SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-05647
----------------------------------
MATTEL, INC.
------------
(Exact name of registrant as specified in its charter)
Delaware 95-1567322
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 252-2000
--------------
(Former name, former address and former fiscal year, None
if changed since last report) --------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares outstanding of registrant's common stock as of August 11, 1997:
Common Stock - $1 par value -- 290,452,640 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, June 30, Dec. 31,
(In thousands) 1997 1996 1996
- - -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 58,989 $ 91,996 $ 550,271
Accounts receivable, net 1,315,815 1,135,765 948,940
Inventories 552,463 562,922 444,178
Prepaid expenses and other current assets 194,962 225,602 195,673
----------- ----------- -----------
Total current assets 2,122,229 2,016,285 2,139,062
----------- ----------- -----------
Property, Plant and Equipment
Land 35,221 25,569 30,864
Buildings 215,446 207,141 216,523
Machinery and equipment 458,401 409,775 438,969
Capitalized leases 25,374 26,649 26,512
Leasehold improvements 74,721 65,402 69,732
----------- ----------- -----------
809,163 734,536 782,600
Less: accumulated depreciation 344,792 306,516 323,096
----------- ----------- -----------
464,371 428,020 459,504
Tools, dies and molds, net 153,980 149,148 156,777
----------- ----------- -----------
Property, plant and equipment, net 618,351 577,168 616,281
----------- ----------- -----------
Other Noncurrent Assets
Intangible assets, net 590,145 616,045 611,410
Sundry assets 236,697 168,200 214,389
----------- ----------- -----------
$ 3,567,422 $ 3,377,698 $ 3,581,142
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
Consolidated results for all periods have been restated retroactively for the effects of
the March 1997 merger with Tyco Toys, Inc. ("Tyco"), accounted for as a pooling of
interests. See Note 7.
</TABLE>
2
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
June 30, June 30, Dec. 31,
(In thousands, except share data) 1997 1996 1996
- - --------------------------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Short-term borrowings $ 164,991 $ 263,772 $ 28,924
Current portion of long-term liabilities 231,708 2,101 106,596
Accounts payable 216,220 232,959 312,378
Accrued liabilities 523,018 315,409 510,691
Income taxes payable 120,033 149,384 183,288
----------- ----------- -----------
Total current liabilities 1,255,970 963,625 1,141,877
----------- ----------- -----------
Long-Term Liabilities
6-7/8% Senior notes due 1997 - 99,830 -
6-3/4% Senior notes due 2000 100,000 100,000 100,000
Senior Subordinated Notes - 126,500 126,500
Convertible Subordinated Notes 16,034 16,034 16,034
Medium-Term Notes 380,000 220,000 220,000
Mortgage notes 43,836 48,023 47,600
Other 127,424 120,385 123,208
----------- ----------- -----------
Total long-term liabilities 667,294 730,772 633,342
----------- ----------- -----------
Shareholders' Equity
Preferred stock, Series B $1.00 par value,
$1,050.00 liquidation preference per share,
53.6 thousand shares authorized, issued and
outstanding 54 54 54
Preferred stock, Series C $1.00 par value,
$125.00 liquidation preference per share,
772.8 thousand shares authorized, issued and
outstanding 773 773 773
Common stock $1.00 par value, 600.0 million
shares authorized; 296.7 million
shares issued at June 30, 1997 and
296.1 million shares issued at June 30,
1996 and December 31, 1996 296,729 296,091 296,091
Additional paid-in capital 506,224 544,767 518,296
Treasury stock at cost; 5.8 million shares,
4.1 million shares and 8.1 million shares,
respectively (162,269) (103,478) (215,999)
Retained earnings 1,122,343 1,043,687 1,293,653
Currency translation adjustments (119,696) (98,593) (86,945)
----------- ----------- -----------
Total shareholders' equity 1,644,158 1,683,301 1,805,923
----------- ----------- -----------
$ 3,567,422 $ 3,377,698 $ 3,581,142
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
Consolidated results for all periods have been restated retroactively for the effects of
the March 1997 merger with Tyco, accounted for as a pooling of interests. See Note 7.
</TABLE>
3
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the For the
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(In thousands, except per share amounts) 1997 1996 1997 1996
- - ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 972,656 $ 921,583 $1,666,176 $1,605,582
Cost of sales 513,819 485,559 884,528 846,684
---------- ---------- ---------- ----------
Gross Profit 458,837 436,024 781,648 758,898
Advertising and promotion expenses 131,713 129,524 234,339 229,628
Other selling and administrative expenses 192,707 183,216 377,993 352,797
Integration/restructuring costs - - 275,000 -
Interest expense 18,514 21,990 38,150 41,883
Other expense, net 7,959 8,704 15,841 13,203
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes 107,944 92,590 (159,675) 121,387
Provision (benefit) for income taxes 32,310 29,220 (30,685) 37,483
---------- ---------- ---------- ----------
Net Income (Loss) 75,634 63,370 (128,990) 83,904
Less: preferred stock dividend requirements 2,837 889 5,677 1,716
---------- ---------- ---------- ----------
Net Income (Loss) Applicable to Common Shares $ 72,797 $ 62,481 $ (134,667) $ 82,188
========== ========== ========== ==========
Primary Income (Loss) Per Common And Common
Equivalent Share
- - -------------------------------------------
Net income (loss) $ 0.25 $ 0.21 $ (0.46) $ 0.28
========== ========== ========== ==========
Average number of common and common
equivalent shares 295,716 297,916 290,069 298,345
========== ========== ========== ==========
Dividends Declared Per Common Share $ 0.070 $ 0.060 $ 0.130 $ 0.120
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial information.
Consolidated results for all periods have been restated retroactively for the effects of the
March 1997 merger with Tyco, accounted for as a pooling of interests. See Note 7.
</TABLE>
4
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the
Six Months Ended
-----------------------
June 30, June 30,
(In thousands) 1997 1996
- - -------------- ---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
- - -------------------------------------
Net income (loss) $ (128,990) $ 83,904
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation 88,927 67,642
Amortization 17,374 18,668
Increase (decrease) from changes in net assets and liabilities:
Accounts receivable (389,743) (259,555)
Inventories (121,058) (157,860)
Prepaid expenses and other current assets 4,812 10,255
Accounts payable, accrued liabilities and
income taxes payable (112,177) (243,111)
Deferred compensation and other retirement plans 6,583 6,147
Deferred income taxes (15,947) (9,248)
Other, net (2,066) 2,542
---------- ----------
Net cash used in operating activities (652,285) (480,616)
---------- ----------
Cash Flows From Investing Activities:
- - -------------------------------------
Purchases of tools, dies and molds (47,968) (56,433)
Purchases of other property, plant and equipment (59,032) (60,186)
Purchases of marketable securities - (8,000)
Purchase of other long-term investments (6,955) -
Proceeds from sales of other property, plant and equipment 6,552 1,399
Proceeds from sales of marketable securities - 25,315
Contingent consideration - investment in acquired business (8,625) (8,625)
Other, net (230) (352)
---------- ----------
Net cash used in investing activities (116,258) (106,882)
---------- ----------
Cash Flows From Financing Activities:
- - -------------------------------------
Short-term borrowings, net 136,527 188,199
Issuance of Medium-Term Notes 160,000 -
Payment of Medium-Term notes - (30,000)
Long-term foreign borrowings (3,492) (1,454)
Proceeds from issuance of preferred stock - 92,703
Tax benefit of employee stock options exercised 6,878 15,016
Exercise of stock options and warrants 18,795 33,709
Sale of treasury stock 71,276 -
Purchase of treasury stock (61,313) (80,489)
Dividends paid on common and preferred stock (40,905) (29,854)
Other, net (2,552) (848)
---------- ----------
Net cash provided by financing activities 285,214 186,982
Effect of Exchange Rate Changes on Cash (7,953) (1,174)
---------- ----------
Decrease in Cash (491,282) (401,690)
Cash at Beginning of Period 550,271 493,686
---------- ----------
Cash at End of Period $ 58,989 $ 91,996
========== ==========
<FN>
See accompanying notes to consolidated financial information.
Consolidated results for all periods have been restated retroactively for the effects of the
March 1997 merger with Tyco, accounted for as a pooling of interests. See Note 7.
</TABLE>
5
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
1. The accompanying unaudited consolidated financial statements and related
disclosures have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In
the opinion of management, all adjustments considered necessary for a
fair presentation of Mattel, Inc. and its subsidiaries ("the Company")
financial position and interim results as of and for the periods
presented have been included. Certain amounts in the financial
statements for prior periods have been reclassified to conform with the
current period's presentation. Because the Company's business is
seasonal, results for interim periods are not necessarily indicative of
those which may be expected for a full year.
The financial information included herein should be read in conjunction
with the Company's consolidated financial statements and related notes
in its 1996 Annual Report to Shareholders, and the restated, combined
financial statements filed in the Company's Current Report on Form 8-K
dated July 30, 1997.
2. Accounts receivable are shown net of allowances for doubtful accounts of
$25.3 million (June 30, 1997), $18.2 million (June 30, 1996) and $21.0
million (December 31, 1996).
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
(In thousands) 1997 1996 1996
- - -------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 89,093 $ 97,539 $ 70,121
Finished goods 463,370 465,383 374,057
--------- --------- ---------
$ 552,463 $ 562,922 $ 444,178
========= ========= =========
</TABLE>
4. Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------
June 30, June 30,
(In thousands) 1997 1996
- - -------------- ---------- -----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 37,648 $ 38,581
Income taxes 37,996 34,175
Noncash investing and financing
activities:
Issuance of stock warrant - 26,444
- - --------------------------------------------------------------------
</TABLE>
6
5. In February 1996, the Company filed a universal shelf registration
statement allowing the issuance of up to $350.0 million of debt and
equity securities. This registration statement was amended in May 1997
to allow the issuance of an additional $39.5 million of debt and equity
securities. In the first and second quarters of 1997, the Company
issued an aggregate of $160.0 million principal amount of Series B
Medium-Term Notes maturing on various dates from March 2008 to June
2011. Interest is payable semiannually at fixed rates ranging from
7.14% to 7.49% per annum on the fifteenth day of May and November. In
July 1997, the Company issued an additional $70.0 million principal
amount of Series B Medium-Term Notes maturing in July 2007 and July
2012, which bear interest at fixed rates of 6.72% and 7.25% per annum,
respectively. In addition, the Company issued 3.0 million common shares
valued at $72.8 million in March 1997.
