<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): May 13, 1999
MATTEL, INC.
------------
(Exact name of registrant as specified in its charter)
Delaware 001-05647 95-1567322
- ------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File No.) 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
--------------
N/A
- ------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
------------------------------------
On May 13, 1999, pursuant to an Agreement and Plan of Merger, dated as of
December 13, 1999 (the "Merger Agreement"), between Mattel, Inc. ("Mattel") and
The Learning Company, Inc. ("Learning Company"), Learning Company was merged
with and into Mattel, with Mattel as the surviving corporation (the "Merger").
Learning Company developed and published a broad range of high-quality branded
consumer software for personal computers that educated across every age
category, from young children to adults.
Pursuant to the Merger Agreement, each outstanding share of common stock of
Learning Company, $.01 par value per share ("Learning Company Common Stock"),
was converted into the right to receive 1.2 shares of common stock of Mattel,
$1.00 par value per share ("Mattel Common Stock"). The formula in the Merger
Agreement for determining the exchange ratio was determined through arm's length
negotiations. Based on the capitalization of Learning Company as of May 13,
1999, the former Learning Company stockholders have the right to receive
approximately 126 million shares of Mattel Common Stock. No fractional shares
are issuable in the Merger. Learning Company stockholders otherwise entitled to
receive a fraction of a share of Mattel Common Stock in the Merger instead are
entitled to receive, pursuant to the Merger Agreement, an amount of cash equal
to such fraction multiplied by $26.15, which is the average of the closing
prices of the Mattel Common Stock on the New York Stock Exchange for 10 randomly
selected trading days out of the 20 trading days ending on the fifth trading day
preceding the Merger. All options to purchase Learning Company Common Stock
outstanding immediately prior to the Merger were assumed by Mattel and converted
into options to purchase Mattel Common Stock pursuant to the Merger Agreement.
Additionally, pursuant to the Merger Agreement, each outstanding exchangeable
non-voting share of Learning Company's Canadian subsidiary, Softkey Software
Products Inc., remains outstanding, but under the terms of the exchangeable
shares, becomes exchangeable into 1.2 shares of Mattel Common Stock.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
The financial statements of Learning Company set forth on pages 34 through
60 of Learning Company's Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), on Form 10-K
for the fiscal year ended January 2, 1999 filed with the Securities and Exchange
Commission on April 2, 1999 are filed as Exhibit 99.1 hereto pursuant to Rule
12b-23(a)(3) of the Exchange Act. The financial statements of Learning Company
for the three-month period ended April 3, 1999 are filed as Exhibit 99.4 hereto.
(b) Pro Forma Financial Information.
-------------------------------
The Unaudited Pro Forma Condensed Combined Financial Statements of Mattel
and Learning Company for the years ended December 31, 1996, 1997 and 1998 are
filed as Exhibit 99.2 hereto. The unaudited Pro Forma Condensed Combined
Financial Statements of Mattel and Learning Company as of and for the three-
month periods ended March 31, 1998 and 1999 are filed as Exhibit 99.5 hereto.
(c) Exhibits.
--------
2.1 Agreement and Plan of Merger dated as of December 13, 1998, between
Mattel and Learning Company (incorporated by reference to Exhibit 2.1
of Mattel's Current Report on Form 8-K filed December 15, 1998)
23.1** Consent of PricewaterhouseCoopers LLP
<PAGE>
99.1** Financial Statements of Learning Company
99.2** Unaudited Pro Forma Condensed Combined Financial Statements of
Mattel and Learning Company
99.3** Press Release dated May 13, 1999
99.4* Financial Statements of Learning Company for Three-month Period
Ended April 3, 1999
99.5* Unaudited Pro Forma Condensed Combined Financial Statements of
Mattel and Learning Company as of and for the Three-month Periods
Ended March 31, 1998 and 1999
----------
* Filed herewith.
