<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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)
<TABLE>
<S> <C>
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,
if changed since last report) None
----------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares outstanding of registrant's common stock as of August 9, 1999
Common Stock - $1 par value 420,240,769 shares
<PAGE>
PART I -- FINANCIAL INFORMATION
Mattel, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
(In thousands) 1999 1998 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current Assets
Cash $ 88,915 $ 373,788 $ 469,213
Accounts receivable, net 1,387,949 1,361,351 1,150,051
Inventories 717,275 671,271 644,270
Prepaid expenses and other current assets 416,654 349,476 371,772
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 2,610,793 2,755,886 2,635,306
- -----------------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Land 35,565 25,919 35,113
Buildings 279,074 196,249 271,580
Machinery and equipment 597,432 537,662 569,428
Capitalized leases 23,271 23,362 23,271
Leasehold improvements 61,082 90,382 98,400
- -----------------------------------------------------------------------------------------------------------------------
996,424 873,574 997,792
Less: accumulated depreciation 452,590 399,041 422,020
- -----------------------------------------------------------------------------------------------------------------------
543,834 474,533 575,772
Tools, dies and molds, net 192,640 170,938 187,349
- -----------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 736,474 645,471 763,121
- -----------------------------------------------------------------------------------------------------------------------
Other Noncurrent Assets
Intangible assets, net 1,425,041 815,735 1,484,634
Other assets 304,496 261,068 264,324
- -----------------------------------------------------------------------------------------------------------------------
$5,076,804 $4,478,160 $5,147,385
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Consolidated results for all periods presented have been restated retroactively
for the effects of the May 1999 merger with The Learning Company, Inc.
("Learning Company"), accounted for as a pooling of interests. See Note 11.
2
<PAGE>
Mattel, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
June 30, June 30, Dec. 31,
(In thousands, except share data) 1999 1998 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholder's Equity
Current Liabilities
Short-term borrowings $ 658,719 $ 256,454 $ 199,006
Current portion of long-term liabilities 133,348 22,802 33,666
Accounts payable 304,483 306,887 362,467
Accrued liabilities 640,239 550,105 748,837
Income taxes payable 193,033 176,848 299,058
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,929,822 1,313,096 1,643,034
- ----------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities
Medium-term notes 540,500 520,500 540,500
Senior notes 500,955 290,955 600,955
Mortgage note 42,701 43,297 43,007
Other 159,276 140,208 149,086
- ----------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 1,243,432 994,960 1,333,548
- ----------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock, Series A $0.01 par value, $200.00
liquidation preference per share, 0.8 million shares
authorized, issued and outstanding at June 30, 1998
and December 31, 1998, respectively - 8 8
Preferred stock, Series C $1.00 par value, $125.00
liquidation preference per share, 0.8 million shares
authorized, issued and outstanding 772 772 772
Special voting preferred stock $1.00 par value, $10.00
liquidation preference per share, one share authorized,
issued and outstanding, representing the voting rights
of 4.2 million, 3.1 million, and 5.2 million outstanding
exchangeable shares, respectively - - -
Common stock $1.00 par value, 1.0 billion shares
authorized; 426.0 million shares, 392.4 million shares,
and 405.1 million shares issued, respectively 425,953 392,365 405,114
Additional paid-in capital 1,840,380 1,816,177 1,845,222
Deferred compensation - (12,911) (12,265)
Treasury stock at cost; 14.4 million shares, 7.7 million
shares, and 14.3 million shares, respectively (491,433) (267,293) (495,347)
Retained earnings 361,501 500,212 625,197
Accumulated other comprehensive loss (233,623) (259,226) (197,898)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,903,550 2,170,104 2,170,803
- ----------------------------------------------------------------------------------------------------------------------------
$5,076,804 $4,478,160 $5,147,385
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Consolidated results for all periods presented have been restated retroactively
for the effects of the May 1999 merger with Learning Company, accounted for as a
pooling of interests. See Note 11.
3
<PAGE>
Mattel, Inc. and Subsidiaries
Consolidated Statement of Operations
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
----------------------------- --------------------------
June 30, June 30, June 30, June 30,
(In thousands, except per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $1,040,154 $1,033,509 $1,919,113 $1,918,009
Cost of sales 527,653 524,269 968,115 968,881
- ----------------------------------------------------------------------------------------------------------------------
Gross Profit 512,501 509,240 950,998 949,128
Advertising and promotion expenses 136,475 135,030 253,234 254,205
Other selling and administrative expenses 245,134 263,402 504,628 505,494
Amortization of intangibles 19,419 33,091 42,428 82,691
Charge for incomplete technology - 16,826 - 56,826
Restructuring and other charges 345,000 20,887 348,889 36,117
Interest expense 32,314 18,169 61,444 41,263
Other income, net (3,961) (7,922) (7,999) (10,069)
- ----------------------------------------------------------------------------------------------------------------------
(Loss) Income Before Income Taxes (261,880) 29,757 (251,626) (17,399)
(Benefit) provision for income taxes (57,546) 25,179 (52,341) 33,980
- ----------------------------------------------------------------------------------------------------------------------
Net (Loss) Income (204,334) 4,578 (199,285) (51,379)
Less: preferred stock dividend requirements 1,990 1,990 3,980 3,980
- ----------------------------------------------------------------------------------------------------------------------
Net (Loss) Income Applicable to Common Shares $ (206,324) $ 2,588 $ (203,265) $ (55,359)
======================================================================================================================
Basic (Loss) Income Per Common Share
Net (loss) income $ (0.50) $ 0.01 $ (0.50) $ (0.15)
- ----------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares 409,040 384,596 402,786 380,674
======================================================================================================================
Diluted (Loss) Income Per Common Share
Net (loss) income $ (0.50) $ 0.01 $ (0.50) $ (0.15)
======================================================================================================================
Weighted average number of common and common
equivalent shares 409,040 423,407 402,786 380,674
======================================================================================================================
Dividends Declared Per Common Share $ 0.09 $ 0.08 $ 0.17 $ 0.15
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Consolidated results for all periods presented have been restated retroactively
for the effects of the May 1999 merger with Learning Company, accounted for as a
pooling of interests. See Note 11.
4
<PAGE>
Mattel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------------
June 30, June 30,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(199,285) $ (51,379)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Noncash restructuring and integration charges 67,236 13,270
Depreciation 96,847 84,421
Amortization 43,662 83,453
Charges for incomplete technology - 56,826
Increase (decrease) from changes in assets and liabilities:
Accounts receivable (270,323) (126,041)
Inventories (88,609) (198,688)
Prepaid expenses and other current assets (84,415) (12,048)
Accounts payable, accrued liabilities and income taxes payable (233,524) (379,289)
Other, net 1,096 1,011
- ----------------------------------------------------------------------------------------------------------------------------
Net cash flows used for operating activities (667,315) (528,464)
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Purchases of tools, dies and molds (58,446) (57,001)
Purchases of other property, plant and equipment (47,386) (73,630)
Payment for acquisitions, net of cash acquired (1,327) (128,299)
Proceeds from sale of business and other property, plant and equipment 2,241 18,021
Investment in other long-term assets (26,584) (7,906)
Other, net (738) (1,231)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash flows used for investing activities (132,240) (250,046)
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Short-term borrowings, net 471,303 179,066
Proceeds from issuance of special warrants - 134,346
Payments of long-term debt - (19,397)
Exercise of stock options including related tax benefit 24,773 124,338
Purchase of treasury stock (16,975) (96,099)
Payment of dividends on common and preferred stock (49,826) (47,128)
Other, net (1,518) (2,647)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 427,757 272,479
- ----------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash (8,500) (4,084)
- ----------------------------------------------------------------------------------------------------------------------------
(Decrease) in Cash (380,298) (510,115)
Cash at Beginning of Period 469,213 883,903
- ----------------------------------------------------------------------------------------------------------------------------
Cash at End of Period $ 88,915 $ 373,788
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated results for all periods presented have been restated retroactively
for the effects of the May 1999 merger with Learning Company, accounted for as a
pooling of interests. See Note 11.
5
<PAGE>
Mattel, Inc. and Subsidiaries
Notes to Consolidated Financial Information
1. The accompanying unaudited consolidated financial statements and related
disclosures have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments considered necessary for a fair
presentation of Mattel, Inc. and its subsidiaries' (the "Company")
financial position and interim results as of and for the periods presented
have been included. Financial data for all periods presented reflect the
retroactive effect of the merger, accounted for as a pooling of interests,
with Learning Company, Inc. consummated in May 1999. See Note 11. 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.
2. The financial information included herein should be read in conjunction
with the Company's consolidated financial statements and related notes in
its 1998 Annual Report to Stockholders filed on Forms 10-K and 10-K/A and
the Company's supplementary consolidated financial statements and related
notes for the years ended December 31, 1998, 1997 and 1996 filed on Form 8-
K on June 11, 1999.