6. On July 10, 1997, the Company issued its Notice of Redemption to holders
of the 10-1/8% Senior Subordinated Notes. The redemption price is
103.797% of the principal amount, payable in cash together with interest
accrued to August 15, 1997, the final interest payment date. The
Company expects to recognize an extraordinary loss of approximately $5
million, net of tax, as a result of the redemption.
7. Pursuant to an Agreement and Plan of Merger ("the Tyco Merger
Agreement") dated November 17, 1996, as amended by an Amendment to
Agreement and Plan of Merger dated November 22, 1996, a merger was
consummated between the Company and Tyco on March 27, 1997. The stock-
for-stock transaction was approved by the shareholders of Tyco, after
which Tyco was merged with and into Mattel, with Mattel continuing as
the surviving corporation in the merger. As a result of the merger, the
separate existence of Tyco ceased. Under the merger agreement, each
outstanding share of Tyco common stock was converted into the right to
receive 0.48876 Mattel common shares and resulted in the issuance of
approximately 17 million shares. Tyco restricted stock units and stock
options outstanding as of the merger date were exchanged for
approximately 0.6 million Mattel common shares. In addition, each share
of Tyco Series B and Series C Preferred Stock was converted into like
Mattel preferred stock. This transaction has been accounted for as a
pooling of interests, and accordingly, financial information for periods
prior to the merger reflect retroactive restatement of the companies'
combined financial position and operating results. For periods
preceding the merger, there were no intercompany transactions which
required elimination from the combined consolidated results of
operations and there were no adjustments necessary to conform the
accounting practices of the two companies.
7
Selected financial information for the combining entities included in
the consolidated statements of income are as follows:
<TABLE>
<CAPTION>
Net Income/
(In thousands) Net Sales (Loss)
- - -------------- ----------- -----------
<S> <C> <C>
FOR THE THREE MONTHS ENDED
MARCH 31, 1997
Mattel (a) $ 568,528 $ 13,123
Tyco 124,992 (7,747)
Integration/restructuring charge (b) - (210,000)
----------- -----------
Combined $ 693,520 $ (204,624)
=========== ===========
FOR THE SIX MONTHS ENDED
JUNE 30, 1996
Mattel, as previously reported $ 1,363,234 $ 96,178
Tyco (c) 242,348 (12,274)
----------- -----------
Combined $ 1,605,582 $ 83,904
=========== ===========
<FN>
(a) For the three months ended March 1997, primary earnings per share
before the effects of the merger was $0.05 per share.
(b) The integration and restructuring charge of $275.0 million, after
related income tax effects, reduced earnings of the combined company by
$210.0 million.
(c) Certain amounts for Tyco net sales have been classified differently
than previously published amounts in order to conform the accounting
presentation of the two entities. The provision for income taxes has
been adjusted by $1.7 million in June 1996 to reflect the adjustment of
valuation allowances established in the historical financial statements
of Tyco, resulting in the recognition of benefits of losses incurred by
certain foreign affiliates.
</TABLE>
The Company recognized a $275.0 million pre-tax charge against
continuing operations in March 1997 in connection with the Tyco
integration and Mattel restructuring. Of these charges, approximately
$43 million represented transaction costs, including: investment
banking, legal, accounting, and contractual termination and incentive
benefits; and approximately $82 million related to severance costs from
the elimination of approximately 2,700 positions worldwide from the
combined company. The remaining $150 million estimated for integration
and restructuring costs includes the following: i) approximately $49
million primarily for the writedown of fixed assets and lease
termination costs in connection with the consolidation of manufacturing
facilities; ii) approximately $71 million primarily for lease and
contract terminations and asset writedowns resulting from the
elimination of duplicate marketing offices, administrative functions
and distribution facilities; and iii) approximately $30 million in
charges primarily for writeoff of tooling and other costs related to
abandonment of certain product lines. Of the total pre-tax charge,
approximately $85 million represents non-cash asset writedowns. It is
anticipated that substantially all actions related to the integration
and restructuring activity will be taken within one year.
8. In the current quarter, the Board of Directors declared cash dividends
of $0.07 per common share, compared to $0.06 per common share in the
second quarter of 1996.
8
9. All share and per share data presented in these financial statements
reflect the retroactive effects of the Tyco merger.
10. Income (loss) 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, except in any period
in which the inclusion of the stock options and warrants has the effect
of decreasing the loss per share amount otherwise computed. Earnings
available to common shareholders represent reported net income (loss)
less preferred stock dividend requirements. In February 1997, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share, which is effective for
financial statements issued after December 15, 1997. This statement
requires entities to report "basic" and "diluted" earnings per share in
place of primary and fully diluted earnings per share. Adoption of this
statement is not expected to have a material impact on the Company's
calculation of income per share.
11. In January 1997, the SEC issued Financial Reporting Release 48,
"Disclosure of Accounting Policies for Derivative Financial Instruments
and Derivative Commodity Instruments and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative
Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments". The release requires specific qualitative
disclosures regarding the Company's accounting policies for derivative
financial instruments. 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
its results of operations and cash flows. The Company does not enter
into derivatives for trading purposes. Gains and losses related to firm
commitments, which qualify for hedge accounting, are deferred and are
recognized in the results of operations, balance sheet, and statement of
cash flows as part of the underlying transaction. Contracts that do not
qualify for hedge accounting are marked to market with gains and losses
recognized in the results of operations currently. If a derivative is
terminated prior to maturity, the resultant gain or loss is recognized
at the time of maturity of the original contract as a component of other
expense, net.
9
MATTEL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS QUARTERLY REPORT
PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995:
FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY, WHICH INCLUDE, BUT
ARE NOT LIMITED TO, THE RESTRUCTURING CHARGE, COST SAVINGS, AND
PROFITABILITY, ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN
SUCH STATEMENTS. THESE INCLUDE WITHOUT LIMITATION: THE COMPANY'S
DEPENDENCE ON THE TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER
ACCEPTANCE OF NEW PRODUCTS; POSSIBLE WEAKNESSES OF INTERNATIONAL
MARKETS; THE IMPACT OF COMPETITION ON REVENUES AND MARGINS; THE EFFECT
OF CURRENCY FLUCTUATIONS ON REPORTABLE INCOME; AND OTHER RISKS AND
UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S
PUBLIC ANNOUNCEMENTS AND SEC FILINGS. FORWARD-LOOKING STATEMENTS CAN
BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE," "CONTINUE,"
"PLANS," "INTENDS," OR OTHER SIMILAR TERMINOLOGY.
Mattel, Inc. designs, manufactures, markets and distributes a broad variety
of toy products on a worldwide basis. The Company's business is dependent
in great part on its ability each year to redesign, restyle and extend
existing core products and product lines and to design and develop
innovative new toys and product lines. New products have limited lives,
ranging from one to three years, and generally must be updated and
refreshed each year.
Core brands have historically provided the Company with relatively stable
growth. Among the Company's major core brands are BARBIE fashion dolls and
doll clothing and accessories; the Company's Disney-licensed toys; FISHER-
PRICE toys and juvenile products; SESAME STREET characters; HOT WHEELS
vehicles and playsets; MATCHBOX; CABBAGE PATCH KIDS; Tyco Electric Racing
and Tyco Radio Control; the UNO and SKIP-BO card games; and the SCRABBLE
game, which the Company markets outside of the United States and Canada.
10
RESULTS OF OPERATIONS
---------------------
The Company's business is seasonal, and, therefore, results of operations
are comparable only with corresponding periods. Following is a percentage
analysis of operating results:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
=========== =========== =========== ===========
Gross profit 47% 47% 47% 47%
Advertising and promotion expenses 14 14 14 14
Other selling and administrative expenses 20 20 23 22
Restructuring and integration charge - - 16 -
Other expense, net - 1 1 1
----------- ----------- ----------- -----------
Operating profit (loss) 13 12 (7) 10
Interest expense 2 2 2 3
----------- ----------- ----------- -----------
Income (loss) before income taxes 11% 10% (9)% 7%
=========== =========== =========== ===========
</TABLE>
SECOND QUARTER
- - --------------
The strength of the Company's core brands resulted in a 6% increase in net
sales in the second quarter of 1997 over the 1996 second quarter. Sales of
BARBIE and BARBIE-related products increased 17%, HOT WHEELS increased 74%,
and MATCHBOX increased 24%. The Company's Preschool brand sales increased
5% in the second quarter of 1997 over the year-ago quarter. This increase
was led by strength in SESAME STREET and WINNIE THE POOH, partially offset
by a 17% decline in the FISHER-PRICE products.
Sales to customers within the United States grew 10% and accounted for 68%
of consolidated sales compared to 64% in the year-ago quarter. Sales to
customers outside the United States decreased 5%, including a net $18.8
million unfavorable effect from the generally stronger US dollar relative
to the year-ago quarter. At comparable foreign currency exchange rates,
sales internationally grew 1%. In the second quarter of 1997, the US
dollar continued to strengthen against many major foreign currencies.
Although the Company hedges a portion of its anticipated currency
exposures, the remaining unhedged portion could be adversely impacted by
the strengthening US dollar. Additionally, if this strengthening persists,
Mattel's results of operations could be adversely impacted by unfavorable
translation effects on foreign revenues and earnings (see the Cautionary
Statement above).
Gross profit, advertising and promotion, other selling and administrative
expenses, and interest expense as a percentage of net sales remained
virtually constant compared to the year-ago quarter.
11
SIX MONTHS
- - ----------
Net sales in the first half of 1997 increased $60.6 million or 4% over
1996, reflecting continued worldwide demand for the Company's core brands.
Worldwide core product sales increased mainly due to greater demand for
BARBIE and BARBIE-related products, which increased 14%, and HOT WHEELS
vehicles and playsets, which increased 82%. In addition, the increase in
core brand sales reflects higher sales of the Company's Preschool brands,
including SESAME STREET and WINNIE THE POOH, partially offset by a 22%
decline in FISHER-PRICE products. Sales to customers within the United
States increased 9% and accounted for 68% of consolidated sales compared to
64% in 1996. Sales to customers outside the United States decreased 6%,
including a net $34.8 million unfavorable effect from the generally
stronger US dollar relative to the year-ago period. At comparable foreign
currency exchange rates, sales internationally remained virtually flat.