** Previously filed.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MATTEL, INC.
Registrant
By: /s/ Robert Normile
-------------------------
Robert Normile
Date: June 9, 1999 Senior Vice President, General Counsel and
------------ Secretary
<PAGE>
EXHIBIT 99.4
THE LEARNING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 191,863 $ 256,759
Accounts receivable (less allowances for
returns of $101,419 and $83,873, respectively) 188,646 167,001
Inventories 79,901 59,912
Prepaid expenses and other current assets 89,953 56,514
------------ ---------------
Total current assets 550,363 540,186
PROPERTY, PLANT AND EQUIPMENT
Machinery and equipment 58,701 57,203
Leasehold improvements 15,761 15,757
------------ ---------------
74,462 72,960
Less: accumulated depreciation 48,559 46,296
------------ ---------------
Property, plant and equipment, net 25,903 26,664
OTHER NONCURRENT ASSETS
Intangible assets, net 218,557 225,282
Other assets 30,334 28,669
------------ ---------------
$ 825,157 $ 820,801
============ ===============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings $ 65,000 $ 65,000
Current portion of long-term liabilities - 148
Accounts payable 42,058 69,046
Accrued liabilities 103,691 97,824
Income taxes payable 101,211 93,805
------------ ---------------
Total current liabilities 311,960 325,823
------------ ---------------
LONG-TERM LIABILITIES
5-1/2% senior notes 200,955 200,955
Other long-term obligations 6,462 7,837
------------ ---------------
Total long-term liabilities 207,417 208,792
------------ ---------------
STOCKHOLDERS' EQUITY
Series A preferred stock 8 8
Common stock 876 873
Additional paid-in capital 1,443,478 1,440,620
Deferred compensation (11,933) (12,265)
Retained deficit (1,115,834) (1,138,099)
Other comprehensive loss (10,815) (4,951)
------------ ---------------
Total stockholders' equity 305,780 286,186
------------ ---------------
$ 825,157 $ 820,801
============ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
THE LEARNING COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net Sales $ 186,843 $ 179,336
Cost of sales 65,083 63,366
---------- ----------
Gross Profit 121,760 115,970
Advertising and promotion expenses 24,708 21,094
Other selling and administrative expenses 50,080 58,301
Amortization of intangibles 9,856 41,887
Charge for incomplete technology - 40,000
Restructuring and other charges 3,889 15,230
Interest expense 4,272 6,702
Other income, net (6,307) (2,332)
---------- ----------
Income (Loss) Before Income Taxes 35,262 (64,912)
Provision for Income Taxes: 12,997 --
---------- ----------
Net Income (Loss) $ 22,265 $ (64,912)
========== ==========
Net Income (Loss) Per Share -
Basic $ 0.24 $ (0.93)
Diluted $ 0.20 $ (0.93)
Weighted Average Number
of Shares Outstanding -
Basic 91,939,000 69,430,000
Diluted 112,052,000 69,430,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
THE LEARNING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 22,265 $ (64,912)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Noncash restructuring and integration -- 4,000
Depreciation 2,282 2,825
Amortization 9,959 41,887
Charge for incomplete technology -- 40,000
Increase (decrease) from changes in net assets and liabilities:
Accounts receivable (21,645) 12,728
Inventories (19,989) (2,101)
Prepaid expenses and other current assets (5,398) (1,060)
Accounts payable, accrued liabilities and income taxes payable (24,322) 9,493
Other, net (6,018) 780
----------------- -----------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES (42,866) 43,640
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of other property, plant and equipment (1,522) (6,141)
Proceeds from sale of investments 7,218 --
Payment for acquisitions, net of cash acquired -- (116,972)
Software development costs (28,000) (6,156)
----------------- -----------------
NET CASH USED FOR INVESTING ACTIVITIES (22,304) (129,269)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (330) (6,266)
Exercise of stock options including related tax benefit 3,045 14,427
Proceeds from the issuance of special warrants, net -- 134,346
Other, net (584) (2,207)
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,131 140,300
----------------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,857) (207)
----------------- -----------------
EFFECT OF BRODERBUND EXCLUDED PERIOD -- 1,348
----------------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (64,896) 55,812
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 256,759 188,956
----------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $191,863 $ 244,768
================= =================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
THE LEARNING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Common stock issued to acquire Mindscape $ -- $ 30,000
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
THE LEARNING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of The Learning Company, Inc. ("TLC" or
the "Company") for the three months ended March 31, 1999 and 1998 are unaudited
and reflect all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair presentation of the
results for the interim periods. These consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
previously filed with the Securities and Exchange Commission (the "SEC") in the
Company's Annual Report on Form 10-K, as amended, for the fiscal year ended
January 4, 1999. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results for the entire year ending
December 31, 1999.
