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 September 30, 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 Nov. 6, 1998:
Common Stock - $1 par value -- 287,634,595 shares
<PAGE>
<TABLE>
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1998 1997 1997
- -------------- ----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash $ 142,589 $ 68,171 $ 694,947
Accounts receivable, net 1,781,696 1,846,994 1,091,416
Inventories 764,048 552,661 428,844
Prepaid expenses and other current assets 283,924 183,522 246,529
----------- ----------- -----------
Total current assets 2,972,257 2,651,348 2,461,736
----------- ----------- -----------
Property, Plant and Equipment
Land 37,138 32,268 29,556
Buildings 254,054 204,582 198,396
Machinery and equipment 525,655 457,217 453,978
Capitalized leases 23,362 25,362 24,625
Leasehold improvements 79,636 69,524 68,179
----------- ----------- -----------
919,845 788,953 774,734
Less: accumulated depreciation 388,931 338,048 336,946
----------- ----------- -----------
530,914 450,905 437,788
Tools, dies and molds, net 183,383 158,743 163,809
----------- ----------- -----------
Property, plant and equipment, net 714,297 609,648 601,597
----------- ----------- -----------
Other Noncurrent Assets
Intangible assets, net 1,267,150 582,302 542,759
Sundry assets 204,161 231,320 197,699
----------- ----------- -----------
$ 5,157,865 $ 4,074,618 $ 3,803,791
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
2
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands, except share data) 1998 1997 1997
- --------------------------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Short-term borrowings $ 852,228 $ 352,833 $ 17,468
Current portion of long-term liabilities 3,500 13,522 13,659
Accounts payable 351,624 303,549 310,117
Accrued liabilities 716,992 737,860 629,445
Income taxes payable 209,671 162,142 202,735
----------- ----------- -----------
Total current liabilities 2,134,015 1,569,906 1,173,424
----------- ----------- -----------
Long-Term Liabilities
Medium-Term Notes 520,500 460,500 520,500
Senior Notes 400,000 100,000 100,000
Mortgage note 43,154 43,706 43,573
Other 139,228 136,247 144,224
----------- ----------- -----------
Total long-term liabilities 1,102,882 740,453 808,297
----------- ----------- -----------
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 Sept. 30, 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, 1,000.0 million
shares authorized at Sept. 30, 1998 and
600.0 million shares authorized at
Sept. 30, 1997 and December 31, 1997;
300.4 million shares issued at Sept. 30,
1998 and December 31, 1997 and 297.6
million shares issued at Sept. 30, 1997 300,381 297,626 300,381
Additional paid-in capital 482,569 516,940 509,172
Treasury stock at cost; 10.2 million shares,
7.1 million shares and 8.8 million shares,
respectively (351,474) (208,465) (285,420)
Retained earnings 1,690,073 1,318,196 1,490,804
Accumulated other comprehensive loss (201,353) (160,865) (193,639)
----------- ----------- -----------
Total shareholders' equity 1,920,968 1,764,259 1,822,070
----------- ----------- -----------
$ 5,157,865 $ 4,074,618 $ 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 For the
Three Months Ended Nine Months Ended
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In thousands, except per share amounts) 1998 1997 1998 1997
- ---------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $1,672,120 $1,555,347 $3,238,810 $3,221,523
Cost of sales 819,883 755,070 1,657,907 1,639,598
---------- ---------- ---------- ----------
Gross Profit 852,237 800,277 1,580,903 1,581,925
Advertising and promotion expenses 253,493 244,231 461,449 478,570
Other selling and administrative expenses 218,543 198,767 593,023 576,760
Integration and restructuring costs - - - 275,000
Interest expense 37,658 24,632 69,675 62,782
Special charge 38,000 - 38,000 -
Other expense, net 25,057 14,892 36,897 30,733
---------- ---------- ---------- ----------
Income Before Income Taxes 279,486 317,755 381,859 158,080
Provision for income taxes 79,821 94,100 109,141 63,415
---------- ---------- ---------- ----------
Income Before Extraordinary Item 199,665 223,655 272,718 94,665
Extraordinary item - loss on early retirement
of debt - (4,610) - (4,610)
---------- ---------- ---------- ----------
Net Income 199,665 219,045 272,718 90,055
Less: preferred stock dividend requirements 1,990 2,838 5,970 8,515
---------- ---------- ---------- ----------
Net Income Applicable to Common Shares $ 197,675 $ 216,207 $ 266,748 $ 81,540
========== ========== ========== ==========
Basic Income Per Common Share
- -----------------------------
Income before extraordinary item $ 0.68 $ 0.76 $ 0.91 $ 0.30
Extraordinary item - loss on early retirement
of debt - (0.02) - (0.02)
---------- ---------- ---------- ----------
Net income $ 0.68 $ 0.74 $ 0.91 $ 0.28
========== ========== ========== ==========
Weighted average number of common shares 291,870 290,650 292,779 290,278
========== ========== ========== ==========
