SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 12, 1997:
Common Stock - $1 par value -- 291,535,164 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1997 1996 1996
- -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 144,659 $ 68,036 $ 550,271
Accounts receivable, net 977,479 888,849 948,940
Inventories 512,847 498,197 444,178
Prepaid expenses and other current assets 193,636 203,337 195,673
----------- ----------- -----------
Total current assets 1,828,621 1,658,419 2,139,062
----------- ----------- -----------
Property, Plant and Equipment
Land 32,144 25,504 30,864
Buildings 216,291 203,488 216,523
Machinery and equipment 443,138 391,776 438,969
Capitalized leases 25,498 26,832 26,512
Leasehold improvements 72,826 63,959 69,732
----------- ----------- -----------
789,897 711,559 782,600
Less: accumulated depreciation 333,885 293,771 323,096
----------- ----------- -----------
456,012 417,788 459,504
Tools, dies and molds, net 152,338 137,872 156,777
----------- ----------- -----------
Property, plant and equipment, net 608,350 555,660 616,281
----------- ----------- -----------
Other Noncurrent Assets
Intangible assets, net 596,883 623,723 611,410
Sundry assets 227,860 167,109 214,389
----------- ----------- -----------
$ 3,261,714 $ 3,004,911 $ 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 6.
</TABLE>
2
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands, except share data) 1997 1996 1996
- --------------------------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Short-term borrowings $ 16,865 $ 82,370 $ 28,924
Current portion of long-term liabilities 105,393 2,627 106,596
Accounts payable 180,816 174,270 312,378
Accrued liabilities 532,025 315,408 510,691
Income taxes payable 113,358 133,835 183,288
----------- ----------- -----------
Total current liabilities 948,457 708,510 1,141,877
----------- ----------- -----------
Long-Term Liabilities
6-7/8% Senior Notes due 1997 - 99,791 -
6-3/4% Senior Notes due 2000 100,000 100,000 100,000
Senior Subordinated Notes 126,500 126,500 126,500
Medium-Term Notes 260,000 220,000 220,000
Mortgage notes 43,962 48,080 47,600
Other 146,101 134,986 139,242
----------- ----------- -----------
Total long-term liabilities 676,563 729,357 633,342
----------- ----------- -----------
Shareholders' Equity
Preferred stock, Series B $1.00 par value,
$1,050.00 liquidation value per share,
0.1 million shares authorized, issued
and outstanding 54 53 54
Preferred stock, Series C $1.00 par value,
$125.00 liquidation value per share,
0.8 million shares authorized, issued and
outstanding as of March 31, 1997 and
December 31, 1996 773 - 773
Common stock $1.00 par value, 600.0 million
shares authorized at March 31, 1997 and
December 31, 1996 and 300.0 million shares
authorized at March 31, 1996; 296.7 million
shares issued at March 31, 1997 and 296.1
million shares issued at March 31, 1996 and
December 31, 1996 296,729 296,091 296,091
Additional paid-in capital 512,463 419,265 518,296
Treasury stock at cost; 4.8 million shares,
2.1 million shares and 8.1 million shares,
respectively (127,299) (48,384) (215,999)
Retained earnings 1,069,971 997,702 1,293,653
Currency translation and other
adjustments (115,997) (97,683) (86,945)
----------- ----------- -----------
Total shareholders' equity 1,636,694 1,567,044 1,805,923
----------- ----------- -----------
$ 3,261,714 $ 3,004,911 $ 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 6.
</TABLE>
3
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the
Three Months Ended
----------------------
March 31, March 31,
(In thousands, except per share amounts) 1997 1996
- ---------------------------------------- ---------- ----------
<S> <C> <C>
Net Sales $ 693,520 $ 683,999
Cost of sales 370,709 361,125
---------- ----------
Gross Profit 322,811 322,874
Advertising and promotion expenses 102,626 100,104
Other selling and administrative expenses 185,286 169,581
Interest expense 19,636 19,893
Integration and restructuring costs 275,000 -
Other expense, net 7,882 4,499
---------- ----------
Income (Loss) Before Income Taxes (267,619) 28,797
(Benefit) provision for income taxes (62,995) 8,263
---------- ----------
Net Income (Loss) (204,624) 20,534
Less: preferred stock dividend requirements 2,840 827
---------- ----------
Net Income (Loss) Applicable to Common Shares $ (207,464) $ 19,707
========== ==========
Primary Income (Loss) Per Common And Common
Equivalent Share
- -------------------------------------------
Net income (loss) $ (0.72) $ 0.07
========== ==========
Average number of common and common
equivalent shares 288,382 298,858
========== ==========
Dividends Declared Per Common Share $ 0.06 $ 0.06
========== ==========
<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 6.