3. Accounts receivable are shown net of allowances of $138.2 million (June 30,
1999), $63.0 million (June 30, 1998), and $125.1 million (December 31,
1998).
4. Inventories are comprised of the following:
<TABLE>
<CAPTION>
(In thousands) June 30, 1999 June 30, 1998 Dec. 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Raw materials and work in progress $ 83,172 $ 73,593 $ 48,473
Finished goods 634,103 597,678 595,797
- ------------------------------------------------------------------------------------------------------------------
$717,275 $671,271 $644,270
==================================================================================================================
</TABLE>
5. Intangibles, net include the following:
<TABLE>
<CAPTION>
(In thousands) June 30, 1999 June 30, 1998 Dec. 31, 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill, net $1,295,379 $670,047 $1,335,183
Other 129,662 145,688 149,451
- ------------------------------------------------------------------------------------------------------------------
$1,425,041 $815,735 $1,484,634
==================================================================================================================
</TABLE>
6
<PAGE>
6. Senior notes include the following:
<TABLE>
<CAPTION>
(In thousands) June 30, 1999 June 30, 1998 Dec. 31, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5-1/2% due 2000 $200,955 $190,955 $200,955
6-3/4% due 2000 - 100,000 100,000
6% due 2003 150,000 - 150,000
6-1/8% due 2005 150,000 - 150,000
- --------------------------------------------------------------------------------------------------------
$500,955 $290,955 $600,955
========================================================================================================
</TABLE>
7. Comprehensive loss is as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------------------------
(In thousands) June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $(199,285) $ (51,379)
Unrealized gain on securities:
Unrealized holding gains arising during the period 1,350 161
Less: reclassification adjustment for realized gains
included in net loss (11,143) -
Currency translation adjustments (25,932) (48,921)
- --------------------------------------------------------------------------------------------------------------
Total comprehensive loss $(235,010) $(100,139)
==============================================================================================================
</TABLE>
8. Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------------------------
(In thousands) June 30, 1999 June 30, 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Cash payments during the period:
Interest $65,234 $46,189
Income taxes 15,778 74,575
Noncash investing and financing activities
during the period:
Common stock issued for acquisitions:
Settlement of earn-out agreements $ 5,547 $ 5,572
Sofsource, Inc. - 45,000
Mindscape, Inc. - 30,000
Conversion of 5-1/2% senior notes - 96,695
- -------------------------------------------------------------------------------------
</TABLE>
9. In the current quarter, the board of directors declared cash dividends of
$0.09 per common share, compared to $0.08 per common share in the 1998
second quarter.
10. Basic (loss) income per common share is computed by dividing earnings
available to common stockholders by the weighted average number of common
and exchangeable shares outstanding during each period. Earnings available
to common stockholders represent reported net (loss) income less preferred
stock dividend requirements.
7
<PAGE>
Diluted (loss) income per common share is computed by dividing diluted
earnings available to common stockholders by the weighted average number of
common, exchangeable 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 stockholders represent earnings available to common stockholders
plus preferred stock dividend requirements and interest savings resulting
from the assumed conversion of dilutive securities. Diluted earnings per
share presented for the 1999 second quarter and the six months ended June
30, 1999 and 1998 are the same as basic earnings per share due to the
Company's net loss position. Premium price stock options totaling 17.7
million, Series C preferred stock and convertible debt were excluded from
the calculation of diluted earnings per share in the 1998 second quarter
because they were anti-dilutive.
11. Pursuant to an Agreement and Plan of Merger, dated as of December 13, 1998,
a merger was consummated between Mattel and Learning Company on May 13,
1999. The stock-for-stock transaction was approved by the stockholders of
each company, after which Learning Company was merged with and into
Mattel, with Mattel being the surviving corporation. Each share of Learning
Company Series A Preferred Stock was converted into 20 shares of Learning
Company common stock just prior to the consummation of the merger. Pursuant
to the merger agreement, each outstanding share of Learning Company common
stock was converted into 1.2 shares of Mattel common stock upon
consummation of the merger. As a result, approximately 126 million Mattel
common shares were issued in exchange for all shares of Learning Company
common stock outstanding as of the merger date. The outstanding share of
Learning Company special voting stock was converted into one share of
Mattel Special Voting Preferred Stock. Each outstanding exchangeable non-
voting share of Learning Company's Canadian subsidiary, Softkey Software
Products Inc., remains outstanding, but upon consummation of the merger
became exchangeable into the right to receive 1.2 shares of Mattel common
stock.
This transaction has been accounted for as a pooling of interests, and
accordingly, financial information for periods prior to the merger reflect
retroactive restatement of the companies' combined financial position and
operating results. For periods preceding the merger, there were no material
intercompany transactions which required elimination from the combined
consolidated results of operations and there were no adjustments necessary
to conform the accounting practices of the two companies.
Selected financial information for the combining entities included in the
consolidated statements of operations for the six-month period ended June
30, 1998 is shown below. Although the merger was effective on May 13, 1999,
interim financial information for the combining companies was not available
as of that date; therefore, information for and as of March 31, 1999 has
been presented.
<TABLE>
<CAPTION>
For the Period Ended
---------------------------------------
March 31, June 30,
(In thousands) 1999 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Net sales
Mattel $692,116 $1,566,690
Learning Company 186,843 351,319
- ---------------------------------------------------------------------------
Combined $878,959 $1,918,009
===========================================================================
Net (loss) income
Mattel $(17,856) $ 73,053
Learning Company (a) 22,905 (124,432)
- ---------------------------------------------------------------------------
Combined $ 5,049 $ (51,379)
===========================================================================
</TABLE>
8
<PAGE>
(a) The (benefit) provision for income taxes has been adjusted by $(0.6)
million and $4.7 million in 1999 and 1998, respectively, to reflect
the reduction of valuation allowances established in Learning
Company's historical financial statements resulting in the recognition
of estimated benefits of net operating losses incurred by Learning
Company.
12. During the second quarter of 1999, the Company completed its merger with
Learning Company and finalized a previously announced plan of restructuring
and integration. These actions, along with other one-time events, resulted
in a non-recurring pre-tax charge against operations of $345.0 million
($267.0 million after tax or $0.65 per share). Of the total pre-tax charge,
approximately $278 million represents cash expenditures.
The restructuring and integration plan, which will be completed by June
2000, provides for the consolidation and realignment of the Company's
operations. The plan is aimed at leveraging global resources in areas of
manufacturing, marketing and distribution, eliminating duplicative
functions worldwide and achieving improved operating efficiencies. The
following are the major restructuring and integration initiatives:
. Consolidation of the Infant and Preschool businesses;
. Consolidation of the domestic and international back-office
functions;
. Consolidation of direct marketing operations;
. Realignment of the North American sales force;
. Termination of various international distributor contracts; and
. Closure of higher cost manufacturing facilities.
Components of the restructuring and other non-recurring charges include the
following:
<TABLE>
<CAPTION>
(In millions)
- ----------------------------------------------------------------------
<S> <C>
Severance and other compensation $108
Distributor, license and other contract terminations 57
Writedown of assets 42
Lease termination costs 22
- ----------------------------------------------------------------------
Total restructuring costs and asset writedowns 229
Merger-related transaction and other costs 86
Other non-recurring charges 30
- ----------------------------------------------------------------------
Total restructuring, asset writedowns and other charges $345
======================================================================
</TABLE>
Severance and other compensation costs relate to the termination of
approximately 4,400 employees around the world. Approximately 3,500 of
these employees are hourly workers located in certain of the Company's
manufacturing facilities, of which approximately 2,500 are employed in the
manufacturing facility in Kuala Lumpur. The remainder of work force
reductions consists of downsizing sales and marketing groups in the US,
Europe and Asia-Pacific regions as well as the elimination of duplicate
administrative, personnel following the consolidation of back-office
functions, the majority of which are in Europe. As of June 30, 1999,
approximately $12 million had been paid to 272 terminated employees. The
majority of the workforce reductions are expected to be completed within
six months, with the remaining reductions occurring by no later than June
2000. Cash severance payments will extend beyond the completion of the
workforce reductions due to the severance payment options available to
affected employees.
9
<PAGE>
The Company terminated its sponsorship agreements related to certain
attractions for a total cost of $39.6 million, inclusive of the writeoff of
related capitalized costs. The cash portion of this charge was paid as of
July 1999. The Company also incurred a $17.4 million charge, mainly related
to settlements for termination of certain foreign distributor agreements in
conjunction with the realignment of its sales and distribution network.
The Company's restructuring plan resulted in the impairment of certain
long-lived assets related to the operations being closed. The sum of the
undiscounted future cash flows of these assets was not sufficient to cover
the carrying amount of these assets. As a result, these assets were written
down to their fair market value and will be depreciated over their
remaining useful lives. Fair value of the impaired assets was determined by
either third-party appraisals or past experience in disposing of similar
assets. Buildings and, to the extent possible, equipment will be sold while
the remainder of the impaired assets will be abandoned when taken out of
service. Nearly all of the revenue-generating activities related to these
assets will continue as a result of more effective utilization of other
assets.