Diluted Income Per Common Share
- -------------------------------
Income before extraordinary item $ 0.66 $ 0.73 $ 0.89 $ 0.30
Extraordinary item - loss on early retirement
of debt - (0.02) - (0.02)
---------- ---------- ---------- ----------
Net income $ 0.66 $ 0.71 $ 0.89 $ 0.28
========== ========== ========== ==========
Weighted average number of common and common
equivalent shares 303,551 306,870 304,962 294,437
========== ========== ========== ==========
Dividends Declared Per Common Share $ 0.08 $ 0.07 $ 0.23 $ 0.20
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
4
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the
Nine Months Ended
-----------------------
Sept. 30, Sept. 30,
(In thousands) 1998 1997
- -------------- ---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
- -------------------------------------
Net income $ 272,718 $ 90,055
Adjustments to reconcile net income to net cash flows
from operating activities:
Noncash restructuring and integration charges - 90,382
Depreciation 122,228 117,460
Amortization 29,896 26,205
Increase (decrease) from changes in net assets and liabilities:
Accounts receivable (661,583) (936,098)
Inventories (231,991) (135,951)
Prepaid expenses and other current assets (19,662) 4,298
Accounts payable, accrued liabilities and
income taxes payable 46,443 170,762
Deferred compensation and other retirement plans 3,814 2,990
Deferred income taxes (4,332) (847)
Other, net 6,462 (1,648)
---------- ----------
Net cash used in operating activities (436,007) (572,392)
---------- ----------
Cash Flows From Investing Activities:
- -------------------------------------
Purchase of tools, dies and molds (82,865) (71,190)
Purchase of other property, plant and equipment (118,233) (86,739)
Investment in other long-term asset (7,483) (7,506)
Proceeds from sale of property, plant and equipment 14,704 7,741
Payment for acquisitions, net of cash acquired (782,087) (8,625)
Other, net (1,591) 1,813
---------- ----------
Net cash used in investing activities (977,555) (164,506)
---------- ----------
Cash Flows From Financing Activities:
- -------------------------------------
Short-term borrowings, net 828,975 326,889
Issuance of Medium-Term Notes - 250,000
Issuance of Senior Notes 300,000 -
Payment of Senior Notes - (226,500)
Payment of assumed other long-term debt (74,500) -
Payment of Medium-Term Notes (9,500) -
Payment of assumed Mortgage Note (3,997) -
Long-term foreign borrowings, net (2,807) (3,521)
Tax benefit of employee stock options exercised 34,365 11,950
Exercise of stock options 71,246 29,853
Sale of treasury stock - 71,276
Purchase of treasury stock (198,268) (128,064)
Dividends paid on common and preferred stock (72,539) (64,127)
Other, net (9,142) (2,109)
---------- ----------
Net cash provided by financing activities 863,833 265,647
Effect of Exchange Rate Changes on Cash (2,629) (10,849)
---------- ----------
Decrease in Cash (552,358) (482,100)
Cash at Beginning of Period 694,947 550,271
---------- ----------
Cash at End of Period $ 142,589 $ 68,171
========== ==========
<FN>
See accompanying notes to consolidated financial information.
</TABLE>
5
<PAGE>
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
1. The accompanying unaudited consolidated financial statements and related
disclosures have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments considered necessary for a fair
presentation of 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
$32.7 million, $26.8 million and $30.7 million as of September 30, 1998 and
1997, and December 31, 1997, respectively.
3. Inventories are comprised of the following:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1998 1997 1997
-------------- --------- --------- ---------
<S> <C> <C> <C>
Raw materials and work in progress $ 67,615 $ 82,407 $ 48,620
Finished goods 696,433 470,254 380,224
--------- --------- ---------
$ 764,048 $ 552,661 $ 428,844
========= ========= =========
</TABLE>
4. Senior Notes include the following:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30, Dec. 31,
(In thousands) 1998 1997 1997
-------------- --------- --------- ---------
<S> <C> <C> <C>
6-3/4% due 2000 $ 100,000 $ 100,000 $ 100,000
6% due 2003 150,000 - -
6-1/8% due 2005 150,000 - -
--------- --------- ---------
$ 400,000 $ 100,000 $ 100,000
========= ========= =========
</TABLE>
5. Net cash flows from operating activities include cash payments for the
following:
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
Sept. 30, Sept. 30,
(In thousands) 1998 1997
-------------- ---------- -----------
<S> <C> <C>
Cash paid during the period for:
Income taxes $ 70,196 $ 65,837
Interest 52,374 56,159
Noncash investing and financing activities:
Conversion of 7% Convertible Subordinated
Notes - 16,034
---------------------------------------------------------------------
</TABLE>
6. In the current quarter, the Board of Directors declared cash dividends of
$0.08 per common share, compared to $0.07 per common share in the third
quarter of 1997.