</TABLE>
4
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the
Three Months Ended
-----------------------
March 31, March 31,
(In thousands) 1997 1996
- -------------- ---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net income (loss) $ (204,624) $ 20,534
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Depreciation 45,426 33,844
Amortization 8,550 9,299
Increase (decrease) from changes in net assets and liabilities:
Accounts receivable (48,626) (4,794)
Inventories (79,391) (92,009)
Prepaid expenses and other current assets 6,577 6,369
Accounts payable, accrued liabilities and income taxes payable (147,754) (321,053)
Deferred compensation and other retirement plans 5,908 (15)
Deferred income taxes (16,009) (6,497)
Other, net 279 1,581
---------- ----------
Net cash used in operating activities (429,664) (352,741)
---------- ----------
Cash Flows From Investing Activities:
- -------------------------------------
Purchases of tools, dies and molds (23,672) (27,730)
Purchases of other property, plant and equipment (27,900) (34,493)
Purchases of marketable securities - (8,000)
Purchase of other long-term investments (5,952) -
Proceeds from sales of other property, plant and equipment 8,374 2,712
Proceeds from sales of marketable securities - 25,315
Contingent consideration - investment in acquired business (8,625) (8,625)
Other, net (173) (581)
---------- ----------
Net cash used in investing activities (57,948) (51,402)
---------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Short-term borrowings, net (11,365) 6,452
Payment of Medium-Term Notes - (30,000)
Issuance of Medium-Term Notes 40,000 -
Long-term foreign borrowings 2,100 (835)
Tax benefit of employee stock options exercised 1,926 13,955
Exercise of stock options 5,181 31,178
Sale of treasury stock 71,295 -
Purchase of treasury stock (1,557) (27,075)
Dividends paid on common and preferred stock (19,113) (13,233)
Other, net (1,125) (539)
---------- ----------
Net cash provided by (used in) financing activities 87,342 (20,097)
Effect of Exchange Rate Changes on Cash (5,342) (1,410)
---------- ----------
Decrease in Cash (405,612) (425,650)
Cash at Beginning of Period 550,271 493,686
---------- ----------
Cash at End of Period $ 144,659 $ 68,036
========== ==========
<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 6.
</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's") 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.
2. Accounts receivable are shown net of allowances for doubtful accounts
of $23.3 million (March 31, 1997), $19.3 million (March 31, 1996), and
$21.0 million (December 31, 1996).
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1997 1996 1996
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 86,068 $ 89,125 $ 70,121
Finished goods 426,779 409,072 374,057
--------- --------- ---------
$ 512,847 $ 498,197 $ 444,178
========= ========= =========
</TABLE>
4. Net cash flows from operating activities include cash payments for the
following:
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------------
March 31, March 31,
(In thousands) 1997 1996
- -------------- ----------- -----------
<S> <C> <C>
Interest $ 18,018 $ 19,512
Income taxes 17,525 20,787
--------------------------
</TABLE>
5. In March, 1997 the Company issued an aggregate of $40.0 million
principal amount of Medium-Term Notes maturing on March 11, 2008.
Interest is payable semiannually at 7.14% per annum on the fifteenth
day of May and November. In April and May 1997, the Company issued an
additional $80.0 million principal amount of Medium-Term Notes maturing
on various dates from April 2009 to May 2010. Interest is payable
semiannually at fixed rates ranging from 7.40% to 7.49% per annum on
the fifteenth day of May and November.
6
6. 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.
