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, 1995
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-05647
----------------------------------
MATTEL, INC.
------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-1567322
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 252-2000
--------------
(Former name, former address and former fiscal year, None
if changed since last report) --------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares outstanding of registrant's common stock as of May 5, 1995:
Common Stock - $1 par value -- 221,088,732 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1995 1994 1994
- -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 73,963 $ 183,541 $ 239,100
Marketable securities 15,386 18,452 20,581
Accounts receivable, net 701,190 607,448 762,024
Inventories 414,184 244,864 339,143
Prepaid expenses and other current assets 202,915 145,223 182,675
----------- ----------- -----------
Total current assets 1,407,638 1,199,528 1,543,523
----------- ----------- -----------
Property, Plant and Equipment
Land 22,630 15,636 22,577
Buildings 180,913 149,761 172,310
Machinery and equipment 303,213 252,206 289,796
Capitalized leases 24,271 38,290 38,468
Leasehold improvements 50,852 41,733 46,512
----------- ----------- -----------
581,879 497,626 569,663
Less: accumulated depreciation 251,397 242,839 248,666
----------- ----------- -----------
330,482 254,787 320,997
Tools, dies and molds, net 99,501 78,798 94,924
----------- ----------- -----------
Property, plant and equipment, net 429,983 333,585 415,921
----------- ----------- -----------
Other Noncurrent Assets
Intangible assets, net 429,180 135,401 432,232
Sundry assets 71,665 62,780 67,350
----------- ----------- -----------
$ 2,338,466 $ 1,731,294 $ 2,459,026
=========== =========== ===========
<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, except share data) 1995 1994 1994
- --------------------------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Notes payable $ 167,820 $ - $ -
Current portion of long-term liabilities 2,547 4,041 3,095
Accounts payable 150,344 122,008 295,246
Accrued liabilities 294,102 264,694 453,146
Income taxes payable 162,048 93,158 164,394
----------- ----------- -----------
Total current liabilities 776,861 483,901 915,881
----------- ----------- -----------
Long-Term Liabilities
6-7/8% Senior notes due 1997 99,640 99,503 99,604
6-3/4% Senior notes due 2000 100,000 100,000 100,000
Medium-Term notes 110,500 - 110,500
Mortgage note 44,900 45,000 45,000
Other 104,328 82,440 102,351
----------- ----------- -----------
Total long-term liabilities 459,368 326,943 457,455
----------- ----------- -----------
Shareholders' Equity
Preference stock 9 9 9
Common stock $1.00 par value, 300.0 million
shares authorized; 223.3 million shares,
223.0 million shares and 223.3 million
shares issued, respectively (a) 223,254 178,367 223,264
Additional paid-in capital 235,661 289,917 234,913
Treasury stock at cost; 2.3 million shares,
1.7 million shares and 2.4 million shares,
respectively (a) (50,579) (29,108) (53,812)
Retained earnings (b) 749,927 544,212 737,528
ESOP note receivable - (2,270) -
Deferred compensation - (13,675) -
Currency translation adjustments (b) (56,035) (47,002) (56,212)
----------- ----------- -----------
Total shareholders' equity 1,102,237 920,450 1,085,690
----------- ----------- -----------
$ 2,338,466 $ 1,731,294 $ 2,459,026
=========== =========== ===========
<FN>
(a) Share data for March 1994 have been restated for the effect of the five-for-four stock
split declared in December 1994.
(b) Since December 26, 1987.
See accompanying notes to consolidated financial information.