7. In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings per Share. Accordingly, September
------------------
1997 results have been restated to present basic and diluted income per
common share.
Basic income per common share is computed by dividing earnings
available to common shareholders by the weighted average number of common
shares outstanding during each period. Earnings available to common
shareholders represent reported net income less preferred stock dividend
requirements.
Diluted income 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. The
calculation of common equivalent shares assumes 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.
8. In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
-------------------------
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires companies
----------------------------------
to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. It also requires that gains or losses resulting
from changes in the values of those derivatives be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting.
The Company is required to adopt SFAS 133 for its fiscal year beginning
January 1, 2000. Management believes the adoption of SFAS 133 will not have
a material impact on the Company's consolidated financial position or
results of operations.
9. In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income, which
------------------------------
establishes standards for the reporting and display of comprehensive income
and its components (revenue, expenses, and gains and losses) in a full set
of general-purpose financial statements. Accordingly, other comprehensive
income has been reported as a separate component of shareholders' equity
in the consolidated balance sheets. The elements of comprehensive income
(which are comprised of net income and currency translation adjustments)
are presented in the following table in total for the quarter and
year-to-date periods ended September 30:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
(In thousands) 1998 1997
-------------- --------- ---------
<S> <C> <C>
Quarter ended $ 234,672 $ 177,876
Year-to-date 265,004 16,135
-------------------------------------------------------------
</TABLE>
10. In September 1998, the Company recognized a $38.0 million pre-tax ($27.0
million after-tax) charge related to a voluntary recall of certain
POWER WHEELS ride-on vehicles. The recall has not resulted from any
serious injury, but involves the replacement of electronic components
that may overheat, particularly when consumers make alterations to the
product.
11. On July 9, 1998, the Company completed its acquisition of The Pleasant
Company and related companies ("Pleasant Company"), a Wisconsin-based
direct marketer of books, dolls, clothing, accessories and activity
products included under the AMERICAN GIRL brand name. The purchase price,
including costs directly related to the acquisition, was approximately
$715 million. The acquisition has been accounted for using the purchase
method of accounting and, accordingly, the results of operations of
Pleasant Company have been included in the Company's consolidated financial
statements from the date of acquisition. The excess of cost over the
estimated fair market value of tangible net assets acquired was
approximately $680 million. Total excess has been allocated to customer
lists, covenant-not-to-compete, and magazine subscription lists which are
being amortized on a straight-line basis over a 3 to 15 year period, with
the remaining excess being amortized on a straight-line basis over 40
years.
On July 15, 1998, Pleasant Rowland Frautschi, the President and founder of
Pleasant Company, became Vice-Chairman of the Company and a member of the
Company's Board of Directors.
12. On June 19, 1998, the Company acquired Bluebird Toys PLC ("Bluebird"),
a company organized in the United Kingdom, from which Mattel licensed the
product designs for its POLLY POCKET and Disney Tiny Collections brands, as
well as the POLLY POCKET trademarks. The aggregate purchase price,
including investment advisor and other directly related expenses was
approximately $80 million. The acquisition has been accounted for using
the purchase method of accounting and, accordingly, the results of
operations of Bluebird have been included in the Company's consolidated
financial statements since the date of acquisition. Intercompany accounts
and transactions between Bluebird and the Company have been eliminated.
The excess of cost over the estimated fair market value of tangible net
assets acquired was approximately $60 million, which is being amortized on
a straight-line basis over 40 years.
13. On January 8, 1998, the Company acquired PrintPaks, Inc. ("PrintPaks"), a
Portland, Oregon-based publisher of multimedia craft products. The
purchase price included net cash consideration of approximately $11 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 agreement and plan of merger also provides for future
contingent consideration in the event that net sales of PrintPaks product
lines reach or exceed certain levels in calendar years 1998, 1999,
and 2000.
14. In connection with the Tyco Toys, Inc. ("Tyco") merger, the Company
commenced an integration and restructuring plan and recorded a
$275 million pre-tax charge against operations in March 1997. After
related tax effects, the net $210 million charge impacted 1997
year-to-date earnings by $0.70 per diluted share. 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. As of September 30, 1998, the total integration and
restructuring expenditures and write-offs were approximately $223 million.
