<PAGE>
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-71587
SUPPLEMENT
DATED APRIL 16, 1999
TO
----------------
MATTEL, INC.
AND
THE LEARNING COMPANY, INC.
JOINT PROXY STATEMENT/PROSPECTUS
----------------
The following information supplements and should be read in conjunction with
the joint proxy statement/prospectus dated March 26, 1999 of Mattel, Inc. and
The Learning Company, Inc., previously furnished to stockholders of Mattel and
Learning Company. This supplement contains information regarding certain recent
developments relating to Mattel, selected historical financial data of Mattel
and Learning Company as of and for the year ended December 31, 1998, and
updated unaudited pro forma financial data of Mattel as of and for the years
ended December 31, 1996, 1997 and 1998. The purpose of this supplement is to
provide you with this additional information. To the extent information in this
supplement differs from or conflicts with information contained in the joint
proxy statement/prospectus, this supplement supersedes and replaces the
information in the joint proxy statement/prospectus.
This supplement is being furnished to record holders of Mattel common stock
as of March 15, 1999, in connection with the solicitation of proxies by the
board of directors of Mattel for use at a special meeting of stockholders of
Mattel to be held on May 7, 1999 and at any and all adjournments or
postponements of the Mattel special meeting, and record holders of Learning
Company common stock as of March 15, 1999, in connection with the solicitation
of proxies by the board of directors of Learning Company for use at the special
meeting of stockholders of Learning Company to be held on May 7, 1999 and at
any and all adjournments or postponements of the Learning Company special
meeting. The Mattel and Learning Company special meetings are being held to
consider and vote upon proposals to approve and adopt the Agreement and Plan of
Merger, dated as of December 13, 1998, between Mattel and Learning Company
under which Learning Company will be merged with and into Mattel, with Mattel
being the surviving corporation.
Please see the section entitled "Risk Factors" on page 19 of the joint proxy
statement/prospectus for a discussion of risks associated with the merger.
Neither the United States Securities and Exchange Commission nor any state
securities commission has approved or disapproved the Mattel common stock to be
issued in the merger or determined if this supplement to the joint proxy
statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
This supplement is dated April 16, 1999 and is expected to be first mailed to
stockholders on April 17, 1999. This supplement should be read in conjunction
with the joint proxy statement/prospectus dated March 26, 1999.
<PAGE>
Recent Developments
On April 15, 1999, Mattel reported a net loss of $17.9 million or $.07 per
share for the quarter ended March 31, 1999, compared to net income of $12.7
million or $.04 per share in the first quarter of 1998. Net sales for the first
quarter of 1999 were $692.1 million, down 2.0% from $705.2 million in the first
quarter of 1998. Mattel's profitability was affected by the addition of
Pleasant Company, due to the $.04 per share impact of goodwill amortization and
interest costs related to the acquisition of that company. Increased sales,
general and administrative expense levels were also a factor in the first
quarter of 1999 and are being addressed through a business realignment and a
restructuring described below. Mattel's gross margin was 45.8% for the first
quarter of 1999, compared to 45.9% for the first quarter of 1998. On a
comparable basis, excluding the impact of Pleasant Company, inventories were
down by $31 million from the first quarter of 1998, and accounts receivable
were down by $116 million.
Mattel also announced that a planned realignment of its operations to reduce
overhead and advertising costs would include the closure of certain of its
facilities and a workforce reduction affecting over 3,000 positions, or more
than 10% of Mattel's current employees. Based on such actions and the
anticipated completion of the merger of Mattel and Learning Company, Mattel
reported that it expects to incur a pre-tax charge of approximately $300
million to $350 million to be taken in the second quarter of 1999.
Approximately $75 million of the one-time charge is expected to be related to
merger transaction costs, approximately $90 million is expected to be related
to merger integration costs, and $135 million to $185 million is expected to be
related to Mattel restructuring costs. Mattel expects the combined actions to
result in cost savings of approximately $50 million in 1999 and at least $400
million over the following three years. However, the amount of the expected
cost savings are preliminary estimates and there can be no assurance that
Mattel's actions will result in such cost savings. See "Risk Factors" on pages
19 to 23 of the joint proxy statement/prospectus.
