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, 1998
--------------
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 8, 1998:
Common Stock - $1 par value -- 293,515,239 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1998 1997 1997
- -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 331,884 $ 144,659 $ 694,947
Accounts receivable, net 987,906 977,479 1,091,416
Inventories 531,623 512,847 428,844
Prepaid expenses and other current assets 251,397 193,636 246,529
----------- ----------- -----------
Total current assets 2,102,810 1,828,621 2,461,736
----------- ----------- -----------
Property, Plant and Equipment
Land 28,730 32,144 29,556
Buildings 201,400 216,291 198,396
Machinery and equipment 459,892 443,138 453,978
Capitalized leases 24,485 25,498 24,625
Leasehold improvements 73,301 72,826 68,179
----------- ----------- -----------
787,808 789,897 774,734
Less: accumulated depreciation 350,415 333,885 336,946
----------- ----------- -----------
437,393 456,012 437,788
Tools, dies and molds, net 165,400 152,338 163,809
----------- ----------- -----------
Property, plant and equipment, net 602,793 608,350 601,597
----------- ----------- -----------
Other Noncurrent Assets
Intangible assets, net 548,957 596,883 542,759
Sundry assets 189,234 227,860 197,699
----------- ----------- -----------
$ 3,443,794 $ 3,261,714 $ 3,803,791
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
2
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands, except share data) 1998 1997 1997
- --------------------------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Short-term borrowings $ 18,204 $ 16,865 $ 17,468
Current portion of long-term liabilities 13,577 105,393 13,659
Accounts payable 193,431 180,816 310,117
Accrued liabilities 443,253 532,025 629,445
Income taxes payable 134,284 113,358 202,735
----------- ----------- -----------
Total current liabilities 802,749 948,457 1,173,424
----------- ----------- -----------
Long-Term Liabilities
6-3/4% Senior Notes due 2000 100,000 100,000 100,000
10-1/8% Senior Subordinated Notes - 126,500 -
Medium-Term Notes 520,500 260,000 520,500
Mortgage note 43,437 43,962 43,573
Other 136,862 146,101 144,224
----------- ----------- -----------
Total long-term liabilities 800,799 676,563 808,297
----------- ----------- -----------
Shareholders' Equity
Preferred stock, Series B $1.00 par value,
$1,050.00 liquidation preference per
share, 0.1 million shares authorized,
issued and outstanding at March 31, 1997 - 54 -
Preferred stock, Series C $1.00 par value,
$125.00 liquidation preference per share,
0.8 million shares authorized, issued and
outstanding 772 773 772
Common stock $1.00 par value, 600.0 million
shares authorized; 300.4 million shares
issued at March 31, 1998 and December 31,
1997 and 296.7 million shares issued at
March 31, 1997 300,381 296,729 300,381
Additional paid-in capital 489,323 512,463 509,172
Treasury stock at cost; 6.2 million shares,
4.8 million shares and 8.8 million shares,
respectively (207,695) (127,299) (285,420)
Retained earnings 1,480,866 1,069,971 1,490,804
Accumulated other comprehensive (loss) (223,401) (115,997) (193,639)
----------- ----------- -----------
Total shareholders' equity 1,840,246 1,636,694 1,822,070
----------- ----------- -----------
$ 3,443,794 $ 3,261,714 $ 3,803,791
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
3
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the
Three Months Ended
----------------------
March 31, March 31,
(In thousands, except per share amounts) 1998 1997
- ---------------------------------------- ---------- ----------
<S> <C> <C>
Net Sales $ 705,164 $ 693,520
Cost of sales 381,246 370,709
---------- ----------
Gross Profit 323,918 322,811
Advertising and promotion expenses 98,081 102,626
Other selling and administrative expenses 183,791 185,286
Interest expense 16,392 19,636
Integration and restructuring costs - 275,000
Other expense, net 7,898 7,882
---------- ----------
Income (Loss) Before Income Taxes 17,756 (267,619)
Provision (benefit) for income taxes 5,087 (62,995)
---------- ----------
Net Income (Loss) 12,669 (204,624)
Less: preferred stock dividend requirements 1,990 2,840
---------- ----------
Net Income (Loss) Applicable to Common Shares $ 10,679 $ (207,464)
========== ==========
Basic Income (Loss) Per Common Share
- ------------------------------------
Net income (loss) $ 0.04 $ (0.72)
========== ==========
Average number of common shares 293,048 288,382
========== ==========
Diluted Income (Loss) Per Common Share
- --------------------------------------
Net income (loss) $ 0.04 $ (0.72)
========== ==========
Average number of common and
common equivalent shares 298,164 288,382
========== ==========
Dividends Declared Per Common Share $ 0.07 $ 0.06
========== ==========
<FN>
See accompanying notes to consolidated financial information.