Gross profit, and advertising and promotion, as a percentage of net sales,
remained virtually constant compared to the first half of 1996. Other
selling and administrative expenses increased one percentage point over the
year-ago quarter, primarily due to higher design and development costs in
support of the Company's brands, and higher depreciation expense related to
increased investment in new assets. The restructuring and integration
activity discussed below is intended to result in reduced selling and
administrative costs as a percentage of sales. Interest expense decreased
$3.7 million or 9% from 1996 levels due to lower average borrowings in
1997.
The Company recognized a $275.0 million pre-tax charge against continuing
operations in March 1997 in connection with the Tyco integration and Mattel
restructuring. After related tax effects, the net $210.0 million impacted
the 1997 year-to-date earnings by $0.72 per share. Of these charges,
approximately $43 million represented transaction costs, including:
investment banking, legal, accounting, and contractual termination and
incentive benefits; and approximately $82 million related to severance
costs from the elimination of approximately 2,700 positions worldwide from
the combined company. The remaining $150 million estimated for integration
and restructuring costs includes the following: i) approximately $49
million primarily for the writedown of fixed assets and lease termination
costs in connection with the consolidation of manufacturing facilities; ii)
approximately $71 million primarily for lease and contract terminations and
asset writedowns resulting from the elimination of duplicate marketing
offices, administrative functions and distribution facilities; and iii)
approximately $30 million in charges primarily for writeoff of tooling and
other costs related to abandonment of certain product lines. Of the total
pre-tax charge, approximately $85 million represents non-cash asset
writedowns.
The Company anticipates the integration and restructuring charge will
provide pre-tax cost savings of approximately $60 million during 1997 and
approximately $160 million or more annually beginning in 1998. These cost
savings will result primarily from reduced overhead, elimination of
duplicate marketing and administrative offices and distribution facilities,
and more efficient manufacturing and logistics operations. Available cash
reserves and cash flows generated from normal business operations will fund
the costs of the restructuring, with no adverse impact expected on the
Company's future liquidity, revenues or financial position. It is
anticipated that substantially all actions related to the integration and
restructuring activity will be taken within one year. The statement set
forth herein is forward-looking, and actual results may differ materially
(see the Cautionary Statement above).
12
FINANCIAL CONDITION
-------------------
The Company's financial position remained strong during the first half of
1997. The Company's cash position as of June 30, 1997 was $59.0 million,
compared to $92.0 million as of the second quarter 1996. Cash decreased
$491.3 million since December 31, 1996 primarily due to funding of
operating activities.
Accounts receivable increased $180.1 million over the year-ago quarter
reflecting lower sales of certain trade receivables in 1997. Since year
end, accounts receivable increased $366.9 million mainly due to seasonal
customer payment patterns. Inventory balances increased $108.3 million
since year end, primarily as a result of the Company's production in
support of future sales volume. Sundry assets increased $68.5 million, as
compared to the year-ago quarter, primarily due to an investment in group
life insurance contracts to assist in funding the Company's deferred
compensation and excess benefit plans, and issuance of a stock warrant in
connection with a licensing agreement with Disney Enterprises, Inc.
Accrued liabilities increased $207.6 million compared to the year-ago
quarter, mainly due to the accrual for the Tyco integration and Mattel
restructuring charge. Short-term borrowings decreased $98.8 million
compared to the 1996 quarter end primarily due to proceeds from the
issuance of Tyco's Series C Preferred Stock in 1996, and the issuance of
$120.0 million in Medium-Term Notes in the second quarter of the current
year. Seasonal financing needs for the next twelve months are expected to
be satisfied through internally generated cash, issuance of commercial
paper, and use of the Company's various short-term bank lines of credit.
Details of the Company's capitalization are as follows:
<TABLE>
<CAPTION>
(In millions) June 30, 1997 June 30, 1996 Dec. 31, 1996
- - ------------- ----------------------------------------------
<S> <C> <C> <C>
Medium-Term Notes $ 380.0 17% $ 220.0 9% $ 220.0 9%
Senior Subordinated Notes - - 126.5 5 126.5 5
6-7/8% Senior notes - - 99.8 4 - -
6-3/4% Senior notes 100.0 4 100.0 4 100.0 4
Convertible Subordinated
Notes 16.0 1 16.0 1 16.0 1
Other long-term debt
obligations 53.6 2 64.6 3 57.3 2
-----------------------------------------------
Total long-term debt 549.6 24 626.9 26 519.8 21
Other long-term liabilities 117.7 5 103.9 4 113.5 5
Shareholders' equity 1,644.2 71 1,683.3 70 1,805.9 74
----------------------------------------------
$2,311.5 100% $2,414.1 100% $2,439.2 100%
==============================================
</TABLE>
13
Total long-term debt decreased as a percentage of total capitalization
compared to the year-ago quarter, primarily due to the reclassification of
the 6-7/8% Senior Notes and 10-1/8% Tyco Senior Subordinated Notes from
long-term debt to the current portion of long-term liabilities. Future
long-term capital needs are expected to be satisfied through retention of
corporate earnings and the issuance of long-term debt instruments.
Shareholders' equity decreased $161.8 million since December 31, 1996,
primarily due to the impact of the $275.0 million restructuring and
integration charge ($210.0 million net of taxes) in 1997.
ACQUISITION
-----------
In March 1997, a merger was consummated between the Company and Tyco. The
stock-for-stock transaction was approved by the shareholders of Tyco, after
which Tyco was merged with and into Mattel, with Mattel continuing as the
surviving corporation in the merger. As a result of the merger, the
separate existence of Tyco ceased. Under the Tyco Merger Agreement, each
outstanding share of Tyco common stock was converted into the right to
receive 0.48876 Mattel common shares and resulted in the issuance of
approximately 17 million shares. In addition, each share of Tyco Series B
and Series C Preferred Stock was converted into like Mattel preferred
stock. This transaction has been accounted for as a pooling of interests,
and accordingly, financial information for periods prior to the merger
reflect retroactive restatement of the companies' combined financial
position and operating results.
14
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
- - -------------------------------------------------------------
The Annual Meeting of Shareholders of Mattel, Inc. was held on May 7, 1997,
for the purpose of electing directors and approving the appointment of
independent auditors. Proxies for the meeting were solicited pursuant to
Regulation 14A of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to that of management. All of management's
nominees for directors as listed in the proxy statement were elected with
the number of votes cast for each nominee as follows:
Shares Voted Votes
"FOR" Withheld
------------- ----------
John W. Amerman 235,572,163 2,372,416
Jill E. Barad 235,563,035 2,372,416
Harold Brown 235,690,293 2,372,416
Tully M. Friedman 184,360,731 2,372,416
Joseph C. Gandolfo 235,580,568 2,372,416
Ronald M. Loeb 232,163,397 2,372,416
Ned Mansour 235,589,569 2,372,416
Edward N. Ney 235,696,921 2,372,416
William D. Rollnick 235,727,089 2,372,416
Christopher A. Sinclair 235,709,234 2,372,416
Bruce L. Stein 235,408,757 2,372,416
John L. Vogelstein 235,705,883 2,372,416
The proposal to appoint Price Waterhouse LLP as independent accountants for
the Company for the year ending December 31, 1997 was ratified by the
following vote:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
------------ ------------ ------------ ----------
232,807,798 344,633 416,661 0
A stockholder proposal regarding board inclusiveness was included in the
Proxy Statement dated March 24, 1997. This proposal was withdrawn prior to
the annual meeting. Prior to this withdrawal, the following votes had been
cast by proxy on this proposal:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
------------ ------------ ------------ ----------
43,816,980 156,030,121 4,144,294 29,577,258
15
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
(a) Exhibits
--------
10.0# Amended and Restated Employment Agreement dated
January 1, 1997 between the Company and Jill E. Barad
11.0 Computation of Income (Loss) per Common and Common Equivalent
Share
27.0 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
-------------------
Mattel, Inc. filed the following Current Reports on Form 8-K during
the quarterly period ended June 30, 1997:
Financial
Date of Report Items Reported Statements Filed
-------------- -------------- ----------------
April 17, 1997 7 Yes
April 25, 1997 5, 7 None
May 15, 1997 5 Yes
- - -----------------------
# Certain portions of this Exhibit were omitted from the copy filed
as part of the Quarterly Report on Form 10-Q. A complete copy of
this Exhibit has been filed separately, together with an application
to obtain confidential treatment with respect thereto.
16
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MATTEL, INC.
------------
(Registrant)
Date: As of August 14, 1997 By: /s/ Kevin M. Farr
--------------------- -----------------------
Kevin M. Farr
Senior Vice President
and Controller
17
<PAGE>
EXHIBIT 10.0
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
BETWEEN
MATTEL, INC.
AND
JILL E. BARAD
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment Period................................. 1
2. Duties............................................ 2
(a) Executive's Positions and Titles............. 2
(b) Executive's Duties........................... 3
(c) Full Time.................................... 3
3. Compensation...................................... 4
(a) Base Salary.................................. 4
(b) Bonus Programs............................... 5
(c) Incentive and Savings Plans.................. 6
(d) Stock Options................................ 7
(e) Benefit Plans................................ 8
(f) Expenses..................................... 8
(g) Fringe Benefits.............................. 8
(h) Vacation..................................... 9
(i) Home Mortgage Loan........................... 9
(j) Life Insurance............................... 10
(k) Stock Purchase Loan.......................... 11
(l) Certain Amendments........................... 12
4. Termination....................................... 12
(a) Death or Disability.......................... 12
(b) Cause........................................ 14
(c) Good Reason.................................. 15
(d) Change of Control............................ 16
(e) Retirement................................... 19
(f) Notice of Termination........................ 19
-i-
Page
----
(g) Date of Termination.......................... 20
5. Obligations of Mattel Upon Termination............ 20
(a) Death........................................ 20
(b) Disability................................... 22
(c) Cause/Other Than for Good Reason............. 23
(d) Other Than for Cause/For Good Reason, Death,
Disability or Retirement..................... 23
(e) Retirement................................... 27
(i) Bonus Programs.......................... 28
(ii) Retirement Plans........................ 29
(iii) Benefit Plans........................... 30
(iv) Expenses and Office Space............... 31
(v) Fringe Benefits......................... 31
(vi) Stock Option Grants..................... 32
(vii) Certain Amendments...................... 32
(f) Change of Control............................ 33
(g) Bonus During Cancellation Period............. 34
6. Indemnification................................... 34
7. Non-exclusivity of Rights......................... 35
8. No Set Off, Payment of Fees....................... 35
9. Arbitration of Disputes........................... 37
10. General Release; Time to Consider and
Cancel the Agreement; Age Discrimination in
Employment Act Waiver............................. 40
11. Confidential Information.......................... 43
12. Successors........................................ 44
13. Amendment; Waiver................................. 45
14. Miscellaneous..................................... 45
-ii-
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of January 1,
1997 (the "Agreement"), is between Mattel, Inc., a Delaware corporation
("Mattel"), and Jill E. Barad (the "Executive").