On April 15, 1999, Mattel also announced that it will spend an initial $50
million to launch an Internet venture, which is expected to result in the
creation of a new subsidiary later this year, a portion of which may be offered
to the public. Mattel expects that it will be able to offset a portion of its
investment in the Internet venture with cost savings from the restructuring
discussed above. Mattel's goal is to create a premier online destination and E-
commerce site to better serve children and their families. Mattel's strategy to
reach this goal is premised on attracting consumers to its sites by bringing
together the branded proprietary content of both Mattel and Learning Company at
one "Mattel.com" Web destination. After the merger with Learning Company,
Mattel expects to have over 80 websites and a database of approximately 25
million consumers.
1
<PAGE>
Selected Historical and Selected Unaudited Pro Forma Combined Financial Data
We are providing the following information to aid you in your analysis of the
financial aspects of the merger. This information is only a summary and you
should read it in conjunction with the historical and unaudited pro forma
combined financial statements and related notes that are incorporated by
reference or included in this supplement or the joint proxy
statement/prospectus. See "Where You Can Find More Information" on page 110 of
the joint proxy statement/prospectus or "Mattel Unaudited Pro Forma Condensed
Combined Financial Statements" on page 6 of this supplement.
Selected Financial Data of Mattel
Mattel's historical financial data for the annual periods presented below is
derived from its audited consolidated financial statements previously filed
with the Securities and Exchange Commission.
Mattel merged with Tyco Toys, Inc. in March 1997. This acquisition was
accounted for as a pooling of interests, which means that for accounting and
financial reporting purposes, Mattel and Tyco Toys, Inc. treated their
companies as if they had always been combined. Per share data also reflects the
retroactive effect of stock splits distributed to Mattel common stockholders in
January 1995 and March 1996.
Mattel's net income applicable to common shares for the year ended December
31, 1997 includes a $4.6 million extraordinary charge related to the loss on
early retirement of long-term debt in connection with Mattel's merger with Tyco
Toys, Inc.
Mattel's book value per common share represents Mattel's stockholders'
equity, adjusted for the liquidation preference of Mattel Series C preferred
stock, divided by the outstanding number of common shares.
<TABLE>
<CAPTION>
As of or For the Year Ended
--------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales........................ $3,971.2 $4,369.8 $4,535.3 $4,834.6 $4,781.9
Income from continuing operations
applicable to common shares..... 217.8 331.3 364.8 279.3 324.3
Net income applicable to common
shares.......................... 217.8 331.3 364.8 274.7 324.3
Income per common share--basic:
Income from continuing
operations.................... 0.74 1.13 1.26 0.96 1.11
Net income..................... 0.74 1.13 1.26 0.95 1.11
Income per common share--diluted:
Income from continuing
operations.................... 0.73 1.11 1.23 0.94 1.10
Net income..................... 0.73 1.11 1.23 0.93 1.10
Dividends declared per common
share........................... 0.15 0.19 0.24 0.27 0.31
Consolidated Balance Sheet Data:
Total assets..................... $3,150.4 $3,341.4 $3,581.1 $3,803.8 $4,262.2
Long-term liabilities............ 606.4 721.7 633.3 808.3 1,124.8
Stockholders' equity............. 1,385.8 1,551.7 1,805.9 1,822.1 1,820.2
Book value per common share...... 6.02
</TABLE>
2
<PAGE>
Selected Financial Data of Learning Company
Learning Company's historical financial data for the fiscal years 1995, 1996,
1997 and 1998 is derived from its audited consolidated financial statements
previously filed with the Securities and Exchange Commission. Learning
Company's historical financial data for the year ended December 31, 1994 is
unaudited. That financial data was prepared from the previously separate
audited financial statements of Learning Company and Broderbund Software, Inc.
Learning Company acquired Broderbund Software, Inc. on August 31, 1998 and
accounted for the acquisition as a pooling of interests, which means that for
accounting and financial reporting purposes, Learning Company and Broderbund
Software, Inc. treated their companies as if they had always been combined. As
a result, Learning Company restated its financial statements for the year ended
December 31, 1994 to include Learning Company's previously audited financial
data for its fiscal year and Broderbund Software, Inc.'s previously audited
financial data for its fiscal year ended August 31, 1994.
Learning Company's book value per common share represents Learning Company's
stockholders' equity, adjusted for the liquidation preference of Learning
Company Series A preferred stock, divided by the outstanding number of common
shares.
