Exhibit 13.0
Mattel, Inc. and Subsidiaries
CONTENTS
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FINANCIAL INFORMATION
---------------------
Five-Year Financial Summary Page 27
Management's Discussion and Analysis of Results of
Operations and Financial Condition Page 28
Consolidated Financial Statements Page 32
Notes to Consolidated Financial Statements Page 37
Management Report on Responsibility for Financial Page 51
Reporting
Report of Independent Accountants Page 51
CORPORATE INFORMATION
---------------------
Directors and Officers Page 52
Corporate Information Page 53
Mattel, Inc. and Subsidiaries
FIVE-YEAR FINANCIAL SUMMARY
---------------------------
For the Year (a)(b)
----------------------------------------------------------
(In thousands, except per share and percentage information) 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------
Operating Results:
Net sales $2,704,448 $2,563,525 $2,046,489 $1,497,312 $1,257,555
Gross profit 1,360,978 1,269,766 989,506 716,153 626,111
% of net sales 50% 50% 48% 48% 50%
Operating profit before integration and
restructuring charge 414,260 351,661 278,660 193,411 162,416
% of net sales 15% 14% 14% 13% 13%
Integration and restructuring charge (c) 115,000 - - - -
Income before income taxes, extraordinary item
and cumulative effect of changes in
in accounting principles 236,646 282,945 214,326 143,482 109,165
Provision for income taxes 100,735 98,104 80,288 47,900 27,200
Income before extraordinary item and
cumulative effect of changes in
accounting principles 135,911 184,841 134,038 95,582 81,965
Extraordinary item - loss on debt retirement (14,681) - (5,236) - (10,983)
Cumulative effect of changes in accounting principles (4,022) - - - -
Net income 117,208 184,841 128,802 95,582 70,982
Income Per Common Share (d):
Income before extraordinary item and cumulative effect
of changes in accounting principles
Primary 0.77 1.04 0.88 0.75 0.64
Fully diluted 0.75 1.02 0.85 0.74 0.63
Net income
Primary 0.66 1.04 0.84 0.75 0.55
Fully diluted 0.65 1.02 0.82 0.74 0.54
Dividends declared per common share (d) 0.18 0.15 0.08 0.04 -
As of Year-End (a)(b)
----------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------
Financial Position:
Cash and marketable securities $ 523,581 $ 327,807 $ 290,750 $ 204,349 $ 224,477
Accounts receivable, net 580,313 538,444 467,266 266,424 253,849
Inventories 219,993 238,895 225,411 152,134 118,056
Total assets 2,000,077 1,712,675 1,564,832 968,688 868,090
Notes payable to banks - 13,401 29,733 1,000 -
Long-term liabilities 398,939 434,930 353,575 229,070 244,144
Shareholders' equity 817,809 748,356 664,054 336,586 217,685
<FN>
(a) Consolidated financial information for 1993, 1992 and 1991 has been restated retroactively for the effects
of the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price. The results of
operations and financial position of Fisher-Price are excluded from periods prior to July 1, 1991, while
its business was operated as a division of The Quaker Oats Company (Note 2).
(b) The Company's financial reporting year ended on December 31 for years 1991 through 1993 and on the last
Saturday of December for years 1989 and 1990.
(c) The nonrecurring charge represents transaction, integration and restructuring costs related to the
Fisher-Price merger.
(d) Per share data reflect the retroactive effect of stock splits distributed to shareholders in January 1994,
June 1992 and November 1991 and the mergers with Fisher-Price and IGI in 1993 and 1992, respectively.
27
Mattel, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
-----------------------------------------------
OF OPERATIONS AND FINANCIAL CONDITION
-------------------------------------
This analysis should be read in conjunction with the consolidated
financial statements which begin on page 32.
The Company's dedication to its long-term business strategies,
which include strengthening its core product lines, expansion of its
international marketing and distribution network and constant focus on
increasing manufacturing efficiency and flexibility, has resulted in
another record year with net sales of over $2.7 billion. Mattel's
merger with Fisher-Price completed in the fourth quarter of 1993 is
consistent with these strategies and should further enhance the
Company's standing as a worldwide leader in the manufacture and
marketing of children's toys.
Results of Operations
- ---------------------
The following is a percentage analysis of operating results for the
past three years:
For the Year
---------------------
1993 1992 1991
---------------------
Net sales 100% 100% 100%
==== ==== ====
Gross profit 50 50 48
Advertising and promotion expenses 16 16 15
Other selling and administrative expenses 19 19 19
Integration and restructuring charge 4 - -
Other expense, net - 1 1
---- ---- ----
Operating profit 11 14 13
Interest expense 2 3 3
---- ---- ----
Income before income taxes, extraordinary item
and changes in accounting principles 9% 11% 10%
==== ==== ====
1993 Compared to 1992
- ---------------------
Net sales increased $140.9 million or 5% over 1992. In addition to
growth in core product sales, incremental volume was contributed by
sales of Nickelodeon-licensed toys and new product introductions such
as Baby Walk 'n Roll, Mighty Max, Sally Secrets and the Company's line
of McDonald's activity toys. The growth in worldwide net sales
includes unfavorable foreign currency impacts of $104.1 million and a
$57.5 million decrease in Nintendo volume as a result of terminations
of the Company's distributorship agreements for Nintendo products in
Australia in the 1993 fourth quarter and in Canada and Italy during the
first and third quarters of 1992, respectively.
Worldwide sales of core products, which include Barbie dolls, doll
clothes and accessories, Fisher-Price toys and juvenile products,
Disney-licensed toys, die-cast vehicles including Hot Wheels, large
dolls, preschool toys and the UNO and Skip-Bo card games, represented
86% of total revenues for both 1993 and 1992. In total, core brand
sales increased 6% over the prior year, with sales of Barbie products
exceeding $1.0 billion in volume. Fisher-Price contributed revenues
totaling $753.8 million in 1993 compared to $731.1 million in 1992.
Die-cast sales increased 24% and Disney-licensed product sales were 19%
higher than year-ago levels. These increases were partially offset by a
continuing decline in the large doll segment, which was 29% below the
prior year. Domestic sales grew 7%, and represented 60% of worldwide
gross revenues in 1993 compared to 59% in the prior year. Sales
internationally increased 4%, reflecting the unfavorable impacts of
foreign currency translation and the terminations of the
distributorship agreements for Nintendo products. At constant rates of
exchange, international revenues increased 15% over the prior year.
Excluding Nintendo, international sales grew 10% over 1992, or by 21%
at constant rates of exchange.
As a percentage of net sales, gross profit remained constant from
year to year. Advertising and promotion expenses, while constant as a
percentage of net sales, increased $23.3 million over 1992 levels in
support of increased sales of core brands and new product
introductions. The Company's expansion of its marketing operations and
manufacturing facilities resulted in a net increase in other selling
and administrative expenses of $6.5 million as compared to the prior
year, which included the effect of a $15.0 million pre-tax charge to
the provision for doubtful accounts related to the bankruptcy of Child
World and deteriorating financial condition of Lionel Leisure. Other
expense, net, decreased slightly, principally as a result of gains on
foreign currency transactions which were partially offset by
amortization of goodwill and losses on routine dispositions of fixed
assets.
In the 1993 fourth quarter, the Company recognized a $115.0
million pre-tax charge against continuing operations in connection with
its merger with Fisher-Price. Of the total, approximately $17.0
million represented transaction costs of the merger, including
investment banking, legal, accounting and related costs, and $30.0
million was related to the severance of key Fisher-Price executives.
Following the merger, the Company commenced restructuring and
integrating certain of the domestic and international business
operations of the entities. Of the estimated integration and
restructuring costs of $68.0 million, approximately $13.0 million
represented writedowns of fixed assets in connection with the
elimination of duplicative administration and plant facilities. The
remainder represented expenditures related to the combination of the
entities' worldwide business operations, including staff reductions and
outplacement expenses, costs of terminating contracts with lessors and
distributors
28
and fees paid to consultants in connection with the
integration and restructuring process. After related tax effects, the
net $90.4 million charge impacted 1993 earnings by $0.53 per share on a
primary basis and $0.50 per share on a fully diluted basis.
Although no assurance can be given, the Company anticipates its
integration and restructuring activities will provide cost savings of
approximately $45.0 million during 1994, principally as a result of
consolidation of facilities and related staff reductions. Available
cash reserves and cash flow generated from normal business operations
will fund the costs of the integration and restructuring, with no
adverse impact expected on the Company's future liquidity or financial
position. Of the total integration and restructuring charge accrued,
approximately $20.2 million had been expended as of December 31, 1993.
Interest expense decreased $6.1 million or 9%, reflecting a
general decline in interest rates and lower levels of short-term bank
borrowing, partially offset by interest on the 6-7/8% Senior Notes
issued in August 1992 and the 6-3/4% Senior Notes issued in May 1993.
Following the merger, the Company negotiated an agreement with the
lenders to permit prepayment of Fisher-Price's 10.69% term loan. The
prepayment resulted in an extraordinary net-of-tax charge in the 1993
fourth quarter of $14.7 million, or $0.08 per fully diluted share, for
the prepayment premium and write-off of unamortized issuance costs.
1992 Compared to 1991
- ---------------------
The Company's consolidated results of operations include the activities
of Fisher-Price for 12 months of 1992 and for the last 6 months of
1991. Prior to July 1, 1991, the business of Fisher-Price was operated
as a division of The Quaker Oats Company; therefore, any such prior
financial data have been excluded from the Company's combined
consolidated financial statements.
Net sales increased $517.0 million or 25% over 1991, including the
effect of a $314.6 million increase related to Fisher-Price for the 12
months of 1992 over the 6 months of 1991. Excluding Fisher-Price, the
Company's worldwide net sales increased $202.4 million or 12%. The
increase in combined net sales included favorable foreign currency
impacts of $26.5 million and an $86.4 million decrease in Nintendo
volume as a result of terminations of the Company's distributorship
agreements for Nintendo products in Canada and Italy during the first
and third quarters of 1992, respectively.
Worldwide sales of core products increased 30%, and represented
86% of total revenues in 1992 compared to 83% for the prior year.
Sales of Disney-licensed products grew 45% over 1991 volumes and Barbie
product sales were higher by 15%, while large dolls declined 17%.
Sales to customers in the United States were 59% of 1992 consolidated
revenues compared to 54% in the prior year. In total, domestic sales
increased 36%, partially attributable to Fisher-Price volume which
represented 33% and 24% of the Company's domestic sales for 1992 and
1991, respectively. Excluding Fisher-Price, domestic sales of the
Company grew 18%. Total international sales increased 13% compared to
1991; at constant rates of exchange, international sales increased 10%.
Fisher-Price volume represented 17% and 12% of the Company's
international sales for 1992 and 1991, respectively. Excluding Fisher-
Price, the Company's international volume increased 7%. International
revenues excluding Nintendo grew 26% over the prior year, or 23% at
constant rates of exchange.
Gross profit as a percentage of net sales increased two points to
50%, principally as a result of higher sales volume and an improved
product mix due to decreased Nintendo volume. Advertising and
promotion spending was $95.4 million over 1991 levels, in support of
increased sales of core brands, new product introductions, and further
development of markets internationally. The increase also reflects a
$45.0 million differential arising from the inclusion of Fisher-Price's
activity on a 12-month basis in 1992 versus a 6-month basis in 1991.
Other selling and administrative expenses increased $109.3
million, while remaining constant at 19% of net sales. The change in
comparison to the prior year reflects a $15.0 million pre-tax provision
for doubtful accounts receivable related to Child World and Lionel
Leisure, an increase in design and development expenses in connection
with the Company's expansion into new product lines and markets, and a
$61.1 million differential related to inclusion of Fisher-Price results
on full year basis compared to 6 months for 1991.
Other expense, net decreased as a result of a reduction in
goodwill amortization related to a change in the estimated period of
benefit and gains on sales of marketable securities, partially offset
by losses on foreign currency transactions. Interest expense for 1992
increased 3% over the prior year, reflecting higher levels of short-
term borrowing, issuance of the 6-7/8% Senior Notes in August 1992, and
a $4.6 million effect of the inclusion of Fisher-Price activity on a 12-
month basis compared to 6 months for 1991. These increases were
partially offset by a decrease related to retirement of the Company's
14-3/4% Subordinated Debentures in mid-1991.
Income Taxes
- ------------
The effective income tax rates for 1993 and 1992 were 42.57% and
34.67%, respectively. The increased effective rate for 1993 resulted
from certain nondeductible restructuring costs, increased taxable
income earned in locations with relatively higher tax rates, and a
reduction in the U.S. tax benefit of foreign tax credits associated
with current dividends from subsidiaries located in higher tax rate
countries. In both years, benefits from foreign tax credit
carryforwards were credited to additional paid-in capital to the extent
that they resulted from net operating loss carryforwards originating
prior to the Company's 1987 quasi-reorganization.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
which replaced Statement No. 96. Upon adoption, a deferred income tax
asset of $69.0 million was recorded, of which $16.0 million related to
postquasi-reorganization net operating losses carried forward, and
$53.0 million related principally to future tax
29
deductions, and foreign
tax credit and alternative minimum tax credit carryovers resulting from
activities prior to the quasi-reorganization. The benefit of $16.0
million (or $0.09 per fully diluted share in the 1993 first quarter)
was recognized in after-tax earnings as the cumulative effect of a
change in accounting principle. The remaining $53.0 million was
credited to additional paid-in capital in accordance with the required
accounting treatment for transactions resulting from activities prior
to the quasi-reorganization.