Selected financial information for the combining entities included in
the consolidated statements of income are as follows:
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------------
March 31, March 31,
(In thousands) 1997 1996
- -------------- ----------- -----------
<S> <C> <C>
Net sales
Mattel $ 568,528 $ 585,879
Tyco (a) 124,992 98,120
----------- -----------
Combined $ 693,520 $ 683,999
=========== ===========
Net income (loss)
Mattel (b) $ 13,123 $ 29,885
Tyco (c) (7,747) (9,351)
Integration/restructuring charge (d) (210,000) -
------------ -----------
Combined $ (204,624) $ 20,534
============ ===========
<FN>
(a) Certain amounts for March 1996 have been classified differently than
previously published amounts in order to conform the accounting
presentation of the two entities.
(b) For March 1997, primary earnings per share before the effects of the
merger was $0.05 per share.
(c) The provision for income taxes has been adjusted by $0.8 million in
March 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.
(d) The integration and restructuring charge of $275.0 million, after
related income tax effects, reduced earnings of the combined company by
$210.0 million.
</TABLE>
7
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 write-off 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.
7. In the current quarter, the Board of Directors declared cash dividends
of $0.06 per common share, compared to $0.06 per common share in the
first quarter of 1996. On May 7, 1997, the Company announced an
increase in future quarterly dividends to $0.07 per share.
8. All share and per share data presented in these financial statements
reflect the retroactive effects of the Tyco merger.
Income per common share is computed by dividing earnings available to
common shareholders by the average number of common and common
equivalent shares outstanding during each period. Weighted average
share computations assume the exercise of dilutive stock options and
warrants, reduced by the number of shares which could be repurchased at
average market prices with proceeds from exercise, 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 the statement is not expected to have a material impact on
the Company's calculation of income per share.
8
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. The Company's four core brands are i) BARBIE fashion dolls and
doll clothing and accessories; ii) FISHER-PRICE toys and juvenile products,
including the POWER WHEELS line of battery-powered, ride-on vehicles; iii)
the Company's Disney-licensed toys; and iv) HOT WHEELS vehicles and
playsets; each of which has broad worldwide appeal. Additional product
lines consist of large dolls, including CABBAGE PATCH KIDS; preschool toys,
including SEE `N SAY talking toys; the UNO and SKIP-BO card games; the
SCRABBLE game, which the Company markets outside of the United States and
Canada; and other toy products. In addition, with the completion of the
Tyco merger in March 1997 (see "Acquisition"), the Company's product lines
now include brands such as SESAME STREET characters, MAGNA DOODLE, VIEW-
MASTER, MATCHBOX, Tyco Electric Racing and Tyco Radio Control vehicles.
9
RESULTS OF OPERATIONS
---------------------
The Company's business is seasonal, and, therefore, results of operations
are comparable only with corresponding periods. Following is a percentage
analysis of operating results:
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------------
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Net sales 100% 100%
=========== ===========
Gross profit 47% 47%
Advertising and promotion expenses 15 15
Other selling and administrative expenses 27 25
Restructuring and integration charges 40 -
Other expense, net 1 -
----------- -----------
Operating profit (loss) (36) 7
Interest expense 3 3
----------- -----------
Income (loss) before income taxes (39)% 4%
=========== ===========
</TABLE>
Net sales, on a combined basis, in the first quarter of 1997 increased $9.5
million or 1% over the 1996 first quarter, reflecting the continuing demand
for the Company's core products. Before the addition of Tyco's brands,
worldwide sales of Mattel core products represented 87% of the Company's
gross sales for the current quarter compared to 84% in the first quarter of
1996. Sales of BARBIE and BARBIE-related products increased 10%, HOT
WHEELS vehicles and playsets increased 92%, and Disney-licensed toys
increased 27%. These increases were partially offset by a 29% decline in
FISHER-PRICE products. This decline is primarily attributable to higher
levels of FISHER-PRICE inventory at retail at year-end which inhibited
shipping in the first quarter. Net sales of TYCO products increased 27%
mainly due to greater demand for SESAME STREET, MAGNA DOODLE, and MATCHBOX.
Net sales, on a combined basis, to customers within the United States grew
6% and accounted for 68% of consolidated sales compared to 65% in the year-
ago quarter. Net sales, on a combined basis, to customers outside the
United States decreased 6% compared to 1996, including the $15.6 million
unfavorable effect of the generally stronger US dollar relative to the
year-ago quarter. At comparable foreign currency exchange rates, sales
internationally remained constant. In the first quarter of 1997, the US
dollar strengthened significantly 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).