</TABLE>
3
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the
Three Months Ended
----------------------
March 31, March 31,
(In thousands, except per share amounts) 1995 1994
- ---------------------------------------- ---------- ----------
<S> <C> <C>
Net Sales $ 543,570 $ 487,271
Cost of sales 284,545 249,167
---------- ----------
Gross Profit 259,025 238,104
Advertising and promotion expenses 78,600 71,630
Other selling and administrative expenses 131,918 116,797
Interest expense 11,077 8,123
Other (income) expense, net (3,414) 3,285
---------- ----------
Income Before Income Taxes 40,844 38,269
Provision for income taxes 13,886 14,200
---------- ----------
Net Income 26,958 24,069
Preference stock dividend requirements 1,099 1,223
---------- ----------
Net Income Applicable to Common Shares $ 25,859 $ 22,846
========== ==========
Primary Income Per Common And Common
Equivalent Share
- ------------------------------------
Net income $ 0.12 $ 0.10
========== ==========
Average number of common and common
equivalent shares 223,883 218,796
========== ==========
Dividends Declared Per Common Share $ 0.06 $ 0.05
========== ==========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
4
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the
Three Months Ended
-----------------------
March 31, March 31,
(In thousands) 1995 1994
- -------------- ---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 26,958 $ 24,069
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 31,031 23,538
Provision for deferred compensation 3,300 1,243
Decrease (increase) in marketable securities 5,195 (984)
Decrease (increase) in accounts receivable 58,144 (22,841)
(Increase) in inventories (74,961) (23,075)
(Increase) decrease in prepaid expenses and other current assets (21,300) 1,727
(Decrease) in accounts payable, accrued liabilities and income
taxes payable (294,925) (181,788)
Other, net (2,394) 1,408
---------- ----------
Net cash flows used for operating activities (268,952) (176,703)
---------- ----------
Cash Flows From Investing Activities:
- -------------------------------------
Purchases of tools, dies and molds (21,134) (16,803)
Purchases of other property, plant and equipment (26,878) (11,308)
Sales of other property, plant and equipment 2,709 903
Contingent consideration - Kransco acquisition (8,625) -
Other, net 430 347
---------- ----------
Net cash flows used for investing activities (53,498) (26,861)
---------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Notes payable 166,092 (136)
Redemption of Fisher-Price term loan - (120,629)
Long-term foreign borrowing 348 (2,590)
Collection of ESOP note receivable - 1,230
Payment of ESOP notes payable - (1,230)
Tax benefit of employee stock options exercised 1,520 12,283
Exercise of stock options 4,104 21,555
Purchase of treasury stock (4,953) (21,671)
Dividends paid on common stock (10,791) (8,134)
Dividends paid on preference stock (1,099) (1,223)
Other, net 653 (59)
---------- ----------
Net cash flows from (used for) financing activities 155,874 (120,604)
Effect of Exchange Rate Changes on Cash 1,439 1,596
---------- ----------
(Decrease) in Cash (165,137) (322,572)
Cash at Beginning of Period 239,100 506,113
---------- ----------
Cash at End of Period $ 73,963 $ 183,541
========== ==========
<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.
The financial information included herein should be read in conjunction
with the Company's consolidated financial statements and related notes
in its 1994 Annual Report to Shareholders.
2. Accounts receivable are shown net of allowances for doubtful accounts
of $13.9 million (March 31, 1995), $22.2 million (March 31, 1994) and
$16.1 million (December 31, 1994).
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1995 1994 1994
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 80,280 $ 51,914 $ 50,334
Finished goods 333,904 192,950 288,809
--------- --------- ---------
$ 414,184 $ 244,864 $ 339,143
========= ========= =========
</TABLE>
4. Net cash flows from operating activities include cash payments for the
following:
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------------
March 31, March 31,
(In thousands) 1995 1994
- -------------- ----------- -----------
<S> <C> <C>
Interest $ 11,319 $ 8,381
Income taxes 22,745 19,480
--------------------------
</TABLE>
5. In April and May 1995, the Company issued an aggregate of $90.0 million
principal amount of fixed rate notes under its Medium-Term Note
program. The notes mature on various dates from April 2002 to May 2006
and bear interest at rates ranging from 7.17% to 7.65%. The proceeds
of these issuances will be used for general corporate purposes.
6
<PAGE>
6. 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
first quarter of 1994. Additionally, cash dividends of $1.2717 per
Series F 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 five-for-four stock split
distributed in January 1995.
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.
