SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-05647
----------------------------------
MATTEL, INC.
------------
(Exact name of registrant as specified in its charter)
Delaware 95-1567322
------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (310) 252-2000
--------------
(Former name, former address and former fiscal year, None
if changed since last report) --------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares outstanding of registrant's common stock as of August 4, 1995:
Common Stock - $1 par value -- 221,621,182 shares
PART I -- FINANCIAL INFORMATION
-------------------------------
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30, Dec. 31,
(In thousands) 1995 1994 1994
-------------- ----------- ----------- -----------
ASSETS
Current Assets
Cash $ 73,082 $ 97,702 $ 239,100
Marketable securities 14,624 19,488 20,581
Accounts receivable, net 920,522 879,276 762,024
Inventories 453,902 323,364 339,143
Prepaid expenses and other current assets 201,931 150,318 182,675
----------- ----------- -----------
Total current assets 1,664,061 1,470,148 1,543,523
----------- ----------- -----------
Property, Plant and Equipment
Land 24,463 16,491 22,577
Buildings 198,091 163,190 172,310
Machinery and equipment 316,612 266,262 289,796
Capitalized leases 24,271 38,209 38,468
Leasehold improvements 52,319 44,601 46,512
----------- ----------- -----------
615,756 528,753 569,663
Less: accumulated depreciation 260,286 242,236 248,666
----------- ----------- -----------
355,470 286,517 320,997
Tools, dies and molds, net 108,265 90,890 94,924
----------- ----------- -----------
Property, plant and equipment, net 463,735 377,407 415,921
----------- ----------- -----------
Other Noncurrent Assets
Intangible assets, net 430,607 345,961 432,232
Sundry assets 74,455 68,204 67,350
----------- ----------- -----------
$ 2,632,858 $ 2,261,720 $ 2,459,026
=========== =========== ===========
<FN>
See accompanying notes to consolidated financial information.
2
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, June 30, Dec. 31,
(In thousands, except share data) 1995 1994 1994
--------------------------------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 196,992 $ 342,326 $ -
Current portion of long-term liabilities 2,612 3,301 3,095
Accounts payable 212,343 178,844 295,246
Accrued liabilities 296,222 295,677 453,146
Income taxes payable 166,708 109,462 164,394
----------- ----------- -----------
Total current liabilities 874,877 929,610 915,881
----------- ----------- -----------
Long-Term Liabilities
6-7/8% Senior notes due 1997 99,676 99,536 99,604
6-3/4% Senior notes due 2000 100,000 100,000 100,000
Medium-Term notes 250,000 - 110,500
Mortgage note 44,798 45,000 45,000
Other 104,277 94,413 102,351
----------- ----------- -----------
Total long-term liabilities 598,751 338,949 457,455
----------- ----------- -----------
Shareholders' Equity
Preference stock 9 9 9
Common stock $1.00 par value, 300.0 million
shares authorized; 223.3 million shares,
223.0 million shares and 223.3 million
shares issued, respectively (a) 223,254 178,367 223,264
Additional paid-in capital 234,026 281,390 234,913
Treasury stock at cost; 2.1 million shares,
0.5 million shares and 2.4 million shares,
respectively (a) (46,656) (7,636) (53,812)
Retained earnings (b) 803,050 589,402 737,528
ESOP note receivable - (1,040) -
Deferred compensation - (12,555) -
Currency translation adjustments (b) (54,453) (34,776) (56,212)
----------- ----------- -----------
Total shareholders' equity 1,159,230 993,161 1,085,690
----------- ----------- -----------
$ 2,632,858 $ 2,261,720 $ 2,459,026
=========== =========== ===========
<FN>
(a) Share data for June 1994 have been restated for the effect of the five-for-four stock
split distributed in January 1995.
(b) Since December 26, 1987.
See accompanying notes to consolidated financial information.