Financial Position
- ------------------
The Company's financial position remained strong in 1993 as a result of
profitable operating results and benefits of reduced levels of bank
borrowing. Working capital increased to $687.4 million, and as of year-
end, the Company had repaid all of its short-term borrowing. At
December 31, 1993, the Company's cash position, including marketable
securities, was $523.6 million, compared to $327.8 million as of the
prior year end, and exceeded outstanding long-term debt by $195.5
million.
Accounts receivable increased 8% over the prior year level,
reflecting increases in fourth quarter sales volume as well as early
shipping of 1994 product. Inventories decreased 8% compared to the
prior year-end, principally as a result of the termination of the
distribution agreements for Nintendo products.
The $60.8 million net increase in prepaid assets primarily
reflects the effect on deferred income tax assets from the Company's
adoption of Statement No. 109 in the 1993 first quarter, as well as
current tax benefits related to the prepayment of Fisher-Price's long-
term debt obligation.
The Company's capitalization is as follows:
(In millions) December 31, 1993 December 31, 1992
- -----------------------------------------------------------------------
6-7/8% Senior notes $ 99.5 8% $ 99.3 9%
6-3/4% Senior notes 100.0 8 - -
8% Convertible subordinated 74.0 6 97.5 8
debentures
Fisher-Price term loan - - 98.5 8
Other long-term debt
obligations 54.6 5 90.4 8
-------- ---- -------- ----
Total long-term debt 328.1 27 385.7 33
Other long-term liabilities 70.8 6 49.2 4
Shareholders' equity 817.8 67 748.4 63
-------- ---- -------- ----
$1,216.7 100% $1,183.3 100%
======== ==== ======== ====
Total long-term debt decreased as a percentage of total
capitalization principally as a result of voluntary conversions of 8%
Debentures into common stock by holders of the debt. Shareholders'
equity increased 9% over 1992 reflecting profitable operating results
for the current year, a credit of $24.3 million related to conversions
of the 8% Debentures, a $53.0 million credit to paid-in capital related
to the adoption of Statement No. 109, and an increase of $19.0 million
for activity related to employee stock compensation plans. These
increases were partially offset by treasury stock repurchases of $52.6
million, dividend declarations on common and preferred stock totaling
$33.8 million, a $41.1 million net-of-tax charge against paid-in
capital related to the cost of terminating a prequasi-reorganization
lease commitment and a $21.2 million unfavorable change in the currency
translation component of shareholders' equity.
In July 1992, two venture capital funds, of which Warburg, Pincus
& Co. ("Warburg") is the general partner, distributed to their
respective general and limited partners approximately 15.2 million
shares, representing 90 percent of the funds' shares of the Company's
common stock which had been beneficially owned by Warburg. Immediately
after the distribution, none of the general or limited partners held
more than 5 percent of the Company's outstanding shares of common
stock.
Liquidity
- ---------
Primary sources of liquidity for the Company over the last three years
have been cash flows generated from profitable operations, the proceeds
of long-term debt issuances, and short-term seasonal borrowing.
Operating activities generated cash flows of $303.3 million during
1993, compared to $131.6 million and $335.0 million in 1992 and 1991,
respectively.
Principal investing activities during 1993 included additions of
tooling, property and equipment at various manufacturing and office
facilities. In addition to fixed asset purchases to replenish
manufacturing and distribution facilities, investing activities during
1992 included the construction and start-up of a new manufacturing
facility in Indonesia and the $16.0 million payment of final purchase
consideration related to the Company's 1991 acquisition of Aviva Sport,
Inc. During 1991, in addition to its acquisition of Aviva Sport, Inc.,
the Company also acquired the remaining 60% interest in its joint
venture with a Mexico City-based group of companies.
Financing activities provided intermediate- and long-term funds
through issuances of the 6-3/4% Senior Notes in 1993, the 6-7/8% Senior
Notes in 1992 and 8% Debentures in 1991, which were utilized by the
Company to retire higher-cost debt and for seasonal financing
requirements. Cash outlays for treasury stock were made over the three-
year period in order to purchase shares for reissuance under the
Company's employee stock option plans and for potential conversions of
convertible securities. The Company has consistently increased cash
payments for common dividends over the three year period as a result of
its stock splits distributed to common shareholders.
Short-Term Financing
- --------------------
The Company's seasonal cash flow requirements for the coming year are
expected to be met by cash on hand as of December 31, 1993, cash
generated by 1994 operations, and short-term credit lines provided by
domestic and foreign banks. The Company's new domestic credit line
consists of unsecured facilities providing a total of $500.0 million in
seasonal financing from a commercial bank group. The facilities
provide up to $250.0 million for advances and backup for commercial
paper issuances (of which $125.0 million is a 364-day facility and the
other $125.0 million is a 3-year facility), and an additional
30
3-year facility providing up to $250.0 million for nonrecourse purchases
of certain trade accounts receivable by the bank group. In connection
with the agreement, the Company must comply with certain financial
covenants for consolidated debt-to-capital, interest coverage and
tangible net worth levels.
In addition, the Company expects to have available approximately
$170.0 million of individual short-term foreign credit lines with a
number of banks, which customarily are extended as needed to meet
seasonal working capital requirements.
Acquisitions
- ------------
On November 30, 1993, a merger was consummated between the Company and
Fisher-Price, Inc. ("Fisher-Price"), one of the world's largest
manufacturers and marketers of infant and preschool toys and juvenile
products. The stock-for-stock transaction was approved by the
shareholders of both companies, after which Fisher-Price became a
wholly-owned subsidiary of the Company. The merger agreement provided
for the exchange of 1.275 shares of Mattel common stock for each
outstanding Fisher-Price common share, and resulted in the issuance of
approximately 39.1 million pre-split shares valued, on the merger's
effective date, at $1.19 billion. This transaction has been accounted
for as a pooling of interests, and accordingly, financial information
for periods prior to the merger reflect retroactive restatement for the
companies' combined financial position and operating results. Prior to
July 1, 1991, the business of Fisher-Price was operated as a division
of The Quaker Oats Company, and therefore, any such financial data are
excluded from the Company's combined consolidated results presented
herein.
In connection with the merger, the Company recognized a one-time
charge of $115.0 million, pre-tax, representing transaction expenses of
the merger and projected costs of integrating the business operations
of the companies. Of this charge, approximately $17.0 million
represented investment banking, legal, accounting and other transaction
costs of the merger, approximately $30.0 million related to the
severance of key Fisher-Price executives, and the remainder represented
estimated costs of integration and restructuring activities necessary
to align the worldwide business operations of the combined company.
This one-time charge recognized in the 1993 fourth quarter was $90.4
million, net of related taxes, and reduced earnings per share for the
year by $0.53 per share and $0.50 per share on a primary and fully
diluted basis, respectively. Although no assurance can be given, the
Company anticipates its integration and restructuring activities will
provide cost savings of approximately $45.0 million during 1994,
principally as a result of consolidation of facilities and related
staff reductions. Available cash reserves and cash flow generated from
normal business operations will fund the costs of the integration and
restructuring; no adverse impact is expected with respect to the
Company's future liquidity or financial position.
In 1992, the Company concluded its merger with International
Games, Inc. ("IGI"), a creator, manufacturer and marketer of
proprietary family and educational card and board games, including UNO
and Skip-Bo. The merger, accounted for as a pooling of interests, was
effected by exchanging all of IGI's outstanding voting preferred and
common stock for 1,627,007 (post-split basis) shares of Mattel common
stock and 864,293 shares of Mattel 12.5% Convertible Preference Stock,
Series F, representing a combined value of $58.5 million.
Litigation
- ----------
The Company is involved in various litigation and other legal matters,
including claims related to product liability and environmental
cleanup, which are being addressed or defended in the ordinary course
of business. Management believes that any liability which may
potentially result upon resolution of such matters will not have a
material adverse effect on the Company's consolidated financial
position or results of operations.
Commitments
- -----------
In the normal course of business, the Company enters into contractual
arrangements for future purchases of goods and services to ensure
availability and timely delivery, and to obtain and protect the
Company's right to create and market certain toys. Such arrangements
include commitments for future inventory purchases and royalty payments
pursuant to licensing agreements. Certain of these commitments
routinely contain provisions for guaranteed or minimum expenditures
during the terms of the contracts.
As of December 31, 1993, the Company had outstanding commitments
for 1994 purchases of inventory of approximately $56.0 million.
Licensing and similar agreements with terms extending through the year
2001 contain provisions for future guaranteed minimum payments
aggregating approximately $310.0 million.
Foreign Currency Contracts
- --------------------------
The Company enters into foreign currency forward exchange contracts,
swaps and options as hedges of inventory purchases, sales and various
other intercompany transactions. At December 31, 1993, the Company and
its foreign affiliates had outstanding forward exchange contracts
totaling $256.0 million to acquire U.S. dollars and held forward
contracts to purchase $219.4 million in foreign currencies.
Effects of Inflation
- --------------------
Inflation rates in the United States and in major foreign countries in
which the Company operates have not had a significant impact on the
Company's operating results for the three years ended December 31,
1993. The impact of inflation is minimized as a result of rapid
turnover of inventories, and the Company has benefited from inflation
with respect to repayment of fixed-rate liabilities during these
periods. The U.S. Consumer Price Index increased 2.7% in 1993, 2.9% in
1992 and 3.1% in 1991.
31
Mattel, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
---------------------------
December December
ASSETS (In thousands) 31, 1993 31, 1992
- -----------------------------------------------------------------------
Current Assets
Cash $ 506,113 $ 313,693
Marketable securities 17,468 14,114
Accounts receivable, less allowances of
$21,024 at December 31, 1993 and
$35,115 at December 31, 1992 580,313 538,444
Inventories 219,993 238,895
Prepaid expenses and other current assets 146,863 86,097
---------- ----------
Total current assets 1,470,750 1,191,243
---------- ----------
Property, Plant and Equipment
Land 15,664 10,560
Buildings 146,622 144,039
Machinery and equipment 240,449 239,495
Capitalized leases 38,209 38,209
Leasehold improvements 41,948 41,336
---------- ----------
482,892 473,639
Less: Accumulated depreciation 229,130 216,376
---------- ----------
253,762 257,263
Tools, dies and molds, net 73,115 66,882
---------- ----------
Property, plant and equipment, net 326,877 324,145
---------- ----------
Other Noncurrent Assets
Intangible assets, net 139,277 150,966
Sundry assets 63,173 46,321
---------- ----------
$2,000,077 $1,712,675
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
32
LIABILITIES AND SHAREHOLDERS' EQUITY (In December December
thousands, except share data) 31, 1993 31, 1992
- -----------------------------------------------------------------------
Current Liabilities
Notes payable to banks $ - $ 13,401
Current portion of long-term liabilities 104,862 8,914
Accounts payable 175,424 169,917
Accrued liabilities 397,800 267,170
Income taxes payable 105,243 69,987
---------- ----------
Total current liabilities 783,329 529,389
---------- ----------
Long-Term Liabilities
6-7/8% Senior notes due 1997 99,470 99,344
6-3/4% Senior notes due 2000 100,000 -
8% Convertible subordinated debentures due 2001 73,953 97,547
Mortgage note 45,000 45,000
Term loans 9,689 143,882
Other 70,827 49,157
---------- ----------
Total long-term liabilities 398,939 434,930
---------- ----------
Shareholders' Equity
Preferred and preference stock 9 9
Common stock $1 par value, 300,000,000 shares
authorized; 172,470,271 shares issued with
169,869,300 shares outstanding for 1993 and
171,700,036 shares issued with 168,931,628
shares outstanding for 1992 (a) 172,470 137,360
Additional paid-in capital 226,528 247,727
Treasury stock at cost; 2,600,971 shares for
1993 and 2,768,408 shares for 1992 (a) (47,350) (43,098)
Retained earnings (b) 532,003 448,600
ESOP note receivable (3,500) (8,420)
Deferred compensation (13,003) (5,650)
Currency translation adjustments (b) (49,348) (28,172)
---------- ----------
Total shareholders' equity 817,809 748,356
---------- ----------
$2,000,077 $1,712,675
========== ==========
<FN>
Contingencies and Commitments (See accompanying notes.)
(a) Share data for 1992 have been restated for the effects of the
five-for-four stock split declared in November 1993.
(b) Since December 26, 1987 (Note 1).