The Executive and Mattel are parties to an Amended and Restated
Employment Agreement, dated as of July 29, 1996 (the "Existing Employment
Agreement"), providing for the employment of the Executive.
The Executive and Mattel desire to amend the Existing Employment
Agreement in order to reflect the change of her title and duties and of the
terms and conditions of her employment related thereto and to clarify
certain provisions of the Existing Employment Agreement.
In consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Executive
and Mattel agree to amend and restate the Existing Employment Agreement in
its entirety as follows:
1. Employment Period. Mattel hereby agrees to employ and continue
in its employ the Executive, and the Executive hereby accepts such
employment and agrees to remain in the
-1-
employ of Mattel, for the period
commencing on the date of this Agreement (the "Effective Date") and ending
on the fifth anniversary of such date (the "Employment Period"); provided
that commencing on the first day of the month next following the Effective
Date, and on the first day of each month thereafter (the most recent of
such dates is hereinafter referred to as the "Renewal Date"), the
Employment Period shall be automatically extended so as to terminate five
years from such Renewal Date, unless at least 60 days prior to any Renewal
Date Mattel or the Executive shall give written notice to the other that
the Employment Period shall not be so extended.
2. Duties.
(a) Executive's Positions and Titles. During the Employment
Period, the Executive's positions and titles shall be President and Chief
Executive Officer, Mattel, Inc. In addition to such positions and titles,
Executive shall assume the position and title of Chairman of the Board upon
the earliest of the following dates: (i) on January 1, 1998; (ii) thirty
days after notice to Mattel that she elects to assume the position and
title of Chairman of the Board; or (iii) on the date when John W. Amerman
elects to resign as Chairman of the Board. At Executive's election,
Executive may relinquish the position and title of President at such time
as a person approved by the Executive other than Executive assumes such
-2-
position and title. Such relinquishment shall not affect Executive's
duties as provided in Section 2 (b).
(b) Executive's Duties. Executive shall report directly to the
Board of Directors. Throughout the Employment Period, the Executive's
duties, responsibilities and authority shall include all of the duties,
responsibilities, and authority normally performed by the Chief Executive
Officer of Mattel, with such additions or modifications thereto which are
consistent with her position and existing duties, responsibilities and
authority hereunder, as the Board of Directors of Mattel may, from time to
time, in its discretion and acting in good faith after consultation with
the Executive, adopt. In no event shall the duties, responsibilities and
authority of Executive be less than those initially performed by her. The
Executive's services shall be performed in the greater Los Angeles,
California, area at Mattel's headquarters, and, without the Executive's
consent, she shall not be transferred outside the area, other than for
normal business travel and temporary assignments, nor shall her office or
administrative staff be changed.
(c) Full Time. The Executive agrees to devote her full business
time to the business and affairs of Mattel and to use her best efforts to
perform faithfully and efficiently the duties and responsibilities assigned
to her hereunder, subject to periods of vacation and sick leave to which
she is
-3-
entitled. Notwithstanding the foregoing, Executive may serve on
civic or charitable boards or committees and manage her personal
investments and affairs to the extent such activities do not materially
interfere with the performance of her duties and responsibilities. After
consultation with the Board of Directors or Executive Committee as to
appropriateness with regard to the Executive's duties and responsibilities
to Mattel, the Executive may also serve on corporate boards of directors of
corporations which do not directly compete with Mattel. In no event will
Executive invest in any business which directly competes with Mattel, nor
will she engage in any outside business activity of any nature, including
but not limited to activity as a consultant, agent, partner, officer or
provider of business services of any nature directly or indirectly to a
corporation or other business enterprise. Nothing in this Agreement shall
be construed to prohibit the Executive from investing in up to 1% of the
stock of any corporation which does not directly compete with Mattel and
whose stock is listed on a national securities exchange or on the Nasdaq
National Market System.
3. Compensation.
(a) Base Salary. During the Employment Period, the Executive
shall receive a base salary ("Base Salary") at a bi-weekly rate at least
equal to the bi-weekly salary paid to the Executive by Mattel on the date
of this Agreement. The Base Salary shall be reviewed at least every
eighteen months in
-4-
conjunction with the review of the base salaries of the
other senior executive officers of Mattel, with the first review to be no
later than February 1, 1998, and may be increased at any time and from time
to time by action of the Board of Directors of Mattel or any committee
thereof or any individual having authority to take such action in
accordance with Mattel's regular practices. Any increase in the Base
Salary shall not serve to limit or reduce any other obligation of Mattel
hereunder, and after any such increase, the Base Salary shall not be
reduced.
(b) Bonus Programs. In addition to the Base Salary, the
Executive shall participate throughout the Employment Period in all of
Mattel's cash bonus, deferred bonus and incentive plans and programs
("Bonus Programs") which may be in effect from time to time with respect to
executives employed by Mattel (including, but not limited to, the
Management Incentive Plan ("MIP") and the Long-Term Incentive Plan ("LTIP")
as they may be modified from time to time and any plans or programs
substituted therefor) at a participation level reflecting the Executive's
duties and responsibilities, and, in any event, at a level higher than any
other executive. Except as otherwise provided in this Agreement, the
determination of the amounts to be paid pursuant to such plans or programs
shall be made by the Board of Directors of Mattel or a committee thereof
authorized to take such action and shall be made in accordance with
Mattel's
-5-
compensation practice and the terms and provisions of such plans
or programs. The Executive's eligibility for and participation in each of
the Bonus Programs shall be at a level and on terms and conditions which
are more favorable than those available to any other executive of Mattel.
(c) Incentive and Savings Plans. In addition to the Base Salary
and participation in the Bonus Programs, during the Employment Period the
Executive shall be entitled to participate in all incentive and savings
plans and programs, including, but not limited to, retirement plans, as may
be in effect from time to time with respect to executives employed by
Mattel. It is hereby provided that in consideration of Executive's
agreement herein to waive and renounce any and all rights and benefits
under the 1990 Supplemental Executive Retirement Plan, Executive is deemed
currently vested in the 1994 Supplemental Executive Retirement Plan or any
successor plan ("SERP"). The foregoing sentence is subject to the
following limitations: (i) if the Executive's employment shall terminate
by reason of Retirement (as defined in Section 4 (e)) benefits under the
SERP shall become payable at the end of the Extended Employment Period (as
defined in Section 5 (e); (ii) if the Executive's employment shall be
terminated by Mattel without Cause or by the Executive for Good Reason, or
if the Executive's employment shall terminate due to death or disability,
benefits under the SERP shall be immediately payable; (iii) if
-6-
the Executive's employment shall be terminated by Mattel for Cause or by the
Executive other than for Good Reason, benefits under the SERP shall be
payable upon the Executive's attaining age 55; (iv) in any event, the
benefit component attributable to the Executive's age shall be the full
benefit under the SERP to which the Executive would have been entitled if
she had retired at age 60 (i.e. full benefit); (v) whenever the Executive
shall become eligible for her benefit under the SERP, such benefit shall be
35% of the average of the final three years of annual Base Salary
(including the calendar year in which she retires), plus the average of the
greatest two of the five most recent annual MIP bonuses received by the
Executive.
(d) Stock Options. On February 6, 1997, the Executive received
a grant of 825,000 options granted under one or more of Mattel's Stock
Option Plans ("Options") exercisable at $25.75 per share. During the
Employment Period commencing with the first quarter of l998, the Executive
shall receive additional annual grants of Options under Mattel's Stock
Option Plans as in effect from time to time in accordance with Mattel's
policies and practices for other executives. Such options shall be in
amounts greater than those granted to any other executive and in any event
each such grant shall cover a minimum of 300,000 shares of the Common Stock
of Mattel (adjusted for stock splits and dividends).
-7-
(e) Benefit Plans. During the Employment Period, the Executive
and/or her family, as the case may be, shall be entitled to receive all
amounts which she or her family is or would have been entitled to receive
as benefits under all medical, dental, disability, group life, accidental
death and travel accident insurance plans and programs of Mattel in which
the Executive is a participant as in effect from time to time with respect
to executives employed by Mattel.
(f) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the policies and practices of
Mattel as in effect from time to time with respect to executives employed
by Mattel.
(g) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits at a level at or above those
available to other senior executives of Mattel, including a leased
automobile, car and driver (at her disposal whenever required by her),
personal and home security, and related expenses as well as first class
travel expenses, the use of a company-issued gasoline credit card, club
memberships and related expenses, and financial counseling and tax return
preparation services in accordance with the policies of Mattel as in effect
from time to time with respect to senior executives employed by Mattel. It
is
-8-
further agreed and understood that Executive is entitled to purchase all
of her office furnishings for $1.00, upon her termination from Mattel,
irrespective of the reason for termination.
(h) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the policies of Mattel as
in effect from time to time with respect to senior executives employed by
Mattel.
(i) Home Mortgage Loan. Mattel agrees that the existing
provisions of the home mortgage loan, which was previously provided to the
Executive pursuant to terms and conditions memorialized in the Amended and
Restated Employment Agreement dated as of November 30, 1993 (the "Home
Mortgage Loan"), shall remain in effect, except that: (A) interest shall
accrue annually and be payable on the due date of the Home Mortgage Loan,
and (B) if Executive's employment is terminated by Mattel other than for
"Cause," or by the Executive for "Good Reason," or in connection with a
"Change in Control," or upon termination of her employment by reason of
Retirement (as such terms are hereinafter defined), or if the Executive
dies or becomes permanently disabled, the principal amount of the Home
Mortgage Loan and all accrued unpaid interest shall be forgiven and forever
cancelled. The term of the Home Mortgage Loan, as modified by this Section
3 (i), is hereby extended to May 20, 2000, on the same terms as
-9-
now in effect. Further, Mattel reserves the right to extend the term of
the Home Mortgage Loan for an additional period of time beyond May 20, 2000,
and, in the event of such an extension, Mattel may, in its sole discretion,
modify the particulars of the Home Mortgage Loan to preserve the intent and
purpose of its interest therein, provided that the terms of such
modification (other than the rate of interest which shall be the Applicable
Federal Rate at the time of such modification) shall be no less favorable
to the Executive than those of the present Home Mortgage Loan as modified
by this Section 3 (i).
