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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended
December 31, 1995.
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from _________ to _________.
Commission File Number 001-05647
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MATTEL, INC.
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(Exact name of registrant as specified in its charter)
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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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
Common stock, $1 par value (and New York Stock Exchange
the associated Preference Pacific Stock Exchange
Share Purchase Rights)
6-7/8% Senior Notes Due 1997 New York Stock Exchange
6-3/4% Senior Notes Due 2000 (None)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
(None)
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 18, 1996 was $7,582,227,581.
Number of shares outstanding of registrant's common stock as of March 18, 1996:
Common Stock - $1 par value -- 276,976,350 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Mattel, Inc. Annual Report to Shareholders for the year
ended December 31, 1995 (Incorporated into Parts I, II and IV).
2. Portions of the Mattel, Inc. 1996 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).
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<PAGE>
PART I
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ITEM 1. BUSINESS
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Mattel is the leading worldwide designer, manufacturer and marketer of
toys. The Company's four principal core brands are BARBIE fashion dolls
and doll clothing and accessories; FISHER-PRICE toys and juvenile products,
including the POWER WHEELS line of battery-powered, ride-on vehicles; the
Company's Disney-licensed toys; and die cast HOT WHEELS vehicles and
playsets, each of which has broad worldwide appeal. Additional core
product lines consist of large dolls, including CABBAGE PATCH KIDS;
preschool toys, including SEE 'N SAY talking 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. Revenues for 1995 of $3.6 billion were a
record level for the Company.
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
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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. and Tyco Toys, 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 more
significant competitors in this area include: Gerry Baby Products Company;
Century Products Company; Graco Children's Products, Inc.; Cosco, Inc.; and
Evenflo Juvenile Furniture Company, Inc.
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.
2
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
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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 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
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The Company has achieved consistent sales and earnings growth by
focusing on a number of core product lines supplemented by various new
product introductions. The Company's four strongest core product lines are
BARBIE fashion dolls and doll clothing and accessories; FISHER-PRICE toys
and juvenile products, including the POWER WHEELS line of battery-powered,
ride-on vehicles; the Company's Disney-licensed toys; and die-cast HOT
WHEELS vehicles and playsets, each of which has broad worldwide appeal.
Additional core product lines consist of large dolls, including CABBAGE
PATCH KIDS; preschool toys, including SEE 'N SAY talking toys; the UNO and
SKIP-BO games; and the SCRABBLE game, which the Company owns in markets
outside of the United States and Canada. Core product lines are expected
to be marketed for an extended period of time and historically have
provided relatively consistent growth in sales and profitability. For the
year ended December 31, 1995, core products accounted for approximately 87%
of sales. 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 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.
3
New product introductions in 1995 included BUTTERFLY PRINCESS BARBIE
doll, STROLLIN' FUN BARBIE and KELLY dolls, Teacher BARBIE doll, BARBIE all
occasion cards that come with a fashion, CABBAGE PATCH KIDS dolls, the
addition of a series of fashion dolls based on the animated feature
"Pocahontas" to the Company's Disney line, the addition of SMUD to the
Company's Nickelodeon line, STREET SHARKS action figures and FISHER-PRICE
outdoor play equipment.
New product introductions in 1996 will include Olympic Gymnast BARBIE
doll, Songbird BARBIE doll, SHOPPIN' FUN BARBIE and KELLY dolls, JEWEL HAIR
MERMAID BARBIE doll, TWIRLING BALLERINA BARBIE doll, BARBIE DREAM HOUSE, a
Victorian-style fold-up house, the addition of a series of fashion dolls
and action figures based on the animated feature "Hunchback of Notre Dame"
to the Company's Disney line, COMPUTER CARS computer disks to the HOT
WHEELS line, CONSTRUX building sets, BARBIE FASHION DESIGNER CD-ROM,
FISHER-PRICE WONDER TOOLS and FISHER-PRICE CREATIVE EFFECTS INSTANT CAMERA
and picture packs.
INTERNATIONAL OPERATIONS
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Revenues from the Company's international operations represented
approximately 40%, 41% and 40% of total consolidated revenues in 1995, 1994
and 1993, respectively. Products which are developed and marketed
successfully in the United States typically generate incremental sales and
profitability when marketed through the Company's international
distribution network. Generally, products marketed internationally are the
same as those marketed domestically, although some are developed or adapted
for particular international markets. The Company sells its products
directly through its marketing operations in Argentina, Australia, Austria,
the Benelux countries, Canada, Chile, Colombia, France, Germany, Greece,
Italy, Japan, Mexico, New Zealand, Portugal, Scandinavia, Spain,
Switzerland, the United Kingdom, Venezuela, and in certain areas of Eastern
Europe and Asia. In addition to direct sales, the Company sells
principally through distributors in certain parts of Latin America, the
Middle East, South Africa and Southeast Asia. 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. The Company hedges a majority of its
intercompany purchases and sales of inventory in order to protect local
cash flows and profitability from currency fluctuations. 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.
4
PRODUCT DESIGN AND DEVELOPMENT
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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 for use on the Company's products. The Company also has entered
into license agreements with, among others, the following: Viacom
International Inc. relating to its Nickelodeon properties; Bluebird Toys
(UK) Ltd.; and Original Appalachian Artworks, Inc. 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, 1995, 1994 and 1993, the
Company expended approximately $111 million, $93 million and $75 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
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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-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 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, 1995, 1994 and 1993, Mattel spent
approximately $584 million (16% of net sales), $516 million (16% of net
sales) and $427 million (16% of net sales), respectively, on worldwide
advertising and promotion.
5
MARKETING AND SALES
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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
and department stores, and other retail outlets and, to a limited extent,
to wholesalers. Discount and free-standing toy stores continue to increase
their market share. During the year ended December 31, 1995, Toys R Us and
Wal-Mart accounted for approximately 23% and 12%, 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
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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
California, Indiana, Kentucky, Georgia, and New York, and in the United
Kingdom, Mexico, the Far East (China, Indonesia and Malaysia) and Italy.
In 1995, the Company opened new factories in Ontario, California and
Augusta, Georgia to manufacture FISHER-PRICE outdoor play equipment. 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.
6
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
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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 right to
create and market certain toys. Such arrangements include commitments for
future inventory purchases and royalty payments pursuant to license
agreements. Certain of these purchase agreements and licenses contain
provisions for guaranteed or minimum payments during the terms of the
contracts and licenses. 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.
7
LICENSES AND DISTRIBUTION AGREEMENTS
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The Company's level of licensing activity has expanded in recent
years. Royalty expense during the years ended December 31, 1995, 1994 and
1993 was approximately $104 million, $84 million and $69 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
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From time to time, the Company enters into foreign currency forward
exchange contracts and swap agreements as hedges for payment of inventory
purchases, collection of sales and various other intercompany transactions.
The contracts are intended to fix a portion of the Company's product cost
and intercompany cash flows, and thereby moderate the impact of foreign
currency fluctuations. The Company does not speculate in foreign
currencies.
For additional information regarding foreign currency contracts, see
Note 6 to the Consolidated Financial Statements in the Annual Report to
Shareholders, incorporated herein by reference.
SEASONAL FINANCING
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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 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 a revolving
credit agreement with a commercial bank group that is utilized to finance
the working capital requirements of its domestic and certain international
operations. The agreement in effect during 1995, which was recently
amended (see below), was renegotiated in the first quarter of 1995 to
increase the total facility to $650.0 million from $500.0 million. Within
the facility, up to $400.0 million was a standard revolving credit line
available for advances and backup for commercial paper issuances (a three-
year facility). Interest was charged at various rates selected by the
Company not greater than the base rate charged by the agent bank, plus a
commitment fee of up to .095% of the unused line available for advances.
The remaining $250.0 million (a three-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 are reduced by collections and cannot exceed the $250.0
million at any time. The agreement required the Company to comply with
certain financial covenants for consolidated debt-to-capital, interest
coverage and tangible net worth levels.
8
Effective in August 1995, the Company entered into an agreement
providing for up to $100.0 million, at each specified purchase date, of
nonrecourse purchases of certain trade accounts receivable of the Company
by a commercial bank.
Effective in March 1996, the Company amended its revolving credit
agreement. The new agreement consists of unsecured facilities providing a
total of $800.0 million in seasonal financing from substantially the same
group of commercial banks. The facilities provide for up to $400.0 million
in advances and backup for commercial paper issuances (a five-year
facility), and up to an additional $400.0 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, interest
coverage and tangible net worth levels.
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
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Packaging materials, most 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.
Prices for resin and packaging were highly volatile in 1995. Resin
and packaging prices generally rose during the first three quarters of
1995, but decreased dramatically by the close of the fourth quarter of
1995. While management believes that resin and packaging prices have
temporarily stabilized, there can be no assurance that the volatility
experienced in 1995 will not continue, 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 to 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.
9
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 operating results for
the three years ended December 31, 1995. The US Consumer Price Index
increased 2.5% in 1995, and 2.7% in both 1994 and 1993. The Company is
afforded some protection from the impact of inflation as a result of high
turnover of inventories and benefited from inflation on the repayment of
fixed-rate liabilities during these periods.
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, 1995, the Company's total number
of employees, including its international operations, was approximately
25,000.
10
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:
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
- --------------------- --- ------------------------------- ---------
<S> <C> <C> <C>
John W. Amerman 64 Chairman of the Board & 1980
Chief Executive Officer
Jill E. Barad 44 President & Chief Operating 1984
Officer and a Director of
Mattel, Inc.
James A. Eskridge 53 Group President, Mattel, Worldwide 1988
and a Director of Mattel, Inc.
Ned Mansour 47 President, Mattel - USA & Secretary 1992
Byron Davis 48 President, Fisher-Price, Inc. 1995
Joseph C. Gandolfo 53 President, Mattel Operations 1990
William J. Quinlan 51 President, ARCOTOYS 1995
Francesca Luzuriaga 41 Executive Vice President & 1994
Chief Financial Officer
E. Joseph McKay 55 Senior Vice President, Human 1993
Resources
John T. Phippen 51 Senior Vice President & 1995
Chief Information Officer
Gary P. Rolfes 44 Senior Vice President 1993
& Controller
William Stavro 56 Senior Vice President 1993
& Treasurer
</TABLE>
Mr. Amerman has been Chairman of the Board & Chief Executive Officer since
February 1987 and a member of the Board of Directors since November 1985.
Prior to that he served as President of Mattel International.
11
Ms. Barad has been President & Chief Operating Officer since August 1992
and a member of the Board of Directors since November 1991. 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.
Mr. Eskridge has been a member of the Board of Directors since February
1993 and Group President, Mattel, Worldwide since April 1995. Prior to
that he was President of Fisher-Price, Inc. and Executive Vice President &
Chief Financial Officer of Mattel, Inc.
Mr. Mansour has been President, Mattel-USA & Secretary since February 1996.
From April 1995 to February 1996, he was Executive Vice President, Chief
Administrative Officer, General Counsel & Secretary. From February 1993
until April 1995, he was Senior Vice President, General Counsel &
Secretary. From May 1992 until February 1993, he was Senior Vice President
& General Counsel and from April 1991 until May 1992, he was Vice President
& Associate General Counsel. Prior to that he was Vice President &
Assistant General Counsel.
Mr. Davis has been President, Fisher-Price, Inc. since April 1995. From
March 1993 to April 1995, he served as President - Toys, Fisher-Price.
Prior to that, he served as Senior Vice President - Sales of Fisher-Price
from June 1991 to March 1993.
Mr. Gandolfo has been President, Mattel Operations, since April 1990.
Mr. Quinlan has been President, ARCOTOYS since January 1992. From October
1985 to January 1992, he served as Chief Financial Officer, ARCOTOYS.
Ms. Luzuriaga has been Executive Vice President & Chief Financial Officer
since December 1995. From March 1989 until December 1995, she served in
several senior managerial positions at Mattel, including Controller,
Treasurer and Executive Vice President, Finance.
Mr. McKay has been Senior Vice President, Human Resources since November
1993. From December 1991 until November 1993, he was Vice President, Human
Resources. He was Senior Director Human Resources from March 1991 to
December 1991. Prior to that he was Vice President Human Resources-
Administration of Mileage Plus, Inc.
Mr. Phippen has been Senior Vice President & Chief Information Officer
since June 1993. From February 1991 to June 1993, he served as Senior Vice
President - Information Systems.
Mr. Rolfes has been Senior Vice President & Controller since November 1993.
From June 1993 to November 1993, he was Vice President & Controller. Prior
to that he held various executive positions within the finance department.
Mr. Stavro has been Senior Vice President & 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.
12
ITEM 2. PROPERTIES
- ------- ----------
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. Mattel also leases buildings in El Segundo consisting
of approximately 300,000 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.
The Company maintains sales offices in California, Illinois, New York
and Texas, and warehouse and distribution facilities in California,
Georgia, Indiana, Kentucky, Tennessee and Texas. The Company owns a
computer facility in Phoenix, Arizona. Internationally, the Company has
offices and/or warehouse space in Argentina, Australia, Belgium, Canada,
Colombia, Chile, Denmark, France, Germany, Greece, Hong Kong and in certain
other areas of Asia, Italy, Japan, Mexico, The Netherlands, New Zealand,
Spain, Switzerland, the United Kingdom and Venezuela. The Company's
principal manufacturing facilities are located in China, Indonesia, Italy,
Malaysia, Mexico, the United Kingdom and the United States. See
"Manufacturing."
Most of the Company's facilities are occupied under long-term 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.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
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 $794,000 of which has been
incurred through December 31, 1995.
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
13
<PAGE>
PART II
-------
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, 1996, the Company had approximately 37,000 holders of
record of its common stock.
In January of 1994, the Company paid dividends of $0.031 per share,
and in April, July and October 1994 and January 1995, the Company paid
dividends of $0.038 per share. The Company paid per share dividends of
$0.048 in April, July and October 1995. The dividends have been adjusted
to reflect five-for-four stock splits which the Company declared on its
common stock to holders of record on December 17, 1993, January 6, 1995 and
February 16, 1996.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The information under the caption "Five-Year Financial Summary" on
page 27 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 28
through 31 in the Annual Report to Shareholders is 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 6, 1996, included on pages 32 through 51 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
14
<PAGE>
PART III
--------
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 1996
Notice of Annual Meeting of Stockholders and Proxy Statement. 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 1996 Notice of Annual Meeting of Stockholders and
Proxy Statement.
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 1996 Notice of Annual Meeting of Stockholders and
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required under this Item is incorporated by reference
herein from the Company's 1996 Notice of Annual Meeting of Stockholders and
Proxy Statement.
15
<PAGE>
PART IV
-------
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 32-33
December 31, 1995 and 1994
Consolidated Statements of Income for 34
the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for 35
the years ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders' 36
Equity for the years ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements 37-50
Report of Price Waterhouse LLP, Independent 51
Accountants to the Company
1
Incorporated by reference from the indicated pages of the Annual
Report to Shareholders for the year ended December 31, 1995. With the
exception of the information incorporated by reference in Items 1, 5, 6, 7,
8 and 14 of this report, the Annual Report to Shareholders is not deemed
filed as part of this report.
16
(2) Financial Statement Schedule for the years ended December 31, 1995,
1994 and 1993 (1)
Schedule II - Valuation and Qualifying Accounts and Allowances
(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 By-laws of the Company, as amended to date (incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992)
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)
(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 Credit Agreement dated as of March 10, 1995 among the Company,
the Banks named therein and Bank of America National Trust and
Savings Association, as Agent (incorporated by reference to
Exhibit 99.5 to the Company's Current Report on Form 8-K dated
March 21, 1995)
10.1* First Amendment to Credit Agreement dated as of March 11, 1996
among the Company, the Banks named therein and Bank of America
National Trust and Savings Association, as Agent
10.2 Second Amended and Restated Transfer and Administration
Agreement dated as of March 10, 1995 among the Company, Mattel
Sales Corp., Fisher-Price, Inc., the Banks named therein and
NationsBank of Texas, N.A., as Agent (incorporated by reference
to Exhibit 99.6 to the Company's Current Report on Form 8-K
dated March 21, 1995)
10.3 First Amendment to Second Amended and Restated Transfer and
Administration Agreement dated as of March 10, 1995 among the
Company, Mattel Sales Corp., Fisher-Price, Inc., the Banks
named therein and NationsBank of Texas, N.A., as Agent
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995)
- -------------------
1
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
17
10.4* Second Amendment to Second Amended and Restated Transfer and
Administration Agreement dated as of March 11, 1996 among the
Company, Mattel Sales Corp., Fisher-Price, Inc., the Banks
named therein and NationsBank of Texas, N.A., as Agent.
10.5 Receivables Purchase Agreement dated as of August 29, 1995
among the Company, Mattel Sales Corp., Fisher-Price, Inc., and
Bank of America N.T.S.A. (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995)
10.6 Stock Purchase Agreement dated as of October 20, 1995 by and
between Mattel, Inc. and Marine Midland Bank, as sub-trustee of
the International Games, Inc. Employee Stock Ownership Trust
(incorporated by reference to Exhibit 10.3 to the Company's
quarterly Report on Form 10-Q for the quarter ended September
30, 1995)
10.7 Underwriting Agreement dated May 19, 1993 between the Company,
Morgan Stanley & Co. Incorporated and Kidder, Peabody & Co.
Incorporated (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
10.8 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)
10.9 Underwriting Agreement dated July 31, 1992 between the Company,
Morgan Stanley & Co. Incorporated and Kidder, Peabody & Co.
Incorporated (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992)
10.10 Distribution Agreement dated September 19, 1994 among the
Company, Morgan Stanley & Co. Incorporated and CS First Boston
Corporation (incorporated by reference to Exhibit 99.0 to the
Company's Current Report on Form 8-K dated September 20, 1994)
Executive Compensation Plans and Arrangements of the Company
- ------------------------------------------------------------
10.11 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)
10.12 Form of Employment Agreement between the Company and certain
executive officers (incorporated by reference to Exhibit 10.6
of Amendment No. 1 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 26, 1987)
18
10.13 Form of Employment Agreement between the Company and certain
executive officers (incorporated by reference to Exhibit 10.8
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992)
10.14 Form of Amended & Restated Employment Agreement between the
Company and certain executive officers (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993)
10.15* Mattel, Inc. Management Incentive Plan
10.16* Mattel, Inc. Long-Term Incentive Plan
10.17 Mattel, Inc. Financial Security Program Agreement for certain
officers (incorporated by reference to Exhibit 10.7 of the
Company's Registration Statement No. 2-95161 on Form S-1, filed
January 7, 1985)
10.18 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)
10.19 Mattel, Inc. 1990 Stock Option Plan (incorporated by reference
to Exhibit A to the Notice of Annual Meeting of Stockholders
and Proxy Statement of the Company dated March 15, 1990)
10.20 Amendment No. 1 to the Mattel, Inc. 1990 Stock Option Plan
(incorporated by reference to the information under the heading
"Amendment to Mattel 1990 Stock Option Plan" on page F-1 of the
Joint Proxy Statement/Prospectus of the Company and Fisher-
Price included in the Company's Registration Statement on Form
S-4, Registration Statement No. 33-50749)
10.21 Amendment No. 2 to the Mattel 1990 Stock Option Plan
(incorporated by reference to Exhibit A to the Company's Proxy
Statement dated March 22, 1995)
10.22 Form of Award Agreement evidencing award of stock appreciation
rights granted pursuant to the Company's 1990 Stock Option Plan
to certain executive officers of the Company ("Award
Agreement") (incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.23 Form of First Amendment to Award Agreement (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993)
10.24 Notice of Grant of Stock Options and Grant Agreement
(incorporated by reference to Exhibit 99.0 to the Company's
Current Report on Form 8-K dated May 31, 1994)
19
10.25 Grant Agreement for a Non-Qualified Stock Option (incorporated
by reference to Exhibit 99.1 to the Company's Current Report on
Form 8-K dated May 31, 1994)
10.26 Award Cancellation Agreement (incorporated by reference to
Exhibit 99.2 to the Company's Current Report on Form 8-K dated
May 31, 1994)
10.27 Form of Restricted Stock Award Agreement under the Mattel 1990
Stock Option Plan (incorporated by reference to Exhibit 10.22
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
10.28 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)
10.29 Mattel, Inc. Supplemental Executive Retirement Plan effective
as of April 1, 1994 (incorporated by reference to Exhibit 99.7
to the Company's Current Report on Form 8-K dated March 21,
1995)
10.30 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)
10.31 Fisher-Price, Inc. Matching Savings Plan, 1994 Restatement
(incorporated by reference to Exhibit 99.8 to the Company's
Current Report on Form 8-K dated March 21, 1995)
10.32 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)
10.33 Mattel, Inc. Personal Investment Plan, 1993 Restatement
(incorporated by reference to Exhibit 99.9 to the Company's
Current Report on Form 8-K dated March 21, 1995)
10.34 First Amendment to the Mattel, Inc. Personal Investment Plan,
1993 Restatement (incorporated by reference to Exhibit 99.10 to
the Company's Current Report on Form 8-K dated March 21, 1995)
10.35 Second Amendment to the Mattel, Inc. Personal Investment Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995)
10.36 Third Amendment to the Mattel, Inc. Personal Investment Plan
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995)
20
10.37 Fourth Amendment to the Mattel, Inc. Personal Investment Plan
(incorporated by reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September
30, 1995)
10.38 Mattel, Inc. Hourly Personal Investment Plan (incorporated by
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-8 dated February 20, 1996)
11.0* Computation of Income per Common and Common Equivalent Share
13.0* Pages 26 through 53 of the Mattel, Inc. Annual Report to
Shareholders for the year ended December 31, 1995
21.0* Subsidiaries of the Registrant
23.0* Consent of Price Waterhouse LLP
24.0* Power of Attorney (on page 23 of Form 10-K)
27.0* Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
Mattel, Inc. filed the following Current Report on Form 8-K
during the quarterly period ended December 31, 1995:
Financial
Date of Report Items Reported Statements Filed
------------------ -------------- ----------------
October 17, 1995 5, 7 None
(c) Exhibits Required by Item 601 of Regulation S-K
See Item (3) above
(d) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Allowances
Copies of Form 10-K (which includes Exhibit 24.0), Exhibits
11.0, 13.0, 21.0 and 23.0 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.
