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 March 31, 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)
DELAWARE 95-1567322
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 524-2000
--------------
(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 April 25, 1994:
Common Stock - $1 par value -- 177,028,149 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1994 1993 1993
- - -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash $ 183,541 $ 147,141 $ 506,113
Marketable securities 18,452 15,950 17,468
Accounts receivable, net 607,448 586,477 580,313
Inventories 244,864 262,562 219,993
Prepaid expenses and other current assets 145,223 136,911 146,863
----------- ----------- -----------
Total current assets 1,199,528 1,149,041 1,470,750
----------- ----------- -----------
Property, Plant and Equipment:
Land 15,636 10,547 15,664
Buildings 149,761 144,442 146,622
Machinery and equipment 252,206 244,643 240,449
Capitalized leases 38,290 38,209 38,209
Leasehold improvements 41,733 41,594 41,948
----------- ----------- -----------
497,626 479,435 482,892
Less: Accumulated depreciation 242,839 223,469 229,130
----------- ----------- -----------
254,787 255,966 253,762
Tools, dies and molds, net 78,798 68,711 73,115
----------- ----------- -----------
Property, plant and equipment, net 333,585 324,677 326,877
----------- ----------- -----------
Other Noncurrent Assets:
Intangible assets, net 135,401 148,773 139,277
Sundry assets 62,780 51,058 63,173
----------- ----------- -----------
$ 1,731,294 $ 1,673,549 $ 2,000,077
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
2
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
March 31, March 31, Dec.31,
(In thousands) 1994 1993 1993
- - -------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities:
Notes payable to banks $ - $ 72,426 $ -
Current portion of long-term liabilities 4,041 8,897 104,862
Accounts payable 122,008 122,065 175,424
Accrued liabilities 264,694 246,833 397,800
Income taxes payable 93,158 40,500 105,243
----------- ----------- -----------
Total current liabilities 483,901 490,721 783,329
----------- ----------- -----------
Long-Term Liabilities:
6-7/8% Senior notes due 1997 99,503 99,374 99,470
6-3/4% Senior notes due 2000 100,000 - 100,000
8% Convertible subordinated debentures - 97,598 73,953
Mortgage note 45,000 45,000 45,000
Term loans 6,805 123,910 9,689
Other 75,635 58,618 70,827
----------- ----------- -----------
Total long-term liabilities 326,943 424,500 398,939
----------- ----------- -----------
Shareholders' Equity:
Preferred and preference stock 9 9 9
Common stock $1 par value, 300,000
shares authorized; 178,367 shares,
171,732 shares and 172,470 shares
issued, respectively (a) 178,367 137,386 172,470
Additional paid-in capital 289,917 259,713 226,528
Treasury stock at cost; 1,378 shares,
3,156 shares and 2,601 shares,
respectively (a) (29,108) (50,773) (47,350)
Retained earnings (b) 544,212 455,571 532,003
ESOP note receivable (2,270) (7,190) (3,500)
Deferred compensation (13,675) (5,235) (13,003)
Currency translation adjustments (b) (47,002) (31,153) (49,348)
----------- ----------- -----------
Total shareholders' equity 920,450 758,328 817,809
----------- ----------- -----------
$ 1,731,294 $ 1,673,549 $ 2,000,077
=========== =========== ===========
<FN>
(a) Share data for March 1993 have been restated for the effects of the Fisher-Price merger
and a five-for-four stock split declared in November 1993.