10
Gross profit and advertising and promotion as a percentage of net sales
remained virtually constant compared to a year-ago quarter. As a
percentage of net sales, other selling and administrative expenses
increased two percentage points over the year-ago quarter. The increase is
primarily due to higher design and development costs in support of product
development, higher marketing and selling expenses to support development
of the Company's brands, and higher depreciation expense related to
increased investments 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. As a percentage of net
sales, interest expense remained unchanged at 3%.
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 million impacted
first quarter earnings by $0.73 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 write-off 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 flow 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).
11
FINANCIAL CONDITION
-------------------
The Company's financial position remained strong during the first quarter
of 1997. The Company's cash position as of March 31, 1997 was $144.7
million, reflecting the sale of three million shares of treasury stock
($71.3 million), compared to $68.0 million as of the first quarter 1996.
Cash decreased by $405.6 million since December 31, 1996 primarily due to
funding of operating activities.
Accounts receivable increased $88.6 million over the year-ago quarter
reflecting lower sales of certain trade receivables in 1997. Inventory
balances increased $68.7 million since year end and $14.7 million over the
1996 quarter end, primarily as a result of the Company's production in
support of future sales volume. Sundry assets increased $60.8 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 $216.6 million compared to the year-ago
quarter, mainly due to the accrual for the Tyco integration and Mattel
restructuring charge. Short-term borrowings decreased $65.5 million
compared to the year-ago quarter, mainly due to proceeds from the issuance
of Tyco's Series C Preferred Stock in 1996, and the issuance of $40.0
million in Medium Term Notes in the first 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,
issuance of long-term debt, 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) March 31, 1997 March 31, 1996 Dec. 31, 1996
- ------------- ----------------------------------------------
<S> <C> <C> <C>
Medium-Term Notes $ 260.0 11% $ 220.0 10% $ 220.0 9%
Senior Subordinated Notes 126.5 6 126.5 6 126.5 5
6-3/4% Senior Notes 100.0 4 100.0 4 100.0 4
6-7/8% Senior Notes - - 99.8 4 - -
Other long-term debt
obligations 75.4 3 80.6 3 73.3 3
----------------------------------------------
Total long-term debt 561.9 24 626.9 27 519.8 21
Other long-term liabilities 114.7 5 102.5 5 113.5 5
Shareholders' equity 1,636.7 71 1,567.0 68 1,805.9 74
----------------------------------------------
$2,313.3 100% $2,296.4 100% $2,439.2 100%
==============================================
</TABLE>
12
Total long-term debt decreased as a percentage of total capitalization
compared to the year-ago quarter, primarily due to the reclassification of
6-7/8% Senior Notes from long-term debt to the current portion of long-term
liabilities. Future long-term capital needs are expected to be satisfied
through the retention of corporate earnings and the issuance of long-term
debt instruments. Shareholders' equity decreased $169.2 million since
December 31, 1996, primarily due to the impact of the $275.0 million
restructuring and integration charges ($210.0 million net of taxes) in the
1997 first quarter, partially offset by the sale of three million shares of
treasury stock ($71.3 million). Compared to March 1996, Shareholders'
equity increased $69.7 million as a result of the Company's profitable 1996
operating results, the sale of three million shares of treasury stock, and
exercises of employee stock options, partially offset by treasury stock
repurchases and dividends declared to common and preferred shareholders.
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.
13
<PAGE>
Item 2. Changes in Securities
- ------------------------------
In connection with the Tyco merger, the Company issued 53,631 shares of
Series B Preferred Stock in exchange for all the outstanding shares of Tyco
Series B Preferred Stock. With respect to the issuance of such securities,
the Company relied upon the provisions of Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"), in that such transactions
did not involve a public offering and were thereby exempt from registration
under the Securities Act. The offerings were not made by means of any
general solicitation, and each purchaser represented that it (i) was an
"accredited investor" as defined in Regulation D promulgated under the
Securities Act, (ii) was acquiring the securities for its own account for
the purpose of investment, and (iii) had no present plans to effect any
distribution thereof. The securities were issued with an investment legend
thereon, and stop transfer instructions were noted on the Company's
transfer ledgers.