<PAGE>
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, SALES LEVELS, THE MATTEL AND TYCO RESTRUCTURING
CHARGE, SPECIAL CHARGES, OTHER NON-RECURRING CHARGES, COST SAVINGS,
PROFITABILITY, AND THE YEAR 2000, 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, GOVERNMENTAL PROCEEDINGS
OR ENVIRONMENTAL MATTERS; TIMELY RESOLUTION OF THE YEAR 2000 ISSUE BY
THE COMPANY AND ITS CUSTOMERS AND SUPPLIERS; 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 (AMERICAN GIRL,
CABBAGE PATCH KIDS, POLLY POCKET and Tyco large dolls and Plush).
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 Nine Months Ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
=========== =========== =========== ===========
Gross profit 51% 52% 49% 49%
Advertising and promotion expenses 15 16 14 15
Other selling and administrative expenses 13 13 19 18
Integration and restructuring costs - - - 8
Special charge 2 - 1 -
Other expense, net 2 1 1 1
----------- ----------- ----------- -----------
Operating profit 19 22 14 7
Interest expense 2 2 2 2
----------- ----------- ----------- -----------
Income before income taxes 17% 20% 12% 5%
=========== =========== =========== ===========
</TABLE>
THIRD QUARTER 1998 COMPARED TO 1997
- -----------------------------------
Net sales in the third quarter of 1998 were $1.67 billion, an increase of 8% in
both US dollars and local currencies from $1.56 billion in the third quarter of
1997. Sales were negatively impacted in the quarter by a change in buying
practices by Toys 'R' Us, the Company's largest customer. Sales in the
Company's Wheels category increased 48%, reflecting growth in both HOT WHEELS
and MATCHBOX vehicles and playsets, as well as strength in Tyco Radio Control.
Sales in the Entertainment category increased by 20%, largely due to this
year's introduction of toys associated with the Disney and Pixar movie
"A Bugs Life" and higher sales of Nickelodeon products. Sales in the Infant
and Preschool category increased 2%, primarily due to higher sales in Disney's
WINNIE THE POOH products. Sales of BARBIE and BARBIE-related products,
including FASHION MAGIC, remained flat with last year. The acquisition of
Pleasant Company in the third quarter of 1998 contributed approximately
$36 million of net sales.
Sales to customers within the United States increased 9% and accounted for
nearly 67% of consolidated gross sales as compared to 66% in the year-ago
quarter. Sales to customers outside the United States grew 5% compared to
1997. At comparable foreign currency exchange rates, sales internationally
grew 7%, reflecting a $6 million negative impact from foreign exchange rates.
Gross margin of 51% fell slightly from 52% in 1997. The decline was
attributable to the significant increase in the lower margin Wheels business
and higher sales of licensed Disney and Nickelodeon products, partially offset
by improvement in the Infant & Preschool margins and favorable foreign
currency impact. Advertising and promotion expenses, as a percentage of net
sales, decreased one percentage point to 15%. As a percentage of net sales,
other selling and administrative expenses remained consistent with last year.
Interest expense increased by $13.0 million in the third quarter of 1998,
primarily due to financing of the Pleasant Company and Bluebird acquisitions.
Other expense, net increased by $10.2 million, largely attributable to
increased goodwill amortization resulting from the Pleasant Company and
Bluebird acquisitions and certain foreign currency losses.
NINE MONTHS 1998 COMPARED TO 1997
- ---------------------------------
Net sales in the first nine months of 1998 were $3.24 billion, an increase
of 1% from $3.22 billion in the first nine months of 1997. This increase
includes a net $35.2 million negative effect from the generally stronger
US dollar relative to 1997. At comparable foreign exchange rates, sales
improved by 2%. Sales in the Company's Wheels category increased 28%,
reflecting growth in both HOT WHEELS and MATCHBOX vehicle and playsets,
partially offset by a decline in Tyco Radio Control. Sales in the Infant
and Preschool category increased 6%, led by strength in Disney's
WINNIE THE POOH and in SESAME STREET products. Sales in the Entertainment
category increased by 14%, largely due to higher sales of Nickelodeon
products. Sales of BARBIE and BARBIE-related products, including
FASHION MAGIC, decreased by 9% primarily due to the change in buying practices
by Toys 'R' Us and high retail inventory levels of certain BARBIE dolls
entering the year. The acquisition of Pleasant Company in the third quarter
of 1998 contributed approximately $36 million of net sales.
Sales to customers within the United States increased 1%. Sales to customers
outside the United States grew 1%, including the negative effect from the
generally stronger US dollar relative to 1997. At comparable foreign
currency exchange rates, sales internationally increased 5%.
Gross profit and selling and administrative expenses, as a percentage of
net sales, remained virtually constant. Advertising and promotion expenses,
as a percentage of net sales, decreased one percentage point to 14%.