March 1997 consolidated results are restated for the merger with Tyco
Toys, Inc. ("Tyco"), accounted for as a pooling of interests.
</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) 1998 1997
- -------------- ---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net income (loss) $ 12,669 $ (204,624)
Adjustments to reconcile net income (loss) to net cash flows
from operating activities:
Noncash restructuring and integration charges - 90,382
Depreciation 41,760 39,113
Amortization 8,078 8,550
Increase (decrease) from changes in net assets and liabilities:
Accounts receivable 96,439 (48,626)
Inventories (105,785) (82,524)
Prepaid expenses and other current assets (5,781) 4,207
Accounts payable, accrued liabilities and income taxes payable (365,098) (220,107)
Deferred compensation and other retirement plans (901) 693
Deferred income taxes (2,653) (16,009)
Other, net (3,552) (719)
---------- ----------
Net cash used in operating activities (324,824) (429,664)
---------- ----------
Cash Flows From Investing Activities:
- -------------------------------------
Purchases of tools, dies and molds (26,045) (23,672)
Purchases of other property, plant and equipment (38,848) (27,900)
Purchase of other long-term investments (1,456) (5,952)
Proceeds from sales of other property, plant and equipment 11,379 8,374
Investment in acquired businesses (11,057) (8,625)
Other, net (1,239) (173)
---------- ----------
Net cash used in investing activities (67,266) (57,948)
---------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Short-term borrowings, net 702 (11,365)
Issuance of Medium-Term Notes - 40,000
Long-term foreign borrowings (958) 2,100
Tax benefit of employee stock options exercised 29,867 1,926
Exercise of stock options 60,348 5,181
Sale of treasury stock - 71,295
Purchase of treasury stock (32,339) (1,557)
Dividends paid on common and preferred stock (24,521) (19,113)
Other, net (164) (1,125)
---------- ----------
Net cash provided by financing activities 32,935 87,342
Effect of Exchange Rate Changes on Cash (3,908) (5,342)
---------- ----------
Decrease in Cash (363,063) (405,612)
Cash at Beginning of Period 694,947 550,271
---------- ----------
Cash at End of Period $ 331,884 $ 144,659
========== ==========
<FN>
See accompanying notes to consolidated financial information.
March 1997 consolidated results are restated for the effects of the merger with Tyco,
accounted for as a pooling of interests.
</TABLE>
5
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Additional
Preferred Common Paid-In Treasury Retained
(In thousands) Stock Stock Capital Stock Earnings
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $772 $300,381 $509,172 $(285,420) $1,490,804
Comprehensive income/(loss):
Net income 12,669
Currency translation adjustments
--------- -------- -------- --------- ----------
Comprehensive income/(loss) 12,669
Purchase of treasury stock (32,339)
Issuance of treasury stock (49,716) 110,064
Exercise of stock options 29,867
Dividends declared on common stock (20,617)
Dividends declared on preferred stock (1,990)
--------- -------- -------- --------- ----------
BALANCE, MARCH 31, 1998 $772 $300,381 $489,323 $(207,695) $1,480,866
========= ======== ======== ========= ==========
<FN>
See accompanying notes to consolidated financial information.
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<CAPTION>
Accumulated
Other Total
Comprehensive Shareholders'
(In thousands) (Loss) Equity
- ------------------------------------------------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1997 $(193,639) $1,822,070
Comprehensive income/(loss):
Net income 12,669
Currency translation adjustments (29,762) (29,762)
------------- -------------
Comprehensive income/(loss) (29,762) (17,093)
Purchase of treasury stock (32,339)
Issuance of treasury stock 60,348
Exercise of stock options 29,867
Dividends declared on common stock (20,617)
Dividends declared on preferred stock (1,990)
------------- -------------
BALANCE, MARCH 31, 1998 $(223,401) $1,840,246
============= =============
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
6
<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 1997 Annual Report to Shareholders.