(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>
Three Months Ended
----------------------
March 31, March 31,
(In thousands, except per share amounts) 1994 1993
- - ---------------------------------------- ---------- ----------
<S> <C> <C>
Net sales $ 487,271 $ 477,184
Cost of sales 249,167 250,481
---------- ----------
Gross profit 238,104 226,703
Advertising and promotion expenses 71,630 68,489
Other selling and administrative expenses 116,797 117,430
Interest expense 8,123 13,209
Other expense, net 3,285 560
---------- ----------
Income before income taxes and cumulative
effect of changes in accounting principles 38,269 27,015
Provision for income taxes 14,200 8,535
---------- ----------
Income before cumulative effect of changes in
accounting principles 24,069 18,480
Cumulative effect of changes in accounting
principles - (4,022)
---------- ----------
Net income 24,069 14,458
Preferred and preference stock dividend
requirements 1,223 1,224
---------- ----------
Net income applicable to common shares $ 22,846 $ 13,234
========== ==========
Income Per Common And Common Equivalent Share:
- - ----------------------------------------------
Income before cumulative effect of changes in
accounting principles $ 0.13 $ 0.10
Cumulative effect of changes in accounting
principles - (0.02)
---------- ----------
Net income per share $ 0.13 $ 0.08
========== ==========
Average number of common and common
equivalent shares 175,037 170,178
========== ==========
Dividends declared per common share $ 0.06 $ 0.04
========== ==========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
4
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
(In thousands) 1994 1993
- - -------------- ---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
- - -------------------------------------
Net income $ 24,069 $ 14,458
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 23,538 20,365
Cumulative effect of changes in accounting principles, net of tax - 4,022
Provision for lease termination, net - (40,320)
(Increase) in marketable securities (984) (1,836)
(Increase) in receivables (22,841) (49,413)
(Increase) in inventories (23,075) (23,394)
Decrease in prepaid and other current assets 1,727 3,222
(Decrease) in payables, accrued liabilities and income taxes payable (181,788) (95,573)
Other, net 2,651 (853)
---------- ----------
Net cash flows from operating activities (176,703) (169,322)
---------- ----------
Cash Flows From Investing Activities:
- - -------------------------------------
Purchases of tools, dies and molds (16,803) (13,980)
Purchases of other property, plant and equipment (11,308) (8,590)
Sales of other property, plant and equipment 903 3,693
Other, net 347 (121)
---------- ----------
Net cash flows from investing activities (26,861) (18,998)
---------- ----------
Cash Flows From Financing Activities:
- - -------------------------------------
Notes payable to banks, net (136) 57,753
Redemption of Fisher-Price debt (120,629) -
Long-term foreign borrowing (2,590) (18,193)
Collection of ESOP note receivable 1,230 1,230
Payment of ESOP notes payable (1,230) (1,230)
Tax benefit of employee stock options 12,283 893
Exercise of stock options 21,555 1,863
Purchase of treasury stock (21,671) (11,099)
Dividends paid on common stock (8,134) (6,267)
Dividends paid on preference stock (1,223) (1,224)
Other, net (59) (336)
---------- ----------
Net cash flows from financing activities (120,604) 23,390
Effect of Exchange Rate Changes on Cash 1,596 (1,622)
---------- ----------
(Decrease) in Cash (322,572) (166,552)
Cash at Beginning of Period 506,113 313,693
---------- ----------
Cash at End of Period $ 183,541 $ 147,141
========== ==========
<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. 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 Company completed its merger,
accounted for as a pooling of interests, with Fisher-Price,
Inc. Accordingly, all financial information as of and for
the period ended March 31, 1993 includes Fisher-Price.
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.
2. Accounts receivable are shown net of allowances for doubtful
accounts of $22.2 million (March 31, 1994), $26.4 million
(March 31, 1993) and $21.0 million (December 31, 1993).
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1994 1993 1993
- - -------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 51,914 $ 63,546 $ 50,927
Finished goods 192,950 199,016 169,066
--------- --------- ---------
$ 244,864 $ 262,562 $ 219,993
========= ========= =========
4. Net cash flows from operating activities include cash payments
for the following:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
(In thousands) 1994 1993
- - -------------- ----------- -----------
<S> <C> <C>
Interest $ 8,381 $ 18,748
Income taxes 19,480 12,788
</TABLE>
6
<PAGE>
5. 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 8% Debentures. During the first
quarter of 1994, the remaining outstanding debentures were
converted by the holders resulting in the issuance of
5,897,258 common shares.
6. In the current quarter, the Board of Directors declared cash
dividends of $0.06 per common share, compared to $0.04 per
common share in the first quarter of 1993. Additionally,
cash dividends of $1.4154 per convertible preference share
were declared, which includes participating common dividends
of $0.06 per share.
7. 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.
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. 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.
8. In March 1994, the Company entered into an agreement to
purchase substantially all of the business assets of Kransco,
a privately-held San Francisco-based toy maker. The
transaction is subject to certain conditions, including
obtaining regulatory approval. The Company anticipates it
will complete the transaction by May 31, 1994.
Kransco's principal product lines include Power Wheels
battery-powered, ride-on vehicles, Hula Hoop and Frisbee
products marketed under the Wham-O trademark, and Morey
Boogie Boards and other water sports toys. Kransco's
revenues for 1993 were approximately $175.0 million.
7
<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.