Interest expense increased by $6.9 million, primarily due to financing of
the Pleasant Company and Bluebird acquisitions, partially offset by savings
from refinancing of Tyco debt. Other expense, net increased by $6.2 million,
largely attributable to increased goodwill amortization resulting from the
Pleasant Company and Bluebird acquisitions and certain foreign currency
losses, partially offset by higher interest income.
ACQUISITIONS AND NONRECURRING ITEMS
-----------------------------------
In September 1998, the Company recognized a $38.0 million pre-tax ($27.0 million
after-tax) charge related to a voluntary recall of certain POWER WHEELS ride-on
vehicles. The recall has not resulted from any serious injury, but involves
the replacement of electronic components that may overheat, particularly when
consumers make alterations to the product.
On July 9, 1998, the Company completed its acquisition of Pleasant Company,
a Wisconsin-based direct marketer of books, dolls, clothing, accessories and
activity products included under the AMERICAN GIRL brand name. The purchase
price, including costs directly related to the acquisition, was approximately
$715 million. The acquisition has been accounted for using the purchase method
of accounting and, accordingly, the results of operations of Pleasant Company
have been included in the Company's consolidated financial statements from the
date of acquisition. The excess of cost over the estimated fair market value
of tangible net assets acquired was approximately $680 million. Total excess
has been allocated to customer lists, covenant not-to-compete, and magazine
subscription lists which are being amortized on a straight-line basis over a
3 to 15 year period, with the remaining excess being amortized on a
straight-line basis over 40 years.
On June 19, 1998, the Company acquired Bluebird, a company organized in the
United Kingdom, from which Mattel licensed the product designs for its
POLLY POCKET and Disney Tiny Collections brands, as well as the POLLY POCKET
trademarks. The aggregate purchase price, including investment advisor and
other directly related expenses was approximately $80 million. The acquisition
has been accounted for using the purchase method of accounting and, accordingly,
the results of operations of Bluebird have been included in the Company's
consolidated financial statements since the date of acquisition. Intercompany
accounts and transactions between Bluebird and the Company have been
eliminated. The excess of cost over the estimated fair market value of
tangible net assets acquired was approximately $60 million, which is
being amortized on a straight-line basis over 40 years.
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 approximately $11 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 the acquisition. The agreement and plan of merger also
provides for future contingent consideration in the event that net sales of
PrintPaks product lines reach or exceed certain levels in calendar
years 1998, 1999, and 2000.
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. After related tax effects, the net $210 million
charge impacted 1997 year-to-date earnings by $0.70 per diluted share. 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. As of September 30, 1998,
the total integration and restructuring expenditures and write-offs were
approximately $223 million. The plan is expected to be substantially complete
in the fourth quarter of 1998.
FINANCIAL POSITION
------------------
The Company's cash position as of September 30, 1998 was $142.6 million as
compared to $68.2 million as of September 30, 1997. Cash decreased by
$552.4 million since December 31, 1997, primarily due to funding of operating
activities and cash consideration paid in connection with the acquisitions of
Pleasant Company and Bluebird.
Inventory balances increased $211.4 million over the 1997 quarter end and
$335.2 million since the 1997 year end, primarily as a result of the Company's
production in support of future sales volume and inventory obtained as part of
the Pleasant Company acquisition. Prepaid expenses and other current assets
increased $100.4 million over the 1997 quarter end, mainly due to a
reclassification of deferred income tax benefits related to the Tyco
integration and Mattel restructuring charge from other long-term assets.
Property, plant and equipment, net increased $104.6 million and $112.7 million
as compared to September 30, 1997 and December 31, 1997, respectively, due to
assets acquired from Pleasant Company and investments in or expansion of
manufacturing facilities located in Mexico and Asia. Intangible assets, net
increased $684.8 million and $724.4 million since quarter end and
year end 1997, respectively, due to the Company's acquisitions of Pleasant
Company, Bluebird and PrintPaks, partially offset by amortization.
Short-term borrowings increased $499.4 million compared to the 1997 quarter end
and $834.8 million relative to 1997 year end due to commercial paper issuances
and other short-term loans used to finance seasonal needs. Accrued liabilities
increased $87.5 million compared to December 31, 1997, mainly due to an
accrual for the POWER WHEELS voluntary recall and transaction costs related to
the Pleasant Company and Bluebird acquisitions, partially offset by the
completion of certain activities related to the Tyco integration and Mattel
restructuring. 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) Sept. 30, 1998 Sept. 30, 1997 Dec. 31, 1997
- ------------- ----------------------------------------------
<S> <C> <C> <C>
Medium-Term Notes $ 520.5 17% $ 460.5 18% $ 520.5 20%
Senior Notes 400.0 13 100.0 4 100.0 4
Other long-term debt
obligations 43.2 1 55.8 3 55.0 2
-----------------------------------------------
Total long-term debt 963.7 31 616.3 25 675.5 26
Other long-term liabilities 139.2 5 124.1 5 132.8 5
Shareholders' equity 1,921.0 64 1,764.3 70 1,822.1 69
----------------------------------------------
$3,023.9 100% $2,504.7 100% $2,630.4 100%
==============================================
</TABLE>
Total long-term debt increased as a percentage of total capitalization compared
to both the 1997 quarter end and year end, primarily due to the issuance of
$300 million in Senior Notes to fund the acquisition of Pleasant Company.
