amends or replaces an unsecured revolving credit agreement with a commercial bank group that is utilized to finance the seasonal working capital requirements of its domestic and certain international operations. The agreement in effect during 1997, which was recently amended (see below), was renegotiated in the first quarter of 1997 to increase the total facility to $1.0 billion from $800.0 million. Within the facility, up to $600.0 million was a standard revolving credit line available for advances and backup for commercial paper issuances (a five-year facility). Interest was charged at various rates selected by the Company. The remaining $400.0 million (a five-year facility) was available for nonrecourse purchases of certain trade accounts receivable of the Company by the commercial bank group providing the credit line. Outstanding receivables sold were reduced by collections and could not exceed the $400.0 million at any time. The agreement required the Company to comply with certain financial covenants for consolidated debt- to-capital and interest coverage.
During 1997, the Company renewed agreements providing for up to $140.0 million of nonrecourse purchases of certain domestic trade accounts receivable of the Company by a commercial bank. The Company also entered into agreements with banks of its foreign subsidiaries for nonrecourse sales of certain of its foreign subsidiary receivables.
Effective in March 1998, the Company amended its revolving credit agreement. The new agreement consists of unsecured facilities providing a total of $1.0 billion in seasonal financing from substantially the same group of commercial banks. The facilities provide for up to $700.0 million in advances and backup for commercial paper issuances (a five-year facility), and up to an additional $300.0 million (a five-year facility) for nonrecourse purchases of certain trade accounts receivable by the bank group. In connection with the agreement, the Company is to comply with certain financial covenants for consolidated debt-to-capital and interest coverage.
The Company believes the amounts available to it under its revolving credit agreement and foreign credit lines will be adequate to meet its seasonal financing requirements.
RAW MATERIALS
Packaging materials, mostly plastics and zinc, which are essential to the production and marketing of toy products, are currently in adequate supply. These and other raw materials are generally available from a number of suppliers.
1996 and 1997 saw a return to pricing stability after very volatile pricing in the resin and packaging industries in 1995. While management believes that resin and packaging prices have stabilized, there can be no assurance that the volatility experienced in 1995 will not return, resulting in a material impact on the Company's gross margins and earnings.
TRADEMARKS, COPYRIGHTS, AND PATENTS
Most of the Company's products are sold under trademarks, trade names and copyrights and a number of those products incorporate patented devices or designs. Trade names and trademarks are significant assets of the Company in that they provide product recognition and acceptance worldwide.
The Company customarily seeks patent, trademark or copyright protection covering its products, and it owns or has applications pending for United States and foreign patents covering many of its products. A number of these trademarks and copyrights relate to product lines that are significant to the Company, and the Company believes its rights to these properties are adequately protected.
The Company also licenses various of its trademarks, characters and other property rights to others for use in connection with the sale by others of non-toy and other products which do not compete with the Company's products.
GOVERNMENT REGULATIONS
The Company's toys are subject to the provisions of the Consumer Product Safety Act, the Federal Hazardous Substances Act and the Flammable Fabrics Act, and the regulations promulgated thereunder. The Consumer Product Safety Act and the Federal Hazardous Substances Act enable the Consumer Product Safety Commission (the "CPSC") to exclude from the market consumer products that fail to comply with applicable product safety regulations or otherwise create a substantial risk of injury, and articles that contain excessive amounts of a banned hazardous substance. The Flammable Fabrics Act enables the CPSC to regulate and enforce flammability standards for fabrics used in consumer products. The CPSC may also require the repurchase by the manufacturer of articles which are banned. Similar laws exist in some states and cities and in various international markets.
Fisher-Price's car seats are subject to the provisions of the National Highway Transportation Safety Act, which enables the National Highway Traffic Safety Administration ("NHTSA") to promulgate performance standards for child restraint systems. Fisher-Price conducts periodic tests to ensure that its child restraint systems meet applicable standards. A Canadian agency, Transport Canada, also regulates child restraint systems sold for use in Canada. As with the CPSC, NHTSA and Transport Canada can require the recall and repurchase or repair of products which do not meet their respective standards.
The Company maintains a quality control program to ensure product safety compliance with the various federal, state and international requirements.
EFFECTS OF INFLATION
Inflation rates in the US and major foreign countries in which the Company operates have not had a significant impact on consolidated operating results for the three years ended December 31, 1997. The US Consumer Price Index increased 1.7% in 1997, 3.3% in 1996, and 2.5% in 1995. The Company is afforded some protection from the impact of inflation as a result of high turnover of inventories.
EMPLOYEES
The total number of persons employed by the Company and its subsidiaries at any one time varies because of the seasonal nature of its manufacturing operations. At December 31, 1997, the Company's total number of employees, including its international operations, was approximately 25,000.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, all of whom are appointed annually by the Board of Directors and serve at the pleasure of the Board, are as follows:
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
--------------------- --- ------------------------------- ---------
Jill E. Barad 46 Chairman of the Board & 1984
Chief Executive Officer
Astrid Autolitano 59 President, Mattel International 1996
Gary S. Baughman 51 President, Fisher-Price, Inc. 1997
Joseph C. Gandolfo 55 President, Worldwide 1990
Manufacturing Operations and
a Director of Mattel, Inc.
Ned Mansour 49 President, Corporate Operations 1992
& General Counsel and a
Director of Mattel, Inc.
Bruce L. Stein 43 President, Mattel Worldwide, 1996
Chief Operating Officer and a
Director of Mattel, Inc.
Harry J. Pearce 53 Chief Financial Officer 1997
Francesca Luzuriaga 43 Executive Vice President, 1995
Worldwide Business Planning
and Resources
Kevin M. Farr 40 Senior Vice President 1996
and Controller
Douglas Glen 50 Senior Vice President and 1997
Chief Strategy Officer
William Stavro 58 Senior Vice President 1993
and Treasurer
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Ms. Barad has been Chairman & Chief Executive Officer since October 1997 and a member of the Board of Directors since November 1991. From January 1997 to October 1997, she was President and Chief Executive Officer. From August 1992 until December 1996, she was President and Chief Operating Officer. From December 1989 until August 1992, she was President, Mattel USA. Prior to that she served in various executive positions in the Marketing, Product Design and Product Development areas.
Ms. Autolitano has been President, Mattel International since September 1996. From August 1995 to September 1996, she served as Executive Vice President-Latin America and Mexico. Prior to that, she served as Senior Vice President-Latin America and Mexico from December 1989 to August 1995.
Mr. Baughman has been President, Fisher-Price, Inc. since April 1997. From January 1996 to April 1997, he served as Chief Executive Officer of Tyco Toys, Inc. From October 1994 to January 1996, he served as President and Chief Operating Officer of Tyco Toys, Inc. Prior to joining Tyco, he served as President of Little Tikes Co., a division of Rubbermaid from 1990 through 1994.
Mr. Gandolfo has been President, Worldwide Manufacturing Operations since April 1990 and a member of the Board of Directors since May 1997.
Mr. Mansour has been President, Corporate Operations and a member of the Board of Directors since August 1996. He has been General Counsel since November 1997. From April 1991 he served in several senior managerial positions at Mattel, including President, Mattel-USA, Chief Administrative Officer, General Counsel and Secretary.
Mr. Stein has been President, Mattel Worldwide and a member of the Board of Directors since August 1996. From October 1995 to August 1996 he served as President and Chief Executive Officer of Sony Interactive Entertainment. From November 1994 to October 1995, he was a consultant for DreamWorks SKG and Mandalay Entertainment. From June 1994 to October 1994, he served as President and Chief Operating Officer of Marvel Entertainment Group. Prior to that, he served as President of the Kenner Products division of Hasbro, Inc. from 1990 to June 1994.
Mr. Pearce has been Chief Financial Officer since May 1997. From 1973 to May 1997 he served as Chief Financial Officer of Tyco Toys, Inc. In 1993, he was also named Vice Chairman.
Ms. Luzuriaga has been Executive Vice President, Worldwide Business Planning and Resources since May 1997. From December 1995 to May 1997 she served as Executive Vice President & Chief Financial Officer. From March 1989 until December 1995 she served in several senior managerial positions at Mattel, including Controller, Treasurer and Executive Vice President Finance.
Mr. Farr has been Senior Vice President and Controller since September 1996. From June 1993 to September 1996, he served as Vice President, Tax. Prior to that he served as Senior Director, Taxes from August 1992 to June 1993.
Mr. Glen has been Senior Vice President and Chief Strategy Officer since February 1997. From August 1994 through February 1997, he served as President of Mattel Media. From March 1992 through August 1994 he was Group Vice President, Business Development and Strategic Planning for Sega of America.
Mr. Stavro has been Senior Vice President and Treasurer since May 1995. From November 1993 to May 1995, he was Vice President & Treasurer. From March 1992 to November 1993 he was Vice President & Assistant Treasurer. Prior to that he was Assistant Treasurer for more than five years.
Mattel owns its corporate headquarters consisting of approximately 335,000 square feet in El Segundo, California, which is subject to a $45.0 million mortgage, and an adjacent 55,000 square foot office building. Mattel also leases buildings in El Segundo consisting of approximately 350,000 square feet, which are primarily used for its design and development and audio visual departments. Fisher-Price owns its headquarters facilities in East Aurora, New York, consisting of approximately 290,000 square feet. Mattel Mount Laurel, formerly the headquarters of Tyco, leases facilities consisting of approximately 40,000 square feet in Mount Laurel, New Jersey.
The Company maintains sales offices in California, Illinois, New York and Texas, and warehouse and distribution facilities in California, Georgia, Indiana, Kentucky and Texas. The Company owns a computer facility in Phoenix, Arizona. Internationally, the Company has offices and/or warehouse space in Argentina, Australia, Austria, Belgium, Canada, Chile, Colombia, Denmark, France, Germany, Greece, Hong Kong and in certain other areas of Asia, Italy, Japan, Mexico, The Netherlands, New Zealand, Poland, Spain, Switzerland, the United Kingdom and Venezuela. The Company's principal manufacturing facilities are located in China, Indonesia, Italy, Malaysia, Mexico and the United States. See "Manufacturing."
Most of the Company's facilities are occupied under leases and, for the most part, are fully utilized, although excess manufacturing capacity exists from time to time based on product mix and demand. With respect to leases which are scheduled to expire during the next twelve months, the Company may negotiate new lease agreements, renew leases or utilize alternative facilities.
On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC
025 008) against the Company in Superior Court of the State of California,
County of Los Angeles (the "Greenwald Action"). The plaintiff is a former
Mattel employee who was terminated by the Company in July 1995. The
complaint sought $50 million in general and special damages, plus punitive
damages, for (i) breach of oral, written and implied contract, (ii)
wrongful termination in violation of public policy and (iii) violation of
California Labor Code Section 970. The plaintiff claimed that her
termination resulted from complaints made by her to management concerning
(i) general allegations that Mattel did not account properly for sales and
certain costs associated with sales; and (ii) more specific
allegations that Mattel failed to account properly for certain royalty obligations to Disney. On December 5, 1996, the Company's motion for summary adjudication of the plaintiff's public policy claim was granted. On March 7, 1997, the Company filed a motion for summary judgment on the remaining causes of action. On December 9, 1997, the Company's motion for summary judgment of the plaintiff's remaining claims was granted. On February 4, 1998, the plaintiff filed a notice of appeal.
The Company believes the allegations of the complaint in the Greenwald Action to be without merit and intends to defend the action vigorously, including the appeal.
On September 25, 1997, an administrative law judge of the Federal Trade Commission issued his initial decision in the matter In re Toys "R" Us, Inc. (FTC Docket No. 9278). The administrative law judge made findings of
Following announcement of the administrative law judge's decision, the Company and certain other toy manufacturers have been named as defendants in a number of antitrust actions in various states. On October 2, 1997, the Attorney General of the State of New York filed in the United States District Court, Eastern District of New York (Case No. CV 97 5714), an action against TRU and certain toy manufacturers, including the Company, seeking treble damages, expenses and attorneys' fees, on behalf of all persons in the State of New York who purchased toy products from retailers from 1989 to the present. The complaint alleges that TRU orchestrated an illegal conspiracy with various toy manufacturers, including the Company, to cut off supplies of popular toys to warehouse clubs and low margin retailers that compete with TRU. The attorneys general from thirty-seven other states, the District of Columbia and the Commonwealth of Puerto Rico joined this action on or about November 17, 1997.
Following the filing of the New York action, a series of private treble damage class actions under the federal antitrust laws have been filed in various federal district courts. The Company is aware of a total of twenty-seven actions which are currently pending and name Mattel as a defendant: fourteen actions in the United States District Court, District of New Jersey; five actions in the United States District Court, Northern District of California; one action in the United States District Court, District of Illinois; one action in the United States District Court, District of Maryland; one action in the United States District Court, District of Vermont; and five actions in the United States District Court, Eastern District of New York. While the allegations and relief sought are substantially the same as those in the New York action, the defendants differ from action to action, as does the alleged conspiracy period. On January 23, 1998, at a hearing before the Judicial Panel on Multidistrict Litigation (the "JPML"), the parties agreed to have these related actions transferred to the Eastern District of New York before the Honorable Nina Gershon. A transfer order was issued by the JPML on February 11, 1998.
The Company is also aware of three class action complaints filed in state court in California naming TRU as a defendant and the Company and various other toy manufacturers as nondefendant co-conspirators. These actions have been coordinated in Superior Court of the State of California, County of Alameda, and allege violations of state antitrust laws, seek unspecified damages and are based on substantially similar allegations to those in the FTC administrative proceeding.
The Company intends to vigorously defend the litigation in which it is named involving the TRU matter. Due to the preliminary nature of the various actions and proceedings against the Company, the ultimate outcome and materiality of these matters cannot presently be determined.
The Company's Fisher-Price subsidiary has executed a consent order with the State of New York involving a remedial action/feasibility study for voluntary cleanup of contamination at one of its manufacturing plants. The ultimate liability associated with this cleanup presently is estimated to be less than $1,425,000, approximately $970,500 of which has been incurred through December 31, 1997.
The Company is involved in various litigation and other legal matters which are being defended and handled in the ordinary course of business. None of these matters is expected to result in outcomes having a material adverse effect on the Company's liquidity, operating results or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
------- STOCKHOLDER MATTERS
For information regarding the markets in which the Company's common stock is traded, see the cover page hereof, and for information regarding the high and low sales prices of the Company's common stock for the last two calendar years, see Note 9 to the Consolidated Financial Statements in the Annual Report to Shareholders, incorporated herein by reference.
As of March 1, 1998, the Company had approximately 46,000 holders of record of its common stock.
The Company paid dividends on its Common Stock of $0.048 per share in January 1996, $0.060 per share in April, July and October 1996 and January and April 1997 and $0.070 per share in July and October 1997. The payment of dividends on the Common Stock is at the discretion of the Company's Board of Directors and is subject to customary limitations. The dividends have been adjusted to reflect a five-for-four stock split which the Company declared on its common stock to holders of record on February 16, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The information under the caption "Five-Year Financial Summary" on page 30 in the Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------- RESULTS OF OPERATIONS
The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 31 through 35 in the Annual Report to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations - Foreign Currency Risk" on pages 34 and 35 in the Annual Report to Shareholders and Note 6 to the Consolidated Financial Statements in the Annual Report to Shareholders are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Mattel, Inc. and Subsidiaries, together with the report of Price Waterhouse LLP dated February 2, 1998, included on pages 36 through 55 in the Annual Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------- FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this Item relating to members of the Board of Directors is incorporated by reference herein from the Company's 1998 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 1997. The information with respect to executive officers of the Company appears under the heading "Executive Officers of the Registrant" in Part I herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by reference herein from the Company's 1998 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorporated by reference herein from the Company's 1998 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated by reference herein from the Company's 1998 Notice of Annual Meeting of Stockholders and Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after December 31, 1997.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Annual Report
Page Number(1)
-------------
(1) Financial Statements
Consolidated Balance Sheets as of 36-37
December 31, 1997 and 1996
Consolidated Statements of Income for 38
the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for 39
the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders' 40
Equity for the years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements 41-53
Report of Price Waterhouse LLP, Independent 55
Accountants to the Company
1
Incorporated by reference from the indicated pages of the Annual
|
To the Board of Directors and Stockholders
Tyco Toys, Inc.