33
Mattel, Inc. and Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS
----------------------------------
For the Year
----------------------------------
(In thousands, except per share amounts) 1993 1992 1991
- ---------------------------------------------------------------------------------
Net Sales $2,704,448 $2,563,525 $2,046,489
Cost of sales 1,343,470 1,293,759 1,056,983
---------- ---------- ----------
Gross Profit 1,360,978 1,269,766 989,506
Advertising and promotion expenses 426,698 403,417 308,013
Other selling and administrative expenses 508,105 501,604 392,289
Integration and restructuring charge 115,000 - -
Interest expense 62,614 68,716 64,334
Other expense, net 11,915 13,084 10,544
---------- ---------- ----------
Income Before Income Taxes, Extraordinary
Item and Cumulative Effect of Changes
in Accounting Principles 236,646 282,945 214,326
Provision for income taxes 100,735 98,104 80,288
---------- ---------- ----------
Income Before Extraordinary Item and
Cumulative Effect of Changes in
Accounting Principles 135,911 184,841 134,038
Extraordinary item - loss on early
retirement of debt (14,681) - (5,236)
---------- ---------- ----------
Income Before Cumulative Effect of
Changes in Accounting Principles 121,230 184,841 128,802
Cumulative effect of changes in
accounting principles (4,022) - -
---------- ---------- ----------
Net Income 117,208 184,841 128,802
Preferred and preference stock dividend
requirements 4,894 4,978 5,435
---------- ---------- ----------
Net Income Applicable to Common Shares $ 112,314 $ 179,863 $ 123,367
========== ========== ==========
Income Per Common and Common Equivalent Share:
Primary Income Per Share
Income before extraordinary item and
cumulative effect of changes in
accounting principles $ 0.77 $ 1.04 $ 0.88
Extraordinary item - loss on early
retirement of debt (0.09) - (0.04)
Cumulative effect of changes in
accounting principles (0.02) - -
---------- ---------- ----------
Net income $ 0.66 $ 1.04 $ 0.84
========== ========== ==========
Average number of common and common
equivalent shares 171,182 173,406 146,839
========== ========== ==========
Fully Diluted Income Per Share
Income before extraordinary item and
cumulative effect of changes in
accounting principles $ 0.75 $ 1.02 $ 0.85
Extraordinary item - loss on early
retirement of debt (0.08) - (0.03)
Cumulative effect of changes in
accounting principles (0.02) - -
---------- ---------- ----------
Net income $ 0.65 $ 1.02 $ 0.82
========== ========== ==========
Average number of common and common
equivalent shares 180,849 183,258 155,586
========== ========== ==========
Dividends Declared Per Common Share $ 0.18 $ 0.15 $ 0.08
========== ========== ==========
<FN>
The accompanying notes are an integral part of these statements.
34
Mattel, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the Year
--------------------------------
(In thousands) 1993 1992 1991
- --------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
- -------------------------------------
Net income $117,208 $184,841 $128,802
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation and amortization 91,970 87,825 75,450
Loss on early retirement of debt, net of tax 14,681 - 5,236
Utilization of net operating loss carryforwards - 300 1,800
Cumulative effect of changes in accounting
principles, net of tax 4,022 - -
Provision for lease termination, net (41,120) - -
(Increase) decrease in marketable securities (3,354) (5,391) 2,435
(Increase) in receivables (55,525) (95,706) (14,252)
Decrease (increase) in inventories 11,842 (24,781) 27,989
Decrease (increase) in prepaid and other
current assets 7,319 (20,460) (14,836)
Increase in payables, accrued liabilities and
income taxes payable 161,818 10,068 120,281
Other, net (5,517) (5,067) 2,128
-------- -------- --------
Net cash flows from operating activities 303,344 131,629 335,033
-------- -------- --------
Cash Flows From Investing Activities:
- -------------------------------------
Purchases of tools, dies and molds (60,809) (53,611) (32,371)
Purchases of other property, plant and equipment (40,060) (46,434) (23,368)
Sales of other property, plant and equipment 12,459 2,183 7,560
Investments in acquired businesses, net of
cash acquired - (17,740) (63,990)
Other, net (394) (841) (139)
-------- -------- --------
Net cash flows from investing activities (88,804) (116,443) (112,308)
-------- -------- --------
Cash Flows From Financing Activities:
- -------------------------------------
Notes payable to banks, net (14,135) (5,367) (75,844)
Issuance of 6-7/8% senior notes, net - 99,294 -
Issuance of 6-3/4% senior notes 100,000 - -
Issuance of 8% debentures, net - - 97,245
Redemption of 14-3/4% debentures - - (104,894)
Redemption of preferred stock of financing
subsidiary - - (62,500)
Long-term foreign borrowing (31,262) 2,717 17,613
Collection of ESOP note receivable 4,920 4,920 4,920
Payment of ESOP notes payable (4,920) (4,920) (4,920)
Redemption of senior preferred stock - (5,500) -
Tax benefit of employee stock options exercised 4,431 12,360 6,800
Exercise of stock options and warrants 8,012 12,212 12,881
Purchase of treasury stock (52,558) (52,036) (15,100)
Purchase of Fisher-Price warrants - (8,298) -
Dividends paid on common stock (25,582) (19,083) (8,110)
Dividends paid on preference stock (4,894) (4,826) (4,830)
Dividends paid on senior preferred stock - (1,059) (1,059)
Other, net (381) (947) (147)
-------- -------- --------
Net cash flows from financing activities (16,369) 29,467 (137,945)
Effect of Exchange Rate Changes on Cash (5,751) (12,987) (4,626)
-------- -------- --------
Increase in Cash 192,420 31,666 80,154
Cash at Beginning of Year 313,693 282,027 201,873
-------- -------- --------
Cash at End of Year $506,113 $313,693 $282,027
======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
35
Mattel, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
Preferred & Additional Common
Preference Common Paid-In Treasury Stock
(In thousands) Stock Stock Capital Stock Warrants
- -----------------------------------------------------------------------------------------------------------
Balance, December 29, 1990
As previously reported $ 20 $ 50,117 $ 115,786 $ (3,266) $ 1,000
Pooling of interests with Fisher-Price, Inc. - 19,777 189,528 - -
Net Income
Five-for-four stock split 17,725 (17,725)
Purchase of treasury stock (15,100)
Amortization of deferred compensation
Exercise of stock options and warrants 2,015 16,343 (1,000)
Issuance of treasury stock (1,105) 3,428
Dividends declared on common stock
Dividends declared on senior preferred and
preference stock
Utilization of net operating loss carryforwards 1,800
Collection of ESOP note receivable
Currency translation adjustments
--------- -------- -------- -------- --------
Balance, December 31, 1991 20 89,634 304,627 (14,938) -
Net Income
Three-for-two stock split 47,971 (47,971)
Purchase of treasury stock (1,152) (12,490) (38,394)
Purchase of Fisher-Price warrants (8,298)
Restricted stock activity 3,977
Amortization of deferred compensation
Exercise of stock options and warrants 907 18,061
Issuance of treasury stock (4,990) 10,234
Dividends declared on common stock
Dividends declared on preference stock
Redemption of senior preferred stock (11) (5,489)
Utilization of net operating loss carryforwards 300
Collection of ESOP note receivable
Currency translation adjustments
--------- -------- -------- -------- --------
Balance, December 31, 1992 9 137,360 247,727 (43,098) -
Net Income
Five-for-four stock split 34,343 (34,781)
Purchase of treasury stock (52,558)
Conversion of 8% debentures (9,540) 33,876
Restricted stock activity 688 13,308
Amortization of deferred compensation
Exercise of stock options 79 6,494
Issuance of treasury stock (8,560) 14,430
Dividends declared on common stock
Dividends declared on preference stock
Cumulative effect of change in accounting
principle 53,000
Termination of pre-quasi lease commitment (41,120)
Collection of ESOP note receivable
Currency translation adjustments
--------- -------- -------- -------- --------
Balance, December 31, 1993 $ 9 $172,470 $226,528 $(47,350) $ -
========= ======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
ESOP Currency Total
Retained Note Deferred Translation Shareholders'
(In thousands) Earnings Receivable Compensation Adjustments Equity
- ------------------------------------------------------------------------------------------------------------------
Balance, December 29, 1990
As previously reported $ 185,843 $(18,260) $ - $ 5,346 $ 336,586
Pooling of interests with Fisher-Price, Inc. (8,586) - (5,670) (1,890) 193,159
Net Income 128,802 128,802
Five-for-four stock split -
Purchase of treasury stock (15,100)
Amortization of deferred compensation 945 945
Exercise of stock options and warrants 17,358
Issuance of treasury stock 2,323
Dividends declared on common stock (9,803) (9,803)
Dividends declared on senior preferred and
preference stock (5,889) (5,889)
Utilization of net operating loss carryforwards 1,800
Collection of ESOP note receivable 4,920 4,920
Currency translation adjustments 9,153 9,153
--------- -------- -------- -------- --------
Balance, December 31, 1991 290,367 (13,340) (4,725) 12,609 664,254
Net Income 184,841 184,841
Three-for-two stock split -
Purchase of treasury stock (52,036)
Purchase of Fisher-Price warrants (8,298)
Restricted stock activity (3,617) 360
Amortization of deferred compensation 2,692 2,692
Exercise of stock options and warrants 18,968
Issuance of treasury stock 5,244
Dividends declared on common stock (20,723) (20,723)
Dividends declared on preference stock (4,826) (4,826)
Redemption of senior preferred stock (1,059) (6,559)
Utilization of net operating loss carryforwards 300
Collection of ESOP note receivable 4,920 4,920
Currency translation adjustments (40,781) (40,781)
--------- ------- -------- -------- --------
Balance, December 31, 1992 448,600 (8,420) (5,650) (28,172) 748,356
Net Income 117,208 117,208
Five-for-four stock split (438)
Purchase of treasury stock (52,558)
Conversion of 8% debentures 24,336
Restricted stock activity (13,310) 686
Amortization of deferred compensation 5,957 5,957
Exercise of stock options 6,573
Issuance of treasury stock 5,870
Dividends declared on common stock (28,911) (28,911)
Dividends declared on preference stock (4,894) (4,894)
Cumulative effect of change in accounting
principle 53,000
Termination of pre-quasi lease commitment (41,120)
Collection of ESOP note receivable 4,920 4,920
Currency translation adjustments (21,176) (21,176)
--------- ------- -------- -------- --------
Balance, December 31, 1993 $ 532,003 $(3,500) $(13,003) $(49,348) $817,809
========= ======= ======== ======== ========
<FN>
The accompanying notes are an integral part of these statements.
36
Mattel, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Mattel,
Inc. and its subsidiaries (the "Company"). Majority-owned subsidiaries
are consolidated and less-than-majority-owned subsidiaries are
accounted for by the equity method. All significant intercompany
accounts and transactions are eliminated, and certain amounts in the
financial statements for prior years have been reclassified to conform
with the current year presentation. Financial data for all periods
presented reflect the retroactive effects of the mergers, accounted for
as poolings of interests, with Fisher-Price, Inc. consummated in
November 1993 and International Games, Inc. consummated in February
1992.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of foreign subsidiaries are translated at end-of-
period rates of exchange. Income, expense and cash flows are
translated at weighted-average rates of exchange for the period. The
resulting currency translation adjustments are accumulated and reported
as a separate component of shareholders' equity.
Quasi-Reorganization
- --------------------
Effective December 26, 1987, the Company implemented a quasi-
reorganization and revalued its assets and liabilities to their fair
values as of that date. The $69.0 million net effect of these
adjustments was credited to additional paid-in capital. Additionally,
as of December 26, 1987, accumulated deficits of $256.0 million and
cumulative currency translation adjustments of $32.7 million were
transferred to additional paid-in capital.
Cash
- ----
Cash includes cash equivalents. Highly liquid investments with
maturities of three months or less when purchased are considered to be
cash equivalents. Because of the short maturities of these
instruments, the carrying amount is a reasonable estimate of fair
value.
Marketable Securities
- ---------------------
Marketable securities, comprised principally of U.S. dollar-denominated
debt securities of foreign governments held for liquidity purposes, are
stated at market value. The quoted market prices, which approximated
cost as of the balance sheet dates, are reasonable estimates of the
portfolio's fair value.
Inventories
- -----------
Inventories, net of an allowance for excess quantities and
obsolescence, are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed using the
straight-line method over estimated useful lives of 15 to 40 years for
buildings, 3 to 10 years for machinery and equipment, and 10 to 20
years, not to exceed the lease term, for leasehold improvements.
Tools, dies and molds are amortized using the straight-line method over
three years.
Capitalized lease assets are recorded at their fair values
determined as of December 26, 1987, less accumulated amortization
computed over the remaining lease terms. Major categories of
capitalized leases are as follows (in thousands):
As of Year-End
------------------
1993 1992
- -----------------------------------------------------------------------
Land and buildings $37,208 $37,208
Machinery and equipment 1,001 1,001
------- -------
38,209 38,209
Less: Accumulated amortization 16,538 14,566
------- -------
$21,671 $23,643
======= =======
Intangible Assets, Net
- ----------------------
Intangible assets consist of the excess of purchase price over the fair
value of net assets acquired in purchase acquisitions, additional
performance purchase payments, and the costs of acquired patents and
trademarks. Intangible assets are amortized using the straight-line
method over periods ranging from 10 to 40 years. Accumulated
amortization was $55.4 million and $46.1 million as of December 31,
1993 and December 31, 1992, respectively.
In 1992, the amortization period for goodwill arising from certain
acquisitions was changed from 10 years to 20 years, to better reflect
the estimated periods over which related economic benefits will be
realized.
Income Taxes
- ------------
Deferred income tax assets and liabilities are determined in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"), and result from revenues and
expenses being recognized in different time periods for financial
reporting
37
purposes than for income tax purposes. Under SFAS No. 109,
deferred income taxes arise from temporary differences and
carryforwards which are tax-effected at the enacted tax rates and
subsequently adjusted for changes in tax laws and rates. Deferred
income tax assets and liabilities are classified as current or
noncurrent based upon the financial reporting classification of assets
and liabilities to which they relate. A valuation allowance is
established if it is more likely than not that some portion or all of a
deferred income tax asset will not be realized. Effective January 1,
1993, the Company adopted SFAS No. 109, the effects of which are
covered in detail in Note 3 to the Consolidated Financial Statements.
