SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-05647
----------------------------------
MATTEL, INC.
------------
(Exact name of registrant as specified in its charter)
Deleware 95-1567322
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 252-2000
--------------
(Former name, former address and former fiscal year, None
if changed since last report) --------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares outstanding of registrant's common stock
as of October 21, 1994:
Common Stock - $1.00 par value -- 178,488,284 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1994 1993 1993
- -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash $ 86,225 $ 56,514 $ 506,113
Marketable securities 20,417 13,950 17,468
Accounts receivable, net 1,251,738 1,094,525 580,313
Inventories 360,741 276,823 219,993
Prepaid expenses and other current assets 159,235 130,612 146,863
----------- ----------- -----------
Total current assets 1,878,356 1,572,424 1,470,750
----------- ----------- -----------
Property, Plant and Equipment:
Land 20,843 10,507 15,664
Buildings 170,479 146,520 146,622
Machinery and equipment 281,675 248,606 240,449
Capitalized leases 38,209 38,209 38,209
Leasehold improvements 44,287 40,883 41,948
----------- ----------- -----------
555,493 484,725 482,892
Less: Accumulated depreciation 246,037 233,093 229,130
----------- ----------- -----------
309,456 251,632 253,762
Tools, dies and molds, net 89,434 73,952 73,115
----------- ----------- -----------
Property, plant and equipment, net 398,890 325,584 326,877
----------- ----------- -----------
Other Noncurrent Assets:
Intangible assets, net 437,411 143,377 139,277
Sundry assets 70,973 50,946 63,173
----------- ----------- -----------
$ 2,785,630 $ 2,092,331 $ 2,000,077
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
2
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1994 1993 1993
- -------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities:
Notes payable $ 477,567 $ 101,376 $ -
Current portion of long-term liabilities 2,700 9,194 104,862
Accounts payable 220,250 158,884 175,424
Accrued liabilities 444,514 340,759 397,800
Income taxes payable 163,959 103,545 105,243
----------- ----------- -----------
Total current liabilities 1,308,990 713,758 783,329
----------- ----------- -----------
Long-Term Liabilities:
Senior Notes 199,569 199,437 199,470
8% Convertible subordinated debentures - 97,706 73,953
Other long-term debt 58,970 160,911 54,689
Other 88,107 62,022 70,827
----------- ----------- -----------
Total long-term liabilities 346,646 520,076 398,939
----------- ----------- -----------
Shareholders' Equity:
Preference stock 9 9 9
Common stock $1.00 par value, 300,000
shares authorized; 178,611 shares,
171,779 shares and 172,470 shares
issued, respectively (a) 178,611 137,423 172,470
Additional paid-in capital 283,156 258,843 226,528
Treasury stock at cost; 153 shares,
4,183 shares and 2,601 shares,
respectively (a) (4,114) (73,617) (47,350)
Retained earnings (b) 709,359 584,031 532,003
ESOP note receivable - (4,730) (3,500)
Deferred compensation (12,079) (3,681) (13,003)
Currency translation adjustments (b) (24,948) (39,781) (49,348)
----------- ----------- -----------
Total shareholders' equity 1,129,994 858,497 817,809
----------- ----------- -----------
$ 2,785,630 $ 2,092,331 $ 2,000,077
=========== =========== ===========
<FN>
(a) Share data for September 1993 have been restated for the effects of the Fisher-Price
merger and a five-for-four stock split distributed in January 1994.
(b) Since December 26, 1987.
See accompanying notes to consolidated financial information.