Mount Laurel, New Jersey
We have audited the consolidated balance sheets of Tyco Toys, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996, not separately presented herein. Those financial statements, which were included in Mattel, Inc.'s Form 8-K filed on April 17, 1997, are the responsibility of the Company's management. Our responsibility is to express an opinion on those financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tyco Toys, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP ------------------------- Philadelphia, Pennsylvania February 4, 1997 except for note 15, as to which the date is March 27, 1997 |
(2) Financial Statement Schedule for the years ended December 31, 1997, 1996 and 1995 (1)
(3) Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K)
3.0 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.0 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993)
3.1 Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit B to the Company's Proxy Statement dated March 23, 1996)
3.2 By-laws of the Company, as amended to date (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 dated August 21, 1997)
4.0 Rights Agreement, dated as of February 7, 1992, between the Company and The First National Bank of Boston, as Rights Agent (incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A, dated February 12, 1992)
4.1 Certificate of Designation of Series C Preferred Stock dated March 26, 1997 (incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-3 dated August 21, 1997)
4.2 Deposit Agreement dated June 24, 1996 among Tyco Toys, Inc., Midlantic Bank, N.A., as Depositary, and all holders from time to time of depositary receipts issued thereunder (incorporated by reference to Exhibit 4.2 to Tyco Toys, Inc.'s Registration Statement on Form S-3 dated June 20, 1996)
4.3 Amendment to Deposit Agreement dated as of March 27, 1997 between the Company, as successor to Tyco and The First National Bank of Boston (incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-3 dated September 26, 1997)
(The Company has not filed certain long-term debt instruments under which the principal amount of securities authorized to be issued does not exceed 10% of the total assets of the Company. Copies of such agreements will be provided to the Securities and Exchange Commission upon request.)
10.0 Second Amended and Restated Credit Agreement dated as of March 11, 1998 among the Company, the Banks named therein and Bank of America National Trust and Savings Association, as Agent (to be filed on a Current Report on Form 8-K)
10.1 Receivables Purchase Agreement dated as of March 11, 1998 among the Company, Mattel Factoring, Inc., the Banks named therein and NationsBank of Texas, N.A., as Agent (to be filed on a Current Report on Form 8-K)
10.2 Stock Subscription Warrant dated as of June 28, 1991 between Fisher-Price, Inc. and certain investors (incorporated by reference to Exhibit 4(c) to Fisher-Price's Report on Form 10-K for the transition period from July 1, 1991 to December 29, 1991)
10.3 Distribution Agreement dated November 12, 1997 among the Company, Morgan Stanley & Co. Incorporated and Credit Suisse First Boston Corporation (incorporated by reference to Exhibit 1.0 to the Company's Current Report on Form 8-K dated November 12, 1997)
10.4 Indenture dated as of February 15, 1996 between the Company and Chemical Trust Company of California, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 11, 1996)
10.5 Form of Underwriting Agreement among the Company, Morgan Stanley & Co. Incorporated and CS First Boston Corporation (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
Executive Compensation Plans and Arrangements of the Company
10.6 Form of Indemnity Agreement between Mattel and its directors and certain of its executive officers (incorporated by reference to Exhibit B to Notice of Annual Meeting of Stockholders of the Company dated March 24, 1987)
10.7 Amended and Restated Employment Agreement dated January 1, 1997 between the Company and Jill E. Barad (incorporated by reference to Exhibit 10.0 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997)
10.8 Employment Agreement dated May 5, 1997 between the Company and Gary S. Baughman (to be filed on a Current Report on Form 8-K)
10.9 Amended and Restated Employment Agreement dated September 9, 1996 between the Company and Joseph C. Gandolfo (incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996)
10.10 Amended and Restated Employment Agreement dated July 29, 1996
between the Company and Ned Mansour (incorporated by reference
to Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.11 Employment Agreement dated December 20, 1996 between the
Company and Bruce L. Stein (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.12 Mattel, Inc. Management Incentive Plan (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.13 Mattel, Inc. Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.14 Form of Deferred Compensation Plan for Directors (incorporated
by reference to Exhibit No. 10.11 of Amendment No. 1 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 26, 1987)
10.15 Amended and Restated Mattel, Inc. 1996 Stock Option Plan
(the "1996 Plan") (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996)
10.16 Form of Option Agreement for Outside Directors under the 1996
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
10.17 Form of Option Agreement under the 1996 Plan (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.18 Mattel, Inc. Supplemental Executive Retirement Plan effective
as of October 7, 1990 (incorporated by reference to Exhibit
10.10 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990)
10.19 Mattel, Inc. Amended and Restated Supplemental Executive
Retirement Plan as of May 1, 1996 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996)
10.20 Description of the Mattel, Inc. Deferred Compensation Plan for
Officers (incorporated by reference to Exhibit 10.16 to the
Mattel, Inc. Annual Report on Form 10-K for the year ended
December 31, 1991)
10.21 The Fisher-Price, Inc. Pension Plan (1989 Restatement)
(incorporated by reference to Exhibit 10(l) to Fisher-Price's
Registration Statement on Form 10 dated June 28, 1991)
|
10.22 Mattel, Inc. Personal Investment Plan, 1997 Restatement
(to be filed on a Current Report on Form 8-K)
10.23 Mattel, Inc. Hourly Employee Personal Investment Plan
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 dated February 20, 1996)
10.24 First Amendment to the Mattel, Inc. Hourly Employee Personal
Investment Plan (incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K dated February 14,
1997)
11.0* Computation of Income per Common and Common Equivalent Share
12.0* Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
13.0* Pages 29 through 57 of the Mattel, Inc. Annual Report to
Shareholders for the year ended December 31, 1997
21.0* Subsidiaries of the Registrant
23.0* Consent of Price Waterhouse LLP
23.1* Consent of Deloitte & Touche LLP
24.0* Power of Attorney (on page 28 of Form 10-K)
27.0* 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 December 31, 1997:
Financial
Date of Report Items Reported Statements Filed
------------------ -------------- ----------------
October 8, 1997 5, 7 None
October 21, 1997 5, 7 None
November 12, 1997 5, 7 None
November 26, 1997 5, 7 None
|
(c) Exhibits Required by Item 601 of Regulation S-K
See Item (3) above
(d) Financial Statement Schedule
Copies of Form 10-K (which includes Exhibit 24.0), Exhibits 11.0, 12.0, 13.0, 21.0, 23.0 and 23.1 and the Annual Report to Shareholders are available to stockholders of the Company without charge. Copies of other Exhibits can be obtained by stockholders of the Company upon payment of twelve cents per page for such Exhibits. Written requests should be sent to Secretary, Mattel, Inc., 333 Continental Boulevard, El Segundo, California 90245-5012.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ Kevin M. Farr
-------------------------
KEVIN M. FARR
Senior Vice President and
Date: As of March 18, 1998 Controller
--------------------
|
We, the undersigned directors and officers of Mattel, Inc. do hereby severally constitute and appoint Jill E. Barad, Ned Mansour, Robert Normile, Leland P. Smith, and John L. Vogelstein, and each of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or any of them, may deem necessary or advisable to enable said Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically, but without limitation, power and authority to sign for us or any of us, in our names in the capacities indicated below, any and all amendments hereto; and we do each hereby ratify and confirm all that said attorneys and agents, or any one of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Jill E. Barad Chairman of the Board and March 18, 1998
----------------- Chief Executive Officer
JILL E. BARAD
/s/ Harry J. Pearce Chief Financial Offier March 18, 1998
------------------- (principal financial officer)
HARRY J. PEARCE
/s/ Kevin M. Farr Senior Vice President and March 18, 1998
----------------- Controller
KEVIN M. FARR (principal accounting officer)
/s/ John W. Amerman Director March 18, 1998
-------------------
JOHN W. AMERMAN
28
Signature Title Date
--------- ----- ----
/s/ Harold Brown Director March 18, 1998
----------------
HAROLD BROWN
Director March 18, 1998
---------------------
TULLY M. FRIEDMAN
/s/ Joseph C. Gandolfo Director and President, March 18, 1998
---------------------- Worldwide Manufacturing
JOSEPH C. GANDOLFO Operations
/s/ Ronald M. Loeb Director March 18, 1998
------------------
RONALD M. LOEB
/s/ Ned Mansour Director and President, March 18, 1998
--------------- Corporate Operations
NED MANSOUR
/s/ Edward N. Ney Director March 18, 1998
-----------------
EDWARD N. NEY
/s/ William D. Rollnick Director March 18, 1998
-----------------------
WILLIAM D. ROLLNICK
/s/ Christopher A. Sinclair Director March 18, 1998
---------------------------
CHRISTOPHER A. SINCLAIR
/s/ Bruce L. Stein Director and President, March 18, 1998
------------------ Mattel Worldwide and
BRUCE L. STEIN Chief Operating Officer
/s/ John L. Vogelstein Director March 18, 1998
----------------------
JOHN L. VOGELSTEIN
|
To the Board of Directors of Mattel, Inc.
Our audits of the consolidated financial statements referred to in our report dated February 2, 1998 appearing on page 55 of the December 31, 1997 Annual Report to Shareholders of Mattel, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP ------------------------ Los Angeles, California February 2, 1998 |
Balance at Additions Balance
Beginning Charged to Net at End
of Year Operations Deductions of Year
---------- ---------- ---------- --------
Allowance for
Doubtful Accounts
--------------------
Year Ended
December 31, 1997 $ 21,009 $ 21,036 $ (11,308)(a) $ 30,737
Year Ended
December 31, 1996 13,119 21,381 (13,491)(a) 21,009
Year Ended
December 31, 1995 22,412 18,470 (27,763)(a) 13,119
Allowance for
Inventory Obsolescence
-------------------------
Year Ended
December 31, 1997 $ 35,645 $ 52,312 $ (54,183)(b) $ 33,774
Year Ended
December 31, 1996 30,620 73,004 (67,979)(b) 35,645
Year Ended
December 31, 1995 34,553 51,587 (55,520)(b) 30,620
(a) Includes write-offs, recoveries of previous write-offs, and currency
translation adjustments.
(b) Primarily represents relief of previously established reserves resulting
from the disposal of related inventory, raw material write-downs and
currency translation adjustments.
31
|
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0
(Page 1 of 2)
COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE
------------------------------------------------------------
(In thousands, except per share amounts)
FOR THE YEAR ENDED (a)(b)(c)
------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
BASIC 1997 1996 1995 1994 1993
----- ------------------------------------------------------------
Income Before Extraordinary Items and Cumulative
Effect of Changes in Accounting Principles $289,794 $372,224 $337,889 $224,670 $ 65,971
Deduct: Dividends on convertible preferred stock (10,505) (7,391) (3,200) (2,157) -
Dividends on convertible preference stock - - (3,342) (4,689) (4,894)
-------- -------- -------- -------- --------
Income Before Extraordinary Items and Cumulative
Effect of Changes in Accounting Principles for
Computation of Income Per Share 279,289 364,833 331,347 217,824 61,077
Extraordinary items (4,610) - - - (14,681)
Cumulative effect of changes in accounting principles - - - - (4,022)
-------- -------- -------- -------- --------
Net Income Applicable to Common Shares $274,679 $364,833 $331,347 $217,824 $ 42,374
======== ======== ======== ======== ========
Average Number of Common Shares 290,450 290,393 293,312 292,526 279,276
======== ======== ======== ======== ========
Income Per Share Before Extraordinary Items and
Cumulative Effect of Changes in Accounting Principles $ 0.96 $ 1.26 $ 1.13 $ 0.74 $ 0.22
Extraordinary items (0.01) - - - (0.05)
Cumulative effect of changes in accounting
principles - - - - (0.02)
-------- -------- -------- -------- --------
Net Income Per Common Share $ 0.95 $ 1.26 $ 1.13 $ 0.74 $ 0.15
======== ======== ======== ======== ========
(a) Consolidated financial information for all periods presented has been restated retroactively for the effects
of the March 1997 merger with Tyco, accounted for as a pooling of interests.
(b) Consolidated financial information for 1993 has been restated retroactively for the effects of the
November 1993 merger with Fisher-Price, accounted for as a pooling of interests.
(c) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996, and
January 1995 and 1994, and the mergers with Tyco and Fisher-Price in 1997 and 1993, respectively.
|
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0
(Page 2 of 2)
COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE
------------------------------------------------------------
(In thousands, except per share amounts)
FOR THE YEAR ENDED (a)(b)(c)
------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
DILUTED 1997 (d) 1996 1995 (d) 1994 (d) 1993 (d)
------- ------------------------------------------------------------
Income Before Extraordinary Items and Cumulative
Effect of Changes in Accounting Principles $289,794 $372,224 $337,889 $224,670 $ 65,971
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 7% convertible
subordinated notes 479 728 692 954 307
Assumed conversion of 8% convertible debentures - - - 628 5,338
Assumed exercise of stock subscription warrants - - - - 637
Deduct: Dividends on convertible preferred stock - - - - -
Impact of required ESOP dividends or
contributions upon conversion - - - (3,598) (4,894)
-------- -------- -------- -------- --------
Income Before Extraordinary Items and Cumulative
Effect of Changes in Accounting Principles for
Computation of Income Per Share 290,273 372,952 338,581 222,654 67,359
Extraordinary items (4,610) - - - (14,681)
Cumulative effect of changes in accounting principles - - - - (4,022)
-------- -------- -------- -------- --------
Net Income Applicable to Common Shares $285,663 $372,952 $338,581 $222,654 $ 48,656
======== ======== ======== ======== ========
Applicable Shares
Weighted average common shares outstanding 290,450 290,393 293,312 292,526 279,276
Weighted average common equivalent shares arising from:
Dilutive stock options 3,975 3,484 3,272 3,090 2,935
Assumed conversion of convertible preferred stock 10,273 6,867 2,603 1,832 -
Assumed conversion of convertible preference stock - - 739 2,104 2,531
Assumed conversion of 7% convertible
subordinated notes 589 783 744 699 660
Assumed conversion of 8% convertible debentures - - - 1,619 11,823
Stock subscription warrants 639 927 928 1,023 1,681
Nonvested stock - 603 507 238 -
-------- -------- -------- -------- --------
Average number of common and common
equivalent shares 305,926 303,057 302,105 303,131 298,906
======== ======== ======== ======== ========
Income Per Share Before Extraordinary Items and
Cumulative Effect of Changes in Accounting Principles $ 0.95 $ 1.23 $ 1.12 $ 0.73 $ 0.23
Extraordinary items (0.02) - - - (0.05)
Cumulative effect of changes in accounting
principles - - - - (0.02)
-------- -------- -------- -------- --------
Net Income Per Common Share $ 0.93 $ 1.23 $ 1.12 $ 0.73 $ 0.16
======== ======== ======== ======== ========
(a) Consolidated financial information for all periods presented has been restated retroactively for the effects
of the March 1997 merger with Tyco, accounted for as a pooling of interests.
(b) Consolidated financial information for 1993 has been restated retroactively for the effects of the
November 1993 merger with Fisher-Price, accounted for as a pooling of interests.
(c) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996, and
January 1995 and 1994, and the mergers with Tyco and Fisher-Price in 1997 and 1993, respectively.
(d) 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.
|
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0
(Page 1 of 2)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Amounts in thousands, except ratios)
(Unaudited)
FOR THE YEARS ENDED DECEMBER 31, (a)(b)
------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------
EARNINGS AVAILABLE FOR FIXED CHARGES:
Income before income taxes, cumulative effect
of changes in accounting principles and
extraordinary item $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 (144) 303 (36) (649) 124
Add:
Interest expense 90,130 100,226 102,983 87,071 86,101
Appropriate portion of rents (c) 17,665 19,527 19,450 16,224 16,221
-------- -------- -------- -------- --------
Earnings available for fixed charges $532,733 $656,812 $627,065 $464,803 $255,752
======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101
Capitalized interest 991 1,789 693 285 -
Appropriate portion of rents (c) 17,665 19,527 19,450 16,224 16,221
-------- -------- -------- -------- --------
Fixed charges $108,786 $121,542 $123,126 $103,580 $102,322
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 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. 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.
|
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0
(Page 2 of 2)
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
----------------------------------------------------------
(Amounts in thousands, except ratios)
(Unaudited)
FOR THE YEARS ENDED DECEMBER 31, (a)(b)
------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------
EARNINGS AVAILABLE FOR FIXED CHARGES:
Income before income taxes, cumulative effect
of changes in accounting principles and
extraordinary item $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 (144) 303 (36) (649) 124
Add:
Interest expense 90,130 100,226 102,983 87,071 86,101
Appropriate portion of rents (c) 17,665 19,527 19,450 16,224 16,221
-------- -------- -------- -------- --------
Earnings available for fixed charges $532,733 $656,812 $627,065 $464,803 $255,752
======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101
Capitalized interest 991 1,789 693 285 -
Dividends - Series B preferred stock 2,537 3,406 3,200 2,157 -
Dividends - Series C preferred stock 7,968 3,985 - - -
Dividends - Series F preference stock - - 3,342 4,689 4,894
Appropriate portion of rents (c) 17,665 19,527 19,450 16,224 16,221
-------- -------- -------- -------- --------
Fixed charges $119,291 $128,933 $129,668 $110,426 $107,216
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 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. 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.