- -------------------
* Filed herewith.
21
<PAGE>
SIGNATURES
----------
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.
MATTEL, INC.
Registrant
By: /s/ Gary P. Rolfes
-------------------------
GARY P. ROLFES
Senior Vice President and
Date: As of March 22, 1996 Controller
--------------------
22
<PAGE>
POWER OF ATTORNEY
-----------------
We, the undersigned directors and officers of Mattel, Inc. do hereby
severally constitute and appoint John W. Amerman, Ned Mansour, 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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John W. Amerman Chairman of the Board March 22, 1996
- ------------------- and Chief Executive Officer
JOHN W. AMERMAN
/s/ Francesca Luzuriaga Executive Vice President March 22, 1996
- ----------------------- and Chief Financial Officer
FRANCESCA LUZURIAGA (principal financial officer)
/s/ Jill E. Barad Director, President and March 22, 1996
- ----------------- Chief Operating Officer
JILL E. BARAD
23
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Harold Brown Director March 22, 1996
- ----------------
HAROLD BROWN
/s/ James A. Eskridge Director and Group President, March 22, 1996
- --------------------- Mattel, Worldwide
JAMES A. ESKRIDGE
Director
- ---------------------
TULLY M. FRIEDMAN
/s/ Ronald M. Loeb Director March 22, 1996
- ------------------
RONALD M. LOEB
/s/ Edward H. Malone Director March 22, 1996
- --------------------
EDWARD H. MALONE
/s/ Edward N. Ney Director March 22, 1996
- -----------------
EDWARD N. NEY
/s/ William D. Rollnick Director March 22, 1996
- -----------------------
WILLIAM D. ROLLNICK
/s/ Christopher A. Sinclair Director March 22, 1996
- ---------------------------
CHRISTOPHER A. SINCLAIR
/s/ John L. Vogelstein Director March 22, 1996
- ----------------------
JOHN L. VOGELSTEIN
</TABLE>
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
---------------------------------
To the Board of Directors of Mattel, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 6, 1996 appearing on page 51 of the December 31, 1995
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,
based on our audits, 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 6, 1996
25
<PAGE>
MATTEL, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning Charged to Net at End
of Year Operations Deductions of Year
---------- ---------- ---------- --------
Allowance for
Doubtful Accounts
- --------------------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1995 $ 16,100 $ 14,682 $ (19,994)(a) $ 10,788
Year Ended
December 31, 1994 21,024 7,282 (12,206)(a) 16,100
Year Ended
December 31, 1993 35,115 4,169 (18,260)(a) 21,024
<CAPTION>
Allowance for
Inventory Obsolescence
- -------------------------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1995 $ 28,536 $ 40,368 $ (46,153)(b) $ 22,751
Year Ended
December 31, 1994 19,432 37,039 (27,935)(b) 28,536
Year Ended
December 31, 1993 16,109 32,084 (28,761)(b) 19,432
<FN>
(a) Includes write-offs, recoveries of previous write-offs, and currency
translation adjustments.
(b) Includes write-downs and currency translation adjustments.
26
</TABLE>
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO
------------------
CREDIT AGREEMENT
----------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment")
is dated as of March 11, 1996 and is entered into by and among MATTEL,
INC., a Delaware corporation (the "Company"), THE FINANCIAL INSTITUTIONS
LISTED ON THE SIGNATURE PAGES HEREOF (the "Banks"), and BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for the Banks (the
"Agent") and amends the Credit Agreement dated as of March 10, 1995 among
the Company, certain of the Banks and the Agent (the "Agreement").
RECITAL
-------
The Company has requested that the Banks and the Agent amend the
Agreement, and the Banks and Agent are willing to amend the Agreement on
the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. Terms. All capitalized terms used herein have the same
meanings as in the Agreement unless otherwise defined herein. All
references to the Agreement shall mean the Agreement as hereby amended.
2. Amendments. The parties hereto agree that the Agreement is
amended as follows:
2.1 The definitions of "Applicable Amount" and "Termination
Date" in Section 1.1 of the Agreement are amended and restated in their
entirety as follows:
"'Applicable Amount' means, for each type of Loan and the
commitment fee, the amount (expressed in basis points per annum)
set forth in the chart below opposite the Applicable Level then
in effect:
-1-
<TABLE>
<CAPTION>
(Basis Points Per Annum)
- ----------------------------------------------------------
Applicable Commitment Eurodollar CD Rate Loans
Level Fee Rate
Loans
<S> <C> <C> <C>
1 9.00 25.00 37.50
2 10.00 30.00 42.50
3 12.50 37.50 50.00
4 17.50 45.00 57.50
5 35.00 75.00 87.50
</TABLE>
"'Termination Date' means March 9, 2001."
2.2 The following new definitions are inserted in Section 1.1 of
the Agreement in proper alphabetical order:
"'Combined Total Outstanding Investment' means an amount
equal to the sum of (a) the Total Outstanding Investment under
the Transfer and Administration Agreement plus (b) the analogous
amount under Other Permitted Accounts Receivable Financing
Facilities."
"'Other Permitted Accounts Receivable Financing Facility'
means a financing arrangement other than the Transfer and
Administration Agreement under which accounts receivable of the
Company, Mattel Sales or Fisher-Price are periodically sold, and
the Company, Mattel Sales or Fisher-Price collects the accounts
receivable so sold on behalf of the transferee."
2.3 Clause (iii) of the proviso to Section 2.1 of the Agreement
is amended by deleting "$650,000,000" and inserting "$800,000,000" in lieu
thereof.
2.4 Section 2.5(b)(y) of the Agreement is amended by deleting
"$250,000,000" and inserting "$400,000,000" in lieu thereof.
2.5 The proviso to Section 2.8(a)(iii) of the Agreement is
deleted in its entirety.
2.6 Section 2.9(b) of the Agreement is deleted in its entirety,
and subsections (c) and (d) of Section 2.9 are relettered (b) and (c),
respectively.
2.7 Section 7.4 of the Agreement is amended by deleting "and" at
the end of subsection (a), deleting the period
-2-
at the end of subsection (b) and inserting "; and" in lieu thereof, and
inserting a new subsection (c) as follows:
"(c) If the Company believes in good faith that the
collectability of certain accounts receivable is or may be
jeopardized by the distressed financial condition of the obligor
under such accounts receivable, the Company, Mattel Sales and
Fisher-Price may sell such accounts receivable, including,
without limitation, by means of entering into and performing
under Other Permitted Accounts Receivable Financing Facilities."
2.8 Section 7.5 of the Agreement is amended and restated in its
entirety as follows:
"7.5 Consolidated Funded Indebtedness to Total
Capitalization. The Company shall not permit the ratio of the
sum of (a) Consolidated Funded Indebtedness plus (b) Combined
Total Outstanding Investment to the sum of (x) Consolidated
Funded Indebtedness plus (y) Combined Total Outstanding
Investment plus (z) Consolidated Tangible Net Worth to exceed 65%
at the end of each of the first three fiscal quarters in each
fiscal year and 55% at the end of each fiscal year."
2.9 Section I of Attachment I to Exhibit D to the Agreement
(Officer's Certificate) is amended and restated in its entirety as set
forth on Exhibit A to this First Amendment.
2.10 Section II.B. of Attachment I to Exhibit D to the Agreement
(Officer's Certificate) is amended by deleting "Line I.B4" and inserting
"Line I.D.4" in lieu thereof.
2.11 Schedule 1.1 to the Agreement (Loan Commitments) is amended
and restated in its entirety as set forth on Schedule 2.1 to this First
Amendment.
3. Representations and Warranties. The Company represents and
warrants to the Banks and the Agent:
3.1 Authorization. The execution, delivery and performance of
this First Amendment by the Company has been duly authorized by all
necessary corporate action by the Company and has been duly executed and
delivered by the Company.
3.2 Binding Obligation. This First Amendment and the Agreement
are legal, valid and binding agreements of the Company, enforceable in
accordance with their respective terms, except to the extent enforceability
thereof may be limited by applicable law relating to bankruptcy,
insolvency, reorganization,
-3-
moratorium or other similar laws relating to or limiting creditors' rights
generally or by the application of general principles of equity.
3.3 No Conflict. The execution, delivery and performance by the
Company of this First Amendment and the issuance, delivery and payment of
the replacement Notes do not and will not (a) violate the Restated
Certificate of Incorporation or Bylaws of the Company, (b) violate any
provision of law applicable to the Company, or any material order, judgment
or decree of any court or other agency of government binding on the
Company, the violation of which would result in a Material Adverse Effect,
(c) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of the
Company, (d) result in or require the creation or imposition of any
material lien, security interest, charge or encumbrance of any nature
whatsoever upon any of its material properties or assets, or (e) require
any approval of stockholders or any approval or consent of any Person under
any Contractual Obligation of the Company.
3.4 Incorporation of Certain Representations. The
representations and warranties set forth in Section 5 of the Agreement are
true and correct in all material respects on and as of the date hereof as
though made on and as of the date hereof except to the extent such
representations and warranties expressly relate to an earlier date, in
which case such representations and warranties were true and correct in all
material respects on and as of such earlier date.
3.5 Default. No Default or Event of Default under the Agreement
has occurred and is continuing.
4. Conditions, Effectiveness. The effectiveness of this First
Amendment shall be subject to the compliance by the Company with its
agreements herein contained, and to the delivery of the following to Agent
in form and substance satisfactory to Agent:
4.1 Corporate Resolution. A copy of a resolution or resolutions
passed by the Board of Directors of the Company, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect
on the effective date of this First Amendment, authorizing the amendments
to the Agreement herein provided for and the execution, delivery and
performance of this First Amendment and any note or other instrument or
agreement required hereunder.
4.2 Authorized Signatories. A certificate, signed by the
Secretary or an Assistant Secretary of the Company and dated the date of
this First Amendment, as to the incumbency of the
-4-
person or persons authorized to execute and deliver this First Amendment and
any instrument or agreement required hereunder on behalf of the Company.
4.3 Replacement Notes. Notes, duly executed and delivered by
the Company, evidencing each Bank's new Loan Commitment for each Bank
previously having a Note, which Note shall replace the existing Note of
each such Bank.
4.4 Accrued Fees and Interest. The Company agrees to pay to the
Agent on the date hereof, for distribution to the Banks (including the
Selling bank as defined in Section 5.5 of this First Amendment) all accrued
and unpaid interest and fees due to the Banks to the date hereof.
4.5 Other Evidence. Such other evidence with respect to the
Company or any other person as the Agent or any Bank may reasonably request
to establish the consummation of the transactions contemplated hereby, the
taking of all corporate action in connection with this First Amendment and
the Agreement and the compliance with the conditions set forth herein.
5. Miscellaneous.
5.1 Effectiveness of the Agreement. Except as hereby amended,
the Agreement shall remain in full force and effect.
5.2 Waivers. This First Amendment is specific in time and in
intent and does not constitute, nor should it be construed as, a waiver of
any other right, power or privilege under the Agreement, or under any
agreement, contract, indenture, document or instrument mentioned in the
Agreement; nor does it preclude any exercise thereof or the exercise of any
other right, power or privilege, nor shall any future waiver of any right,
power, privilege or default hereunder, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement, constitute a
waiver of any other default of the same or of any other term or provision.
5.3 Counterparts. This First Amendment may be executed in any
number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument. This First Amendment
shall not become effective until the Company, the Banks and the Agent shall
have signed a copy hereof, whether the same or counterparts, and the same
shall have been delivered to the Agent.
5.4 Jurisdiction. This First Amendment, and any instrument or
agreement required hereunder, shall be governed by and construed under the
laws of the State of California.
-5-
5.5 Assignment of Marine Midland's Loan Commitment to Societe
Generale. Effective as of the date of this First Amendment, after all
Loans have been prepaid pursuant to Section 5.6 of this First Amendment,
but before the reborrowing of such Loans pursuant to Section 5.6 of this
First Amendment, Marine Midland Bank (the "Selling Bank") agrees to sell
and assign to Societe Generale (the "Buying Bank"), and the Buying Bank
hereby agrees to purchase and assume, without recourse, from the Selling
Bank, all of the Selling Bank's Loan Commitment and any outstanding Loans.
Such assignment shall be automatic, without any further action required by
any party pursuant to Section 10.1 of the Agreement. From and after the
effectiveness of such assignment, the Buying Bank shall be a "Bank" for all
purposes of the Agreement having the Loan Commitment specified next to the
Buying Bank's name on Schedule 1.1 to this First Amendment. The Selling
Bank and the Buying Bank authorize the Agent to distribute to the Selling
Bank its Pro Rate Share of all accrued fees and interest it receives from
the Company that are due to the Selling Bank for the period preceding this
assignment. The Selling Bank represents and warrants to the Buying Bank
that it is the legal and beneficial owner of the Obligations it is
assigning hereunder and that such Obligations are free and clear of any
adverse claim. Other than as provided above, the Selling Bank makes no
representation or warranty nor assumes any responsibility with respect to
such Obligations, this Agreement or any other instrument or document
furnished pursuant hereto, the financial condition of the Company, or the
performance or observance by the Company thereunder. The Company agrees to
pay on demand directly to the Selling Bank any costs incurred by it
pursuant to Section 3.5 of the Agreement in connection with the assignment
of its Loans hereunder. The Company, the Guarantors, the Banks and the
Agent hereby consent to such assignment.
5.6 Adjustments to Aggregate Loan Commitment. Effective as of
the date of this First Amendment, the Aggregate Loan Commitment and each
Bank's respective Loan Commitments shall be as set forth on Schedule 1.1 to
this First Amendment. In order to accomplish such adjustment, the Company
confirms its request under Section 2.6(a) of the Agreement that all
outstanding Loans be prepaid as of the date hereof and, pursuant to a
Notice of Borrowing timely delivered pursuant to Section 2.2 of the
Agreement, that such Loans be immediately, but after giving effect to the
assignment set forth in Section 5.5 above, reborrowed from each Bank in
accordance with its Pro Rata Share of the revised Aggregate Loan
Commitment. The Company agrees to pay on demand directly to each Bank any
costs incurred by such Bank pursuant to Section 3.5 of the Agreement by
reason of such prepayment of its outstanding Loans.
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
MATTEL, INC.
By /s/ William Stavro
------------------
William Stavro
Senior Vice President and
Treasurer
S-1
AGENT: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By /s/ Kay Warren
--------------
Kay Warren
Vice President
S-2
BANKS: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Robert W. Troutman
----------------------
Robert W. Troutman
Managing Director
S-3
NATIONSBANK OF TEXAS, N.A.
By /s/ Tom F. Scharfenberg
-----------------------
Title Vice President
--------------
S-4
CHEMICAL BANK
By /s/ Mary Cameron
----------------
Title: Vice President
--------------
S-5
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Debra Zurka
---------------
Title Vice President
--------------
S-6
PNC BANK, N.A.
By /s/ Ted A. Dunn
---------------
Title Assistant Vice President
------------------------
S-7
THE TORONTO-DOMINION (TEXAS), INC.
By /s/ Diane Bailey
----------------
Title Vice President
--------------
S-8
ABN AMRO BANK N.V.
By /s/ Matthew S. Thomson
----------------------
Title Group Vice President/Director
-----------------------------
By /s/ Patrick A. Russo
--------------------
Title Assistant Vice President
------------------------
S-9
THE BANK OF CALIFORNIA, N.A.
By /s/ Lynn E. Vine
----------------
Title Vice President
--------------
S-10
BANQUE NATIONALE DE PARIS
By /s/ Clive Bettles
-----------------
Title Senior Vice President & Manager
-------------------------------
By /s/ Mitchell M. Ozawa
---------------------
Title Vice President
--------------
S-11
DRESDNER BANK AG, Los Angeles
Agency
By /s/ Sidney S. Jordan
--------------------
Title Vice President
--------------
By /s/ Jon M. Bland
----------------
Title Senior Vice President
---------------------
S-12
ISTITUTO BANCARIO SAN PAOLO di TORINO SpA
By /s/ Donald W. Brown
-------------------
Title Branch Manager
--------------
By /s/ Glen Binder
---------------
Title Vice President
--------------
S-13
MANUFACTURERS & TRADERS TRUST CO.
By /s/ Geoffery R. Fenn
--------------------
Title Vice President
--------------
S-14
CITICORP USA, INC.
By /s/ Majorie Futornick
---------------------
Title Vice President
--------------
S-15
SOCIETE GENERALE
By /s/ J. Staley Stewart
---------------------
Title Vice President
--------------
S-16
MARINE MIDLAND BANK
(for purposes of Section 5.5 only)
By /s/ Mary Ann Tappero
--------------------
Title Vice President
--------------
S-17
CONSENT OF GUARANTORS
---------------------
The undersigned Fisher-Price, Inc., and Mattel Sales Corp. hereby
consent to the foregoing First Amendment to Credit Agreement dated as of
March 11, 1996, and reaffirms their respective Continuing Guaranty each
dated as of March 10, 1995.
Dated: March 11, 1996
MATTEL SALES CORP.
By: /s/ William Stavro
------------------
William Stavro
Vice President and
Treasurer
FISHER-PRICE, INC.
By: /s/ William Stavro
------------------
William Stavro
Treasurer
EXHIBIT A TO FIRST AMENDMENT
----------------------------
Amendment and Restatement of
Section I of Attachment I to Exhibit D
to the Agreement (Officer's Certificate)
I. CONSOLIDATED FUNDED INDEBTEDNESS TO TOTAL CAPITALIZATION AS OF ABOVE
DATE. (Section 7.5)
A. Consolidated Funded Indebtedness:
1. Total liabilities for borrowed money:
- Notes Payable: $
---------
- Current Portion of Long-Term Debt: $
---------
- Term Loans: $
---------
- Subordinated Debt: $
---------
- Senior Long-Term Debt: $
---------
- Mortgages: $
---------
Total liabilities for borrowed money: $
---------
2. Capital Leases: $
---------
3. Guaranties of unconsolidated funded
obligations for borrowed money: $
---------
4. Total Consolidated Funded
Indebtedness (Lines A1+A2+A3): $
=========
B. Combined Total Outstanding Investment:
1. Total Outstanding Investment under
Transfer and Administration Agreement: $
---------
2. Amount analogous to "Total Outstanding
Investment" under Other Permitted
Accounts Receivable Financing
Facilities (describe): $
---------
3. Combined Total Outstanding Investment
(Lines B1+B2): $
=========
C. Consolidated Funded Indebtedness plus
Combined Total Outstanding Investment
(Lines A4+B3): $
=========
D. Consolidated Tangible Net Worth:
1. Net Worth: $
---------
2. Foreign exchange currency
translation adjustments: $
---------
3. Intangible assets: $
---------
4. Consolidated Tangible Net Worth
(Line D1 - (D2+D3)): $
=========
E. Consolidated Funded Indebtedness plus
Combined Total Outstanding Investment plus
Consolidated Tangible Net Worth (Lines C+D4): $
=========
F. Actual percentage of Consolidated Adjusted
Debt plus Combined Total Outstanding Investment
of Consolidated Funded Indebtedness plus
Combined Total Outstanding Investment plus
Consolidated Tangible Net Worth (Line C,E): %
-------
G. Permitted maximum percentage of Consolidated
Funded Indebtedness plus Combined Total
Outstanding Investment to Consolidated Funded
Indebtedness plus Combined Total Outstanding
Investment plus Consolidated Tangible
Net Worth: (55%) (65%)
<PAGE>
EXHIBIT 10.4
SECOND AMENDMENT TO
SECOND AMENDED AND RESTATED
TRANSFER AND ADMINISTRATION AGREEMENT
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED TRANSFER AND
ADMINISTRATION AGREEMENT (this "Amendment"), dated as of March 11, 1996, by
and among MATTEL SALES CORP., a California corporation, and FISHER-PRICE,
INC., a Delaware corporation, as transferors (each, a "Transferor"),
MATTEL, INC., a Delaware corporation, as guarantor and servicer (the
"Guarantor" and the "Servicer"), THE BANKS LISTED ON THE SIGNATURE PAGES
HEREOF (collectively, other than Marine Midland Bank, the "Banks") and
NATIONSBANK OF TEXAS, N.A., a national banking association, as agent on
behalf of the Banks (the "Agent") amending that certain Second Amended and
Restated Transfer and Administration Agreement dated as of March 10, 1995,
by and among the Transferors, the Guarantor, the Servicer, the Banks and
the Agent (the "Original Agreement" and said agreement as amended through
and including the date hereof, the "Agreement").