</TABLE>
3
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands, except per share amounts) 1994 1993 1994 1993
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,037,082 $ 896,732 $2,174,616 $1,950,534
Cost of sales 508,122 442,797 1,093,047 998,816
---------- ---------- ---------- ----------
Gross profit 528,960 453,935 1,081,569 951,718
Advertising and promotion expenses 161,298 139,392 326,938 291,271
Other selling and administrative expenses 140,601 128,882 376,006 352,031
Interest expense 18,274 16,913 37,887 45,051
Other expense, net 5,967 5,378 10,567 9,757
---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of changes in accounting principles 202,820 163,370 330,171 253,608
Provision for income taxes 71,000 58,714 117,200 89,702
---------- ---------- ---------- ----------
Income before cumulative effect of changes in
accounting principles 131,820 104,656 212,971 163,906
Cumulative effect of changes in accounting
principles - - - (4,022)
---------- ---------- ---------- ----------
Net income 131,820 104,656 212,971 159,884
Preference stock dividend requirements 1,152 1,224 3,598 3,671
---------- ---------- ---------- ----------
Net income applicable to common shares $ 130,668 $ 103,432 $ 209,373 $ 156,213
========== ========== ========== ==========
Income Per Common And Common Equivalent Share -
Primary:
- -----------------------------------------------
Income before cumulative effect of changes in
accounting principles $ 0.72 $ 0.61 $ 1.17 $ 0.94
Cumulative effect of changes in accounting
principles - - - (0.02)
---------- ---------- ---------- ----------
Net income per share $ 0.72 $ 0.61 $ 1.17 $ 0.91
========== ========== ========== ==========
Average number of common and common
equivalent shares - primary 180,744 170,609 178,933 170,893
========== ========== ========== ==========
Income Per Common And Common Equivalent Share -
Fully Diluted:
- -----------------------------------------------
Income before cumulative effect of changes in
accounting principles $ 0.72 $ 0.58 $ 1.15 $ 0.91
Cumulative effect of changes in accounting
principles - - - (0.02)
---------- ---------- ---------- ----------
Net income per share $ 0.72 $ 0.58 $ 1.15 $ 0.89
========== ========== ========== ==========
Average number of common and common
equivalent shares - fully diluted 182,312 180,336 182,228 180,969
========== ========== ========== ==========
Dividends declared per common share $ 0.06 $ 0.05 $ 0.18 $ 0.14
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
4
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the
Nine Months Ended
-----------------------
Sept. 30, Sept. 30,
(In thousands) 1994 1993
- -------------- ---------- ----------
<S> <C> <C>
Cash Flows Used for Operating Activities:
- -----------------------------------------
Net income $ 212,971 $ 159,884
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 82,933 67,819
Cumulative effect of changes in accounting principles, net of tax - 4,022
Provision for lease termination, net - (40,320)
(Increase) decrease in marketable securities (2,949) 164
(Increase) in receivables (599,392) (563,332)
(Increase) in inventories (90,362) (42,176)
(Increase) decrease in prepaid and other current assets (9,866) 8,488
Increase in payables, accrued liabilities and income taxes payable 100,491 105,075
Other, net 2,621 1,275
---------- ----------
Net cash flows used for operating activities (303,553) (299,101)
---------- ----------
Cash Flows Used For Investing Activities:
- -----------------------------------------
Purchases of tools, dies and molds (51,718) (46,604)
Purchases of other property, plant and equipment (50,708) (25,591)
Sales of other property, plant and equipment 7,897 9,318
Investments in acquired businesses (367,321) -
Other, net 29 (370)
---------- ----------
Net cash flows used for investing activities (461,821) (63,247)
---------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Notes payable, net 470,855 87,447
Issuance of 6-3/4% senior notes - 100,000
Redemption of Fisher-Price debt (120,629) -
Long-term foreign borrowing (5,110) (23,967)
Collection of ESOP note receivable 3,500 3,690
Payment of ESOP notes payable (3,500) (3,690)
Tax benefit of employee stock options 25,538 3,734
Exercise of stock options 36,542 6,493
Purchase of treasury stock (26,249) (43,209)
Dividends paid on common stock (29,441) (19,868)
Dividends paid on preference stock (3,598) (3,671)
Payment for tendered Fisher-Price warrants (4,891) -
Other, net (2,057) (136)
---------- ----------
Net cash flows from financing activities 340,960 106,823
Effect of Exchange Rate Changes on Cash 4,526 (1,654)
---------- ----------
(Decrease) in Cash (419,888) (257,179)
Cash at Beginning of Period 506,113 313,693
---------- ----------
Cash at End of Period $ 86,225 $ 56,514
========== ==========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
5
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
1. The accompanying unaudited consolidated financial statements and
related disclosures have been prepared in accordance with generally
accepted accounting principles applicable to interim financial
information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's
financial position and interim results as of and for the periods
presented have been included. Certain amounts in the financial
statements for the period ending September 30, 1993 have been
reclassified to conform with the current period's presentation.
The financial information included herein should be read in
conjunction with the Company's consolidated financial statements
and related notes in its 1993 Annual Report to Shareholders.
Because the Company's business is seasonal, results for interim
periods are not necessarily indicative of those which may be
expected for a full year.