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Five-Year Financial Summary 30 Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Consolidated Financial Statements 36 Notes to Consolidated Financial Statements 41 Management Report on Responsibility for Financial Reporting 54 Report of Independent Accountants 55 |
For the Year Ended December 31 (a)
-----------------------------------------------------------
(In thousands, except per share and percentage information) 1997 1996 1995 1994 1993 (b)
-----------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
Net sales $4,834,616 $4,535,332 $4,369,816 $3,971,226 $3,445,934
Gross profit 2,400,000 2,219,758 2,067,740 1,881,060 1,592,471
% of net sales 50% 49% 47% 47% 46%
Operating profit (c) 790,212 636,982 616,551 525,928 383,792
% of net sales 16% 14% 14% 13% 11%
Restructuring and integration charges (d) 275,000 - 8,900 76,700 143,214
Income before income taxes, extraordinary items
and cumulative effect of changes in
accounting principles 425,082 536,756 504,668 362,157 153,306
Provision for income taxes 135,288 164,532 166,779 137,487 87,335
Income before extraordinary items and
cumulative effect of changes in
accounting principles 289,794 372,224 337,889 224,670 65,971
Extraordinary item - loss on early retirement of debt (4,610) - - - (14,681)
Cumulative effect of changes in accounting principles - - - - (4,022)
Net income 285,184 372,224 337,889 224,670 47,268
Income Per Common Share (e):
Income before extraordinary items and cumulative effect
of changes in accounting principles
Basic 0.96 1.26 1.13 0.74 0.22
Diluted 0.94 1.23 1.11 0.73 0.22
Net income
Basic 0.95 1.26 1.13 0.74 0.15
Diluted 0.93 1.23 1.11 0.73 0.15
DIVIDENDS DECLARED PER COMMON SHARE (e) 0.27 0.24 0.19 0.15 0.12
----------------------------------------------------------------------------------------------------------------------
As of Year End (a)
-----------------------------------------------------------
(In thousands) 1997 1996 1995 1994 1993 (b)
-----------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Cash and marketable securities $ 694,947 $ 550,271 $ 511,061 $ 290,157 $ 555,617
Accounts receivable, net 1,091,416 948,940 886,344 990,346 829,098
Inventories 428,844 444,178 407,551 405,427 313,895
Total assets 3,803,791 3,581,142 3,341,370 3,150,438 2,744,799
Short-term borrowings 17,468 28,924 76,443 57,531 68,963
Long-term liabilities 808,297 633,342 721,739 606,430 580,154
Shareholders' equity 1,822,070 1,805,923 1,551,680 1,385,777 1.095,258
----------------------------------------------------------------------------------------------------------------------
(a) Consolidated financial information for all periods presented has been restated retroactively for the effects
of the March 1997 merger with Tyco, accounted for as a pooling of interests.
(b) Consolidated financial information for 1993 has been restated retroactively for the effects of the November
1993 merger with Fisher-Price, accounted for as a pooling of interests.
(c) Represents income from operations before restructuring and integration charges, interest expense and provision
for income taxes.
(d) In 1997, amount represents a nonrecurring charge for transaction, integration and restructuring costs related
to the merger with Tyco. In 1995, the nonrecurring charge represents a restructuring program to reduce
operating expenses at certain of Tyco's business units. In 1994, amount represents a nonrecurring charge
principally related to the consolidation of manufacturing operations and the reduction of headquarters
expense and support functions worldwide. In 1993, the nonrecurring charge represents transaction, integration
and restructuring costs related to the merger with Fisher-Price.
(e) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996, and
January 1995 and 1994, and the mergers with Tyco and Fisher-Price in 1997 and 1993, respectively.
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THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS ANNUAL 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 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; POSSIBLE WEAKNESSES OF INTERNATIONAL
MARKETS; THE IMPACT OF COMPETITION ON REVENUES AND MARGINS; THE EFFECT
OF CURRENCY FLUCTUATIONS ON REPORTABLE INCOME; 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.
This analysis should be read in conjunction with the consolidated financial statements which begin on page 36.
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 dolls and accessories); 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 vehicles); and Large and Small Dolls (CABBAGE PATCH KIDS, POLLY POCKET and Tyco large dolls).
RESULTS OF OPERATIONS
The following is a percentage analysis of operating results for the past
three years:
For the Year
----------------------------------
1997 1996 1995
---------------------------------- ---------- ---------- ----------
Net sales 100% 100% 100%
========== ========== ==========
Gross profit 50% 49% 47%
Advertising and promotion expenses 16 17 17
Other selling and administrative
expenses 16 17 16
Restructuring and integration
charges 6 - -
Other expense, net 1 1 -
---------- ---------- ----------
Operating profit 11 14 14
Interest expense 2 2 2
---------- ---------- ----------
Income before income taxes and
extraordinary item 9% 12% 12%
========== ========== ==========
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1997 Compared to 1996
Mattel's financial performance reflects the Company's growth in 1997,
demonstrating continued strength in its core brands, as well as cost
savings realized from the Tyco integration and Mattel restructuring. The
Company's long-term business strategies, which focus on the growth of core
brands, have resulted in another record year for sales and earnings. Net
income was $499.5 million or $1.68 per basic share ($1.65 per diluted
share), before a $4.6 million after-tax ($0.01 per basic and diluted share)
impact from an extraordinary loss due to the early retirement of debt, and
a $210 million after-tax ($0.72 per basic share and $0.71 per diluted
share) charge related to the Tyco integration and Mattel restructuring.
Gross profit as a percentage of net sales increased one percentage point to
50% as compared to the prior year.
The strength of the Company's core brands resulted in an increase in net sales of $299.3 million or 7% over 1996, including a net $138.5 million unfavorable effect from the generally stronger US dollar relative to last year. Sales of BARBIE and BARBIE-related products, including the multi- media products, increased 9% primarily due to the strength in dolls and fashions, especially in the United States. Sales of the Company's Infant and Preschool brands increased 15%, led by the strength in SESAME STREET and Disney's WINNIE THE POOH, partially offset by a 15% decline in FISHER- PRICE products. The Wheels category increased 21%, led by a 67% increase in HOT WHEELS.
Sales to customers within the United States grew 14% and accounted for 66% of consolidated gross sales in 1997 compared to 62% in the prior year. Sales to customers outside the United States decreased 5%, including the unfavorable effect of the generally stronger US dollar relative to last year. At comparable foreign exchange rates, sales internationally grew 3%.
Gross profit as a percentage of net sales increased one percentage point to 50%, principally due to improved product mix. Advertising and promotion expenses decreased one percent as a percentage of net sales primarily due to cost savings realized from the Tyco merger. As a percentage of net sales, other selling and administrative expenses decreased one percentage point to 16%. This decline reflects the impact of the Company's effort to control costs and direct cost savings realized from the Tyco integration and Mattel restructuring.
1996 Compared to 1995
Net sales increased $165.5 million or 4% over 1995, reflecting the
continuing strong demand for the Company's core products. Sales of BARBIE
and BARBIE-related products increased 20% primarily due to the strength in
dolls and fashions, especially in the United States. Sales of HOT WHEELS
vehicles and playsets increased by 19% and sales of Disney-licensed
products increased 8%. These increases were partially offset by a 4%
decline in FISHER-PRICE products. This decline primarily reflects both
late shipments of new FISHER-PRICE products and a reduction in the number
of new basic toy introductions during the year. Sales of Tyco products,
including SESAME STREET, MATCHBOX, Tyco Electric Racing and Tyco Radio
Control increased 3% from 1995.
Sales to customers within the United States grew 7% compared to 1995. Sales to customers outside the United States increased 1%, including an unfavorable effect of approximately $30 million due to the generally stronger US dollar relative to 1995. At comparable foreign exchange rates, sales internationally grew 3%.
Gross profit as a percentage of net sales increased two percentage points to 49%, principally due to lower resin and other commodity prices and improved product mix. Advertising and promotion expenses remained virtually constant as a percentage of net sales; however, spending increased $47.2 million primarily in support of increased sales volume, new product introductions, and further development of international markets. As a percentage of net sales, other selling and administrative expenses increased one percentage point to 17%. This growth reflects higher design and development expenses related to new products, increased sales and marketing expenditures to support the development of the Company's brands, and higher depreciation expense related to increased investment in fixed assets. Other expense, net, increased $33.4 million principally due to nonrecurring 1995 gains recognized on the sale of the non-toy business and trademark rights related to Corgi, a Mexican insurance claim, and foreign currency transactions.
INCOME TAXES
The effective income tax rates for 1997 and 1996 were approximately 32% and
31%, respectively.
FINANCIAL POSITION
The Company's financial position remained strong in 1997 primarily due to
its profitable operating results. At December 31, 1997, the Company's cash
position was $694.9 million, compared to $550.3 million as of the prior
year. Accounts receivable increased $142.5 million, reflecting higher
sales volume in 1997. Intangibles decreased $68.7 million compared to the
prior year, due to the disposal of certain intangibles resulting from the
sale of the Company's sports product lines and amortization.
Accrued liabilities increased $118.8 million compared to last year, mainly due to the accrual for the Tyco integration and Mattel restructuring charge. Current portion of long-term liabilities decreased $92.9 million primarily due to the repayment of the $100.0 million 6-7/8% Senior Notes which matured on August 1, 1997.
The Company's capitalization is as follows:
As of Year End
----------------------------------------
(In millions) 1997 1996
------------------------------ ------------------- -------------------
Medium-Term Notes $ 520.5 20% $ 220.0 9%
6-3/4% Senior Notes 100.0 4 100.0 4
10-1/8% Notes - - 126.5 5
Convertible Subordinated Notes - - 16.0 1
Other long-term debt
obligations 55.0 2 57.4 2
--------- -------- -------- ---------
Total long-term debt 675.5 26 519.9 21
Other long-term liabilities 132.8 5 113.5 5
Shareholders' equity 1,822.1 69 1,805.9 74
--------- -------- -------- ---------
$2,630.4 100% $2,439.3 100%
========= ======== ======== =========
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Total long-term debt increased $155.6 million mainly due to the issuance of $310.0 million of Medium-Term Notes, partially offset by the redemption of the 10-1/8% Notes, and conversion of the 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. In February 1996, the Company filed a universal shelf registration statement allowing the issuance of up to $350.0 million of debt and equity securities, which could include Medium-Term Notes. This registration statement was amended in May 1997 to allow the issuance of an additional $39.5 million of debt and equity securities. In October 1997, the Company filed a universal shelf registration statement allowing the issuance of up to $350.0 million of debt and equity securities, which could include Medium-Term Notes. As of December 31, 1997, $356.7 million of debt and equity securities was available to be issued. Shareholders' equity increased $16.1 million over 1996, reflecting profitable operating results for the current year, activity related to employee stock compensation plans, and the sale of 3.0 million shares of treasury stock in a registered public offering. These increases were partially offset by treasury stock purchases, dividend declarations on common and preferred stock, and unfavorable currency translation adjustments. On December 2, 1997, all outstanding shares of Series B Preferred Stock were converted by the holders into 2.8 million shares of Mattel common stock.
LIQUIDITY
The primary sources of liquidity for the Company over the last three years
have been cash on hand at the beginning of the year, cash flows generated
from operations, long-term debt issuances and short-term seasonal
borrowings. Operating activities generated cash flows of $481.9 million
during 1997, compared to $524.8 million and $446.6 million in 1996 and
1995, respectively.
Principal investing activities during the last three years included additions of tooling, property and equipment, and construction of new manufacturing and office facilities.
Financing activities provided intermediate- and long-term funds through the issuance of Medium-Term Notes in 1997 and 1995, which were utilized by the Company to retire higher-cost debt and for general corporate purposes. In 1997, the Company redeemed the 10-1/8% Notes and repaid the 6-7/8% Senior Notes upon maturity. In 1996, Tyco issued 772.8 thousand shares of Series C Preferred Stock for net proceeds of $92.7 million. In 1995, all shares of Series F Preference Stock and common stock were repurchased from the IGI Employee Stock Ownership Plan ("ESOP"). Cash outlays for treasury stock were made over the three-year period and provide shares for issuance under the Company's employee stock option plans and the exercise of outstanding warrants. The Company has consistently increased cash payments for common dividends over the three-year period.
SHORT-TERM FINANCING
The Company's seasonal working capital requirements for the coming year are
expected to be financed through existing and internally generated cash,
issuance of commercial paper, sale of certain trade receivables and use of
the Company's various short-term bank lines of credit. Under the Company's
domestic credit line, unsecured facilities provide a total of $1.0 billion
in seasonal financing from a commercial bank group. The facilities provide
for up to $700.0 million in advances and backup for commercial paper
issuances (a five-year facility), and up to an additional $300.0 million (a
five-year facility) for nonrecourse purchases of certain trade accounts
receivable by the bank group. In connection with the domestic credit line,
the Company is to comply with certain financial covenants for consolidated
debt-to-capital and interest coverage.
In addition, the Company expects to have available approximately $275 million of individual short-term international credit lines with a number of banks, which customarily are extended as needed to finance seasonal working capital requirements of certain international affiliates.
MERGER
Pursuant to an Agreement and Plan of Merger dated November 17, 1996, as
amended by an Amendment to Agreement and Plan of Merger dated November 22,
1996, a merger was consummated between the Company and Tyco on March 27,
1997. The stock-for-stock transaction was approved by the shareholders of
Tyco, after which Tyco was merged with and into Mattel, with Mattel
continuing as the surviving corporation in the merger. As a result of the
merger, the separate existence of Tyco ceased. Under the merger agreement,
each outstanding share of Tyco common stock was converted into the right to
receive 0.48876 Mattel common shares and resulted in the issuance of
approximately 17 million shares. Tyco restricted stock units and stock
options outstanding as of the merger date were exchanged for approximately
0.6 million Mattel common shares. In addition, each share of Tyco Series B
and Series C Preferred Stock was converted into like Mattel preferred
stock. This transaction has been accounted for as a pooling of interests,
and accordingly, financial information for periods prior to the merger
reflect retroactive restatement of the companies' combined financial
position and operating results.
RESTRUCTURING CHARGES
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 December 31, 1997,
the total integration and restructuring expenditures and write-offs were
approximately $166 million, $46 million of which related to severance
payments. The remaining accrual of $109 million is considered sufficient
to cover future costs of the plan which is expected to be substantially
completed in 1998.
Pre-tax cost-savings resulting from the restructuring for the twelve months ended December 31, 1997 were approximately $60 million. Management continues to believe that the integration and restructuring charge will provide pre-tax cost savings of approximately $160 million or more annually beginning in 1998. These cost savings will result primarily from reduced overhead, elimination of duplicate marketing and administrative offices and distribution facilities, and more efficient manufacturing and logistics operations. Available cash reserves and cash flows generated from normal business operations will fund the costs of restructuring, with no adverse impact expected on the Company's future liquidity, revenues or financial position. The statements set forth herein are forward-looking, and actual results may differ materially (see the Cautionary Statement above).
LITIGATION
The Company is involved in various litigation and other legal matters,
including claims related to intellectual property, product liability, labor
and environmental cleanup, which are being addressed or defended in the
ordinary course of business. Management believes that any liability which
may potentially result upon resolution of such matters will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
COMMITMENTS
In the normal course of business, the Company enters into contractual
arrangements for future purchases of goods and services to ensure
availability and timely delivery, and to obtain and protect the Company's
right to create and market certain toys. Such arrangements include
commitments for future inventory purchases and royalty payments pursuant to
licensing agreements. Certain of these commitments routinely contain
provisions for guaranteed or minimum expenditures during the terms of the
contracts.
As of December 31, 1997, the Company had outstanding commitments for 1998 purchases of inventory of approximately $90 million. Licensing and similar agreements with terms extending through the year 2002 contain provisions for future guaranteed minimum payments aggregating approximately $360 million. In addition, under a certain licensing agreement, the Company may have additional commitments as high as $37.8 million in 1999 payable over three years.
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.
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 its exposure through the selection of currencies used for international borrowings and intercompany invoicing. The Company does not trade in financial instruments for speculative purposes.
The following tables provide information about the Company's derivative financial instruments as of December 31, 1997, that are intended to hedge firm foreign currency commitments. These contracts generally have maturity dates of up to 18 months on the date of execution and mature within 13 months of December 31, 1997.
Foreign Currency Forward Exchange Contracts
Buy Sell
--------------------------------- ---------------------------------
Weighted Weighted
Notional Average Notional Average
(In thousands of US Contract Contract Fair Contract Contract Fair
dollars) Amount (a) Rate Value (b) Amount (a) Rate Value (b)
----------------------------------------------------------------------------------------------
German marks $ 19,179 1.78 $ 18,972 $ 65,119 1.77 $ 64,941
Italian lira 38,277 1,800.00 39,203 53,161 1,749.00 52,585
Malaysian ringgits 53,304 3.08 41,551 - - -
Hong Kong dollars 148,084 8.04 149,108 2,527 7.76 2,532
French francs - - - 38,166 5.86 37,639
British pounds sterling 32,548 0.61 32,751 72,580 0.63 73,570
Canadian dollars 22,608 1.42 22,474 - - -
Spanish pesetas - - - 13,858 148.99 13,668
Dutch guilders 12,778 2.00 12,666 36,285 1.96 35,719
Japanese yen - - - 7,956 125.73 7,659
Australian dollars 6,398 1.54 6,391 - - -
Belgian francs - - - 55,126 36.48 54,515
Swiss francs 13,677 1.44 13,454 - - -
Indonesian rupiah 15,230 3,930.78 9,891 - - -
Singapore dollar - - - 4,107 1.72 4,203
Mexican peso - - - 4,200 8.05 4,138
---------- --------- ---------- ---------
$362,083 $346,461 $353,085 $351,169
========== ========= ========== =========
(a) All contracts are against the US dollar and are maintained by reporting
units with a US dollar functional currency, with the exception of the
Indonesian rupiah contracts that are maintained by an entity with a
rupiah functional currency.
