SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: February 11, 2000
MATTEL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-05647 95-1567322
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File No.) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 252-2000
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N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
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Following the release of earnings on February 3, 2000,
the Company commented on its fourth quarter and full
year 1999 results in a conference call. The following
are the comments made by Kevin M. Farr, Senior Vice
President and Corporate Controller, during that call:
Today we reported earnings per share of 43 cents for full
year 1999, before nonrecurring charges, which was lower than
our previous estimate due to continuing issues involving our
Learning Company software division. The full year pretax
loss of $205.5 million at the Learning Company division
impacted the earnings per share by 36 cents for full year
1999. So - in order to better understand Mattel's
consolidated fourth quarter and full year 1999 results,
I will separately discuss the performance of Mattel on a
stand-alone basis and then that of The Learning Company.
Revenues for the 1999 full year for Mattel stand-alone
reached $4.7 billion, a 1% decline over the 1998 full year.
In local currencies revenues were virtually flat with last
year. Revenues in the fourth quarter of 1999 for Mattel
stand-alone were $1.6 billion, a 4% increase over the 1998
fourth quarter. Sales in the US were up 13%. In
International, sales were down 9% at actual, and 3% at local
currency.
Gross margin, for Mattel stand-alone, while strong at 47.8%
for the full year, were 1.6% points lower than last year.
Fourth quarter gross margin reached 48.5%, a 2.2% decrease
compared to last year's quarter. The decrease for the year
and quarter was principally due to the mix of our business,
higher ocean freight costs and slightly higher product costs
due to strengthening currencies in countries where we
manufacture.
Advertising, as a percentage of net sales for the full year
was 15.4% of net sales, which was slightly lower than our
expected full year advertising and promotion rate of 15.5%
for Mattel on a stand-alone basis - a significant decrease
from the 17.0% rate for full year 1998. Advertising , as a
percentage of net sales for the 1999 fourth quarter was
19.1%, a decrease of 3.7% over the 1998 quarter.
Selling, general and administrative expenses for Mattel
stand-alone, on a full year basis, increased slightly to
18.9% of net sales. In the fourth quarter, selling, general
and administrative costs declined over 6% to 16.9% of net
sales, reflecting the favorable impact resulting from the
restructuring efforts.
Operating profit before goodwill amortization for Mattel, on
a stand-alone basis, was 13.6% for the full year 1999
compared to 13.8% last year. For the fourth quarter,
operating profit before amortization reached 12.9%, a 3.6%
increase over last years 9.3%.
Turning to The Learning Company, revenue was down 40% to
$165 million, compared to the fourth quarter last year,
primarily resulting from lower CD ROM sales at retail and
unfavorable product pricing. On a full year basis, The
Learning Company's revenues decreased by 8% to $771 million
for the same factors previously mentioned. As a result,
gross margin decreased to 43% of net sales for the full
year.
In addition, advertising expenses increased during 1999 to
27.7% of net sales, up from 12.4% in 1998 due to increased
customer rebates.
Increased bad debt reserves of $56 million, primarily
involving one major distributor, also contributed to the
operating loss for the year. As a result, operating loss
before amortization of intangibles was $166 million for full
year 1999 compared to a profit of $202 million in the 1998
year.
On a Mattel and Learning Company combined basis, other
income in the fourth quarter 1999 decreased by approximately
$6 million, mainly due to lower interest income resulting
from lower cash balances at The Learning Company.
On a consolidated basis, amortization of intangibles totaled
$92 million relating primarily to the 1998 acquisitions of
Pleasant Company and Mindscape.
Consolidated interest expense increased by approximately $23
million for the year, primarily due to the funding of The
Learning Company's cash requirements.
Our full year tax rate for 1999, before charges, was 22.6%,
which was 2.1% lower than our tax rate of 24.7% for the
first nine months. The decrease in the 1999 full year
worldwide effective income tax rate was attributable to
domestic losses incurred by The Learning Company, which
result in tax benefits at a rate higher than Mattel's
worldwide effective income tax rate. We expect that the
income tax rate for year 2000 will be 27.6%, our previously
projected rate for 1999.
Turning to the balance sheet, cash decreased approximately
$194 million compared to year end 1998, primarily due to
payment of restructuring and integration costs and repayment
of Learning Company's short-term debt.