3
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the For the
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
(In thousands, except per share amounts) 1995 1994 1995 1994
---------------------------------------- ---------- ---------- ---------- ----------
Net Sales $ 763,474 $ 650,263 $1,307,044 $1,137,534
Cost of sales 396,785 335,758 681,330 584,925
---------- ---------- ---------- ----------
Gross Profit 366,689 314,505 625,714 552,609
Advertising and promotion expenses 106,718 94,010 185,318 165,640
Other selling and administrative expenses 141,498 118,608 273,416 235,405
Interest expense 17,993 11,490 29,070 19,613
Other (income) expense, net (730) 1,315 (4,144) 4,600
---------- ---------- ---------- ----------
Income Before Income Taxes 101,210 89,082 142,054 127,351
Provision for income taxes 33,714 32,000 47,600 46,200
---------- ---------- ---------- ----------
Net Income 67,496 57,082 94,454 81,151
Preference stock dividend requirements 1,099 1,223 2,198 2,446
---------- ---------- ---------- ----------
Net Income Applicable to Common Shares $ 66,397 $ 55,859 $ 92,256 $ 78,705
========== ========== ========== ==========
Primary Income Per Common And Common
Equivalent Share
------------------------------------
Net income $ 0.30 $ 0.25 $ 0.41 $ 0.35
========== ========== ========== ==========
Average number of common and common
equivalent shares 224,553 224,723 224,220 222,418
========== ========== ========== ==========
Dividends Declared per Common Share $ 0.06 $ 0.05 $ 0.12 $ 0.10
========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial information.
4
MATTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the
Six Months Ended
-----------------------
June 30, June 30,
(In thousands) 1995 1994
-------------- ---------- ----------
Cash Flows From Operating Activities:
-------------------------------------
Net income $ 94,454 $ 81,151
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 63,669 50,534
Provision for deferred compensation 4,599 2,511
(Increase) in accounts receivable (154,753) (244,368)
(Increase) in inventories (113,072) (68,080)
(Increase) in prepaid expenses and other current assets (19,859) (2,492)
(Decrease) in accounts payable, accrued liabilities and
income taxes payable (234,044) (110,943)
Other, net (12,700) 2,652
---------- ----------
Net cash flows used for operating activities (371,706) (289,035)
---------- ----------
Cash Flows From Investing Activities:
-------------------------------------
Purchases of tools, dies and molds (47,490) (37,447)
Purchases of other property, plant and equipment (62,030) (27,161)
Purchases of marketable securities (16,355) (17,981)
Proceeds from sales of other property, plant and equipment 4,824 6,495
Proceeds from sales of marketable securities 21,497 16,547
Investment in acquired business - (282,363)
Contingent consideration - Kransco acquisition (8,625) -
Other, net 1,449 (802)
---------- ----------
Net cash flows used for investing activities (106,730) (342,712)
---------- ----------
Cash Flows From Financing Activities:
-------------------------------------
Notes payable 195,064 342,547
Issuance of Medium-Term notes 139,500 -
Redemption of Fisher-Price term loan - (120,629)
Long-term foreign borrowing (842) (4,968)
Collection of ESOP note receivable - 2,460
Payment of ESOP notes payable - (2,460)
Tax benefit of employee stock options exercised 3,816 21,596
Exercise of stock options 10,769 29,930
Purchase of treasury stock (12,925) (21,671)
Dividends paid on common stock (24,056) (18,771)
Dividends paid on preference stock (2,198) (2,446)
Payment for tendered Fisher-Price warrants - (4,891)
Other, net 535 (746)
---------- ----------
Net cash flows from financing activities 309,663 219,951
Effect of Exchange Rate Changes on Cash 2,755 3,385
---------- ----------
(Decrease) in Cash (166,018) (408,411)
Cash at Beginning of Period 239,100 506,113
---------- ----------
Cash at End of Period $ 73,082 $ 97,702
========== ==========
<FN>
See accompanying notes to consolidated financial information.