On November 30, 1993 the merger, accounted for as a pooling-of-
interests, of Fisher-Price, Inc. into a wholly-owned subsidiary of
the Company was completed. Accordingly, all financial information
as of and for the period ended September 30, 1993 includes Fisher-
Price.
2. On May 31, 1994, the Company acquired substantially all of the
business assets and assumed the associated debts and liabilities of
Kransco, a San Francisco-based designer, manufacturer and marketer
of brand name recreational and sporting products, including POWER
WHEELS battery-powered, ride-on vehicles, HULA HOOP and FRISBEE
products marketed under the WHAM-O trademark, STREET JAM sporting
goods, MOREY BOOGIE bodyboards and other watersport toys. The
purchase price included initial cash consideration of $260.0
million, subject to adjustment for changes in net assets between
December 31, 1993 and the closing date. Based on the audited
closing date balance sheet, the adjusted consideration was $252.3
million. The asset purchase agreement also provides for future
contingent consideration in the event that net sales of the POWER
WHEELS product line reaches or exceeds certain levels in each of
calendar years 1994, 1995 and 1996. The contingent consideration
payable with respect to any year shall not exceed $8.6 million.
The acquisition has been accounted for using the purchase method of
accounting and, accordingly, the results of operations of Kransco
have been included in the Company's consolidated financial
statements since the date of the acquisition. The excess of the
purchase price over the estimated fair market value of net assets
acquired was approximately $211 million, which is being amortized
on a straight-line basis over 20 years.
6
<PAGE>
The following summary presents unaudited pro forma operating
results as though the asset purchase transaction had occurred at
the beginning of 1994 and 1993, and includes adjustments for
estimated amounts of goodwill amortization, depreciation of fixed
assets at their estimated fair values, increases in interest
expense assuming the initial purchase consideration had resulted in
additional short-term borrowing during the periods presented, and
the elimination of intercompany transactions. These pro forma data
are for illustrative purposes only, and do not purport to be
indicative of the actual results which would have occurred had the
transaction been consummated as of those earlier dates, nor are
they indicative of results of operations which may occur in the
future.
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
(In thousands, except per share amounts) 1994 1993
---------------------------------------- ----------- -----------
<S> <C> <C>
Net sales $ 2,220,544 $ 2,062,820
----------- -----------
Income before cumulative effect of
accounting changes $ 209,394 $ 169,123
----------- -----------
Net income $ 209,394 $ 165,101
=========== ===========
Income Per Common Share - Primary
---------------------------------
Income before cumulative effect of
accounting changes $ 1.15 $ 0.97
----------- -----------
Net income per share $ 1.15 $ 0.95
=========== ===========
Income Per Common Share - Fully Diluted
---------------------------------------
Income before cumulative effect of
accounting changes $ 1.13 $ 0.94
----------- -----------
Net income per share $ 1.13 $ 0.92
=========== ===========
</TABLE>
3. In July 1994, the Company acquired a majority of the shares of J.W.
Spear & Sons PLC ("Spear"), a company organized in the United
Kingdom, that holds the rights to SCRABBLE in markets outside of
the United States and Canada, and certain other games worldwide.
Under the terms of the Company's offer, shareholders had the option
to receive the purchase consideration of 11.5 pounds sterling per
issued share in either cash, interest-bearing notes or in a
combination of cash and notes. As of September 30, 1994, holders
of 5,041,847 shares of Spear had elected the cash option, receiving
58.0 million pounds sterling, and holders of 319,335 shares had
elected the notes. The acquisition, valued at approximately $95
million, has been accounted for using the purchase method of
accounting and, accordingly, the results of operations of Spear
have been included in the Company's consolidated financial
statements since the date of acquisition. The excess of cost,
including investment advisor and other directly related expenses,
over the estimated fair market value of tangible net assets
acquired, was approximately $90 million, which is being amortized
on a straight-line basis over 20 years.
7
<PAGE>
4. Accounts receivable are shown net of allowances for doubtful
accounts of $22.7 million (September 30, 1994), $27.5 million
(September 30, 1993) and $21.0 million (December 31, 1993).