The first quarter reporting period for 1999 ended on April 3, 1999, and the
first quarter reporting period for 1998 ended on April 4, 1998. The periods
from January 3, 1999 to April 3, 1999 and from January 4, 1998 to April 4, 1998
are referred to as the "First Quarter 1999" and the "First Quarter 1998" or the
"Three Months Ended March 31, 1999" and the "Three Months Ended March 31, 1998",
respectively, throughout these financial statements.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make assumptions regarding items
such as return reserves and allowances, net realizable value of intangible
assets and valuation allowances for deferred tax assets that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates in
these financial statements include: return reserves, inventory reserves,
valuation of deferred tax assets and valuation and useful lives of intangible
assets. Actual results could differ from these estimates.
2. BORROWINGS
On August 7, 1998, the Company amended its revolving line of credit (the "Line")
to provide a maximum availability of $147,500, of which $40,000 was outstanding
at March 31, 1999 and was subsequently repaid. Borrowings under the Line are
due July 1, 2000 and bear interest at variable rates. The Line is subject to
certain financial covenants and is secured by a general security interest in
certain operating subsidiaries of the Company and by a pledge of the stock of
certain of its subsidiaries. Upon consummation of the May 1999 merger with
Mattel, Inc. ("Mattel"), all outstanding borrowings under the Line were repaid
and the agreement was terminated by Mattel.
3. COMPREHENSIVE INCOME (LOSS)
Effective January 4, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income." The Company's comprehensive
income (loss) was as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------
1999 1998
------------------- ---------------------
<S> <C> <C>
Net income (loss) $22,265 $(64,912)
Other comprehensive loss (5,864) (2,760)
------------------- ---------------------
Total comprehensive income (loss) $16,401 $(67,672)
=================== =====================
</TABLE>
Other comprehensive loss represents losses on foreign currency translation and
unrealized gains and losses on investments.
<PAGE>
4. INVENTORIES
Inventories are stated at the lower of weighted average cost or net realizable
value and include third-party assembly costs, CD-ROM discs, manuals and an
allocation of fixed overhead.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- ------------------
<S> <C> <C>
Components $ 5,797 $ 5,622
Finished goods 74,104 54,290
------- -------
$79,901 $59,912
======= =======
</TABLE>
5. COMPUTATION OF EARNINGS PER SHARE
Dilutive income per share is computed using the weighted average number of
shares of the Company's common stock outstanding during the period, plus the
dilutive effect of common stock equivalents. Common stock equivalents consist of
convertible debentures, preferred stock, stock options and warrants. The
dilutive computations do not include common stock equivalents for the Three
Months Ended March 31, 1998, as their inclusion would be antidilutive. Dilutive
elements would include the 750,000 shares of Series A Convertible Participating
Preferred Stock (which is ultimately convertible into 15,000,000 shares of
common stock) issued on December 5, 1997, special warrants to acquire 8,687,500
exchangeable non-voting shares of Softkey Software Products Inc., the Company's
Canadian subsidiary, and employee stock options totaling 12,483,000 at March 31,
1998.
6. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The statement requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value, gains or
losses, depends on the intended use of the derivative and its resulting
designation. The statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company will adopt SFAS No. 133 by January
1, 2001 and does not expect SFAS No. 133 to have a material impact on its
financial statements.
In December 1998, AcSEC issued SOP 98-9, "Software Revenue Recognition, with
Respect to Certain Arrangements," which required recognition of revenue using
the "residual method" in a multiple element arrangement when fair value does not
exist for one or more of the undelivered elements in the arrangement. Under the
"residual method," the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2. The Company does not
expect the adoption of SOP 98-9 will have a material impact on its results of
operations.