(b) For the purchase of foreign currencies, fair value reflects the amount,
based on dealer quotes, the Company would pay at maturity for contracts
involving the same currencies and maturity dates, if they had been
entered into as of year-end 1997. For the sale of foreign currencies,
fair value reflects the amount, based on dealer quotes, the Company
would receive at maturity for contracts involving the same currencies
and maturity dates, if they had been entered into as of year-end 1997.
The differences between the fair value and the notional contract amounts
are expected to be fully offset by foreign currency exchange gains and
losses on the underlying hedged transactions.
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Foreign Currency Option Contracts
Sell
----------------------------------------------
Weighted
Notional Average
(In thousands of US Contract Contract Value of Fair
dollars) Amount Rate Option Value (a)
----------------------------------------------------------------------
German marks $ 8,858 1.71 $ 454 $ 8,404
French francs 14,590 5.68 801 13,789
Spanish pesetas 5,505 144.00 287 5,218
Dutch guilders 13,682 1.91 769 12,913
Belgian francs 4,912 35.00 281 4,631
Mexican peso 46,000 8.35 455 45,545
-------- -------- ---------
$93,547 $3,047 $90,500
======== ======== =========
(a) Fair value reflects the notional amount of US dollars the Company
would receive from the current contracts, less the December 31, 1997
option value. The option value is determined based on dealer quotes
for contracts involving the same currencies and maturity dates.
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CERTAIN CONSIDERATIONS
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.
During 1997, the US dollar strengthened significantly against many major foreign currencies. Although the Company hedges a portion of its anticipated currency exposures, the unhedged portion can be impacted by exchange rate movements. Additionally, Mattel's results of operations can be impacted by translation effects on foreign revenues and earnings.
The Company owns and operates manufacturing facilities and utilizes third-party manufacturers throughout Asia, primarily in China, Indonesia and Malaysia. There is a risk of political instability and civil unrest in these countries, which could temporarily or permanently damage the Company's manufacturing operations located there. Any significant disruption of the Company's manufacturing operations or its suppliers would negatively impact the Company's business, financial condition and results of operations.
The Company has reviewed its computer systems and developed a plan to achieve proper processing of transactions in the year 2000 and beyond. Management believes that all of Mattel's computer systems will be year 2000 compliant by the end of first quarter 1999. Costs incurred to date to implement the plan have not been material and are not expected to be material to operating results in the future. However, there can be no assurance that the systems of other companies on which Mattel's systems rely will also be timely converted or that any such failure to convert by another company would not have an adverse effect on Mattel's systems. Any significant disruption of the Company's ability to communicate electronically with its business partners could negatively impact the Company's business, financial condition and results of operations. The statements set forth herein and in the preceding paragraphs are forward- looking, and actual results may differ materially (see the Cautionary Statement above).
December 31, December 31,
(In thousands) 1997 1996
-----------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 694,947 $ 550,271
Accounts receivable, less allowances of
$30.7 million at December 31, 1997 and
$21.0 million at December 31, 1996 1,091,416 948,940
Inventories 428,844 444,178
Prepaid expenses and other current assets 246,529 195,673
---------- ----------
Total current assets 2,461,736 2,139,062
---------- ----------
Property, Plant and Equipment
Land 29,556 30,864
Buildings 198,396 216,523
Machinery and equipment 453,978 438,969
Capitalized leases 24,625 26,512
Leasehold improvements 68,179 69,732
---------- ----------
774,734 782,600
Less: accumulated depreciation 336,946 323,096
---------- ----------
437,788 459,504
Tools, dies and molds, net 163,809 156,777
---------- ----------
Property, plant and equipment, net 601,597 616,281
---------- ----------
Other Noncurrent Assets
Intangible assets, net 542,759 611,410
Sundry assets 197,699 214,389
---------- ----------
$3,803,791 $3,581,142
========== ==========
The accompanying notes are an integral part of these statements.
Consolidated results for December 31, 1996 have been restated retroactively
for the effects of the March 1997 merger with Tyco Toys, Inc. ("Tyco"),
accounted for as a pooling of interests. See Note 7.
36
December 31, December 31,
(In thousands, except share data) 1997 1996
-----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 17,468 $ 28,924
Current portion of long-term liabilities 13,659 106,596
Accounts payable 310,117 312,378
Accrued liabilities 629,445 510,691
Income taxes payable 202,735 183,288
---------- ----------
Total current liabilities 1,173,424 1,141,877
---------- ----------
Long-Term Liabilities
6-3/4% Senior Notes 100,000 100,000
10-1/8% Senior Subordinated Notes - 126,500
Medium-Term Notes 520,500 220,000
Mortgage notes 43,573 47,600
Other 144,224 139,242
---------- ----------
Total long-term liabilities 808,297 633,342
---------- ----------
Shareholders' Equity
Preferred stock, Series B $1.00 par value,
$1,050.00 liquidation preference per share,
53.6 thousand shares authorized, issued and
outstanding in 1996 - 54
Preferred stock, Series C $1.00 par value,
$125.00 liquidation preference per share,
772.8 thousand shares authorized; 771.9
thousand and 772.8 thousand shares issued
and outstanding in 1997 and 1996,
respectively 772 773
Common stock $1.00 par value, 600.0 million
shares authorized; 300.4 million and
296.1 million shares issued in 1997 and
1996, respectively 300,381 296,091
Additional paid-in capital 509,172 518,296
Treasury stock at cost; 8.8 million and
8.1 million shares in 1997 and 1996, (285,420) (215,999)
respectively
Retained earnings 1,490,804 1,293,653
Currency translation and other adjustments (193,639) (86,945)
---------- ----------
Total shareholders' equity 1,822,070 1,805,923
---------- ----------
$3,803,791 $3,581,142
========== ==========
Commitments and Contingencies (See accompanying notes.)
|
Mattel, Inc. and Subsidiaries
For the Year
----------------------------------
(In thousands, except per share amounts) 1997 1996 1995
---------------------------------------------------------------------------------
NET SALES $4,834,616 $4,535,332 $4,369,816
Cost of sales 2,434,616 2,315,574 2,302,076
---------- ---------- ----------
GROSS PROFIT 2,400,000 2,219,758 2,067,740
Advertising and promotion expenses 779,139 778,919 731,746
Other selling and administrative expenses 796,952 772,335 721,362
Restructuring and integration charges 275,000 - 8,900
Interest expense 90,130 100,226 102,983
Other expense (income), net 33,697 31,522 (1,919)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 425,082 536,756 504,668
Provision for income taxes 135,288 164,532 166,779
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 289,794 372,224 337,889
Extraordinary item - loss on early
retirement of debt (4,610) - -
---------- ---------- ----------
NET INCOME 285,184 372,224 337,889
Preferred and preference stock
dividend requirements 10,505 7,391 6,542
---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON SHARES $ 274,679 $ 364,833 $ 331,347
========== ========== ==========
BASIC INCOME PER COMMON SHARE
Income before extraordinary item $ 0.96 $ 1.26 $ 1.13
Extraordinary item - loss on early
retirement of debt (0.01) - -
---------- ---------- ----------
Net income $ 0.95 $ 1.26 $ 1.13
========== ========== ==========
Average number of common shares 295,450 290,393 293,312
========== ========== ==========
DILUTED INCOME PER COMMON SHARE
Income before extraordinary item $ 0.94 $ 1.23 $ 1.11
Extraordinary item - loss on early
retirement of debt (0.01) - -
---------- ---------- ----------
Net income $ 0.93 $ 1.23 $ 1.11
========== ========== ==========
Average number of common and common
equivalent shares 295,653 303,057 298,763
========== ========== ==========
DIVIDENDS DECLARED PER COMMON SHARE $ 0.27 $ 0.24 $ 0.19
========== ========== ==========
The accompanying notes are an integral part of these statements.
Consolidated results for all periods have been restated retroactively
for the effects of the March 1997 merger with Tyco, accounted for as
a pooling of interests. See Note 7.
|
Mattel, Inc. and Subsidiaries
For the Year
---------------------------------
(In thousands) 1997 1996 1995
--------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 285,184 $ 372,224 $ 337,889
Adjustments to reconcile net income to
net cash flows from operating activities:
Noncash restructuring and integration charges 90,382 - -
Loss on early retirement of debt, net of tax 4,610 - -
Gain on sale of business - - (9,142)
Depreciation 154,994 144,672 133,029
Amortization 34,917 36,671 36,976
Increase (decrease) from changes in assets
and liabilities:
Accounts receivable (201,909) (71,348) 94,540
Inventories (33,012) (38,304) (5,204)
Prepaid expenses and other current assets (75,810) 15,310 10,090
Accounts payable, accrued liabilities and
income taxes payable 161,640 58,072 (144,995)
Deferred compensation and other retirement
plans 369 9,110 12,437
Deferred income taxes 64,015 (2,147) (17,235)
Other, net (3,526) 551 (1,786)
--------- --------- ---------
Net cash flows from operating activities 481,854 524,811 446,599
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of tools, dies and molds (96,006) (108,641) (103,257)
Purchases of other property, plant and equipment (125,567) (122,498) (119,587)
Purchase of other long-term investments (7,816) (25,114) -
Proceeds from sale of business and other
property, plant and equipment 31,484 6,250 33,037
Net proceeds from sales of marketable securities - 17,315 3,083
Contingent consideration (8,625) (8,625) (8,625)
Other, net 566 317 (826)
--------- --------- ---------
Net cash flows used for investing activities (205,964) (240,996) (196,175)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net (6,957) (45,652) 2,558
Issuance of Medium-Term Notes 310,000 - 139,500
Payment of 10-1/8% Senior Subordinated Notes (131,300) - -
Payment of 6-7/8% Senior Notes (100,000) - -
Payment of Medium-Term Notes - (30,000) -
Long-term foreign borrowings (3,523) (3,717) (2,572)
Tax benefit of employee stock options exercised 17,900 26,300 8,500
Exercise of stock options and warrants 41,777 73,314 24,601
Sale of treasury stock 71,248 - -
Purchase of treasury stock (227,932) (269,771) (64,284)
Repurchase of Series F Preference Stock - - (73,866)
Proceeds from issuance of preferred stock - 92,702 -
Dividends paid on common, preferred and
preference stock (84,537) (66,473) (50,963)
Payment of debt issuance costs (2,145) (832) (6,582)
Other, net (759) (2,295) (1,041)
--------- --------- ---------
Net cash flows used for financing activities (116,228) (226,424) (24,149)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (14,986) (806) (2,165)
--------- --------- ---------
INCREASE IN CASH 144,676 56,585 224,110
CASH AT BEGINNING OF YEAR 550,271 493,686 269,576
--------- --------- ---------
CASH AT END OF YEAR $ 694,947 $ 550,271 $ 493,686
========= ========= =========
The accompanying notes are an integral part of these statements.
Consolidated results for all periods have been restated retroactively
for the effects of the March 1997 merger with Tyco, accounted for as
a pooling of interests. See Note 7.
|
Mattel, Inc. and Subsidiaries
Additional
Preferred Preference Common Paid-In
(In thousands) Stock Stock Stock Capital
---------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $49 $ 9 $240,233 $559,867
Net income
Five-for-four stock split 55,794 (55,794)
Purchase of treasury stock
Repurchase of Series F Preference Stock (9) (73,857)
Restricted stock activity 20 8,237
Exercise of stock options 33 8,715
Issuance of treasury stock (18,169)
Dividends declared on common stock
Dividends declared on preferred and
preference stock 3 3,151
Currency translation and other adjustments
--------- --------- -------- --------
BALANCE, DECEMBER 31, 1995 52 - 296,080 432,150
Net income
Purchase of treasury stock
Restricted stock activity 2,770
Exercise of stock options 11 26,414
Issuance of treasury stock (53,554)
Issuance of stock warrant 26,444
Issuance of preferred stock 773 91,929
Exercise of stock subscription warrants (9,507)
Dividends declared on common stock
Dividends declared on preferred stock 2 1,650
Currency translation and other adjustments
--------- --------- -------- --------
BALANCE, DECEMBER 31, 1996 827 - 296,091 518,296
Net income
Purchase of treasury stock
Issuance of treasury stock (45,486)
Exercise of stock options 636 23,927
Conversion of 7% Notes 893 15,141
Conversion of preferred stock (55) 2,761 (2,706)
Dividends declared on common stock
Dividends declared on preferred stock
Currency translation adjustments
--------- --------- -------- --------
BALANCE, DECEMBER 31, 1997 $772 $ - $300,381 $509,172
========= ========= ======== ========
The accompanying notes are an integral part of these statements.
Consolidated results for December 31, 1994, 1995 and 1996 have been restated retroactively
for the effects of the March 1997 merger with Tyco, accounted for as a pooling of interests.
See Note 7.
Currency
Translation Total
Treasury Retained and Other Shareholders'
(In thousands) Stock Earnings Adjustments Equity
------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $ (53,812) $ 713,551 $ (74,120) $1,385,777
Net income 337,889 337,889
Five-for-four stock split -
Purchase of treasury stock (64,284) (64,284)
Repurchase of Series F Preference Stock (73,866)
Restricted stock activity 8,257
Exercise of stock options 8,748
Issuance of treasury stock 42,522 24,353
Dividends declared on common stock (50,253) (50,253)
Dividends declared on preferred and
preference stock (6,542) (3,388)
Currency translation and other adjustments (21,553) (21,553)
--------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1995 (75,574) 994,645 (95,673) 1,551,680
Net income 372,224 372,224
Purchase of treasury stock (269,771) (269,771)
Restricted stock activity (6,627) (3,857)
Exercise of stock options 26,425
Issuance of treasury stock 124,315 70,761
Issuance of stock warrant 26,444
Issuance of preferred stock 92,702
Issuance of stock subscription warrants 11,658 2,151
Dividends declared on common stock (65,825) (65,825)
Dividends declared on preferred stock (7,391) (5,739)
Currency translation and other adjustments 8,728 8,728
--------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1996 (215,999) 1,293,653 (86,945) 1,805,923
Net income 285,184 285,184
Purchase of treasury stock (227,932) (227,932)
Issuance of treasury stock 158,511 113,025
Exercise of stock options 24,563
Conversion of 7% Notes 16,034
Conversion of preferred stock -
Dividends declared on common stock (77,528) (77,528)
Dividends declared on preferred stock (10,505) (10,505)
Currency translation adjustments (106,694) (106,694)
--------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 $(285,420) $1,490,804 $(193,639) $1,822,070
========= ========== ========== ==========
The accompanying notes are an integral part of these statements.
Consolidated results for December 31, 1994, 1995 and 1996 have been restated retroactively
for the effects of the March 1997 merger with Tyco, accounted for as a pooling of interests.
See Note 7.
|
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Preparation
The consolidated financial statements include the accounts of Mattel, Inc.
and its subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation, and
certain amounts in the financial statements for prior years have been
reclassified to conform with the current year presentation. Investments in
joint ventures and other companies are accounted for by the equity method
or cost basis depending upon the level of the investment and/or the
Company's ability to exercise influence over operating and financial
policies. Financial data for all periods presented reflect the retroactive
effect of the merger, accounted for as a pooling of interests, with Tyco
Toys, Inc. ("Tyco") consummated in March 1997 (see Note 7).
Preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into US
dollars at fiscal year-end exchange rates. Income, expense and cash flow
items are translated at weighted average exchange rates prevailing during
the fiscal year. The resulting currency translation adjustments are
recorded as a component of shareholders' equity.
Cash
Inventories
Inventories, net of an allowance for excess quantities and obsolescence,
are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over estimated useful lives of 10 to 50 years for
buildings, 18 months to 10 years for machinery and equipment, and 10 to 20
years, not to exceed the lease term, for leasehold improvements. Tools,
dies and molds are amortized using the straight-line method over 18 months
to 3 years.
Intangibles and Long-Lived Assets
Intangible assets consist of the excess of purchase price over the fair
value of net assets acquired in purchase acquisitions, and the costs of
acquired patents and trademarks. Intangible assets are amortized using the
straight-line method over periods ranging from 18 months to 40 years.