PRELIMINARY STATEMENTS
WHEREAS, the Transferors have requested that the Banks agree to
certain amendments to the Original Agreement and subject to the terms and
conditions hereof the Banks have agreed to such amendments.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. Definitions. All capitalized terms used herein which
are not otherwise defined are used as defined in the Original Agreement.
SECTION 2. Amendments to Original Agreement. The Original
Agreement is hereby amended as follows:
(a) The definition of "Commitment Commission Rate" in Section
1.1 of the Original Agreement shall be amended by deleting the chart
contained in such definition and by replacing it with the following chart:
<TABLE>
<CAPTION>
Toys "R" Us, Inc.'s
long-term senior
unsecured debt ratings Commitment
S&P/Moody's/Duff Commission
---------------------- ----------
<S> <C>
AA-/Aa3/AA-or higher 8.0 bps
A/A2/A or higher 10.0 bps
A-/A3/A- 12.0 bps
</TABLE>
The Commitment Commission Rate upon effectiveness of this
Amendment will be 8 basis points.
(b) The definition of "Commitment Fee" shall be deleted in its
entirety and shall be replaced with the following:
"Commitment Fee" means a fee equal to the applicable
Commitment Commission Rate payable by the Transferors on each
Remittance Date on the difference between the average Facility Limit
and the average Total Outstanding Investment on each day for the one-
year period preceding such date.
(c) The definition of "Facility Limit" in Section 1.1 of the
Original Agreement shall be amended by deleting the reference to
"$250,000,000" and by replacing it with "$400,000,000".
(d) The definition of "Participation Rate" in Section 1.1 of the
Original Agreement shall be amended by deleting the chart contained in such
definition and by replacing it with the following:
<TABLE>
<CAPTION>
Toys "R" Us, Inc.'s
long-term senior
unsecured
debt ratings Spread
S&P/Moody's/Duff
-------------------- --------
<S> <C>
AA-/Aa3/AA-or higher 20.0 bps
A/A2/A or higher 22.5 bps
A-/A3/A- 30.0 bps
</TABLE>
2
The spread upon effectiveness of this Amendment will be 20 basis
points.
(e) The definition of "Remittance Date" in Section 1.1 of the
Original Agreement shall be amended by deleting the reference to "December
18, 1995, December 17, 1996, and December 17, 1997," and by replacing it
with "December 17, 1996, December 17, 1997, December 17, 1998, December 17,
1999 and December 17, 2000".
(f) The definition of "Termination Date" in Section 1.1 of the
Original Agreement shall be amended by deleting the reference to "December
17, 1997" and by replacing it with "December 17, 2000".
(g) The definition of "Weekly Report" in Section 1.1 of the
Original Agreement shall be renamed the "Servicer's Certificate" in such
Section and shall be renamed as such for all purposes of the Original
Agreement, and the reference in such definition to "weekly basis" shall be
deleted and replaced with the words "monthly basis and prior to a
Transfer".
(h) Section 2.2 of the Original Agreement shall be amended (i)
by deleting both references to "80%" in such Section and by replacing them
with "90%" and (ii) in the 25th line of such Section after the word
"Notice") and before the period by inserting the words ", and such
Transferor shall, at the time of delivery of the Transfer Notice, cause the
Servicer to prepare and deliver to the Agent a Servicer's Certificate
covering the period from the last day specified in the most recent
Servicer's Certificate delivered to the Agent to and including the day
prior to the date of delivery of the related Transfer Notice".
(i) Section 2.8 of the Original Agreement shall be amended (A)
in the third line thereof by deleting the words "each subsequent Monday"
and by replacing them with the words "the first Monday of each calendar
month" and (B) in the seventh line thereof by deleting the words "for the
preceding calendar week" and by replacing them with the words "covering a
period from the later to occur of (A) the first day of the preceding
calendar month and (B) the date on which the last such Servicer's
Certificate was delivered in connection with a
3
Transfer pursuant to Section 2.2, through and including the last day of
preceding calendar month".
(j) Section 2.6 shall be amended by deleting the references to
"125%" therein and by replacing them with "111%".
(k) Section 7.3(h) of the Original Agreement shall be amended by
deleting the references to "80%" therein and by replacing them with "90%".
(l) Exhibit A to the Agreement shall be amended by (i) deleting
the reference to "80%" in the fifth line of the second paragraph of such
Exhibit and by replacing it with "90%" and (ii) deleting the reference to
"20%" in the first line of the third paragraph of such Exhibit and by
replacing it with "10%".
(m) Exhibit B to the Agreement shall be amended by (i) deleting
the reference to "FORM OF WEEKLY SERVICER'S CERTIFICATE" on the first page
of such Exhibit and by replacing it with "FORM OF SERVICER'S CERTIFICATE",
(ii) deleting the second line of such Exhibit in its entirety and by
replacing it with the words "For the Period beginning ______, 199_ and
ending _______, 200_", (iii) deleting all references to "calendar week" and
"week" in such Exhibit and by replacing them with the word "period" in each
instance and (iv) deleting the reference to "125%" in the second line of
paragraph 10 of such Exhibit and by replacing it with "111%".
(n) Exhibit C to the Agreement shall be amended by (i) deleting
all references to "week" in such Exhibit and by replacing them with the
word "period" and (ii) deleting the reference to "80%" in the third line of
paragraph 13 of such Exhibit and by replacing it with "90%".
SECTION 3. Amendment to Bank Commitments; Funding.
(a) By its execution of this Amendment, each Bank a party to the
Original Agreement hereby agrees that its Bank Commitment shall be amended
as evidenced on the signature page hereto related to such Bank. Each Bank,
each Transferor, the Guarantor and the Servicer further acknowledges that,
as amended hereby, (i) the Bank Com-
4
mitment with respect to Marine Midland Bank has been reduced to zero, and
and Marine Midland Bank has been terminated as a party to the Agreement and
(ii) Societe Generale has become a Bank party to the Agreement (with the
Percentage and Bank Commitment specified on its signature page hereto and
all other rights, interests and obligations of a Bank under the Agreement)
as evidenced by its execution of this Amendment (without any further action
required pursuant to Section 11.9 of the Agreement).
(b) In furtherance of the foregoing, the Transferors agree on
the date hereof to remit, in immediately available funds, $100,869,352.09
to the Agent in the manner specified in Section 2.7 of the Original
Agreement, whereupon the Agent shall immediately distribute such funds to
the Banks party to the Original Agreement (and Marine Midland Bank) pro
rata based on each such Bank's (and Marine Midland Bank's) respective
Percentage. Following such distribution, each Bank a party to this
Amendment (and, after giving effect to this Amendment, the Agreement) shall
pay to the Agent its Percentage of $100,000,000.00, which amount shall be
immediately remitted by the Agent to the Transferors, in each case in
accordance with the procedures described in the second paragraph of Section
2.2 of the Original Agreement.
SECTION 4. Representations and Warranties. The Transferors
hereby make to each of the Banks, on and as of the date hereof, all of the
representations and warranties set forth in Section 3.1 of the Original
Agreement, except to the extent that any such representation or warranty
relates to an earlier date. In addition, Mattel, Inc. hereby makes to each
of the Banks, on and as of the date hereof, all the representations and
warranties set forth in Section 3.2 of the Original Agreement, except to
the extent that any such representation or warranty relates to an earlier
date.
SECTION 5. Conditions Precedent. This Amendment shall not
become effective until the Agent shall have received the following:
(a) An opinion of counsel to the Transferors with respect to
certain corporate matters and the enforceability against the Transferors of
the Original Agreement as amended hereby, in form and substance acceptable
to the Agent;
5
(b) An opinion of counsel to Servicer and the Guarantor with
respect to certain corporate matters and the enforceability against each of
the Servicer and the Guarantor of the Original Agreement as amended hereby,
in form and substance acceptable to the Agent;
(c) An executed copy of the Written Agreement, in form and
substance acceptable to the Agent;
(d) Certified copies of resolutions of the Board of Directors of
the Transferors authorizing this Amendment and the transactions
contemplated hereby; and
(e) Executed counterparts of this Amendment.
SECTION 6. Amendment and Waiver. No provision hereof may be
amended, waived, supplemented, restated, discharged or terminated without
the written consent of the parties hereto.
SECTION 7. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of California,
without regard to the conflicts of Governmental Rules provisions thereof.
This Amendment together with the Original Agreement contains the final and
complete integration of all prior expressions by the parties hereto with
respect to the subject matter hereof and shall constitute the entire
Agreement among the parties hereto with respect to the subject matter
hereof superseding all prior oral or written understandings.
SECTION 8. Severability; Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute one and
the same Amendment. Any provisions of this Amendment which are prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
6
SECTION 9. Captions. The captions in this Amendment are for
convenience of reference only and shall not define or limit any of the
terms or provisions hereof.
SECTION 10. Ratification. Except as expressly affected by the
provisions hereof, the Original Agreement as amended by this Amendment
shall remain in full force and effect in accordance with its terms and
ratified and confirmed by the parties hereto. On and after the date
hereof, each reference in the Original Agreement to "this Agreement",
"hereunder", "herein" or words of like import shall mean and be a reference
to the Original Agreement as amended by this Amendment.
7
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date and year first above written.
MATTEL SALES CORP.,
as Transferor
By: /s/ William Stavro
------------------
Name: William Stavro
Title: Vice President and Treasurer
FISHER-PRICE, INC.,
as Transferor
By: /s/ William Stavro
------------------
Name: William Stavro
Title: Treasurer
MATTEL, INC., as Guarantor
and Servicer
By: /s/ William Stavro
------------------
Name: William Stavro
Title: Sr. Vice President and Treasurer
NATIONSBANK OF TEXAS, N.A.,
as Agent
By: /s/ Tom F. Scharfenberg
-----------------------
Name: Tom F. Scharfenberg
Title: Vice President
8
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
10.000000000 40,000,000 NATIONSBANK OF TEXAS,
N.A.
By: /s/ Tom F. Scharfenberg
-----------------------
Name: Tom F. Scharfenberg
Title: Vice President
Notice Address: 444 S. Flower Street, Suite 4100
Los Angeles, California 90071
Attn: Tom F. Scharfenberg
9
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
12.500000000 50,000,000 BANK OF AMERICA
NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Robert W. Troutman
----------------------
Name: Robert W. Troutman
Title: Managing Director
Notice Address: 555 Flower Street, 11th Floor
Los Angeles, California 90071
Attn: Robert W. Troutman
10
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
8.125000000 32,500,000 PNC BANK, NATIONAL
ASSOCIATION
By: /s/ Ted A. Dunn
-----------------
Name: Ted A. Dunn
Title: Assistant Vice President
Notice Address: 55 South Lake Avenue, Suite 650
Pasadena, California 91101
Attn: Ted A. Dunn
11
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
10.000000000 40,000,000 CHEMICAL BANK
By: /s/ Mary E. Cameron
-------------------
Name: Mary E. Cameron
Title: Vice President
Notice Address: Corporate Banking Group
270 Park Avenue, 9th Floor
New York, New York 10017
Attn: Mary E. Cameron
12
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
8.125000000 32,500,000 THE FIRST NATIONAL
BANK OF BOSTON
By: /s/ Debra Zurka
---------------
Name: Debra Zurka
Title: Vice President
Notice Address: 100 Federal Street, MAIL STOP 01-09-05
Boston, Massachusetts 02110
Attn: Debra Zurka
13
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
8.125000000 32,500,000 TORONTO-DOMINION
(TEXAS), INC.
By: /s/ Diane Bailey
----------------
Name: Diane Bailey
Title: Vice President
Notice Address: 909 Fannin
Houston, Texas 77010
Attn: Lisa Allison
14
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 CITICORP USA, INC.
By: /s/ David L. Harris
-------------------
Name: David L. Harris
Title: Vice President
Notice Addresses: c/o Citicorp North America, Inc.
725 South Figueroa Street
5th Floor
Los Angeles, California 90017
Attn: Deborah Ironson
c/o Citibank, N.A.
One Court Square, 7th Floor
Long Island City, New York 11120
Attn: Mark Wrigley
15
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
8.125000000 32,500,000 ABN AMRO BANK N.V.
By: /s/ Matthew S. Thomson
----------------------
Name: Matthew S. Thomson
Title: Group Vice President/Director
By: /s/ Patrick A. Russo
--------------------
Name: Patrick A. Russon
Title: Assistant Vice President
Notice Address: Los Angeles International Branch
300 South Grand Avenue, Suite 1115
Los Angeles, California 90071
Attn: Matthew S. Thomson
16
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 DRESDNER BANK AG
Los Angeles Agency
By: /s/ Sidney S. Jordan
--------------------
Name: Sidney S. Jordan
Title: Vice President
By: /s/ Jon M. Bland
----------------
Name: Jon M. Bland
Title: Senior Vice President
Notice Address: Los Angeles Agency
725 South Figueroa Street, Suite 3950
Los Angeles, California 90017
Attn: Dennis Blank
17
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 MANUFACTURERS &
TRADERS TRUST CO.
By: /s/ Geoffrey R. Fenn
--------------------
Name: Geoffrey R. Fenn
Title: Vice President
Notice Address: 1 Fountain Plaza
Buffalo, New York 14203
Attn: Geoffrey R. Fenn
18
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 ISTITUTO BANCARIO SAN
PAOLO DI TORINO SPA
By: /s/ Donald W. Brown
--------------------
Name: Donald W. Brown
Title: Branch Manager
By: /s/ Glen Binder
---------------
Name: Glen Binder
Title: Vice President
Notice Address: 444 South Flower Street
Suite 4550
Los Angeles, California 90071
Attn: Glen Binder
19
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 THE BANK OF
CALIFORNIA, N.A.
By: /s/ Lynn E. Vine
----------------
Name: Lynn E. Vine
Title: Vice President
Notice Address: 550 South Hope Street
Fifth Floor
Los Angeles, California 90071
Attn: Thomas Tegart
20
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 BANQUE NATIONALE
DE PARIS
By: /s/ Jean-Louis Tourne
---------------------
Name: Jean-Louis Tourne
Title: Vice President & Deputy
Manager
By: /s/ Mitchell M. Ozawa
---------------------
Name: Mitchell M. Ozawa
Title: Vice President
Notice Address: 725 South Figueroa Street
Suite 2090
Los Angeles, California 90017
Attn: Mitchell M. Ozawa
21
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
0.000000000 0.00 MARINE MIDLAND BANK
By: /s/ Mary Ann Tappero
--------------------
Name: Mary Ann Tappero
Title: Vice President
Notice Address: 140 Broadway, 4th Floor
New York, New York 10005
Attn: William M. Holland
22
Dollar Amount
of Percentage
of Original
Facility
Percentage (%) Limit ($)
- -------------- -------------
5.000000000 20,000,000 SOCIETE GENERALE
By: /s/ J. Staley Stewart
---------------------
Name: J. Staley Stewart
Title: Vice President
Notice Address: 2029 Century Park East
Suite 2900
Los Angeles, California 90067
23
<PAGE>
EXHIBIT 10.15
MATTEL MANAGEMENT INCENTIVE PLAN
--------------------------------
ARTICLE I
---------
ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE
------------------------------------------
This Management Incentive Plan is established by Mattel,
Inc. for the purpose of focusing management on growth in earnings
and asset management and linking compensation to the business
performance of Mattel, Inc. The Plan is effective as of January
1, 1993.
ARTICLE II
----------
DEFINITIONS
-----------
2.1 Code. "Code" shall mean the Internal Revenue Code of
1986 and the regulations promulgated thereunder.
2.2 Committee. "Committee" shall mean the Committee
described in Section 5.1 below.
2.3 Company. "Company" shall mean Mattel, Inc. and its
participating subsidiaries.
2.4 Covered Employee.
(a) "Covered Employee" means any individual who is, on
the last day of the Company's taxable year:
(i) The Chief Executive Officer; or
(ii) Among the four highest compensated
individuals (other than the Chief Executive Officer).
(b) The determination as to which individuals are
Covered Employees is determined in accordance with the rules
of the Securities and Exchange Commission, except that an
individual will not be a Covered Employee unless he or she
is employed by the Company on the last day of its taxable
year.
2.5 Outside Director.
(a) Whether a director is an "Outside Director," will
be determined under Code Section 162(m). An individual will
constitute an "Outside Director" only if he or she:
1
(i) Is not a current employee of the
Company;
(ii) Is not a former employee of the Company
who receives compensation for prior services (other
than benefits under a tax-qualified retirement plan);
(iii) Has not been an officer of the Company;
and
(iv) Does not receive any remuneration from
the Company, either directly or indirectly, in any
capacity other than as a director. Remuneration will
be considered to be paid to a director if amounts are
paid to an entity:
(A) In which the director holds
more than 50% of the ownership interest;
(B) Which employs the director; or
(C) Of which the director holds at
least 5% but not more than 50% of the ownership
interests.
(b) Payments will not be taken into account
for purposes of Clauses (B) and (C) of Paragraph
(a)(iv) above if the total amounts paid by the Company
during the preceding year did not exceed the lesser of
$60,000 or 5% of the recipient's income.
(c) For purposes of this Section 2.5,
"Company" shall include the other members of the
affiliated group of corporations, within the meaning of
Code Section 1504.
2.6 Participant. "Participant" shall mean an employee of
the Company (or of a subsidiary) that has been selected to
participate in the Plan.
2.7 Plan. "Plan" shall mean the Mattel, Inc. Management
Incentive Plan.
ARTICLE III
-----------
ELIGIBILITY AND BENEFITS
------------------------
3.1 Separate Standards.
(a) The Committee may elect to establish separate
standards for purposes of determining eligibility to
participate and benefits for each year. These standards
shall be set forth in minutes of the Committee.
2
(b) These standards shall be drafted and implemented
in a manner consistent with Code Section 162(m).
3.2 No Discretion.
(a) The Committee has the discretion to modify the
Plan to take into account the effect of unforeseen or
extraordinary events or accounting changes.
(b) Notwithstanding the provisions of Paragraph (a),
the Committee shall not have any discretion to increase the
benefits payable to any Participant who is a Covered
Employee, to the extent precluded by Code Section 162(m).
3.3 Shareholder Approval. Notwithstanding the above,
effective for payments that are deductible in years beginning on
or after January 1, 1994, no payments to Covered Employees may be
made under the Plan unless and until:
(a) The shareholders of the Company approve the Plan
in a separate vote, with affirmative votes being cast by the
majority of the voting shares.
(i) For this purpose, abstentions are not
counted unless applicable law provides otherwise.
(ii) Shareholder approval must be obtained
every five (5) years.
(b) The Committee certifies in writing that the
performance goals and any other material terms were
satisfied. This requirement may be satisfied by means of a
certificate in approved minutes of the Committee.
ARTICLE IV
----------
PAYMENT OF BENEFITS
-------------------
4.1 Designation of Beneficiary. In the event of the death
of a Participant prior to the date on which the Participant's
benefit is paid, the benefit (if any) shall be paid to the
Participant's surviving spouse. If the Participant does not have
a surviving spouse, the benefit (if any) will be paid to his or
her estate.
4.2 Payees under Legal Disability. If the Committee
reasonably believes that any payee is legally incapable of giving
a valid receipt and discharge for any payment due him or her, the
Committee may have the payment (if any) made to the person (or
persons or institution) whom it reasonably believes is caring for
or supporting such payee. Any such payment shall be a payment
for the benefit of the payee and shall be a complete discharge of
any liability under the Plan to the payee.
3
4.3 Payment of Benefits. All payments under the Plan shall
be delivered in person or mailed to the last address of the
Participant (or, in the case of the death of the Participant (if
applicable), to that of his or her surviving spouse). Each
Participant shall be responsible for furnishing the Committee
with his or her current address.
4.4 Entitlement to Benefits. Nothing contained in this
Article IV shall give a Participant greater rights to benefits
than under the provisions of the benefit formulae contained in the
minutes of the Committee. Specifically, if the formula provides
that a Participant's benefit is forfeited upon termination of
employment (whether by reason of death, disability, or otherwise),
no benefits will become payable by reason of the operation of this
Article IV.
ARTICLE V
---------
PLAN ADMINISTRATION
-------------------
5.1 Committee. Authority to administer the Plan shall be
vested in the Compensation/Options Committee of the Board of
Directors of Mattel, Inc. ("Committee"). Only Outside Directors
may be members of the Committee, and the Committee must have at
least two members.
5.2 Administrative Powers. The Committee shall have all
powers necessary to administer the Plan. In addition to any
powers and authority conferred on the Committee elsewhere in the
Plan or by law, the Committee shall have the following powers and
authority:
(a) To designate agents to carry out responsibilities
relating to the Plan;
(b) To administer, interpret, and answer all questions
which may arise under this Plan. The determinations by the
Committee will be binding upon all parties, to the maximum
extent permitted by law;
(c) To establish rules and procedures for the conduct
of its business and for the administration of the Plan; and
(d) To perform or cause to be performed such further
acts as it may deem necessary or appropriate in the
administration of the Plan.