7. SUBSEQUENT EVENTS
Mattel Merger
Pursuant to an Agreement and Plan of Merger, dated as of December 13, 1998, a
merger was consummated between Mattel and TLC on May 13, 1999. The stock-for-
stock transaction was approved by the stockholders of both companies, after
which TLC was merged with and into Mattel, with Mattel being the surviving
corporation. Under the terms of the merger agreement, each share of TLC Series A
Preferred Stock was converted into 20 shares of TLC common stock just prior to
the consummation of the merger. Each outstanding share of TLC common stock was
then converted into the right to receive 1.2 shares of Mattel common stock. As a
result, approximately 126 million Mattel common shares will be issued in
exchange for all shares of TLC common stock outstanding as of the merger date.
The outstanding share of TLC special voting stock was converted into the right
to receive one share of Mattel Special Voting Preferred Stock. Each outstanding
exchangeable non-voting share of TLC's Canadian subsidiary, Softkey Software
Products Inc., remains outstanding, but becomes exchangeable into the right to
receive 1.2 shares of Mattel common stock.
<PAGE>
Exhibit 99.5
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 March 31, 1999 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 three-month periods ended March 31, 1998 and 1999 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 statement of operations for the
three-month period ended March 31, 1998 as if the acquisition had occurred on
January 1, 1998.
The historical financial statements of Mattel as of and for the three-month
periods ended March 31, 1998 and 1999 are derived from Mattel's unaudited
consolidated financial statements previously filed with the Securities and
Exchange Commission on Forms 10-Q and 10-Q/A. The historical financial
statements of Learning Company as of and for the three-month period ended March
31, 1998 are derived from Learning Company's unaudited consolidated financial
statements previously filed with the Securities and Exchange Commission on Form
10-Q/A. The historical financial statements of Learning Company as of and for
the three-month period ended March 31, 1999 are derived from Learning Company's
unaudited consolidated financial statements previously filed with the Securities
and Exchange Commission on Mattel's Form 8-K/A filed on June 9, 1999. These
financial statements were prepared in accordance with generally accepted
accounting principles applied to interim financial information. In the opinion
of Mattel's and Learning Company's management, all adjustments necessary for a
fair presentation of financial information for such interim periods have been
included.
<PAGE>
Mattel
Unaudited Pro Forma Condensed Combined Balance Sheet
As of March 31, 1999
<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 $ 50.2 $191.9 $ - $ 242.1
Accounts receivable, net 880.4 188.6 - 1,069.0
Inventories 567.6 79.9 - 647.5
Prepaid expenses and other current assets 290.7 90.0 37.3 (a) 418.0
----------- ------------ ------------ -----------
Total current assets 1,788.9 550.4 37.3 2,376.6
----------- ------------ ------------ -----------
Property, plant and equipment, net 733.5 25.9 - 759.4
Other noncurrent assets 1,454.9 248.9 27.2 (a) 1,731.0
----------- ------------ ------------ -----------
Total Assets $3,977.3 $825.2 $64.5 $4,867.0
=========== ============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings and current portion of long-
term liabilities $ 292.8 $ 65.0 $ - $ 357.8
Accounts payable, accrued liabilities and income
taxes payable 796.0 246.9 49.3 (b) 1,092.2
----------- ------------ ------------ -----------
Total current liabilities 1,088.8 311.9 49.3 1,450.0
----------- ------------ ------------ -----------
Long-term debt 983.4 201.0 - 1,184.4
Other long-term liabilities 148.9 6.5 - 155.4
----------- ------------ ------------ -----------
Total long-term liabilities 1,132.3 207.5 - 1,339.8
----------- ------------ ------------ -----------
Stockholders' equity 1,756.2 305.8 15.2 (c) 2,077.2
----------- ------------ ------------ -----------
Total Liabilities and Stockholders' Equity $3,977.3 $825.2 $64.5 $4,867.0
=========== ============ ============ ===========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
Mattel
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- -------------------------
Learning
Mattel Company Adjustments Combined
--------- ---------- -------------- ---------
(In millions, except per share data)
<S> <C> <C> <C> <C>
Net Sales $692.1 $186.8 $ - $878.9
Cost of sales 375.4 65.0 - 440.4
------- ---------- ----------- --------