<TABLE>
<CAPTION>
As of or For the Year Ended
---------------------------------------
1994 1995 1996 1997 1998
------ -------- ------ ------ ------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net sales............................ $233.1 $ 338.6 $529.5 $620.9 $839.3
Income (loss) from continuing
operations applicable to common
shares.............................. 32.2 (35.1) (376.5) (494.9) (105.3)
Net income (loss) applicable to
common shares....................... 32.2 (35.1) (376.5) (494.9) (105.3)
Income (loss) per common share--
basic:
Income (loss) from continuing
operations........................ 0.94 (0.86) (6.56) (7.48) (1.28)
Net income (loss) ................. 0.94 (0.86) (6.56) (7.48) (1.28)
Income (loss) per common share--
diluted:
Income (loss) from continuing
operations........................ 0.90 (0.86) (6.56) (7.48) (1.28)
Net income (loss) ................. 0.90 (0.86) (6.56) (7.48) (1.28)
Dividends declared per common share.. -- -- -- -- --
Consolidated Balance Sheet Data:
Total assets......................... $179.1 $1,047.2 $969.9 $623.8 $820.8
Long-term liabilities................ 16.8 550.5 574.9 377.6 292.6
Stockholders' equity................. 113.5 339.2 247.9 26.0 286.2
Book value per common share.......... 1.47
</TABLE>
3
<PAGE>
Selected Unaudited Pro Forma Combined Financial Data
We have provided selected unaudited financial data of Mattel after giving
effect to the merger, which is referred to as "pro forma" information. In
presenting this selected unaudited pro forma combined financial data, we
treated our companies as if they had always been combined for accounting and
financial reporting purposes. This method is known as the "pooling of
interests" method of accounting. We have prepared this information on a basis
consistent with the unaudited pro forma condensed combined financial statements
included in this supplement. You should be aware that this unaudited pro forma
information is presented for illustrative purposes only and may not be
indicative of the operating results or financial position that would have
occurred or that will occur after the consummation of the merger.
The unaudited pro forma combined income (loss) from continuing operations
applicable to common shares excludes the following:
. the positive effects of potential cost savings that the companies may
achieve upon combining the resources of Mattel and Learning Company;
. transaction costs of approximately $75 million to $85 million, including
investment banking, legal and accounting fees and contractual incentive
benefits; and
. merger integration and Mattel restructuring costs to be recognized in the
second quarter of 1999.
In addition, the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1998 sets forth the unaudited pro
forma results of operations of Mattel, Learning Company, and Mindscape, Inc. as
if the acquisition of Mindscape, Inc. by Learning Company, which occurred on
March 5, 1998, had occurred on January 1, 1998.
Unaudited pro forma combined income (loss) per share from continuing
operations is based upon the combined historical weighted average number of
common shares outstanding, after adjustment of Learning Company's historical
number of shares, assuming an exchange ratio of 1.2.
Unaudited pro forma dividends declared per common share are assumed to be the
same as the historical cash dividend declarations of Mattel. Learning Company
did not pay cash dividends on its common stock during the periods presented.
Unaudited pro forma condensed combined stockholders' equity as of December
31, 1998 includes the impact of transaction costs related to the merger and tax
benefits relating to Learning Company's net operating loss carryforwards and
deductible temporary differences and excludes the impact of merger integration
and Mattel restructuring costs to be recognized in the second quarter of 1999.
We calculated the unaudited pro forma combined book value per common share by
dividing the unaudited pro forma combined stockholders' equity, adjusted for
the liquidation preference of Mattel Series C preferred stock, by the unaudited
pro forma combined number of shares outstanding. We excluded the liquidation
preference of Learning Company Series A preferred stock from the calculation
because these shares will be converted into Learning Company common stock
immediately prior to the merger.
4
<PAGE>
<TABLE>
<CAPTION>
As of or For the Year
Ended
---------------------------
1996 1997 1998
-------- -------- --------
(In millions, except per
share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales......................................... $5,064.8 $5,455.5 $5,630.3
Income (loss) from continuing operations
applicable to common shares...................... 14.6 (188.6) 150.2
Income (loss) per common share from continuing
operations--basic................................ 0.04 (0.51) 0.38
Income (loss) per common share from continuing
operations--diluted.............................. 0.04 (0.51) 0.36
Dividends declared per common share............... 0.24 0.27 0.31
Consolidated Balance Sheet Data:
Total assets...................................... $4,607.0 $4,512.9 $5,147.4
Long-term liabilities............................. 1,208.2 1,185.9 1,417.4
Stockholders' equity.............................. 2,109.8 1,933.4 2,120.8
Book value per common share....................... 4.88
</TABLE>
Learning Company Unaudited Pro Forma Equivalents
The Learning Company pro forma equivalent income (loss) per common share from
continuing operations, dividends declared per common share and book value per
common share are computed by multiplying the unaudited pro forma amounts for
the combined company by an assumed exchange ratio of 1.2.