(j) Life Insurance. Within sixty days after the execution of
this Agreement, Mattel shall implement a split dollar life insurance plan,
in which the Executive shall be included. Under the plan, the Executive
shall have a basic fixed death benefit of not less than $5,000,000 paid for
by Mattel. Such benefit shall vest upon the earlier of Executive's
attainment of age 55 or her termination by Mattel without Cause or by her
for Good Reason or upon her termination in connection with a Change of
Control or by reason of Retirement or disability. Once vested, such benefit
shall continue in effect until the Executive's death, and Mattel shall pay
the premiums thereon, whether before or after her termination. In
addition, under the plan the Executive shall have the following options:
(i) at any time before or after the termination of her employment to
purchase additional
-10-
coverage in an amount up to the basic coverage, and
(ii) at any time after the termination of her employment to purchase the
basic coverage, whether or not vested. Both options shall be exercisable
at the Executive's own expense, and option (ii) shall be at a purchase
price equal to the net cash surrender value of the policy providing the
basic coverage on the date of purchase. Mattel shall have no obligation
regarding the payment of premiums on the optional coverage after the
exercise by her of option (i) or on the basic or optional coverage after
the exercise by her of option (ii). In the event that the Executive shall
die before the split dollar life insurance plan is implemented Mattel will
provide her legal representative with the basic fixed death benefit which
she would have received under the plan.
(k) Stock Purchase Loan. Mattel agrees to loan the Executive
the lesser of $4,236,000 or the actual amount of the federal and California
income tax and applicable Medicare withholding tax incurred by her in
connection with the vesting of 292,968 shares of the Common Stock of Mattel
previously issued to her as "restricted stock" (the "Loan). A promissory
note representing a portion of the Loan in the amount of $3,800,000 was
executed by the Executive and funded by Mattel on May 20, 1997, and the
balance of the Loan will be funded and an additional promissory note
executed at any time the Executive shall so request. The Loan bears
interest at the Applicable Federal Rate on the dates on which the Loan is
-11-
funded with interest and principal payable on May 20, 2000. In the event
that, for any consecutive 20 trading days during the term of the Loan, the
Common Stock of Mattel is trading at a per share price of $45 or more
(adjusted for stock splits and dividends) the principal of and the accrued
interest on the Loan shall thereupon be forgiven by Mattel. In the event
that, prior to the due date of the Loan, the Executive sells any of such
292,968 shares, the entire principal of and accrued interest on the entire
Loan shall become immediately due and payable.
(l) Certain Amendments. Nothing herein shall be construed to
prevent Mattel from amending, altering, eliminating or reducing any plans,
benefits or programs so long as the Executive continues to receive
compensation and benefits consistent with Sections 3(a) through (k).
4. Termination.
(a) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. In the event that the Executive
suffers a disability, due to illness or injury, which materially limits her
from performing each of the material and substantial duties of her job,
even with reasonable accommodation, for a period in excess of six
consecutive months, Mattel reserves the right to terminate the Executive's
employment during the continuance of such disability by giving to the
Executive written notice of
-12-
termination (the "Disability Notice"). For
purposes of this Agreement, the material and substantial duties of the
Executive's job include duties which are normally required for the
performance of her job, duties which cannot be reasonably omitted or
modified and duties which if not performed by the Executive may result in
or contribute to materially detrimental impact upon Mattel's financial
standing. Furthermore, the Executive will not be considered to be disabled
unless (i) she is under the regular and continuous care and treatment of a
licensed physician or physicians who is/are practicing within the scope of
his/her/their license or licenses during the entire period of disability;
or (ii) there is sufficient documented medical evidence to support the
disability. If the Executive disputes a disability termination, Mattel may
require that the Executive be evaluated, at Mattel's expense, by an
independent physical of Mattel's choice. In the event that the Executive's
physician and Mattel's independent physician report contrary findings as to
the nature and duration of the disability, Mattel may require an additional
evaluation, at Mattel's expense, by a second independent physician of
Mattel's choice. At such time that the second independent physician's
evaluation of the Executive is completed, Mattel will use the findings
reported by two of the three physicians to determine the nature and
duration of the disability and its resulting effect on the continuation or
termination of employment.
-13-
(b) Cause. Mattel may terminate the Executive's employment for
"Cause" if "Cause" as defined below exists and if at least 2/3 of the non-
management members of the Board of Directors make the good faith
determination that termination is appropriate. For purposes of this
Agreement, "Cause" shall be limited to (i) one or more factually
substantiated willful and deliberate act or acts of dishonesty (acts
commonly defined as felonies in criminal statutes) on the Executive's part
which are intended to result in her substantial personal enrichment at the
expense of Mattel; (ii) repeated violations by the Executive of her
obligations under Section 2 (b) or (c) of this Agreement which are
factually substantiated to be willful and deliberate and to constitute bad
faith on the Executive's part and which resulted in material injury to
Mattel; (iii) conduct by the Executive of a factually substantiated
criminal nature (commonly defined as a "felony" in criminal statutes) which
has a material adverse effect on Mattel's reputation or standing in the
community or on its continuing relationships with its customers or those
who purchase or use its products; or (iv) factually substantiated
fraudulent conduct by the Executive in connection with the business or
affairs of Mattel, regardless of whether said conduct is designed to
defraud Mattel or others; provided that, in each case, the Executive has
received written notice of the described activity, has been afforded a
reasonable opportunity to cure or correct the activity described in the
-14-
notice, and has failed to substantially cure, correct or cease the
activity, as appropriate.
(c) Good Reason. The Executive may terminate her employment at
any time for Good Reason, provided that, in each case, Mattel has received
written notice describing the circumstances giving rise to her action, has
been afforded a reasonable opportunity to cure or correct the circumstances
described in the notice and has failed to substantially cure, correct or
cease the circumstances, as appropriate. For purposes of this Agreement,
"Good Reason" means the good faith determination by the Executive that any
one or more of the following has occurred:
(i) without the express written consent of the Executive,
any changes in the positions, duties, titles, authority, reporting
relationships, or responsibilities of the Executive which are inconsistent
in any material respect with the Executive's positions, duties, authority,
reporting relationships, responsibilities or privileges as contemplated by
this Agreement;
(ii) any failure by Mattel to comply with any of the
provisions of Section 3 or any other material provision of this Agreement,
other than an insubstantial and inadvertent failure remedied by Mattel
promptly after receipt of notice thereof given by the Executive, so long as
Mattel reimburses
-15-
Executive for cash payments due to Executive and not
theretofore paid, together with interest thereon at prevailing rates;
(iii) without the Executive's consent, any requirement by
Mattel that Executive be based at any office or location other than an
office or location in greater Los Angeles, California, or at an office
other than Mattel's headquarters, except for travel reasonably required in
the performance of the Executive's responsibilities, or a change in her
office or material reduction in her administrative staff;
(iv) any proposed termination by Mattel of the Executive's
employment otherwise than as permitted by this Agreement; or
(v) any failure by Mattel to obtain the assumption and
agreement to perform this Agreement by a successor as contemplated by
Section 12(b).
(d) Change of Control. A "Change of Control" shall be deemed to
have occurred if:
(i) any "Person," which shall mean a "person" as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange
-16-
Act"), (other than Mattel, any trustee or other
fiduciary holding securities under an employee benefit plan of Mattel) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of Mattel representing
20% or more of the combined voting power of Mattel's then outstanding
voting securities;
(ii) during any period of 24 consecutive months,
individuals, who at the beginning of such period constitute the Board of
Directors of Mattel, and any new director whose election by the Board of
Directors, or whose nomination for election by Mattel's stockholders, was
approved by a vote of at least one-half (1/2) of the directors then in
office (other than in connection with a contested election), cease for any
reason to constitute at least a majority of the Board of Directors;
(iii) the stockholders of Mattel approve (I) a plan of
complete liquidation of Mattel; (II) the sale or other disposition by
Mattel of all or substantially all of Mattel's assets; or (III) the
distribution, sale or transfer of one or more significant subsidiaries,
divisions, lines of business or product lines (whether to shareholders of
Mattel or otherwise) unless the acquireror or transferee or its board of
directors shall meet the conditions for a merger, consolidation or
reorganization in subparagraphs (iv)(I) or (iv)(II) below; or
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(iv) the consummation of a merger, consolidation or
reorganization of Mattel with any other entity other than:
(A) a merger, consolidation or reorganization which
results in the voting securities of Mattel outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
50% of the combined voting power of the surviving entity's outstanding
voting securities immediately after such merger, consolidation or
reorganization; or
(B) a merger, consolidation or reorganization which
would result in the directors of Mattel (who were directors immediately
prior thereto) continuing to constitute at least 50% of all directors of
the surviving entity immediately after such merger, consolidation or
reorganization.
In this paragraph (iv), "surviving entity" shall mean only an entity
in which all of Mattel's stockholders immediately before such merger,
consolidation or reorganization (determined without taking into account any
stockholder's properly exercising appraisal or similar rights) become
stockholders by the terms of such merger, consolidation or reorganization,
and the phrase "directors of Mattel (who
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were directors immediately prior
thereto)" shall include only individuals who were directors of Mattel at
the beginning of the 24 consecutive month period preceding the date of such
merger, consolidation or reorganization.
(e) Retirement. The Executive's employment shall be deemed to
have terminated by Retirement if: (i) on or after her 55th birthday she
shall deliver to Mattel a Notice of Termination to that effect; or (ii) the
Employment Period (as defined in Section 1) shall have expired based upon
notice by Mattel to the Executive pursuant to Section 1 of non-extension
thereof.