2. Accounts receivable are shown net of allowances for doubtful accounts
of $25.2 million (March 31, 1998), $23.3 million (March 31, 1997), and
$30.7 million (December 31, 1997).
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31, Dec. 31,
(In thousands) 1998 1997 1997
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 57,283 $ 86,068 $ 48,620
Finished goods 474,340 426,779 380,224
--------- --------- ---------
$ 531,623 $ 512,847 $ 428,844
========= ========= =========
</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) 1998 1997
- -------------- ----------- -----------
<S> <C> <C>
Interest $ 6,499 $ 18,018
Income taxes 45,686 17,525
--------------------------
</TABLE>
5. 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
first quarter of 1997. On May 6, 1998, the Company announced an
increase in future quarterly dividends to $0.08 per share effective in
July 1998.
7
6. In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings per Share. Accordingly, March
------------------
1997 results have been restated to present basic and diluted loss
per common share.
Basic income (loss) per common share is computed by dividing earnings
available to common shareholders by the average number of common
shares outstanding during each period. Earnings available to common
shareholders represent reported net income (loss) less preferred
stock dividend requirements.
Diluted income (loss) per common share is computed by dividing diluted
earnings available to common shareholders by the weighted 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, net of assumed treasury share
repurchases at average market prices, and conversion of dilutive
preferred stock and convertible debt, as applicable. Diluted earnings
available to common shareholders represent earnings available to common
shareholders plus preferred stock dividend requirements and interest
savings resulting from assumed conversions of dilutive securities.
7. In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which
------------------------------
establishes standards for reporting and display of comprehensive income
and its components (revenue, expenses, gains, and losses) in a full set
of general-purpose financial statements. Accordingly, comprehensive
income has been reported as a separate component of shareholders' equity
in the consolidated balance sheets and the consolidated statement of
shareholders' equity.
8. On March 30, 1998, Mattel made an offer to purchase Bluebird Toys PLC
("Bluebird") at a price of approximately 46 million pounds sterling.
Bluebird is the company from which Mattel licenses the product designs
for its POLLY POCKET and Disney Tiny Collections brands, as well as
the POLLY POCKET trademarks. Bluebird's Board of Directors has
recommended that its shareholders accept Mattel's offer. Mattel's
offer is currently scheduled to expire on May 22, 1998.
9. On January 8, 1998, the Company acquired PrintPaks, a Portland, Oregon-
based publisher of multimedia craft products. The purchase price
included net cash consideration of $11.1 million. The acquisition
has been accounted for using the purchase method of accounting and,
accordingly, the results of PrintPaks have been included in the
Company's consolidated financial statements since the date of
acquisition. The asset purchase agreement also provides for
future contingent consideration in the event that net sales of
PrintPaks product lines reach or exceed certain levels in each
of calendar years 1998, 1999, and 2000.
8
10. On March 27, 1997, the Company completed its merger with Tyco, accounted
for as a pooling of interests. Accordingly, all financial
information for the period ended March 31, 1997 has been restated
to include Tyco.
11. In connection with the Tyco merger, the Company commenced an
integration and restructuring plan and recorded a $275 million pre-tax
charge against operations in March 1997. The plan consisted of
consolidating certain manufacturing and distribution operations,
eliminating duplicative marketing and administrative offices,
terminating various distributor and licensing arrangements and
abandoning certain product lines. Included in the charge was
approximately $86 million for estimated severance costs related to
the elimination of 2,700 positions principally associated with
facilities to be closed. The remainder of the charge consisted
of transaction costs related to the merger, asset write-downs, and
contract termination expenses. Of the total pre-tax charge,
approximately $90 million represents non-cash asset write-downs.
Through March 31, 1998, the total integration and restructuring
expenditures and write-offs were approximately $190 million, $58
million of which related to severance payments. The plan is expected
to be substantially completed in 1998.
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 MATTEL AND TYCO 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; SIGNIFICANT CHANGES IN BUYING PATTERNS OF
MAJOR CUSTOMERS; POSSIBLE WEAKNESSES OF INTERNATIONAL MARKETS; THE
IMPACT OF COMPETITION ON REVENUES AND MARGINS; THE EFFECT OF CURRENCY
FLUCTUATIONS ON REPORTABLE INCOME; UNANTICIPATED NEGATIVE RESULTS OF
LITIGATION OR ENVIRONMENTAL MATTERS; 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.