Income and Dividends Per Common Share
- -------------------------------------
All share and per share data presented in these financial statements
reflect the retroactive effects of the Fisher-Price and IGI mergers,
the five-for-four stock split distributed in January 1994, the three-
for-two stock split distributed in June 1992 and the five-for-four
stock split distributed in November 1991.
Income per common share is computed by dividing earnings available
to common shareholders by the average number of common and common
equivalent shares outstanding during each period. Primary weighted
average share computations assume the exercise of dilutive stock
options and warrants, reduced by the number of shares which could be
repurchased at average market prices with proceeds from exercise.
Primary earnings represent reported net income less preferred and
preference stock dividend requirements, plus interest savings from the
assumed retirement of debt upon exercise of dilutive warrants. On a
fully diluted basis, weighted average shares are determined assuming
conversion of the 8% Debentures and Series F preference shares, and
exercise of all dilutive stock options and warrants, net of assumed
treasury share repurchases at the higher of end-of-period or average
market prices. Fully diluted earnings represent reported income as
adjusted for the effects, net of tax, resulting from the assumed
conversions of convertible securities and the exercise of dilutive
warrants.
Foreign Currency Contracts
- --------------------------
The Company enters into forward exchange contracts, swap agreements,
and purchased currency options to hedge against foreign currency
fluctuations. Realized and unrealized gains and losses resulting from
foreign currency transactions are included in income currently, except
that gains and losses on contracts which hedge specific foreign
currency commitments are deferred and accounted for as part of the
transaction. The Company does not speculate in foreign currencies.
NOTE 2 - BUSINESS COMBINATIONS
- ------------------------------
Fisher-Price, Inc.
- ------------------
On November 30, 1993, a merger was consummated between the Company and
Fisher-Price, Inc. ("Fisher-Price"), one of the world's largest
manufacturers and marketers of infant and preschool toys and juvenile
products. The stock-for-stock transaction was approved by the
shareholders of both companies, after which Fisher-Price became a
wholly-owned subsidiary of the Company. The merger agreement provided
for the exchange of 1.275 shares of Mattel common stock for each
outstanding Fisher-Price common share, and resulted in the issuance of
approximately 39.1 million pre-split shares valued, on the merger's
effective date, at $1.19 billion. This transaction has been accounted
for as a pooling of interests, and accordingly, financial information
for periods prior to the merger (from July 1, 1991 forward) reflect
retroactive restatement for the companies' combined financial position
and operating results. Prior to July 1, 1991, the business of Fisher-
Price was operated as a division of The Quaker Oats Company, and
therefore, any such financial data are excluded from the Company's
combined consolidated results presented herein.
To effect the restatement, certain adjustments were necessary in
order to conform the accounting practices of the two companies.
Unamortized goodwill of $20.2 million related to The Quaker Oats
Company's 1969 acquisition of Fisher-Price was written off, with the
corresponding charge reflected in the 1991 beginning retained earnings
balance for the combined company. The portion of Fisher-Price's
inventories being accounted for under the LIFO method were
retroactively restated to a FIFO-cost basis, resulting in a net credit
to 1991's beginning retained earnings of $11.6 million. In addition,
this change in accounting method resulted in reductions of $0.6 million
and $0.4 million of Fisher-Price's previously reported net income for
the six months ended December 29, 1991 and year ended January 3, 1993,
respectively. In the first quarter of 1993, Fisher-Price adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", by
electing to amortize its unrecognized transition obligation over 20
years. To conform Fisher-Price's methodology to that of the Company,
immediate recognition of the $29.4 million transition obligation was
reflected in the combined consolidated financial statements, effective
as of January 1, 1993. Prior to the merger, Fisher-Price's fiscal year
for financial reporting purposes ended on the Sunday closest to the
calendar year end; no adjustment to retained earnings in order to
conform with the Company's December 31 year end was necessary. In
addition, for periods preceding the merger, there were no intercompany
transactions which required elimination from the combined consolidated
results.
38
Selected information for the combining entities included in the
Consolidated Results of Operations for the three years ending December
31, 1993 is as follows (in thousands):
For the Year
----------------------------------
1993 1992 1991 (a)
----------------------------------
Net sales
Mattel $1,996,766 $1,873,364 $1,670,932
Fisher-Price (b) 707,682 690,161 375,557
---------- ---------- ----------
Combined $2,704,448 $2,563,525 $2,046,489
========== ========== ==========
Income before extraordinary
item and cumulative effect
of accounting changes
Mattel (c) $ 181,083 $ 143,948 $ 122,395
Fisher-Price 45,228 40,893 11,643
Integration/restructuring
charge (d) (90,400) - -
---------- ---------- ----------
Combined $ 135,911 $ 184,841 $ 134,038
========== ========== ==========
Extraordinary item - debt
retirement
Mattel $ - $ - $ (5,236)
Fisher-Price (14,681) - -
--------- ---------- ----------
Combined $ (14,681) $ - $ (5,236)
========= ========== ==========
Cumulative effect of
accounting changes
Mattel (e) $ 14,590 $ - $ -
Fisher-Price (f) (18,612) - -
--------- ---------- ----------
Combined $ (4,022) $ - $ -
========= ========== ==========
Net income
Mattel (g) $ 195,673 $ 143,948 $ 117,159
Fisher-Price 11,935 40,893 11,643
Integration/restructuring
charge (d) (90,400) - -
--------- ---------- ----------
Combined $ 117,208 $ 184,841 $ 128,802
========= ========== ==========
<FN>
(a) Financial information for Fisher-Price represents the six-month
period from July 1, 1991 through December 29, 1991. Prior to
July 1, 1991, the business of Fisher-Price was operated as a division
of The Quaker Oats Company.
(b) Certain amounts for 1992 and 1991 have been classified differently
than previously published amounts in order to conform the accounting
presentation of the two entities.
(c) For 1993, primary and fully diluted earnings per share before
accounting changes, the effects of the merger and extraordinary
charges, but after adjustment for the five-for-four stock split, were
$1.46 per share and $1.40 per share, respectively.
(d) The integration and restructuring charge of $115.0 million, after
related income tax effects, reduced earnings of the combined company
by $90.4 million.
(e) The net effect on earnings related to the January 1, 1993 adoption
of SFAS Nos. 109 and 106 was an increase of $16.0 million and a
a decrease of $1.4 million, net of taxes, respectively.
(f) The effect on earnings, net of taxes of $10.7 million, related to
the adoption of SFAS No. 106 effective January 1, 1993.
(g) For 1993, primary and fully diluted net income per share, before
the effects of the merger but after adjustment for the five-for-four
stock split, were $1.58 per share and $1.51 per share, respectively.
In connection with the merger, the Company recognized a one-time
charge of $115.0 million, pre-tax, representing transaction expenses of
the merger and projected costs of integrating the business operations
of the companies. Of this charge, approximately $17.0 million
represented investment banking, legal, accounting and other transaction
costs of the merger, and approximately $30.0 million related to the
severance of key Fisher-Price executives. Of the remaining $68.0
million estimated for integration and restructuring costs,
approximately $13.0 million represented writedowns of fixed assets in
connection with the elimination of duplicative administration and plant
facilities. The remainder represented expenditures related to the
combination of the entities' worldwide business operations, including
staff reductions and outplacement expenses, costs of terminating
contracts with lessors and distributors and fees paid to consultants in
connection with the integration and restructuring process. Net of
related taxes, the one-time charge recognized in the 1993 fourth
quarter was $90.4 million, which reduced earnings per share for the
year by $0.53 per share and $0.50 per share on a primary and fully
diluted basis, respectively.
Although no assurance can be given, the Company anticipates its
integration and restructuring activities will provide cost savings of
approximately $45.0 million during 1994, principally as a result of
consolidation of facilities and related staff reductions. Available
cash reserves and cash flow generated from normal business operations
will fund the costs of the integration and restructuring, with no
adverse impact expected on the Company's future liquidity or financial
position. Of the total integration and restructuring charge accrued,
approximately $20.2 million had been expended as of December 31, 1993.
International Games, Inc.
- -------------------------
In the first quarter of 1992, the Company completed a merger
transaction, also accounted for as a pooling of interests, with
International Games, Inc. ("IGI"). The merger, valued at $58.5
million, was effected by the exchange of Mattel preference stock,
Series F, and common stock for all outstanding shares of IGI voting
preferred and common stock. Financial information for periods
preceding the merger were retroactively restated to reflect the
combined operations of the companies.
39
NOTE 3 - INCOME TAXES
- ---------------------
Consolidated pretax income before extraordinary item and cumulative
effect of changes in accounting principles consists of the following
(in thousands):
For the Year
----------------------------
1993 1992 1991
----------------------------
U.S. operations $127,937 $179,250 $116,126
Foreign operations 108,709 103,695 98,200
-------- -------- --------
$236,646 $282,945 $214,326
======== ======== ========
The provision for current and deferred income tax expense consists
of the following (in thousands):
For the Year
----------------------------
1993 1992 1991
----------------------------
Current
Federal $ 64,358 $ 41,648 $ 30,840
State 11,758 13,300 8,600
Foreign 47,884 47,500 47,800
-------- -------- --------
124,000 102,448 87,240
-------- -------- --------
Deferred
Federal (21,841) (3,000) (6,488)
State (3,629) (844) (1,864)
Foreign (6,640) (500) (1,200)
-------- -------- --------
(32,110) (4,344) (9,552)
-------- -------- --------
Provision excluding extraordinary item 91,890 98,104 77,688
Benefit allocated to extraordinary item 8,845 - 2,600
-------- -------- --------
Total provision for income taxes $100,735 $ 98,104 $ 80,288
======== ======== ========
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
which replaced Statement No. 96. Upon adoption, a net deferred income
tax asset of $69.0 million was recorded, of which $16.0 million related
to postquasi-reorganization net operating losses carried forward, and
$53.0 million related principally to future tax deductions, and foreign
tax credit and alternative minimum tax credit carryovers resulting from
activities prior to the 1987 quasi-reorganization. The benefit of
$16.0 million (or $0.09 per fully diluted share in the 1993 first
quarter) was recognized in after-tax earnings as the cumulative effect
of a change in accounting principle; the remaining $53.0 million was
credited to additional paid-in capital in accordance with the required
accounting treatment for transactions resulting from activities prior
to the 1987 quasi-reorganization.
Deferred income taxes are provided principally for certain
reserves, depreciation, employee compensation-related expenses and
certain other expenses that are recognized in different years for
financial statement and income tax purposes. The Company's deferred
income tax assets (liabilities) were comprised of the following (in
thousands):
December 31, January 1,
1993 1993
-------------------------
Deferred compensation $ 17,035 $ 10,729
Sales allowances and inventory reserves 41,225 38,754
Operating loss and tax credit carryovers 68,774 104,798
Excess of tax basis over book basis 6,261 2,641
Postretirement benefits 12,210 11,645
Integration and restructuring charge 21,667 -
Loss on debt retirement 8,845 -
Other 22,271 16,927
---------- ---------
Gross deferred income tax assets 198,288 185,494
---------- ---------
Excess of book basis over tax basis (8,986) (11,959)
Depreciation (2,753) (6,715)
Retirement benefits (4,781) (4,266)
Other (15,005) (4,503)
---------- ---------
Gross deferred income tax liabilities (31,525) (27,443)
Deferred income tax asset valuation allowances (52,405) (73,733)
---------- ---------
Net deferred income tax assets $ 114,358 $ 84,318
========== =========
Differences between the provision for income tax expense at the
United States federal statutory income tax rate and the provision in
the Consolidated Results of Operations were as follows (in thousands):
For the Year
----------------------------
1993 1992 1991
----------------------------
Provision at federal statutory rates $ 82,812 $96,179 $72,815
Increase (decrease) resulting from:
Losses without income tax benefit 2,436 9,068 6,121
Foreign earnings taxed at
different rates, including
withholding taxes (1,827) (14,815) 1,579
Tax benefit of future deductions (994) 3,600 (5,100)
State and local taxes, net of
federal benefit 5,417 8,259 4,742
Nondeductible interest - - 400
Dividends paid to ESOP (1,500) (1,600) (1,600)
Nondeductible restructuring costs 13,599 - -
Other 792 (2,587) 1,331
-------- ------- -------
Total provision $100,735 $98,104 $80,288
======== ======= =======
Appropriate U.S. and foreign income taxes have been provided for
earnings of foreign subsidiary companies that are expected to be
remitted in the near future. The cumulative amount of undistributed
earnings of foreign subsidiaries which the Company intends to
permanently invest and upon which no deferred U.S. income taxes have
been provided is $322.3 million at December 31, 1993. The additional
U.S. income tax on the unremitted foreign earnings, if repatriated,
would be offset in whole or in part by foreign tax credits. Foreign
withholding taxes of $15.4 million would be due upon remittance of
these earnings.
40
The Company has foreign tax credit carryforwards for tax purposes
at December 31, 1993 of approximately $26.4 million which expire in
1994. The Company also has an alternative minimum tax credit
carryforward of $11.9 million with no expiration date. Certain foreign
subsidiaries have net operating loss carryforwards totaling
approximately $43.8 million ($2.3 million with no expiration date;
$41.5 million expiring 1994 to 1998).