5
MATTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
1. The accompanying unaudited consolidated financial statements and
related disclosures have been prepared in accordance with generally
accepted accounting principles applicable to interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, all adjustments
considered necessary for a fair presentation of the Company's financial
position and interim results as of and for the periods presented have
been included. Certain amounts in the financial statements for prior
periods have been reclassified to conform with the current year
presentation. Because the Company's business is seasonal, results for
interim periods are not necessarily indicative of those which may be
expected for a full year.
The financial information included herein should be read in conjunction
with the Company's consolidated financial statements and related notes
in its 1994 Annual Report to Shareholders.
2. Accounts receivable are shown net of allowances for doubtful accounts
of $15.1 million (June 30, 1995), $23.7 million (June 30, 1994) and
$16.1 million (December 31, 1994).
3. Inventories are comprised of the following:
June 30, June 30, Dec. 31,
(In thousands) 1995 1994 1994
-------------- --------- --------- ---------
Raw materials and work in progress $ 86,838 $ 70,307 $ 50,334
Finished goods 367,064 253,057 288,809
--------- --------- ---------
$ 453,902 $ 323,364 $ 339,143
========= ========= =========
4. Net cash flows from operating activities include cash payments for the
following:
For the Six Months Ended
--------------------------
June 30, June 30,
(In thousands) 1995 1994
-------------- ----------- -----------
Interest $ 28,789 $ 17,117
Income taxes 47,026 28,164
5. In April, May and June 1995, the Company issued an aggregate of $139.5
million principal amount of fixed rate notes under its Medium-Term Note
program. The notes mature on various dates from June 1998 to May 2007
and bear interest at rates ranging from 5.93% to 7.65%. The proceeds
of these issuances will be used for general corporate purposes.
6
6. In the current quarter, the Board of Directors declared cash dividends
of $0.06 per common share, compared to $0.05 per common share in the
second quarter of 1994. Additionally, cash dividends of $1.2717 per
Series F convertible preference share were declared, which includes
participating common dividends of $0.06 per share.
7. Share and per share data presented in these financial statements
reflect the retroactive effects of the five-for-four stock split
distributed in January 1995.
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. 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.
7
MATTEL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Mattel, Inc. (the "Company") designs, manufactures, markets and distributes
a broad variety of toy products on a worldwide basis. The Company's
business is dependent in great part on its ability each year to redesign,
restyle and extend existing core products and product lines and to design
and develop innovative new toys and product lines. New products have
limited lives, ranging from one to three years, and generally must be
updated and refreshed each year.
Core brands which historically have provided the Company with relatively
stable growth include BARBIE doll products; FISHER-PRICE toys and juvenile
products including the Power Wheels line of battery-powered, ride-on
vehicles; Disney-licensed toys; HOT WHEELS vehicles and playsets; large
dolls; preschool toys including SEE 'N SAY toys; the UNO and SKIP-BO card
games; and the SCRABBLE game, which the Company owns in markets outside of
The United States and Canada.
RESULTS OF OPERATIONS
---------------------
The Company's business is seasonal, and, therefore, results of operations
are comparable only with corresponding periods. Following is a percentage
analysis of operating results:
For the For the
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
Net sales 100% 100% 100% 100%
=========== =========== =========== ===========
Gross profit 48% 48% 48% 49%
Advertising and promotion expenses 14 14 14 15
Other selling and administrative expenses 18 18 21 21
----------- ----------- ----------- -----------
Operating profit 16 16 13 13
Interest expense 3 2 2 2
----------- ----------- ----------- -----------
Income before income taxes 13% 14% 11% 11%
=========== =========== =========== ===========
SECOND QUARTER
--------------
Net sales in the second quarter of 1995 increased $113.2 million or 17%
over the 1994 second quarter. The current quarter's performance reflects
the continuing strong demand for the Company's core products such as BARBIE
doll products; FISHER-PRICE toys and juvenile products, including the Power
Wheels line; and Disney-licensed toys introduced in connection with the
release of the "Pocahontas" motion picture.
8
Worldwide sales of core products represented 85% of the Company's second
quarter gross revenues compared to 83% in the second quarter of 1994.