The Company plans to continue to focus on core brands that have fundamental
play patterns and worldwide appeal, are sustainable, and have delivered
consistent profitability and stable growth. The Company's core brands can
be grouped in the following five categories: Fashion Dolls (BARBIE fashion
dolls and accessories, Collector dolls, and Fashion Magic); Infant and
Preschool (FISHER-PRICE, Disney Preschool and Plush, POWER WHEELS, SESAME
STREET, SEE 'N SAY, MAGNA DOODLE, and VIEW-MASTER); Entertainment (Disney,
Nickelodeon, games and puzzles); Wheels (HOT WHEELS, MATCHBOX, Tyco
Electric Racing and Tyco Radio Control); and Large and Small Dolls
(CABBAGE PATCH KIDS, POLLY POCKET and Tyco large dolls and plush).
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
Three Months Ended
------------------------
March 31, March 31,
1998 1997
----------- -----------
<S> <C> <C>
Net sales 100% 100%
=========== ===========
Gross profit 46% 47%
Advertising and promotion expenses 14 15
Other selling and administrative expenses 26 27
Restructuring and integration charges - 40
Other expense, net 1 1
----------- -----------
Operating profit (loss) 5 (36)
Interest expense 2 3
----------- -----------
Income (loss) before income taxes 3% (39)%
=========== ===========
</TABLE>
Net sales in the first quarter of 1998 increased $11.6 million or 2% over
the 1997 first quarter, including a net $14.7 million unfavorable effect
from the generally stronger US dollar relative to last year. Sales of
the Company's Infant and Preschool brands increased 36%, led by strength
in SESAME STREET and Disney's WINNIE THE POOH. The Entertainment category
increased 16%, primarily due to higher sales of Nickelodeon products. The
Wheels category increased 9%, led by an increase in HOT WHEELS vehicles and
playsets, partially offset by a decline in Tyco Radio Control. Sales of
BARBIE and BARBIE-related products, including Fashion Magic products,
decreased 17% primarily due to high retail inventory levels of certain dolls
entering the year and a change in buying practices by Toys R Us, the
Company's largest customer.
Sales to customers within the United States grew 4% and accounted for 69%
of consolidated gross sales compared to 67% in the year-ago quarter. Sales
to customers outside the United States decreased 2% compared to 1997,
including the unfavorable effect of the generally stronger US dollar relative
to the year-ago quarter. At comparable foreign currency exchange rates,
sales internationally grew 4%.
Gross margin as a percentage of net sales declined one percentage point to
46%, principally due to reduced sales of BARBIE and BARBIE-related products.
Advertising and promotion as a percentage of net sales decreased one
percentage point to 14% primarily due to synergies realized from the merger
with Tyco. As a percentage of net sales, other selling and administrative
expenses decreased one percentage point over the year-ago quarter, reflecting
the Company's effort to control costs, and direct savings realized from the
Tyco integration and Mattel restructuring. As a percentage of net sales,
interest expense decreased 1% primarily due to realization of savings from
the refinancing of Tyco debt and the Company's favorable cash position.
11
ACQUISITIONS AND NONRECURRING ITEM
----------------------------------
On March 30, 1998, Mattel made an offer to purchase Bluebird at a price
of approximately 46 million pounds sterling. Bluebird is the company
from which Mattel licenses the product designs for its POLLY POCKET
and Disney Tiny Collections brands, as well as the POLLY POCKET
trademarks. Bluebird's Board of Directors has recommended that its
shareholders accept Mattel's offer. Mattel's offer is currently scheduled
to expire on May 22, 1998.
On January 8, 1998, the Company acquired PrintPaks, a Portland, Oregon-
based publisher of multimedia craft products. The purchase price
included net cash consideration of $11.1 million. The acquisition
has been accounted for using the purchase method of accounting and,
accordingly, the results of PrintPaks have been included in the
Company's consolidated financial statements since the date of
acquisition. The asset purchase agreement also provides for
future contingent consideration in the event that net sales of
PrintPaks product lines reach or exceed certain levels in each
of calendar years 1998, 1999, and 2000.
On March 27, 1997, the Company completed its merger with Tyco, accounted
for as a pooling of interests. Accordingly, all financial information
for the period ended March 31, 1997 has been restated to include Tyco.