The foreign tax credit and alternative minimum tax credit
carryforwards will be credited to additional paid-in capital when and
if utilized, since they result from net operating loss carryforwards
which originated prior to the 1987 quasi-reorganization. In addition,
generally accepted accounting principles require that tax benefits
related to the exercise by employees of nonqualified stock options be
credited to additional paid-in capital. In 1993, 1992 and 1991,
nonqualified stock options exercised resulted in credits to additional
paid-in capital totaling $4.3 million, $12.1 million and $6.8 million,
respectively.
Legislation enacted in August 1993 increased the U.S. corporate
income tax rate from 34 percent to 35 percent, retroactive to January
1, 1993. The tax effect has been reflected in the calculation of the
Company's net U.S. deferred income tax asset.
The Internal Revenue Service has completed its examination of the
Company's federal income tax returns through January 28, 1984.
NOTE 4 - EMPLOYEE BENEFITS
- --------------------------
The Company and certain of its subsidiaries have various pension and
retirement plans covering substantially all employees of these
companies. Pension expense for the Company's plans totaled $10.0
million, $9.5 million and $6.8 million in 1993, 1992 and 1991,
respectively. Before the merger, Fisher-Price maintained a number of
benefit plans and compensation arrangements. These programs shall
continue to be administered by Fisher-Price without material change or
modification for periods up to five years following the merger,
depending upon the program.
Pension Plans
- -------------
The Company provides defined benefit pension plans covering certain of
its domestic and foreign employees. Plan benefits are based upon
covered employees' length of service and earnings. Pension costs are
actuarially determined and plans are generally funded to meet benefit
obligations existing as of the end of each year. Contributions are
based upon amounts required to be funded under applicable governmental
regulations, but will not exceed the maximum amount deductible for
income tax purposes. Assets of these plans are invested in equity
securities as well as corporate, government and other fixed-income
investments.
The Mattel, Inc. Pension Plan is a noncontributory defined benefit
plan for its domestic hourly employees who are covered by collective
bargaining agreements. Accumulated and vested benefit obligations,
pension cost and other expenses related to this plan were not
significant in 1993, 1992 or 1991.
The Fisher-Price, Inc. Pension Plan, a defined benefit plan
covering most of the domestic employees of Fisher-Price, contains
certain change-of-control provisions which were triggered as a result
of the merger. For a five-year period, or until the assets of the plan
are less than its liabilities, if earlier, the rate at which benefits
accrue on behalf of participants may not be decreased, and in the event
of the plan's termination or consolidation with another plan, assets in
excess of liabilities must be used to increase participants' benefits.
In addition, for a two-year period following the merger, participants
whose employment with the Company is terminated under certain
conditions may be entitled to immediate vesting and increased annual
benefits under the plan. The components of net pension cost for this
plan, based upon an October valuation date for the years ended December
31, 1993 and January 3, 1993 and for the six months ended December 29,
1991, are detailed below (in thousands):
For the Period
----------------------------
1993 1992 1991
----------------------------
Service cost $ 2,928 $ 2,450 $ 1,029
Interest cost 6,801 6,214 2,867
Actual return on plan assets (9,267) (8,831) (4,527)
Net amortization and deferral (2,261) (1,919) (560)
-------- -------- --------
Net pension income $ (1,799) $ (2,086) $ (1,191)
======== ======== ========
Reconciliations of the funded status of Fisher-Price's domestic
pension plan to the related prepaid asset included in the Consolidated
Balance Sheets are as follows (in thousands):
As of Year-End
-------------------
1993 1992
-------------------
Vested benefits $ 101,596 $ 78,727
Nonvested benefits 3,979 3,313
--------- --------
Accumulated benefit obligation 105,575 82,040
Effect of projected future salary increases 5,319 4,494
--------- --------
Projected benefit obligation 110,894 86,534
Plan assets at fair value 122,237 106,432
--------- --------
Plan assets in excess of projected
benefit obligation 11,343 19,898
Unrecognized net loss 12,308 4,216
Unrecognized prior service cost 3,194 3,502
Unrecognized net asset at transition (14,130) (16,700)
--------- --------
Prepaid pension asset $ 12,715 $ 10,916
========= ========
For the Period
----------------
1993 1992 1991
----------------
Assumptions:
Weighted average discount rate 7% 8% 8%
Rate of future compensation increases 4% 5% 5%
Long-term rate of return on plan assets 10% 9% 9%
Activity related to pension plans of foreign affiliates of the
Company were not significant during any year.
41
Other Retirement Plans
- ----------------------
Domestic employees not covered by collective bargaining agreements are
eligible to participate in the Company's 401(k) savings plans. Under
these defined contribution plans, the Company makes contributions to a
trust based upon specified percentages of employee compensation, as
well as matching percentages of certain amounts of voluntary employee
contributions. Mattel's Personal Investment Plan covers employees of
Mattel, Inc. The Fisher-Price, Inc. Matching Savings Plan which covers
employees of Fisher-Price will be separately maintained for at least
two years following the merger.
The Company maintains an unfunded supplemental retirement plan
which is an unqualified defined benefit plan covering certain key
executives of Mattel, Inc. In addition, compensation deferral and
excess benefit plans exist for certain officers and key employees of
both Mattel, Inc. and Fisher-Price. For 1993, 1992 and 1991, the
accumulated and vested benefit obligations and related expense of these
plans were not significant.
The Fisher-Price Profit Sharing and Retirement Savings Plan is
maintained for the benefit of certain domestic employees. Effective in
1991, the plan was amended to discontinue further company
contributions; however, participant accounts continue to be held
pursuant to the plan's provisions.
Employee Stock Ownership Plan
- -----------------------------
In January 1987, an employee stock ownership plan (the "ESOP") was
established for employees of IGI. The ESOP is a defined contribution
plan satisfying the requirements of the Employee Retirement Income
Security Act of 1974. A combination of dividends and cash
contributions are paid by the Company in amounts sufficient for the
plan to meet its current obligations. Payments to the ESOP for the
years ended December 31, 1993 and December 31, 1992 were as follows (in
thousands):
For the Year
-----------------
1993 1992
-----------------
Dividends on stock held by ESOP $4,900 $4,830
Company contribution to ESOP 20 90
------ ------
4,920 4,920
Interest on ESOP indebtedness 189 388
------ ------
Total payments to ESOP $5,109 $5,308
====== ======
In connection with the February 1992 merger, IGI convertible
preferred stock held by the ESOP was exchanged for 35,723 shares of the
Company's common stock and 864,293 shares of the Company's 12.5%
Convertible Preference Stock, Series F. The Company must maintain the
ESOP until August 1994 when the ESOP indebtedness will be paid in full,
but shall terminate the ESOP no later than December 31, 2000.
Postretirement Benefits
- -----------------------
The Company maintains an unfunded postretirement benefit plan for
domestic employees of Mattel, Inc. The plan provides for health care
to retirees meeting certain age and years of service requirements, and
consists primarily of medical and prescription benefits, Medicare Part
B reimbursement and life insurance. The plan calls for the payment of
premiums by the participants, which amounts are intended to fund the
costs of the plan. The Company reimburses 100% of Medicare B premiums
for current retirees as of July 1, 1993; the plan provides no
reimbursement for employees retiring subsequent to that date. Life
insurance coverage is provided for union hourly employees retiring with
a pension.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS No. 106"), with
immediate recognition of an actuarially-determined accumulated
postretirement benefit obligation of $2.3 million for the Mattel, Inc.
plan (based upon a discount rate of 8.0%, which was adjusted to 7.0% as
of year end). The related charge of $1.4 million, after deferred
income tax benefits of $0.9 million, was recognized in earnings as the
cumulative effect of a change in accounting principle. The ongoing
costs and obligations associated with the Mattel, Inc. plan are not
significant to the Company's financial position and results of
operations.
Fisher-Price has an unfunded postretirement health insurance plan
covering substantially all domestic employees hired prior to January 1,
1993. Existing retirees, employees who elected to retire before
January 1, 1994 and employees whose age-plus-service was equal to 70
years by December 31, 1993 may continue, for their lifetime,
participation in the Fisher-Price group health insurance plan at the
same contribution rate as active employees. All other active employees
who do not satisfy the criteria outlined above participate in a retiree
medical account balance plan. An account was established, as of
January 1, 1993, for each eligible employee, with a balance equal to
$865 for each year of service, including past service, up to a maximum
of 25 years of service. The account balance will become available upon
a participant's retirement at age 55 or anytime thereafter with five
years of service, and may be used to purchase benefits through the
Fisher-Price health care insurance plan or through an outside insurance
provider, and to pay for health care expenses not reimbursed by
insurance or Medicare. If an employee terminates employment prior to
satisfying the retirement criteria, the account balance is forfeited
and no benefits are paid.
In January 1993, Fisher-Price adopted the provisions of SFAS No.
106 by electing to amortize its unrecognized transition obligation over
20 years. Upon consummation of the merger, Fisher-Price's accounting
methodology was conformed to that of the Company, and accordingly, a
related $18.6 million charge, net of deferred income tax benefits of
$10.7 million, was recognized in earnings as the cumulative effect of a
change in accounting principle retroactively as of the 1993 first
quarter. Details of the plan's accumulated benefit obligation and
related expense
42
recognized in the consolidated financial statements as of December 31,
1993 are as follows (in thousands):
Accumulated postretirement benefit obligation:
- ----------------------------------------------
Retirees $19,367
Fully eligible active employees 4,359
Other active employees 5,631
-------
$29,357
=======
Postretirement benefit cost:
- ----------------------------
Service cost $ 475
Interest cost 1,999
-------
Periodic postretirement benefit cost 2,474
Recognition of transition obligation 29,357
-------
$31,831
=======
In determining the $29.4 million transition obligation, a weighted-
average discount rate of 7.0% was used. For participants below 65
years of age, the health care cost trend rate for expected claim costs
was assumed to be 13.0% in 1993, declining to 5.5% by 1997 and
remaining constant thereafter. For participants 65 years of age or
older, the health care cost trend rate for expected claim costs was
assumed to be 10.0% in 1993, declining to 5.5% by 1996 and remaining
constant thereafter. A one percentage point increase in the assumed
health care cost trend rate for each future year would have increased
the aggregate of service and interest cost for 1993 by approximately
$0.3 million and increased the accumulated postretirement benefit
obligation as of December 31, 1993 by approximately $2.0 million.
Incentive Awards
- ----------------
The Company's Long-Term Incentive Plan is a variable compensation plan
available to certain key executives of Mattel, Inc. Awards are
determined annually based upon the performance of the Company over a
three-year period. Pursuant to the Company's 1990 stock option plan,
stock appreciation rights ("SAR") had been awarded in 1991 to certain
key executives of Mattel, Inc. In February 1994, the SAR were
converted into awards consisting of nonqualified stock options and
cash, which amount is payable within the five-year period as
established under the SAR program. At December 31, 1993 and 1992,
$13.6 million and $1.8 million, respectively, were accrued for awards
under these plans.
The Company also has discretionary annual incentive compensation
plans for officers and key employees of both Mattel, Inc. and Fisher-
Price, Inc. based on the Company's performance and subject to certain
approvals of the Board of Directors. At December 31, 1993 and 1992,
$22.4 million and $17.2 million, respectively, were accrued for awards
under these plans.
NOTE 5 - SEASONAL FINANCING AND LONG-TERM DEBT
- ----------------------------------------------
Seasonal Financing
- ------------------
The Company maintains and periodically revises or replaces a revolving
credit agreement with a commercial bank group which is utilized to
finance the working capital requirements of its domestic and certain
foreign operations. The agreement in effect during 1993, which was
recently renegotiated (see below), was amended in the first quarter of
1993 to increase the total facility to $350.0 million from $250.0
million. Within the total facility, up to $175.0 million was a
standard revolving credit line available for either advances or letters
of credit in support of commercial paper issuances. Interest was
charged at alternate rates selected by the Company not greater than the
prime rate charged by the agent bank, plus a commitment fee of 3/8 of
one percent of the unused line available for advances and 1/2 of one
percent of the amount utilized for standby letters of credit. The
remaining $175.0 million was available for nonrecourse purchases of
certain trade accounts receivable of the Company by the commercial bank
group providing the credit line. During 1993, proceeds of $165.0
million were received by the Company as a result of accounts receivable
purchases by the bank group. The agreement required the Company to
comply with certain consolidated financial ratios and to maintain
certain levels of income.
To meet seasonal borrowing requirements of international
operations in addition to amounts funded by proceeds of its revolving
credit agreement, the Company negotiates individual financing
arrangements, generally with the same groups of banks that provided
credit in the prior year. Foreign credit lines total approximately
$170.0 million, a portion of which is used to support letters of
credit. The Company expects to extend these credit lines throughout
1994 and believes available amounts will be adequate to meet its
seasonal financing requirements.
During 1993, Fisher-Price had available domestic and foreign
seasonal credit lines totaling $175.0 million and $90.0 million,
respectively. Upon consummation of the merger, the domestic credit
line was repaid and terminated. During 1994, Fisher-Price's foreign
credit lines will be terminated and its foreign operations will be
financed by the Company's existing credit facilities.
Interest rates charged on the Company's working capital credit
lines are adjusted on a periodic basis; therefore, the carrying amounts
of such obligations are a reasonable approximation of their fair value.