Each share of Series B Preferred Stock has a liquidation value of $1,050.00
per share and is convertible, at the option of the holder, into shares of
Common Stock at a conversion price equal to $20.46 per share, subject to
certain adjustments as set forth in the Certificate of Designations for the
Series B Preferred Stock. Commencing in 1999, the shares of Series B
Preferred Stock will be convertible into Common Stock during designated
periods at the then market price, but not less than a price per share of
$10.23. Holders of Series B Preferred Stock are entitled to vote (on an
as-converted basis) with the holders of Common Stock and Series C Preferred
Stock as a single class on all matters on which the holders of Common Stock
may vote.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
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 March 31, 1997:
Financial
Date of Report Items Reported Statements Filed
----------------- -------------- ----------------
February 5, 1997 5, 7 None
February 14, 1997 5, 7 None
March 5, 1997 5, 7 None
March 19, 1997 5, 7 None
March 20, 1997 5, 7 None
March 27, 1997 5, 7 None
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MATTEL, INC.
------------
(Registrant)
Date: As of May 14, 1997 By: /s/ KEVIN M. FARR
------------------ -------------------------
Kevin M. Farr
Senior Vice President and
Controller
15
<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
Three Months Ended
----------------------
March 31, March 31,
PRIMARY 1997 (a) 1996
- ------- --------- ---------
<S> <C> <C>
Net income (loss) $(204,624) $ 20,534
Deduct: Dividends on convertible preferred stock (2,840) (827)
--------- ---------
Net income (loss) applicable to common shares $(207,464) $ 19,707
========= =========
Applicable Shares for Computation of Income (Loss)
per Share:
- --------------------------------------------------
Weighted average common shares outstanding 288,382 293,371
Weighted average common equivalent shares arising from:
Dilutive stock options - 3,836
Fisher-Price warrants - 986
Nonvested stock - 665
--------- ---------
Weighted average number of common and common
equivalent shares 288,382 298,858
========= =========
Income (Loss) Per Common Share:
- -------------------------------
Net income (loss) per common share $ (0.72) $ 0.07
========= =========
<FN>
(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
Three Months Ended
----------------------
March 31, March 31,
FULLY DILUTED 1997 (a) 1996 (a)
- ------------- --------- ---------
<S> <C> <C>
Net income (loss) $(204,624) $ 20,534
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 7% convertible subordinated notes 182 182
--------- ---------
Net income (loss) applicable to common shares $(204,442) $ 20,716
========= =========
Applicable Shares for Computation of Income (Loss)
per Share:
- --------------------------------------------------
Weighted average common shares outstanding 288,382 293,371
Weighted average common equivalent shares arising from:
Dilutive stock options 2,905 3,999
Assumed conversion of convertible preferred stock 10,493 2,696
Fisher-Price warrants 616 991
Assumed conversion of 7% convertible subordinated notes 783 783
Nonvested stock - 696
--------- ---------
Weighted average number of common and common
equivalent shares 303,179 302,536
========= =========
Income (Loss) Per Common Share:
- -------------------------------
Net income (loss) per common share $ (0.67) $ 0.07
========= =========
<FN>
(a) This calculation is submitted in accordance with Regulation S-K, Item 601 (b)(11),
although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces
an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 144,659
<SECURITIES> 0
<RECEIVABLES> 1,000,782
<ALLOWANCES> 23,303
<INVENTORY> 512,847
<CURRENT-ASSETS> 1,828,621
<PP&E> 942,235
<DEPRECIATION> 333,885
<TOTAL-ASSETS> 3,261,714
<CURRENT-LIABILITIES> 948,457
<BONDS> 562,910
<COMMON> 296,729
827
0
<OTHER-SE> 1,339,138
<TOTAL-LIABILITY-AND-EQUITY> 3,261,714
<SALES> 693,520
<TOTAL-REVENUES> 693,520
<CGS> 370,709
<TOTAL-COSTS> 370,709
<OTHER-EXPENSES> 570,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,636
<INCOME-PRETAX> (267,619)
<INCOME-TAX> (62,995)
<INCOME-CONTINUING> (204,624)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,624)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.67)
<FN>
Note -
Fully diluted earnings per share for the three months ended March 31, 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>