<TABLE>
<CAPTION>
As of or For the
Year Ended
-------------------
1996 1997 1998
----- ------ -----
<S> <C> <C> <C>
Unaudited Pro Forma Equivalents:
Income (loss) per common share from continuing
operations--basic........................................ $0.05 $(0.61) $0.45
Income (loss) per common share from continuing
operations--diluted...................................... 0.05 (0.61) 0.43
Dividends declared per common share....................... 0.29 0.32 0.37
Book value per common share............................... 5.86
</TABLE>
5
<PAGE>
MATTEL
Unaudited Pro Forma Condensed Combined
Financial Statements
We have provided unaudited condensed combined financial statements of Mattel
after giving effect to the merger, which are referred to as "pro forma"
information. In presenting these unaudited pro forma condensed combined
financial statements, we treated our companies as if they had always been
combined for accounting and financial reporting purposes. This method is known
as the "pooling of interests" method of accounting. You should be aware that
these unaudited pro forma condensed combined financial statements are presented
for illustrative purposes only and may not be indicative of the operating
results or financial position that would have occurred or that will occur after
the consummation of the merger.
We have provided an unaudited pro forma condensed combined balance sheet as
of December 31, 1998 that includes the impact of transaction costs related to
the merger and tax benefits relating to Learning Company's net operating loss
carryforwards and deductible temporary differences. The impact of merger
integration and Mattel restructuring costs to be recognized in the second
quarter of 1999 are not included in this balance sheet.
We have also provided unaudited pro forma condensed combined statements of
operations for the years ended December 31, 1996, 1997, and 1998 assuming the
merger had occurred as of January 1, 1996. The unaudited pro forma condensed
combined statements of operations for all periods presented exclude the
positive effects of potential cost savings that the companies may achieve upon
combining the resources of Mattel and Learning Company, transaction costs of
approximately $75 to $85 million, including investment banking, legal and
accounting fees and contractual incentive benefits, and merger integration and
Mattel restructuring costs to be recognized in the second quarter of 1999.
On March 5, 1998, Learning Company purchased Mindscape, Inc. Since the
acquisition of Mindscape, Inc. is material to Learning Company's results of
operations, we have included the preacquisition results of Mindscape, Inc. in
the unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1998 as if the acquisition had occurred on January 1,
1998.
Subsequent to the acquisition of Mindscape, Inc., in a letter dated September
9, 1998 to the American Institute of Certified Public Accountants, the Chief
Accountant of the Securities and Exchange Commission reiterated the views of
the staff of the Securities and Exchange Commission on certain appraisal
practices employed in the determination of the fair value of in-process
technology and other intangible assets. Learning Company had discussions in
March 1999 with the staff concerning the application of the methodology to the
valuation of the incomplete technology and other intangible assets as detailed
in the September 9, 1998 letter from the Chief Accountant of the Securities and
Exchange Commission, and as a result of these discussions, Learning Company
implemented the methodology. Learning Company restated its previously issued
results to reflect the discussions with the staff and to apply the appropriate
guidance and policies. The purchase price of Mindscape, Inc. has been allocated
by Learning Company based upon the application of the recent guidance and,
accordingly, Learning Company filed amended Quarterly Reports on Form 10-Q/A
for the first three quarters of 1998 restating the financial statements
contained therein. After applying the appropriate guidance and policy, the
allocation of the Mindscape, Inc. purchase price was changed for in-process
technology from $103 million to $40 million; for complete and core technology
from $13 million to $22 million; and for brands and trade names from $30
million to $38 million, resulting in a change to goodwill from $10 million to
$56 million.
The condensed historical statements of operations of Mattel are derived from
its audited consolidated financial statements previously filed with the
Securities and Exchange Commission in Mattel's 1998 Annual Report on Form 10-K.
The condensed historical statements of operations of Learning Company are
derived from its audited consolidated financial statements previously filed
with the Securities and Exchange Commission in Learning Company's 1998 Annual
Report on Form 10-K.