Gross Profit 316.7 121.8 - 438.5
Advertising and promotion expenses 92.0 24.7 - 116.7
Other selling and administrative expenses 209.4 50.1 - 259.5
Amortization of intangibles 13.1 9.9 - 23.0
Restructuring and other charges - 3.9 - 3.9
Interest expense 24.9 4.3 - 29.2
Other expense (income), net 2.3 (6.3) - (4.0)
------- ---------- ----------- --------
(Loss) Income from Continuing Operations Before
Income Taxes (25.0) 35.2 - 10.2
(Benefit) provision for income taxes (7.2) 13.0 (0.7) (e) 5.1
------- ---------- ----------- --------
(Loss) Income from Continuing Operations (17.8) 22.2 0.7 5.1
Preferred stock dividend requirements 2.0 - - 2.0
------- ---------- ----------- --------
(Loss) Income from Continuing Operations Applicable to
Common Shares $(19.8) $ 22.2 $ 0.7 $ 3.1
======= ========== =========== ========
Basic (Loss) Income Per Common Share (f):
(Loss) Income Per Share from Continuing Operations $(0.07) $ 0.24 $ 0.01
======= ========== ========
Average Number of Common Shares 286.2 91.9 396.5
======= ========== ========
Diluted (Loss) Income Per Common Share (f):
(Loss) Income Per Share from Continuing Operations $(0.07) $ 0.20 $ 0.01
======= ========== ========
Average Number of Common and Common Equivalent
Shares 286.2 112.1 422.3
======= ========== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed combined
financial statements.
<PAGE>
Mattel
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 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 $705.1 $179.4 $ 9.1 $ - $ 893.6
Cost of sales 381.2 63.4 9.8 - 454.4
--------- -------- ----------- ------------- -----------
Gross Profit 323.9 116.0 (0.7) - 439.2
Advertising and promotion expenses 98.0 21.1 12.5 - 131.6
Other selling and administrative expenses 183.8 58.3 11.8 - 253.9
Amortization of intangibles 7.7 81.9 2.6 2.6 (d) 94.8
Restructuring and other charges - 15.2 16.6 - 31.8
Interest expense 16.4 6.7 - - 23.1
Other expense (income), net 0.2 (2.3) - - (2.1)
--------- -------- ----------- ------------- -----------
Income (Loss) from Continuing Operations Before
Income Taxes 17.8 (64.9) (44.2) (2.6) (93.9)
Provision for income taxes 5.1 - 1.1 3.7 (e) 9.9
--------- -------- ----------- ------------- -----------
Income (Loss) from Continuing Operations 12.7 (64.9) (45.3) (6.3) (103.8)
Preferred stock dividend requirements 2.0 - - - 2.0
--------- -------- ----------- ------------- -----------
Income (Loss) from Continuing Operations Applicable to
Common Shares $ 10.7 $(64.9) $(45.3) $(6.3) $(105.8)
========= ======== =========== ============= ===========
Basic Income (Loss) Per Common Share (f):
Income (Loss) Per Share from Continuing Operations $ 0.04 $(0.93) $ (0.27)
========= ======== ===========
Average Number of Common Shares 293.0 69.4 387.2
========= ======== ===========
Diluted Income (Loss) Per Common Share (f):
Income (Loss) Per Share from Continuing Operations $ 0.04 $(0.93) $ (0.27)
========= ======== ===========
Average Number of Common and Common Equivalent
Shares 298.2 69.4 387.2
========= ======== ===========
See accompanying notes to unaudited pro forma condensed combined financial statements.
</TABLE>
<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.
Each share of Learning Company series A preferred stock was converted into 20
shares of Learning Company common stock just prior to consummation of the
merger. According to the merger agreement, each outstanding share of Learning
Company common stock was then converted into the right to receive 1.2 shares of
Mattel common stock.
Although the transaction has 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 March 31, 1999
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 Current and 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 in the second quarter of 1999.
<PAGE>
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
123 million shares of Mattel common stock in exchange for approximately 102
million shares of Learning Company common stock (which includes shares of
Learning Company common stock issued upon conversion prior to the merger of
Learning Company Series A preferred stock at the rate of 20 common shares for
each preferred share outstanding as of March 31, 1999) using the exchange
ratio of 1.2.
--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 brands and trade
names and completed technology and products. 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 brands 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 effect of the
August 1998 merger of Broderbund Software, Inc. into Learning Company 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 using the exchange ratio of 1.2.