5. Inventories are comprised of the following:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1994 1993 1993
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 71,017 $ 63,513 $ 50,927
Finished goods 289,724 213,310 169,066
--------- --------- ---------
$ 360,741 $ 276,823 $ 219,993
========= ========= =========
</TABLE>
6. Net cash flows from operating activities include cash payments for
the following:
<TABLE>
<CAPTION>
For the Nine Months Ended
--------------------------
Sept. 30, Sept. 30,
(In thousands) 1994 1993
- -------------- ----------- -----------
<S> <C> <C>
Interest $ 32,427 $ 45,694
Income taxes 36,995 28,078
</TABLE>
7. As discussed in Note 5 to the Consolidated Financial Statements in
the Company's 1993 Annual Report to Shareholders, on February 9,
1994, a notice of redemption was issued to holders of the Company's
8% Debentures. During the first quarter of 1994, the remaining
outstanding 8% Debentures were converted by the holders resulting
in the issuance of an aggregate of 5,897,258 shares of common
stock.
8. As discussed in Note 5 to the Consolidated Financial Statements in
the Company's 1993 Annual Report to Shareholders, the warrants
assumed by the Company in connection with the Fisher-Price merger
permitted holders, upon such a change of control, to surrender
their warrants for an amount in cash at any time during the six-
month period from the merger date. During June 1994, a holder of
288,653 warrants elected the cash option and received $4.9 million.
9. In the current quarter, the Board of Directors declared cash
dividends of $0.06 per common share, compared to $0.05 per common
share in the third quarter of 1993. Additionally, cash dividends
of $1.333 per Series F preference share were declared, which
includes participating common dividends of $0.06 per share.
10. Share and per share data presented in these financial statements
reflect the retroactive effects of the Fisher-Price merger and the
five-for-four stock split distributed in January 1994.
8
<PAGE>
Income per common share is computed by dividing earnings available
to common shareholders by the average number of common and common
equivalent shares outstanding during each period. Primary weighted
average share computations assume the exercise of dilutive stock
options and warrants, reduced by the number of shares which could
be repurchased at average market prices with proceeds from
exercise. Primary earnings represent reported net income less
preference stock dividend requirements, plus interest savings from
the assumed retirement of debt upon exercise of dilutive warrants.
On a fully diluted basis, weighted average shares are determined
assuming conversion of the 8% Debentures and Series F preference
shares, and exercise of all dilutive stock options and warrants,
net of assumed treasury share purchases at the higher of end-of-
period or average market prices. Fully diluted earnings represent
reported income as adjusted for the effects, net of tax, resulting
from the assumed conversions of convertible securities and the
exercise of dilutive warrants.
11. The Company filed a shelf registration statement, which was
declared effective on September 1, 1994, for the issuance from time
to time of up to $250.0 million of debt securities. On September
19, 1994, the Company commenced a program for the issuance,
pursuant to such shelf registration, of up to $250.0 million of
Series A Medium-Term Notes. The notes are issuable in one or more
series and can be denominated in U.S. dollars or other specified
currencies. The notes will bear interest at either fixed or
variable rates, as determined at the time of issuance, and have
maturity dates of greater than nine months.
As of October 17, 1994, the Company issued an aggregate of $30.0
million principal amount of Series A Medium-Term Notes maturing on
various dates in October 1999. Interest is payable semiannually at
the rate of 8% per annum on the fifteenth day of May and November,
beginning on November 15, 1994. The net proceeds of these issuances
were used to repay short-term borrowings.
9
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
---------------------------------------------
Mattel, Inc. (the "Company") 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.
Core brands which historically have provided the Company with
relatively stable growth include BARBIE dolls, doll clothes and
accessories, FISHER-PRICE toys and juvenile products, Disney-licensed
toys, die-cast vehicles including HOT WHEELS, large dolls, preschool
toys including SEE 'N' SAY toys, and the UNO and SKIP-BO card games.
The Company's acquisitions of Kransco and Spear in May and July 1994,
respectively, have provided Mattel with additional core consumer
franchises represented by the POWER WHEELS line of battery-powered,
ride-on vehicles and the rights to the SCRABBLE game in certain markets
outside of the U.S. and Canada.
RESULTS OF OPERATIONS
---------------------
The Company's business is seasonal, and, therefore, results of
operations are comparable only with corresponding periods. Following
is a percentage analysis of operating results:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales 100% 100% 100% 100%
=========== =========== =========== ===========
Gross Profit 51% 50% 50% 49%
Advertising and promotion expenses 16 16 15 15
Other selling and administrative expenses 14 14 18 19
----------- ----------- ----------- -----------
Operating Profit 21 20 17 15
Interest expense 1 2 2 2
----------- ----------- ----------- -----------
Income before income taxes and
cumulative effect of changes in
accounting principles 20% 18% 15% 13%
=========== =========== =========== ===========
</TABLE>
Third Quarter
- -------------
Net sales in the third quarter of 1994 increased $140.4 million or 16%
over the 1993 third quarter. The current quarter's performance reflects
the continuing strong demand for toys introduced in connection with the
release of "The Lion King" motion picture, as well as sales of POLLY
POCKET toys, and NICKELODEON-licensed products. Additional volume was
added by sales of Kransco products, the most significant of which was
POWER WHEELS, and Spear products.