6
<PAGE>
MATTEL
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
----------------- --------------------
Learning
Mattel Company Adjustments Combined
-------- -------- ----------- --------
(In millions)
<S> <C> <C> <C> <C>
ASSETS
------
Current Assets:
Cash, cash equivalents and marketable
securities........................... $ 212.5 $256.8 $ -- $ 469.3
Accounts receivable, net.............. 983.0 167.0 -- 1,150.0
Inventories........................... 584.4 59.9 -- 644.3
Prepaid expenses and other current
assets............................... 277.9 56.5 -- 334.4
-------- ------ ----- --------
Total current assets................ 2,057.8 540.2 -- 2,598.0
-------- ------ ----- --------
Property, plant and equipment, net...... 736.5 26.7 -- 763.2
Other noncurrent assets................. 1,467.9 253.9 64.4(a) 1,786.2
-------- ------ ----- --------
Total Assets........................ $4,262.2 $820.8 $64.4 $5,147.4
======== ====== ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings and current
portion of long-term liabilities..... $ 167.5 $ 75.1 $ -- $ 242.6
Accounts payable, accrued liabilities
and income taxes payable............. 1,149.7 166.9 50.0(b) 1,366.6
-------- ------ ----- --------
Total current liabilities........... 1,317.2 242.0 50.0 1,609.2
-------- ------ ----- --------
Long-term debt.......................... 983.5 191.2 -- 1,174.7
Other long-term liabilities............. 141.3 101.4 -- 242.7
-------- ------ ----- --------
Total long-term liabilities......... 1,124.8 292.6 -- 1,417.4
-------- ------ ----- --------
Stockholders' equity.................... 1,820.2 286.2 14.4(c) 2,120.8
-------- ------ ----- --------
Total Liabilities and Stockholders'
Equity............................. $4,262.2 $820.8 $64.4 $5,147.4
======== ====== ===== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
7
<PAGE>
MATTEL
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------- ---------------------
Learning
Mattel Company Mindscape Adjustments Combined
-------- -------- ---------------- ----------- --------
(Preacquisition)
(In millions, except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales............... $4,781.9 $ 839.3 $ 9.1 $ -- $5,630.3
Cost of sales......... 2,418.9 289.0 9.8 -- 2,717.7
-------- ------- ------ ------ --------
Gross Profit............ 2,363.0 550.3 (0.7) -- 2,912.6
Advertising and
promotion expenses... 813.3 104.4 12.5 -- 930.2
Other selling and
administrative
expenses............. 882.1 262.6 11.8 -- 1,156.5
Amortization of
intangibles.......... 41.9 88.2 2.6 2.6(d) 135.3
Charge for incomplete
technology........... -- 56.8 -- -- 56.8
Restructuring and
other charges........ -- 113.3 16.6 -- 129.9
Special charge........ 44.0 -- -- -- 44.0
Interest expense...... 110.8 17.6 -- -- 128.4
Other expense
(income), net........ 5.8 (18.8) -- -- (13.0)
-------- ------- ------ ------ --------
Income (Loss) from
Continuing Operations
Before Income Taxes.... 465.1 (73.8) (44.2) (2.6) 344.5
Provision for income
taxes................ 132.8 31.5 1.1 20.9(e) 186.3
-------- ------- ------ ------ --------
Income (Loss) from
Continuing Operations.. 332.3 (105.3) (45.3) (23.5) 158.2
Preferred stock
dividend
requirements......... 8.0 -- -- -- 8.0
-------- ------- ------ ------ --------
Income (Loss) from
Continuing Operations
Applicable to Common
Shares................. $ 324.3 $(105.3) $(45.3) $(23.5) $ 150.2
======== ======= ====== ====== ========
Basic Income (Loss) Per
Common Share(f):
Income (Loss) Per Share
from Continuing
Operations............. $ 1.11 $ (1.28) $ 0.38
======== ======= ========
Average Number of Common
Shares................. 291.5 82.3 397.0
======== ======= ========
Diluted Income (Loss)
Per Common Share(f):
Income (Loss) Per Share
from Continuing
Operations............. $ 1.10 $ (1.28) $ 0.36
======== ======= ========
Average Number of Common
and Common Equivalent
Shares................. 303.2 82.3 436.3
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
8
<PAGE>
MATTEL
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
----------------- ----------------------
Learning
Mattel Company Adjustments Combined
-------- -------- ----------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net Sales............................. $4,834.6 $ 620.9 $ -- $5,455.5
Cost of sales....................... 2,434.6 201.3 -- 2,635.9
-------- ------- ------ --------
Gross Profit.......................... 2,400.0 419.6 -- 2,819.6
Advertising and promotion expenses.. 779.1 67.3 -- 846.4
Other selling and administrative
expenses........................... 797.0 216.1 -- 1,013.1
Amortization of intangibles......... 32.2 455.0 -- 487.2
Charge for incomplete technology.... -- 20.3 -- 20.3
Restructuring and other charges..... 275.0 68.6 -- 343.6
Interest expense.................... 90.1 22.5 -- 112.6
Other expense (income), net......... 1.5 (6.3) -- (4.8)