Sales to customers within the United States increased 18% and accounted for
61% of consolidated sales, consistent with the year-ago quarter. Sales to
customers outside the United States increased 16%, including a net $20.6
million favorable effect from the generally weaker U.S. dollar relative to
the year-ago quarter. At comparable foreign currency exchange rates, sales
internationally grew 9%.
Gross profit as a percentage of net sales remained virtually constant at
48%, as compared to the year-ago quarter. The slight decrease reflects
increased raw material prices, virtually offset by higher sales volumes and
reduced duties as a result of changes in the General Agreement on Tariffs
and Trade.
Advertising and promotion expenses decreased slightly as a percentage of
net sales; however, spending increased $12.7 million in support of the
increased sales volume. As a percentage of net sales, other selling and
administrative expenses remained virtually constant at 18%; however,
spending increased $22.9 million reflecting growth in the Company's direct
marketing programs and new product lines, as well as expansion into new
markets. Other income, net, increased $2.0 million principally as a result
of foreign currency transaction gains, and a gain associated with a Mexican
insurance claim, partially offset by an increase in goodwill amortization
arising from the 1994 acquisitions of Kransco and J.W. Spear.
Interest expense increased 57% compared to the second quarter of 1994. The
increase reflects higher average levels of domestic seasonal borrowings and
higher interest rates.
SIX MONTHS
----------
Net sales in the first half of 1995 increased $169.5 million or 15% over
1994, reflecting continued worldwide demand for the Company's core
products. Worldwide core product sales accounted for 85% of total sales
compared to 83% during 1994, largely due to the increased sales of FISHER-
PRICE toys and juvenile products, including the Power Wheels line; and
BARBIE doll products. Sales to customers within the United States
increased 16% and accounted for 61% of consolidated sales compared to 60%
in 1994. Sales to customers outside the United States increased 12%,
including a net $35.9 million favorable effect from the generally weaker
U.S. dollar relative to the year-ago period. At comparable foreign
currency exchange rates, sales internationally grew 4%.
9
Gross profit, as a percentage of net sales, decreased one percentage point
to 48% over the first half of 1994, primarily due to increased raw material
prices.
Advertising and promotion expenses decreased slightly as a percentage of
net sales. However, spending increased $19.7 million in support of growth
in sales volume. In both 1995 and 1994, other selling and administrative
expenses were 21% of net sales. The $38.0 million increase for 1995 mainly
reflects expenditures for new product development and the Company's
expansion into new markets. Other income, net, increased $8.7 million as a
result of a gain associated with a Mexican insurance claim, and foreign
currency transaction gains, partially offset by an increase in goodwill
amortization arising from the Kransco and J.W. Spear acquisitions in 1994.
Interest expense increased $9.5 million or 48% from 1994 levels, which
reflects higher average levels of domestic seasonal borrowings at higher
interest rates.
FINANCIAL CONDITION
-------------------
The Company's financial position remained strong during the first half of
1995 as a result of its profitable operating results. Cash balances,
including marketable securities, as of June 30, 1995 were $172.0 million
lower than year end, mainly due to funding of seasonal working capital
needs.
Accounts receivable increased $158.5 million since year end, primarily due
to current year sales volume and seasonal customer payment patterns. The
$41.2 million increase in accounts receivable over the year-ago quarter
reflects increased sales volume during the current year. Inventory
balances increased $114.8 million since year end and $130.5 million over
the 1994 quarter end, primarily as a result of the Company's production in
support of future sales volumes.
Other noncurrent assets increased $90.9 million over the year ago quarter,
primarily as a result of goodwill of $103.0 million generated from the July
1994 acquisition of J.W. Spear, partially reduced by the amortization of
intangible assets.
10
Short-term borrowings decreased $145.3 million compared to the 1994 quarter
end primarily due to the issuance of Medium-Term notes. Short-term
borrowings increased $197.0 million since year end in order to fund the
Company's seasonal working capital requirements. Seasonal financing needs
for the next twelve months are expected to be satisfied through internally
generated cash, issuance of commercial paper, and use of the Company's
various short-term bank lines of credit.