Information relating to the Company's domestic and foreign credit lines
is summarized as follows (in thousands):
For the Year
------------------------------
1993 1992 1991
------------------------------
Balance at end of year
Domestic $ - $ - $ -
Foreign - 13,400 29,700
Maximum amount outstanding
Domestic 167,000 258,800 277,100
Foreign 76,100 264,700 180,700
Average borrowing
Domestic 45,100 114,300 107,600
Foreign 55,100 156,300 101,800
Weighted average interest rate on
average borrowing, computed monthly
Domestic 3.5% 4.4% 6.3%
Foreign 8.5% 11.2% 12.5%
43
Effective in March 1994, the Company renegotiated its revolving
credit agreement. The new agreement consists of unsecured facilities
providing a total of $500.0 million in seasonal financing from the same
group of commercial banks. The facilities provide for up to $250.0
million in advances and backup for commercial paper issuances ($125.0
million of which is a 364-day facility and the other $125.0 million is
a 3-year facility), and up to an additional $250.0 million (a 3-year
facility) for nonrecourse purchases of certain trade accounts
receivable by the bank group. In connection with the agreement, the
Company is to comply with certain consolidated financial covenants for
debt-to-capital, interest coverage and tangible net worth levels.
Fisher-Price Term Loan
- ----------------------
The current portion of long-term liabilities as of December 31, 1993
includes $100.0 million of term indebtedness to insurance companies.
The debt required quarterly interest payments at a rate of 10.69% per
annum, and had a final maturity date of June 30, 2000. Following the
merger, the Company reached an agreement with the lenders permitting
prepayment of this obligation. The prepayment premium and write-off of
unamortized issuance costs resulted in an extraordinary charge against
earnings in the 1993 fourth quarter, net of an $8.8 million income tax
benefit, of $14.7 million, or $0.08 per fully diluted share. At
December 31, 1992, the $98.5 million obligation outstanding, net of
unamortized discounts, was included in term loans.
In connection with this debt agreement, Fisher-Price had issued to
the lenders detachable warrants allowing them to purchase shares of
Fisher-Price stock, subject to certain antidilution requirements. In
November 1992, Fisher-Price repurchased from the holders warrants
representing rights to 1,173,507 common shares (post-merger, post-split
basis). As of the effective date of the merger, the Company agreed to
assume Fisher-Price's obligations pursuant to the provisions of the
warrants. The exercise of all outstanding warrants by the holders
would result in delivery of approximately 1,075,880 shares of the
Company's common stock at an exercise price of $7.45555 per share,
after adjustment for the merger and five-for-four stock split. In
addition, change-of-control provisions of the warrants allow the
holders a six-month period from the merger date to elect to receive, in
lieu of exercises for common shares, an amount in cash equal to the
product obtained by multiplying the number of shares of common stock
purchasable upon exercise by the highest closing market price of such
shares, as reported on the NYSE Composite Tape during the period from
August 19, 1993 through November 30, 1993, less the warrant exercise
price. The Company has not received notification from holders as to
their intentions with respect to exercise of the warrants.
ESOP Refinancing Notes Payable ("ESOP Notes")
- ---------------------------------------------
As of December 31, 1993, the current portion of long-term liabilities
includes the remaining ESOP Notes of $3.5 million. The ESOP Notes,
which are supported by letters of credit, are scheduled to mature in
August 1994. The interest rate charged as of December 31, 1993 was
3.1%, representing 94.25% of LIBOR. Because the interest rate is
adjusted monthly, the carrying amount of this obligation approximates
its fair value.
6-7/8% Senior Notes
- -------------------
In August 1992, the Company issued $100.0 million aggregate principal
amount of 6-7/8% Senior Notes maturing August 1, 1997. Interest is
payable semiannually on the first day of February and August. The 6-
7/8% Senior Notes may not be redeemed prior to maturity. Net proceeds
from this issuance were used to reduce outstanding borrowings under the
Company's domestic revolving credit line. Bid prices for each
$1,000.00 par value of the 6-7/8% Senior Notes, as provided by one of
the underwriters, were $1,041.80 and $975.02 as of December 31, 1993
and 1992, respectively.
6-3/4% Senior Notes
- -------------------
In May 1993, the Company issued $100.0 million aggregate principal
amount of 6-3/4% Senior Notes maturing May 15, 2000. Interest is
payable semiannually on the fifteenth day of each May and November,
commencing on November 15, 1993. The 6-3/4% Senior Notes may not be
redeemed prior to maturity. Net proceeds from this issuance were used
in place of short-term borrowing for working capital purposes. At
December 31, 1993, the bid price for the 6-3/4% Senior Notes, as
provided by one of the underwriters, was $1,025.32 based on a par value
of $1,000.00.
8% Convertible Subordinated Debentures ("8% Debentures")
- --------------------------------------------------------
In March 1991, the Company issued $100.0 million aggregate principal
amount of 8% Debentures, with a maturity date of March 15, 2001 and
semiannual interest payments due on each March 15 and September 15.
Proceeds from this issuance were used to redeem $62.5 million of
preferred stock issued by a financing subsidiary and for general
corporate purposes. The quoted prices provided by underwriters for the
8% Debentures as of December 31, 1993 and 1992 were $1,722.50 and
$1,695.00, respectively, based on a par value of $1,000.00.
The terms of the 8% Debentures provide for early redemption at the
option of the Company at anytime on or after March 15, 1994. On
February 9, 1994, the Company issued its Notice of Redemption to the
holders. The redemption price is 104.571% of the principal amount,
together with interest accrued to March 15, 1994, the final interest
payment date. In lieu of redemption, holders may elect to convert the
8% Debentures into the Company's common stock at an conversion price of
$12.83 per share. During the 1993 fourth quarter, holders tendered
$24.3 million par value of the 8% Debentures for conversion into common
shares.
Mortgage Note
- -------------
In 1990, the Company borrowed $45.0 million under a mortgage agreement
secured by its headquarters office facility in El Segundo, California.
The agreement requires monthly interest-only payments for the first 60
months of its term and monthly principal and interest payments of
approximately $0.4 million thereafter, until its December 2005 maturity
date. Interest is payable at 10.15% for the term of the agreement.
The fair value of the mortgage note, estimated by discounting future
cash flows at the interest rates currently available for debt with the
same credit rating, similar terms and maturity date, was approximately
$53.0 million and $54.0 million at December 31, 1993 and 1992,
respectively.
44
Term Loans
- ----------
Term loans include foreign term loans and, as of December 31, 1992, the
Fisher-Price long-term loan and the ESOP Notes. Foreign term loans
primarily consist of an Indonesian loan of $6.0 million, secured by
local assets and guaranteed by the Company. The loan, which matures in
1997, bears interest at the lending bank's short-term rate plus 1-3/4
percent. Other foreign borrowings include $1.1 million of unsecured
Malaysian export financing revolving on a long-term basis under an open-
ended term, bearing interest at 6.0%. The interest rates on foreign
term borrowings are adjusted periodically, thus the carrying amount is
a reasonable estimate of fair value.
Scheduled Maturities
- --------------------
The aggregate amounts of long-term debt and capitalized lease
obligations maturing in the next five years are as follows (in
thousands):
Senior and Capitalized
Subordinated Mortgage Term Lease
Year Debt Note Loans Obligations Total
- ----------------------------------------------------------------
1994 $ 75,700 $ - $107,900 $ 200 $183,800
1995 - - 2,600 200 2,800
1996 - 400 2,100 2,400 4,900
1997 100,000 500 600 100 101,200
1998 - 500 - 100 600
14-3/4% Subordinated Debentures
- -------------------------------
In July 1991, the Company redeemed its 14-3/4% Subordinated Debentures
with a remaining principal amount of $99.1 million at 105.9% of par.
The write-off of unamortized discount associated with the debt together
with the early redemption premium resulted in an extraordinary charge
of $4.5 million, net of an income tax benefit of $2.6 million.
Preferred Stock of Financing Subsidiary
- ---------------------------------------
In May 1991, a financing subsidiary of the Company exercised its option
to redeem $62.5 million of its variable rate, asset-backed preferred
stock held by unrelated investors. The write-off of unamortized
issuance costs resulted in an extraordinary charge of $0.7 million.
NOTE 6 - SHAREHOLDERS' EQUITY
- -----------------------------
Preference Share Purchase Rights
- --------------------------------
In 1992, the Board of Directors approved an extension of the Company's
Preference Share Purchase Rights plan. The rights may be exercised by
their holders to purchase shares of the Company's Series E Junior
Participating Preference Stock upon the occurrence of certain events,
including the acquisition, or announcement of intended acquisition, of
20 percent or more of Mattel's common stock by a person or group of
affiliated or associated persons. The rights are subject to adjustment
in the event of stock dividends, stock splits or other changes in the
Company's common stock, and will expire on February 17, 2002, unless
the plan is further extended or the rights are earlier redeemed or
exchanged by the Company.
Preferred and Preference Stock
- ------------------------------
The Company is authorized to issue 3,000,000 shares of $1.00 par value
preferred stock and 20,000,000 shares of $0.01 par value preference
stock. No preferred shares are outstanding and the Company has no
current plan to issue any such shares.
In February 1992, 1,500,000 shares of $0.01 par value preference
shares were designated as Series E Junior Participating Preference
Stock in connection with a distribution of Preference Share Purchase
Rights to the Company's common shareholders. Series E shares are
issuable only when rights become exercisable under the Preference Share
Purchase Rights plan (see above).
In connection with the IGI merger in February 1992, 864,293 shares
of $0.01 par value preference stock were designated as 12.5%
Convertible Preference Stock, Series F, and issued to the IGI ESOP.
Dividends are payable at the option of the Company and are cumulative.
Additionally, when cash dividends are declared on the Company's common
stock, Series F preference shares are entitled to participate in such
distribution as if converted into common stock at that time. Each
Series F share is convertible, at the option of the ESOP's trustee,
into one and seven-eighths shares of Mattel common stock at any time up
to 30 days after repayment of the ESOP note receivable, and into
.683316 shares of common stock thereafter. The aggregate liquidation
preference of the Series F shares as of December 31, 1993 was $30.3
million, or $39.056 per share reduced by the per share effect of ESOP
debt outstanding.
Common Stock
- ------------
Concurrently with their approval of the Fisher-Price merger,
shareholders of the Company voted to amend the Mattel, Inc. certificate
of incorporation to increase the number of common shares authorized
from 150,000,000 to 300,000,000 shares in order to accommodate issuance
of common stock pursuant to the Fisher-Price merger, potential
conversions of the 8% Debentures, future stock splits and for future
awards pursuant to the Company's stock option plans.
Stock Options
- -------------
Under the Company's stock option plans, officers and other key
employees may be granted nonqualified stock options, restricted stock
awards and stock appreciation rights. Generally, options are
exercisable contingent upon the grantees' continued employment with the
Company, and in installments when permitted by the Board of Directors
or its Compensation/Options Committee. As of December 31, 1993 and
1992 a total of 12,417,405 shares and 4,184,378 shares, respectively,
of Mattel common stock were reserved for issuance under these plans.
Nonqualified stock options are granted at not less than 100
percent of the fair market value of the Company's common stock on the
date of award, and generally expire within ten years from date of
grant. Restricted stock awards issued are subject to various
restrictions. During the time period from the award date until the
restrictions lapse, shares cannot be sold, assigned, pledged or
otherwise encumbered by the recipients. As of December 1993,
restricted stock awards granted to Mattel executives totaled 593,750
shares. The market value of these shares as of the date of grant is
reflected as deferred compensation in shareholders' equity, and is
being amortized over the restriction period which lapses on January 1,
1997.
45
The following is a summary of stock option information for the
Company's plans during the year:
Options Outstanding
-------------------------------
Nonqualified Plans Number (a) Price (a)
- ----------------------------------------------------------------------
Outstanding at December 31, 1991 6,925,865 $ 2.77 to $12.90
Granted 2,045,324 11.33 to 19.60
Exercised (1,939,523) 2.77 to 10.99
Canceled (260,399) 3.63 to 17.67
----------
Outstanding at December 31, 1992 6,771,267 2.77 to 19.60
Granted 4,833,781 12.20 to 23.90
Exercised (1,063,433) 2.77 to 19.60
Canceled (547,723) 3.63 to 19.60
----------
Outstanding at December 31, 1993 9,993,892 2.77 to 23.90
==========
Options exercisable at:
December 31, 1992 (b) 1,531,457
December 31, 1993 (c) 4,218,697
<FN>
(a) Number of options and prices reflect the retroactive effect of the
Fisher-Price merger, a five-for-four stock split distributed in
January 1994 and a three-for-two stock split distributed in June
1992.
(b) Average exercise price - $9.22 per share. Expiration dates vary
from July 12, 1994 to July 20, 2002.
(c) Average exercise price - $14.03 per share. Expiration dates vary
from July 12, 1994 to December 15, 2003.
The Company's 1990 stock option plan provides that up to 1% of
Mattel's outstanding common stock as determined on December 31 of the
preceding year will be available for awards during each calendar year
in which the plan is in effect. In connection with the Fisher-Price
merger, shareholders approved the Board of Directors' recommendation of
a one-time increase of 3,000,000 shares above the standard 1%
limitation as set forth in the plan. The purpose of such increase was
to accommodate the post-merger grant of awards to employees of Mattel
and Fisher-Price as motivation for the successful integration and
future operation of the combined business.