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Extraordinary Item
and Income Taxes..................... 425.1 (423.9) -- 1.2
Provision (benefit) for income
taxes.............................. 135.3 71.0 (27.0)(e) 179.3
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Extraordinary
Item................................. 289.8 (494.9) 27.0 (178.1)
Preferred stock dividend
requirements....................... 10.5 -- -- 10.5
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Extraordinary Item
Applicable to Common Shares.......... $ 279.3 $(494.9) $ 27.0 $ (188.6)
======== ======= ====== ========
Basic Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations Before
Extraordinary Item................... $ 0.96 $ (7.48) $ (0.51)
======== ======= ========
Average Number of Common Shares....... 290.5 66.2 369.9
======== ======= ========
Diluted Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations Before
Extraordinary Item................... $ 0.94 $ (7.48) $ (0.51)
======== ======= ========
Average Number of Common and Common
Equivalent Shares.................... 295.7 66.2 369.9
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
9
<PAGE>
MATTEL
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
------------------ ----------------------
Learning
Mattel Company Adjustments Combined
-------- -------- ----------- --------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net Sales......................... $4,535.3 $ 529.5 $ -- $5,064.8
Cost of sales................... 2,315.5 159.2 -- 2,474.7
-------- ------- ------ --------
Gross Profit...................... 2,219.8 370.3 -- 2,590.1
Advertising and promotion
expenses....................... 778.9 35.1 -- 814.0
Other selling and administrative
expenses....................... 772.3 162.2 -- 934.5
Amortization of intangibles..... 32.5 434.5 -- 467.0
Charge for incomplete
technology..................... -- 56.7 -- 56.7
Restructuring and other
charges........................ -- 12.3 -- 12.3
Interest expense................ 100.2 26.7 -- 126.9
Other (income), net............. (0.9) (9.3) -- (10.2)
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Income Taxes... 536.8 (347.9) -- 188.9
Provision (benefit) for income
taxes.......................... 164.6 28.6 (26.3)(e) 166.9
-------- ------- ------ --------
Income (Loss) from Continuing
Operations....................... 372.2 (376.5) 26.3 22.0
Preferred stock dividend
requirements................... 7.4 -- -- 7.4
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Applicable to Common
Shares........................... $ 364.8 $(376.5) $ 26.3 $ 14.6
======== ======= ====== ========
Basic Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations............ $ 1.26 $ (6.56) $ 0.04
======== ======= ========
Average Number of Common Shares... 290.4 57.4 359.2
======== ======= ========
Diluted Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations............ $ 1.23 $ (6.56) $ 0.04
======== ======= ========
Average Number of Common and
Common Equivalent Shares......... 303.1 57.4 368.2
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
10
<PAGE>
MATTEL
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed combined financial statements assume a
business combination between Mattel and Learning Company accounted for using
the pooling of interests method and are based upon the respective historical
financial statements and the accompanying notes of Mattel and Learning Company,
as well as the historical financial statements of Mindscape, Inc.
According to the merger agreement, each share of Learning Company common
stock will be exchanged for not less than 1.0 or more than 1.2 shares of Mattel
common stock. Subject to the minimum and maximum, the exact exchange ratio of
shares of Mattel common stock received for shares of Learning Company common
stock will be determined by dividing $33.00 by the average of the closing
prices of Mattel common stock on the New York Stock Exchange for the random
trading days. Learning Company Series A preferred stock will be converted into
the right to receive a number of shares of Mattel common stock equal to the
exchange ratio multiplied by 20, which is the rate at which Learning Company
Series A preferred stock is convertible into Learning Company common stock.
Because the transaction has not been completed, the costs of the merger can
only be estimated at this time. The unaudited pro forma condensed combined
statements of operations for all periods presented exclude the positive effects
of potential cost savings that the companies may achieve upon combining the
resources of Mattel and Learning Company, transaction costs of approximately
$75 to $85 million, including investment banking, legal and accounting fees and
contractual incentive benefits, and merger integration and Mattel restructuring
costs to be recognized in the second quarter of 1999.