Fixed asset writedowns include leasehold improvements at administrative
locations to be vacated, plant and equipment at the manufacturing
facilities being closed, and duplicative information systems taken out of
service during the second quarter. Three of the four manufacturing
facilities will cease production during the third quarter of 1999 and the
remaining plant will be closed by December 1999. The carrying amount of
assets currently held for disposal is approximately $1 million. Other asset
writeoffs include approximately $10 million of goodwill related to a
recently acquired software business, which was closed following the merger
with Learning Company. A significant portion of the writedowns is
concentrated in the Operations and Learning Company segments.
Lease termination costs include penalties imposed upon canceling existing
leases and future obligations under long-term rental agreements at
facilities being vacated following the merger and realignment.
Merger-related transaction costs consist of investment banking fees, legal,
accounting and printing costs, registration fees and other costs incurred
in connection with the merger. Also included in this amount are the
contractual change of control payments arising from the merger. The
majority of all merger-related transaction costs were paid during the
second quarter of 1999.
Other non-recurring charges include an additional $16.0 million related
to the October 1998 recall of the Company's Power Wheels(R) vehicles and
$14.0 million for environmental remediation costs related to a
manufacturing facility on a leased property in Beaverton, Oregon based on
the completion and approval of the remediation plan and feasability study.
13. On June 16, 1999, the Company issued a notice to holders of its Series C
Mandatorily Convertible Redeemable Preferred Stock and to the holders of
the related Depositary Shares informing them of the Company's optional
redemption of these securities on July 1, 1999. On that date, each share of
Series C Preferred Stock was redeemed in exchange for 10.015914 shares of
the Company's common stock, and each Depositary Share was redeemed in
exchange for 0.400637 shares of the Company's common stock. Dividends on
the Series C Preferred Stock and the related Depositary Shares ceased to
accrue on July 1, 1999.
10
<PAGE>
14. During 1998, the Company acquired Pleasant Company, Mindscape, Inc.,
Bluebird Toys PLC and Sofsource, Inc., each of which were accounted for
using the purchase method of accounting. The results of operations of the
acquired companies have been included in the Company's consolidated
financial statements from their respective dates of acquisition.
The unaudited pro forma results of operations for 1998 acquisitions
accounted for using the purchase method of accounting for the six-month
period ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
Acquired Pro Forma
(In thousands, except per share data) Mattel Companies Combined
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,918,009 $ 103,862 $2,021,871
Loss before extraordinary item (51,379) (102,175) (153,554)
Net loss (51,379) (102,175) (153,554)
Basic loss per share (0.15) (0.40)
Diluted loss per share (0.15) (0.40)
- -------------------------------------------------------------------------------------------------------
</TABLE>
The amounts shown for acquired companies assume that the acquisitions of
Pleasant Company, Mindscape, Inc., Bluebird Toys PLC, and Sofsource, Inc.
occurred on January 1, 1998. Pro forma adjustments have been made to
reflect the amortization of intangible assets and goodwill capitalized as a
result of the acquisitions, incremental interest expense that would have
been incurred as a result of financing the acquisition of Pleasant Company
as of January 1, 1998, and elimination of intercompany sales and margins
related to the acquisition of Bluebird Toys PLC.
15. The Company's reportable segments are separately managed business units and
include toy marketing, toy manufacturing, and consumer software sales and
development. The toy marketing segment is divided on a geographic basis
between domestic and international. The domestic toy marketing segment is
further divided into USA Toys, US Fisher-Price/Tyco Preschool and Other.
USA Toys principally sells products in the Girls, Entertainment and Wheels
categories, while US Fisher-Price/Tyco Preschool principally sells Infant
and Preschool products. The Other toy segment is principally involved in
selling specialty products in the Girls category. The international toy
marketing segment sells products in all categories. The consumer software
segment is comprised of educational and entertainment products developed
and sold by Learning Company on a worldwide basis. The Company's toy
manufacturing segment, Operations, manufactures toy products, which are
sold to the marketing segments based on intercompany transfer prices. Such
prices are based on manufacturing costs plus a profit margin. Toy segment
revenues do not include sales adjustments such as trade discounts and other
allowances. However, such adjustments are included in the determination of
segment profit (loss) from operations. Segment profit (loss) from
operations represents income before restructuring and other charges,
interest expense, and (benefit) provision for income taxes as reported in
the consolidated statements of operations. Segment assets are comprised of
accounts receivable and inventories, net of applicable reserves and
allowances.
11
<PAGE>
<TABLE>
<CAPTION>
REVENUES For the Three Months Ended For the Six Months Ended
-----------------------------------------------------------
June 30, June 30, June 30, June 30,
(In thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketing
USA Toys $ 357,636 $ 410,268 $ 676,877 $ 741,847
US Fisher-Price/Tyco Preschool 189,791 191,772 330,114 375,042
Other segments 52,322 - 96,705 -
International 289,111 317,187 526,747 552,806
Learning Company 205,179 171,983 392,022 351,319
Operations 297,198 335,256 487,381 629,357
- -----------------------------------------------------------------------------------------------------------
Segment total 1,391,237 1,426,466 2,509,846 2,650,371
Elimination of intersegment sales (297,198) (334,523) (487,381) (627,632)
Sales adjustments (53,885) (58,434) (103,352) (104,730)
- -----------------------------------------------------------------------------------------------------------
Net sales $1,040,154 $1,033,509 $1,919,113 $1,918,009
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT (LOSS) For the Three Months Ended For the Six Months Ended
-----------------------------------------------------------
June 30, June 30, June 30, June 30,
(In thousands) 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketing
USA Toys $ 30,962 $ 50,462 $ 49,900 $ 94,113
US Fisher-Price/Tyco Preschool 11,820 14,387 11,470 25,870
Other segments 6,400 - (310) -
International (1,352) 12,099 (15,282) 4,570
Learning Company 48,489 (12,503) 91,912 (13,583)
Operations 44,126 36,926 65,784 61,545
- -----------------------------------------------------------------------------------------------------------
Segment total 140,445 101,371 203,474 172,515
Restructuring and other charges (345,000) (20,887) (348,889) (36,117)
Charge for incomplete technology - (16,826) - (56,826)
Interest expense (32,314) (18,169) (61,444) (41,263)
Corporate and other (25,011) (15,732) (44,767) (55,708)
- -----------------------------------------------------------------------------------------------------------
(Loss) income before income taxes $(261,880) $ 29,757 $(251,626) $(17,399)
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSETS
June 30, June 30,
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Marketing
USA Toys $ 630,637 $ 820,356
US Fisher-Price/Tyco Preschool 287,060 351,973
Other segments 98,088 -
International 620,490 660,572
Learning Company 398,795 155,883
Operations 90,168 82,292
- ---------------------------------------------------------------------------------
Segment total 2,125,238 2,071,076
Corporate and other (20,014) (38,454)
- ---------------------------------------------------------------------------------
Accounts receivable and inventories, net $2,105,224 $2,032,622
=================================================================================
</TABLE>
12
<PAGE>
Mattel, Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Cautionary Statement
Certain expectations and projections regarding the future performance of Mattel,
Inc. and its subsidiaries ("the Company") discussed in this quarterly report are
forward-looking and are made under the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. These expectations and projections
are based on currently available competitive, financial, and economic data along
with the Company's operating plans and are subject to certain future events and
uncertainties. 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. Management
cautions you that the following factors, among others, could cause the Company's
actual consolidated results of operations and financial position in 1999 and
thereafter to differ significantly from those expressed in forward-looking
statements:
Marketplace Risks
- - Increased competitive pressure, both domestically and internationally, which
may affect the sales of the Company's products
- - Significant changes in the buying patterns of major customers, such as the
recent shift by some retailers to just-in-time inventory management, which
may limit the Company's ability to accurately forecast reorders or cause a
decrease in sales after related expenses have already been incurred
- - Dependence on the timely development, introduction and customer acceptance of
new products, which may affect the Company's ability to successfully
redesign, restyle and extend existing core products and product lines and
successfully bring new products to market
- - Possible weaknesses in economic conditions, both domestically and
internationally, which may affect the sales of the Company's products and the
costs associated with manufacturing and distributing these products
Financial Considerations
- - Currency fluctuations, which may affect the Company's reportable income
- - Significant changes in interest rates, both domestically and internationally,
which may affect the Company's cost of financing both its operations and
investments
Merger-Related Risks
- - Difficulty integrating the operations of The Learning Company, Inc.