The Fisher-Price Long-Term Incentive Plan of 1991 provided
benefits for eligible participants in the form of stock options, stock
appreciation rights, restricted stock, performance units and other
awards as determined by the plan's administrative committee. Effective
with the merger, all stock-based awards and benefits previously granted
and outstanding under the plan became fully vested and, if not
previously exercised, converted into rights to receive equivalent
shares, as adjusted for the 1.275 merger exchange ratio, of Mattel
common stock. Accordingly, 300,547 Fisher-Price restricted stock
awards outstanding became fully vested; the remaining unamortized
deferred compensation of $3.0 million was recognized in the fourth
quarter of 1993.
Common Stock Repurchase Plan
- ----------------------------
In May 1990, the Board of Directors authorized a stock repurchase plan
which initially provided for annual repurchases on the open market of
up to one percent of the Company's common stock to fund the stock
option plans. In May 1993, the Board expanded the repurchase program
to permit the repurchase up to 10 million shares over the next four
years. During 1993 and 1992, the Company purchased 2,080,000 and
1,436,000 shares, respectively. At the time of the five-for-four stock
split in 1993 and the three-for-two stock split in 1992, the number of
treasury shares was increased as a result of the splits by 520,194
shares and 582,661 shares, respectively. Shares repurchased, less
2,213,949 shares reissued in 1993 and 532,377 shares reissued in 1992,
are included in treasury stock.
Common Stock Warrants - $6.25 Series
- ------------------------------------
Warrants to purchase 1,000,000 shares of the Company's common stock at
$6.25 per share were exercisable until their July 13, 1991 expiration
date; 910,000 warrants were exercised and 90,000 were repurchased from
the holders. These share data do not reflect adjustment for the common
stock splits, all of which occurred after the warrants' expiration
date.
Dividends and Capital Transactions
- ----------------------------------
On November 30, 1993, the Board of Directors declared a five-for-four
stock split on the Company's common stock, distributable on January 7,
1994 to shareholders of record as of December 17, 1993. Accordingly,
$34.3 million was transferred from additional paid-in capital to common
stock, representing the par value for additional shares issued,
including the effect of the split on shares issued pursuant to the
Fisher-Price merger. Similar transfers were made between paid-in
capital and common stock in the amounts of $48.0 million and $17.7
million to reflect the respective declarations of a three-for-two stock
split in May 1992 and a five-for-four stock split in October 1991.
A regular quarterly cash dividend has been declared by the Board
of Directors on the Company's common stock since the second quarter of
1990.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Leases
- ------
The Company routinely enters into noncancellable lease agreements for
premises and equipment used in the normal course of business. The
following table shows the future minimum obligations under lease
commitments in effect at December 31, 1993 (in thousands):
Capitalized Leases Operating Leases
------------------ ----------------
1994 $ 800 $ 29,000
1995 900 26,300
1996 3,100 21,400
1997 400 14,700
1998 400 13,500
Thereafter 11,400 25,100
------- --------
17,000 (a) 130,000
Less: Sublease commitments 1,000 400
------- --------
$16,000 $129,600
======= ========
<FN>
(a) Includes $11.7 million of imputed interest.
Rental expense under operating leases amounted to $33.8 million,
$32.1 million and $21.3 million for 1993, 1992 and 1991, respectively,
net of sublease income of $0.4 million, $2.8 million and $1.6 million.
46
In connection with the discontinuance of certain operations in
1984, the Company remained obligated for a facility lease through 1998.
The Company determined in April 1993 that it would not, upon the
expiration of the sublease agreements, utilize such facility and made a
lease termination payment to discharge its remaining obligations to the
lessor. A net charge in the amount of $41.1 million, after related tax
effects of $26.9 million, for the cost of the lease termination was
charged to additional paid-in capital, consistent with the treatment
accorded transactions which preceded the Company's 1987 quasi-
reorganization.
Commitments
- -----------
In the normal course of business, the Company enters into contractual
arrangements for future purchases of goods and services to ensure
availability and timely delivery and to obtain and protect the
Company's right to create and market certain toys. Such arrangements
include commitments for future inventory purchases and royalty payments
pursuant to licensing agreements. Certain of these commitments
routinely contain provisions for guaranteed or minimum expenditures
during the terms of the contracts.
The Company has no significant exposure to credit risk in the
event of nonperformance by any counterparty or group of counterparties
to its outstanding commitments and foreign currency contracts. Market
risk exposures exist with respect to foreign currency contracts to the
extent that currency fluctuations cannot be predicted with certainty.
The Company seeks to mitigate its exposure to market risk through
forecasting its future foreign currency positions and hedge
requirements, by retaining flexibility with respect to currencies used
for international borrowing arrangements and in the invoicing of
transactions between international affiliates, and by varying the
degree of coverage of individual foreign currency exposures, which may
alternatively be left open, partially or fully hedged.
Current and future commitments for guaranteed payments reflect the
Company's focus on expanding its product lines through alliances with
businesses in other industries, such as sporting goods and television
and motion picture entertainment companies. The single largest
commitment involves the Company's 1991 agreements with The Walt Disney
Company. An extended licensing agreement permits the Company to use
the Disney name and characters on preschool and infant products through
2001 and provides for the addition of certain other Disney characters
and product lines to those previously licensed to the Company. In
addition, a related ten-year agreement involves the Company's
participation in attractions and toy stores at three Disney theme parks
and the development of theme park toys.
As of December 31, 1993, the Company had outstanding commitments
for 1994 purchases of inventory of approximately $56.0 million. As of
December 31, 1992, the Company had commitments for 1993 purchases of
inventory of approximately $64.0 million. The licensing and related
agreements provide for terms extending from 1994 through 2001 and
contain provisions for future minimum payments as shown in the
following table (in thousands):
Minimum
Payments
--------
1994 $ 37,000
1995 37,000
1996 36,000
1997 38,000
1998 38,000
Thereafter 124,000
--------
$310,000
========
Royalty expense for the years ended December 31, 1993, 1992 and
1991 was $69.2 million, $50.2 million and $38.8 million, respectively,
with increases in 1993 and 1992 attributable principally to the Disney
license.
Foreign Currency Contracts
- --------------------------
The Company enters into foreign currency forward exchange contracts,
swaps and options as hedges of inventory purchases, sales and various
other intercompany transactions. At December 31, 1993, the Company and
its foreign affiliates had outstanding forward contracts to purchase
U.S. dollars and to sell Canadian, British and other European
currencies to obtain U.S. dollars totaling $256.0 million in 1994.
These contracts hedge $202.8 million of future inventory purchases and
$53.2 million of intercompany borrowing and other intercompany
transactions. Based on broker quotes, if the Company had entered into
contracts involving the same currencies and maturity dates on December
31, 1993, it would have received $248.0 million in 1994. At December
31, 1992, the Company and its foreign affiliates had outstanding
forward contracts totaling $273.0 million to purchase U.S. dollars and
to sell Italian, British, French, Japanese, Australian and Canadian
currencies to obtain U.S. dollars. If acquired on December 31, 1992,
contracts for the same currencies and maturity dates would have totaled
$258.6 million, based on broker quotes.
At December 31, 1993, the Company held forward contracts to
purchase $219.4 million in German, Malaysian, Italian, Hong Kong and
other currencies. The contracts, which expire on various dates during
1994, hedge $127.6 million of future sales and $91.8 million of
intercompany borrowings. Based on broker quotes, contracts for the
same currencies and maturity dates would have purchased the equivalent
of $222.7 million at 1993 year-end rates. At December 31, 1992, the
Company held forward contracts to purchase $153.4 million in British,
Hong Kong, Malaysian, Belgian and German currencies. Based on broker
quotes, contracts for the same currencies and maturity dates acquired
on December 31, 1992 would be worth the equivalent of $159.0 million at
1992 year-end rates.
As of December 31, 1992, Fisher-Price held forward currency
options involving British and Canadian currencies in the amount of
$35.2 million. The options, which hedged
47
future transactions and expired within twelve months, were purchased at
a cost of $0.5 million and were valued at $1.5 million, based on broker
quotes, as of December 31, 1992.
Letters of Credit
- -----------------
The Company had outstanding irrevocable letters of credit in the amount
of $31.8 million and $22.5 million as of December 31, 1993 and 1992,
respectively. These letters of credit, which have terms from one month
to one year, collateralize the Company's obligations to third parties
for the purchase of inventory. The fair value of these letters of
credit is estimated to be the same as the contract values based on the
nature of the fee arrangements with the issuing banks.
Litigation
- ----------
The Company is involved in various litigation and other legal matters,
including claims related to product liability and environmental
cleanup, which are being addressed or defended in the ordinary course
of business. Management believes that any liability which may
potentially result upon resolution of such matters will not have a
material adverse effect on the Company's consolidated financial
position or results of operations.
NOTE 8 - FINANCIAL INFORMATION BY GEOGRAPHIC AREA
- -------------------------------------------------
The Company's business consists of the design, manufacture and
marketing of toys on a worldwide basis. The Company's foreign
operations are located principally in Europe, Canada, Latin America and
the Far East. Consolidated liabilities of these subsidiaries were
approximately $300.4 million, $311.3 million and $342.5 million at
December 31, 1993, 1992 and 1991, respectively.
The Company's toy products are sold throughout the world. Credit
is granted to customers on an unsecured basis, and generally provides
for extended payment terms which result in a substantial portion of
trade receivables being collected during the latter half of the year.
In the United States, toys are distributed directly to large retailers,
including discount and free-standing toy stores, chain stores,
department stores, other retail outlets, and to a limited extent,
wholesalers. Internationally, the Company sells its products directly
in Australia, Austria, the Benelux countries, Canada, Chile, France,
Germany, Greece, Italy, Japan, Mexico, Scandinavia, Spain, Switzerland,
the United Kingdom, and in certain areas of Eastern Europe and Asia.
In addition to direct sales, the Company's products are marketed
principally through distributors in Central and South America, the
Middle East and Southeast Asia. In 1994, the Company will begin
selling its products directly in Argentina, Portugal and Venezuela
through newly established offices. The Company also licenses some of
its products to other manufacturers for sale in Brazil and other Latin
American countries. In the fourth quarter of 1993, the Company's
distributorship agreement for Nintendo products in Australia was
terminated. The Company ceased distribution of Nintendo products in
Canada and Italy during the first and third quarters of 1992,
respectively.
The Company's worldwide sales to Toys R Us and Wal-Mart, the only
customers accounting for more than 10% of 1993 consolidated net sales,
were $598.7 million and $277.3 million, respectively. At December 31,
1993, accounts receivable from Toys R Us and Wal-Mart were $156.8
million and $63.2 million, respectively. In 1992 and 1991, worldwide
sales to Toy R Us, the only customer accounting for more than 10%
of consolidated net sales, were $466.4 million and $289.9 million,
respectively. At December 31, 1992, accounts receivable from Toys R Us
and Wal-Mart were $114.4 million and $69.6 million, respectively.
Information by geographic area is set forth in the tables below.
Profit from operations represents income before income taxes, interest
expense and general corporate expenses. Sales between geographic areas
are based upon transfer prices which include manufacturing cost and
profit.
Profit From Identifiable
(In thousands) Net Sales Operations Assets
- -----------------------------------------------------------------------
1993
- ----
United States $1,873,249 $ 187,923 $ 718,688
Europe and Canada 908,030 68,270 545,406
Far East and Latin America 993,001 96,924 290,759
---------- ---------- ----------
3,774,280 353,117 1,554,853
Sales and transfers between
geographic areas (a) (1,069,832) - -
Interest expense - (62,614) -
Corporate and other - (53,857) 445,224
---------- ---------- ----------
Consolidated total $2,704,448 $ 236,646 $2,000,077
========== ========== ==========
1992
- ----
United States $1,612,174 $ 226,193 $ 712,309
Europe and Canada 861,462 95,480 504,331
Far East and Latin America 844,917 66,461 286,185
---------- ---------- ----------
3,318,553 388,134 1,502,825
Sales and transfers between
geographic areas (a) (755,028) - -
Interest expense - (68,716) -
Corporate and other - (36,473) 209,850
---------- ---------- ----------
Consolidated total $2,563,525 $ 282,945 $1,712,675
========== ========== ==========
1991
- ----
United States $1,073,272 $ 162,584 $ 582,732
Europe and Canada 784,072 93,551 581,230
Far East and Latin America 793,930 66,115 245,986
---------- ---------- ----------
2,651,274 322,250 1,409,948
Sales and transfers between
geographic areas (a) (604,785) - -
Interest expense - (64,334) -
Corporate and other - (43,590) 154,884
---------- ---------- ----------
Consolidated total $2,046,489 $ 214,326 $1,564,832
========== ========== ==========
<FN>
(a) Primarily from the Far East and Latin America to other regions of
the world.
48
NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------------
Due to seasonality of the Company's earnings, exclusion of antidilutive
common stock equivalents in certain periods and fluctuation in the
Company's common stock price, the sum of income per share amounts
reported for each of the four quarters may not equal income per share
reported for the full year.