The unaudited pro forma condensed combined balance sheet as of December 31,
1998 includes the impact of all transactions, whether of a recurring or
nonrecurring nature, that can be reasonably estimated and should be reflected
as of that date. The impact of merger integration and Mattel restructuring
costs to be recognized in the second quarter of 1999 are not included in this
balance sheet.
Certain historical Learning Company and Mindscape, Inc. results have been
reclassified to conform with Mattel's basis of presentation.
2. Pro Forma Adjustments
Intercompany Transactions--There were no material intercompany transactions
that required elimination from the unaudited pro forma condensed combined
statements of operations or balance sheet.
Balance Sheet
(a) Other Noncurrent Assets--The unaudited pro forma condensed combined
balance sheet has been adjusted to reflect the recognition of the estimated tax
benefits related to Learning Company's net operating loss carryforwards and
deductible temporary differences under the combined company's income tax
position.
(b) Accounts Payable, Accrued Liabilities, and Income Taxes Payable--The pro
forma adjustment in the amount of $50 million, net of taxes, reflects accruals
in connection with the estimated transaction costs of $75 million related to
the merger. These costs are not considered in the unaudited pro forma condensed
combined statements of operations. These estimated transaction costs will be
charged against the results of operations during the quarter in which the
merger becomes effective.
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MATTEL
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements (Continued)
(c) Stockholders' Equity--Stockholders' equity has been adjusted to reflect
the following:
--Common stock accounts are adjusted for the assumed issuance of
approximately 122.7 million shares of Mattel common stock in exchange for
approximately 87.3 million shares of Learning Company common stock, and
0.8 million shares of Learning Company Series A preferred stock, which is
convertible into 15.0 million shares of Learning Company common stock as of
December 31, 1998, assuming an exchange ratio of 1.2. The number of shares
of Mattel common stock to be issued at the effective time of the merger
will be based upon the actual number of shares of Learning Company common
stock and Learning Company Series A preferred stock outstanding at that
time and the actual exchange ratio.
--Additional paid-in capital is adjusted for the effects of issuance of
shares of Mattel common stock having a $1.00 par value per share in
exchange for Learning Company Series A preferred stock and Learning Company
common stock, each having a $0.01 par value per share, and the recognition
of the tax benefits related to the exercise of Learning Company non-
qualified stock options due to utilization of Learning Company's net
operating losses in the unaudited pro forma condensed combined statements
of operations.
--Retained earnings is adjusted for the effects of:
(1) accrual for the minimum of the estimated range for transaction
costs related to the merger;
(2) compensation expense related to the Learning Company restricted
common stock; and
(3) recognition of estimated tax benefits from the assessment of income
tax valuation allowances under the combined company's expected
income tax position.
Statement of Operations
(d) Amortization of Intangibles--In connection with its acquisition of
Mindscape, Inc., Learning Company recorded goodwill and other intangible
assets, which reflected the allocation of the purchase price paid to brand and
trade names and complete technology. The pro forma adjustment reflects the
amortization of the identifiable intangible assets acquired and goodwill over
their estimated useful lives on a straight-line basis. The estimated useful
lives of brand and trade names, completed technology and products, and goodwill
are 10, 2 and 10 years, respectively.
(e) Provision (Benefit) for Income Taxes--The unaudited pro forma adjustment
reflects 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 in the
unaudited pro forma condensed combined financial statements due to the combined
company's expected income tax position.
(f) Income (Loss) per Common Share--Historical and unaudited pro forma per
share data of Mattel and Learning Company include the retroactive effects of
the March 1997 merger of Tyco Toys, Inc. into Mattel, and the August 1998
merger of Broderbund Software, Inc. into Learning Company, each accounted for
as a pooling of interests. Unaudited pro forma weighted average common shares
outstanding for all periods presented are based upon Mattel's and Learning
Company's combined historical weighted average shares, adjusted for dilutive
common stock equivalents, as appropriate, and after adjustment of Learning
Company's historical number of shares assuming an exchange ratio of 1.2.
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<PAGE>
CAPITALIZATION OF MATTEL AND LEARNING COMPANY
The following unaudited table sets forth the capitalization of Mattel and
Learning Company as of December 31, 1998, and as adjusted to give effect to the
merger and related transactions. See "The Merger Agreement" on page 71 of the
joint proxy statement/prospectus.