Accumulated amortization was $186.1 million and $165.5 million as of
December 31, 1997 and 1996, respectively.
The Company periodically reviews the carrying value of its fixed and intangible assets to identify and assess any impairment by evaluating the operating performance and future undiscounted cash flows of the underlying assets.
Revenue Recognition
Net sales are recognized when products are shipped. Accruals for customer
discounts and rebates, and defective returns are recorded as the related
revenues are recognized.
Advertising Costs
Costs incurred in producing media advertising are expensed the first time
the advertising takes place. Advertising costs associated with customer
benefit programs are accrued as the related revenues are recognized.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized in the results of operations for nonqualified stock options
granted under the Company's plans as such options are granted at not less
than the quoted market price of the Company's common stock on the date of
grant.
Income Taxes
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, applying enacted
statutory tax rates in effect for the year in which the differences are
expected to reverse.
Income and Dividends Per Common Share
All share and per share data presented in these financial statements
reflect the retroactive effects of the March 1997 Tyco merger and the five-
for-four stock split distributed in March 1996.
In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share. Accordingly, all periods have been restated to present basic and diluted income per common share.
Basic income 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 less preferred and preference stock dividend requirements, as applicable.
Diluted income 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 and preference stock and convertible debt. Diluted earnings available to common shareholders represent earnings available to common shareholders plus preferred and preference stock dividend requirements and interest savings resulting from the assumed conversions of dilutive securities.
A reconciliation of earnings available to common shareholders and diluted earnings available to common shareholders and the related weighted average shares for the years ended December 31 follows (in thousands):
1997 1996 1995
---------------------------------------------------------------
Earnings Shares Earnings Shares Earnings Shares
--------------------------------------------------------------------------------------------
Income before
extraordinary item $289,794 $372,224 $337,889
Extraordinary item -
loss on early
retirement of debt (4,610)
-------- ------- --------
Net income 285,184 372,224 337,889
Less: preferred and
preference stock
dividend requirements (10,505) (7,391) (6,542)
-------- ------- --------
Earnings available to
common shareholders $274,679 290,450 $364,833 290,393 $331,347 293,312
Dilutive securities
Dilutive stock options 3,975 4,087 3,779
Stock subscription
warrants 639 927 928
7% Notes 479 589 728 783 692 744
Preferred and preference
stock dividend
requirements 7,391 6,867
-------- ------- -------- ------- -------- -------
Diluted earnings available
to common shareholders $275,158 295,653 $372,952 303,057 $332,039 298,763
======== ======= ======== ======= ======== =======
|
Preferred and preference stock, as applicable, were excluded from the calculation of diluted earnings per share in 1997 and 1995 because they were anti-dilutive. A warrant issued in 1996 to purchase 3.0 million shares of the Company's common stock was excluded from the calculation of diluted earnings per share because it was anti-dilutive in 1996 and 1997.
Foreign Currency Contracts
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 its results of operations and cash
flows. The Company does not enter into contracts for speculative purposes.
Gains and losses related to firm commitments, which qualify for hedge
accounting, are deferred and are recognized in the results of operations,
balance sheet, and statement of cash flows as part of the underlying
transaction. Contracts that do not qualify for hedge accounting are marked
to market with gains and losses recognized in the results of operations
currently. If a derivative previously designated as a hedge of a foreign
currency commitment is terminated prior to the transaction date of the
related commitment, the resultant gain or loss is recognized at the time of
maturity of the original contract as a component of other expense, net.
NOTE 2 - INCOME TAXES
Consolidated pre-tax income consists of the following (in thousands):
For the Year
----------------------------------
1997 1996 1995
---------- ---------- ----------
US operations $ 70,225 $206,668 $277,884
Foreign operations 354,857 330,088 226,784
---------- ---------- ----------
$425,082 $536,756 $504,668
========== ========== ==========
|
The provision for current and deferred income taxes consists of the
following (in thousands):
For the Year
----------------------------------
1997 1996 1995
---------- ---------- ----------
Current
Federal $ 55,056 $ 89,781 $ 84,800
State 15,745 13,200 14,900
Foreign 80,395 64,165 52,595
--------- --------- ---------
151,196 167,146 152,295
--------- --------- ---------
Deferred
Federal (14,283) 549 16,506
State 3,640 1,000 300
Foreign (7,962) (4,163) (2,322)
--------- --------- ---------
(18,605) (2,614) 14,484
--------- --------- ---------
Provision including extraordinary
item 132,591 164,532 166,779
Benefit allocated to extraordinary
item 2,697 - -
--------- --------- ---------
Total provision for income taxes $135,288 $164,532 $166,779
========= ========= =========
|
Deferred income taxes are provided principally for net operating loss carryforwards, certain reserves, depreciation, employee compensation- related expenses and certain other expenses that are recognized in different years for financial statement and income tax purposes. The Company's
deferred income tax assets (liabilities) were comprised of the following (in thousands):
As of Year End
---------------------------
1997 1996
------------ ------------
Operating loss and tax credit carryovers $102,713 $ 91,899
Sales allowances and inventory reserves 71,990 75,887
Deferred compensation 27,680 26,360
Excess of tax basis over book basis 15,545 14,082
Postretirement benefits 12,645 12,765
Restructuring and integration charges 36,446 2,338
Other 20,651 37,773
------------ ------------
Gross deferred income tax assets 287,670 261,104
------------ ------------
Excess of book basis over tax basis (13,453) (13,038)
Retirement benefits (12,752) (10,281)
Other (10,816) (13,215)
------------ ------------
Gross deferred income tax liabilities (37,021) (36,534)
Deferred income tax asset valuation
allowances (64,077) (56,603)
------------ ------------
Net deferred income tax assets $186,572 $167,967
============ ============
|
Management considered all available evidence and determined that a valuation allowance of $64.1 million was required as of December 31, 1997 for certain tax credit and net operating loss carryforwards which would likely expire prior to their utilization. However, management feels it is more likely than not that the Company will generate sufficient taxable income in the appropriate carryforward periods to realize the benefit of the remaining net deferred tax assets of $186.6 million.
Differences between the provision for income taxes at the United States federal statutory income tax rate and the provision in the consolidated statements of income were as follows (in thousands):
For the Year
----------------------------------
1997 1996 1995
---------- ---------- ----------
Provision at federal statutory rates $ 148,779 $ 187,864 $ 176,634
Increase (decrease) resulting from:
Losses without income tax benefit 1,468 835 (2,784)
Foreign earnings taxed at different
rates, including withholding taxes (42,503) (30,517) (15,732)
State and local taxes, net of
federal benefit 12,287 9,230 10,603
Non-deductible restructuring costs 20,150 - -
Dividends paid to ESOP - - (1,170)
Other (4,893) (2,880) (772)
---------- ---------- ----------
Total provision for income taxes $ 135,288 $ 164,532 $ 166,779
========== ========== ==========
|
Appropriate US and foreign income taxes have been provided for earnings of foreign subsidiary companies that are expected to be remitted in the near future. The cumulative amount of undistributed earnings of foreign subsidiaries which the Company intends to permanently invest and upon which no deferred US income taxes have been provided is $992.4 million at December 31, 1997. The additional US income tax on the unremitted foreign earnings, if repatriated, would be offset in whole or in part by foreign tax credits. Foreign withholding taxes of $45.4 million would be due upon remittance of these earnings.
As of December 31, 1997, the Company has US net operating loss and credit carryforwards for federal income tax purposes of $37.4 million and $5.1 million, respectively. These carryforwards were generated by Tyco prior to the March 1997 merger with Mattel and do not include the net operating loss carryforwards attributable to the acquisition of Universal Matchbox Ltd. and subsidiaries ("Matchbox") discussed below.
The net operating loss carryovers expire during the years 2007 to 2011. $1.4 million of the tax credits have no expiration date, and $3.7 million of the tax credits will expire during 1998 to 2003. Both carryforwards are subject to an annual limitation, but the Company expects to utilize the losses and credits before the expiration of their carryforward periods.
The Company has a US net operating loss carryforward of approximately $46.2 million which was generated by the Matchbox companies prior to their acquisition by Tyco. These loss carryforwards expire during the years 2000 to 2005 and are subject to an annual limitation, but the Company expects to utilize these losses before the expiration of the carryforward periods. Accordingly, the goodwill reported in the consolidated balance sheets attributable to Tyco's 1991 acquisition of Matchbox has been reduced to reflect the adjustment related to the tax effect of these losses.
Certain foreign subsidiaries have net operating loss carryforwards totaling $144.6 million ($108.7 million with no expiration date, $34.3 million expiring during 1998 to 2002, and $1.6 million expiring after 2002).
Generally accepted accounting principles require that tax benefits related to the exercise by employees of nonqualified stock options be credited to additional paid-in capital. In 1997, 1996 and 1995, nonqualified stock options exercised resulted in credits to additional paid-in capital totaling $17.9 million, $26.3 million and $8.5 million, respectively.
The Internal Revenue Service has completed its examination of the Company's federal income tax returns through December 31, 1991.
NOTE 3 - EMPLOYEE BENEFITS
The Company and certain of its subsidiaries have various retirement plans covering substantially all employees of these companies. Expense related to these plans totaled $19.0 million, $16.2 million and $16.1 million in 1997, 1996 and 1995, respectively.
Pension Plans
The Company provides defined benefit pension plans, which satisfy the
requirements of the Employee Retirement Income Security Act of 1974
("ERISA"), covering certain of its domestic and foreign employees. Plan
benefits are based upon covered employees' length of service and earnings.
Pension costs are actuarially determined and plans are generally funded to
meet benefit obligations existing as of the end of each year. Assets of
these plans are invested in equity securities, as well as corporate,
government and other fixed-income investments. With the exception of the
Fisher-Price Pension Plan, activity related to the Company's pension plans,
including those of foreign affiliates, was not significant during any year.
The components of net pension income for the Fisher-Price Pension Plan, based upon an October valuation date for the years ended December 31, 1997, 1996 and 1995, are detailed below (in thousands):
For the Period Ended
----------------------------------
1997 1996 1995
---------- ---------- ----------
Service cost $ 2,594 $ 2,671 $ 2,547
Interest cost 10,327 8,866 7,924
Actual gain on plan assets (16,163) (16,997) (30,650)
Net amortization and deferral (2,435) (206) 16,881
Curtailment gain (826) - -
---------- ---------- ----------
Net pension income $ (6,503) $ (5,666) $ (3,298)
========== ========== ==========
|
Reconciliation of the funded status of Fisher-Price's domestic pension plan to the related prepaid asset included in the consolidated balance sheets are as follows (in thousands):
As of Year End
-----------------------
1997 1996
---------- ----------
Vested benefits $(133,346) $(122,113)
Nonvested benefits (3,188) (3,498)
---------- ----------
Accumulated benefit obligation (136,534) (125,611)
Effect of projected future salary
increases (5,544) (5,768)
---------- ----------
Projected benefit obligation (142,078) (131,379)
Plan assets at fair value 202,887 157,507
---------- ----------
Plan assets in excess of projected
benefit obligation 60,809 26,128
Unrecognized net (gain) loss (28,271) 2,046
Unrecognized prior service cost 1,474 1,904
Unrecognized net asset at transition (3,854) (6,423)
---------- ----------
Prepaid pension asset $ 30,158 $ 23,655
========== ==========
For the Period
----------------------
1997 1996 1995
------ ------ ------
Assumptions:
Weighted average discount rate 7.75% 7.75% 7.25%
Rate of future compensation increases 4.00% 4.00% 4.00%
Long-term rate of return on plan
assets 11.00% 11.00% 10.00%
----------------------------------------------------------------
|
Other Retirement Plans
Domestic employees are eligible to participate in the Company's 401(k)
savings plans, which are defined contribution plans satisfying ERISA
requirements. Under these plans, the Company makes contributions to a
trust based upon the employee's age and matches a portion of certain
amounts of voluntary employee contributions.
The Company maintains unfunded supplemental executive retirement plans which are nonqualified defined benefit plans covering certain key executives of Mattel, Inc. and its subsidiaries. For 1997, 1996 and 1995, the accumulated and vested benefit obligations and related expense of these plans were not significant.
Deferred Compensation and Excess Benefit Plans
The Company provides a deferred compensation plan which permits certain
officers and key employees of Mattel, Inc. to elect to defer portions of
their compensation. The deferred compensation plan, together with certain
Company and employee contributions made to an excess benefit plan, earn
various rates of return. The liability for these plans as of December 31,
1997 and 1996 was $39.2 million and $29.4 million, respectively. The
Company's contribution to these plans and the related administrative
expense were not significant to the results of operations during any year.
In August 1996, the Company purchased group trust-owned life insurance contracts designed to assist in funding these programs. The cash surrender value of these policies, valued at $32.9 million and $25.1 million as of December 31, 1997 and 1996, respectively, are held in an irrevocable rabbi trust which is included in sundry assets in the consolidated balance sheets.
Postretirement Benefits
The Company maintains a contributory postretirement benefit plan for
domestic employees of Mattel. The plan provides for certain medical,
dental and life insurance benefits to retirees meeting certain age and
years of service requirements. The ongoing costs and obligations
associated with the Mattel, Inc. plan are not significant to the Company's
financial position and results of operations during any year.
Fisher-Price has an unfunded postretirement health insurance plan covering certain eligible domestic employees hired prior to January 1, 1993. Those qualifying employees participate either in the Fisher-Price group health insurance plans or a retiree medical account balance plan.
Details of the expense for the Fisher-Price plan recognized in the consolidated financial statements for the years ended December 31, 1997, 1996 and 1995 are as follows (in thousands):
For the Year
----------------------------------
1997 1996 1995
---------- ---------- ----------
Service cost $ 284 $ 344 $ 432
Interest cost 2,465 2,496 2,539
---------- ---------- ----------
Net postretirement benefit cost $2,749 $2,840 $2,971
========== ========== ==========
Amounts included in the Company's consolidated balance sheets for this
plan are as follows (in thousands):
|
As of Year End
----------------------
1997 1996
---------- ----------
Current retirees $23,846 $25,748
Fully eligible active employees 4,640 1,982
Other active employees 4,829 5,452
---------- ----------
Accumulated postretirement benefit 33,315 33,182
obligation
Unrecognized net loss (1,213) (1,596)
---------- ----------
Accrued postretirement benefit liability $32,102 $31,586
========== ==========
|
The discount rates used in determining the accumulated postretirement benefit obligation were 7.75% for 1997 and 1996 and 7.25% for 1995. For all participants, the health care cost trend rate for expected claim costs was assumed to be 5.50% in 1997 and remaining constant thereafter. A one percentage point increase in the assumed health care cost trend rate for each future year would have increased the aggregate of service and interest cost for 1997 by approximately $0.3 million and increased the accumulated postretirement benefit obligation as of December 31, 1997 by approximately $3.5 million.
Incentive Awards
The Company's Long-Term Incentive Plan is a three-year plan available to
certain key executives of Mattel, Inc. Interim awards are paid annually
based upon the financial performance of the Company over a three-year
period. Amounts charged to operating expense in 1997 and 1996 under the
current plan were $13.8 million and $3.9 million, respectively. For the
year ended December 31, 1995, $13.4 million was charged to operating
expense for final awards under the plan previously in effect.
The Company also has discretionary annual incentive compensation plans for officers and key employees based on the Company's performance and subject to certain approvals of the Compensation/Options Committee of the Board of Directors. For the years ended December 31, 1997, 1996 and 1995, $23.2 million, $12.9 million and $12.8 million, respectively, were charged to operating expense for awards under the Mattel plans and $10.0 million, in 1996, for Tyco.
Prior to the merger, Tyco had a Long-Term Incentive Plan for certain senior executives. Under this plan, Tyco awarded 160.0 thousand and 759.0 thousand Restricted Stock Units ("RSU") during 1996 and 1995, respectively. The aggregate fair market value of the RSUs was being amortized to compensation expense over the restriction period. At the time of the merger, the RSUs were converted into approximately 244 thousand shares of Mattel common stock which approximated the fair value of the RSUs on the merger consummation date and the remaining unamortized amount of $5.1 million was charged to expense.
NOTE 4 - SEASONAL FINANCING AND LONG-TERM DEBT
Seasonal Financing
Mattel maintains and periodically amends or replaces an unsecured revolving
credit agreement with a commercial bank group that is utilized to finance
the seasonal working capital requirements of its domestic and certain
international operations. The agreement in effect during 1997, which was
recently amended (see below), consists of unsecured facilities providing a
total of $1.0 billion in seasonal financing. Within the facility, up to
$600.0 million was a standard revolving credit line available for advances
and backup for commercial paper issuances (a five-year facility). Interest
was charged at various rates selected by the Company. The remaining $400.0
million (a five-year facility) was available for nonrecourse purchases of
certain trade accounts receivable of Mattel by the commercial bank group
providing the credit line. Outstanding receivables sold were reduced by
collections and could not exceed $400.0 million at any time. The agreement
required Mattel to comply with certain financial covenants for consolidated
debt-to-capital and interest coverage.