("Learning Company") into the Company following the May 1999 merger, which
may impede the Company's ability to achieve savings or operating synergies
from the merger
13
<PAGE>
Year 2000 Compliance
- - Potential inability of computer systems or software products used by the
Company and/or its customers and suppliers to properly recognize and process
date-sensitive information beyond January 1, 2000, which may result in an
interruption in normal business operations of the Company, its suppliers and
customers
Other Risks
- - Inability to achieve cost savings expected as part of restructuring
activities, which may result in higher than expected costs following such
restructurings
- - Development of new technologies, including the Internet, which may create new
risks to the Company's ability to protect its intellectual property rights
- - Changes in laws or regulations, both domestically and internationally,
including those affecting consumer products, environmental activities or
trade restrictions, which may lead to increased costs or interruption in
normal business operations of the Company
- - Adverse results of litigation, governmental proceedings or environmental
matters, which may lead to increased costs or interruption in normal business
operations of the Company
- - Other factors that may be described from time to time in the Company's
filings with the Securities and Exchange Commission
Summary
The Company designs, manufactures, and markets a broad variety of children's
products on a worldwide basis through both sales to retailers and direct to
consumers. Additionally, the Company develops and markets consumer software for
home personal computers. 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, to design and develop innovative new products and product lines
and to expand its marketing capability.
The Company plans to continue to focus on its portfolio of brands that have
fundamental play patterns and have historically had worldwide appeal, have been
sustainable, and have delivered consistent profitability. The Company's
portfolio of brands can be grouped in the following categories:
Girls - including Barbie(R) fashion dolls and accessories, collector dolls,
American Girl(R), Cabbage Patch Kids(R), and Polly Pocket(R)
Infant and Preschool - including Fisher-Price(R), Disney preschool and plush,
Power Wheels(R), Sesame Street(R), See `N Say(R), Magna Doodle(R), View-
Master(R), and Blue's Clues(R)
Wheels - including Hot Wheels(R), Matchbox(R), Tyco(R) Electric Racing, and
Tyco(R) Radio Control
Entertainment - including Disney, Nickelodeon(R), games, and puzzles
Consumer Software - including Reader Rabbit(R), Carmen Sandiego(TM), The Oregon
Trail(R), and Myst(R)
The Company's business is seasonal, and, therefore, results of operations are
comparable only with corresponding periods.
14
<PAGE>
Results of Operations - Second Quarter
Consolidated Results
Net loss for the second quarter of 1999 was $204.3 million or $0.50 per share as
compared to net income of $4.6 million or $0.01 per share in the second quarter
of 1998. Profitability in the second quarter of 1999 was negatively impacted by
restructuring and other charges totaling $345.0 million related to a Mattel
restructuring plan, the acquisition and integration of Learning Company,
and other non-recurring charges. Second quarter 1998 results of operations were
negatively impacted by a $16.8 million in-process technology writeoff related to
the acquisition of Mindscape, Inc. in March 1998 and restructuring and other
charges of $20.9 million related to 1998 acquisitions. Total non-recurring
charges of approximately $267 million, net of taxes, impacted the 1999
second quarter earnings by $0.65 per share. Total non-recurring charges of
approximately $30 million, net of taxes, impacted the 1998 second quarter
earnings by $0.07 per share.
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------
June 30, June 30,
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100% 100%
===============================================================================================
Gross profit 49.3% 49.3%
Advertising and promotion expenses 13.1 13.1
Other selling and administrative expenses 23.6 25.5
Amortization of intangibles 1.9 3.2
Charge for incomplete technology - 1.6
Restructuring and other charges 33.2 2.0
Other income, net (0.4) (0.8)
- -----------------------------------------------------------------------------------------------
Operating (loss) profit (22.1) 4.7
Interest expense 3.1 1.8
- -----------------------------------------------------------------------------------------------
(Loss) income before income taxes (25.2)% 2.9%
===============================================================================================
</TABLE>
Net sales in the second quarter of 1999 increased 1% to $1,040.2 million, from
$1,033.5 million in 1998. Gross profit, as a percentage of net sales, remained
at 49.3% in the second quarter of 1999, equal to the percentage in the second
quarter of 1998. As a percentage of net sales, advertising and promotion
expenses remained at 13.1% for both the 1999 and 1998 quarters. Other selling
and administrative expenses decreased to 23.6% of net sales from 25.5% as a
result of the Company's overall focus on controlling overhead expenses.
Amortization of intangibles decreased by $13.7 million, mainly as a result of
full amortization of intangibles related to certain Learning Company
acquisitions, partially offset by amortization of intangibles resulting from the
1998 acquisitions. Interest expense increased $14.1 million primarily due to
increased short- and long-term borrowings to finance the Company's 1998
acquisitions.
15
<PAGE>
Sales in the Girls category increased 2% largely due to incremental sales of
American Girl(R) resulting from the July 1998 Pleasant Company acquisition.
Sales of Barbie(R) products decreased 6% worldwide and 4% domestically. Sales in
the Infant and Preschool category declined 11%, largely due to last year's
success of `Tickle Me Elmo'. This was partially offset by a 6% increase in US
sales of core Fisher-Price products. Sales of Wheels products increased 6%,
demonstrating continued strength across Hot Wheels(R), Matchbox(R), and Tyco(R)
Radio Control. Sales of Entertainment products, including Disney and
Nickelodeon(R), decreased 15%, due to fewer properties introduced this year
versus the same quarter last year. Sales of Learning Company consumer software
products increased 19%, due to sales from product lines such as American
Greetings(R) and Virtual Makeover(TM) as well as the launch of several new
products in the 1999 second quarter such as Oregon Trail(R) 4th Edition and Road
Adventures USA(TM).
16
<PAGE>
Business Segment Results
Sales to customers within the US increased 5% and accounted for 73% and 70% of
consolidated sales in the 1999 and 1998 second quarters, respectively. Sales to
customers outside the US decreased 9% from the year ago quarter, largely
impacted by sluggish economies in Europe.
USA Toys segment sales decreased $52.6 million as a result of lower sales of
Barbie(R), Infant and Preschool and Entertainment products. US Fisher-Price/Tyco
Preschool segment sales declined $2.0 million largely due to lower sales of Tyco
preschool products, partially offset by higher sales of Fisher-Price products.
Sales in the Other segment reached $52.3 million as a result of incremental
Pleasant Company sales and licensing revenue. International segment sales
decreased $28.1 million due to lower sales of Barbie(R) and Infant and Preschool
products, partially offset by sales increases in Wheels products. Learning
Company sales increased $33.2 million as a result of sales from product lines
such as American Greetings(R) and Virtual Makeover(TM), as well as the launch of
several new products in the 1999 second quarter such as Oregon Trail(R) 4th
Edition and Road Adventures USA(TM).
Segment operating profit reached $140.4 million, principally driven by the
Learning Company segment, which improved from a loss of $12.5 million in the
second quarter of 1998 to a profit of $48.5 million in the second quarter of
1999. This improvement was principally the result of increased product sales,
lower amortization of intangibles, and reduced overhead costs. The USA Toys
segment operating profit declined $19.5 million to $31.0 million. The US Fisher-
Price/Tyco Preschool segment operating profit decreased $2.6 million to $11.8
million, and the International segment operating profit decreased from a profit
of $12.1 million in the second quarter of 1998 to a loss of $1.4 million in the
second quarter of 1999. The decline in operating profit in each of these
segments is largely attributable to lower sales volume as well as an unfavorable
shift in product mix. The Other segment operating profit was $6.4 million due to
Pleasant Company and other licensing activities.
Results of Operations - Six Months
Consolidated Results
Net loss for the first half of 1999 was $199.3 million or $0.50 per share as
compared to a net loss of $51.4 million or $0.15 per share in the first half of
1998. Profitability in the first half of 1999 was negatively impacted by
restructuring and other charges totaling $348.9 million related to a Mattel
restructuring plan, the acquisition and integration of Learning Company, and
other non-recurring charges. First half 1998 results of operations were
negatively impacted by a $56.8 million in-process technology writeoff related to
the acquisition of Mindscape, Inc. in March 1998 and restructuring and other
charges of $36.1 million related to 1998 acquisitions.
17
<PAGE>
Total non-recurring charges of approximately $270 million, net of taxes,
impacted the 1999 first half earnings by $0.67 per share. Total non-recurring
charges of approximately $81 million, net of taxes, impacted the 1998 first
half earnings by $0.22 per share.
<TABLE>
<CAPTION>
For the Six Months Ended
-------------------------------------------
June 30, June 30,
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100% 100%
===============================================================================================
Gross profit 49.6% 49.5%
Advertising and promotion expenses 13.2 13.2
Other selling and administrative expenses 26.3 26.4
Amortization of intangibles 2.2 4.3
Charge for incomplete technology - 3.0
Restructuring and other charges 18.2 1.9
Other income, net (0.4) (0.5)
- -----------------------------------------------------------------------------------------------
Operating (loss) profit (9.9) 1.2
Interest expense 3.2 2.1
- -----------------------------------------------------------------------------------------------
Loss before income taxes (13.1)% (0.9)%
===============================================================================================
</TABLE>
Net sales in the first half of 1999 increased slightly to $1,919.1 million, from
$1,918.0 million in 1998. Gross profit, as a percentage of net sales, was strong
at 49.6% in the first half of 1999 compared to 49.5% in the first half of 1998.