10
<PAGE>
Worldwide sales of core products represented 84% of the Company's third
quarter gross revenues, compared to 88% in 1993. This decrease was
primarily the result of strong sales of the Company's non-core product
lines which include its POLLY POCKET toys and NICKELODEON-licensed
products. Sales to customers within the United States represented 61%
of consolidated revenues in both the 1994 and 1993 third quarters.
Sales to customers within the United States increased 15% over the 1993
third quarter, while sales internationally increased 16%. At comparable
foreign currency exchange rates, international sales grew 11%, which
reflects a $16.4 million favorable effect of the weakening U.S. dollar
relative to the year-ago quarter.
Gross profit as a percentage of net sales increased to 51% as a result
of higher sales volumes and lower direct product costs which were
partially offset by increases in manufacturing and distribution overhead
expenses and royalty expenses related to sales of licensed products.
Advertising and promotion expenses increased $21.9 million in support of
the increased sales volume, but remained constant at 16% of net sales in
both 1994 and 1993. As a percentage of net sales, other selling and
administrative expenses also remained at 14%.
Interest expense increased 8% compared to the third quarter of 1993,
mainly due to an increase in short-term borrowing to meet seasonal
working capital needs and to finance portions of the Kransco and Spear
acquisitions. This increase was partially offset by a reduction in long-
term interest expense following prepayment of Fisher-Price's 10.69% term
loan and conversions of 8% Debentures to common stock, both of which
were completed during the first quarter of 1994.
Nine Months
- -----------
Net sales increased $224.1 million or 11% over 1993, reflecting
continued worldwide demand for the Company's core products, including
toys introduced in connection with the release of "The Lion King" motion
picture, and sales of POWER WHEELS vehicles. In addition to increased
core product sales, incremental volume was contributed by robust sales
of POLLY POCKET toys.
Worldwide core product sales accounted for 84% of total sales compared
to 86% in 1993. Sales to customers within the United States increased
11% and accounted for 61% of consolidated sales in both 1993 and 1994.
Sales to customers outside the United States increased 12%, both at
actual and comparable foreign currency exchange rates, which reflects
the $4.8 million favorable effect of the weakening U.S. dollar relative
to the year-ago period.
As a percentage of net sales, gross profit increased to 50% as compared
to 49% in 1993. Gross profit increased $129.9 million or 14% over 1993,
primarily due to increased sales volume and a favorable product mix.
Advertising and promotion expenses, as a percentage of net sales,
remained constant at 15%; however, spending increased $35.7 million in
support of the growth in sales volume. As a percentage of net sales,
other selling and administrative expenses decreased one percentage point
to 18%, reflecting efficiencies realized from the integration of Fisher-
Price.
11
<PAGE>
Interest expense decreased $7.2 million or 16% from 1993 levels as a
result of the prepayment of Fisher-Price's 10.69% term loan and
conversions of 8% Debentures to common stock, partially offset by
increases in short-term borrowing to finance working capital
requirements and portions of the Kransco and Spear acquisitions.
Results of operations for 1993 reflect a $4.0 million charge which
represented the net cumulative effect of changes in accounting
principles adopted as of January 1, 1993; a $20.0 million charge, net of
related income tax effects of $11.6 million, arising in connection with
the adoption of Statement of Financial Accounting Standards No. 106
which was partially offset by a $16.0 million credit related to the
adoption of Statement No. 109.
FINANCIAL CONDITION
-------------------
The Company's continuing financial strength reflects its consistent
focus on asset management and advantageous utilization of financial
resources. Cash as of September 30, 1994 was $29.7 million higher than
the year-ago quarter. The $416.9 million decrease in cash balances
since December 31, 1993 primarily reflects the acquisitions of Kransco
and Spear, the retirement of approximately $20 million of Kransco's
short-term borrowing which had been assumed by the Company, the
prepayment of Fisher-Price's 10.69% term loan, and reductions of year-
end accrued liabilities, including approximately $74 million of
integration and restructuring costs relating to the Fisher-Price
merger.