<TABLE>
<CAPTION>
As of December 31, 1998
-----------------------------------------
Historical Pro Forma(a)
------------------- --------------------
Learning
Mattel Company Adjustments Combined
-------- --------- ----------- --------
(In millions)
<S> <C> <C> <C> <C>
Short-term debt, including current
maturities......................... $ 167.5 $ 75.1 $ -- $ 242.6
-------- --------- ------ --------
Long-term debt, net of current
maturities:
6 3/4% senior notes, due 2000..... 100.0 -- -- 100.0
5 1/2% senior convertible notes,
due 2000......................... -- 191.2 -- 191.2
6% senior notes, due 2003......... 150.0 -- -- 150.0
6 1/8% senior notes, due 2005..... 150.0 -- -- 150.0
Medium-Term notes................. 540.5 -- -- 540.5
Mortgage note..................... 43.0 -- -- 43.0
-------- --------- ------ --------
Total long-term debt............ 983.5 191.2 -- 1,174.7
-------- --------- ------ --------
Stockholders' equity:
Mattel Series C preferred stock... 0.8 -- -- 0.8
Mattel special voting preferred
stock(b)......................... -- -- -- --
Learning Company Series A
preferred stock(c)(d)............ -- -- -- --
Mattel common stock(d)............ 300.4 -- 122.7 423.1
Learning Company common stock(d).. -- 0.8 (0.8) --
Learning Company special voting
stock(b)......................... -- -- -- --
Additional paid-in capital(e)..... 482.6 1,428.4 (83.6) 1,827.4
Treasury stock.................... (495.3) -- -- (495.3)
Retained earnings (accumulated
deficit)(f)...................... 1,724.6 (1,138.1) (23.9) 562.6
Accumulated other comprehensive
loss............................. (192.9) (4.9) -- (197.8)
-------- --------- ------ --------
Total stockholders' equity...... 1,820.2 286.2 14.4 2,120.8
-------- --------- ------ --------
Total capitalization................ $2,971.2 $ 552.5 $ 14.4 $3,538.1
======== ========= ====== ========
</TABLE>
- --------
(a) The pro forma adjustments and resulting combined amounts reflect the
actions to be taken at the effective time of the merger to (1) convert all
issued and outstanding shares of Learning Company common stock into shares
of Mattel common stock; and (2) convert all issued and outstanding shares
of Learning Company Series A preferred stock into shares of Mattel common
stock.
(b) One share of Mattel special voting preferred stock, $1.00 par value, will
be issued in exchange for one share of Learning Company special voting
stock, $1.00 par value, at the effective time of the merger. The share of
Learning Company special voting stock has a number of votes equal to the
number of outstanding exchangeable shares. The exchangeable shares are
exchangeable at the option of the holders on a one-for-one basis for
approximately 5.2 million shares of Learning Company common stock, as of
December 31, 1998, without additional payment. As a result of the merger,
the number of shares of Mattel common stock to be obtained upon exchange
will be approximately 6.2 million shares, assuming an exchange ratio of
1.2.
(c) The aggregate par value of Learning Company Series A preferred stock
outstanding is immaterial in terms of data rounded to tenths of millions of
dollars.
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<PAGE>
(d) The approximate number of shares of Mattel common stock assumed exchanged
in the merger was based upon 87.3 million shares of Learning Company common
stock and 0.8 million shares of Learning Company Series A preferred stock,
which is convertible into approximately 15.0 million shares of Learning
Company common stock, that were issued and outstanding as of December 31,
1998.
(e) Additional paid-in capital is adjusted for the effects of issuance of
Mattel common stock having a $1.00 par value per share in exchange for
Learning Company common stock and Learning Company Series A preferred
stock, each having a $0.01 par value per share, and the recognition of
income tax benefits related to the exercise of Learning Company non-
qualified stock options due to the utilization of Learning Company's net
operating losses in the unaudited pro forma condensed combined statements
of operations.
(f) The net decrease in retained earnings principally relates to the pro forma
accrual for estimated costs and expenses directly related to the
transaction, partially offset by recognition of income tax benefits of
losses incurred by Learning Company that have been adjusted subject to the
combined company's expected income tax position. See Note 1--Basis of
Presentation to the Unaudited Pro Forma Condensed Combined Financial
Statements.
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