7
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
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 doll products; FISHER-PRICE toys and juvenile
products including the POWER WHEELS line of battery-powered, ride-on
vehicles; Disney-licensed toys; HOT WHEELS vehicles and playsets; large
dolls; preschool toys including SEE 'N SAY toys; the UNO and SKIP-BO card
games; and the SCRABBLE game, which the Company owns in markets outside of
the United States 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
Three Months Ended
------------------------
March 31, March 31,
1995 1994
----------- -----------
<S> <C> <C>
Net sales 100% 100%
=========== ===========
Gross profit 48% 49%
Advertising and promotion expenses 14 15
Other selling and administrative expenses 24 24
----------- -----------
Operating profit 10 10
Interest expense 2 2
----------- -----------
Income before income taxes 8% 8%
=========== ===========
</TABLE>
Net sales in the first quarter of 1995 increased $56.3 million or 12% over
the 1994 first quarter, reflecting increased demand for the Company's core
products such as Disney-licensed toys and FISHER-PRICE products, as well as
strong demand for non-core products such as STREET SHARK action figures and
POLLY POCKET toys. Additional volume was also generated by the
acquisitions of Kransco and Spear, which contributed approximately $29
million in the aggregate to net sales in 1995.
8
<PAGE>
Worldwide sales of core products represented 85% of gross revenues for the
current quarter compared to 83% in the first quarter of 1994. Sales of
Disney-licensed products, led by toys connected with "The Lion King" motion
picture, increased by 44% to $69.7 million. Fisher-Price contributed
$156.9 million to gross sales in 1995 compared to $137.1 million in 1994.
Sales to customers within the United States accounted for 62% of
consolidated sales compared to 60% in the year-ago quarter. In total,
domestic sales increased 13%, partially attributable to incremental volume
generated from the acquisition of Kransco, which represented 6% of the
Company's domestic sales for 1995. Total international sales increased 6%
compared to 1994, including a $15.3 million favorable effect of the
weakening of the U.S. dollar relative to the year-ago quarter.
Gross profit as a percentage of net sales decreased one percentage point to
48% over the year-ago quarter, principally as a result of higher sales of
lower-margin products.
Advertising and promotion expenses decreased slightly as a percentage of
net sales; however, spending increased $7.0 million in support of growth in
sales volume. As a percentage of net sales, other selling and
administrative expenses remained virtually constant at 24%, reflecting the
Company's ongoing effort to manage expense growth relative to revenue
growth. Other income, net, increased $6.7 million, principally as a result
of foreign currency transaction gains, and a gain associated with a Mexican
insurance claim. These increases were partially offset by an increase in
goodwill amortization arising from the Kransco and Spear acquisitions in
1994.
Interest expense increased $3.0 million compared to the first quarter of
1994 as a result of the issuance of Medium-Term Notes in the fourth quarter
of 1994 as well as an increase in short-term borrowings in the first
quarter of 1995.
FINANCIAL CONDITION
-------------------
The Company's financial condition remained strong during the first quarter
of 1995 as a result of its profitable operating results. The Company's
cash position as of March 31, 1995, including marketable securities, was
$89.3 million, compared to $202.0 million as of the first quarter 1994.
The decrease was primarily due to the acquisitions of Kransco and Spear for
cash in 1994, partially offset by the issuance of $110.5 million of Medium-
Term Notes in the 1994 fourth quarter and cash generated by increased
revenue. Cash decreased by $170.3 million since December 31, 1994
primarily as a result of reductions of year-end accounts payable and
accrued liabilities.
9
<PAGE>
Accounts receivable increased $93.7 million over the year-ago quarter
reflecting higher sales volume, as well as the addition of Kransco and Spear
receivables totaling approximately $15 million. Since year end, accounts
receivable decreased $60.8 million mainly due to the collection of prior
year receivables and the sale of certain trade receivables. Inventory
balances increased $75.0 million since year end and $169.3 million over the
1994 quarter end, primarily as a result of the Company's production in
support of future sales volume.
Other noncurrent assets increased $302.7 million over the year-ago quarter,
primarily as a result of goodwill of $212.1 million and $97.5 million
generated from the acquisitions of Kransco and Spear, respectively, net of
amortization.
Short-term bank borrowing increased $167.8 million compared to the 1994
year end and first quarter end, in order to fund the Company's seasonal
working capital requirements. Seasonal financing needs for the next twelve
months are expected to be satisfied through internally generated cash,
issuance of commercial paper, use of the Company's various short-term bank
lines of credit, and issuance of the Company's Medium-Term Notes.