5.3 Indemnification.
(a) To the maximum extent permitted by law, the
Company shall indemnify each member of the Committee and of
the Board of Directors of the Company against expenses
(including any amount paid in settlement) reasonably
incurred by him or her in connection with any claims against
him or her by reason of the performance of his or her duties
under the Plan. This indemnity shall not apply if the
individual:
(i) Acted fraudulently or in bad faith in
the performance of his or her duties; or
(ii) Fails to assist the Company in defending
against the claim.
4
(b) The Company shall have the right to select counsel
and to control the prosecution or defense of the suit.
(c) The Company shall not be required to indemnify any
person for any amount incurred through settlement of any
action unless the Company consents in writing to the
settlement.
ARTICLE VI
----------
MISCELLANEOUS MATTERS
---------------------
6.1 Amendment and Termination. The Company expects the
Plan to be permanent, but since future conditions affecting the
Company cannot be anticipated or foreseen, the Company reserves
the right to amend, modify, or terminate the Plan at any time by
action of its Board of Directors.
6.2 Benefits Not Alienable. Benefits under the Plan may
not be assigned or alienated, whether voluntarily or
involuntarily.
6.3 No Enlargement of Employee Rights. Nothing contained
in the Plan shall be deemed to give a participant the right to be
retained in the employ of the Company or to interfere with the
right of the Company to discharge any Participant at any time.
6.4 Governing Law. All legal questions pertaining to the
Plan shall be determined in accordance with the laws of the State
of Delaware.
IN WITNESS WHEREOF, Mattel, Inc. has caused this instrument
to be executed.
MATTEL, INC.
By: /s/ E. Joseph McKay
-------------------
Its: Senior Vice President, Human Resources
--------------------------------------
Date: January 1, 1994
---------------
5
<PAGE>
EXHIBIT 10.16
MATTEL LONG-TERM INCENTIVE PLAN
-------------------------------
ARTICLE I
---------
ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE
------------------------------------------
This Long-Term Incentive Plan is established by Mattel, Inc.
for the purpose of providing long-term incentive rewards for key
executives who are in a position to increase shareholder value
and to build the net worth of the Company. To assist in this
goal, the Plan helps to focus those executives upon the Company's
financial objectives of profitability, asset management, and
revenue growth. The effective date of this Plan is January 1,
1993.
ARTICLE II
----------
DEFINITIONS
-----------
2.1 Code. "Code" shall mean the Internal Revenue Code of
1986 and the regulations promulgated thereunder.
2.2 Committee. "Committee" shall mean the Committee
described in Section 5.1 below.
2.3 Company. "Company" shall mean Mattel, Inc. and any of
its subsidiaries whose employees participate in the Plan.
2.4 Covered Employee.
(a) "Covered Employee" means any individual who is, on
the last day of the Company's taxable year:
(i) The Chief Executive Officer; or
(ii) Among the four highest compensated
individuals (other than the Chief Executive Officer).
(b) The determination as to which individuals are
Covered Employees is determined in accordance with the rules
of the Securities and Exchange Commission, except that an
individual will not be a Covered Employee unless he or she
is employed by the Company on the last day of its taxable
year.
2.5 Outside Director.
(a) Whether a director is an "Outside Director," will
be determined under Code Section 162(m). An individual will
constitute an "Outside Director" only if he or she:
1
(i) Is not a current employee of the
Company;
(ii) Is not a former employee of the Company
who receives compensation for prior services (other
than benefits under a tax-qualified retirement plan);
(iii) Has not been an officer of the Company;
and
(iv) Does not receive any remuneration from
the Company, either directly or indirectly, in any
capacity other than as a director. Remuneration will
be considered to be paid to a director if amounts are
paid to an entity:
(A) In which the director holds
more than 50% of the ownership interest;
(B) Which employs the director; or
(C) Of which the director holds at
least 5% but not more than 50% of the ownership
interests.
(b) Payments will not be taken into account
for purposes of Clauses (B) and (C) of Paragraph
(a)(iv) above if the total amounts paid by the Company
during the preceding year did not exceed the lesser of
$60,000 or 5% of the recipient's income.
(c) For purposes of this Section 2.5,
"Company" shall include the other members of the
affiliated group of corporations, within the meaning of
Code Section 1504.
2.6 Participant. "Participant" shall mean an employee of
the Company (or of a subsidiary) that has been selected to
participate in the Plan.
2.7 Plan. "Plan" shall mean the Mattel, Inc. Long-Term
Incentive Plan.
ARTICLE III
-----------
ELIGIBILITY AND BENEFITS
------------------------
3.1 Separate Standards.
(a) The Committee may elect to establish separate
standards for purposes of determining eligibility to
participate and benefits for each year. These standards
shall be set forth in minutes of the Committee.
2
(b) These standards shall be drafted and implemented
in a manner consistent with Code Section 162(m).
3.2 No Discretion.
(a) The Committee has the discretion to modify the
Plan to take into account the effect of unforeseen or
extraordinary events or accounting changes.
(b) Notwithstanding the provisions of Paragraph (a),
the Committee shall not have any discretion to increase the
benefits payable to any Participant who is a Covered
Employee, to the extent precluded by Code Section 162(m).
3.3 Shareholder Approval. Notwithstanding the above,
effective for payments that are deductible in years beginning on
or after January 1, 1994, no payments to Covered Employees may be
made under the Plan unless and until:
(a) The shareholders of the Company approve the Plan
in a separate vote, with affirmative votes being cast by the
majority of the voting shares; and
(i) For this purpose, abstentions are not
counted unless applicable law provides otherwise.
(ii) Shareholder approval must be obtained
every five (5) years.
(b) The Committee certifies in writing that the
performance goals and any other material terms were
satisfied. This requirement may be satisfied by means of a
certificate in approved minutes of the Committee.
ARTICLE IV
----------
PAYMENT OF BENEFITS
-------------------
4.1 Designation of Beneficiary. In the event of the death
of a Participant prior to the date on which the Participant's
benefit is paid, the benefit (if any) shall be paid to the
Participant's surviving spouse. If the Participant does not have
a surviving spouse, the benefit (if any) will be paid to his or
her estate.
4.2 Payees under Legal Disability. If the Committee
reasonably believes that any payee is legally incapable of giving
a valid receipt and discharge for any payment due him or her, the
Committee may have the payment made to the person (or persons or
institution) whom it reasonably believes is caring for or
supporting such payee. Any such payment shall be a payment for
the benefit of the payee and shall be a complete discharge of any
liability under the Plan to the payee.
4.3 Payment of Benefits. All payments under the Plan
shall be delivered in person or mailed to the last address of the
Participant (or, in the case of the death of the Participant (if
applicable), to that of his or her surviving spouse). Each
Participant shall be responsible for furnishing the Committee
with his or her current address.
3
ARTICLE V
---------
PLAN ADMINISTRATION
-------------------
5.1 Committee. Authority to administer the Plan shall be
vested in the Compensation/Options Committee of the Board of
Directors of Mattel, Inc. ("Committee"). Only Outside Directors
may be members of the Committee, and the Committee must have at
least two members.
5.2 Administrative Powers. The Committee shall have all
powers necessary to administer the Plan. In addition to any
powers and authority conferred on the Committee elsewhere in the
Plan or by law, the Committee shall have the following powers and
authority:
(a) To designate agents to carry out responsibilities
relating to the Plan;
(b) To administer, interpret, and answer all questions
which may arise under this Plan. The determinations by the
Committee will be binding upon all parties, to the maximum
extent permitted by law;
(c) To establish rules and procedures for the conduct
of its business and for the administration of the Plan; and
(d) To perform or cause to be performed such further
acts as it may deem necessary or appropriate in the
administration of the Plan.
5.3 Indemnification.
(a) To the maximum extent permitted by law, the
Company shall indemnify each member of the Committee and of
the Board of Directors of the Company against expenses
(including any amount paid in settlement) reasonably
incurred by him or her in connection with any claims against
him or her by reason of the performance of his or her duties
under the Plan. This indemnity shall not apply if the
individual:
(i) Acted fraudulently or in bad faith in
the performance of his or her duties; or
(ii) Fails to assist the Company in defending
against the claim.
(b) The Company shall have the right to select counsel
and to control the prosecution or defense of the suit.
4
(c) The Company shall not be required to indemnify any
person for any amount incurred through settlement of any
action unless the Company consents in writing to the
settlement.
ARTICLE VI
----------
MISCELLANEOUS MATTERS
---------------------
6.1 Amendment and Termination. The Company expects the
Plan to be permanent, but since future conditions affecting the
Company cannot be anticipated or foreseen, the Company reserves
the right to amend, modify, or terminate the Plan at any time by
action of its Board of Directors.
6.2 Benefits Not Alienable. Benefits under the Plan may
not be assigned or alienated, whether voluntarily or
involuntarily.
6.3 No Enlargement of Employee Rights. Nothing contained
in the Plan shall be deemed to give a participant the right to be
retained in the employ of the Company or to interfere with the
right of the Company to discharge any Participant at any time.
6.4 Governing Law. All legal questions pertaining to the
Plan shall be determined in accordance with the laws of the State
of Delaware.
IN WITNESS WHEREOF, Mattel, Inc. has caused this instrument
to be executed.
MATTEL, INC.
By: /s/ E. Joseph McKay
-------------------
Its: Senior Vice President, Human Resources
--------------------------------------
Date: January 1, 1994
---------------
5
<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 YEAR ENDED (a)(b)
------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
PRIMARY 1995 1994 1993 1992 1991
- ------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary Item and Cumulative
Effect of Changes in Accounting Principles $357,802 $255,832 $135,911 $184,841 $134,038
Add: Interest savings, net of tax, applicable to
assumed exercise of Fisher-Price warrants - - 637 1,138 594
Deduct: Dividends on convertible preference stock (3,342) (4,689) (4,894) (4,826) (4,830)
Dividends on senior preferred stock - - - (152) (605)
-------- -------- -------- -------- --------
Income Before Extraordinary Item and Cumulative
Effect of Changes in Accounting Principles for
Computation of Income Per Share 354,460 251,143 131,654 181,001 129,197
Extraordinary item - - (14,681) - (5,236)
Cumulative effect of changes in accounting principles - - (4,022) - -
-------- -------- -------- -------- --------
Net Income Applicable to Common Shares $354,460 $251,143 $112,951 $181,001 $123,961
======== ======== ======== ======== ========
Applicable Shares
Weighted average common shares outstanding 276,309 275,572 262,856 264,066 224,013
Weighted average common equivalent shares arising from:
Stock options 3,271 3,090 2,935 3,622 3,036
Fisher-Price warrants 928 1,023 1,681 3,258 1,752
Restricted stock 507 238 - - -
Common stock warrants - $6.25 Series - - - - 636
-------- -------- -------- -------- --------
Weighted average number of common and common
equivalent shares 281,015 279,923 267,472 270,946 229,437
======== ======== ======== ======== ========
Income Per Share Before Extraordinary Item and
Cumulative Effect of Changes in Accounting Principles $ 1.26 $ 0.90 $ 0.49 $ 0.67 $ 0.56
Extraordinary item - - (0.05) - (0.02)
Cumulative effect of changes in accounting
principles - - (0.02) - -
-------- -------- -------- -------- --------
Net Income Per Common Share $ 1.26 $ 0.90 $ 0.42 $ 0.67 $ 0.54
======== ======== ======== ======== ========
<FN>
(a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects of
the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of operations
and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, while its business was
operated as a division of The Quaker Oats Company.
(b) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996,
January 1995 and 1994, June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and 1992,
respectively.
</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 YEAR ENDED (a)(b)
------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
FULLY DILUTED 1995 1994 1993 1992 1991
- ------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Before Extraordinary Item and Cumulative
Effect of Changes in Accounting Principles $357,802 $255,832 $135,911 $184,841 $134,038
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 8% convertible debentures - 628 5,338 5,467 3,907
Assumed exercise of Fisher-Price warrants - - 637 1,138 594
Deduct: Dividends on senior preferred stock - - - (152) (605)
Impact of required ESOP dividends or
contributions upon conversion - (3,598) (4,894) (4,826) (4,830)
-------- -------- -------- -------- --------
Income Before Extraordinary Item and Cumulative
Effect of Changes in Accounting Principles for
Computation of Income Per Share 357,802 252,862 136,992 186,468 133,104
Extraordinary item - - (14,681) - (5,236)
Cumulative effect of changes in accounting principles - - (4,022) - -
-------- -------- -------- -------- --------
Net Income Applicable to Common Shares $357,802 $252,862 $118,289 $186,468 $127,868
======== ======== ======== ======== ========
Applicable Shares
Weighted average common shares outstanding 276,309 275,572 263,067 264,223 224,096
Weighted average common equivalent shares arising from:
Stock options 4,220 3,110 3,475 4,153 4,512
Assumed conversion of convertible preference stock 739 2,104 2,531 2,531 2,531
Assumed conversion of 8% convertible debentures - 1,619 11,823 12,176 9,322
Fisher-Price warrants 969 1,023 1,681 3,258 1,753
Restricted stock 618 330 - - -
Common stock warrants - $6.25 Series - - - - 891
-------- -------- -------- -------- --------
Weighted average number of common and common
equivalent shares 282,855 283,758 282,577 286,341 243,105
======== ======== ======== ======== ========
Income Per Share Before Extraordinary Item and
Cumulative Effect of Changes in Accounting Principles $ 1.26 $ 0.89 $ 0.48 $ 0.65 $ 0.55
Extraordinary item - - (0.05) - (0.02)
Cumulative effect of changes in accounting
principles - - (0.01) - -
-------- -------- -------- -------- --------
Net Income Per Common Share $ 1.26 $ 0.89 $ 0.42 $ 0.65 $ 0.53
======== ======== ======== ======== ========
<FN>
(a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects of
the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of operations
and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, while its business was
operated as a division of The Quaker Oats Company.
(b) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996,
January 1995 and 1994, June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and 1992,
respectively.
</TABLE>
<PAGE>
EXHIBIT 13.0
Financial Information
---------------------
Mattel, Inc. and Subsidiaries
- -----------------------------------------------------------------------
Five-Year Financial Summary 27
Management's Discussion and Analysis of Financial Condition
and Results of Operations 28
Consolidated Financial Statements 32
Notes to Consolidated Financial Statements 37
Management Report on Responsibility for Financial Reporting 51
Report of Independent Accountants 51
- -----------------------------------------------------------------------
26
FIVE-YEAR FINANCIAL SUMMARY
---------------------------
Mattel, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Year Ended December 31 (a)
----------------------------------------------------------
(In thousands, except per share and percentage information) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $3,638,812 $3,205,025 $2,704,448 $2,563,525 $2,046,489
Gross profit 1,789,162 1,601,503 1,326,267 1,239,308 973,402
% of net sales 49% 50% 49% 48% 48%
Operating profit before restructuring and
integration charges (b) 606,491 521,081 414,260 351,661 278,660
% of net sales 17% 16% 15% 14% 14%
Restructuring and integration charges (c) - 72,000 115,000 - -
Income before income taxes, extraordinary item
and cumulative effect of changes in
accounting principles 532,902 393,632 236,646 282,945 214,326
Provision for income taxes 175,100 137,800 100,735 98,104 80,288
Income before extraordinary item and
cumulative effect of changes in
accounting principles 357,802 255,832 135,911 184,841 134,038
Extraordinary item - loss on debt retirement - - (14,681) - (5,236)
Cumulative effect of changes in accounting principles - - (4,022) - -
Net income 357,802 255,832 117,208 184,841 128,802
Income Per Common Share (d):
Income before extraordinary item and cumulative effect
of changes in accounting principles
Primary 1.26 0.90 0.49 0.67 0.56
Fully diluted 1.26 0.89 0.48 0.65 0.55
Net income
Primary 1.26 0.90 0.42 0.67 0.54
Fully diluted 1.26 0.89 0.42 0.65 0.53
Dividends declared per common share (d) 0.19 0.15 0.12 0.09 0.05
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
As of Year End (a)
----------------------------------------------------------
(In thousands) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Position:
Cash and marketable securities $ 483,457 $ 259,681 $ 523,581 $ 327,807 $ 290,750
Accounts receivable, net 679,283 762,024 580,313 538,444 467,266
Inventories 350,841 339,143 219,993 238,895 225,411
Total assets 2,695,509 2,459,026 2,000,077 1,712,675 1,564,832
Notes payable 15,520 - - 13,401 29,733
Long-term liabilities 572,659 457,455 398,939 434,930 353,575
Shareholders' equity 1,275,169 1,085,690 817,809 748,356 664,254
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects
of the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of
operations and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, when
its business was operated as a division of The Quaker Oats Company (Note 7).
(b) Represents income from operations before restructuring charges, interest expense and provision for income
taxes.
(c) 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 (Note 7).
(d) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996,
January 1995 and 1994, June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and
1992, respectively.
</TABLE>
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
----------------------------------
Mattel, Inc. and Subsidiaries
This analysis should be read in conjunction with the consolidated financial
statements which begin on page 32.
Mattel's financial performance reflects the Company's solid growth in
1995, demonstrating continued strength in its core brands, as well as
incremental volume provided through expansion of its international
marketing and distribution network and increased manufacturing efficiency.
The Company's long-term business strategies have resulted in another record
year for sales and earnings, with net sales for 1995 of $3.6 billion and
net income for 1995 of $357.8 million.
Core brands have historically provided the Company with relatively
stable growth. The Company's four principal core brands are BARBIE fashion
dolls and doll clothing and accessories; FISHER-PRICE toys and juvenile
products, including the POWER WHEELS line of battery-powered, ride-on
vehicles; the Company's Disney-licensed toys; and die-cast HOT WHEELS
vehicles and playsets, each of which has broad worldwide appeal.
Additional core product lines consist of large dolls, including CABBAGE
PATCH KIDS; preschool toys, including SEE `N SAY talking toys; the UNO and
SKIP-BO card games; and the SCRABBLE game, which the Company markets
outside of the United States and Canada.
RESULTS OF OPERATIONS
- ---------------------
The following is a percentage analysis of operating results for the past
three years:
<TABLE>
<CAPTION>
For the Year
----------------------------------
1995 1994 1993
- ---------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100% 100% 100%
========== ========== ==========
Gross profit 49 50 49
Advertising and promotion
expenses 16 16 16
Other selling and administrative
expenses 16 17 18
Restructuring and integration
charges - 2 4
Other expense, net - 1 -
---------- ---------- ----------
Operating profit 17 14 11
Interest expense 2 2 2
---------- ---------- ----------
Income before income taxes,
extraordinary item and changes
in accounting principles 15% 12% 9%
========== ========== ==========
</TABLE>
1995 COMPARED TO 1994
- ---------------------
Net sales increased $433.8 million or 14% over 1994, reflecting the
continuing strong demand for the Company's core products such as BARBIE
doll products; FISHER-PRICE toys and juvenile products, including the POWER
WHEELS line; as well as Disney-licensed toys introduced in connection with
the release of the "Pocahontas" motion picture.
Worldwide sales of core products represented 87% of the Company's
gross revenues compared to 84% in 1994. Core brands increased 16%, mainly
due to greater demand for BARBIE and BARBIE-related products, which
increased from $1.1 billion to $1.4 billion. FISHER-PRICE products
contributed $1.2 billion to gross sales in 1995 compared to $1.0 billion in
1994. Sales of Disney-licensed products increased to $451.5 million.
Sales to customers within the United States grew 15% and accounted for
60% of consolidated sales for 1995 compared to 59% in the prior year.
Sales to customers outside the United States increased 10% compared to
1994, including the $29.8 million favorable effect of the generally weaker
US dollar relative to last year. At comparable foreign currency exchange
rates, sales internationally grew 9%.
Gross profit as a percentage of net sales decreased one percentage
point to 49%, due primarily to the impact of increased raw material prices
and other product costs, partially offset by reduced duties as a result of
changes in the General Agreement on Tariffs and Trade.
Advertising and promotion expenses remained constant as a percentage
of net sales; however, spending increased $68.0 million in support of
increased sales volume, new product introductions, and further development
of international markets. Other selling and administrative expenses
increased $66.6 million primarily due to higher design and development
expenses in support of both core products and new product lines. Other
income, net, increased $32.4 million principally due to the impact of the
Mexican peso devaluation in the fourth quarter of 1994, and the 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.
Interest expense increased $18.1 million or 33% from 1994, which
reflects higher average levels of domestic borrowings at higher interest
rates.
28
In the 1994 fourth quarter, the Company recognized a $72.0 million
pre-tax charge against continuing operations in connection with the
consolidation of manufacturing operations and the reduction of headquarters
expense and support functions worldwide. At December 31, 1995, the
remaining $13.0 million accrual related primarily to committed severance
plans and obligations under certain long-term leases. The cost savings
realized by the Company as a result of the staff reductions and various
distribution and lease terminations were comparable to the anticipated $25
million, and the type and amount of charges incurred to date approximated
the amounts included in the provision.
1994 COMPARED TO 1993
- ---------------------
Net sales increased $500.6 million or 19% over 1993, reflecting strong
growth in worldwide sales of core products, as well as POLLY POCKET toys,
Nickelodeon-licensed toys, and MIGHTY MAX action figures. Added volume was
also generated by the acquisitions of the Kransco business and J.W. Spear &
Sons PLC ("Spear"), which contributed $178.7 million in the aggregate to
net sales during 1994. Excluding the Kransco and Spear acquisitions, the
Company's worldwide net sales increased $321.9 million or 12%.