In connection with the Tyco merger, the Company commenced an
integration and restructuring plan and recorded a $275 million pre-tax
charge against operations in March 1997. The plan consisted of
consolidating certain manufacturing and distribution operations,
eliminating duplicative marketing and administrative offices,
terminating various distributor and licensing arrangements and
abandoning certain product lines. Included in the charge was
approximately $86 million for estimated severance costs related to
the elimination of 2,700 positions principally associated with
facilities to be closed. The remainder of the charge consisted
of transaction costs related to the merger, asset write-downs, and
contract termination expenses. Of the total pre-tax charge,
approximately $90 million represents non-cash asset write-downs.
Through March 31, 1998, the total integration and restructuring
expenditures and write-offs were approximately $190 million, $58
million of which related to severance payments. The plan is expected
to be substantially completed in 1998.
FINANCIAL CONDITION
-------------------
The Company's financial position remained strong during the first quarter
of 1998. The Company's cash position as of March 31, 1998 was $331.9
million compared to $144.7 million as of the first quarter 1997, primarily
due to profitable operating results. Cash decreased by $363.1 million
since December 31, 1997 primarily due to funding of operating activities.
12
Inventory balances increased $102.8 million since year end and $18.8
million over the 1997 quarter end, primarily as a result of the Company's
production in support of future sales volume. Prepaid expenses and other
current assets increased $57.8 million over the 1997 quarter end, mainly
due to higher deferred income tax benefits related to the Tyco integration
and Mattel restructuring charge. Intangibles decreased $47.9 million,
compared to the year-ago quarter, primarily due to amortization and the
disposal of certain intangibles resulting from the sale of the Company's
sports product lines.
Current portion of long-term liabilities decreased $91.8 million over the
1997 quarter end, primarily due to the repayment of the $100.0 million
6-7/8% Senior Notes which matured on August 1, 1997. Accrued liabilities
decreased $88.8 million compared to the year-ago quarter, mainly due to
the completion of certain activities related to the Tyco integration and
Mattel restructuring. Seasonal financing needs for the next twelve months
are expected to the 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, 1998 March 31, 1997 Dec. 31, 1997
- ------------- ----------------------------------------------
<S> <C> <C> <C>
Medium-Term Notes $ 520.5 20% $ 260.0 11% $ 520.5 20%
6-3/4% Senior Notes 100.0 4 100.0 4 100.0 4
10-1/8% Notes - - 126.5 6 - -
Convertible Subordinated
Notes - - 16.0 1 - -
Other long-term debt
obligations 54.1 2 59.4 2 55.0 2
----------------------------------------------
Total long-term debt 674.6 26 561.9 24 675.5 26
Other long-term liabilities 126.2 5 114.7 5 132.8 5
Shareholders' equity 1,840.2 69 1,636.7 71 1,822.1 69
----------------------------------------------
$2,641.0 100% $2,313.3 100% $2,630.4 100%
==============================================
</TABLE>
Total long-term debt increased as a percentage of total capitalization
compared to the year-ago quarter, primarily due to the issuance of $270.0
million of Medium-Term Notes, partially offset by the redemption of the
10-1/8% Notes, and conversion of Convertible Subordinated Notes into 892.7
thousand shares of Mattel common stock. 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
increased $203.5 million since March 31, 1997, primarily due to the Company's
profitable 1997 operating results and exercises of employee stock options,
partially offset by treasury stock repurchases, dividends declared to common
and preferred shareholders, and unfavorable currency translation adjustments.
FOREIGN CURRENCY RISK
---------------------
The Company enters into foreign currency forward exchange and option contracts
primarily as hedges of inventory purchases, sales and other intercompany
transactions denominated in foreign currencies, to limit the effect of
exchange rate fluctuations on the results of operations and cash flows.
13
Market risk exposures exist with respect to the settlement of foreign
currency transactions during the year because currency fluctuations
cannot be predicted with certainty. The Company's primary market risk
exposures are in Europe and Asia. The Company seeks to mitigate its
exposure to market risk by monitoring its currency exchange exposure
for the year and partially or fully hedging such exposure. In addition,
the Company manages it exposure through the selection of currencies
used for international borrowings and intercompany invoicing. The
Company does not trade in financial instruments for speculative purposes.