First Second Third Fourth
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
Year Ended December 31, 1993 (a)
- --------------------------------
Net sales $477,184 $576,618 $896,732 $753,914
Gross profit 226,703 287,150 462,576 384,549
Advertising and promotion expenses 68,489 83,390 139,392 135,427
Other selling and administrative expenses 117,430 121,789 137,523 131,363
Integration and restructuring charge (b) - - - 115,000
Other expense, net 560 3,819 5,378 2,158
Operating profit (c) 40,224 78,152 180,283 601
Income before taxes, extraordinary item
and accounting changes 27,015 63,223 163,370 (16,962)
Extraordinary item - debt retirement - - - (14,681)
Cumulative effect of changes in accounting
principles (4,022) - - -
Net income 14,458 40,770 104,656 (42,676)
Preference stock dividend requirements (1,224) (1,223) (1,224) (1,223)
Net income applicable to common shares 13,234 39,547 103,432 (43,899)
Primary income per share (d):
Income before extraordinary item and
accounting changes $0.10 $0.23 $0.61 ($0.17)
Net income 0.08 0.23 0.61 (0.26)
Average number of common and common
equivalent shares 171,254 170,685 170,609 170,647
Fully diluted income per common share (d):
Income before extraordinary item and
accounting changes $0.10 $0.23 $0.58 ($0.17)
Net income 0.08 0.23 0.58 (0.26)
Average number of common and common
equivalent shares 180,699 180,285 180,335 169,640
Dividends declared per common share (d) $0.040 $0.048 $0.048 $0.048
Common stock market price (d)
High $23.10 $21.10 $22.80 $24.60
Low 16.40 17.10 18.50 21.50
Year Ended December 31, 1992 (a)
- --------------------------------
Net sales $476,889 $562,433 $797,197 $727,006
Gross profit 224,393 279,883 407,845 357,645
Advertising and promotion expenses 66,933 78,078 121,084 137,322
Other selling and administrative expenses 110,540 129,621 129,961 131,482
Other expense (income), net 4,860 4,753 4,190 (719)
Operating profit (c) 42,060 67,431 152,610 89,560
Net income 18,495 32,299 84,436 49,611
Preferred and preference stock dividend
requirements (1,388) (1,179) (1,206) (1,206)
Net income applicable to common shares 17,107 31,120 83,230 48,405
Primary income per share (d):
Net income $0.10 $0.18 $0.48 $0.28
Average number of common and common
equivalent shares 173,736 173,418 173,465 172,648
Fully diluted income per share (d):
Net income $0.10 $0.18 $0.46 $0.27
Average number of common and common
equivalent shares 183,293 183,030 183,075 182,228
Dividends declared per common share (d) $0.026 $0.040 $0.040 $0.040
Common stock market price (d)
High $18.87 $20.60 $20.60 $21.60
Low 15.87 15.80 16.90 17.70
<FN>
(a) Financial information for all quarters reflects the retroactive effect of the November
1993 merger, accounted for as a pooling of interests, with Fisher-Price.
(b) The nonrecurring charge represents transaction, integration and restructuring costs
related to the Fisher-Price merger.
(c) Represents income from operations before interest expense and provision for income taxes.
(d) Per share information and market prices for all periods reflect the retroactive effect
of stock splits distributed to shareholders in January 1994 and June 1992 and the
November 1993 merger with Fisher-Price.
49
NOTE 10 - SUPPLEMENTAL FINANCIAL INFORMATION
- --------------------------------------------
As of Year-End
----------------
(In thousands) 1993 1992
- ----------------------------------------------------------------
Inventories include the following:
Raw materials and work in process $ 50,927 $ 59,018
Finished goods 169,066 179,877
-------- --------
$219,993 $238,895
======== ========
Prepaid expenses and other current
assets include the following:
Deferred income taxes $101,776 $ 29,151
======== ========
Accrued liabilities include the following:
Integration and restructuring charge $ 94,774 $ -
Advertising and promotion 80,396 86,306
Compensation 58,582 48,590
Royalties 25,917 16,808
Other 138,131 115,466
-------- --------
$397,800 $267,170
======== ========
For the Year
-----------------------
(In thousands) 1993 1992 1991
- ----------------------------------------------------------------
Selling and administrative expenses
include the following:
Research and development $75,415 $76,619 $55,510
Provision for doubtful accounts 4,169 21,665 6,560
Statement of Cash Flows
- -----------------------
For the years ended December 31, 1993, 1992 and 1991, cash paid
for interest totaled $76.1 million, $67.8 million and $62.1
million, respectively. Cash paid for incomes taxes in each of the
three years was $55.7 million, $72.5 million and $52.5 million,
respectively.
Significant noncash investing, financing and operating
activities during 1993 were as follows:
- The November 1993 merger with Fisher-Price in a stock-for-
stock transaction neither used nor provided cash (see Note
2). The Company's consolidated financial statements,
consistent with pooling of interests accounting treatment,
reflect retroactive restatement for the effects of the
merger. Accordingly, the assets and liabilities of Fisher-
Price and the changes in shareholders' equity as a result
of the merger are included in the combined consolidated
financial statements as of July 1, 1991, but are not
includable as of December 1990 while Fisher-Price was a
division of The Quaker Oats Company. Because the merger
transaction neither provided nor used cash with respect to
the combined companies, the effect of consolidating
financial statement balances as of July 1, 1991 is not
reflected in the statements of cash flows.
- Conversions by holders of $24.3 million aggregate par
value of the 8% Debentures during the 1993 fourth quarter
resulted in the issuance of 1,896,580 shares (post-split
basis) of the Company's common stock from its treasury.
- The effects of changes in accounting principles related to
the Company's adoption of Statements of Financial
Accounting Standards Nos. 106 and 109 in the 1993 first
quarter neither provided nor used cash, and accordingly,
have been excluded from the statement of cash flows.
NOTE 11 - NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
Postemployment Benefits
- -----------------------
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits", is effective for fiscal
years beginning after December 15, 1993. This statement addresses
the treatment of costs related to postemployment plans not already
accounted for under SFAS Nos. 87 or 106, and requires that
employers who provide benefits to former or inactive employees
after employment, but before retirement, account for such costs on
an accrual basis rather than as expenditures are made. The
Company's practice has been to accrue its obligation for such
benefits when circumstances indicate it is probable a liability
has been incurred and the amount or range of amounts are
reasonably estimable. Therefore, there will be no effect on the
Company's financial position and results of operations as a result
of this pronouncement.
Charitable Contributions
- ------------------------
Statement of Financial Accounting Standards No. 116, "Accounting
for Contributions Received and Contributions Made", was issued in
June 1993. The statement, which is effective for fiscal years
beginning after December 15, 1994, provides that contributions
received or made, including unconditional promises for such gifts,
be recognized in the periods received or made at their fair
values. The Company supports the Mattel Foundation with annual
cash contributions which currently are accrued monthly in the year
of the pledge. Thus, the statement will have no effect on the
Company's results of operations or amount of expense recognized in
any year, only the timing of recognition with respect to interim
periods.
50
Mattel, Inc. and Subsidiaries
MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
-----------------------------------------------------------
Management is responsible for the preparation of the Company's
consolidated financial statements and the related financial and
nonfinancial information appearing in this Annual Report. The
financial statements have been prepared in accordance with
generally accepted accounting principles and, in the opinion of
management, present fairly the Company's financial position,
results of operations and cash flows. The financial statements
necessarily contain some amounts that are based on the best
estimates and judgments of management.
The Company maintains accounting and internal control systems
which management believes are adequate to provide reasonable
assurance, in relation to reasonable cost, as to the integrity and
reliability of the financial statements and as to protection of
assets from unauthorized use or disposition. The selection and
training of qualified personnel, the establishment and
communication of accounting and administrative policies and
procedures, and a program of internal audit are important elements
of these control systems.
The Company's internal auditors are directed to examine the
adequacy and effectiveness of the Company's system of internal
accounting, administrative and operational controls. They conduct
formal and systematic reviews to determine that operations are
adequately controlled and to assure that assets are effectively
safeguarded.
The Board of Directors has appointed an audit committee,
composed entirely of nonemployee directors. The committee meets
regularly with financial management, internal auditors and the
independent accountants to review accounting control, auditing and
financial reporting matters.
Price Waterhouse, independent accountants, are retained to
audit the Company's consolidated financial statements. Their
report on their audits of the accompanying financial statements is
shown herein. This report states that the audits were made in
accordance with generally accepted auditing standards. These
standards do not include a study and evaluation of internal
control for the purpose of expressing an opinion thereon but do
include a study and evaluation for the purpose of establishing a
basis for reliance thereon relative to the scope of their audits
of these consolidated financial statements.
/s/ Michael G. McCafferty
- -------------------------
Michael G. McCafferty
Executive Vice President and Chief Financial Officer
Mattel, Inc. and Subsidiaries
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Mattel, Inc.
In our opinion, based upon our audits and the reports of other
auditors, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of shareholders'
equity and of cash flows present fairly, in all material respects,
the financial position of Mattel, Inc. and its subsidiaries at
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1993, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We did not audit the 1992 and 1991 financial statements
of Fisher-Price, Inc. and its subsidiaries, which statements
reflect total assets of $455,198,000 at January 3, 1993 and total
net sales of $693,951,000 and $372,994,000 for the periods ended
January 3, 1993 and December 29, 1991, respectively. Those
statements were audited by other auditors whose reports thereon
have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Fisher-Price,
Inc. and its subsidiaries, is based solely on the reports of the
other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable
basis for the opinion expressed above.
As discussed in Notes 3 and 4 to the Consolidated Financial
Statements, the Company changed its method of accounting for
income taxes and for postretirement benefits other than pensions
in 1993.
/s/ Price Waterhouse
- --------------------
Los Angeles, California
February 8, 1994
51
Mattel, Inc. and Subsidiaries
DIRECTORS AND OFFICERS
----------------------
Board of Directors
- ------------------
John W. Amerman (1) Chairman and Chief Executive Officer,
Mattel, Inc.
Jill E. Barad President and Chief Operating Officer,
Mattel, Inc.
Dr. Harold Brown (4) Senior Managing Director, E.M. Warburg, Pincus &
Co., Inc.
James A. Eskridge President, Fisher-Price, Inc.
Tully M. Friedman (1)(3) Co-Managing Partner, Hellman & Friedman
Ronald J. Jackson Former Chairman, President and Chief Executive
Officer, Fisher-Price, Inc.
E. Robert Kinney Former President and Chief Executive Officer,
General Mills, Inc.
Ronald M. Loeb (3) Partner, Irell & Manella
Edward H. Malone (1)(2)(4) Retired Vice President, General Electric Co.
John H. Mullin III Chairman, Ridgeway Farm, Inc.
Edward N. Ney Chairman of the Board of Advisors,
Burson-Marsteller
William D. Rollnick (1)(2)(3) Chairman, Genstar Rental Electronics, Inc.
John L. Vogelstein (1)(2)(3) Vice Chairman and Director, E.M. Warburg,
Pincus & Co., Inc.
Lindsey F. Williams (4) President, Mattel International
<FN>
(1) Member, Executive/Finance Committee, John L. Vogelstein, Chairman
(2) Member, Compensation/Options Committee, John L. Vogelstein, Chairman
(3) Member, Audit Committee, William D. Rollnick, Chairman
(4) Member, Pension Committee, Edward H. Malone, Chairman
Executive Officers
- ------------------
John W. Amerman Chairman and Chief Executive Officer
Jill E. Barad President and Chief Operating Officer
James A. Eskridge President, Fisher-Price, Inc.
Joseph C. Gandolfo President, Mattel Operations
Lindsey F. Williams President, Mattel International
Michael G. McCafferty Executive Vice President and Chief Financial
Officer
E. Joseph McKay Senior Vice President, Human Resources and
Administration
N. Ned Mansour Senior Vice President, General Counsel and
Secretary
Gary P. Rolfes Senior Vice President and Controller
William Stavro Vice President and Treasurer
52
Mattel, Inc. and Subsidiaries
CORPORATE INFORMATION
---------------------
Transfer Mattel, Inc. Common Stock
Agent and The First National Bank of Boston
Registrar Shareholder Services Division
150 Royall Street, Canton, Massachusetts 02021 or
P.O. Box 644, Boston, Massachusetts 02102
Telephone: 617-575-2900
Mattel, Inc. 12.5% Convertible Preference Stock,
Series F
Mattel, Inc.
333 Continental Boulevard
El Segundo, California 90245
Note Mattel, Inc. 6-3/4% Senior Notes due May 15, 2000
Trustees PNC Bank, N.A.
One Oliver Plaza, 23rd Floor
Pittsburgh, Pennsylvania 15265
Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997
The First National Bank of Boston
150 Royall Street, Mail Stop 540215
Canton, Massachusetts 02021 or
P.O. Box 1618, Boston, Massachusetts 02105
Stock Mattel, Inc. Common Stock and
Exchange Mattel, Inc. Preference Share Purchase Rights
Listings New York and Pacific Stock Exchanges
Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997
New York Stock Exchange
Common As of March 1, 1994, there were approximately 45,000
Shareholders holders of record of Mattel, Inc. Common Stock
Annual The Annual Meeting of Shareholders will be held May
Meeting 11, 1994, at 10:00 a.m. in the Manhattan Ballroom of
the Radisson Plaza Hotel, Manhattan Beach, California
Form 10-K Mattel's Annual Report to the Securities and
Exchange Commission on Form 10-K for the year ended
December 31, 1993, is available upon request by
writing to the Secretary of the Company, 333
Continental Boulevard, El Segundo, California 90245
Trademark Disney characters: [copyright] The Walt Disney Company.
Legends Happy Meal Magic is a trademark of McDonald's Corporation.
Nickelodeon is licensed for use by MTV Networks, a
division of Viacom International, Inc. Polly Pocket
and Mighty Max are trademarks owned by Bluebird Toys
(UK) Ltd., England.
[copyright] 1994 Mattel, Inc.
All Rights Reserved
Printed in USA
53