Worldwide sales of core products represented 84% of total revenues in
1994 compared to 86% for the prior year, largely as a result of strong non-
core product sales. Core brand sales increased 16% over the prior year,
with gross sales of BARBIE doll products exceeding $1.1 billion in volume.
Sales of Disney-licensed products, led by toys connected with "The Lion
King" motion picture, increased by 33% to $441.9 million. Fisher-Price,
including the POWER WHEELS line, contributed $965.6 million to gross sales
in 1994 compared to $747.9 million in 1993, and HOT WHEELS brand sales grew
by 18% over 1993 volumes. These increases were partially offset by a
continuing decline in sales in the large doll segment, which were 27% below
the prior year volume.
Sales to customers in the United States were 59% of 1994 consolidated
revenues compared to 60% in the prior year. In total, domestic sales
increased 17%, partially attributable to incremental volume generated from
the acquisition of Kransco, which represented 6% of the Company's domestic
sales for 1994. Total international sales increased 20% compared to 1993,
including the $24.0 million favorable effect of the generally weaker US
dollar relative to last year. At comparable foreign currency exchange
rates, sales outside the United States grew 19%.
Gross profit as a percentage of net sales increased one percentage
point to 50%, primarily due to higher sales volume, improved product mix
and synergies realized as a result of the integration of Fisher-Price.
Advertising and promotion expenses increased slightly as a percentage of
net sales; however, spending increased $89.8 million in support of the
growth in sales volume, new product introductions, further development of
markets internationally and the acquisitions of Kransco and Spear, which
contributed $16.3 million to the advertising growth. As a percentage of
net sales, other selling and administrative expenses decreased from 18% to
17%, reflecting the Company's ongoing efforts to manage expense growth
relative to revenue growth. In total, selling and administrative expenses
increased by $63.0 million mainly due to the acquisitions of Kransco and
Spear, which contributed $22.1 million to the increase. Other expense,
net, increased $15.6 million, primarily due to the effect of the Mexican
peso devaluation in the fourth quarter and higher goodwill amortization
arising from the Kransco and Spear acquisitions in 1994, partially offset
by higher 1993 charges related to losses on sales of fixed assets.
Interest expense decreased $7.2 million over the prior year as a
result of the prepayment of Fisher-Price's 10.69% term loan, and interest
savings generated by the conversion of the 8% Debentures to common stock
during the 1994 first quarter, partially offset by increased seasonal
borrowings to finance the acquisitions of Kransco and Spear.
In the 1994 fourth quarter, the Company recognized a $72.0 million pre-
tax charge against continuing operations in connection with the
consolidation of manufacturing operations and the reduction of headquarters
expense and support functions worldwide. Of these charges, approximately
$36 million was related to severance costs from elimination of
approximately 1,000 positions, $15 million represented restricted stock
awards that related to the Fisher-Price integration, $14 million for
termination of various distribution and lease agreements, $4 million for
the writedown of fixed assets to their net realizable value in connection
with the elimination of excess manufacturing capacity, and other costs of
$3 million. After related tax effects, the net $46.8 million charge
impacted 1994 earnings by $0.17 per share.
In connection with its merger with Fisher-Price, the Company
recognized a one-time charge of $115.0 million, pre-tax, in the 1993 fourth
quarter. After related tax effects, the net $90.4 million charge impacted
1993 earnings by $0.34 per share. As of December 31, 1994, the integration
and restructuring activity provided for by the 1993 charge was
substantially complete and amounts previously accrued had been paid. The
cost savings realized by the Company as a result of the consolidation of
facilities and related staff reductions were comparable to the anticipated
$45 million, and the type and amount of charges actually incurred
approximated the amounts included in the provision.
The 1993 fourth quarter included an extraordinary net-of-tax charge of
$14.7 million or $0.05 per share resulting from prepayment of Fisher-
Price's 10.69% term loan.
INCOME TAXES
- ------------
The effective income tax rates for 1995 and 1994 were 33.0% and 35.0%,
respectively. The decrease in the effective rate for 1995 resulted from
increased taxable income earned in locations with relatively lower rates.
29
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which replaced
---------------------------
Statement No. 96. Upon adoption, a deferred income tax asset of $69.0
million was recorded, of which $16.0 million related to postquasi-
reorganization net operating losses carried forward, and $53.0 million
related principally to future tax deductions, and foreign tax credit and
alternative minimum tax credit carryovers resulting from activities prior
to the 1987 quasi-reorganization. The benefit of $16.0 million (or $0.06
per share in the 1993 first quarter) was recognized in after-tax earnings
as the cumulative effect of a change in accounting principle. The
remaining $53.0 million was credited to additional paid-in capital in
accordance with the required accounting treatment for transactions
resulting from activities prior to the quasi-reorganization.
FINANCIAL POSITION
- ------------------
The Company's financial position remained strong in 1995 primarily due to
its profitable operating results. At December 31, 1995, the Company's cash
position, including marketable securities, was $483.5 million, compared to
$259.7 million as of the prior year. The higher balance was due to the
issuance of $139.5 million of Medium-Term Notes during 1995 and cash
generated from increased profitability. The Company's working capital
increased to $843.1 million.
Accounts receivable decreased $82.7 million over the prior year level
primarily due to the sale of certain trade receivables, partially offset by
higher current year sales volume. Inventory balances increased slightly to
$350.8 million.
The Company's capitalization is as follows:
<TABLE>
<CAPTION>
As of Year End
----------------------------------------
(In millions) 1995 1994
- ----------------------------- ------------------- -------------------
<S> <C> <C>
6-7/8% Senior Notes $ 99.8 5% $ 99.6 7%
6-3/4% Senior Notes 100.0 6 100.0 7
Medium-Term Notes 220.0 12 110.5 7
Other long-term debt
obligations 61.1 3 64.9 4
--------- -------- -------- ---------
Total long-term debt 480.9 26 375.0 25
Other long-term liabilities 91.7 5 82.5 5
Shareholders' equity 1,275.2 69 1,085.7 70
--------- -------- -------- ---------
$1,847.8 100% $1,543.2 100%
========= ======== ======== =========
</TABLE>
Total long-term debt increased $105.9 million mainly due to the
issuance of Medium-Term Notes. 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 of 1996, the Company
filed a universal shelf registration statement which, when effective, will
allow for the issuance of up to $350.0 million of debt and equity
securities. Shareholders' equity increased $189.5 million over 1994,
reflecting profitable operating results for the current year and $40.8
million for activity related to employee stock compensation plans. These
increases were partially offset by the (i) $73.9 million repurchase of
Series F Preference Stock from the International Games, Inc. ("IGI")
Employee Stock Ownership Plan ("ESOP"), (ii) treasury stock purchases of
$64.3 million and (iii) dividend declarations on common and preference
stock totaling $53.6 million.
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 $405.5 million
during 1995, compared to $346.6 million and $306.7 million in 1994 and
1993, respectively.
Principal investing activities during 1995, 1994, and 1993 included
additions of tooling, property and equipment at various manufacturing and
office facilities, as well as additional investing in the construction of
new manufacturing plants. Investing activities during 1995 and 1994
included expenditures for acquired businesses. In 1995, investing
activities also included construction on a new design facility for Fisher-
Price.
Financing activities provided intermediate- and long-term funds
through the issuance of Medium-Term Notes in both 1995 and 1994, and the
6-3/4% Senior Notes in 1993, which were utilized by the Company to retire
higher-cost debt and for general corporate purposes. In 1995, all shares
of Series F Preference Stock and common stock were repurchased from the IGI
ESOP. In 1994, the Company retired Fisher-Price's 10.69% term loan. Cash
outlays for treasury stock were made over the three-year period primarily
to purchase shares for issuance under the Company's employee stock option
plans and for conversions of convertible securities. The Company has
consistently increased cash payments for common dividends over the three-
year period as a result of stock splits distributed to common shareholders.
SHORT-TERM FINANCING
- --------------------
The Company's seasonal cash flow requirements for the coming year are
expected to be met by cash on hand as of December 31, 1995, cash generated
by 1996 operations, and short-term credit lines provided by domestic and
foreign banks. Under the Company's domestic credit line, unsecured
facilities provide a total of $800.0 million in seasonal financing from a
commercial bank group. The facilities provide for up to $400.0 million in
advances and backup for commercial paper issuances (a five-year facility),
and up to an additional $400.0 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,
interest coverage and tangible net worth levels.
30
In addition, the Company expects to have available approximately $328
million of individual short-term international credit lines with a number
of banks, which customarily are extended as needed to meet seasonal working
capital requirements of certain international affiliates.
ACQUISITIONS
- ------------
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 for $274.6 million in cash, including
costs directly related to the acquisition and the repayment of $20.0
million of Kransco's short-term borrowings. The asset purchase agreement
also provided for future contingent consideration in the event that net
sales of the POWER WHEELS product line reached or exceeded certain levels
in each of calendar years 1994, 1995 and 1996. Under the agreement, the
contingent consideration payable with respect to any year shall not exceed
$8.6 million. During 1995, $8.6 million of consideration was paid related
to the 1994 sales, and an additional $8.6 million was accrued, which
resulted in an increase of $17.2 million to the initial goodwill.
In July 1994, the Company acquired a majority of the shares of 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. The aggregate purchase price, including related
acquisition costs, denominated in pounds sterling, was approximately $100
million.
On November 30, 1993, the Company completed a merger transaction,
accounted for as a pooling of interests, with Fisher-Price, a manufacturer
and marketer of infant and preschool toys and juvenile products. The
merger, valued on the merger's effective date at $1.19 billion, was
effected by the exchange of 2.490 shares (1.275 shares prior to stock
splits) of Mattel common stock for each outstanding Fisher-Price common
share. Financial information for periods preceding the merger were
retroactively restated to reflect the combined operations of the companies.
LITIGATION
- ----------
The Company is involved in various litigation and other legal matters,
including claims related to product liability 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, 1995, the Company had outstanding commitments for
1996 purchases of inventory of approximately $101 million. Licensing and
similar agreements with terms extending through the year 2002 contain
provisions for future guaranteed minimum payments aggregating approximately
$283 million.
FOREIGN CURRENCY CONTRACTS
- --------------------------
The Company enters into foreign currency forward exchange contracts and
swap agreements 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 Company's results of operations
and cash flows. As of December 31, 1995 and 1994, the Company and its
international affiliates had outstanding forward exchange contracts
totaling $689.2 million and $322.7 million, respectively, and swap
agreements totaling $195.4 million and $189.9 million, respectively.
Market risk exposures exist with respect to foreign currency forward
exchange contracts to the extent that currency fluctuations cannot be
predicted with certainty. The Company seeks to mitigate its exposure to
market risk through determining its future foreign currency positions and
hedge requirements, retaining flexibility with respect to currencies used
for international borrowing arrangements and intercompany invoicing, and
varying the degree of coverage of individual foreign currency exposures,
which may alternatively be left open, partially or fully hedged. By
policy, the Company maintains hedge coverages between minimum and maximum
percentages of its anticipated foreign currency exposures for any given
year.
In order to minimize the risk of counterparty non-performance, the
Company executes its foreign currency forward exchange contracts and swap
agreements with financial institutions believed to be credit-worthy,
generally those that provide the Company with its working capital lines of
credit. The Company does not trade in financial instruments nor does it
enter into contracts for speculative purposes.
EFFECTS OF INFLATION
- --------------------
Inflation rates in the United States and in major foreign countries in
which the Company operates have not had a significant impact on the
Company's operating results for the three years ended December 31, 1995.
The US Consumer Price Index increased 2.5% in 1995, and 2.7% in both 1994
and 1993.
31
CONSOLIDATED BALANCE SHEETS
---------------------------
Mattel, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31, December 31,
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 466,082 $ 239,100
Marketable securities 17,375 20,581
Accounts receivable, less allowances of
$10,788 at December 31, 1995 and
$16,100 at December 31, 1994 679,283 762,024
Inventories 350,841 339,143
Prepaid expenses and other current assets 177,238 182,675
---------- ----------
Total current assets 1,690,819 1,543,523
---------- ----------
Property, Plant and Equipment
Land 25,724 22,577
Buildings 192,323 172,310
Machinery and equipment 354,469 289,796
Capitalized leases 24,271 38,468
Leasehold improvements 51,629 46,512
---------- ----------
648,416 569,663
Less: accumulated depreciation 265,885 248,666
---------- ----------
382,531 320,997
Tools, dies and molds, net 116,783 94,924
---------- ----------
Property, plant and equipment, net 499,314 415,921
---------- ----------
Other Noncurrent Assets
Intangible assets, net 422,796 432,232
Sundry assets 82,580 67,350
---------- ----------
$2,695,509 $2,459,026
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
32
<CAPTION>
December 31, December 31,
(In thousands, except share data) 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 15,520 $ -
Current portion of long-term liabilities 33,215 3,095
Accounts payable 250,401 295,246
Accrued liabilities 410,362 453,146
Income taxes payable 138,183 164,394
---------- ----------
Total current liabilities 847,681 915,881
---------- ----------
Long-Term Liabilities
6-7/8% Senior Notes 99,752 99,604
6-3/4% Senior Notes 100,000 100,000
Medium-Term Notes 220,000 110,500
Mortgage note 44,585 45,000
Other 108,322 102,351
---------- ----------
Total long-term liabilities 572,659 457,455
---------- ----------
Shareholders' Equity
Preference stock - 9
Common stock $1.00 par value, 300.0 million
shares authorized; 279.1 million shares
issued with 275.5 million shares outstanding
for 1995 and 279.1 million shares issued with
276.1 million shares outstanding for 1994 (a) 279,058 223,264
Additional paid-in capital 103,512 234,913
Treasury stock at cost; 3.6 million shares for
1995 and 3.0 million shares for 1994 (a) (75,574) (53,812)
Retained earnings (b) 1,041,735 737,528
Currency translation and other adjustments (b) (73,562) (56,212)
---------- ----------
Total shareholders' equity 1,275,169 1,085,690
---------- ----------
$2,695,509 $2,459,026
========== ==========
<FN>
Commitments and Contingencies (See accompanying notes.)
(a) Share data for 1995 and 1994 have been restated for the effects of the
five-for-four stock split declared in February 1996.
(b) Since December 26, 1987 (Note 1).
</TABLE>
33
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Mattel, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Year
----------------------------------
(In thousands, except per share amounts) 1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $3,638,812 $3,205,025 $2,704,448
Cost of sales 1,849,650 1,603,522 1,378,181
---------- ---------- ----------
Gross Profit 1,789,162 1,601,503 1,326,267
Advertising and promotion expenses 584,497 516,485 426,698
Other selling and administrative expenses 603,061 536,443 473,394
Restructuring and integration charges - 72,000 115,000
Interest expense 73,589 55,449 62,614
Other (income) expense, net (4,887) 27,494 11,915
---------- ---------- ----------
Income Before Income Taxes, Extraordinary
Item and Cumulative Effect of Changes
in Accounting Principles 532,902 393,632 236,646
Provision for income taxes 175,100 137,800 100,735
---------- ---------- ----------
Income Before Extraordinary Item and
Cumulative Effect of Changes in
Accounting Principles 357,802 255,832 135,911
Extraordinary item - loss on early
retirement of debt - - (14,681)
---------- ---------- ----------
Income Before Cumulative Effect of
Changes in Accounting Principles 357,802 255,832 121,230
Cumulative effect of changes in
accounting principles - - (4,022)
---------- ---------- ----------
Net Income 357,802 255,832 117,208
Preference stock dividend requirements 3,342 4,689 4,894
---------- ---------- ----------
Net Income Applicable to Common Shares $ 354,460 $ 251,143 $ 112,314
========== ========== ==========
Income Per Common and Common Equivalent Share
Income before extraordinary item and
cumulative effect of changes in
accounting principles $ 1.26 $ 0.90 $ 0.49
Extraordinary item - loss on early
retirement of debt - - (0.05)
Cumulative effect of changes in
accounting principles - - (0.02)
---------- ---------- ----------
Net income $ 1.26 $ 0.90 $ 0.42
========== ========== ==========
Average number of common and common
equivalent shares 281,015 279,923 267,472
========== ========== ==========
Dividends Declared Per Common Share $ 0.19 $ 0.15 $ 0.12
========== ========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
34
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Mattel, Inc. and Subsidiaries
<TABLE>
<CAPTION>
For the Year
---------------------------------
(In thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 357,802 $ 255,832 $117,208
Adjustments to reconcile net income to
net cash flows from operating activities:
Gain on sale of business (9,142) - -
Depreciation and amortization 132,984 124,272 91,970
Provision for deferred compensation 7,919 14,918 5,957
Loss on early retirement of debt, net of tax - - 14,681
Cumulative effect of changes in accounting
principles, net of tax - - 4,022
Provision for lease termination, net - - (41,120)
Decrease (increase) in accounts receivable 70,509 (155,265) (55,525)
(Increase) decrease in inventories (15,279) (74,148) 11,842
Decrease (increase) in prepaid expenses
and other current assets 3,400 (38,626) 7,319
(Decrease) increase in accounts payable,
accrued liabilities and income
taxes payable (142,948) 215,403 161,818
Other, net 247 4,166 (11,474)
--------- --------- --------
Net cash flows from operating activities 405,492 346,552 306,698
--------- --------- --------
Cash Flows From Investing Activities:
Purchases of tools, dies and molds (89,730) (75,285) (60,809)
Purchases of other property, plant and equipment (117,155) (88,097) (40,060)
Purchases of marketable securities (29,154) (29,032) (28,616)
Proceeds from sales of other property,
plant and equipment 10,903 12,221 12,459
Proceeds from sales of marketable securities 32,237 25,637 25,581
Proceeds from sale of business 21,129 - -
Investments in acquired businesses (8,625) (374,965) -
Other, net 318 (89) (713)
--------- --------- --------
Net cash flows used for investing activities (180,077) (529,610) (92,158)
--------- --------- --------
Cash Flows From Financing Activities:
Notes payable, net 18,637 (5,966) (14,135)
Issuance of Medium-Term Notes 139,500 110,500 -
Long-term foreign borrowing (2,572) (4,337) (31,262)
Redemption of Fisher-Price term loan - (120,629) -
Issuance of 6-3/4% Senior Notes - - 100,000
Tax benefit of employee stock options exercised 8,500 23,923 4,431
Exercise of stock options and warrants 24,353 39,209 8,012
Purchase of treasury stock (64,284) (80,885) (52,558)
Repurchase of Series F Preference Stock (73,866) - -
Dividends paid on common and preference stock (50,963) (47,840) (30,476)
Payment for tendered Fisher-Price warrants - (4,891) -
Other, net 578 4,863 (381)
--------- --------- --------
Net cash flows used for financing activities (117) (86,053) (16,369)
Effect of Exchange Rate Changes on Cash 1,684 2,098 (5,751)
--------- --------- --------
Increase (Decrease) in Cash 226,982 (267,013) 192,420
Cash at Beginning of Year 239,100 506,113 313,693
--------- --------- --------
Cash at End of Year $ 466,082 $ 239,100 $506,113
========= ========= ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
35
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
Mattel, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Additional
Preference Common Paid-In Treasury
(In thousands) Stock Stock Capital Stock
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $9 $137,360 $247,727 $(43,098)
Net income
Five-for-four stock split 34,343 (34,781)
Purchase of treasury stock (52,558)
Conversion of 8% debentures (9,540) 33,876
Restricted stock activity 688 13,308
Amortization of deferred compensation
Exercise of stock options 79 6,494
Issuance of treasury stock (8,560) 14,430
Dividends declared on common stock
Dividends declared on preference stock
Cumulative effect of change in accounting
principle 53,000
Termination of pre-quasi lease commitment (41,120)
Collection of ESOP note receivable
Currency translation and other adjustments
--------- -------- -------- ---------
Balance, December 31, 1993 9 172,470 226,528 (47,350)
Net income
Five-for-four stock split 44,653 (44,653)
Purchase of treasury stock (80,885)
Conversion of 8% debentures 5,897 67,549
Restricted stock activity 1,915
Exercise of stock options 244 26,496
Issuance of treasury stock (38,031) 74,423
Payment for tendered Fisher-Price warrants (4,891)
Dividends declared on common stock
Dividends declared on preference stock
Collection of ESOP note receivable
Currency translation and other adjustments
--------- -------- -------- ---------
Balance, December 31, 1994 9 223,264 234,913 (53,812)
Net income
Five-for-four stock split 55,794 (55,794)
Purchase of treasury stock (64,284)
Repurchase of Series F Preference Stock (9) (73,857)
Restricted stock activity 7,919
Exercise of stock options 8,500
Issuance of treasury stock (18,169) 42,522
Dividends declared on common stock
Dividends declared on preference stock
Currency translation and other adjustments
--------- -------- -------- ---------
Balance, December 31, 1995 $- $279,058 $103,512 $(75,574)
========= ======== ======== =========
<FN>
The accompanying notes are an integral part of these statements.