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>
Three Months Ended
------------------------
March 31, March 31,
1994 1993
----------- -----------
<S> <C> <C>
Net Sales 100% 100%
=========== ===========
Gross Profit 49% 48%
Advertising and promotion expenses 15 14
Other selling and administrative expenses 24 25
----------- -----------
Operating Profit 10 9
Interest expense 2 3
----------- -----------
Income before income taxes and
cumulative effect of changes in
accounting principles 8% 6%
=========== ===========
</TABLE>
Net sales in the first quarter of 1994 increased $10.1 million or
2% over the 1993 first quarter, reflecting continued demand for
the Company's core products. POLLY POCKET sales were
exceptionally strong; additional volume was contributed by MIGHTY
MAX and the MCDONALD'S HAPPY MEAL MAGIC line of activity toys
which were introduced late in 1993, and by new product
introductions for 1994.
8
<PAGE>
Worldwide sales of core products represented 83% of gross revenues
for the current quarter compared to 87% in the first quarter of
1993, primarily because of a decline in Disney Classics volume
from the prior year's strong sales after releases of the "Aladdin"
and "The Beauty and the Beast" movies. Sales to customers within
the United States accounted for 60% of consolidated sales compared
to 63% in the year-ago quarter. Sales to customers outside of the
United States increased 9%; however, at comparable foreign
currency exchange rates, total revenues internationally grew 14%
over 1993 sales volume.
Gross profit, as a percentage of net sales, increased one percent
over the year-ago quarter to 49%, principally as a result of sales
of higher-margin products.
Advertising and promotion expenses increased $3.1 million in
support of the increased sales volume. As a percentage of net
sales, other selling and administrative expenses decreased from
25% to 24%, reflecting the Company's ongoing expense control
measures as well as efficiencies beginning to be realized from the
merger with Fisher-Price. Other expense, net increased $2.7
million, principally as a result of increased charitable
contributions in the current quarter and foreign currency gains in
the year-ago quarter.
Interest expense decreased $5.1 million or 39% compared to the
first quarter of 1993. This significant reduction reflects the
prepayment of Fisher-Price's 10.69% term loan and conversions of
8% Debentures to common stock, partially offset by interest
expense on the 6-3/4% Senior Notes issued in May 1993.
Results of operations for the 1993 first quarter were reduced by 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 was partially offset by a
$16.0 million credit related to the adoption of Statement No. 109.
9
<PAGE>
FINANCIAL CONDITION
-------------------
The Company's strong financial condition continues to reflect
management's focus on asset management and advantageous
utilization of financial resources. Cash balances as of March 31,
1994 were $36.4 million higher than the year-ago quarter. Cash
decreased by $322.6 million since December 31, 1993 as a result of
the retirement of Fisher-Price's term loan and reductions of year-
end accrued liabilities including those for trade accounts
payable, dividends to shareholders, royalties, advertising and
incentive compensation.
Accounts receivable increased $27.1 million since year-end and
$21.0 million over the year-ago quarter reflecting the current
quarter's sales volume and seasonal collection patterns. Since
year-end, inventories increased $24.9 million in support of future
sales volume. Inventory balances decreased $17.7 million compared
to the first quarter of 1993, primarily reflecting inventory
control programs and termination of the Company's Nintendo
distribution agreement.
Sundry assets increased $11.7 million over the year-ago quarter,
primarily reflecting an increase in deferred tax assets.
Short-term bank borrowing in the first quarter of 1994 was repaid
by March 31, as working capital was provided by available cash
reserves as well as by proceeds from nonrecourse sales of certain
trade accounts receivable pursuant to the Company's receivables
purchase facility. Seasonal financing needs for the next twelve
months are expected to be satisfied through internally generated
cash, issuances of commercial paper and the Company's short-term
bank lines of credit.
The Company's capitalization is as follows:
<TABLE>
<CAPTION>
(In millions) March 31, 1994 March 31, 1993 Dec. 31, 1993
- - ------------- ----------------------------------------------
<S> <C> <C> <C>
6-7/8% Senior notes $ 99.5 8% $ 99.4 8% $ 99.5 8%
6-3/4% Senior notes 100.0 8 - - 100.0 8
8% Convertible subordinated
debentures - - 97.6 8 74.0 6
Fisher-Price term loan - - 98.6 8 - -
Other long-term debt
obligations 51.8 4 70.3 6 54.6 5
-----------------------------------------------
Total long-term debt 251.3 20 365.9 30 328.1 27
Other long-term liabilities 75.6 6 58.6 5 70.8 6
Shareholders' equity 920.5 74 758.3 65 817.8 67
----------------------------------------------
$1,247.4 100% $1,182.8 100% $1,216.7 100%
==============================================
</TABLE>
10
<PAGE>
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 the conversion of the
8% Debentures into shares of the Company's common stock.