Details of the Company's capitalization are as follows:
(In millions) June 30, 1995 June 30, 1994 Dec. 31, 1994
------------- ----------------------------------------------
6-7/8% Senior notes $ 99.7 6% $ 99.5 7% $ 99.6 7%
6-3/4% Senior notes 100.0 6 100.0 8 100.0 7
Medium-Term notes 250.0 14 - - 110.5 7
Other long-term debt
obligations 63.9 3 59.2 4 64.9 4
-----------------------------------------------
Total long-term debt 513.6 29 258.7 19 375.0 25
Other long-term liabilities 85.2 5 80.2 6 82.5 5
Shareholders' equity 1,159.2 66 993.2 75 1,085.7 70
----------------------------------------------
$1,758.0 100% $1,332.1 100% $1,543.2 100%
==============================================
Total long-term debt increased as a percentage of total capitalization
compared to the year-ago quarter, primarily due to issuance of Medium-Term
notes. Shareholders' equity increased $73.5 million since December 31,
1994 and $166.0 million over the 1994 second quarter principally as a
result of the Company's profitable operating results and exercises of
employee stock options, partially offset by treasury stock purchases and
dividends declared to common and preference shareholders.
11
PART II -- OTHER INFORMATION
----------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The Annual Meeting of Shareholders of Mattel, Inc. was held on May 10,
1995, for the purpose of electing directors, approving an amendment to the
Mattel 1990 Stock Option Plan and approving the appointment of independent
auditors. Proxies for the meeting were solicited pursuant to Regulation
14A of the Securities Exchange Act of 1934 and there was no solicitation in
opposition to that of management. All of management's nominees for
directors as listed in the proxy statement were elected with the number of
votes cast for each nominee as follows:
Shares Voted Votes
"FOR" Withheld
------------- ----------
John W. Amerman 191,268,928 32,137,977
Jill E. Barad 191,306,567 32,137,977
Dr. Harold Brown 191,295,682 32,137,977
James A. Eskridge 191,179,989 32,137,977
Tully M. Friedman 170,774,115 32,137,977
Ronald M. Loeb 191,229,588 32,137,977
Edward H. Malone 191,232,436 32,137,977
Edward N. Ney 191,312,621 32,137,977
William D. Rollnick 191,378,867 32,137,977
John L. Vogelstein 191,365,896 32,137,977
Lindsey F. Williams 191,256,334 32,137,977
The amendment to the Mattel 1990 Stock Option Plan was approved by the
following vote:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
------------ ------------ ------------ ----------
137,426,164 48,007,286 4,271,200 1
The proposal to appoint Price Waterhouse LLP as independent accountants for
the Company for the year ending December 31, 1995 was ratified by the
following vote:
Shares Voted Shares Voted Shares Broker
"FOR" "AGAINST" "ABSTAINING" "NON-VOTE"
------------ ------------ ------------ ----------
189,211,973 237,841 254,837 1
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
(a) Exhibits
--------
10.0 Amendment to Mattel 1990 Stock Option Plan (incorporated by
reference to Exhibit A to the Company's Proxy Statement dated
March 22, 1995)
10.1 Second Amendment to the Mattel, Inc. Personal Investment Plan
10.2 Third Amendment to the Mattel, Inc. Personal Investment Plan
11.0 Computation of Income per Common and Common Equivalent Share
27.0 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
-------------------
Mattel, Inc. filed the following Current Report on Form 8-K during
the quarterly period ended June 30, 1995:
Financial
Date of Report Items Reported Statements Filed
-------------- -------------- ----------------
April 18, 1995 5, 7 None
13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MATTEL, INC.
------------
Registrant
Date: As of August 8, 1995 By: /s/ Gary P. Rolfes
-------------------- ------------------
Gary P. Rolfes
Senior Vice President &
Controller
14