<CAPTION>
Currency
ESOP Translation Total
Retained Note Deferred and Other Shareholders'
(In thousands) Earnings Receivable Compensation Adjustments Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 448,600 $(8,420) $ (5,650) $(28,172) $ 748,356
Net income 117,208 117,208
Five-for-four stock split (438)
Purchase of treasury stock (52,558)
Conversion of 8% debentures 24,336
Restricted stock activity (13,310) 686
Amortization of deferred compensation 5,957 5,957
Exercise of stock options 6,573
Issuance of treasury stock 5,870
Dividends declared on common stock (28,911) (28,911)
Dividends declared on preference stock (4,894) (4,894)
Cumulative effect of change in accounting
principle 53,000
Termination of pre-quasi lease commitment (41,120)
Collection of ESOP note receivable 4,920 4,920
Currency translation and other adjustments (21,176) (21,176)
---------- -------- -------- -------- ----------
Balance, December 31, 1993 532,003 (3,500) (13,003) (49,348) 817,809
Net income 255,832 255,832
Five-for-four stock split -
Purchase of treasury stock (80,885)
Conversion of 8% debentures 73,446
Restricted stock activity 13,003 14,918
Exercise of stock options 26,740
Issuance of treasury stock 36,392
Payment for tendered Fisher-Price warrants (4,891)
Dividends declared on common stock (45,618) (45,618)
Dividends declared on preference stock (4,689) (4,689)
Collection of ESOP note receivable 3,500 3,500
Currency translation and other adjustments (6,864) (6,864)
---------- -------- -------- -------- ----------
Balance, December 31, 1994 737,528 - - (56,212) 1,085,690
Net income 357,802 357,802
Five-for-four stock split -
Purchase of treasury stock (64,284)
Repurchase of Series F Preference Stock (73,866)
Restricted stock activity 7,919
Exercise of stock options 8,500
Issuance of treasury stock 24,353
Dividends declared on common stock (50,253) (50,253)
Dividends declared on preference stock (3,342) (3,342)
Currency translation and other adjustments (17,350) (17,350)
---------- -------- -------- -------- ----------
Balance, December 31, 1995 $1,041,735 $ - $ - $(73,562) $1,275,169
========== ======== ======== ======== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Mattel, Inc. and Subsidiaries
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 are eliminated, and certain amounts in the
financial statements for prior years have been reclassified to conform with
the current year presentation. Financial data for 1993 reflects the
retroactive effects of the merger, accounted for as a pooling of interests,
with Fisher-Price, Inc. ("Fisher-Price") consummated in November 1993.
Preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of foreign subsidiaries are translated at end-of-
period rates of exchange. Income, expense and cash flows are translated at
weighted-average rates of exchange for the period. The resulting currency
translation adjustments are accumulated and reported as a component of
shareholders' equity.
Quasi-Reorganization
- --------------------
Effective December 26, 1987, the Company implemented a quasi-reorganization
and revalued its assets and liabilities to their fair values as of that
date. The $69.0 million net effect of these adjustments was credited to
additional paid-in capital. Additionally, as of December 26, 1987,
accumulated deficits of $256.0 million and cumulative currency translation
adjustments of $32.7 million were transferred to additional paid-in
capital.
Cash
- ----
Cash includes cash equivalents, which are highly liquid investments with
maturities of three months or less when purchased. Because of the short
maturities of these instruments, the carrying amount is a reasonable
estimate of fair value.
Marketable Securities
- ---------------------
Marketable securities, comprised principally of US dollar-denominated
foreign debt securities held for liquidity purposes, are stated at market
value and classified as securities available-for-sale. Unrealized gains or
losses are reported as a component of shareholders' equity until realized.
Quoted market prices, which approximated cost as of the balance sheet
dates, are reasonable estimates of the portfolio's fair value.
of the portfolio's fair value.
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 15 to 40 years for
buildings, 3 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 three years.
Capitalized lease assets in existence at the time of the quasi-
reorganization are recorded at their fair values determined as of December
26, 1987, less accumulated amortization computed over the remaining lease
terms. Major categories of capitalized leases are as follows (in
thousands):
<TABLE>
<CAPTION>
As of Year End
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Land and buildings $23,271 $37,208
Machinery and equipment 1,000 1,260
---------- ----------
24,271 38,468
Less: accumulated amortization 14,078 18,607
---------- ----------
$10,193 $19,861
========== ==========
</TABLE>
Intangible Assets, Net
- ----------------------
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 10 to 20 years. The Company
periodically reviews the carrying value of its intangible assets to
identify and assess any impairment by evaluating the operating performance
and future undiscounted cash flows of the underlying assets. Accumulated
amortization was $99.6 million and $74.0 million as of December 31, 1995
and December 31, 1994, respectively.
37
Advertising Costs
- -----------------
Production costs of advertising are expensed at the time the advertising
initially takes place.
Income Taxes
- ------------
Deferred income tax assets and liabilities are determined in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for
--------------
Income Taxes ("SFAS No. 109"), and result from revenues and expenses being
- ------------
recognized in different time periods for financial reporting purposes than
for income tax purposes. Under SFAS No. 109, deferred income taxes arise
from temporary differences and carryforwards which are tax-effected at the
enacted tax rates and subsequently adjusted for changes in tax laws and
rates. Deferred income tax assets and liabilities are classified as
current or noncurrent based upon the financial reporting classification of
assets and liabilities to which they relate. A valuation allowance is
established if it is more likely than not that some portion or all of a
deferred income tax asset will not be realized. Effective January 1, 1993,
the Company adopted SFAS No. 109, the effects of which are covered in
detail in Note 2 to the consolidated financial statements.
Income and Dividends Per Common Share
- -------------------------------------
All share and per share data presented in these financial statements
reflect the retroactive effect of the Fisher-Price merger and the five-for-
four stock splits distributed in March 1996, and January 1995 and 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. Earnings available to common shareholders
represent reported net income less preference stock dividend requirements,
plus interest savings from the assumed retirement of debt upon exercise of
dilutive warrants.
Foreign Currency Contracts
- --------------------------
The Company enters into foreign currency forward exchange contracts and
swap agreements as hedges to limit the effect of exchange rate fluctuations
on the Company's results of operations and cash flows. Gains and losses
related to hedged transactions are deferred and are recognized in results
of operations as part of the underlying transaction while those related to
unhedged transactions are included in the income statement currently.
NOTE 2 - INCOME TAXES
- ---------------------
Consolidated pre-tax income before extraordinary item and cumulative effect
of changes in accounting principles consists of the following (in
thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
US operations $313,703 $268,817 $127,937
Foreign operations 219,199 124,815 108,709
---------- ---------- ----------
$532,902 $393,632 $236,646
========== ========== ==========
</TABLE>
The provision for current and deferred income tax expense consists of
the following (in thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal $ 84,800 $ 76,100 $ 64,358
State 14,900 12,100 11,758
Foreign 53,600 48,200 47,884
--------- --------- ---------
153,300 136,400 124,000
--------- --------- ---------
Deferred
Federal 21,600 1,500 (21,841)
State 300 2,250 (3,629)
Foreign (100) (2,350) (6,640)
--------- --------- ---------
21,800 1,400 (32,110)
--------- --------- ---------
Provision excluding extraordinary
item 175,100 137,800 91,890
Benefit allocated to extraordinary
item - - 8,845
--------- --------- ---------
Total provision for income taxes $175,100 $137,800 $100,735
========= ========= =========
</TABLE>
Deferred income taxes are provided principally for 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):
<TABLE>
<CAPTION>
As of Year End
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Deferred compensation $ 20,732 $ 11,588
Sales allowances and inventory reserves 58,060 55,826
Operating loss and tax credit carryovers 22,239 26,448
Excess of tax basis over book basis 14,098 9,483
Postretirement benefits 12,840 12,554
Restructuring and integration charges 6,193 36,085
Other 26,062 29,668
------------ ------------
Gross deferred income tax assets 160,224 181,652
------------ ------------
Excess of book basis over tax basis (14,636) (14,230)
Depreciation (5,245) (816)
Retirement benefits (8,905) (7,298)
Other (6,327) (11,001)
------------ ------------
Gross deferred income tax liabilities (35,113) (33,345)
Deferred income tax asset valuation
allowances (28,754) (33,044)
------------ ------------
Net deferred income tax assets $ 96,357 $115,263
============ ============
</TABLE>
38
Differences between the provision for income tax expense at the United
States federal statutory income tax rate and the provision in the
consolidated statements of income were as follows (in thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Provision at federal statutory rates $ 186,516 $ 137,771 $ 82,812
Increase (decrease) resulting from:
Losses without income tax benefit 4,252 1,160 2,436
Foreign earnings taxed at different
rates, including withholding taxes (27,464) (12,029) (1,827)
Tax benefit of future deductions - - (994)
State and local taxes, net of
federal benefit 10,603 9,327 5,417
Dividends paid to ESOP (1,170) (1,600) (1,500)
Nondeductible restructuring costs - - 13,599
Other 2,363 3,171 792
---------- ---------- ----------
Total provision $ 175,100 $ 137,800 $100,735
========== ========== ==========
</TABLE>
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 $468.5 million
at December 31, 1995. 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 $19.5 million would be
due upon remittance of these earnings.
Certain foreign subsidiaries have net operating loss carryforwards
totaling $55.4 million ($1.7 million with no expiration date, $45.1 million
expiring 1996 to 2000, and $8.6 million expiring after 2000).
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 1995, 1994 and 1993,
nonqualified stock options exercised resulted in credits to additional
paid-in capital totaling $8.5 million, $23.9 million and $4.4 million,
respectively.
The Internal Revenue Service has completed its examination of the
Company's federal income tax returns through December 31, 1991.
Effective January 1, 1993, the Company adopted SFAS No. 109. Upon
adoption, a net deferred income tax asset of $69.0 million was recorded, of
which $16.0 million related to postquasi-reorganization net operating
losses carried forward, and $53.0 million related principally to future tax
deductions, and foreign tax credit and alternative minimum tax credit
carryovers resulting from activities prior to the 1987 quasi-
reorganization. The benefit of $16.0 million (or $0.06 per share in the
1993 first quarter) was recognized in after-tax earnings as the cumulative
effect of a change in accounting principle; the remaining $53.0 million was
credited to additional paid-in capital in accordance with the required
accounting treatment for transactions resulting from activities prior to
the 1987 quasi-reorganization.
NOTE 3 - EMPLOYEE BENEFITS
- --------------------------
The Company and certain of its subsidiaries have various pension and
retirement plans covering substantially all employees of these companies.
Expense related to these plans totaled $16.1 million, $14.6 million and
$10.0 million in 1995, 1994 and 1993, respectively. Prior to the November
1993 merger, Fisher-Price maintained a number of benefit plans and
compensation arrangements. Subject to certain exceptions, these programs
shall continue to be administered by Fisher-Price without material change
or modification for periods up to five years following the merger.
Pension Plans
- -------------
The Company provides defined benefit pension plans 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. Contributions are based upon amounts
required to be funded under applicable governmental regulations, but will
not exceed the maximum amount deductible for income tax purposes. 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 Fisher-Price Pension Plan, a defined benefit plan covering most of
the domestic employees of Fisher-Price, contains certain change-of-control
provisions which were triggered as a result of the November 1993 merger.
For a five-year period, or until the assets of the plan are less than its
liabilities, if earlier, the rate at which benefits accrue on behalf of
participants may not be decreased. In the event of the plan's termination
or consolidation
39
with another plan, assets in excess of liabilities must be used to increase
participants' benefits. The components of net pension cost for this plan,
based upon an October valuation date for the years ended December 31, 1995,
1994 and 1993, are detailed below (in thousands):
<TABLE>
<CAPTION>
For the Period Ended
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 2,547 $ 3,562 $ 2,928
Interest cost 7,924 7,646 6,801
Actual (gain) loss on plan assets (30,650) 1,038 (9,267)
Net amortization and deferral 16,881 (14,221) (2,261)
---------- ---------- ----------
Net pension income $ (3,298) $ (1,975) $(1,799)
========== ========== ==========
</TABLE>
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):
<TABLE>
<CAPTION>
As of Year End
----------------------
1995 1994
---------- ---------
<S> <C> <C>
Vested benefits $115,573 $ 85,510
Nonvested benefits 3,126 3,643
---------- ----------
Accumulated benefit obligation 118,699 89,153
Effect of projected future salary
increases 4,862 3,923
---------- ----------
Projected benefit obligation 123,561 93,076
Plan assets at fair value 144,718 117,866
--------- ---------
Plan assets in excess of projected
benefit obligation 21,157 24,790
Unrecognized net loss (gain) 3,769 (1,424)
Unrecognized prior service cost 2,055 2,886
Unrecognized net asset at transition (8,992) (11,561)
--------- ---------
Prepaid pension asset $ 17,989 $ 14,691
========== ==========
<CAPTION>
For the Period
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Assumptions:
Weighted average discount rate 7.25% 8.50% 7.00%
Rate of future compensation increases 4.00% 4.00% 4.00%
Long-term rate of return on plan
assets 10.00% 10.00% 10.00%
- ----------------------------------------------------------------
</TABLE>
Other Retirement Plans
- ----------------------
Domestic employees not covered by collective bargaining agreements are
eligible to participate in the Company's 401(k) savings plans, which are
defined contribution plans satisfying the requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA"). Under these plans, the
Company makes contributions to a trust based upon the employee's age, as
well as matches percentages of certain amounts of voluntary employee
contributions. Mattel's Personal Investment Plan covers employees of
Mattel, Inc., and the Fisher-Price, Inc. Matching Savings Plan covers
employees of Fisher-Price. On June 30, 1994, the Fisher-Price Profit
Sharing and Retirement Savings Plan was merged and all its assets were
transferred into the Fisher-Price, Inc. Matching Savings Plan.
The Company maintains unfunded supplemental retirement plans which are
nonqualified defined benefit plans covering certain key executives of
Mattel, Inc. and its subsidiaries. In addition, compensation deferral and
excess benefit plans exist for certain officers and key employees of both
Mattel, Inc. and Fisher-Price, Inc. For 1995, 1994 and 1993, the
accumulated and vested benefit obligations and related expense of these
plans were not significant.
Employee Stock Ownership Plan
- -----------------------------
In January 1987, an ESOP was established for employees of IGI. The ESOP is
a defined contribution plan satisfying the requirements of ERISA. In
connection with the February 1992 merger, IGI convertible preferred stock
held by the ESOP was exchanged for 55.8 thousand shares of the Company's
common stock and 864.3 thousand shares of the Company's 12.5% Convertible
Preference Stock, Series F. The ESOP debt was repaid in August 1994 through
a series of dividend and cash contributions paid by the Company to service the
debt. On October 20, 1995, the Company repurchased all shares of Series F and
common stock from the ESOP for a total of $75.1 million. The Company intends
to terminate the ESOP and has received a determination letter from the IRS
permitting termination.
Postretirement Benefits
- -----------------------
The Company maintains a postretirement benefit plan for domestic employees
of Mattel. The plan provides for health care to retirees meeting certain
age and years of service requirements, and consists primarily of medical
and prescription benefits, Medicare Part B reimbursement and life
insurance. The ongoing costs and obligations associated with the Mattel,
Inc. plan are not significant to the Company's financial position and
results of operations.
Fisher-Price has a postretirement health insurance plan covering
substantially all domestic employees hired prior to January 1, 1993.
Existing retirees, employees who elected to retire before January 1, 1994
and employees whose age-plus-service was equal to 70 years by December 31,
1993 may continue to participate, for their lifetime, in the Fisher-Price
group health insurance plan at the same contribution rate as active
employees. All other active employees who do not satisfy the criteria
outlined above participate in a retiree medical account balance plan. An
account was established, as of January 1, 1993, for each eligible employee,
with a balance equal to $865 for each year of service, including past
service,
40
up to a maximum of 25 years. The account balance will become available
upon a participant's retirement at age 55 or anytime thereafter with five
years of service, and may be used to purchase benefits through the Fisher-
Price health care insurance plan or through an outside insurance provider,
and to pay for health care expenses not reimbursed by insurance or Medicare.
If an employee terminates employment prior to satisfying the retirement
criteria, the account balance is forfeited and no benefits are paid.
Details of the plan's expense recognized in the consolidated financial
statements for the years ended December 31, 1995, 1994 and 1993 are as
follows (in thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Service cost $ 432 $ 511 $ 475
Interest cost 2,539 1,826 1,999
Recognition of transition obligation - - 29,357
---------- ---------- ----------
Net postretirement benefit cost $2,971 $2,337 $31,831
========== ========== ==========
The funded status of the plan and the amounts included in the
Company's consolidated balance sheets are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
As of Year End
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Current retirees $28,418 $19,011
Fully eligible active employees 2,502 5,078
Other active employees 4,305 6,659
---------- ----------
Accumulated postretirement benefit 35,225 30,748
obligation
Unrecognized net loss (3,687) (21)
---------- ----------
Accrued postretirement benefit liability $31,538 $30,727
========== ==========
</TABLE>
The discount rates used in determining the accumulated postretirement
benefit obligation were 7.25%, 8.50% and 7.00% for 1995, 1994 and 1993,
respectively. For participants below 65 years of age, the health care cost
trend rate for expected claim costs was assumed to be 7.0% in 1995,
declining to 5.5% by 1997 and remaining constant thereafter. For
participants 65 years of age or older, the health care cost trend rate for
expected claim costs was assumed to be 6.0% in 1995, declining to 5.5% by
1996 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 1995 by
approximately $0.3 million and increased the accumulated postretirement
benefit obligation as of December 31, 1995 by approximately $4 million.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, Employers' Accounting for
-------------------------
Postretirement Benefits Other Than Pensions ("SFAS No. 106"), with
- -------------------------------------------
immediate recognition of an actuarially-determined accumulated
postretirement benefit obligation of $2.3 million for the Mattel, Inc.
plan. The related charge of $1.4 million, after deferred income tax
benefits of $0.9 million, was recognized in earnings as the cumulative
effect of a change in accounting principle. Upon consummation of the
November 1993 merger, Fisher-Price's accounting methodology was conformed
to that of the Company, and accordingly, a related $18.6 million charge,
net of deferred income tax benefits of $10.7 million, was recognized in
earnings as the cumulative effect of a change in accounting principle
retroactively as of the 1993 first quarter.
Incentive Awards
- ----------------
The Company's Long-Term Incentive Plan is a variable compensation plan
available to certain key executives of Mattel, Inc. Awards are paid
annually based upon the performance of the Company over a three-year
period. Pursuant to the Company's 1990 stock option plan, stock
appreciation rights ("SAR") had been awarded in 1991 to certain key
executives of Mattel, Inc. In February 1994, the value of the SARs was
capped, and they were canceled in exchange for awards consisting of
nonqualified stock options and cash, contingent upon the executive's
continued employment by the Company. During 1995, the first of two
installment payments related to the SARs of $9.5 million was paid. At
December 31, 1995 and 1994, $28.7 million and $26.0 million, respectively,
were accrued for awards under these plans.
The Company also has discretionary annual incentive compensation plans
for officers and key employees of both Mattel, Inc. and Fisher-Price, Inc.
based on the Company's performance and subject to certain approvals of the
Compensation/Options Committee of the Board of Directors. At December 31,
1995 and 1994, $17.8 million and $30.4 million, respectively, were accrued
for awards under these plans.
NOTE 4 - SEASONAL FINANCING AND LONG-TERM DEBT
- ----------------------------------------------
Seasonal Financing
- ------------------
The Company maintains and periodically amends or replaces a revolving
credit agreement with a commercial bank group that is utilized to finance
the working capital requirements of its domestic and certain international
operations. The agreement in effect during 1995, which was recently
amended (see below), was renegotiated in the first quarter of 1995 to
increase the total facility to $650.0 million from $500.0 million. Within
the facility, up to $400.0 million was a standard revolving credit line
available for advances and backup for commercial paper issuances (a three-
year facility). Interest was charged at various rates selected by the
Company not greater than the base rate charged by the agent bank, plus a
commitment fee of up to .095% of the unused line available for advances.
The remaining $250.0 million (a three-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 are reduced by collections and cannot exceed the $250.0
million at any time. The uncollected balance of receivables sold totaled
$67.5
41
million and zero at December 31, 1995 and 1994, respectively. The
agreement required the Company to comply with certain financial covenants
for consolidated debt-to-capital, interest coverage and tangible net worth
levels.
Effective in August 1995, the Company entered into an agreement
providing for up to $100.0 million, at each specified purchase date, of
nonrecourse purchases of certain trade accounts receivable of the Company
by a commercial bank. The uncollected balance of receivables sold totaled
$79.5 million at December 31, 1995.
To meet seasonal borrowing requirements of international operations in
addition to amounts funded by proceeds of its revolving credit agreement,
the Company negotiates individual financing arrangements, generally with
the same groups of banks that provided credit in the prior year.
International credit lines total approximately $328 million, a portion of
which is used to support letters of credit. The Company expects to extend
these credit lines throughout 1996 and believes available amounts will be
adequate to meet its seasonal financing requirements.
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 the Company's domestic and international credit
lines is summarized as follows (in thousands):
<TABLE>
<CAPTION>
For the Year
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at end of year
Domestic $ - $ - $ -
International 15,520 - -
Maximum amount outstanding
Domestic 397,000 613,000 167,000
International 84,000 74,000 76,100
Average borrowing
Domestic 221,000 271,000 45,100
International 45,000 36,000 55,100
Weighted average interest rate
on average borrowing
Domestic (computed daily) 6.0% 5.0% 3.5%
International (computed monthly) 9.5% 11.5% 8.5%
- ---------------------------------------------------------------------
</TABLE>
Effective in March 1996, the Company amended its revolving credit
agreement. The new agreement consists of unsecured facilities providing a
total of $800.0 million in seasonal financing from substantially the same
group of commercial banks. The facilities provide for up to $400.0 million
in advances and backup for commercial paper issuances (a five-year
facility), and up to an additional $400.0 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, interest
coverage and tangible net worth levels.