(f) Notice of Termination. Any termination of the Executive's
employment by Mattel for Cause or following a Change of Control or by the
Executive for Good Reason shall be communicated by written notice to the
other party hereto given in accordance with Section 14(b) ("Notice of
Termination"). Any termination by Mattel due to disability shall be made
by Mattel's giving the Disability Notice in accordance with Section 4(a).
For purposes of this Agreement, a "Notice of Termination" means a written
notice which (i) indicates the specific termination provision of this
Agreement relied upon; (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated; and (iii) specifies the Date
of Termination (defined below).
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(g) Date of Termination. "Date of Termination" means the date
of actual receipt of the Notice of Termination or any later date specified
therein (but not more than fifteen (15) days after the giving of the Notice
of Termination); provided that (i) if the Executive's employment is
terminated by Mattel for any reason other than Cause or disability, the
Date of Termination is the date on which Mattel notifies the Executive of
such termination; (ii) if the Executive's employment is terminated due to
disability, the Date of Termination is the date on which the Disability
Notice provided for in Section 4 (a) is received by the Executive; and
(iii) if the Executive's employment is terminated due to the Executive's
death, the Date of Termination is the date of death.
5. Obligations of Mattel Upon Termination. Other than as
specifically set forth or referenced in this Agreement, the Executive shall
not be entitled to any benefits on or after the Date of Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death, this Agreement shall terminate without
further obligations by Mattel to the Executive's legal representatives
under this Agreement or otherwise, except as set forth in this Section 5
(a) or as contained in the applicable Mattel plan or program which
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takes effect at the date of her death, but in no event shall Mattel's
obligations be less than those provided by this Agreement.
(i) For a period of three years following the Date of
Termination, the Executive's spouse and children shall be entitled to the
Executive's benefits described in Section 5 (d) (vi) (A) and (D);
(ii) For a period of one year following the Date of
Termination, the Executive's legal representatives shall be entitled to
receive an amount equal to Executive's Base Salary.
(iii) On the dates of payment to other senior executive
officers, the Executive's legal representatives shall be entitled to
receive a short term annual bonus for the year in which the Executive died,
based on the average of the two largest of the most recent three bonuses
received by her, and any payments which would have been payable to the
Executive under the LTIP for the three year period during which she died as
if she had survived until the end of the period.
(iv) From and after the Date of Termination, the Executive's
legal representatives shall be entitled to receive those retirement
benefits payable to Executive's
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surviving spouse or other named
beneficiaries under the provisions of the SERP in accordance with the
Executive's eligibility for SERP as provided for under Section 3 (c) and
the applicable provisions of the SERP, including the Executive's legal
representatives' eligibility for receipt of benefits commencing immediately
upon her death, and a benefit amount predicated upon the formula set forth
in Section 3(c).
(v) On the Date of Termination, the Executive's country
club membership shall be transferred to the Executive's spouse at no cost
to the spouse, or if there is no spouse, to such child of Executive as
Executive or her executor may designate by will or other written notice to
Mattel.
(vi) On the Date of Termination, all Options theretofore
granted and not exercised by the Executive shall become fully vested and
shall be exercisable by her legal representatives for a period of one year
thereafter.
(b) Disability. If the Executive's employment is terminated by
reason of the Executive's disability, the Executive shall be entitled to
receive, after the date of receipt by her of the Disability Notice: (i) the
maximum disability benefits then provided by Mattel to disabled executives
and/or their families and (ii) all of the payments and other benefits set
forth in Section 5 (a), except that the
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benefits payable under clause (i)
of this Section 5 (b) shall not commence until after the payments provided
for in Section 5(a)(ii) shall have been received by her, and, further, all
SERP benefits for which the Executive is or shall become eligible shall be
immediately available. In addition, after receipt by the Executive of the
Disability Notice, she shall be entitled to the benefit set forth in
Section 5 (d) (v).
(c) Cause/Other Than for Good Reason. If the Executive's
employment is terminated for Cause or if the Executive terminates her
employment without Good Reason, Mattel shall pay the Executive her full
Base Salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and Mattel shall have no further
obligations to the Executive under this Agreement, except for benefits
under the SERP to which she is or shall become entitled. In addition, the
Executive shall be entitled to the benefits provided for in Sections 5 (d)
(iii) and (iv) and any other benefits which shall be fully vested on the
date of her termination.
(d) Other Than for Cause/For Good Reason, Death, Disability or
Retirement. If Mattel terminates the Executive's employment other than for
Cause or Disability or the Executive terminates her employment for Good
Reason (in each case, other than within 18 months following a Change of
Control as provided in Section 5(e)):
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(i) Mattel shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) if not theretofore paid, the Executive's Base
Salary through the Date of Termination at the rate in effect at the time of
Notice of Termination was given;
(B) an amount equal to the MIP bonus that would have
been payable to Executive pursuant to the Bonus Programs provided in
Section 3(b) assuming, for purposes of calculating the amount of the bonus
pool under the plan, that the "maximum" amount, as that term is used in the
plan, was achieved for the current plan year (the "Maximum Annual Bonus"),
with such amount prorated to reflect the number of full months the
Executive is employed in the year in which termination occurs;
(C) an LTIP payment for the current year, based on an
assumption of achievement of the three-year maximum award, prorated to
reflect the total number of full months the Executive is employed in the
year in which termination occurs;
(D) a full term payout for the three year period of
the LTIP, assuming for purposes of calculating the
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amount earned under the
LTIP achievement of the three-year maximum award, less any interim payments
previously received by the Executive; and
(E) five times the sum of (x) the Executive's annual
Base Salary at the rate in effect at the time the Notice of Termination is
given and (y) the Average Annual Bonus defined in Section 5(d)(i)(B) (and,
in each such case, without regard to any contributions by Mattel for the
Executive's benefit to the Mattel Personal Investment Plan ("PIP")).
(ii) Options granted to the Executive under the Stock Option
Plans and not theretofore exercised shall become immediately vested and
the Executive shall have a period of ninety days following the Date of
Termination (but in no event past the expiration of the term of the
Options) to exercise all Options then exercisable or which become
exercisable pursuant to this clause (ii).
(iii) Mattel shall, promptly upon submission by the Executive
of supporting documentation, pay or reimburse to the Executive any costs
and expenses paid or incurred by the Executive which would have been
payable under Section 3(e) if her employment had not terminated.
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(iv) The Executive shall be entitled to purchase her office
furnishings from Mattel for $1.00.
(v) The Executive may continue to use the car leased by
Mattel that is in the Executive's possession on the Date of Termination
until the earlier of (x) the end of the lease term or (y) the fifth
anniversary of the Date of Termination, at which time the Executive may
purchase the car for $1.00 (if at the end of the lease term) or Mattel's
book value (if on the fifth anniversary of the Date of Termination). As of
the Date of Termination, all expenses other than lease payments related to
such leased car, including but not limited to repairs, maintenance,
gasoline, and car phone and associated expenses, shall be the sole
responsibility of the Executive.
(vi) Until the date the Executive accepts other full-time
employment, Mattel shall provide to the Executive at Mattel's expense:
(A) medical, dental, prescription drug and vision care
group insurance in accordance with the coverage in effect immediately prior
to the Date of Termination;
(B) outplacement services at the expense of Mattel
commensurate with those provided to terminated
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executives of comparable level and made available through and at the
facilities of a reputable and experienced vendor;
(C) continuation of country-club membership
"signatory/representative" status as in effect immediately prior to the
Date of Termination; and within ninety (90) days following the Date of
Termination, Mattel shall cause the membership to be transferred to the
Executive at no cost to the Executive; and
(D) personal financial counseling and tax return
preparation service through the vendor engaged and paid for by Mattel.
(vii) Regardless of her age, the Executive shall be
immediately entitled to the benefits under the SERP as provided in Section
3 (c).
(e) Retirement. For a period of two years following the
termination of the Executive's employment by way of Retirement, the
Executive shall be employed by Mattel as a Senior Advisor in an advisory
capacity and on a nonexclusive basis, and shall receive a Base Salary equal
to the Base Salary which she was receiving immediately prior to her
Retirement. The Employment Period shall continue thereafter for a period
of two years (the "Extended Employment Period").
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In addition, the Executive shall be entitled to the following compensation:
(i) Bonus Programs. In addition to the Base Salary, the
Executive shall participate throughout the Extended Employment Period in
the MIP and the LTIP, collectively described as "Bonus Programs". The
Executive's participation in the MIP and the LTIP shall be provided for as
follows:
(A) For the first year following the date of the
Executive's Retirement (payable the following year) her award shall be made
by the Compensation/Options Committee of the Board of Directors of Mattel
in accordance with the terms and provisions of the MIP for such year;
(B) For the second year following the date of the
Executive's Retirement (payable the following year) she shall participate
in accordance with the terms and provisions of the MIP for such year,
except that her award shall be made by the Compensation/Options Committee
of the Board of Directors of Mattel, and the amount of such award shall be
based exclusively on Mattel's overall corporate financial performance in
such year pursuant to its level of achievement with respect to pre-
established goals approved by the Compensation/Options Committee, so long
as such
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performance is at or above "Cut-In" as defined in the provisions of
the MIP for such year;
(C) For the third year following the date of the
Executive's Retirement (payable the following year) she shall participate
in accordance with the terms and provisions of the MIP for that year,
except that her award shall be made by the Compensation/Options Committee
of the Board of Directors of Mattel, and the amount of such award shall be
based exclusively on Mattel's overall corporate financial performance in
such year pursuant to its level of achievement with respect to pre-
established goals approved by the Compensation/Options Committee, so long
as such performance is at or above "Cut In" as defined in the provisions of
the MIP for such year; and,
(D) The Executive's eligibility and participation in
the LTIP then in effect shall continue on the same basis as provided for
under this Agreement.
(ii) Retirement Plans. In addition to the Base Salary and
participation in the Bonus Programs, during the Extended Employment Period,
the Executive shall be entitled to participate in all retirement plans,
specifically, but not limited to, Mattel's 401(k) Plan and Mattel's
Supplemental Executive Retirement Plan ("SERP"), as such plans may be in
effect from time to time at Mattel. Payments under the SERP
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shall commence
at the end of the Extended Employment Period. It is agreed that in the
calculation of the Executive's SERP benefit, the provision in the Plan
which defines the short-term bonus ("MIP") component of her "Final Average
Compensation" shall be the average of the highest two out of the last five
year's awards. In the event of the Executive's death prior to the
conclusion of the Extended Employment Period, the Executive's spouse shall
receive a retirement benefit, as provided for pursuant to the Executive's
election and if no such election is made, then the 100% Joint and Survivor
Option" shall apply in accordance with the applicable provisions of the
SERP, and payment shall begin as soon as practicable after the Executive's
death.