Accounts receivable increased $671.4 million since year end and $157.2
million over the year-ago quarter, reflecting increased sales volumes
during the current year and the addition of Kransco and Spear
receivables totaling $88.4 million. Inventory balances increased
$140.7 million since year end and $83.9 million over the 1993 quarter
end, which includes a combined $38.6 million increase for Kransco and
Spear inventories acquired and the Company's production in support of
future sales volumes, partially offset by the effect of inventory
control programs.
Other noncurrent assets increased $314.1 million over the year-ago
quarter, primarily as a result of goodwill arising in connection with
the Kransco and Spear acquisitions, and an increase of $15.0 million in
deferred tax assets, partially reduced by the amortization of
intangible assets.
Short-term bank borrowing increased $376.2 million compared to the 1993
quarter end and $477.6 million since year end, in order to fund the
Company's seasonal working capital requirements and finance a portion
of the Kransco and Spear transactions. Seasonal financing needs for
the next twelve months are expected to be satisfied through internally
generated cash, issuances of commercial paper, the Company's various
short-term bank lines of credit and, from time to time, issuance of the
Company's Series A Medium-Term Notes.
12
<PAGE>
Details of the Company's capitalization are as follows:
<TABLE>
<CAPTION>
(In millions) Sept. 30, 1994 Sept. 30, 1993 Dec. 31, 1993
- ------------- ----------------------------------------------
<S> <C> <C> <C>
6-7/8% Senior notes $ 99.5 7% $ 99.4 7% $ 99.5 8%
6-3/4% Senior notes 100.0 7 100.0 7 100.0 8
8% Convertible subordinated
debentures - - 97.7 7 74.0 6
Fisher-Price term loan - - 98.7 7 - -
Mortgage note 45.0 3 45.0 4 45.0 4
Economic development bonds 9.7 1 - - - -
Term loans 4.3 - 17.3 1 9.6 1
-----------------------------------------------
Total long-term debt 258.5 18 458.1 33 328.1 27
Other long-term liabilities 88.1 6 62.0 5 70.8 6
Shareholders' equity 1,130.0 76 858.5 62 817.8 67
----------------------------------------------
$1,476.6 100% $1,378.6 100% $1,216.7 100%
==============================================
</TABLE>
In connection with the Kransco acquisition, the Company assumed debt
secured by a manufacturing facility in Ft. Wayne, Indiana. Interest on
the debt, consisting of $10.0 million outstanding principal amount of
County of Allen Variable Rate Demand Economic Development Revenue Bonds,
is charged at rates reset monthly (3.85% in September 1994). Principal
payments are $300,000 annually, commencing in 1994 and continuing
through 2018.
Total long-term debt decreased as a percentage of total capitalization
compared to the year-ago quarter, primarily due to prepayment of the
Fisher-Price term loan and conversions of the 8% Debentures into shares
of the Company's common stock. Shareholders' equity increased $312.2
million since December 31, 1993 and $271.5 million over the 1993 third
quarter principally as a result of the Company's profitable operating
results, favorable currency translation impact, conversions of the 8%
Debentures and exercises of employee stock options, partially offset by
treasury share purchases and dividends declared to common and
preference shareholders.
13
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
2.1 Agreement and Plan of Merger, dated as of August 19, 1993,
by and among the Company, MAT Acquisition, Inc. and
Fisher-Price, Inc. (incorporated by reference to Exhibit
2.1 to the Company's Registration Statement on Form S-4,
Registration Statement No. 33-50749)
2.2 Amended and Restated Asset Purchase Agreement, dated as
of March 26, 1994 and amended and restated as of May 15,
1994, by and between Kransco and Mattel, Inc.
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated May 31, 1994)
11.0 Computation of Income Per Common and Common Equivalent
Share
27.0 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
Mattel, Inc. filed the following Current Reports on Form 8-K
during the quarterly period ended September 30, 1994:
Financial
Form Date of Report Items Reported Statements Filed
----- ---------------- -------------- ----------------
8-K July 21, 1994 5, 7 None
8-K July 22, 1994 5, 7 None
8-K July 29, 1994 5 None
8-K Sept. 19, 1994 7 None
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MATTEL, INC.