6-7/8% Senior Notes
- -------------------
In August 1992, the Company issued $100.0 million aggregate principal
amount of 6-7/8% Senior Notes maturing August 1, 1997. Interest is payable
semiannually on the first day of February and August. At December 31, 1995
and 1994, the bid prices for the 6-7/8% Senior Notes, as provided by one of
the underwriters, were $1,020.40 and $965.10, respectively, based on a par
value of $1,000.00.
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 each May and November. At December
31, 1995 and 1994, the bid prices for the 6-3/4% Senior Notes, as provided
by one of the underwriters, were $1,033.40 and $924.39, respectively, based
on a par value of $1,000.00.
Medium-Term Notes ("MT Notes")
- ------------------------------
During the 1994 third quarter, the Company commenced a program for the
issuance of up to $250.0 million in aggregate principal amount of Series A
Medium-Term Notes. During the 1994 fourth quarter, the Company issued an
aggregate of $80.5 million principal amount of MT Notes maturing on various
dates from October 1999 to December 2004. Interest is payable semiannually
at fixed rates ranging from 8.00% to 8.55% per annum on the fifteenth day
of May and November. At December 31, 1995 and 1994, the bid prices for
these notes ranged from $1,075.00 to $1,159.30 and $983.12 to $997.33,
respectively, based on a par value of $1,000.00. The Company also issued
an aggregate of $30.0 million principal amount of MT Notes maturing in
January 1996, bearing interest at three-month LIBOR plus .125%, currently
set at 5.8% per annum. Interest is payable quarterly on the twenty-ninth
day of March, June, September and December. The principal amount of
floating rate MT Notes approximates fair value since the interest rate is
reset quarterly.
During 1995, an aggregate of $139.5 million principal amount of MT
Notes was issued by the Company maturing on various dates from June 1998 to
May 2007. Interest is payable semiannually at fixed rates ranging from
5.93% to 7.65% per annum on the fifteenth day of May and November. At
December 1995, the bid prices for these notes ranged from $1,006.50 to
$1,081.60, based on a par value of $1,000.00.
42
Mortgage Note
- -------------
In 1990, the Company borrowed $45.0 million under a mortgage agreement
secured by its headquarters office facility in El Segundo, California. The
agreement requires monthly interest-only payments for the first 60 months
of its term and monthly principal and interest payments of approximately
$0.4 million thereafter, until its December 2005 maturity date. Interest
is payable at 10.15% for the term of the agreement. The fair value of the
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 $51 million and $48 million at
December 31, 1995 and 1994, respectively.
Fisher-Price Term Loan
- ----------------------
Following the merger with Fisher-Price, the Company reached an agreement
with the lenders permitting prepayment of its $100.0 million of term
indebtedness to insurance companies. The prepayment premium and write-off
of unamortized issuance costs resulted in an extraordinary charge against
earnings in the 1993 fourth quarter, net of an $8.8 million income tax
benefit, of $14.7 million, or $0.05 per share.
8% Convertible Subordinated Debentures ("8% Debentures")
- --------------------------------------------------------
During the 1994 first quarter, the Company issued its Notice of Redemption
to holders of the 8% Debentures. In lieu of redemption, the holders
elected to convert the 8% Debentures into the Company's common stock.
During the 1994 first quarter and the 1993 fourth quarter, holders tendered
$75.7 million and $24.3 million, respectively, of the 8% Debentures for
conversion into 9.2 million and 3.0 million common shares, respectively.
Scheduled Maturities
- --------------------
The aggregate amounts of long-term debt and capitalized lease obligations
maturing in the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
Medium- Capitalized
Senior Term Mortgage Lease
Debt Notes Note Obligations Other Total
--------- ---------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996 $ - $30,000 $500 $100 $2,400 $ 33,000
1997 100,000 - 500 100 1,000 101,600
1998 - 9,500 500 100 300 10,400
1999 - 30,000 600 100 300 31,000
2000 100,000 - 600 - 400 101,000
- --------------------------------------------------------------------------
</TABLE>
NOTE 5 - SHAREHOLDERS' EQUITY
- -----------------------------
Preference Share Purchase Rights
- --------------------------------
In 1992, the Board of Directors approved an extension of the Company's
Preference Share Purchase Rights plan. 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 certain events,
including the acquisition, or announcement of intended acquisition, of 20
percent or more of Mattel's common stock by a person or group of affiliated
or associated persons. The rights are subject to adjustment in the event
of stock dividends, stock splits or other changes in the Company's common
stock, and will expire on February 17, 2002, unless the plan is further
extended or the rights are earlier redeemed or exchanged by the Company.
Preferred and Preference Stock
- ------------------------------
The Company is authorized to issue 3.0 million shares of $1.00 par value
preferred stock and 20.0 million shares of $0.01 par value preference
stock. No preferred shares are outstanding and the Company has no current
plan to issue any such shares.
In February 1992, 1.5 million shares of $0.01 par value preference
shares were designated as Series E Junior Participating Preference Stock in
connection with a distribution of Preference Share Purchase Rights to the
Company's common shareholders. Series E shares are issuable only when
rights become exercisable under the Preference Share Purchase Rights plan
(see above).
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. The ESOP note receivable, which was
secured by the Series F Preference Stock, was repaid in August 1994.
Stock Options
- -------------
Under the Company's stock option plans, officers and other key employees
may be granted nonqualified stock options, restricted stock awards and
stock appreciation rights. Generally, options are exercisable contingent
upon the grantees' continued employment with the Company, and in
installments when permitted by the Board of Directors or its
Compensation/Options Committee. As of December 31, 1995 and 1994, a total
of 15.4 million shares and 13.3 million shares, respectively, of Mattel
common stock were reserved for issuance under these plans.
Nonqualified stock options are granted at not less than 100 percent of
the fair market value of the Company's common stock on the date of award,
and generally expire within ten years from date of grant.
Restricted stock awards issued are subject to various restrictions.
During the time period from the award date until the restrictions lapse,
shares cannot be sold, assigned, pledged or otherwise encumbered by the
recipients. As of December 31, 1995, restricted stock awards granted to
Mattel executives totaled 927.7 thousand shares. The market value of these
shares as of December 31, 1994 was charged to income as part of the 1994
restructuring. Any subsequent increases or decreases in market value
through January 1, 1997, the end of the restriction period, are reflected
in the results of operations currently. As a result, $7.9 million was
charged to income in 1995.
43
The following is a summary of stock option information for the
Company's plans during the year (options in thousands):
<TABLE>
<CAPTION>
Options Outstanding
Nonqualified Plans Number (a) Price (a)
- -------------------------------- ------------ ----------------
<S> <C> <C>
Outstanding at December 31, 1993 15,616 $ 1.77 to $15.30
Granted 3,803 14.56 to 17.84
Exercised (6,126) 1.77 to 12.54
Canceled (145) 2.42 to 14.02
------------
Outstanding at December 31, 1994 13,148 1.84 to 17.84
Granted 4,152 16.16 to 23.90
Exercised (2,314) 1.84 to 18.10
Canceled (473) 3.34 to 17.90
------------
Outstanding at December 31, 1995 14,513 $ 1.84 to $23.90
============
Options exercisable at:
December 31, 1994 (b) 3,200
December 31, 1995 (c) 5,541
- -----------------------------------------------
<FN>
(a) Number of options and prices reflect the retroactive effect of the
November 1993 Fisher-Price merger and the five-for-four stock splits
distributed in March 1996, and January 1995 and 1994.
(b) Average exercise price - $11.89 per share. Expiration dates vary from
November 11, 1995 to August 25, 2004.
(c) Average exercise price - $13.41 per share. Expiration dates vary from
February 18, 1996 to September 18, 2005.
</TABLE>
The Company's 1990 stock option plan provides that up to 1% of
Mattel's outstanding common stock as determined on December 31 of the
preceding year will be available for awards during each calendar year in
which the plan is in effect. During 1995, shareholders approved an
amendment to the plan that increased the amount of common stock available
for award during 1994 by 1.7 million shares above the 1% limitation.
Effective with the Fisher-Price merger, all stock-based awards and
benefits previously granted under the Fisher-Price Long-Term Incentive Plan
of 1991 became fully vested and, if not previously exercised, converted
into rights to receive equivalent shares of Mattel common stock.
Accordingly, 300.5 thousand Fisher-Price restricted stock awards
outstanding became fully vested; the remaining unamortized deferred
compensation of $3.0 million was recognized in the fourth quarter of 1993.
Fisher-Price Stock Subscription Warrants
- ----------------------------------------
In connection with their term loan, Fisher-Price had issued to the lenders
detachable warrants allowing them to purchase shares of Fisher-Price stock,
subject to certain antidilution requirements. As of the effective date of
the merger, the Company agreed to assume Fisher-Price's obligations
pursuant to the provisions of the warrants.
Change-of-control provisions of the warrants allowed the holders a
six-month period from the merger date to elect to receive cash in lieu of
exercises for common shares. During June 1994, holders of 451.0 thousand
warrants elected the cash option and received $4.9 million.
The exercise of all outstanding warrants by the holders would result
in delivery of 1.2 million shares of the Company's common stock at an
exercise price of approximately $4.77 per share.
Conversion of 8% Debentures
- ---------------------------
During the 1994 first quarter, holders tendered $75.7 million of the 8%
Debentures for conversion into 9.2 million common shares in response to the
Company's Notice of Redemption. Holders had previously tendered $24.3
million par value of the 8% Debentures for conversion into 3.0 million
common shares during the 1993 fourth quarter.
Common Stock Repurchase Plan
- ----------------------------
In May 1993, the Board of Directors expanded the stock repurchase program,
initiated in May 1990, to permit the repurchase on the open market of up to
19.5 million shares over the next four years to fund the stock option
plans. During 1995 and 1994, the Company purchased 2.9 million and 4.7
million shares, respectively. As discussed above, the Company repurchased,
during the fourth quarter of 1995, 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, bringing the total shares
repurchased under the program to 15.0 million.
On February 6, 1996, the Board of Directors revised the repurchase
program to permit the repurchase of 8.8 million shares annually.
Shares repurchased, less 2.3 million shares reissued in 1995 and 5.7
million shares reissued in 1994, are included in treasury stock.
Dividends and Capital Transactions
- ----------------------------------
On February 6, 1996, the Board of Directors declared a five-for-four stock
split on the Company's common stock, distributable on March 1, 1996 to
shareholders of record as of February 16, 1996. Accordingly, $55.8 million
was transferred from additional paid-in capital to common stock,
representing the par value of additional shares issued. Similar transfers
were made between additional paid-in capital and common stock in the
amounts of $44.7 million and $34.3 million, reflecting the respective
declarations of five-for-four stock splits in December 1994 and November
1993.
A regular quarterly cash dividend has been declared by the Board of
Directors on the Company's common stock since the second quarter of 1990.
44
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, 1995 (in thousands):
<TABLE>
<CAPTION>
Capitalized Operating
Leases Leases
----------- ---------
<S> <C> <C>
1996 $ 400 $ 35,200
1997 400 27,000
1998 400 22,700
1999 400 17,200
2000 400 14,900
Thereafter 10,600 20,200
----------- ---------
12,600 (a) 137,200
Less: sublease commitments - 600
----------- ---------
$12,600 $136,600
=========== =========
<FN>
(a) Includes $10.0 million of imputed interest.
</TABLE>
Rental expense under operating leases amounted to $42.8 million, $33.7
million and $33.8 million for 1995, 1994 and 1993, respectively, net of
sublease income of $0.7 million, $0.7 million and $0.4 million.
In connection with the discontinuance of certain operations in 1984,
the Company remained obligated for a facility lease through 1998. The
Company determined in April 1993 that it would not, upon the expiration of
the sublease agreements, utilize such facility and made a lease termination
payment to discharge its remaining obligations to the lessor. A net charge
in the amount of $41.1 million, after related tax effects of $26.9 million,
for the cost of the lease termination was charged to additional paid-in
capital, consistent with the treatment accorded transactions which preceded
the Company's 1987 quasi-reorganization.
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.
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 sporting goods, and television and
motion picture entertainment companies. The single largest commitment
involves the Company's 1991 agreements with The Walt Disney Company. An
extended licensing agreement permits the Company to use the Disney name and
characters on preschool and infant products through 2001 and provides for
the addition of certain other Disney characters and product lines to those
previously licensed to the Company. In addition, a related ten-year
agreement involves the Company's participation in attractions and toy
stores at three Disney theme parks and the development of theme park toys.
As of December 31, 1995, the Company had outstanding commitments for
1996 purchases of inventory of approximately $101 million. As of December
31, 1994, the Company had commitments for 1995 purchases of inventory of
approximately $103 million.
Licensing and related agreements provide for terms extending from 1996
through 2002 and contain provisions for future minimum payments as shown in
the following table (in thousands):
<TABLE>
<CAPTION>
Minimum
Payments
---------
<S> <C>
1996 $ 51,000
1997 53,000
1998 51,000
1999 48,000
2000 39,000
Thereafter 41,000
---------
$283,000
=========
</TABLE>
Royalty expense for the years ended December 31, 1995, 1994 and 1993
was $104.4 million, $83.9 million and $69.2 million, respectively.
The Company has no significant exposure to credit risk in the event of
nonperformance by any counterparty or group of counterparties to its
outstanding commitments and foreign currency contracts. Market risk
exposures exist with respect to foreign currency forward exchange contracts
to the extent that currency fluctuations cannot be predicted with
certainty. The Company seeks to mitigate its exposure to market risk
through determining its future foreign currency positions and hedge
requirements, retaining flexibility with respect to currencies used for
international borrowing arrangements and intercompany invoicing, and
varying the degree of coverage of individual foreign currency exposures,
which may alternatively be left open, partially or fully hedged. By
policy, the Company maintains hedge coverages between minimum and maximum
percentages of its anticipated foreign currency exposures for any given
year.
45
Foreign Currency Contracts
- --------------------------
The Company enters into foreign currency forward exchange contracts and
swap agreements 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 Company's results of operations
and cash flows. These contracts generally have maturity dates ranging from
one to 17 months. Gains or losses related to hedged transactions are
deferred and are recognized in results of operations as a part of the
underlying transaction. Had the Company not entered into hedges covering a
percentage of its foreign currency positions, the favorable effect on 1995
pre-tax income would have approximated $10 million.
As of December 31, 1995 and 1994, the Company held the following
contracts to obtain US dollars (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Forwards $491,210 $264,783
Swaps 135,477 65,155
---------- ----------
$626,687 $630,287 $329,938 $329,540
========== ========== ========== ==========
</TABLE>
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 1995 and 1994,
respectively.
As of December 31, 1995 and 1994, the Company held the following
contracts to purchase foreign currencies (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Forwards $198,006 $ 57,898
Swaps 59,899 124,746
---------- ----------
$257,905 $257,019 $182,644 $184,417
========== ========== ========== ==========
</TABLE>
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 1995 and 1994,
respectively.
The following table summarizes the Company's foreign currency
contracts by major currency as of December 31, 1995 and 1994 (in thousands
of US dollars):
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
Buy Sell Buy Sell
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
US dollars $626,687 $227,944 $329,938 $177,589
German deutsche marks 33,424 157,738 91,740 81,620
Italian lira - 54,481 - 15,240
Malaysian ringgits 78,071 - 5,034 -
Hong Kong dollars 72,274 - 47,809 -
French francs - 117,150 18,481 57,685
British pounds sterling - 78,092 - 51,268
Canadian dollars 21,127 45,541 6,485 25,270
Spanish pesetas - 30,271 - 17,141
Dutch guilders 22,379 68,468 - 46,926
Japanese yen - 51,534 - 17,757
Australian dollars - 20,762 - 14,306
Swiss francs 12,930 8,232 9,680 5,555
Taiwan dollars 17,700 - - -
Swedish krona - 6,675 - -
Danish krone - 9,825 - -
Other (under $5,000) - 7,879 3,415 2,225
---------- ---------- ---------- ----------
$884,592 $884,592 $512,582 $512,582
========== ========== ========== ==========
</TABLE>
In order to minimize the risk of counterparty non-performance, the
Company executes its foreign currency forward exchange contracts and swap
agreements with financial institutions believed to be credit-worthy,
generally those that provide the Company with its working capital lines of
credit. The Company does not trade in financial instruments nor does it
enter into contracts for speculative purposes.
Letters of Credit
- -----------------
The Company had outstanding irrevocable letters of credit in the amount of
$6.5 million and $15.1 million as of December 31, 1995 and 1994,
respectively. These letters of credit, which have terms from one month to
one year, collateralize the Company's obligations to third parties for the
purchase of inventory. The fair value of these letters of credit
approximates contract values based on the nature of the fee arrangements
with the issuing banks.
Litigation
- ----------
The Company is involved in various litigation and other legal matters,
including claims related to product liability 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.
46
NOTE 7 - ACQUISITIONS AND NONRECURRING ITEMS
- --------------------------------------------
Acquisitions and Business Combination
- -------------------------------------
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 for $274.6 million in cash, including
costs directly related to the acquisition and the repayment of $20.0
million of Kransco's short-term borrowings. The asset purchase agreement
also provided for future contingent consideration in the event that net
sales of the POWER WHEELS product line reached or exceeded certain levels
in each of calendar years 1994, 1995 and 1996. Under the agreement, the
contingent consideration payable with respect to any year shall not exceed
$8.6 million. During 1995, $8.6 million of consideration was paid related
to the 1994 sales, and an additional $8.6 million was accrued, which
resulted in an increase of $17.2 million to the initial goodwill.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the operating results of Kransco have been
included in the Company's consolidated financial statements since the date
of acquisition. The excess of the aggregate purchase price over the
estimated fair market value of the net assets acquired was approximately
$233 million, which is being amortized on a straight-line basis over 20
years.
The following unaudited pro forma information presents the
consolidated results of operations as if the acquisition had occurred as of
the beginning of the periods presented, after giving effect to certain
adjustments, including amortization of goodwill, depreciation of fixed
assets acquired based on their estimated fair values, increased interest
expense assuming the initial purchase consideration had resulted in
additional short-term borrowings, and the elimination of intercompany
transactions. This pro forma information does not purport to be indicative
of what would have occurred had the acquisition been made as of these dates
or of results which may occur in the future. These results reflect the
highly seasonal nature of the business acquired and do not reflect the
synergies achieved.
<TABLE>
<CAPTION>
For the Year
----------------------
(In thousands, except per share amounts) 1994 1993
- ---------------------------------------- ---------- ----------
<S> <C> <C>
Net sales $3,248,765 $2,876,080
---------- ----------
Income before extraordinary item and
cumulative effect of changes in
accounting principles 253,537 142,012
---------- ----------
Net income $ 253,537 $ 123,309
========== ==========
INCOME PER COMMON SHARE
Income before extraordinary item and
cumulative effect of changes in
accounting principles $ 0.89 $ 0.52
---------- ----------
Net income $ 0.89 $ 0.45
========== ==========
</TABLE>
In July 1994, the Company acquired a majority of the shares of 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. The aggregate purchase price, including related
acquisition costs, denominated in pounds sterling, was approximately $100
million.
The acquisition has been accounted for by the purchase method 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 over the estimated fair market value of the net assets
acquired was approximately $100 million, which is being amortized on a
straight-line basis over 20 years. The purchase price allocation included
accruals related to involuntary termination or relocation of employees of
the acquired company of approximately $11 million, and costs associated
with closure of a manufacturing facility of approximately $5 million. The
$10 million remaining accrual at December 31, 1995 primarily relates to
severance and other costs associated with the plant closure, which is
expected to be completed by the end of 1996.
On November 30, 1993, the Company completed a merger transaction,
accounted for as a pooling of interests, with Fisher-Price, Inc., a
manufacturer and marketer of infant and preschool toys and juvenile
products. The merger, valued on the merger's effective date at $1.19
billion, was effected by the exchange of 2.490 shares (1.275 shares prior
to stock splits) of Mattel common stock for each outstanding Fisher-Price
common share. Financial information for periods preceding the merger were
retroactively restated to reflect the combined operations of the companies.
Nonrecurring Items
- ------------------
In the 1994 fourth quarter, the Company recognized a $72.0 million pre-tax
charge against continuing operations in connection with the consolidation
of manufacturing operations and the reduction of headquarters expense and
support functions worldwide. Of these charges, approximately $36 million
was related to severance costs from elimination of approximately 1,000
positions, $15 million represented restricted stock awards related to the
Fisher-Price integration, $14 million for termination of various
distribution and lease agreements, $4 million for the writedown of fixed
assets to their net realizable value in connection with the elimination of
excess manufacturing capacity, and other costs of $3 million. After
related tax effects, the net $46.8 million charge impacted 1994 earnings by
$0.17 per share.
47
At December 31, 1995, the remaining $13.0 million accrual related
primarily to committed severance plans and obligations under certain long-
term leases. The type and amount of charges incurred to date approximated
the amounts included in the provision.