In addition, during 1997, Mattel renewed agreements providing for up to $140.0 million of nonrecourse purchases of certain domestic trade accounts receivable of the Company by a commercial bank. The Company also entered into agreements with banks of its foreign subsidiaries for nonrecourse sales of certain of its foreign subsidiary receivables.
To meet seasonal borrowing requirements of international operations in addition to amounts funded by proceeds of its revolving credit agreement, Mattel negotiates individual financing arrangements, generally with the same groups of banks that provided credit in the prior year. International credit lines total approximately $275 million, a portion of which is used to support letters of credit. The Company expects to extend these credit lines throughout 1998 and believes available amounts will be adequate to meet its seasonal financing requirements.
Prior to the March 1997 merger, Tyco had both domestic and foreign revolving credit facilities. The revolving credit facilities were secured by a lien on substantially all of Tyco's domestic assets and were also guaranteed by certain of its foreign subsidiaries. Additionally, certain foreign subsidiaries of Tyco had agreements with various banks which provided credit lines. In addition, Tyco had a domestic receivables securitization facility whereby substantially all of its domestic accounts receivable were sold to wholly-owned, bankruptcy remote subsidiaries which were consolidated in the financial statements of the Company. These subsidiaries purchased the accounts receivable with proceeds from borrowings under a commercial paper facility. Upon consummation of the merger, all borrowings under these credit lines were repaid and these facilities and agreements were terminated.
Interest rates charged on the Company's working capital credit lines are adjusted on a periodic basis; therefore, the carrying amounts of such obligations are a reasonable approximation of their fair value. Information relating to Mattel and Tyco's domestic and international credit lines is summarized as follows (in thousands):
For the Year
----------------------------
1997 1996 1995
-------- -------- --------
Balance at end of year
Domestic $ - $ - $ 39,759
International 17,468 28,924 36,684
Maximum amount outstanding
Domestic 558,000 567,000 500,000
International 67,000 113,000 124,000
Average borrowing
Domestic 178,000 215,000 284,000
International 40,000 72,000 69,000
Weighted average interest rate
on average borrowing
Domestic (computed daily) 5.7% 6.6% 7.3%
International (computed monthly) 11.9% 11.6% 12.2%
---------------------------------------------------------------------
|
Effective in March 1998, Mattel amended its revolving credit agreement. The new agreement consists of unsecured facilities providing a total of $1.0 billion in seasonal financing from substantially the same group of commercial banks. The facilities provide for up to $700.0 million in advances and backup for commercial paper issuances (a five-year facility), and up to an additional $300.0 million (a five-year facility) for nonrecourse purchases of certain trade accounts receivable by the bank group. In connection with the agreement, Mattel is to comply with certain financial covenants for consolidated debt-to-capital and interest coverage.
6-7/8% Senior Notes
The Company's $100.0 million of 6-7/8% Senior Notes issued in August 1992
were repaid upon maturity on August 1, 1997.
6-3/4% Senior Notes
In May 1993, the Company issued $100.0 million aggregate principal amount
of 6-3/4% Senior Notes maturing May 15, 2000. Interest is payable
semiannually on the fifteenth day of May and November. At December 31,
1997 and 1996, the bid prices for the 6-3/4% Senior Notes, as provided by
one of the underwriters, were $1,011.85 and $1,007.70, respectively, based
on a par value of $1,000.00.
10-1/8% Senior Subordinated Notes ("10-1/8% Notes")
Upon consummation of the merger, the Company assumed Tyco's $126.5 million
obligation related to the 10-1/8% Notes. On August 15, 1997, the Company
exercised its option and redeemed the 10-1/8% Notes at 103.797% of par
together with accrued interest. In the third quarter of 1997, the Company
recognized a pre-tax extraordinary loss of $7.3 million, and a related
income tax benefit of $2.7 million, as a result of the early retirement.
Medium-Term Notes ("MT Notes")
During the 1994 third quarter, the Company commenced a program for the
issuance of debt and equity securities under various shelf registration
statements. In October 1997, the Company filed its current universal shelf
registration statement allowing the issuance of up to $350.0 million of
debt and equity securities. As of December 31, 1997, $356.7 million of
debt and equity securities was available to be issued. The following is a
summary of MT Notes currently outstanding (in millions, except bid prices):
Bid Price (b)
----------------------------------------
Year Maturity
Issued Amount Date Rate (a) 1997 1996
----------------------------------------------------------------------------------
1994 $ 80.5 10/99-12/04 8.00%-8.55% $1,031.50-$1,117.80 $1,041.00-$1,096.60
1995 139.5 06/98-05/07 5.93%-7.65% 1,000.20- 1,062.90 998.70- 1,040.90
1997 310.0 11/04-07/12 6.70%-7.49% 1,022.58- 1,064.90 -
----------------------------------------------------------------------------------
(a) Interest is payable semiannually at fixed rates on the fifteenth day
of May and November.
(b) Based on a par value of $1,000.00.
|
7% Convertible Subordinated Notes ("7% Notes")
Upon consummation of the merger, the Company assumed Tyco's $16.0 million
obligation related to the 7% Notes. On September 10, 1997, the holder
converted all of the 7% Notes into 892.7 thousand shares of Mattel common
stock.
Mortgage Note
In 1990, the Company borrowed $45.0 million under a mortgage agreement
secured by its headquarters office facility in El Segundo, California.
Interest accrues at 10.15% and monthly principal and interest payments are
due through December 2005. The fair value of the original mortgage note,
estimated by discounting future cash flows at the interest rates currently
available for debt with the same credit rating, similar terms and maturity
date, was approximately $57 million and $53 million at December 31, 1997
and 1996, respectively.
Scheduled Maturities
The aggregate amounts of long-term debt and other obligations maturing in
the next five years are as follows (in thousands):
6-3/4%
Senior MT Mortgage
Notes Notes Note Other Total
--------- ---------- -------- --------- ---------
1998 $ - $ 9,500 $500 $3,700 $ 13,700
1999 - 30,000 600 1,300 31,900
2000 100,000 - 600 700 101,300
2001 - 30,500 700 600 31,800
2002 - 30,000 800 300 31,100
-------------------------------------------------------------
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NOTE 5 - SHAREHOLDERS' EQUITY
Preference Stock and Preference Share Purchase Rights
The Company is authorized to issue 20.0 million shares of $0.01 par value
preference stock, of which none is currently outstanding. In February
1992, 1.5 million shares of $0.01 par value preference stock were
designated as Series E Junior Participating Preference Stock in connection
with a distribution of Preference Share Purchase Rights (the "Rights") to
the Company's common shareholders. The Rights may be exercised by their
holders to purchase shares of the Company's Series E Junior Participating
Preference Stock upon the occurrence of a change of control as defined in
the agreement. The Rights will expire on February 17, 2002, unless the
plan is further extended or the Rights are earlier redeemed or exchanged by
the Company.
In connection with the IGI merger in February 1992, 864.3 thousand shares of $0.01 par value preference stock were designated as 12.5% Convertible Preference Stock, Series F, and issued to the IGI ESOP. On October 20, 1995, the Company repurchased all outstanding preference stock from the IGI ESOP for $73.9 million.
Preferred Stock
The Company is authorized to issue 3.0 million shares of $1.00 par value
preferred stock, of which 771.9 thousand shares and 826.4 thousand shares
were outstanding as of December 31, 1997 and 1996, respectively.
- Series B Voting Convertible Exchangeable Preferred Stock ("Series B
Preferred Stock")
- Series C Mandatorily Convertible Redeemable Preferred Stock ("Series C
Preferred Stock")
Shares of the Series C Preferred Stock (and the related Depositary Shares) are convertible, at the option of the holders, at any time prior to July 1, 2000 into Mattel common stock at a rate of 0.40064 common shares for each Depositary Share, subject to adjustment under certain conditions. The Company, at its option, may redeem the Series C Preferred Stock (and the related Depositary Shares) at any time on or after July 1, 1999 for a number of Mattel common shares equal to the call price (which is initially set at $5.103 per Depositary Share and declines at specified times to $5.000 per Depositary Share as of June 30, 2000) divided by the current market price of Mattel common stock (as defined in the Certificate of Designations) or 0.40064 common shares for each Depositary Share, whichever is greater. On July 1, 2000, shares of the Series C Preferred Stock (and the related Depositary Shares) are mandatorily convertible into 0.54301 Mattel common shares for each Depositary Share.
The Series C Preferred Stock entitles the holders of Depositary Shares to vote (at the rate of 0.48876 common shares for each Depositary Share) with the holders of the Company's common stock as a single class on all matters on which the holders of the Company's common stock may vote.
Common Stock
In May 1996, the shareholders of the Company approved an amendment to the
Company's Restated Certificate of Incorporation that increased the number
of shares of authorized common stock from 300.0 million to 600.0 million in
order to accommodate issuance of common stock in connection with possible
future mergers and other financing transactions, future stock dividends or
splits, future awards pursuant to the Company's stock option plans, warrant
exercises, and other general corporate purposes.
Stock Compensation Plans
In May 1996, the shareholders of the Company approved the Mattel 1996 Stock
Option Plan. Under this plan, incentive stock options, nonqualified stock
options, stock appreciation rights, nonvested stock awards, and shares of
common stock may be granted to officers, key employees, and other persons
providing services to the Company. In addition, nonqualified stock options
may be granted to members of the Company's Board of Directors who are not
employees of the Company.
Generally, options are exercisable contingent upon the grantees' continued employment with the Company. Nonqualified stock options are granted at not less than 100% of the fair market value of the Company's common stock on the date of grant, generally vest at the rate of 25% per year of service, and usually expire within ten years from the date of grant. The 1996 Stock Option Plan provides that up to 1.5% of Mattel's outstanding common stock as of the first day of each calendar year will be available for awards under the plan. The aggregate number of shares of common stock available for grants under the 1996 plan shall not exceed 50.0 million shares. This plan expires on December 31, 2005. The Company's previous plans, the 1982 and 1990 Stock Option Plans, expired on April 14, 1992 and December 31, 1996, respectively. All outstanding awards under these plans continue to be exercisable under the terms of their respective grant agreements.
Prior to the merger, Tyco had various incentive and non-qualified stock option plans that provided benefits for eligible participants. Effective with the merger, all stock options previously granted and outstanding under these plans were exchanged for approximately 363 thousand Mattel common shares (which approximated the fair value of the options as of the merger consummation date).
Both Mattel and Tyco adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation cost has been recognized in the results of operations for nonqualified stock options granted under these plans during the years ended December 31, 1997, 1996 and 1995. Had compensation cost for nonqualified stock options been determined based on their fair value at the date of grant consistent with the method of accounting prescribed by SFAS No. 123, the Company's net income and earnings per share would have been reduced by $14.3 million or $0.05 per basic and diluted share, $7.0 million or $0.02 per basic and diluted share, and $2.2 million or $0.01 per basic and diluted share in 1997, 1996 and 1995, respectively. The pro forma effect on the Company's 1997, 1996 and 1995 net income is not indicative of the pro forma effect in future years, because it does not take into consideration the pro forma expense related to grants made prior to 1995.
The fair value of Mattel options granted during 1997, 1996 and 1995 has been estimated using the Black-Scholes pricing model. The following weighted average assumptions were used in determining fair value:
1997 1996 1995
-------------------------------------------------------------
Expected life (in years) 3.40 3.17 3.17
Risk-free interest rate 5.69% 6.05% 5.28%
Volatility factor 17.40% 17.98% 19.23%
Dividend yield 0.86% 0.82% 0.75%
-------------------------------------------------------------
|
The weighted average fair value of Mattel options granted during 1997, 1996 and 1995 were $4.86, $5.12 and $3.25, respectively.
The following is a summary of stock option information and weighted average exercise prices for Mattel's stock option plans during the year (options in thousands):
1997 1996 1995
--------------- --------------- --------------
Number Price Number Price Number Price
-------------------------- ------ ------ ------ ------ ------ -----
Outstanding at January 1 13,310 $18.05 14,513 $14.27 13,148 $12.73
Options granted 7,443 25.79 4,294 25.15 4,152 16.99
Options exercised (2,807) 14.89 (5,267) 13.48 (2,314) 10.52
Options canceled (639) 22.44 (230) 16.67 (473) 13.63
------ ------ ------
Outstanding at December 31 17,307 $21.73 13,310 $18.05 14,513 $14.27
====== ====== ======
Exercisable at December 31 5,999 $16.29 5,263 $14.41 5,541 $13.41
====== ====== ======
Available for grant at
December 31 1,072 4,074 921
====== ====== ======
|
The following table summarizes information about the weighted average remaining contractual life (in years) and the weighted average exercise prices for Mattel stock options outstanding as of December 31, 1997 (options in thousands):
Options Outstanding Options Exercisable
-------------------------------- -------------------
Exercise Remaining
Price Ranges Number Life Price Number Price
---------------- ------ ----------- --------- ------ ---------
$ 2.42 to $11.58 713 4.68 $10.74 713 $10.74
14.02 to 18.00 5,734 6.41 15.84 4,522 15.66
18.10 to 25.50 3,386 8.29 24.50 478 24.46
25.75 to 41.38 7,474 9.05 26.05 286 26.45
------ ------
$ 2.42 to $41.38 17,307 7.85 $21.73 5,999 $16.29
====== ======
|
In December 1993, restricted stock awards totaling 927.7 thousand shares were granted to key Mattel executives. During 1996, 244.1 thousand shares were forfeited and returned to the Company. On January 1, 1997, restrictions on the remaining 683.6 thousand shares lapsed. Compensation expense of $2.8 million and $7.9 million was charged to income in 1996 and 1995, respectively. In addition, as a result of the forfeiture, $6.6 million of compensation expense that was recognized in previous periods was reversed in 1996.
Premium Price Option Plan
On November 6, 1997, the Compensation/Options Committee of the Board of
Directors approved a new Premium Price Stock Option Plan, subject to
shareholder approval at the May 1998 meeting. Options to purchase
approximately 18 million shares of common stock were granted in December
1997 with exercise prices 25% above and 33-1/3% above Mattel's six-month
average stock price prior to the grant date or the stock price on the date
of shareholder approval, whichever is greater. These options will be
forfeited unless the Company's stock price reaches the premium exercise
price by December 31, 1999 for options with a 25% premium price and
December 31, 2000 for options with a 33-1/3% premium price. Options
granted under the plan may not be exercised for three years and expire five
years from the date of grant. Each option included a Tandem Limited Stock
Appreciation Right which gives the holder the right to receive cash, shares
of common stock or any combination of cash and common shares upon the
occurrence of a change of control as defined in the plan.
Stock Subscription Warrants
The Company currently has outstanding warrants exercisable into 751.4
thousand shares of the Company's common stock at an exercise price of
approximately $4.77 per share. These warrants expire on June 30, 2000.
Disney Warrant
In June 1996, the Company entered into a licensing agreement with Disney
Enterprises, Inc. Pursuant to this agreement, the Company issued Disney a
warrant to purchase 3.0 million shares of the Company's common stock at an
exercise price of $27.375 per share. This warrant cannot be exercised
prior to April 2, 1999 and expires no later than April 2, 2004. The fair
value of the warrant is charged to income when the related properties are
introduced as a component of royalty expense over the period the related
revenues are recognized. The warrant's fair value of $26.4 million was
determined using the Black-Scholes pricing model, assuming an expected life
of eight years, a dividend yield of 0.88%, a risk-free interest rate of
6.17%, and a volatility factor of 27.60%.
Common Stock Repurchase Plan
Mattel's common stock repurchase plan, initiated in May 1990, provides for
the repurchase of common shares to fund the Company's stock option plans
and provide for warrant exercises. The number of shares to be repurchased
is authorized on an annual basis by the Board of Directors based upon
anticipated reissuance needs.
During 1997, 1996, and 1995, Mattel repurchased 6.5 million, 10.0 million, and 2.9 million shares, respectively. In 1995, in addition to shares acquired on the open market, the Company repurchased the equivalent of 3.3 million shares of common stock in connection with its cash payment to the IGI ESOP for all outstanding shares of Series F Preference Stock.
Dividends and Capital Transactions
On February 6, 1996, the Board of Directors declared a five-for-four stock
split on Mattel's common stock, which was distributed on March 1, 1996.
Accordingly, $55.8 million was transferred from additional paid-in capital
to common stock, representing the par value of additional shares issued.