As a percentage of net sales, advertising and promotion expenses remained
constant at 13.2%. Other selling and administrative expenses decreased slightly
to 26.3% from 26.4%. Amortization of intangibles decreased by $40.3 million,
mainly as a result of full amortization of intangibles related to certain
Learning Company acquisitions, partially offset by amortization of intangibles
resulting from the 1998 acquisitions. Interest expense increased $20.2 million
primarily due to increased short- and long-term borrowings to finance the
Company's 1998 acquisitions.
Sales in the Girls category increased 7% largely due to incremental sales of
American Girl(R) resulting from the July 1998 Pleasant Company acquisition.
Sales of Barbie(R) products decreased 2% worldwide while increasing 3%
domestically. Sales in the Infant and Preschool category declined 17%, largely
due to last
18
<PAGE>
year's success of `Tickle Me Elmo'. This was partially offset by an 8%
increase in US sales of core Fisher-Price products. Sales of Wheels products
increased 14%, demonstrating continued strength across Hot Wheels(R),
Matchbox(R), and Tyco(R) Radio Control. Sales of Entertainment products,
including Disney and Nickelodeon(R), decreased 5%. Sales of Learning Company
consumer software products increased 12%, mainly due to the acquisition of
Mindscape, Inc., sales from new product lines such as American Greetings (R) and
Virtual Makeover (TM), and the launch of several new products in the 1999 first
half such as Oregon Trail (R) 4th Edition, Road Adventures USA (TM), Reader
Rabbit's (R) Complete Learn to Read System and All Star Typing (TM) 9-12.
Business Segment Results
Sales to customers within the US increased 2% and accounted for 73% and 71% of
consolidated sales in the 1999 and 1998 first halves, respectively. Sales to
customers outside the US decreased 5% in the first half of 1999 from the same
period a year ago, unfavorably impacted by the second quarter results in Europe.
Sales by the USA Toys segment decreased by $65.0 million compared to last year,
mainly due to decreases in Infant and Preschool and Entertainment products. This
decrease was partially offset by a 3% increase in Barbie(R) sales. US Fisher-
Price/Tyco Preschool sales decreased $44.9 million, primarily due to lower Tyco
Preschool sales in 1999 after last year's success of Sesame Street(R) products,
including `Tickle Me Elmo'. This decline was partially offset by an 8% increase
in sales of core Fisher-Price products. Sales in the Other segment were $96.7
million as a result of incremental Pleasant Company sales and licensing revenue.
International segment sales decreased $26.1 million mainly due to lower sales of
Barbie(R) and Infant and Preschool products, partially offset by sales increases
in Wheels and Entertainment products. Learning Company sales increased $40.7
million as a result of the acquisition of Mindscape, Inc., sales from new
product lines such as American Greetings (R) and Virtual Makeover (TM), and the
launch of several new products in the 1999 first half such as Oregon Trail (R)
4th Edition, Road Adventures USA (TM), Reader Rabbit's (R) Complete Learn to
Read System and All Star Typing (TM) 9-12.
Segment operating profit reached $203.5 million, an increase of 18% compared to
the 1998 first half results. The increase was principally driven by the
Learning Company segment, which improved from a loss of $13.6 million in 1998
compared to profit of $91.9 million in 1999, mainly due to increased product
sales, lower amortization resulting from full amortization of intangibles
related to certain Learning Company acquisitions, and lower overhead costs. The
USA Toys segment operating profit declined $44.2 million to $49.9 million. The
US Fisher-Price/Tyco Preschool segment operating profit decreased $14.4 million
to $11.5 million, and the International segment operating profit decreased from
a profit of $4.6 million in the first half of 1998 to a loss of $15.3 million in
the first half of 1999. The decline in operating profit in each of these
segments is largely attributable to lower sales volume as well as an unfavorable
shift in prduct mix.
Financial Position
The Company's cash position as of June 30, 1999 was $88.9 million compared to
$373.8 million as of June 30, 1998. The $284.9 million decline was
principally due to cash consideration paid in connection with the 1998
acquisitions of Pleasant Company, Mindscape, Inc. and Bluebird Toys PLC, the
purchase of $272.0 million in treasury shares,
19
<PAGE>
partially offset by the issuance of $300.0 million in senior notes, $446.2
million in commercial paper, and $50.0 million in medium-term notes. Cash
decreased by $380.3 million since December 31, 1998 primarily due to the
financing of seasonal working capital requirements. Accounts receivable, net
increased by $26.6 million from the year ago quarter and $237.9 million from
year-end. The increase from year-end was largely due to the Company's normal
seasonal dating terms with its customers. Inventory balances increased $46.0
million from the 1998 quarter end, mainly due to inventory acquired as part of
the Pleasant Company acquisition, partially offset by lower finished goods
inventories resulting from the Company's shift to just-in-time production and
shipping programs. Property, plant and equipment, net grew $91.0 million from
the second quarter of 1998 mainly due to assets acquired as part of
acquisitions, partially offset by asset writedowns in the current quarter
related to the 1999 restructuring. Intangibles increased $609.3 million,
compared to the year-ago quarter, to $1.43 billion mainly due to the Pleasant
Company acquisition.
Short-term borrowings increased $402.3 million compared to the 1998 second
quarter end, mainly due to cash consideration paid in connection with 1998
acquisitions. Compared to 1998 year end, short-term borrowings increased $459.7
million to support seasonal working capital requirements. Current portion of
long-term liabilities increased $110.5 million over the 1998 second quarter end,
primarily due to the reclassification of $90.0 million, net, of senior notes and
$30.0 million of medium-term notes from long-term to current portion. Current
portion of long-term liabilities increased $99.7 million compared to 1998 year
end primarily due to the reclassification of $100.0 million of senior notes from
long-term to current portion. 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. Accrued liabilities increased $90.1
million compared to the 1998 second quarter end due to accruals for
restructuring and other charges.
A summary of the Company's capitalization is as follows:
<TABLE>
<CAPTION>
(In millions) June 30, 1999 June 30, 1998 Dec. 31, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Medium-term notes $ 540.5 17% $ 520.5 16% $ 540.5 16%
Senior notes 501.0 16 291.0 9 601.0 17
Other long-term debt obligations 43.0 1 43.3 2 43.0 1
- ------------------------------------------------------------------------------------------
Total long-term debt 1,084.5 34 854.8 27 1,184.5 34
Other long-term liabilities 158.9 5 140.2 4 149.1 4
Stockholders' equity 1,903.6 61 2,170.1 69 2,170.8 62
- ------------------------------------------------------------------------------------------
$3,147.0 100% $3,165.1 100% $3,504.4 100%
==========================================================================================
</TABLE>
Total long-term debt increased as a percentage of total capitalization compared
to the year-ago quarter, principally due to the issuance of $300.0 million in
senior notes to finance the Company's 1998 acquisitions and the reclassification
of $10.0 million of 5-1/2% senior notes to long-term debt from current portion,
partially offset by the
20
<PAGE>
reclassification of $100.0 million of 6-3/4% senior notes to current portion of
long-term liabilities. Medium-term notes increased by $20.0 million due to
issuance of $50.0 million in notes, partially offset by the reclassification of
$30.0 million to current portion of long-term liabilities. The Company expects
to satisfy its future long-term capital needs through the retention of corporate
earnings and the issuance of long-term debt instruments. Stockholders' equity
decreased $266.5 million since June 30, 1998, primarily due to restructuring and
other non-recurring charges incurred in the 1999 second quarter, treasury stock
purchases and dividend declarations on common and preferred stock, partially
offset by earnings and the favorable effect of currency translation adjustments.
Stockholder's equity declined $267.2 million from year end 1998 as a result of
the Company's net loss position during the first six months of 1999 due to
restructuring and other non-recurring charges and dividend declarations on
common and preferred stock.
Business Combination
Pursuant to an Agreement and Plan of Merger, dated as of December 13, 1998, a
merger was consummated between Mattel and Learning Company on May 13, 1999. The
stock-for-stock transaction was approved by the stockholders of each company,
after which Learning Company was merged with and into Mattel, with Mattel being
the surviving corporation. Each share of Learning Company Series A Preferred
Stock was converted into 20 shares of Learning Company common stock just prior
to the consummation of the merger. Pursuant to the merger agreement, each
outstanding share of Learning Company common stock was converted into 1.2 shares
of Mattel common stock upon consummation of the merger. As a result,
approximately 126 million Mattel common shares were issued in exchange for all
shares of Learning Company common stock outstanding as of the merger date. The
outstanding share of Learning Company special voting stock was converted into
one share of Mattel Special Voting Preferred Stock. Each outstanding
exchangeable non-voting share of Learning Company's Canadian subsidiary, Softkey
Software Products Inc., remains outstanding, but upon consummation of the merger
became exchangeable into the right to receive 1.2 shares of Mattel common stock.