In connection with its merger with Fisher-Price, the Company
recognized a one-time charge of $115.0 million, pre-tax, in the 1993 fourth
quarter. After related tax effects, the net $90.4 million charge impacted
1993 earnings by $0.34 per share. As of December 31, 1994, the integration
and restructuring activity provided for by the 1993 charge was substantially
complete and amounts previously accrued had been paid. The type and amount
of charges actually incurred approximated the amounts included in the
provision.
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.
Consolidated liabilities of these subsidiaries were approximately $381
million, $421 million and $300 million at December 31, 1995, 1994 and 1993,
respectively.
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 sells its products directly in Argentina, Australia, Austria,
the Benelux countries, Canada, Chile, Colombia, France, Germany, Greece,
Italy, Japan, Mexico, New Zealand, Portugal, Scandinavia, Spain, Switzerland,
the United Kingdom, Venezuela, and in certain areas of Eastern Europe and
Asia. The Company's products are marketed principally through distributors
in certain parts of Latin America, the Middle East and Southeast Asia, and
the Company also licenses some of its products to outside manufacturers for
sale in Brazil, Peru, and other Latin American countries. In the fourth
quarter of 1993, the Company's distributorship agreement for Nintendo
Nintendo products in Australia was terminated.
The Company's worldwide sales to customers accounting for more than
10% of consolidated net sales and related accounts receivable are as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Worldwide sales for the year ended
- ----------------------------------
Toys R Us $830.5 $734.1 $598.7
Wal-Mart 446.0 417.7 277.3
Accounts receivable as of December 31
- -------------------------------------
Toys R Us $116.4 $156.6 $156.8
Wal-Mart 50.7 104.3 63.2
- -------------------------------------------------------------------------
</TABLE>
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. Sales between geographic areas are
based upon transfer prices which include manufacturing cost and profit.
<TABLE>
<CAPTION>
Profit From Identifiable
(In thousands) Net Sales Operations Assets
- -------------- ----------- ------------ ------------
<S> <C> <C> <C>
1995
United States $2,546,903 $327,685 $1,196,742
Europe and Canada 1,234,048 231,010 742,721
Asia and Latin America 1,533,256 138,498 405,615
----------- ------------ -----------
5,314,207 697,193 2,345,078
Sales and transfers between
geographic areas (a) (1,675,395) - -
Interest expense - (73,589) -
Corporate and other - (90,702) 350,431
----------- ------------ -----------
Consolidated total $3,638,812 $532,902 $2,695,509
=========== ============ ===========
1994
United States $2,315,778 $305,874 $1,150,514
Europe and Canada 1,066,349 143,658 715,021
Asia and Latin America 1,287,502 130,247 396,100
----------- ------------ -----------
4,669,629 579,779 2,261,635
Sales and transfers between
geographic areas (a) (1,464,604) - -
Interest expense - (55,449) -
Corporate and other - (130,698) 197,391
----------- ------------ -----------
Consolidated total $3,205,025 $393,632 $2,459,026
=========== ============ ===========
1993
United States $1,873,249 $187,923 $ 718,688
Europe and Canada 908,030 68,270 545,406
Asia and Latin America 993,001 96,924 290,759
----------- ------------ -----------
3,774,280 353,117 1,554,853
Sales and transfers between
geographic areas (a) (1,069,832) - -
Interest expense - (62,614) -
Corporate and other - (53,857) 445,224
----------- ------------ -----------
Consolidated total $2,704,448 $236,646 $2,000,077
=========== ============ ===========
<FN>
(a) Primarily from Asia to other regions of the world.
</TABLE>
48
NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------------
Due to seasonality of the Company's earnings, exclusion of antidilutive common
stock equivalents in certain periods and fluctuation in the Company's common
stock price, the sum of income per share amounts reported for each of the four
quarters may not equal income per share reported for the full year.
<TABLE>
<CAPTION>
(In thousands, except per share First Second Third Fourth
amounts) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Net sales $543,570 $763,474 $1,176,484 $1,155,284
Gross profit 259,025 366,689 582,949 580,499
Advertising and promotion expenses 78,600 106,718 182,355 216,824
Other selling and administrative
expenses 131,918 141,498 159,359 170,286
Other (income) expense, net (a) (3,414) (730) (9,025) 8,282
Operating profit (b) 51,921 119,203 250,260 185,107
Income before taxes 40,844 101,210 227,526 163,322
Net income 26,958 67,496 151,326 112,022
Preference stock dividend
requirements (1,099) (1,099) (1,099) (45)
Net income applicable to common
shares 25,859 66,397 150,227 111,977
Income per share (c):
Net income $ 0.09 $ 0.24 $ 0.53 $ 0.40
Average number of common and
common equivalent shares 279,853 280,691 281,904 280,916
Dividends declared per common
share (c) $ 0.048 $ 0.048 $ 0.048 $ 0.048
Common stock market price (c)
High $ 19.80 $ 22.20 $ 24.50 $ 24.90
Low 15.76 18.20 20.30 21.20
YEAR ENDED DECEMBER 31, 1994
Net sales $487,271 $650,263 $1,037,082 $1,030,409
Gross profit 238,104 314,505 528,960 519,934
Advertising and promotion expenses 71,630 94,010 161,298 189,547
Other selling and administrative
expenses 116,797 118,608 140,601 160,437
Restructuring charge (d) - - - 72,000
Other expense, net (e) 3,285 1,315 5,967 16,927
Operating profit (b) 46,392 100,572 221,094 81,023
Income before taxes 38,269 89,082 202,820 63,461
Net income 24,069 57,082 131,820 42,861
Preference stock dividend
requirements (1,223) (1,223) (1,152) (1,091)
Net income applicable to common
shares 22,846 55,859 130,668 41,770
Income per share (c):
Net income $ 0.08 $ 0.20 $ 0.46 $ 0.15
Average number of common and
common equivalent shares 273,495 280,904 282,412 280,616
Dividends declared per common $ 0.038 $ 0.038 $ 0.038 $ 0.038
share (c)
Common stock market price (c)
High $ 17.20 $ 17.44 $ 18.40 $ 18.88
Low 13.20 14.88 16.32 15.68
- -------------------------------------------------------------------------------
<FN>
(a) Third quarter includes a $9.1 million gain from the sale of the non-toy
business and worldwide trademark rights related to Corgi.
(b) Represents income from operations before interest expense and provision for
income taxes.
(c) Per share data and market prices for all periods reflect the retroactive
effect of stock splits distributed to shareholders in March 1996 and
January 1995.
(d) Represents a nonrecurring charge principally related to the consolidation
of manufacturing operations and the reduction of headquarters expense and
support functions worldwide.
(e) Fourth quarter includes a $19.8 million foreign exchange transaction loss
resulting from devaluation of the Mexican peso.
</TABLE>
49
NOTE 10 - SUPPLEMENTAL FINANCIAL INFORMATION
- --------------------------------------------
<TABLE>
<CAPTION>
As of Year End
----------------------
(In thousands) 1995 1994
- ------------------------------------------ ---------- ----------
<S> <C> <C>
INVENTORIES INCLUDE THE FOLLOWING:
Raw materials and work in process $ 52,528 $ 50,334
Finished goods 298,313 288,809
---------- ----------
$350,841 $339,143
========== ==========
PREPAID EXPENSES AND OTHER CURRENT ASSETS
INCLUDE THE FOLLOWING:
Deferred income taxes $ 87,965 $114,808
Other 89,273 67,867
---------- ----------
$177,238 $182,675
========== ==========
INTANGIBLE ASSETS, NET, INCLUDE THE
FOLLOWING:
Goodwill $411,258 $418,903
Other 11,538 13,329
---------- ----------
$422,796 $432,232
========== ==========
ACCRUED LIABILITIES INCLUDE THE
FOLLOWING:
Advertising and promotion $ 96,669 $102,115
Compensation 82,751 85,229
Restructuring charge 16,224 67,649
Other 214,718 198,153
---------- ----------
$410,362 $453,146
========== ==========
<CAPTION>
For the Year
-------------------------------
(In thousands) 1995 1994 1993
- ------------------------------------ --------- ---------- ----------
<S> <C> <C> <C>
SELLING AND ADMINISTRATIVE EXPENSES
INCLUDE THE FOLLOWING:
Research and development $111,280 $93,153 $75,415
- -------------------------------------------------------------------------
</TABLE>
Accounts Receivable
- -------------------
Accounts receivable are shown net of allowances for doubtful accounts. In
addition, the Company has reduced its accounts receivable by $22.9 million
and $17.2 million in December 1995 and 1994, respectively, to reflect the
writedown of certain uncollectible receivables to their net realizable value.
Statements of Cash Flows
- ------------------------
For the years ended December 31, 1995, 1994 and 1993, cash paid for
interest totaled $75.5 million, $52.9 million and $76.1 million,
respectively. Cash paid for income taxes in each of the three years was
$168.4 million, $66.3 million and $55.7 million, respectively.
Significant noncash investing and financing activities were as
follows:
. During the 1994 first quarter, holders tendered $75.7 million aggregate
par value of the 8% Debentures for conversion into 9.2 million shares of
the Company's common stock. During the 1993 fourth quarter, holders
tendered $24.3 million aggregate par value of the 8% Debentures for
conversion into 3.0 million shares of the Company's common stock.
. The November 1993 merger with Fisher-Price in a stock-for-stock
transaction neither used nor provided cash (see Note 7.) The Company's
consolidated financial statements, consistent with pooling of interests
accounting treatment, reflect retroactive restatement for the effects of
the merger. Because the merger transaction neither provided nor used
cash with respect to the combined companies, the effect of consolidating
financial statement balances is not reflected in the statement of cash
flows.
. The effects of changes in accounting principles related to the Company's
adoption of Statements of Financial Accounting Standards Nos. 106 and
109 in the 1993 first quarter neither provided nor used cash, and
accordingly, have been excluded from the statement of cash flows.
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
Impairment of Long-Lived Assets and Those to Be Disposed Of
- -----------------------------------------------------------
Statement of Financial Accounting Standards No. 121, Accounting for the
------------------
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
- ------------------------------------------------------------------------
Of, is effective for fiscal years beginning after December 15, 1995. This
- --
Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by the Company be reviewed for impairment
whenever there is an indication that the carrying amount of the asset may
not be recoverable. Measurement of an impairment loss should be based on
the fair value of the asset. This Statement also requires that any such
assets that are to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell, except for assets covered by
Accounting Principles Board ("APB") Opinion No. 30, Reporting the Effects
---------------------
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
- ----------------------------------------------------------------------
Infrequently Occurring Events and Transactions. Adoption of the Statement
- ----------------------------------------------
is not expected to have a material impact on the Company's financial
position and results of operations as no such impairments have been
identified at this time.
Stock-Based Compensation
- ------------------------
The disclosure requirements of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, are effective for
---------------------------------------
transactions entered into in fiscal years that begin after December 15,
1995. This statement encourages entities to account for employee stock
option or similar equity instruments using a fair value approach for all
such plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the method prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees. Those entities
----------------------------------------
which elect to remain with the accounting in APB No. 25 are required to
include pro forma disclosures of net income and earnings per share as if
the fair value-based method of accounting had been applied. The Company
has elected to continue to account for such plans under the provisions of
APB No. 25. Therefore, there will be no effect on the Company's financial
position and results of operations as a result of this pronouncement.
50
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
-----------------------------------------------------------
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/ Francesca Luzuriaga
- -----------------------
Francesca Luzuriaga
Executive Vice President and
Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Mattel, Inc.
In our opinion, 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, 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
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 provide a reasonable
basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- -----------------------
Los Angeles, California
February 6, 1996
51
DIRECTORS AND OFFICERS
----------------------
Mattel, Inc. and Subsidiaries
<TABLE>
<CAPTION>
BOARD OF DIRECTORS CORPORATE OFFICERS
<S> <C>
John W. Amerman (1) John W. Amerman
Chairman and Chief Executive Officer, Chairman and Chief Executive Officer
Mattel, Inc.
Jill E. Barad (4) (5) Jill E. Barad
President and Chief Operating Officer, President and Chief Operating Officer
Mattel, Inc.
Dr. Harold Brown (4) (5) James A. Eskridge
Senior Managing Director, E.M. Warburg, Group President, Mattel, Worldwide
Pincus & Co., Inc.
James A. Eskridge (5) Byron Davis
Group President, Mattel, Worldwide President, Fisher-Price, Inc.
Tully M. Friedman (1) (3) Joseph C. Gandolfo (5)
Founding Partner, Hellman & Friedman President, Mattel Operations
Ronald M. Loeb (3) Ned Mansour
Partner, Irell & Manella President, Mattel USA
Edward H. Malone (1) (2) (4) William J. Quinlan
Retired Vice President, General Electric Co. President, ARCOTOYS
Edward N. Ney (3) (5) Francesca Luzuriaga
Chairman of the Board of Advisors, Executive Vice President and Chief
Burson-Marsteller Financial Officer
William D. Rollnick (1) (2) (3) E. Joseph McKay
Retired Chairman, Genstar Rental Senior Vice President, Human Resources
Electronics, Inc.
Christopher A. Sinclair John T. Phippen
Chairman and Chief Executive Officer, Senior Vice President and Chief
Pepsi-Cola Company Information Officer
John L. Vogelstein (1) (2) (3) Gary P. Rolfes
Vice Chairman of the Board, President, Senior Vice President and Controller
and Director, E.M. Warburg, Pincus
& Co., Inc. William Stavro
Senior Vice President and Treasurer
<FN>
(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 H. Malone, Chairman
(5) Member, Foundation Committee
Dr. Harold Brown, Chairman
</TABLE>
52
CORPORATE INFORMATION
---------------------
Mattel, Inc. and Subsidiaries
Transfer Agent and Registrar
- ----------------------------
Mattel, Inc. Common Stock
The First National Bank of Boston
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, 23rd Floor
Pittsburgh, Pennsylvania 15265
Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997
State Street Bank and Trust Company
Corporate Services Division
P.O. Box 778
Boston, Massachusetts 03102
Mattel, Inc. Medium-Term Notes
Chemical Trust Company of California
300 South Grand Avenue
Los Angeles, California 90071
Stock Exchange Listings
- -----------------------
Mattel, Inc. Common Stock and Mattel, Inc. Preference
Share Purchase Rights
New York and Pacific Stock Exchanges
Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997
New York Stock Exchange
Shareholder Administration
- --------------------------
Inquiries relating to shareholder accounting records, stock
transfer and dividends (including dividend reinvestment)
should be directed to:
The First National Bank of Boston
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: 617-575-3170 or 800-730-4001
Common Shareholders
- -------------------
As of March 1, 1996, there were approximately 37,000
holders of record of Mattel, Inc. Common Stock
Annual Meeting
- --------------
The Annual Meeting of Shareholders will be held May 8,
1996, at 10:00 a.m. in the Manhattan Ballroom of the
Radisson Plaza Hotel, 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, 1995, is available upon request by writing to the
Secretary of the Company, 333 Continental Boulevard,
El Segundo, California 90245
Trademark Legends
- -----------------
Cabbage Patch Kids [trademark] and [copyright] Original Appalachian
Artworks, Inc., used under license. Disney characters:
[copyright] Disney. Nickelodeon and related trademarks [trademark] and
[copyright] Viacom International Inc. Polly Pocket and characters [trademark]
and [copyright] Bluebird Toys (UK) Ltd., England.
Barbie, Fisher-Price, Frisbee, Hacky Sack, Hot Wheels, Hula
Hoop, Morey, See 'N Say, UNO and Wonder Tools are
trademarks of Mattel, Inc.
[copyright] 1996 Mattel, Inc.
All Rights Reserved
Printed in U.S.A.
Printed on recycled paper.
<PAGE>
<TABLE>
<CAPTION>
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)
- ---------------------------------------- ------------------ -----------------
<S> <C> <C>
Arco Toys, Limited Hong Kong 100%
ARCOTOYS, Inc. Delaware 100%
Far West Insurance Company, Limited Bermuda 100%
Fisher-Price, Inc. Delaware 100%
Fisher-Price, N.V. Belgium 100%
Fisher-Price Beteiligungs-G.m.b.H. Germany 100%
Mattel G.m.b.H. Germany 100%
Mattel Toys K.F.T. Hungary 100%
Mattel Spol. S.R.O. Czech Republic 100%
Fisher-Price, S.r.l. Italy 100%
Fisher-Price de Mexico, S.A. de C.V. Mexico 100%
Fisher-Price, S.A Spain 100%
International Games, Inc. Delaware 100%
Juegos California, S.A. de C.V. Mexico 100%
Mabamex, S.A. de C.V. Mexico 100%
Mattel Argentina S.A. Argentina 100%
Mattel Asia Limited Hong Kong 100%
Mattel B.V. The Netherlands 100%
Mattel Chile S.A. Chile 100%
Mattel Colombia S.A. Colombia 100%
Mattel Espana, S.A. Spain 100%
Mattel Europa B.V. The Netherlands 100%
Mattel France S.A. France 100%
Corolle S.A. France 100%
Mattel Portugal Limitada Portugal 100%
Mattel Gesellschaft m.b.H. Austria 100%
<FN>
1
All of the subsidiaries listed above are included in the Consolidated
Financial Statements. Eight are not named because, when considered in the
aggregate, they do not constitute a significant subsidiary. Furthermore,
approximately seven 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.
<CAPTION>
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)
- ---------------------------------------- ------------------ -----------------
<S> <C> <C>
Mattel Holding, Inc. Delaware 100%
Mattel U.K. Limited U.K. 100%
Fisher-Price Toys Ltd. U.K. 100%
Mattel Group PLC U.K. 100%
J.W. Spear & Sons PLC U.K. 100%
J.W. Spear & Sons Pty. Limited Australia 100%
J.W. Spear B.V. The Netherlands 100%
Mattel Holdings Limited Canada 100%
Mattel Canada, Inc. Canada 100%
Mattel I., Inc. Delaware 100%
Mattel Toys, 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%
Mattel K.K. Japan 100%
Mattel (K.L.) Sdn.Bhd. Malaysia 100%
Mattel (Malaysia) Sdn.Bhd. Malaysia 100%
Mattel Media, Inc. Delaware 100%
Mattel (NZ) Limited New Zealand 60%
Mattel Operations, Inc. Delaware 100%
Mattel Overseas, Inc. California 100%
Mattel Toys Vendor Operations Limited Hong Kong 100%
Mattel Pty. Limited Australia 100%
Mattel Realty Corporation Delaware 100%
Mattel, S.A. de C.V. Mexico 100%
Aurimat, S.A. de C.V. Mexico 100%
Mattel de Mexico, S.A. de C.V. Mexico 100%
Mattel Servicios, S.A. de C.V. Mexico 100%
Mattel Sales Corp. California 100%
<FN>
1
All of the subsidiaries listed above are included in the Consolidated
Financial Statements. Eight are not named because, when considered in the
aggregate, they do not constitute a significant subsidiary. Furthermore,
approximately seven 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.
<CAPTION>
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)
- ---------------------------------------- ------------------ -----------------
<S> <C> <C>
Mattel Scandinavia A/S Denmark 100%
Mattel Southeast Asia Pte. Ltd. Singapore 100%
Mattel Tools Sdn.Bhd. Malaysia 100%
Mattel Toys (HK) Limited Hong Kong 100%
Mattel Toys Polska Sp. Z.O.O. Poland 100%
Mattel Toys (Taiwan) Corporation Ltd. Taiwan 100%
Mattel de Venezuela, C.A. Venezuela 100%
Montoi S.A. de C.V. Mexico 100%
P.T. Mattel Indonesia Indonesia 95%
Precision Moulds Limited Hong Kong 100%
<FN>
1
All of the subsidiaries listed above are included in the Consolidated
Financial Statements. Eight are not named because, when considered in the
aggregate, they do not constitute a significant subsidiary. Furthermore,
approximately seven 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.
</TABLE>
<PAGE>
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in each of the eight
Registration Statements on Form S-8 (No. 33-54391, No. 33-52723, No. 33-14717,
No. 33-51454, No. 33-34920, No. 33-57082, No. 33-62185 and No. 333-01061) and
in each Prospectus constituting part of the two Registration Statements on
Form S-3 (No. 33-54927 and No. 33-46947) of Mattel, Inc. and its subsidiaries
of our report dated February 6, 1996, appearing on page 51 of the December 31,
1995 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 on page 26 of
the Company's Annual Report on Form 10-K.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Los Angeles, California
March 22, 1996
<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 YEAR
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 466,082
<SECURITIES> 17,375
<RECEIVABLES> 690,071
<ALLOWANCES> 10,788
<INVENTORY> 350,841
<CURRENT-ASSETS> 1,690,819
<PP&E> 765,199
<DEPRECIATION> 265,885
<TOTAL-ASSETS> 2,695,509
<CURRENT-LIABILITIES> 847,681
<BONDS> 475,003
<COMMON> 279,058
0
0
<OTHER-SE> 996,111
<TOTAL-LIABILITY-AND-EQUITY> 2,695,509
<SALES> 3,638,812
<TOTAL-REVENUES> 3,638,812
<CGS> 1,849,650
<TOTAL-COSTS> 1,849,650
<OTHER-EXPENSES> 1,182,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,589
<INCOME-PRETAX> 532,902
<INCOME-TAX> 175,100
<INCOME-CONTINUING> 357,802
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357,802
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
<FN>
Note - Fully diluted earnings per share for the year ended
December 31, 1995 has been 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>