14
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
11.0 Computation of Income (Loss) per Common and Common
Equivalent Share
12.0 Computation of Ratio of Earnings (Loss) to Fixed
Charges and Ratio of Earnings (Loss) to Combined
Fixed Charges and Preferred Stock Dividends
27.0 Financial Data Schedule (EDGAR filing only)
27.1 Restated Financial Data Schedule (EDGAR filing only)
27.2 Restated 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, 1998:
Financial
Date of Report Items Reported Statements Filed
----------------- -------------- ----------------
January 23, 1998 5, 7 None
February 5, 1998 5, 7 None
15
<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 12, 1998 By: /s/ KEVIN M. FARR
------------------ -------------------------
Kevin M. Farr
Senior Vice President and
Controller
16
<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,
BASIC 1998 1997
- ----- --------- ---------
<S> <C> <C>
Net income (loss) $ 12,669 $(204,624)
Less: Dividends on convertible preferred stock (1,990) (2,840)
--------- ---------
Net income (loss) applicable to common shares $ 10,679 $(207,464)
========= =========
Applicable Shares for Computation of Income (Loss)
per Share:
- --------------------------------------------------
Weighted average common shares outstanding 293,048 288,382
========= =========
Basic Income (Loss) Per Common Share:
- -------------------------------------
Net income (loss) per common share $ 0.04 $ (0.72)
========= =========
</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,
DILUTED 1998 (a) 1997 (a)
- ------- --------- ---------
<S> <C> <C>
Net income (loss) $ 12,669 $(204,624)
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 7% Notes - 182
--------- ---------
Net income (loss) applicable to common shares $ 12,669 $(204,442)
========= =========
Applicable Shares for Computation of Income (Loss)
per Share:
- --------------------------------------------------
Weighted average common shares outstanding 293,048 288,382
Weighted average common equivalent shares arising from:
Dilutive stock options 4,422 2,911
Assumed conversion of Series B convertible preferred stock - 2,753
Assumed conversion of Series C convertible preferred stock 7,731 7,740
Assumed conversion of 7% Notes - 783
Disney warrant 29 -
Stock subscription warrants 665 616
--------- ---------
Weighted average number of common and common
equivalent shares 305,895 303,185
========= =========
Diluted Income (Loss) Per Common Share:
- ---------------------------------------
Net income (loss) per common share $ 0.04 $ (0.67)
========= =========
<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>
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0
(Page 1 of 2)
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO FIXED CHARGES
--------------------------------------------------------
(Amounts in thousands, except ratios)
(Unaudited)
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a)
--------------------- ----------------------------------------------------
MARCH 31, MARCH 31,
1998 1997(a) 1997 1996 1995 1994 1993(b)
--------- --------- ----------------------------------------------------
EARNINGS (LOSS) AVAILABLE FOR FIXED
CHARGES:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes,
cumulative effect of changes in
accounting principles and
extraordinary items $ 17,756 $(267,619) $425,082 $536,756 $504,668 $362,157 $153,306
Less (plus) minority interest and
undistributed income (loss) of
less-than-majority-owned affiliates,
net (5) 66 (144) 303 (36) (649) 124
Add:
Interest expense 16,392 19,636 90,130 100,226 102,983 87,071 86,101
Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Earnings (loss) available for fixed
charges $ 38,090 $(242,965) $532,733 $656,812 $627,065 $464,803 $255,752
========= ========= ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 16,392 $ 19,636 $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101
Capitalized interest - 218 991 1,789 693 285 -
Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Fixed charges $ 20,339 $ 24,806 $108,786 $121,542 $123,126 $103,580 $102,322
========= ========= ======== ======== ======== ======== ========
Ratio of earnings (loss) to fixed charges 1.87X (9.79)(d) 4.90X 5.40X 5.09X 4.49X 2.50X
========= ========= ======== ======== ======== ======== ========
<FN>
(a) Consolidated financial information for 1997 through 1993 has been restated for the effects of the March 1997
merger of Tyco Toys, Inc. ("Tyco") into the Company, accounted for as a pooling of interests.
(b) Consolidated financial information for 1993 has been restated for the effects of the November 1993 merger
of Fisher-Price, Inc. into a wholly-owned subsidiary of the Company, accounted for as a pooling of interests.
(c) Portion of rental expenses which is deemed representative of an interest factor, not to exceed one-third of
total rental expense.