The Company's capitalization is as follows:
<TABLE>
<CAPTION>
(In millions) March 31, 1995 March 31, 1994 Dec. 31, 1994
- ------------- ----------------------------------------------
<S> <C> <C> <C>
6-7/8% Senior notes $ 99.6 6% $ 99.5 8% $ 99.6 7%
6-3/4% Senior notes 100.0 6 100.0 8 100.0 7
Medium-Term notes 110.5 7 - - 110.5 7
Other long-term debt
obligations 65.2 4 51.8 4 64.9 4
----------------------------------------------
Total long-term debt 375.3 23 251.3 20 375.0 25
Other long-term liabilities 84.1 6 75.6 6 82.5 5
Shareholders' equity 1,102.2 71 920.5 74 1,085.7 70
----------------------------------------------
$ 1,561.6 100% $1,247.4 100% $1,543.2 100%
==============================================
</TABLE>
Total long-term debt increased as a percentage of total capitalization
compared to the year-ago quarter, primarily due to issuance of the Medium-
Term Notes. Shareholders' equity increased $16.5 million since December
31, 1994, and $181.7 million over the 1994 first quarter primarily as a
result of the Company's profitable operating results and exercises of
employee stock options, partially offset by treasury stock purchases and
dividends declared to common and preference shareholders.
10
<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
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 March 31, 1995:
Financial
Date of Report Items Reported Statements Filed
---------------- -------------- ----------------
January 4, 1995 5, 7 None
February 7, 1995 5, 7 None
March 21, 1995 7 None
11
<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 May 11, 1995 By: /s/ GARY P. ROLFES
------------------ -------------------------
Gary P. Rolfes
Senior Vice President and
Controller
12
<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
Three Months Ended
----------------------
March 31, March 31,
PRIMARY 1995 1994
- ------- --------- ---------
<S> <C> <C>
Net income $ 26,958 $ 24,069
Less: Dividends on convertible preference stock (1,099) (1,223)
--------- ---------
Net income applicable to common shares $ 25,859 $ 22,846
========= =========
Applicable Shares for Computation of Income per Share:
- ------------------------------------------------------
Weighted average common shares outstanding 220,961 215,311
Weighted average common equivalent shares arising from:
Dilutive stock options 1,944 2,513
Fisher-Price warrants 702 926
Restricted stock 276 46
--------- ---------
Weighted average number of common and common
equivalent shares 223,883 218,796
========= =========
Income Per Common Share:
- ------------------------
Net income per common share $ 0.12 $ 0.10
========= =========
</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
Three Months Ended
----------------------
March 31, March 31,
FULLY DILUTED 1995 (a) 1994 (b)
- ------------- --------- ---------
<S> <C> <C>
Net income $ 26,958 $ 24,069
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 8% convertible debentures - 628
Less: Impact of required ESOP dividends or
contributions upon conversion - (1,223)
--------- ---------
Net income applicable to common shares $ 26,958 $ 23,474
========= =========
Applicable Shares for Computation of Income per Share:
- ------------------------------------------------------
Weighted average common shares outstanding 220,961 215,311
Weighted average common equivalent shares arising from:
Assumed conversion of 8% convertible debentures - 5,255
Dilutive stock options 2,617 3,600
Assumed conversion of convertible preference stock 738 2,026
Fisher-Price warrants 728 947
Restricted stock 309 61
--------- ---------
Weighted average number of common and common
equivalent shares 225,353 227,200
========= =========
Income Per Common Share:
- ------------------------
Net income per common share $ 0.12 $ 0.10
========= =========
<FN>
(a) This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11),
although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces
an anti-dilutive result.
(b) 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%.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 73,963
<SECURITIES> 15,386
<RECEIVABLES> 715,104
<ALLOWANCES> 13,914
<INVENTORY> 414,184
<CURRENT-ASSETS> 1,407,638
<PP&E> 681,380
<DEPRECIATION> 251,397
<TOTAL-ASSETS> 2,338,466
<CURRENT-LIABILITIES> 776,861
<BONDS> 369,180
<COMMON> 223,254
0
9
<OTHER-SE> 862,417
<TOTAL-LIABILITY-AND-EQUITY> 2,338,466
<SALES> 543,570
<TOTAL-REVENUES> 543,570
<CGS> 284,545
<TOTAL-COSTS> 284,545
<OTHER-EXPENSES> 207,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,077
<INCOME-PRETAX> 40,844
<INCOME-TAX> 13,886
<INCOME-CONTINUING> 26,958
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,958
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