21
<PAGE>
Restructuring and Other Charges
During the second quarter of 1999, the Company completed its merger with
Learning Company and finalized a previously announced plan of restructuring and
integration. These actions, along with other one-time events, resulted in a non-
recurring pre-tax charge against operations of $345.0 million, $267.0 million
after tax or $0.65 per share. Of the total pre-tax charge, approximately $165
million is expected to be paid in 1999 and $83 million in 2000 in connection
with the restructuring and integration. Total cash outlay of $278 million will
be funded from existing cash balances and internally generated cash flow from
operations.
The restructuring and integration plan, which will be completed by June 2000,
provides for the consolidation and realignment of the Company's operations. The
plan is aimed at leveraging global resources in areas of manufacturing,
marketing and distribution, eliminating duplicative functions worldwide and
achieving improved operating efficiencies. The plan is designed to reduce
product costs and overhead spending which is expected to result in cost savings
of approximately $50 million in 1999 and at least $400 million over the
following three years. These savings are net of anticipated incremental
integration related spending of approximately $20 million. This incremental
spending includes approximately $10 million for capital investment at existing
manufacturing facilities as well as network consolidation, and charges for the
relocation of employees and movement of equipment, employee transition/training
and manufacturing start-up costs.
The following are the major restructuring and integration initiatives:
. Consolidation of the Infant and Preschool businesses;
. Consolidation of the domestic and international back-office functions;
. Consolidation of direct marketing operations;
. Realignment of the North American sales force;
. Termination of various international distributor contracts; and
. Closure of higher cost manufacturing facilities.
Components of the restructuring and other non-recurring charges include the
following:
<TABLE>
<CAPTION>
(In millions)
- -------------------------------------------------------------------------
<S> <C>
Severance and other compensation $108
Distributor, license and other contract terminations 57
Writedown of assets 42
Lease termination costs 22
- -------------------------------------------------------------------------
Total restructuring costs and asset writedowns 229
Merger-related transaction and other costs 86
Other non-recurring charges 30
- -------------------------------------------------------------------------
Total restructuring, asset writedowns and other charges $345
=========================================================================
</TABLE>
Severance and other compensation costs relate to the termination of
approximately 4,400 employees around the world. Approximately 3,500 of these
employees are hourly workers located in certain of the Company's manufacturing
facilities, of which approximately 2,500 are employed in the manufacturing
facility in Kuala Lumpur. The
22
<PAGE>
remainder of work force reductions consists of downsizing sales and marketing
groups in the US, Europe and Asia-Pacific regions as well as the elimination of
duplicate administrative personnel following the consolidation of back-office
functions, the majority of which are in Europe. As of June 30, 1999,
approximately $12 million had been paid to 272 terminated employees. The
majority of the workforce reductions are expected to be completed within six
months, with the remaining reduction occurring by no later than June 2000. Cash
severance payments will extend beyond the completion of the workforce reductions
due to the severance payment options available to affected employees.
The Company terminated its sponsorship agreements related to certain attractions
for a total cost of $39.6 million, inclusive of the writeoff of related
capitalized costs. The cash portion of this charge was paid as of July 1999. The
Company also incurred a $17.4 million charge, mainly related to settlements for
termination of certain foreign distributor agreements in conjunction with the
realignment of its sales and distribution network.
The Company's restructuring plan resulted in the impairment of certain long-
lived assets related to the operations being closed. The sum of the undiscounted
future cash flows of these assets was not sufficient to cover the carrying
amount of these assets. As a result, these long-lived assets was written down to
their fair market value and will be depreciated over their remaining useful
lives. Fair value of the impaired assets was determined by either third-party
appraisals or past experience in disposing of similar assets. Buildings and, to
the extent possible, equipment will be sold while the remainder of the impaired
assets will be abandoned when taken out of service. Nearly all of the revenue-
generating activities related to these assets will continue as a result of more
effective utilization of other assets.
Fixed asset writedowns include leasehold improvements at administrative
locations to be vacated, plant and equipment at the manufacturing facilities
being closed, and duplicative information systems taken out of service during
the second quarter. Three of the four manufacturing facilities will cease
production during the third quarter of 1999 and the remaining plant will be
closed by December 1999. The carrying amount of assets currently held for
disposal is approximately $1 million. Other asset writeoffs include
approximately $10 million of goodwill related to a recently acquired software
business, which was closed following the merger with Learning Company. A
significant portion of the writedowns is concentrated in the Operations and
Learning Company segments.
Lease termination costs include penalties imposed upon canceling existing leases
and future obligations under long-term rental agreements at facilities being
vacated following the merger and realignment.
Merger-related transaction costs consist of investment banking fees, legal,
accounting and printing costs, registration fees and other costs incurred in
connection with the merger. Also included in this amount are the contractual
change of control payments arising from the merger. The majority of all merger-
related transaction costs were paid during the second quarter of 1999.
23
<PAGE>
Other non-recurring charges include an additional $16.0 million related to the
October 1998 recall of the Company's Power Wheels(R) vehicles and $14.0 million
for environmental remediation costs related to a manufacturing facility on a
leased property in Beaverton, Oregon, based on the completion and approval of
the remediation plan and feasability study.
New Internet Venture
On April 15, 1999, the Company announced that it expects to initially spend
approximately $50 million to launch an Internet venture. The Company expects
that it will be able to offset a portion of its investment in the Internet
venture with the 1999 cost savings from the restructuring discussed above. The
Company's goal is to create a premier online destination and E-commerce site to
better serve children and their families. The Company's strategy to reach this
goal is premised on attracting consumers to its sites by bringing together the
branded proprietary content of all Mattel brands at one "Mattel.com" Web
destination.
Foreign Currency Risk
The Company's results of operations and cash flows can be impacted by exchange
rate fluctuations. To limit the exposure associated with exchange rate
movements, the Company enters into foreign currency forward exchange contracts
primarily to hedge its purchase of inventory, sales and other intercompany
transactions denominated in foreign currencies. The Company's results of
operations can also be affected by the translation of foreign revenues and
earnings into US dollars.
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 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 foreign 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 only "00", as
the year 1900, rather than the year 2000, which could result in miscalculations
or system failures. To address the year 2000 issue, in early 1998 Mattel
established a project team and initiated a comprehensive plan designed to
assess, remediate and test Mattel's internal systems, hardware and processes,
including key operational, manufacturing and financial systems. The progress of
this plan is continually monitored and regularly
24
<PAGE>
reported to management. Learning Company, acquired by Mattel in May 1999,
followed its own year 2000 readiness plan prior to the merger. Since the date of
acquisition, the Company has evaluated Learning Company's year 2000 readiness
and developed a separate plan of action as described below. The Company's board
of directors is regularly informed about the year 2000 issue both generally and
as it may affect the Company's business.
Mattel'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 Mattel's computer systems,
including all 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. Mattel has not engaged outside consultants, technicians or other
external resources to assist in formulating and implementing the program.
Mattel'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) business interruption and contingency
planning.
Under the first two phases of the plan, Mattel has inventoried and evaluated all
operational, manufacturing and financial systems. 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,
Mattel established detailed plans and action steps required to address all
aspects of the year 2000 issue, including all code and system modifications
(phase 3). Mattel completed the awareness, inventory and code change phases of
the plan as scheduled prior to December 1998. Critical system verification and
testing (phase 4) for Mattel was completed in June 1999.
Mattel 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 its business should those parties fail to adequately
address the issue. To date, Mattel has received responses from the majority of
the initial contacts. These responses have been positive and support the
overall initiatives toward achieving year 2000 compliance. Mattel continues to
follow-up with those customers and suppliers failing to reply to the initial
inquiry.
As of June 30, 1999, Learning Company has completed the assessment phase of its
critical internal systems and is currently testing all other systems. Learning
Company expects to complete testing of all its targeted areas by October 1999.
Learning Company has been taking, and expects to continue to take actions to
resolve year 2000 issues through planned replacement or upgrades of its internal
computer equipment and software systems.
25
<PAGE>
All Mattel software products currently available for sale to consumers and those
products previously purchased by consumers are year 2000 compliant. Mattel
software products manufactured by third-parties under licensing agreements have
been certified as year 2000 compliant by such manufacturers. Learning Company
sells software products primarily for use in homes and schools, and has sold
products over the last few years that have since been discontinued but may still
be used by consumers. Additionally, products under development are being
designed to be year 2000 compliant. Learning Company is also in the process of
testing certain of its products sold in the past for year 2000 compliance.
Because Learning Company's products tend to have few time-sensitive components,
the resources necessary to test its products are not significant. However, since
Learning Company is still in the testing phase of its readiness plan with
respect to products, it is difficult to estimate with certainty the ultimate
cost of its year 2000 plan with respect to products.