(d) As a result of an approximately $275 million restructuring charge to earnings taken in the first quarter of
1997, earnings did not cover fixed charges by $267.8 million for the three month period ended March 31, 1997.
</TABLE>
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0
(Page 2 of 2)
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
---------------------------------------------------------
(Amounts in thousands, except ratios)
(Unaudited)
<CAPTION>
FOR THE
THREE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a)
--------------------- ----------------------------------------------------
MARCH 31, MARCH 31,
1998 1997(a) 1997 1996 1995 1994 1993(b)
--------- --------- ----------------------------------------------------
EARNINGS (LOSS) AVAILABLE FOR FIXED
CHARGES:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes,
cumulative effect of changes in
accounting principles and
extraordinary items $ 17,756 $(267,619) $425,082 $536,756 $504,668 $362,157 $153,306
Less (plus) minority interest and
undistributed income (loss) of
less-than-majority-owned affiliates,
net (5) 66 (144) 303 (36) (649) 124
Add:
Interest expense 16,392 19,636 90,130 100,226 102,983 87,071 86,101
Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Earnings (loss) available for fixed
charges $ 38,090 $(242,965) $532,733 $656,812 $627,065 $464,803 $255,752
========= ========= ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 16,392 $ 19,636 $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101
Capitalized interest - 218 991 1,789 693 285 -
Dividends - Series B preferred stock - 846 2,537 3,406 3,200 2,157 -
Dividends - Series C preferred stock 1,090 1,994 7,968 3,985 - - -
Dividends - Series F preference stock - - - - 3,342 4,689 4,894
Appropriate portion of rents (c) 3,947 4,952 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Fixed charges $ 21,429 $ 27,646 $119,291 $128,933 $129,668 $110,426 $107,216
========= ========= ======== ======== ======== ======== ========
Ratio of earnings (loss) to fixed charges 1.78X (8.79)(d) 4.47X 5.09X 4.84X 4.21X 2.39X
========= ========= ======== ======== ======== ======== ========
<FN>
(a) Consolidated financial information for 1997 through 1993 has been restated for the effects of the March 1997
merger of Tyco Toys, Inc. ("Tyco") into the Company, accounted for as a pooling of interests.
(b) Consolidated financial information for 1993 has been restated for the effects of the November 1993 merger
of Fisher-Price, Inc. into a wholly-owned subsidiary of the Company, accounted for as a pooling of interests.
(c) Portion of rental expenses which is deemed representative of an interest factor, not to exceed one-third of
total rental expense.
(d) As a result of an approximately $275 million restructuring charge to earnings taken in the first quarter of
1997, earnings did not cover fixed charges by $270.6 million for the three month period ended March 31, 1997.
</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, 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 331,884
<SECURITIES> 0
<RECEIVABLES> 1,013,132
<ALLOWANCES> 25,226
<INVENTORY> 531,623
<CURRENT-ASSETS> 2,102,810
<PP&E> 953,208
<DEPRECIATION> 350,415
<TOTAL-ASSETS> 3,443,794
<CURRENT-LIABILITIES> 802,749
<BONDS> 674,589
<COMMON> 300,381
0
772
<OTHER-SE> 1,539,093
<TOTAL-LIABILITY-AND-EQUITY> 3,443,794
<SALES> 705,164
<TOTAL-REVENUES> 705,164
<CGS> 381,246
<TOTAL-COSTS> 381,246
<OTHER-EXPENSES> 289,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,392
<INCOME-PRETAX> 17,756
<INCOME-TAX> 5,087
<INCOME-CONTINUING> 12,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,669
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
<FN>
Notes -
Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and
Diluted Earnings per Share as required by Statement of Financial
Accounting Standards No. 128 "Earnings per Share."
Diluted earnings per share for the three months ended March 31, 1998
has been submitted in accordance with Regulation S-K, Item 601 (b)(11),
although it is contrary to paragraph 13 of FAS No. 128 because it
produces an anti-dilutive result.
Mattel, Inc. has reviewed its quarterly Financial Data Schedules filed
during 1997 and has determined that no restatement is necessary since
amounts reported as Primary and Fully Diluted Earnings Per Share are
the same as those that would have been reported as Basic and Diluted
Earnings Per Share under FAS No. 128 for the same reporting periods.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THESE SCHEDULES HAVE BEEN RESTATED IN ACCORDANCE WITH REGULATION S-K,
ITEM 601(c)(2)(iii) TO DISCLOSE EARNINGS PER SHARE AS REQUIRED BY
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS
PER SHARE" AND THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS
WITH TYCO TOYS, INC. IN MARCH 1997.