(iii) Benefit Plans. During the Extended Employment Period,
the Executive and/or her family, as the case may be, shall be entitled to
receive all amounts which she or her family is or would have been entitled
to receive as benefits under all medical, dental, disability, group life,
accidental death and travel accident insurance plans and programs of Mattel
in which the Executive is a participant as in effect from time to time at
Mattel. Further, following the completion of the Extended Employment
Period, the Executive and her family shall continue to be eligible for
benefits under the medical, dental, and group life insurance plans in
effect as of the date of her retirement, with the Executive and her
family's eligibility for coverages to continue up
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through and until the
Executive's death, whereupon the applicable spouse-related coverages
pertaining to the medical and dental insurance plans shall continue to
apply to the Executive's spouse, if living, for a period of six months
following the Executive's death.
(iv) Expenses and Office Space. During the Employment Period,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by her in accordance with the policies and
practices of Mattel as in effect from time to time at Mattel. In the event
that the Executive's offices during the Extended Employment Period are
located at a site other than at Mattel's headquarters' building in El
Segundo, California, Mattel shall provide the Executive with Company-paid
office accommodations reasonably comparable to those which she last
occupied in the Mattel headquarters' building and appropriate
administrative support as requested by the Executive.
(v) Fringe Benefits. During the Extended Employment Period, the
Executive shall be entitled to fringe benefits on the same basis as
received by her under the terms of this Agreement, including the automobile
currently in her possession, along with associated auto-related expenses as
well as the use of a company-issued gasoline credit card, country club
memberships and related expenses, and financial counseling in accordance
with the policies of Mattel as in
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effect from time to time at Mattel.
Further, following completion of the Extended Employment Period, the
Executive shall be entitled to: (i) continued use of the same automobile
for a period of five years following the date of her Retirement whereupon
the Executive may purchase said automobile for $1.00 with such purchase to
be consummated not later than one month thereafter; (ii) continued use of
gasoline credit cards issued by Mattel for a period of five years following
the date of her Retirement; (iii) financial counseling paid for by Mattel
until the Executive's death; and (iv) continued payment by Mattel of annual
country club dues and associated expenses for a period of five years
following the date of her Retirement, when said membership shall be wholly
transferred to the Executive at no cost to her (but subject to tax
reporting as imputed income applicable to the year in which the membership
is transferred).
(vi) Stock Option Grants. During the Extended Employment Period,
the Board of Directors, in its sole discretion, may award stock option
grants to the Executive in accordance with the terms and conditions of the
1996 Mattel Stock Option Plan.
(vii) Certain Amendments. Nothing herein shall be construed
to prevent Mattel from amending, altering, eliminating or reducing any
plans, benefits or programs so long as the Executive continues to receive
compensation and benefits consistent with Sections 4(a) through (g).
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(f) Change of Control. If, within 18 months following a Change
of Control, the Executive terminates her employment for Good Reason or
Mattel or the surviving entity terminates the Executive's employment other
than for Cause or by reason of disability, the Executive shall be entitled
to all of the payments and benefits described in Section 5 (d), except (i)
she shall be entitled to receive two times the payout provided for in
Section 5 (d) (i) (D). Furthermore, if it is determined by an independent
accounting firm mutually agreed on by Mattel and the Executive, that any
payment or distribution by Mattel to the Executive pursuant to this Section
5 (f) (determined without regard to any additional payments required
pursuant to this sentence) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive with respect
to each Payment an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of
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the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(g) Bonus During Cancellation Period. If either party to this
Agreement notifies the other party that the Employment Period provided in
Section 1 hereof will not be automatically extended as provided therein,
the compensation of the Executive set forth in Section 3 shall continue as
provided therein for the balance of the Employment Period, except that the
amount of short-term incentive compensation payable under the Bonus
Programs with respect to each fiscal year during the balance of the
Employment Period (including the year in which the notice was given) shall
not be less than the Annual Bonus as determined in Section 5 (d) (i) (B).
Amounts payable with respect to the year in which the term specified in
Section 1 expires shall be prorated based on a fraction the numerator of
which is the number of full months from the beginning of such year until
the date of the expiration of this Agreement and denominator of which is
12.
6. Indemnification. Whereas Executive is party to an Indemnity
Agreement with Mattel, pursuant to her positions as both a member of the
Board of Directors and as an Officer of the Corporation, with such
indemnity agreement having been entered into on December 11, 1986, and
amended thereto on January 1, 1993 to provide similar coverage to
Executive's spouse, the terms and provisions of said Indemnity Agreement,
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as amended, are hereby incorporated within this Amended and Restated
Employment Agreement.
7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by Mattel and
for which the Executive may qualify, nor shall anything herein limit or
otherwise diminish such rights as the Executive may have under any stock
option or other agreement with Mattel or any of its affiliated companies.
Except as otherwise provided herein, amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan or
program of Mattel at or subsequent to the Date of Termination shall be
payable in accordance with such plan or program.
8. No Set Off, Payment of Fees. Except as expressly provided
herein, Mattel's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any circumstances, including without limitation any set-off,
counterclaim, recoupment, defense or other right which Mattel may have
against the Executive or others. Mattel agrees to pay, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by Mattel or others of the validity or enforceability of, or
liability
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under, any provision of this Agreement other than expenses
relating to a claim by the Executive that she terminated for Good Reason or
that the termination for Cause was improper, in which case such fees and
expenses shall be paid only if the Executive prevails in whole or in part.
All amounts provided herein shall include, in each case, interest,
compounded quarterly, on the total unpaid amount determined to be payable
under this Agreement, such interest to be calculated on the basis of the
prime commercial lending rate announced by Bank of America National Trust
and Savings Association in effect from time to time during the period of
such nonpayment. In the event that the Executive shall in good faith give
a Notice of Termination for Good Reason and it shall thereafter be
determined pursuant to Section 9 hereof that Good Reason did not exist,
Mattel or the Executive may then offer to reinstate the Executive's
employment as if no Notice of Termination had been given by the Executive.
If Mattel so offers and the Executive declines to accept its offer, then
the Executive's employment shall be deemed to have been terminated without
Good Reason. If the Executive offers to reinstate her employment as if no
Notice of Termination had been given by the Executive and Mattel declines
to accept her offer, then the Executive's employment shall be deemed to
have been terminated for Good Reason.
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9. Arbitration of Disputes.
(a) The parties agree that any disputes, controversies or claims
which arise out of or relate to this Agreement, the Executive's employment
or the termination of her employment, including, but not limited to, any
claim relating to the purported validity, interpretation, enforceability or
breach of this Agreement, and/or any other claim or controversy arising out
of the relationship between the Executive and Mattel (or the nature of the
relationship) or the continuation or termination of that relationship,
including, but not limited to, claims that a termination was for Cause,
including the determination of Mattel's Board of Directors in accordance
with Section 4(b), or for Good Reason, claims for breach of covenant,
breach of an implied covenant of good faith and fair dealing, wrongful
termination, breach of contract, or intentional infliction of emotional
distress, defamation, breach of right of privacy, interference with
advantageous or contractual relations, fraud, conspiracy or other tort or
property claims of any kind, which are not settled by agreement between the
parties, shall be settled by expedited arbitration under the then-
applicable arbitration rules of JAMS/Endispute (or any other mutually
agreed arbitrator) before a board of three arbitrators, as selected
thereunder.
One arbitrator shall be selected by the Executive, one by Mattel and
the third by the two persons so selected, all in
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accordance with the then- applicable arbitration rules of JAMS/Endispute then
in effect. In the event that the arbitrator selected by the Executive and
the arbitrator selected by Mattel are unable to agree upon a third arbitrator,
then the third arbitrator shall be selected from a list of seven each of whom
shall be a member of the "Independent List" of retired judges with experience
in resolving employment disputes provided by the Los Angeles office of
JAMS/Endispute with the parties striking names in order and the party
striking first to be determined by the flip of a coin. The arbitration
shall be held in a location to be mutually agreed upon by the parties. In
the absence of agreement, the Chairman of the arbitration panel shall
determine the location.
(b) In consideration of the parties' agreement to submit to
arbitration all disputes with regard to this Agreement and/or with regard
to any alleged contract, or any other claim arising out of their conduct,
the relationship existing hereunder or the continuation or termination of
that relationship, and in further consideration of the anticipated
expedition and the minimizing of expense resulting from this arbitration
remedy, the arbitration provisions of this Agreement shall provide the
exclusive remedy, and each party expressly waives any right she or it may
have to seek redress in any other forum.
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(c) Any claim which either party has against the other party
which could be submitted for resolution pursuant to this Section 9 must be
presented in writing by the claiming party to the other within the period
of the applicable statute of limitations. Unless the party against whom
any claim is asserted waives the time limits set forth above, any claim not
brought within the time periods specified shall be waived and forever
barred.
(d) Mattel will pay all costs and expenses of the arbitration to
the extent provided in this Section 9.
(e) Any decision and award or order of a majority of the
arbitrators shall be binding upon the parties hereto and judgment thereon
may be entered in the Superior Court of the State of California or any
other court having jurisdiction.
(f) Each of the above terms and conditions of this Section 9
shall have separate validity and the invalidity of any part thereof shall
not affect the remaining parts.
(g) Any decision and award or order of a majority of the
arbitrators shall be final and binding between the parties as to all claims
which were raised in connection with the dispute to the full extent
permitted by law. In all other cases, the parties agree that a decision of
a majority of
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arbitrators shall be a condition precedent to the institution
or maintenance of any legal, equitable, administrative, or other formal
proceeding by the Executive in connection with the dispute, and that the
decision and opinion of the board of arbitrators may be presented in any
other forum on the merits of the dispute.