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 $156.7 million since September 30, 1997,
primarily due to the cumulative earnings and issuance of treasury stock for the
exercise of employee stock options, partially offset by treasury stock
repurchases, dividends declared to common and preferred shareholders, and
unfavorable foreign currency translation adjustments. Shareholders' equity
increased $98.9 million since December 31, 1997, primarily due to cumulative
earnings and issuance of treasury stock for the exercise of employee stock
options, partially offset by treasury stock repurchases and dividends declared
to common and preferred shareholders.
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 Company's results of operations and cash flows.
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,
Latin America 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 its exposure
through the selection of currencies used for international borrowings and
intercompany invoicing. The Company does not trade in financial instruments
for speculative purposes.
YEAR 2000 UPDATE
----------------
Many currently installed computer systems and software products, including
several used by the Company, are coded to accept only two-digit (rather than
four-digit) entries in the date code field used to define the applicable year.
In such instances, the first two characters are assumed to be "19". Beginning
in the year 2000 or perhaps earlier if referencing a date in the year 2000,
such computer systems and software products may recognize a date using "00" as
the year 1900, rather than the year 2000, which could result in miscalculations
or system failures (the "Year 2000 Issue"). To address the Year 2000 Issue, in
early 1998 the Company established a project team and initiated a comprehensive
program that is designed to assess, remediate and test the Company's internal
systems, hardware and processes, including key operational, manufacturing and
financial systems (the "Plan"). The progress of the Plan is continually
monitored and regularly reported to management of the Company. In addition,
the Board of Directors of the Company is regularly informed about the Year 2000
Issue both generally and as it may affect the Company's business.
The Company's internal year 2000 project team oversees all aspects of
implementing the Plan. The team is comprised of staff members from the
information systems department having the requisite knowledge of the Company's
computer systems, including all the technical aspects of the systems. Key
user group designees from business areas are included on each system team,
which is guided by a central project team. The Company does not plan on
engaging outside consultants, technicians or other external resources
to assist in formulating and implementing the Plan.
The Company's Plan adheres to a multi-step process that includes five distinct
phases of activity: (1) awareness; (2) inventory and risk assessment;
(3) code and system modification; (4) testing; and (5) contingency planning.
Under the first two phases of the Plan, all operational, manufacturing and
financial systems were inventoried and evaluated. This inventory included all
software systems, computer hardware, facilities, and production equipment
containing or depending upon a computer chip. As a result of such evaluation,
the Company established detailed plans and action steps required to address
all aspects of the Year 2000 Issue, including all code and system
modifications (phase 3). The Company expects the awareness, inventory and
code change phases of the Plan to be completed by December 1998 and all
critical system verification and testing (phase 4) to be completed by July 1999.
The Company initiated formal communications with each of its significant
suppliers and customers to determine the extent to which they are addressing
the Year 2000 Issue and the effect on the Company's business should those
parties fail to address the issue. The Company is in the initial phase of
receiving such responses and evaluating the impact, if any, on the Company's
business.
Due to the general uncertainty inherent in the Year 2000 Issue, largely
resulting from uncertainty of the year 2000 readiness of third-party suppliers
and customers, the Company is currently unable to assess the
impact on the Company's business. However, the risk of third-party
suppliers and customers not correcting a material year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations of such suppliers, customers and/or the Company.
Such failures could materially and adversely affect the Company's results of
operations, liquidity and financial position. As a result, during the first
half of 1999 the Company will be developing contingency plans (phase 5), which
it expects to be completed by July 1999. Contingency planning will be done
on a worldwide basis by all business units of the Company. Each unit will
concentrate on factors external to the Company which may adversely impact
their ability to conduct operations. Specifically, for those locations where
a high likelihood of a material failureexists, the Company will establish
revised procedures for managing operations, including identification of
alternate suppliers and vendors whose systems are year 2000 compliant.