Receivables of $1.27 billion were approximately $120 million
higher than year end 1998, principally related to the
cancellation of The Learning Company's $100 million
factoring facility.
Inventories were down by approximately $100 million with
days supply outstanding improving by 25 days to 100 days.
Excluding The Learning Company, inventories at Mattel were
actually down by over $130 million due to tight inventory
management, with days supply outstanding improving by 34
days on a stand-alone basis.
Prepaid expenses decreased approximately $41 million,
primarily due to the reclassification of certain deferred
income tax assets related to operating losses to non-current
assets, partially offset by higher prepaid royalties and
development costs.
Other non-current assets increased by approximately $208
million, mainly due to increased non-current deferred tax
assets related to operating losses, partially offset by
amortization of goodwill.
Short-term borrowings were up approximately $170 million,
primarily due to the funding of The Learning Company's cash
requirements.
Note:
Forward-looking statements with respect to the financial
condition, results of operations and business of the company,
which include, but are not limited to sales levels,
restructuring and integration charges, special charges,
other non-recurring charges, cost savings, operating
efficiencies and profitability, are subject to certain risks
and uncertainties that could cause actual results to differ
materially from those set forth in such statements. These
include without limitation: the company's dependence on the
timely development, introduction and customer acceptance of
new products; significant changes in buying patterns of major
customers; possible weaknesses of international markets; the
impact of competition on revenues and margins; the company's
ability to successfully integrate the operations of
The Learning Company following its merger into the company;
the effect of currency fluctuations on reportable income;
unanticipated negative results of litigation, governmental
proceedings or environmental matters; and other risks and
uncertainties as may be detailed from time to time in the
company's public announcements and SEC filings.
Mattel, Inc. also hereby incorporates by reference herein
its press release dated February 3, 2000 regarding
management changes and its fourth quarter and full year
1999 earnings, a copy of which is included as Exhibit
99.0 attached hereto.
<PAGE>
Item 7. Financial Statements and Exhibits
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(a) Financial statements of businesses acquired: None
(b) Pro Forma financial information: None
(c) Exhibits:
99.0 Press release dated February 3, 2000
SIGNATURES
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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/ Christopher O'Brien
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Christopher O'Brien
Assistant General Counsel
and Assistant Secretary
Date: February 11, 2000
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<PAGE>
EXHIBIT 99.0
FOR IMMEDIATE RELEASE CONTACT: Mattel, Inc.
February 3, 2000 News Media Investor Relations
Glenn Bozarth Jessica Fisher
310-252-3521 310-252-2703
-- Mattel Reports 1999 Results --
- - Full-Year EPS of $0.43 per share, before one-time charges,
includes $206 million pretax loss from The Learning Company
-
- Core brands report strong sales and earnings -
-Jill Barad resigns; outside directors assume interim
chairman and chief executive officer roles pending
results of Korn/Ferry International search for
replacement; committee of key executives to oversee day-
to-day operations -
LOS ANGELES, February 3, 2000 - Mattel, Inc. (NYSE: MAT)
today announced 1999 earnings of $182.1 million, or $0.43
per share, before one-time charges, and net sales of $5.5
billion. For the fourth quarter, the company reported net
loss of $18.4 million, or $0.04 per share, and net sales of
$1.8 billion. In addition, Jill E. Barad resigned as
chairman and chief executive officer of the company,
effective today.
Continuing issues involving The Learning Company depressed
Mattel's results in the quarter and the year. A slowdown in
CD-Rom sales, leading to inventory problems and discounting,
led to a fourth quarter pre-tax loss of $183 million for The
Learning Company. For the year, The Learning Company
represented a pretax loss, before restructuring charges, of
$206 million.
Ms. Barad stated, "The continued problems at The Learning
Company are at the root of our disappointing overall
performance. Unfortunately, this distracts from the very
real gains achieved in our core brands."
Ms. Barad continued, "Fisher-Price, Barbie and Mattel
Entertainment's performances in the fourth quarter validate
our strategy of consolidating leading brand positions by
offering an improved product mix, a streamlined brand
management structure, and enhanced competitiveness."
"The Board of Directors and I view the performance of The
Learning Company, and its effect on our results, as
unacceptable. Therefore, the Board and I have agreed that
today I resign from the positions of chairman and chief
executive officer of Mattel and as a member of the company's
Board."