A regular quarterly cash dividend has been declared by the Mattel Board of Directors on the Company's common stock since the second quarter of 1990. The Board of Directors increased the quarterly cash dividend from $0.06 per common share to $0.07 per common share in the second quarter of 1997. Tyco was precluded from paying cash dividends on its common stock for the two years ended December 31, 1996 due to limitations set forth in in its various debt agreements.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Leases
The Company routinely enters into noncancelable lease agreements for
premises and equipment used in the normal course of business. The
following table shows the future minimum obligations under lease
commitments in effect at December 31, 1997 (in thousands):
Capitalized Operating
Leases Leases
----------- ---------
1998 $ 600 $ 43,800
1999 500 32,000
2000 300 25,400
2001 300 18,600
2002 300 14,000
Thereafter 9,900 12,900
----------- ---------
$11,900 (a) $146,700
=========== =========
(a) Includes $9.0 million of imputed interest.
|
Rental expense under operating leases amounted to $61.5 million, $58.1 million and $58.3 million for 1997, 1996 and 1995, respectively, net of sublease income of $0.3 million, $0.5 million and $0.7 million in 1997, 1996 and 1995, respectively.
Commitments
In the normal course of business, the Company enters into contractual
arrangements to obtain and protect the Company's right to create and market
certain toys and for future purchases of goods and services to ensure
availability and timely delivery. Such arrangements include royalty
payments pursuant to licensing agreements and commitments for future
inventory purchases. Certain of these commitments routinely contain
provisions for guaranteed or minimum expenditures during the terms of the
contracts. Current and future commitments for guaranteed payments reflect
the Company's focus on expanding its product lines through alliances with
businesses in other industries, such as television and motion picture
entertainment companies.
The single largest commitment involves the Company's 1991 agreement with The Walt Disney Company ("Disney"). This licensing agreement, which contains annual minimum royalty guarantees, permits the Company to use the Disney name and certain characters on preschool and infant products through September 2002. In related agreements, the Company participates in attractions and toy stores at three Disney theme parks under agreements in effect through June 2002. Under these agreements, the Company makes semi- annual payments to Disney.
In June 1996, the Company entered into a licensing agreement with Disney Enterprises, Inc. for an expanded strategic alliance, which grants the Company exclusive worldwide rights (with certain exceptions) to produce toys based on all children-oriented Disney television and film properties introduced, commencing summer 1997. The agreement spans three years, with the Company having the right for up to two additional years to market merchandise from film properties produced during the second and third years. The initial term of the agreement may be renewed for an additional three-year period upon mutual consent. This agreement contains minimum royalty guarantees that are contingent upon the number and nature of the properties introduced by Disney. Commitments for 1998 introductions are expected to approximate $18.9 million payable over a three-year period. Future commitments could be as high as $37.8 million per introduction year. Pursuant to the agreement, the Company issued Disney a stock warrant, valued at $26.4 million, to purchase 3.0 million shares of the Company's common stock.
Licensing and related agreements provide for terms extending from 1998 through 2002 and contain provisions for future minimum payments as shown in the following table (in thousands):
Minimum
Payments
---------
1998 $ 92,000
1999 79,000
2000 72,000
2001 70,000
2002 47,000
---------
$360,000
=========
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Royalty expense for the years ended December 31, 1997, 1996 and 1995 was $194.1 million, $155.3 million and $137.4 million, respectively.
As of December 31, 1997, the Company had outstanding commitments for 1998 purchases of inventory of approximately $90 million.
Foreign Currency Contracts
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. These contracts generally have maturity dates of up to 18 months.
Gains or losses related to firm commitments, which qualify for hedge
accounting, are deferred and are recognized in the results of operations as
part of the underlying transaction. Contracts that do not qualify for
hedge accounting are marked to market with gains and losses recognized in
the results of operations currently. Had the Company not entered into
hedges to limit the effect of exchange rate fluctuations on results of
operations and cash flows, the unfavorable effect on 1997 pre-tax income
would have approximated $20 million.
As of December 31, 1997 and 1996, the Company held the following contracts to sell foreign currencies (in thousands):
1997 1996
---------------------- ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Forwards $353,085 $500,191
Options 93,547 5,500
---------- ----------
$446,632 $441,669 $505,691 $495,800
========== ========== ========== ==========
|
Fair value for forwards reflects the amount, based on dealer quotes, the Company would receive at maturity for contracts involving the same currencies and maturity dates, if they had been entered into as of year-end 1997 and 1996,
respectively. Fair value for options reflects the notional amount of US dollars the Company would receive from the current contracts, less the respective year-end option value. The option value is determined based on dealer quotes for contracts involving the same currencies and maturity dates.
As of December 31, 1997 and 1996, the Company held $362.1 million and $165.9 million notional amount, respectively, of foreign currency forward exchange contracts to purchase foreign currencies. The fair value of these contracts was $346.5 million and $166.0 million for December 31, 1997 and 1996, respectively. Fair value reflects the amount, based on dealer quotes, the Company would pay at maturity for contracts involving the same currencies and maturity dates, if they had been entered into as of year-end 1997 and 1996, respectively.
The following table summarizes the Company's foreign currency contracts by major currency as of December 31, 1996 and 1995 (in thousands of US dollars):
1997 1996
---------------------- ----------------------
Buy Sell Buy Sell
---------- ---------- ---------- ----------
US dollars $446,632 $362,083 $505,691 $161,965
German marks 19,179 73,977 44,735 103,574
Italian lira 38,277 53,161 8,324 59,265
Malaysian ringgits 53,304 - 56,475 -
Hong Kong dollars 148,084 2,527 - 13,429
French francs - 52,756 429 63,852
British pounds sterling 32,548 72,580 26,501 50,319
Canadian dollars 22,608 - 11,002 40,204
Spanish pesetas - 19,363 - 23,171
Dutch guilders 12,778 49,967 - 74,864
Japanese yen - 7,956 - 7,913
Australian dollars 6,398 - - 28,187
Belgian francs - 60,038 - 29,810
Swiss francs 13,677 - 11,955 -
Mexican peso - 50,200 - 5,500
Indonesian rupiah 15,230 - - -
Other (under $5,000) - 4,107 6,505 9,564
---------- ---------- ---------- ----------
$808,715 $808,715 $671,617 $671,617
========== ========== ========== ==========
|
In order to minimize the risk of counterparty non-performance, the Company executes its foreign currency forward exchange and option contracts with financial institutions believed to be credit-worthy, generally those that provide the Company with its working capital lines of credit.
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 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 its exposure through the selection of currencies used for international borrowings and intercompany invoicing. The Company does not trade in financial instruments for speculative purposes.
Litigation
The Company is involved in various litigation and other legal matters,
including claims related to intellectual property, product liability, labor
and environmental cleanup, which are being addressed or defended in the
ordinary course of business. Management believes that any liability which
may potentially result upon resolution of such matters will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
NOTE 7 - ACQUISITIONS AND NONRECURRING ITEMS
Business Combination
Pursuant to an Agreement and Plan of Merger dated November 17, 1996, as
amended by an Amendment to Agreement and Plan of Merger dated November 22,
1996, a merger was consummated between the Company and Tyco on March 27,
1997. The stock-for-stock transaction was approved by the shareholders of
Tyco, after which Tyco was merged with and into Mattel, with Mattel
continuing as the surviving corporation in the merger. As a result of the
merger, the separate existence of Tyco ceased. Under the merger agreement,
each outstanding share of Tyco common stock was converted into the right to
receive 0.48876 Mattel common shares and resulted in the issuance of
approximately 17 million shares. Tyco restricted stock units and stock
options outstanding as of the merger date were exchanged for approximately
0.6 million Mattel common shares. In addition, each share of Tyco Series B
and Series C Preferred Stock was converted into like Mattel preferred
stock. This transaction has been accounted for as a pooling of interests,
and accordingly, financial information for periods prior to the merger
reflect retroactive restatement of the companies' combined financial
position and operating results. For periods preceding the merger, there
were no intercompany transactions which required elimination from the
combined consolidated results of operations and there were no adjustments
necessary to conform the accounting practices of the two companies.
Selected financial information for the combining entities included in the consolidated statements of income for the quarter ended March 31, 1997 (unaudited) and the two years ended December 31, 1996 and 1995 are as follows (in thousands):
For the Period
--------------------------------------
March 31, December 31, December 31,
1997 1996 1995
--------------------------------------------------------------------
Net sales
Mattel $ 568,528 $3,785,958 $3,638,812
Tyco (a) 124,992 749,374 731,004
--------- ---------- ----------
Combined $ 693,520 $4,535,332 $4,369,816
========= ========== ==========
Net income
Mattel $ 13,123 $ 377,641 $ 357,802
Tyco (b) (7,747) (5,417) (19,913)
Integration/restructuring
charge (c) (210,000) - -
--------- ---------- ----------
Combined $(204,624) $ 372,224 $ 337,889
========= ========== ==========
(a) Certain amounts have been classified differently than previously
published amounts in order to conform the accounting presentation
of the two entities.
(b) The provision for income taxes has been adjusted by $3.4 million
and $7.3 million in 1996 and 1995, respectively, to reflect the
adjustment of valuation allowances established in the historical
financial statements of Tyco, resulting in the recognition of
benefits of losses incurred by certain foreign affiliates.
(c) The integration and restructuring charge of $275.0 million, after
related income tax effects, reduced earnings of the combined
company by $210.0 million.
|
Restructuring Charges
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 December 31, 1997,
the total integration and restructuring expenditures and write-offs were
approximately $166 million, $46 million of which related to severance
payments. The plan is expected to be substantially completed in 1998.
During 1995, Tyco adopted restructuring programs to reduce operating expenses in Europe and at the Tyco Preschool unit which resulted in a pre- tax charge against continuing operations of $8.9 million. As of December 31, 1996, the restructuring activity provided for by these charges was substantially complete and amounts previously accrued had been paid. The type and amount of charges incurred approximated the amounts included in these provisions.
NOTE 8 - FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company's business consists of the design, manufacture and marketing of toys on a worldwide basis. The Company's international operations are located principally in Europe, Canada, Latin America and Asia.
The Company's toy products are sold throughout the world. Credit is
granted to customers on an unsecured basis, and generally provides for
extended payment terms which result in a substantial portion of trade
receivables being collected during the latter half of the year. In the
United States, toys are distributed directly to large retailers, including
discount and free-standing toy stores, chain stores, department stores,
other retail outlets, and to a limited extent, wholesalers.
Internationally, the Company's products are sold directly in most of the
European and Asian countries, and mainly through distributors in certain
Latin American countries.
Customers accounting for more than 10% of the Company's consolidated net sales and related accounts receivable are as follows (dollars in millions):
1997 1996 1995
---------- ---------- ----------
Worldwide sales for the year ended
----------------------------------
Toys R Us 18% 23% 23%
Wal-Mart 15% 12% 12%
Accounts receivable as of December 31
-------------------------------------
Toys R Us $260.7 $185.0 $157.6
Wal-Mart 178.6 90.4 78.1
-------------------------------------------------------------------------
|
Information by geographic area is set forth in the tables below. Profit from operations represents income before income taxes, interest expense and general corporate expenses. Intercompany sales are based upon transfer prices which include manufacturing cost and profit.
Profit From Identifiable
(In thousands) Net Sales Operations Assets
-------------- ----------- ------------ ------------
1997
United States $ 3,342,916 $ 436,800 $1,965,487
Europe and Canada 1,159,639 183,901 669,635
Asia and Latin America 2,110,952 289,823 695,183
----------- ------------ -----------
6,613,507 910,524 3,330,305
Intercompany sales
United States (383,147) - -
Europe and Canada (88,872) - -
Asia and Latin America (1,306,872) - -
Interest expense - (90,130) -
Corporate and other (a) - (395,312) 473,486
----------- ------------ -----------
Consolidated total $ 4,834,616 $ 425,082 $3,803,791
=========== ============ ===========
1996
United States $ 3,099,604 $ 367,219 $1,838,912
Europe and Canada 1,361,188 184,387 764,899
Asia and Latin America 1,785,167 205,889 666,633
----------- ------------ -----------
6,245,959 757,495 3,270,444
Intercompany sales
United States (403,796) - -
Europe and Canada (135,232) - -
Asia and Latin America (1,171,599) - -
Interest expense - (100,226) -
Corporate and other - (120,513) 310,698
----------- ------------ -----------
Consolidated total $ 4,535,332 $ 536,756 $3,581,142
=========== ============ ===========
1995
United States $ 3,024,083 $ 350,894 $1,577,185
Europe and Canada 1,407,628 210,476 832,392
Asia and Latin America 1,553,865 142,452 570,191
----------- ------------ -----------
5,985,576 703,822 2,979,768
Intercompany sales
United States (464,343) - -
Europe and Canada (124,356) - -
Asia and Latin America (1,027,061) - -
Interest expense - (102,983) -
Corporate and other - (96,171) 361,602
----------- ------------ -----------
Consolidated total $ 4,369,816 $ 504,668 $3,341,370
=========== ============ ===========
(a) Corporate operating profit includes the Tyco integration and Mattel
restructuring charge of $275.0 million.
|
NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands, except per share First Second Third Fourth
amounts) Quarter Quarter Quarter Quarter
---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 (a)
Net sales $ 693,520 $972,656 $1,555,347 $1,613,093
Gross profit 322,811 458,837 800,277 818,075
Advertising and promotion expenses 102,626 131,713 244,231 300,569
Other selling and administrative
expenses 185,286 192,707 198,767 220,192
Restructuring and integration
charges (b) 275,000 - - -
Other expense, net 7,882 7,959 14,892 2,964
Operating profit (c) 27,017 126,458 342,387 294,350
Income (loss) before taxes and
extraordinary item (267,619) 107,944 317,755 267,002
Extraordinary item - loss on early
retirement of debt - - (4,610) -
Net income (loss) (204,624) 75,634 219,045 195,129
Preferred stock dividend
requirements (2,840) (2,837) (2,838) (1,990)
Net income (loss) applicable to
common shares (207,464) 72,797 216,207 193,139
Basic income (loss) per common
share:
Income (loss) before extraordinary
item $ (0.72) $ 0.25 $ 0.76 $ 0.66
Extraordinary item - loss on early
retirement of debt - - (0.02) -
Net income (loss) $ (0.72) $ 0.25 $ 0.74 $ 0.66
Average number of common shares 288,382 291,737 290,650 290,962
Diluted income (loss) per common
share:
Income (loss) before extraordinary
item $ (0.72) $ 0.25 $ 0.73 $ 0.64
Extraordinary item - loss on early
retirement of debt - - (0.02) -
Net income (loss) $ (0.72) $ 0.25 $ 0.71 $ 0.64
Average number of common and
common equivalent shares 288,382 296,609 306,870 306,053
Dividends declared per common
share $ 0.06 $ 0.07 $ 0.07 $ 0.07
Common stock market price:
High $ 29.25 $ 35.25 $ 35.75 $ 41.38
Low 24.00 24.00 32.38 33.38
YEAR ENDED DECEMBER 31, 1996 (a)
Net sales $ 683,999 $921,583 $1,497,916 $1,431,834
Gross profit 322,874 436,024 750,773 710,087
Advertising and promotion expenses 100,104 129,524 240,303 308,988
Other selling and administrative
expenses 169,581 183,216 204,584 214,954
Other expense, net 4,499 8,704 9,459 8,860
Operating profit (c)(d) 48,690 114,580 296,427 177,285
Income before taxes 28,797 92,590 268,176 147,193
Net income 20,534 63,370 181,375 106,945
Preferred stock dividend
requirements (827) (889) (2,838) (2,837)
Net income applicable to common
shares 19,707 62,481 178,537 104,108
Basic income per share:
Net income $ 0.07 $ 0.21 $ 0.62 $ 0.36
Average number of common shares 293,371 292,890 289,182 287,544
Diluted income per share:
Net income $ 0.07 $ 0.21 $ 0.59 $ 0.35
Average number of common and
common equivalent shares 298,858 297,916 305,707 303,594
Dividends declared per common
share $ 0.06 $ 0.06 $ 0.06 $ 0.06
Common stock market price:
High $ 28.30 $ 28.88 $ 29.13 $ 31.50
Low 23.90 24.38 22.13 24.63
---------------------------------------------------------------------------------
(a) Financial information for the first quarter of 1997 and all quarters in
1996 has been restated retroactively for the effects of the March 1997
merger with Tyco, accounted for as a pooling of interests.
(b) Represents a nonrecurring charge for transaction, integration and
restructuring costs related to the merger with Tyco.
(c) Represents income from operations before interest expense, provision for
income taxes and in 1997, restructuring and integration charges.