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 550,271 493,686
<SECURITIES> 0 17,375
<RECEIVABLES> 969,949 903,184
<ALLOWANCES> 21,009 16,840
<INVENTORY> 444,178 407,551
<CURRENT-ASSETS> 2,139,062 2,014,940
<PP&E> 939,377 825,073
<DEPRECIATION> 323,096 292,738
<TOTAL-ASSETS> 3,581,142 3,341,370
<CURRENT-LIABILITIES> 1,141,877 1,067,951
<BONDS> 519,806 627,067
<COMMON> 296,091 296,080
0 0
827 52
<OTHER-SE> 1,509,005 1,255,548
<TOTAL-LIABILITY-AND-EQUITY> 3,581,142 3,341,370
<SALES> 4,535,332 4,369,816
<TOTAL-REVENUES> 4,535,332 4,369,816
<CGS> 2,315,574 2,302,076
<TOTAL-COSTS> 2,315,574 2,302,076
<OTHER-EXPENSES> 1,582,775 1,460,089
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 100,226 102,983
<INCOME-PRETAX> 536,756 504,668
<INCOME-TAX> 164,532 166,779
<INCOME-CONTINUING> 372,224 337,889
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 372,224 337,889
<EPS-PRIMARY> 1.26 1.13
<EPS-DILUTED> 1.23 1.12
<FN>
Notes -
Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and
Diluted Earnings per Share as required by Statement of Financial
Accounting Standards No. 128 "Earnings per Share."
Diluted earnings per share for the year ended December 31, 1995
has been submitted in accordance with Regulation S-K, Item 601(b)(11),
although it is contrary to paragraph 13 of FAS No. 128 because it
produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THESE SCHEDULES HAVE BEEN RESTATED IN ACCORDANCE WITH REGULATION S-K,
ITEM 601(c)(2)(iii) TO DISCLOSE EARNINGS PER SHARE AS REQUIRED BY
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS
PER SHARE" AND THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS
WITH TYCO TOYS, INC. IN MARCH 1997.
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 68,036 91,996 126,924
<SECURITIES> 0 0 0
<RECEIVABLES> 908,194 1,153,917 1,593,323
<ALLOWANCES> 19,345 18,152 20,842
<INVENTORY> 498,197 562,922 566,625
<CURRENT-ASSETS> 1,658,419 2,016,285 2,506,651
<PP&E> 849,431 883,684 916,059
<DEPRECIATION> 293,771 306,516 321,781
<TOTAL-ASSETS> 3,004,911 3,377,698 3,899,300
<CURRENT-LIABILITIES> 708,514 963,625 1,552,529
<BONDS> 626,841 626,878 521,377
<COMMON> 296,091 296,091 296,091
0 0 0
53 827 827
<OTHER-SE> 1,270,896 1,386,383 1,419,994
<TOTAL-LIABILITY-AND-EQUITY> 3,004,911 3,377,698 3,899,300
<SALES> 683,999 1,605,582 3,103,498
<TOTAL-REVENUES> 683,999 1,605,582 3,103,498
<CGS> 361,125 846,684 1,593,827
<TOTAL-COSTS> 361,125 846,684 1,593,827
<OTHER-EXPENSES> 274,184 595,628 1,049,974
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 19,893 41,883 70,134
<INCOME-PRETAX> 28,797 121,387 389,563
<INCOME-TAX> 8,263 37,483 124,284
<INCOME-CONTINUING> 20,534 83,904 265,279
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 20,534 83,904 265,279
<EPS-PRIMARY> 0.07 0.28 0.89
<EPS-DILUTED> 0.07 0.28 0.88
<FN>
Notes -
Amounts disclosed as EPS-Primary and EPS-Diluted represent Basic and
Diluted Earnings per Share as required by Statement of Financial
Accounting Standards No. 128 "Earnings per Share."
Diluted earnings per share for the quarters ended March 31 and June 30,
1996 have been submitted in accordance with Regulation S-K, Item 601(b)(11),
although it is contrary to paragraph 13 of FAS No. 128 because it
produces an anti-dilutive result.
</TABLE>