With Ms. Barad's resignation, the company's Board has taken
charge of the company to oversee operations and coordinate
the search for a new chief executive officer. The Board has
appointed directors William D. Rollnick acting chairman and
Ronald M. Loeb acting chief executive officer. They in turn
will work closely with the Board's executive committee who,
in addition to them, include John L. Vogelstein, chairman,
and Tully M. Friedman.
The company's day-to-day operations will be managed by a
newly formed Office of the Chief Operating Officer,
comprised of key executives currently in charge of Mattel's
major brands: Adrienne Fontanella, president of Barbie and
Girls products; Matt Bousquette, president of Boys and
Entertainment; Neil Friedman, president of Infant and
Preschool; Bernard Stolar, who was recently named president
of Mattel Interactive; and Pleasant Rowland, founder and
chief executive officer of Pleasant Company. The Office of
the Chief Operating Officer will report to Mr. Loeb.
Further, Mattel announced that Richard Ferry of Korn/Ferry
International is actively conducting a search for a new
chief executive officer.
Mr. Loeb said "On behalf of everyone at Mattel, including
the Board, we thank Jill for over twenty years of service
with the company. We want to focus on this company's
enormous strengths. We have a healthy core business,
excellent customer relations, and a cadre of proven senior
management who will, with the Board, guide Mattel forward.
We are confident that our search for a world-class chief
executive will be successfully concluded quickly."
Fourth Quarter Highlights:
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Fourth quarter results for Mattel's core brands represent an
endorsement of the strategy that the company implemented. In
total, U.S. shipping for Mattel's products increased 13%.
Operating margins for the fourth quarter improved by 400
basis points for Mattel stand-alone, and were virtually flat
for the year at 13.6%, compared with 13.8% the previous
year, before amortization.
U.S. sales of Barbie rose by 11% for the quarter, with a 90%
sell through. Mattel Entertainment capitalized on the
success of the sequel to "Toy Story" to grow sales in excess
of 70%. U.S. Fisher-Price enjoyed a 48% rise in sales.
Despite major competition for Wheels from Pokemon in the
fourth quarter, the franchise capitalized on its
international strength to increase international sales by
20%. Total worldwide Wheels sales were up 6% for the year.
Other international results suffered from industry-wide
trends, especially the shift amongst European retailers to
just-in-time inventory management. Results for the region
closely mirrored the company's U.S. performance in 1998,
when domestic retailers implemented the same system. In the
fourth quarter, international sales declined by 8%, and 3%
before the impact of exchange.
Turning to The Learning Company, revenue was down 40% to
$165 million, compared to the fourth quarter last year,
primarily resulting from slower CD-Rom sales at retail and
unfavorable pricing in the quarter.
The 1999 full-year net results include charges totaling $265
million after tax relating to integration, restructuring and
other non-recurring costs. Net results for 1998 included
after-tax charges totaling $163 million.
Under Mr. Stolar, a comprehensive review of Mattel
Interactive is underway to identify substantial
opportunities to improve operating productivity and realize
cost savings. The company said that, following the review,
the company will undertake a restructuring program and take
a substantial restructuring charge in the first quarter, of
between $75 million and $100 million before tax.
Mattel, Inc. is a worldwide leader in the design,
manufacture and marketing of family products. With
headquarters in El Segundo, California, Mattel has offices
and facilities in 36 foreign countries and sells its
products in more than 150 nations throughout the world.
Note:
Forward-looking statements included in this release with
respect to the financial condition, results of operations and
business of the company, which include, but are not limited to
sales levels, restructuring and integration charges, special
charges, other non-recurring charges, cost savings and operating
efficiencies and profitability, are subject to certain risks and
uncertainties that could cause actual results to differ materially
from those set forth in such statements. These include without
limitation: the company's dependence on the timely development,
introduction and customer acceptance of new products;
significant changes in buying patterns of major customers;
possible weaknesses of international markets; the impact of
competition on revenues and margins; the company's ability to
successfully integrate the operations of The Learning Company
following its merger into the company; the effect of currency
fluctuations on reportable income; unanticipated negative
results of litigation, governmental proceedings or
environmental matters; and other risks and uncertainties as
may be detailed from time to time in the Company's public
announcements and SEC filings.