Contingency planning is being done on a worldwide basis by all business units.
Each business 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 failure exists, the Company will
establish revised procedures for managing operations, including identification
of alternate suppliers and vendors whose systems are year 2000 compliant.
Mattel's contingency plans (phase 5) have two key parts. The first part, which
was completed in May 1999, was to assess possible risks of business interruption
which could affect various areas within the Company. The second part, which is
scheduled to be completed in October 1999, is to develop a business resumption
plan in each location. These contingency phases are also expected to be
completed for Learning Company by October 1999.
As of June 30, 1999, the Company has spent approximately $12 million and expects
to incur a total of approximately $13 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, and are charged to expense as they
are incurred. Work on the year 2000 issue has not delayed any
26
<PAGE>
internal projects that would have a material 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.
While the Company is dedicating resources toward attaining year 2000 readiness,
there is no assurance that the Company will be successful in its efforts to
address all year 2000 issues. If all year 2000 issues are not properly
identified and assessed or the plan is not timely implemented, there can be no
assurance that the year 2000 issue will not materially adversely impact the
Company's results of operations, liquidity and financial position or adversely
affect the Company's relationships with customers, vendors or others. For
example, failure to achieve year 2000 readiness for the Company's internal
systems could delay its ability to manufacture and ship products or disrupt
customer service and technical support facilities. The Company also relies on
third parties such as manufacturing suppliers and vendors and large retail
customers. If these or other third parties experience year 2000 failures or
malfunctions there could be a material adverse impact on the Company's ability
to conduct ongoing operations. Additionally, the Company could incur increased
costs, lost sales or other negative consequences resulting from customer
dissatisfaction, including litigation if its products are not year 2000
compliant.
The above discussion regarding costs, risks and estimated completion dates for
the year 2000 is based on the Company's best estimates given information that is
available on June 30, 1999, and is subject to change. Actual results could
differ from these estimates.
27
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) On February 7, 1992, Mattel's board of directors declared a dividend of one
preference share purchase right for each outstanding share of Mattel common
stock. The description and terms of the Mattel purchase rights are set
forth in a Rights Agreement, dated as of February 7, 1992, between Mattel
and BankBoston, N.A., formerly The First National Bank of Boston, as Rights
Agent. If any person or group acquires beneficial ownership of 20% or more
of the outstanding shares of Mattel common stock, each holder of a purchase
right, other than purchase rights beneficially owned by the acquiring
person, will generally have the right to receive upon exercise that number
of shares of Mattel common stock having a market value of two times the
exercise price of the purchase right. In addition, if at any time following
the acquisition of 20% or more of the outstanding shares of Mattel common
stock, Mattel is acquired in a merger or other transaction or 50% or more
of its consolidated assets or earning power are sold, other than resulting
from a qualifying offer, each holder of a purchase right will generally
receive upon exercise that number of shares of common stock of the
acquiring company which have market value of two times the exercise price
of the purchase right. In connection with the consummation of Learning
Company's merger with and into Mattel in May 1999, Mattel amended the
rights agreement to include, for purposes of calculating the 20% threshold,
the acquisition of exchangeable shares of its Canadian subsidiary, Softkey
Software Products Inc.
(c) Upon the consummation of Learning Company's merger with and into Mattel on
May 13, 1999, Mattel issued, in exchange for the one outstanding share of
Learning Company special voting stock, one share of Mattel special voting
preferred stock to CIBC Mellon Trust Company pursuant to Regulation S under
the Securities Act of 1933, as amended. The share of special voting
preferred stock is held of record by CIBC Mellon Trust Company as the
trustee under a voting and exchange trust supplement pursuant to which each
holder (other than Mattel, its subsidiaries and entities controlled by
Mattel) of an exchangeable share of Mattel's Canadian subsidiary, Softkey
Software Products Inc., is generally entitled to instruct the trustee to
cast 1.2 votes in connection with all matters brought before holders of
Mattel common stock for a vote.
On June 8, 1999, Merrill Lynch, Pierce, Fenner & Smith Inc. exercised a
warrant to purchase shares of Mattel common stock and Mattel issued 114,243
shares of common stock to Merrill Lynch under Section 3(a)(9) of the
Securities Act of 1933, as amended. Because Merrill Lynch elected to
utilize the "cashless exercise" provision of the warrant, Mattel received
no cash consideration for the issuance of these shares.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Stockholders of Mattel was held on May 7, 1999 for the
purpose of approving the merger between Mattel and Learning Company. The merger
was approved by the following vote:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
188,063,932 9,518,648 6,557,469 0
</TABLE>
The Annual Meeting of Stockholders of Mattel was held on June 3, 1999 for the
purpose of electing directors, approving the Amended and Restated Mattel Long-
Term Incentive Plan and the material terms of its performance goals, and
approving the appointment of independent accountants. Proxies for the meeting
were solicited pursuant to Regulation 14A of the Securities Exchange Act of 1934
and there was no solicitation in opposition to that of management. All of
management's nominees for directors as listed in the proxy statement were
elected with the number of votes cast for each nominee as follows:
<TABLE>
<CAPTION>
Shares Voted Votes
"FOR" Withheld
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Jill E. Barad 244,508,895 4,106,025
Harold Brown 244,658,545 4,106,025
Tully M. Friedman 244,757,985 4,106,025
Joseph C. Gandolfo 244,814,893 4,106,025
Ronald M. Loeb 241,501,339 4,106,025
Ned Mansour 244,777,501 4,106,025
Dr. Andrea Rich 244,694,035 4,106,025
William D. Rollnick 244,755,080 4,106,025
Christopher A. Sinclair 244,854,922 4,106,025
John L. Vogelstein 244,700,437 4,106,025
</TABLE>
The Amended and Restated Mattel Long-Term Incentive Plan and the material terms
of its performance goals was approved by the following vote:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
236,274,731 11,060,401 1,220,403 0
</TABLE>
The proposal to appoint PricewaterhouseCoopers LLP as independent accountants
for the Company for the year ending December 31, 1999 was ratified by the
following vote:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
247,309,377 516,074 730,084 0
</TABLE>
28
<PAGE>
A stockholder proposal regarding the composition of the board of directors was
included in the proxy statement dated April 26, 1999. The proposal was rejected
by the following vote:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
53,054,081 143,020,997 3,324,697 49,155,759
</TABLE>
A stockholder proposal regarding certain reports by the board of directors was
included in the proxy statement dated April 26, 1999. The proposal was rejected
by the following vote:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
9,459,726 178,650,740 11,286,763 49,158,305
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
11.0 Computation of Income (Loss) per Common and Common Equivalent Share
27.0 Financial Data Schedule (EDGAR filing only)
27.1 Restated Financial Data Schedule (EDGAR filing only)
27.2 Restated Financial Data Schedule (EDGAR filing only)
27.3 Restated Financial Data Schedule (EDGAR filing only)
27.4 Restated Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
-------------------
Mattel, Inc. filed the following Current Reports on Forms 8-K and 8-K/A
during the quarterly period ended June 30, 1999:
<TABLE>
<CAPTION>
Date of Report Items Reported Financial Statements Filed
- ------------------------------------------------------------------------------------------------------------
Form 8-K
<S> <C> <C>
April 8, 1999 5 None
April 16, 1999 5 None
April 16, 1999 7 Yes
May 28, 1999 2,7 Yes
June 11, 1999 5,7 Yes
June 18, 1999 5,7 None
Form 8-K/A
June 9, 1999 2,7 Yes
</TABLE>
29
<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
the undersigned thereunto duly authorized.
MATTEL, INC.