10. General Release; Time to Consider and Cancel the Agreement; Age
Discrimination in Employment Act Waiver. The Executive and Mattel
acknowledge and agrees that this Agreement includes the entire agreement
and understanding between the parties with regard to the Executive's
employment, the termination thereof during the Employment Period, and all
amounts to which the Executive shall be entitled whether during the term of
employment or upon termination thereof. Accordingly, in the event of
Executive's termination, Executive agrees that as a condition of receiving
the post-termination compensation or benefits, Executive or Executive's
successors, assigns, heirs or anyone claiming through Executive will
execute a release in essentially the following form:
The Executive, on behalf of herself and her successors, assigns, heirs
and any and all other persons claiming through the Executive, if any, and
each of them, shall and does hereby forever relieve, release, and discharge
Mattel and its respective predecessors, successors, assigns, owners,
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attorneys, representatives, affiliates, parent corporations, subsidiaries
(whether or not wholly-owned), divisions, partners and their officers,
directors, agents, employees, servants, executors, administrators,
accountants, investigators, insurers, and any and all other related
individuals and entities, if any, and each of them, in any and all
capacities, from any and all claims, debts, liabilities, demands,
obligations, liens, promises, acts, agreements, costs and expenses
(including, but not limited to, attorneys' fees), damages, actions and
causes of action, of whatever kind or nature, including, without
limitation, any statutory, civil or administrative claim, or any claim,
arising out of acts or omissions occurring before the execution of this
Agreement, whether known or unknown, suspected or unsuspected, fixed or
contingent, apparent or concealed (collectively referred to as "claims"),
including, but not limited to, any claims based on, arising out of, related
to or connected with the subject matter of this Agreement, the Executive's
employment or the termination thereof, and any and all facts in any manner
arising out of, related to or connected with the Executive's employment
with, or termination of employment from, Mattel or any of its related
entities, including, but not limited to, any claims arising from rights
under federal, state, and local laws prohibiting discrimination on the
basis of race, national origin, sex, religion, age, marital status,
pregnancy, handicap, ancestry, sexual orientation, or any other form of
discrimination, and any common law claims of any kind,
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including, but not limited to, contract, tort, and property rights including,
but not limited to, breach of contract, breach of the implied covenant of
good faith and fair dealing, tortious interference with contract or current
or prospective economic advantage, fraud, deceit, misrepresentation,
defamation, wrongful termination, infliction of emotional distress, breach
of fiduciary duty, and any other common law claim of any kind whatever.
The Executive expressly waives any and all rights under Section 1542
of the Civil Code of the State of California, and all other federal or
state statutory rights, rules, and principles of common law or equity,
including without limitation those of any jurisdiction, government, or
political subdivision thereof, similar to Section 1542 ("similar
provision"). Thus the Executive may not invoke the benefits of Section
1542 or any similar provision in order to prosecute or assert in any manner
any claims released hereunder. Section 1542 provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in her favor at the time of executing the
release, which if known by her must have materially affected her settlement
with the debtor."
The waiver given below is given only in exchange for consideration in
addition to anything of value to which the
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Executive is already entitled. The waiver does not waive rights or claims
which may arise after the date of execution of this Agreement. The Executive
acknowledges that: (i) this entire Agreement is written in a manner calculated
to be understood by her; (ii) she has consulted with an attorney before
executing this Agreement; (iii) she was given a period of 21 days within which
to consider this Agreement, and (iv) to the extent she executes this Agreement
before the expiration of the 21 day period, she does so knowingly and
voluntarily and only after consulting her attorney. The Executive shall have
the right to cancel and revoke this Agreement during a period of 7 days
following her execution of this Agreement, and this Agreement shall not become
effective, and no money shall be paid hereunder until the expiration of such
7-day period. The 7-day period of revocation shall commence upon the date of
execution of this Agreement. In order to revoke this Agreement, the
Executive shall deliver to Mattel, prior to the expiration of said 7-day
period, a written notice of revocation.
In addition to the release set forth in this Section 10, the
Executive hereby voluntarily and knowingly waives all rights or claims
arising under the Federal Age Discrimination in Employment Act.
11. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of Mattel all secret
-43-
or confidential information, knowledge or data relating to Mattel or any of
its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during her employment by Mattel or any of its
affiliated companies and which shall not be public knowledge and will continue
to be bound by the provisions of the Patent and Confidence Agreement previously
executed by the Executive. After termination of the Executive's employment
with Mattel, she shall not, without the prior written consent of Mattel,
communicate or divulge any such information, knowledge or data to anyone
other than Mattel and those designated by it, except to the extent such
confidential information has become public knowledge or such communication
or divulgence shall be required by law.
12. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of Mattel shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon Mattel and its successors. Mattel shall require any successor to all
or substantially all of the business and/or assets of Mattel, whether
direct or indirect,
-44-
by purchase, merger, consolidation, reorganization,
acquisition of stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent as Mattel would be
required to perform if no such succession had taken place.
13. Amendment; Waiver. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and may be
amended, modified or changed only by a written instrument executed by the
Executive and Mattel. No provision of this Agreement may be waived except
by a writing executed and delivered by the party sought to be charged. Any
such written waiver will be effective only with respect to the event or
circumstance described therein and not with respect to any other event or
circumstance, unless such waiver expressly provides to the contrary.
14. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without reference to
principles of conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
(b) All notices and other communications hereunder shall be in
writing; shall be delivered by hand delivery to
-45-
the other party or mailed by registered or certified mail, return receipt
requested, postage prepaid; shall be deemed delivered upon actual receipt;
and shall be addressed as follows:
if to the Executive:
Jill E. Barad
*
*
copy to:
M. Kenneth Suddleson Esq.
Katten Muchin & Zavis
1999 Avenue of the Stars Suite 1400
Los Angeles, California 90067-6042
if to Mattel:
Mattel, Inc.
333 Continental Boulevard
El Segundo, California 90245
Attention: General Counsel
copy to:
Ronald M. Loeb, Esq.
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
or to such other address as either party shall have furnished to the other
in writing in accordance herewith.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction will, 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 will not invalidate or render
unenforceable such provision in any other jurisdiction.
* CONFIDENTIAL
-46-
(d) Mattel may withhold from any amounts or other transfers or
assignments payable under this Agreement, or any other benefits received
pursuant hereto such Federal, state or local taxes as shall be required to
be withheld from any such, or any other, payments, transfers, assignments
or benefits pursuant to any applicable law or regulation. Mattel may
report, as required by any applicable Federal, state or local law or
regulation, any income or imputed income payable under this Agreement.
(e) Mattel agrees to pay reasonable legal fees and costs
incurred by the Executive in connection with this Agreement.
-47-
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement as of the date first set forth above.
EXECUTIVE:
/s/ Jill E. Barad
-------------------------------
Jill E. Barad
Mattel:
Mattel, Inc.,
a Delaware corporation
By: /s/ Ned Mansour
----------------------------
Ned Mansour
President, Corporate
Operations
ATTEST:
/s/ Leland P. Smith
-------------------------------
Leland P. Smith
-------------------------------
(print name)
Assistant Secretary
-48-
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0
(Page 1 of 2)
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
------------------------------------------------------------
(In thousands, except per share amounts)
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
June 30, June 30, June 30, June 30,
PRIMARY 1997 1996 1997 (a) 1996
- - ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 75,634 $ 63,370 $(128,990) $ 83,904
Deduct: Dividends on convertible preferred stock (2,837) (889) (5,677) (1,716)
--------- --------- --------- ---------
Net income (loss) applicable to common shares $ 72,797 $ 62,481 $(134,667) $ 82,188
========= ========= ========= =========
Applicable Shares for Computation of Income (Loss)
per Share:
- - --------------------------------------------------
Weighted average common shares outstanding 291,737 292,890 290,069 293,131
Weighted average common equivalent shares arising from:
Dilutive stock options 3,352 3,500 - 3,628
Fisher-Price warrants 627 989 - 986
Nonvested stock - 537 - 600
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares 295,716 297,916 290,069 298,345
========= ========= ========= =========
Income (Loss) Per Common Share:
- - -------------------------------
Net income (loss) per common share $ 0.25 $ 0.21 $ (0.46) $ 0.28
========= ========= ========= =========
(a) - Stock options and Fisher-Price warrants have been excluded from this calculation
because their impact is anti-dilutive.
</TABLE>
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0
(Page 2 of 2)
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
-------------------------------------------------------------------
(In thousands, except per share amounts)
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
June 30, June 30, June 30, June 30,
FULLY DILUTED 1997 (a) 1996 (b) 1997 (b) 1996 (b)
- - ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 75,634 $ 63,370 $(128,990) $ 83,904
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 7% convertible subordinated
notes 182 182 364 364
--------- --------- --------- ---------
Net income (loss) applicable to common shares $ 75,816 $ 63,552 $(128,626) $ 84,268
========= ========= ========= =========
Applicable Shares for Computation of Income (Loss)
per Share:
- - --------------------------------------------------
Weighted average common shares outstanding 291,737 292,890 290,069 293,131
Weighted average common equivalent shares arising from:
Dilutive stock options 4,608 4,158 4,488 4,361
Assumed conversion of convertible preferred stock 10,493 2,953 10,493 2,829
Fisher-Price warrants 646 1,002 646 1,002
Assumed conversion of 7% convertible subordinated
notes 893 783 838 783
Nonvested stock - 570 - 692
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares 308,377 302,356 306,534 302,798
========= ========= ========= =========
Income (Loss) Per Common Share:
- - -------------------------------
Net income (loss) per common share $ 0.25 $ 0.21 $ (0.42) $ 0.28
========= ========= ========= =========
<FN>
(a) - This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11), although not required
by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
(b) - This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11), although it is contrary
to paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 58,989
<SECURITIES> 0
<RECEIVABLES> 1,341,106
<ALLOWANCES> 25,291
<INVENTORY> 552,463
<CURRENT-ASSETS> 2,122,229
<PP&E> 963,143
<DEPRECIATION> 344,792
<TOTAL-ASSETS> 3,567,422
<CURRENT-LIABILITIES> 1,255,970
<BONDS> 549,579
<COMMON> 296,729
0
827
<OTHER-SE> 1,346,602
<TOTAL-LIABILITY-AND-EQUITY> 3,567,422
<SALES> 1,666,176
<TOTAL-REVENUES> 1,666,176
<CGS> 884,528
<TOTAL-COSTS> 884,528
<OTHER-EXPENSES> 903,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,150
<INCOME-PRETAX> (159,675)
<INCOME-TAX> (30,685)
<INCOME-CONTINUING> (128,990)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (128,990)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.42)
<FN>
Note -
Fully diluted earnings per share for the six months ended June 30, 1997
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>