While there is no guarantee, the Company believes that its year 2000 Plan
should greatly reduce the Company's level of uncertainty about the Year 2000
Issue and mitigate the possibility of significant interruptions of ongoing
operations. Additionally, the Company's global presence and broad-based
manufacturing capability should provide the Company with numerous options
to further mitigate the risk of year 2000 non-compliance.
As of September 30, 1998, the Company has incurred expenditures of approximately
$5 million and expects to incur a total of approximately $8 million in
connection with addressing the Year 2000 Issue. These costs are largely due to
the use of internal resources dedicated to achieving year 2000 compliance.
Costs are charged to expense as they are incurred. Work on the Year 2000 Issue
has not delayed any internal Company projects that would have a material adverse
effect on the Company's consolidated financial position or results of operation.
All costs of addressing the Year 2000 Issue will be funded from internally
generated cash.
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings
- --------------------------
On October 22, 1998, the Company announced that Fisher-Price, Inc. (a
subsidiary of the Company), in cooperation with the U.S. Consumer
Product Safety Commission, would be conducting a voluntary recall
involving up to 10 million battery-powered POWER WHEELS ride-on
vehicles. The recall has not resulted from any serious injury,
but involves the replacement of electronic components that may
overheat, particularly when consumers make alterations to the
product. The recall involves vehicles sold nationwide since 1984
under nearly 100 model names.
The Company will repair the vehicles at POWER WHEELS service centers
nationwide, which will install new parts free of charge and give all
recalled vehicles a free safety check-up and tune-up. In connection
with the recall, Fisher-Price, Inc. has installed an "800" toll-free
telephone line to assist consumers. Additionally, remediation kits
have been distributed to all retail stores for products shipped for
retail distribution but not yet sold. All POWER WHEELS vehicles
manufactured will now incorporate the new parts.
As a result of the voluntary recall, in September 1998 the Company
recognized a $38.0 million pre-tax ($27.0 million after-tax) charge.
ITEM 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
11.0 Computation of Income per Common and Common Equivalent
Share
12.0 Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
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 September 30, 1998:
Financial
Date of Report Items Reported Statements Filed
--------------- -------------- ----------------
July 16, 1998 5 None
July 21, 1998 7 None
August 21, 1998 7 None
Sept. 30, 1998 5 None
<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 November 12, 1998 By: /s/ Kevin M. Farr
----------------------- -----------------------
Kevin M. Farr
Senior Vice President
and Controller
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0
(Page 1 of 2)
COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE
------------------------------------------------------------
(In thousands, except per share amounts)
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
BASIC 1998 1997 1998 1997
- ----- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before extraordinary item $ 199,665 $ 223,655 $ 272,718 $ 94,665
Less: Dividends on convertible preferred stock (1,990) (2,838) (5,970) (8,515)
--------- --------- --------- ---------
Income before extraordinary item for computation of
income per share 197,675 220,817 266,748 86,150
Extraordinary item - loss on early retirement of debt - (4,610) - (4,610)
--------- --------- --------- ---------
Net income applicable to common shares $ 197,675 $ 216,207 $ 266,748 $ 81,540
========= ========= ========= =========
Applicable Shares for Computation of Income
per Share:
- -------------------------------------------
Weighted average common shares outstanding 291,870 290,650 292,779 290,278
========= ========= ========= =========
Basic Income Per Common Share:
- ------------------------------
Net income per common share before extraordinary item $ 0.68 $ 0.76 $ 0.91 $ 0.30
Extraordinary item - loss on early retirement of debt - (0.02) - (0.02)
--------- --------- --------- ---------
Net income per common share $ 0.68 $ 0.74 $ 0.91 $ 0.28
========= ========= ========= =========
<PAGE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 11.0
(Page 2 of 2)
COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE
------------------------------------------------------------
(In thousands, except per share amounts)
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------- ----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
DILUTED 1998 1997 1998 1997
- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before extraordinary item $ 199,665 $ 223,655 $ 272,718 $ 94,665
Less: Dividends on convertible preferred stock - - - (8,515)
Add: Interest savings, net of tax, applicable to:
Assumed conversion of 7% Notes
- 115 - -
--------- --------- --------- ---------
Income before extraordinary item for computation of
income per share 199,665 223,770 272,718 86,150
Extraordinary item - loss on early retirement of debt
- (4,610) - (4,610)
--------- --------- --------- ---------
Net income applicable to common shares $ 199,665 $ 219,160 $ 272,718 $ 81,540
========= ========= ========= =========