(d) Fourth quarter operating profit includes a $21.8 million nonrecurring
charge related to the accounting for certain royalties and participation
fees in prior periods.
|
NOTE 10 - SUPPLEMENTAL FINANCIAL INFORMATION
As of Year End
----------------------
(In thousands) 1997 1996
------------------------------------------ ---------- ----------
INVENTORIES INCLUDE THE FOLLOWING:
Raw materials and work in process $ 48,620 $ 70,121
Finished goods 380,224 374,057
---------- ----------
$428,844 $444,178
========== ==========
PREPAID EXPENSES AND OTHER CURRENT ASSETS
INCLUDE THE FOLLOWING:
Deferred income taxes $170,626 $101,075
Other 75,903 94,598
---------- ----------
$246,529 $195,673
========== ==========
INTANGIBLE ASSETS, NET, INCLUDE THE
FOLLOWING:
Goodwill $534,128 $600,851
Other 8,631 10,559
---------- ----------
$542,759 $611,410
========== ==========
ACCRUED LIABILITIES INCLUDE THE
FOLLOWING:
Advertising and promotion $144,020 $131,242
Mattel restructuring and
Tyco integration 108,581 -
Royalties 79,304 63,558
Defective returns 37,314 57,176
Other 260,226 258,715
---------- ----------
$629,445 $510,691
========== ==========
For the Year
-------------------------------
(In thousands) 1997 1996 1995
------------------------------------ --------- ---------- ----------
SELLING AND ADMINISTRATIVE EXPENSES
INCLUDE THE FOLLOWING:
Research and development $156,350 $147,174 $132,020
-------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Income taxes $105,812 $107,944 $169,923
Interest 94,320 99,019 100,544
Noncash investing and financing
activities:
Issuance of stock warrant - 26,444 -
Conversion of 7% Notes 16,034 - -
-------------------------------------------------------------------------
|
Management is responsible for the preparation of the Company's consolidated financial statements and the related financial and nonfinancial information appearing in this Annual Report. The financial statements have been prepared in accordance with generally accepted accounting principles and, in the opinion of management, present fairly the Company's financial position, results of operations and cash flows. The financial statements necessarily contain some amounts that are based on the best estimates and judgments of management.
The Company maintains accounting and internal control systems which management believes are adequate to provide reasonable assurance, in relation to reasonable cost, as to the integrity and reliability of the financial statements and as to protection of assets from unauthorized use or disposition. The selection and training of qualified personnel, the establishment and communication of accounting and administrative policies and procedures, and a program of internal audit are important elements of these control systems.
The Company's internal auditors are directed to examine the adequacy and effectiveness of the Company's system of internal accounting, administrative and operational controls. They conduct formal and systematic reviews to determine that operations are adequately controlled and to assure that assets are effectively safeguarded.
The Board of Directors has appointed an audit committee, composed entirely of nonemployee directors. The committee meets regularly with financial management, internal auditors and the independent accountants to review accounting control, auditing and financial reporting matters.
Price Waterhouse LLP, independent accountants, have been retained to audit the Company's consolidated financial statements. They conduct a review of internal accounting controls to the extent required by generally accepted auditing standards and perform such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements.
/s/ Harry J. Pearce ------------------- |
Harry J. Pearce
Chief Financial Officer
To the Board of Directors and Shareholders of Mattel, Inc.
In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of income, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Mattel, Inc. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Tyco Toys, Inc. and its subsidiaries, which statements reflect total assets of $646,339,000 at December 31, 1996 and net sales of $720,954,000 and $709,109,000 for each of the two years in the period ended December 31, 1996. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Tyco Toys, Inc. and its subsidiaries, is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP ------------------------ Price Waterhouse LLP Los Angeles, California February 2, 1998 |
Mattel, Inc. and Subsidiaries
BOARD OF DIRECTORS CORPORATE OFFICERS
Jill E. Barad (1) Jill E. Barad
Chairman and Chief Executive Officer, Chairman and Chief Executive Officer
Mattel, Inc.
John W. Amerman (1) Bruce L. Stein
Retired Chairman and Chief Executive President, Mattel Worldwide and Chief
Officer, Mattel, Inc. Operating Officer
Dr. Harold Brown (4)(5) Astrid Autolitano
Senior Managing Director, E.M. Warburg, President, Mattel International
Pincus & Co., LLC
Tully M. Friedman (1)(3)(6) Gary S. Baughman
Founding Partner, Friedman & Fleischer, President, Fisher-Price, Inc.
LLC
Joseph C. Gandolfo (5) Joseph C. Gandolfo
President, Worldwide Manufacturing President, Worldwide Manufacturing
Operations, Mattel, Inc. Operations
Ronald M. Loeb (3)(6) Ned Mansour
Of Counsel, Irell & Manella President, Corporate Operations and
General Counsel
Ned Mansour (6) Francesca Luzuriaga
President, Corporate Operations and Executive Vice President, Worldwide
General Counsel, Mattel, Inc. Business Planning and Resources
Edward N. Ney (4)(5) Harry J. Pearce
Chairman of the Board of Advisors, Chief Financial Officer
Burson-Marsteller and Chairman,
Marsteller Advertising
William D. Rollnick (1)(2)(3) Glenn Bozarth
Retired Chairman, Genstar Rental Senior Vice President, Corporate
Electronics, Inc. Communications
Christopher A. Sinclair (2) Fermin Cuza
President and Chief Executive Officer, Senior Vice President, International
Quality Food Centers Trade and Worldwide Government
Affairs
Bruce L. Stein (4) Kevin M. Farr
President, Mattel Worldwide and Chief Senior Vice President and Controller
Operating Officer, Mattel, Inc.
John L. Vogelstein (1)(2)(3)(6) Douglas Glen
Vice Chairman of the Board, President, Senior Vice President and
and Director, E.M. Warburg, Pincus Chief Strategy Officer
& Co., LLC
John T. Phippen
Senior Vice President and Chief
Information Officer
William Stavro
Senior Vice President and
Treasurer
(1) Member, Executive/Finance Committee
John L. Vogelstein, Chairman
(2) Member, Compensation/Options Committee
John L. Vogelstein, Chairman
(3) Member, Audit Committee
William D. Rollnick, Chairman
(4) Member, Pension Committee
Edward N. Ney, Chairman
(5) Member, Foundation Committee
Dr. Harold Brown, Chairman
(6) Member, Nominations/Corporate Governance Committee
Ronald M. Loeb, Chairman
|
Transfer Agent and Registrar
Mattel, Inc. Common Stock
BankBoston, N.A.
c/o Boston EquiServe, L.P.
Depositary
Mattel, Inc. Depositary Shares, each
representing one twenty-fifth of a
share of Series C Mandatorily
Convertible Redeemable Preferred
Stock
BankBoston, N.A.
c/o Boston Equiserve, L.P.
Note Trustees
Mattel, Inc. 6-3/4% Senior Notes due May 15, 2000
PNC Bank, N.A.
One Oliver Plaza, 27th Floor
Pittsburgh, Pennsylvania 15222-2602
Mattel, Inc. Medium-Term Notes
Chemical Trust Company of California
101 California Street, Suite 2725
San Francisco, California 94111
Stock Exchange Listings
Mattel, Inc. Common Stock and Mattel, Inc. Preference
Share Purchase Rights
New York Stock Exchange and Pacific Exchange, Inc.
Mattel, Inc. Depositary Shares
New York Stock Exchange
Shareholder Administration
Inquiries relating to shareholder accounting records, stock
transfer and dividends (including dividend reinvestment)
should be directed to:
BankBoston, N.A.
c/o Boston EquiServe, L.P.
150 Royall Street
Canton, Massachusetts 02021
(overnight or courier delivery only) or
P.O. Box 644
Boston, Massachusetts 02102
Telephone: 888-909-9922
Common Shareholders
As of March 1, 1998, there were approximately 46,000
holders of record of Mattel, Inc. common stock
Annual Meeting
The Annual Meeting of Shareholders will be held May 6,
1998, at 10:00 a.m. in the Manhattan Ballroom of the
Manhattan Beach Marriott, Manhattan Beach, California
Form 10-K
Mattel's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31,
1997, is available upon request by writing to the
Secretary of the Company, 333 Continental Boulevard,
El Segundo, California 90245
Trademark Legends
Barbie, Fisher-Price, Hot Wheels, See 'N Say, Magna Doodle,
View-Master, Power Wheels, Matchbox, PrintPaks and Tyco are
registered trademarks of Mattel, Inc.
Disney characters: [copyright] Disney. Pooh character
is based on the "Winnie the Pooh" works, Copyright
A.A. Milne and E.H. Shepard. GRAND PRIX and PONTIAC are
trademarks of Pontiac Division, General Motors Corporation,
and used under license to Mattel, Inc. Kyle Petty name
and/or likeness used under license from Petty Enterprises
Two, Inc. CTW characters: [copyright] 1998 Children's
Television Workshop. Sesame Street Muppets: [copyright] 1998
Jim Henson Productions, Inc. Olympic Skater is a registered
trademark of the U.S. Olympic Committee. Vera Wang is the
trademark of V.E.W., Ltd. The X-Files [trademark] and
[copyright] 1998 Twentieth Century Fox Film Corporation.
Oscar de la Renta is a trademark of Oscar de la Renta, Ltd.
WNBA and NBA are trademarks used under license.
"Daytona 500" is licensed from Daytona Properties.
[copyright] 1998 Mattel, Inc.
All Rights Reserved
Printed in U.S.A.
Printed on recycled paper.
EXHIBIT 21.0
(Page 1 of 3)
SUBSIDIARIES OF MATTEL, INC.
----------------------------
Percentage of
Voting
Securities
Jurisdiction Owned Directly
in Which or Indirectly
Subsidiaries(1) Organized By Parent(2)
---------------------------------------- ------------------ -----------------
Arco Toys, Limited Hong Kong 100%
ARCOTOYS, Inc. Delaware 100%
Far West Insurance Company, Limited Bermuda 100%
Fisher-Price, Inc. Delaware 100%
Mabamex, S.A. de C.V. Mexico 100%
Matchbox Collectibles (Europe) Ltd. U.K. 100%
Matchbox Toys (USA) Inc. New Jersey 100%
Mattel Argentina S.A. Argentina 100%
Mattel Chile S.A. Chile 100%
Mattel Colombia S.A. Colombia 100%
Mattel East Asia Limited Hong Kong 100%
Mattel Espana, S.A. Spain 100%
Mattel Factoring, Inc. Delaware 100%
Mattel (HK) Limited Hong Kong 100%
Mattel Holding, Inc. Delaware 100%
Mattel U.K. Limited U.K. 100%
Fisher-Price Toys Ltd. U.K. 100%
Matchbox Toys Ltd. U.K. 100%
Mattel Group PLC U.K. 100%
J.W. Spear & Sons PLC U.K. 100%
Mattel Holdings Limited Canada 100%
Mattel Canada Inc. Canada 100%
Mattel I., Inc. Delaware 100%
Mattel S.r.l. Italy 100%
Fisher-Price, S.r.l. Italy 100%
Mattel A.E.B.E. Greece 100%
Mattel A.G. Switzerland 100%
Mattel Manufacturing Europe, S.r.l. Italy 100%
1
All of the subsidiaries listed above are included in the Consolidated
Financial Statements. Twenty one are not named because, when considered in
the aggregate, they do not constitute a significant subsidiary. Furthermore,
approximately seventeen subsidiaries are inactive and financial statements are
not prepared for such companies.
2
Parent refers to Mattel, Inc. (a Delaware corporation) and excludes
Directors' qualifying shares.
EXHIBIT 21.0
(Page 2 of 3)
SUBSIDIARIES OF MATTEL, INC.
----------------------------
Percentage of
Voting
Securities
Jurisdiction Owned Directly
in Which or Indirectly
Subsidiaries(1) Organized By Parent(2)
---------------------------------------- ------------------ -----------------
Mattel N.V. Netherlands 100%
Antilles
Mattel Europe Holdings B.V. The Netherlands 100%
Fisher-Price Beteiligungs-G.m.b.H. Germany 100%
Mattel G.m.b.H. Germany 100%
Mattel Hungary Ipari Es Kereskedelmi Hungary 100%
KFT
Mattel Spol. S.R.O. Czech Republic 100%
Mattel Europa B.V. The Netherlands 100%
Mattel B.V. The Netherlands 100%
P.T. Mattel Indonesia Indonesia 100%
Mattel France S.A. France 100%
Corolle S.A. France 100%
Mattel Portugal Limitada Portugal 100%
Mattel Gesellschaft m.b.H. Austria 100%
Mattel Scandinavia A/S Denmark 100%
Mattel Japan Limited Japan 100%
Mattel (K.L.) Sdn.Bhd. Malaysia 100%
Mattel (Malaysia) Sdn.Bhd. Malaysia 100%
Mattel Media, Inc. Delaware 100%
Mattel de Mexico, S.A. de C.V. Mexico 100%
Mattel (NZ) Limited New Zealand 100%
Mattel Operations, Inc. Delaware 100%
Mattel Overseas, Inc. California 100%
Mattel Vendor Operations Asia Limited Hong Kong 100%
Mattel Polska Sp. Z.O.O. Poland 100%
Mattel Pty. Limited Australia 100%
Mattel Realty Corporation Delaware 100%
Mattel Servicios, S.A. de C.V. Mexico 100%
Mattel Sales Corp. California 100%
Mattel Southeast Asia Pte. Ltd. Singapore 100%
Mattel Specialty, Inc. Delaware 100%
Mattel Tools Sdn.Bhd. Malaysia 100%
Mattel Taiwan Corporation Taiwan 100%
Mattel de Venezuela, C.A. Venezuela 100%
1
All of the subsidiaries listed above are included in the Consolidated
Financial Statements. Twenty one are not named because, when considered in
the aggregate, they do not constitute a significant subsidiary. Furthermore,
approximately seventeen subsidiaries are inactive and financial statements are
not prepared for such companies.
2
Parent refers to Mattel, Inc. (a Delaware corporation) and excludes
Directors' qualifying shares.
EXHIBIT 21.0
(Page 3 of 3)
SUBSIDIARIES OF MATTEL, INC.
----------------------------
Percentage of
Voting
Securities
Jurisdiction Owned Directly
in Which or Indirectly
Subsidiaries(1) Organized By Parent(2)
---------------------------------------- ------------------ -----------------
Montoi S.A. de C.V. Mexico 100%
Precision Moulds Limited Hong Kong 100%
Tyco Hong Kong Ltd. Hong Kong 100%
Tyco Preschool Toys, Inc. Delaware 100%
Tyco Toys (Europe) N.V. Belgium 100%
Tyco Toys (Switzerland) AG Switzerland 100%
Tyco Toys (UK) Ltd. U.K. 100%
Universal International Holdings Ltd. Hong Kong 100%
1
All of the subsidiaries listed above are included in the Consolidated
Financial Statements. Twenty one are not named because, when considered in
the aggregate, they do not constitute a significant subsidiary. Furthermore,
approximately seventeen subsidiaries are inactive and financial statements are
not prepared for such companies.
2
Parent refers to Mattel, Inc. (a Delaware corporation) and excludes
Directors' qualifying shares.
|
We hereby consent to the incorporation by reference in each of the nine Registration Statements on Form S-8 (No. 33-14717, No. 33-51454, No. 33- 34920, No. 33-57082, No. 33-62185, No. 333-01061, No. 333-03385, No. 333- 47459 and No. 333-47461) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-38625) of Mattel, Inc. and its subsidiaries of our report dated February 2, 1998, which appears in this Annual Report to Shareholders which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP ------------------------ |
Los Angeles, California
March 18, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in each of the nine Registration Statements on Form S-8 (No. 33-14717, No. 33-51454, No. 33- 34920, No. 33-57082, No. 33-62185, No. 333-01061, No. 333-03385, No. 333- 47459 and No. 333-47461) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 333-38625) of Mattel, Inc. of our report dated February 4, 1997 (except for note 15, as to which the date is March 27, 1997) relating to the consolidated financial statements of Tyco Toys, Inc. and subsidiaries, not presented separately herein, appearing in Mattel, Inc.'s Annual Report on Form 10-K.
/s/ DELOITTE & TOUCHE LLP ------------------------- Philadelphia, Pennsylvania |
March 18, 1998
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
MULTIPLIER: 1,000
PERIOD TYPE
YEAR
FISCAL YEAR END
DEC 31 1997
PERIOD END
DEC 31 1997
CASH
694,947
SECURITIES
0
RECEIVABLES
1,122,153
ALLOWANCES
30,737
INVENTORY
428,844
CURRENT ASSETS
2,461,736
PP&E
938,543
DEPRECIATION
336,946
TOTAL ASSETS
3,803,791
CURRENT LIABILITIES
1,173,424
BONDS
675,536
COMMON
300,381
PREFERRED MANDATORY
0
PREFERRED
772
OTHER SE
1,520,917
TOTAL LIABILITY AND EQUITY
3,803,791
SALES
4,834,616
TOTAL REVENUES
4,834,616
CGS
2,434,616
TOTAL COSTS
2,434,616
OTHER EXPENSES
1,884,788
LOSS PROVISION
0
INTEREST EXPENSE
90,130
INCOME PRETAX
425,082
INCOME TAX
135,288
INCOME CONTINUING
289,794
DISCONTINUED
0
EXTRAORDINARY
4,610
CHANGES
0
NET INCOME
285,184
EPS PRIMARY
0.95
EPS DILUTED
0.93
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. 125, "Earnings per Share".