Shareholder's equity increased $102.7 million since December 31,
1993, primarily as a result of the Company's profitable operating
results, conversions of the remaining outstanding 8% Debentures
and exercises of employee stock options, partially offset by
treasury stock purchases and dividends declared to common and
preference shareholders. The $162.2 million increase in
shareholders' equity over the 1993 first quarter reflects the
Company's profitable operating results during the subsequent
quarters, conversions of the 8% Debentures and exercises of
employee stock options, partially offset by cash dividends
declared and unfavorable movements in the currency translation
adjustment component of shareholders' equity.
11
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
--------
11.0 Computation of Income per Common and Common Equivalent Share
(b) Reports on Form 8-K
-------------------
Mattel, Inc. filed the following Current Reports on Form 8-K
during the quarterly period ended March 31, 1994:
Financial
Date of Report Items Reported Statements Filed
---------------- -------------- ----------------
February 1, 1994 5, 7 None
February 8, 1994 5, 7 None
February 9, 1994 5, 7 None
March 23, 1994 7 None
March 28, 1994 5, 7 None
12
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTEL, INC.
------------
Registrant
Date: As of May 2, 1994 By: /s/ Gary P. Rolfes
----------------- ------------------
Gary P. Rolfes
Senior Vice President &
Controller
13
<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>
THREE MONTHS ENDED
----------------------
March 31, March 31,
PRIMARY 1994 1993
- - ------- --------- ---------
<S> <C> <C>
Income before cumulative effect of changes in
accounting principles $ 24,069 $ 18,480
Less: Dividends on convertible preference stock (1,223) (1,224)
--------- ---------
Income, before cumulative effect of changes in
accounting principles, applicable to common shares 22,846 17,256
Cumulative effect of changes in accounting principles - (4,022)
--------- ---------
Net income applicable to common shares $ 22,846 $ 13,234
========= =========
Applicable Shares for Computation of Income per Share:
- - ------------------------------------------------------
Weighted average common shares outstanding 172,249 168,000
Weighted average common equivalent shares arising from:
Dilutive stock options 2,010 1,879
Fisher-Price warrants 741 -
Restricted stock 37 299
--------- ---------
Weighted average number of common and common
equivalent shares 175,037 170,178
========= =========
Income Per Common Share:
- - ------------------------
Income per share before cumulative effect of changes in
accounting principles $ 0.13 $ 0.10
Cumulative effect of changes in accounting principles - (0.02)
--------- ---------
Net income per common share $ 0.13 $ 0.08
========= =========
</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>
THREE MONTHS ENDED
----------------------
March 31, March 31,
FULLY DILUTED 1994 (a) 1993 (b)
- - ------------- --------- ---------
<S> <C> <C>
Income before cumulative effect of changes in
accounting principles $ 24,069 $ 18,480
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 8% convertible debentures 628 1,334
Assumed exercise of Fisher-Price warrants - 163
Less: Impact of required ESOP dividends or
contributions upon conversion (1,223) (1,224)
--------- ---------
Income, before cumulative effect of changes in
accounting principles, applicable to common shares 23,474 18,753
Cumulative effect of changes in accounting principles - (4,022)
--------- ---------
Net income applicable to common shares $ 23,474 $ 14,731
========= =========
Applicable Shares for Computation of Income per Share:
- - ------------------------------------------------------
Weighted average common shares outstanding 172,249 168,000
Weighted average common equivalent shares arising from:
Assumed conversion of 8% convertible debentures 4,204 7,793
Assumed conversion of convertible preference stock 1,621 1,621
Dilutive stock options 2,880 1,879
Fisher-Price warrants 757 1,076
Restricted stock 49 332
--------- ---------
Weighted average number of common and common
equivalent shares 181,760 180,701
========= =========
Income Per Common Share:
- - ------------------------
Income per share before cumulative effect of changes in
accounting principles $ 0.13 $ 0.10
Cumulative effect of changes in accounting principles - (0.02)
--------- ---------
Net income per common share $ 0.13 $ 0.08
========= =========
<FN>
(a) This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11),
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because
it results in dilution of less than 3%.
(b) 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.
</TABLE>