Applicable Shares for Computation of Income
per Share:
- -------------------------------------------
Weighted average common shares outstanding 291,870 290,650 292,779 290,278
Weighted average common equivalent shares arising from:
Dilutive stock options 3,295 4,391 3,781 3,528
Assumed conversion of Series B convertible preferred stock - 2,753 - -
Assumed conversion of Series C convertible preferred stock 7,731 7,740 7,731 -
Stock subscription warrants 655 647 661 631
Disney warrant - - 10 -
Assumed conversion of 7% Notes - 689 - -
--------- --------- --------- ---------
Weighted average number of common and common
equivalent shares 303,551 306,870 304,962 294,437
========= ========= ========= =========
Diluted Income Per Common Share:
- --------------------------------
Net income per common share before extraordinary item $ 0.66 $ 0.73 $ 0.89 $ 0.30
Extraordinary item - loss on early retirement of debt - (0.02) - (0.02)
--------- --------- --------- ---------
Net income per common share $ 0.66 $ 0.71 $ 0.89 $ 0.28
========= ========= ========= =========
</TABLE>
<PAGE>
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0
(Page 1 of 2)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
-------------------------------------------------
(Amounts in thousands, except ratios)
(Unaudited)
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a)
--------------------- ----------------------------------------------------
SEPT. 30, SEPT. 30,
1998 1997(a) 1997 1996 1995 1994 1993(b)
--------- --------- ----------------------------------------------------
EARNINGS AVAILABLE FOR FIXED
CHARGES:
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes,
cumulative effect of changes in
accounting principles and
extraordinary items $ 381,859 $ 158,080 $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 161 (369) (144) 303 (36) (649) 124
Add:
Interest expense 69,675 62,782 90,130 100,226 102,983 87,071 86,101
Appropriate portion of rents (c) 12,748 13,708 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Earnings available for fixed
charges $ 464,443 $ 234,201 $532,733 $656,812 $627,065 $464,803 $255,752
========= ========= ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 69,675 $ 62,782 $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101
Capitalized interest 650 991 991 1,789 693 285 -
Appropriate portion of rents (c) 12,748 13,708 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Fixed charges $ 83,073 $ 77,481 $108,786 $121,542 $123,126 $103,580 $102,322
========= ========= ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 5.59X 3.02X 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.
</TABLE>
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES EXHIBIT 12.0
(Page 2 of 2)
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
--------------------------------------------------
(Amounts in thousands, except ratios)
(Unaudited)
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31, (a)
--------------------- ----------------------------------------------------
SEPT. 30, SEPT. 30,
1998 1997(a) 1997 1996 1995 1994 1993(b)
--------- --------- ----------------------------------------------------
EARNINGS AVAILABLE FOR FIXED
CHARGES:
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes,
cumulative effect of changes in
accounting principles and
extraordinary items $ 381,859 $ 158,080 $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 161 (369) (144) 303 (36) (649) 124
Add:
Interest expense 69,675 62,782 90,130 100,226 102,983 87,071 86,101
Appropriate portion of rents (c) 12,748 13,708 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Earnings available for fixed
charges $ 464,443 $ 234,201 $532,733 $656,812 $627,065 $464,803 $255,752
========= ========= ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 69,675 $ 62,782 $ 90,130 $100,226 $102,983 $ 87,071 $ 86,101
Capitalized interest 650 991 991 1,789 693 285 -
Dividends - Series B preferred stock - 2,537 2,537 3,406 3,200 2,157 -
Dividends - Series C preferred stock 5,970 5,978 7,968 3,985 - - -
Dividends - Series F preference stock - - - - 3,342 4,689 4,894
Appropriate portion of rents (c) 12,748 13,708 17,665 19,527 19,450 16,224 16,221
--------- --------- -------- -------- -------- -------- --------
Fixed charges $ 89,043 $ 85,996 $119,291 $128,933 $129,668 $110,426 $107,216
========= ========= ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 5.22X 2.72X 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 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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MATTEL INC.'S BALANCE SHEETS AND INCOME STATEMENTS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 142,589
<SECURITIES> 0
<RECEIVABLES> 1,814,403
<ALLOWANCES> 32,707
<INVENTORY> 764,048
<CURRENT-ASSETS> 2,972,257
<PP&E> 1,103,228
<DEPRECIATION> 388,931
<TOTAL-ASSETS> 5,157,865
<CURRENT-LIABILITIES> 2,134,015
<BONDS> 963,654
<COMMON> 300,381
0
772
<OTHER-SE> 1,619,815
<TOTAL-LIABILITY-AND-EQUITY> 5,157,865
<SALES> 3,238,810
<TOTAL-REVENUES> 3,238,810
<CGS> 1,657,907
<TOTAL-COSTS> 1,657,907
<OTHER-EXPENSES> 1,129,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,675
<INCOME-PRETAX> 381,859
<INCOME-TAX> 109,141
<INCOME-CONTINUING> 272,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272,718
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.89
<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."
Mattel, Inc. has reviewed its quarterly Financial Data Schedule 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>