------------
Registrant
Date: As of October 26, 1994 By: /s/ Michael G. McCafferty
---------------------- -------------------------
Michael G. McCafferty
Executive Vice President
and Chief Financial Officer
15
<PAGE>
<TABLE>
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)
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
PRIMARY 1994 1993 1994 1993
- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before cumulative effect of changes in
accounting principles $ 131,820 $ 104,656 $ 212,971 $ 163,906
Add: Interest savings, net of tax, applicable
to assumed exercise of Fisher-Price warrants - 160 - 481
Less: Dividends on convertible preference stock (1,152) (1,224) (3,598) (3,671)
--------- --------- --------- ---------
Income, before cumulative effect of changes in
accounting principles, applicable to common shares 130,668 103,592 209,373 160,716
Cumulative effect of changes in accounting principles - - - (4,022)
--------- --------- --------- ---------
Net income applicable to common shares $ 130,668 $ 103,592 $ 209,373 $ 156,694
========= ========= ========= =========
Applicable Shares for Computation of Income per Share:
- ------------------------------------------------------
Weighted average common shares outstanding 178,503 167,530 176,007 167,757
Weighted average common equivalent shares arising from:
Dilutive stock options 1,524 1,835 2,142 1,793
Fisher-Price warrants 573 1,076 681 1,076
Restricted stock 144 168 103 267
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares 180,744 170,609 178,933 170,893
========= ========= ========= =========
Income Per Common Share:
- ------------------------
Income per share before cumulative effect of changes in
accounting principles $ 0.72 $ 0.61 $ 1.17 $ 0.94
Cumulative effect of changes in accounting principles - - - (0.02)
--------- --------- --------- ---------
Net income per common share $ 0.72 $ 0.61 $ 1.17 $ 0.92
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
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)
<CAPTION>
For the For the
Three Months Ended (a) Nine Months Ended (a)
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
FULLY DILUTED 1994 1993 1994 1993
- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before cumulative effect of changes in
accounting principles $ 131,820 $ 104,656 $ 212,971 $ 163,906
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 8% convertible debentures - 1,336 628 4,005
Assumed exercise of Fisher-Price warrants - 160 - 481
Less: Impact of required ESOP dividends or
contributions upon conversion (1,152) (1,224) (3,598) (3,671)
--------- --------- --------- ---------
Income, before cumulative effect of changes in
accounting principles, applicable to common shares 130,668 104,928 210,001 164,721
Cumulative effect of changes in accounting principles - - - (4,022)
--------- --------- --------- ---------
Net income applicable to common shares $ 130,668 $ 104,928 $ 210,001 $ 160,699
========= ========= ========= =========
Applicable Shares for Computation of Income per Share:
- ------------------------------------------------------
Weighted average common shares outstanding 178,503 167,530 176,007 167,757
Weighted average common equivalent shares arising from:
Assumed conversion of 8% convertible debentures - 7,793 1,385 7,793
Assumed conversion of convertible preference stock 1,564 1,620 1,601 1,620
Dilutive stock options 1,524 2,101 2,390 2,348
Fisher-Price warrants 573 1,076 697 1,076
Restricted stock 148 216 148 375
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares 182,312 180,336 182,228 180,969
========= ========= ========= =========
Income Per Common Share:
- ------------------------
Income per share before cumulative effect of changes in
accounting principles $ 0.72 $ 0.58 $ 1.15 $ 0.91
Cumulative effect of changes in accounting principles - - - (0.02)
--------- --------- --------- ---------
Net income per common share $ 0.72 $ 0.58 $ 1.15 $ 0.89
========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE PERIOD
ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 86,225
<SECURITIES> 20,417
<RECEIVABLES> 1,274,429
<ALLOWANCES> (22,691)
<INVENTORY> 360,741
<CURRENT-ASSETS> 1,878,356
<PP&E> 644,927
<DEPRECIATION> (246,037)
<TOTAL-ASSETS> 2,785,630
<CURRENT-LIABILITIES> 1,308,990
<BONDS> 258,539
<COMMON> 178,611
0
9
<OTHER-SE> 951,374
<TOTAL-LIABILITY-AND-EQUITY> 2,785,630
<SALES> 2,174,616
<TOTAL-REVENUES> 2,174,616
<CGS> 1,093,047
<TOTAL-COSTS> 1,093,047
<OTHER-EXPENSES> 713,511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,887
<INCOME-PRETAX> 330,171
<INCOME-TAX> 117,200
<INCOME-CONTINUING> 212,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212,971
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.15
</TABLE>