_______________________________
(Registrant)
Date: As of August 16, 1999 By: /s/ Kevin M. Farr
--------------------- ________________________________
Kevin M. Farr
Senior Vice President and
Corporate Controller
(Chief Accounting Officer and Duly
Authorized Officer of the Registrant)
30
<PAGE>
EXHIBIT 11.0
MATTEL, INC. AND SUBSIDIARIES
(Page 1 OF 2)
COMPUTATION OF INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For The For The
Three Months Ended Six Months Ended
--------------------------- --------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
BASIC
- -----
Net (loss) income ($204,334) $ 4,578 ($199,285) ($51,379)
Less: Dividends on convertible preferred stock (1,990) (1,990) (3,980) (3,980)
----------- ------------ ------------ -----------
Net (loss) income applicable to common shares ($206,324) $ 2,588 ($203,265) ($55,359)
=========== ============ ============ ===========
Applicable Shares for Computation of Income (Loss) per Share:
Weighted average common shares outstanding 409,040 384,596 402,786 380,674
=========== ============ ============ ===========
Basic (Loss) Income Per Common Share:
Net (loss) income per common share ($0.50) $ 0.01 ($0.50) ($0.15)
=========== ============ ============ ===========
</TABLE>
<PAGE>
EXHIBIT 11.0
MATTEL, INC. AND SUBSIDIARIES
(Page 2 OF 2)
COMPUTATION OF INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For The For The
Three Months Ended Six Months Ended
--------------------------- --------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
DILUTED
- -------
Net (loss) income ($204,334) $ 4,578 ($199,285) ($51,379)
Less: Dividends on convertible preferred stock (1,990) (1,990) (3,980) (3,980)
----------- ------------ ------------ -----------
Net (loss) income applicable to common shares ($206,324) $ 2,588 ($203,265) ($55,359)
=========== ============ ============ ===========
Applicable Shares for Computation of Income (Loss) per Share:
Weighted average common shares outstanding 409,040 384,596 402,786 380,674
Weighted average common equivalent shares arising from:
Diluted stock options - 9,399 - -
Special warrants - 10,424 - -
Assumed conversion of Series A convertible preferred stock - 18,000 - -
Stock subscription warrants - 770 - -
Nonvested stock - 218 - -
----------- ------------ ------------ -----------
Weighted average number of common and common
equivalent shares 409,040 423,407 402,786 380,674
=========== ============ ============ ===========
Diluted (Loss) Income Per Common Share:
Net (loss) income per common share ($0.50) $0.01 ($0.50) ($0.15)
=========== ============ ============ ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MATTEL
INC.'S BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 88,915
<SECURITIES> 0
<RECEIVABLES> 1,526,146
<ALLOWANCES> 138,197
<INVENTORY> 717,275
<CURRENT-ASSETS> 2,610,793
<PP&E> 1,189,064
<DEPRECIATION> 452,590
<TOTAL-ASSETS> 5,076,804
<CURRENT-LIABILITIES> 1,929,822
<BONDS> 1,084,156
0
772
<COMMON> 425,953
<OTHER-SE> 1,476,825
<TOTAL-LIABILITY-AND-EQUITY> 5,076,804
<SALES> 1,919,113
<TOTAL-REVENUES> 1,919,113
<CGS> 968,115
<TOTAL-COSTS> 968,115
<OTHER-EXPENSES> 1,141,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,444
<INCOME-PRETAX> (251,626)
<INCOME-TAX> (52,341)
<INCOME-CONTINUING> (199,285)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199,285)
<EPS-BASIC> (0.50)
<EPS-DILUTED> (0.50)
</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 THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS
WITH THE LEARNING COMPANY, INC. IN MAY 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 469,213 883,903 811,284
<SECURITIES> 0 0 0
<RECEIVABLES> 1,275,128 1,331,723 1,096,877
<ALLOWANCES> 125,077 78,380 63,811
<INVENTORY> 644,270 468,226 463,212
<CURRENT-ASSETS> 2,635,306 2,933,089 2,543,256
<PP&E> 1,185,141 1,018,619 997,567
<DEPRECIATION> 422,020 377,990 356,605
<TOTAL-ASSETS> 5,147,385 4,512,843 4,607,008
<CURRENT-LIABILITIES> 1,643,034 1,468,783 1,375,871
<BONDS> 1,184,462 969,186 1,001,456
0 0 0
780 780 827
<COMMON> 405,114 379,011 369,190
<OTHER-SE> 1,764,909 1,553,547 1,739,770
<TOTAL-LIABILITY-AND-EQUITY> 5,147,385 4,512,843 4,607,008
<SALES> 5,621,207 5,455,547 5,064,860
<TOTAL-REVENUES> 5,621,207 5,455,547 5,064,860
<CGS> 2,707,904 2,635,887 2,474,782
<TOTAL-COSTS> 2,707,904 2,635,887 2,474,782
<OTHER-EXPENSES> 2,393,203 2,705,832 2,274,251
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 128,468 112,612 126,929
<INCOME-PRETAX> 391,632 1,216 188,898
<INCOME-TAX> 185,579 179,327 166,936
<INCOME-CONTINUING> 206,053 (178,111) 21,962
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (4,610) 0
<CHANGES> 0 0 0
<NET-INCOME> 206,053 (182,721) 21,962
<EPS-BASIC> 0.51 (0.52) 0.04
<EPS-DILUTED> 0.47 (0.52) 0.04
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE HAS BEEN RESTATED IN ACCORDANCE WITH REGULATION S-K, ITEM 601 (c)
(2)(iii) TO DISCLOSE THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS WITH THE
LEARNING COMPANY, INC. IN MAY 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 242,078
<SECURITIES> 0
<RECEIVABLES> 1,204,957
<ALLOWANCES> 135,951
<INVENTORY> 647,559
<CURRENT-ASSETS> 2,376,579
<PP&E> 1,195,036
<DEPRECIATION> 435,598
<TOTAL-ASSETS> 4,866,910
<CURRENT-LIABILITIES> 1,400,076
<BONDS> 1,184,311
<COMMON> 405,403
0
780
<OTHER-SE> 1,720,925
<TOTAL-LIABILITY-AND-EQUITY> 4,866,910
<SALES> 878,959
<TOTAL-REVENUES> 878,959
<CGS> 440,462
<TOTAL-COSTS> 440,462
<OTHER-EXPENSES> 399,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,130
<INCOME-PRETAX> 10,254
<INCOME-TAX> 5,205
<INCOME-CONTINUING> 5,049
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,049
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</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 THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS
WITH THE LEARNING COMPANY, INC. IN MAY 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 576,652 373,788 377,385
<SECURITIES> 0 0 0
<RECEIVABLES> 1,166,889 1,424,390 1,978,287
<ALLOWANCES> 73,050 63,039 79,344
<INVENTORY> 577,602 671,271 808,555
<CURRENT-ASSETS> 2,592,695 2,755,886 3,461,936
<PP&E> 1,037,283 1,044,512 1,176,513
<DEPRECIATION> 392,841 399,041 433,822
<TOTAL-ASSETS> 4,248,275 4,478,160 5,979,384
<CURRENT-LIABILITIES> 1,058,034 1,313,096 2,457,598
<BONDS> 962,239 854,752 1,154,609
0 0 0
780 780 780
<COMMON> 383,683 392,365 402,900
<OTHER-SE> 1,705,965 1,776,959 1,820,135
<TOTAL-LIABILITY-AND-EQUITY> 4,248,275 4,478,160 5,979,384
<SALES> 884,500 1,918,009 3,802,852
<TOTAL-REVENUES> 884,500 1,918,009 3,802,852
<CGS> 444,612 968,881 1,857,634
<TOTAL-COSTS> 444,612 968,881 1,857,634
<OTHER-EXPENSES> 463,950 925,264 1,611,681
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 23,094 41,263 83,609
<INCOME-PRETAX> (47,156) (17,399) 249,928
<INCOME-TAX> 8,801 33,980 132,573
<INCOME-CONTINUING> (55,957) (51,379) 117,355
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (55,957) (51,379) 117,355
<EPS-BASIC> (0.15) (0.15) 0.29
<EPS-DILUTED> (0.15) (0.15) 0.27
</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 THE EFFECT OF MATTEL, INC.'S POOLING OF INTERESTS
WITH THE LEARNING COMPANY, INC. IN MAY 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 389,209 278,645 258,859
<SECURITIES> 0 0 0
<RECEIVABLES> 1,143,525 1,476,648 2,024,486
<ALLOWANCES> 84,056 80,822 81,000
<INVENTORY> 534,553 576,683 580,857
<CURRENT-ASSETS> 2,220,035 2,499,240 3,030,772
<PP&E> 1,003,815 1,026,395 1,024,652
<DEPRECIATION> 368,670 380,853 376,614
<TOTAL-ASSETS> 4,167,685 4,345,956 4,746,678
<CURRENT-LIABILITIES> 1,154,144 1,439,573 1,777,655
<BONDS> 1,002,112 987,486 1,057,856
0 0 0
827 827 827
<COMMON> 374,995 375,411 376,700
<OTHER-SE> 1,487,353 1,394,548 1,385,322
<TOTAL-LIABILITY-AND-EQUITY> 4,167,685 4,345,956 4,746,678
<SALES> 824,716 1,925,971 3,623,055
<TOTAL-REVENUES> 824,716 1,925,971 3,623,055
<CGS> 412,369 967,506 1,766,305
<TOTAL-COSTS> 412,369 967,506 1,766,305
<OTHER-EXPENSES> 763,758 1,278,746 1,954,977
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 25,844 49,568 80,196
<INCOME-PRETAX> (377,255) (369,849) (178,423)
<INCOME-TAX> (60,726) (36,082) 39,887
<INCOME-CONTINUING> (316,529) (333,767) (218,310)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (4,610)
<CHANGES> 0 0 0
<NET-INCOME> (316,529) (333,767) (222,920)
<EPS-BASIC> 0.87 (0.92) 0.63
<EPS-DILUTED> 0.87 (0.92) 0.63
</TABLE>