<PAGE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED YEAR ENDED
------------------------- -------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
(In thousands, except per share amounts) 1999 1998 (a) 1999 1998 (a)
- ---------------------------------------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 1,770,590 $ 1,818,355 $5,514,950 $5,621,207
Cost of sales 987,834 850,270 2,913,910 2,707,904
----------- ---------- ---------- ----------
Gross Profit 782,756 968,085 2,601,040 2,913,303
Advertising and promotion expenses 396,285 381,734 945,955 917,665
Other selling and administrative expenses 354,353 361,248 1,190,915 1,144,801
Charge for incomplete technology (b) - - - 56,826
Restructuring and other (credits) charges (c) (2,893) 24,109 345,996 157,314
Other income, net (5,694) (11,893) (14,539) (13,092)
----------- ---------- ---------- ----------
Operating Profit Before Amortization 40,705 212,887 132,713 649,789
Amortization of intangibles 26,654 26,324 91,847 129,689
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Operating Profit 14,051 186,563 40,866 520,100
Interest expense 49,146 44,859 151,609 128,468
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Income (Loss) Before Income Taxes (35,095) 141,704 (110,743) 391,632
(Benefit) provision for income taxes (16,674) 53,006 (28,370) 185,579
----------- ---------- ---------- ----------
Net Income (Loss) (18,421) 88,698 (82,373) 206,053
Less: dividends on convertible preferred stock - 1,990 3,980 7,960
----------- ---------- ---------- ----------
Net Income (Loss) Applicable to Common Shares $ (18,421) $ 86,708 $ (86,353) $ 198,093
=========== ========== ========== ==========
Net Income (Loss) Per Share - Basic (c)(d) $ (0.04) $ 0.22 $ (0.21) $ 0.51
=========== ========== ========== ==========
Average Number of Common Shares
Outstanding - Basic (d) 425,680 397,237 414,186 390,210
=========== ========== ========== ==========
Net Income (Loss) Per Share - Diluted (c)(d) $ (0.04) $ 0.20 $ (0.21) $ 0.47
=========== ========== ========== ==========
Average Number of Common and Common
Equivalent Shares Outstanding - Diluted (d) 425,680 424,296 414,186 421,707
=========== ========== ========== ==========
</TABLE>
<TABLE>
MATTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
Dec. 31, Dec. 31,
(In thousands) 1999 1998 (a)
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ASSETS
<S> <C> <C>
Cash $ 275,024 $ 469,213
Accounts receivable, net 1,270,005 1,150,051
Inventories 544,296 644,270
Prepaid expenses and other current assets 330,702 371,772
----------- -----------
Total current assets 2,420,027 2,635,306
Property, plant and equipment, net 749,494 763,121
Other assets 1,957,501 1,748,958
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Total Assets $ 5,127,022 $ 5,147,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Short-term borrowings $ 369,549 $ 199,006
Current portion of long-term liabilities 3,173 33,666
Accounts payable and accrued liabilities 1,186,483 1,111,304
Income taxes payable 258,319 299,058
----------- -----------
Total current liabilities 1,817,524 1,643,034
Senior notes 600,955 600,955
Medium-term notes 540,500 540,500
Long-term debt 42,380 43,007
Other long-term liabilities 162,976 149,086
Stockholders' equity 1,962,687 2,170,803
----------- -----------
Total Liabilities and Stockholders' Equity $ 5,127,022 $ 5,147,385
=========== ===========
<FN>
(a) Consolidated results are restated for the May 1999 merger with The Learning Company.
(b) Represents nonrecurring charges of $265 million and $163 million, net of taxes,
for integration, restructuring and other charges for the years ended December 1999
and 1998, respectively. The nonrecurring credit for the fourth quarter of 1999
represents net adjustments made to the restructuring and nonrecurring charges
recorded in the second quarter of 1999. Charges for the fourth quarter of 1998
represent restructuring and other nonrecurring charges of $16 million, net of taxes.
(c) Loss per share for the 1999 quarter was not materially impacted by the nonrecurring
credit. Income per share for the 1998 quarter, before the $0.04 per share effect
of the nonrecurring charges, was $0.24 per share. Income per share for the year
ended December 1999, before the $0.64 per share effect of the nonrecurring charges,
was $0.43 per share. Income per share for the year ended December 1998, before
the $0.39 per share effect of the nonrecurring charges, was $0.86 per share.
(d) Share and per share data for all periods presented reflect the retroactive effect
of shares issued pursuant to the merger with The Learning Company.
<PAGE>
</TABLE>
