SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: February 14, 1997
MATTEL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-05647 95-1567322
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File No.) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 252-2000
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N/A
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(Former name or former address, if changed since last report)
Item 5. Other Events
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In connection with a review of Mattel's Annual Report on Form 10-K for
the year ended December 31, 1995, the staff of the Division of
Corporation Finance of the Securities and Exchange Commission has made
inquiries of Mattel regarding its accounting for certain matters
during 1994 and 1995. In the course of that review, the staff
identified two matters on which it disagrees with Mattel on the
application of generally accepted accounting principles ("GAAP") to
Mattel's accounting treatment under certain contracts with The Walt
Disney Company ("Disney").
The first relates to the timing of accrual of minimum royalty
obligations to Disney under a contract relating to Mattel's sale of
infant and preschool toys based on Disney characters (the "I&P
Agreement"). The staff believes that under GAAP, Mattel should have
accrued for a shortfall in those obligations during 1994 and 1995.
The second relates to the appropriate method of amortizing payment
obligations under contracts with Disney involving the placement of
Mattel sponsored stores and sponsorship of attractions at Disney theme
parks (the "Theme Parks Agreements"). The staff believes that under
GAAP, the payments should have been amortized over the life of the
Theme Park Agreements by the straight-line method rather than at a
rate based upon the pattern of usage and, accordingly, that certain
adjustments made by Mattel during the fourth quarters of 1994 and 1995
were inappropriate.
In addition, Mattel made an accounting error in closing out inventory
hedge contracts in 1994 and 1995. Mattel recognized the resulting
gain during the period the hedge contracts were closed rather than
during the period the related inventory was sold as required by GAAP.
This affected the timing of income during the period 1994-96, but has
no impact at the end of the period or going forward or on the amount
of Mattel's income during the period.
While Mattel believes that its accounting treatment for the first two
matters discussed above was correct, it has decided to make a catch-up
adjustment to results in the fourth quarter of 1996 in the amount of
$21.8 million before taxes, or $15.1 million after taxes ($0.05 per
share). Application of the staff's interpretation during 1994-96
would have decreased Mattel's reported pre-tax income in 1994 and 1995
and increased its reported pre-tax income in 1996 as follows:
(i) for 1994, a reduction in pre-tax income of $19.5 million
(5.2% of pre-tax income), from $393.6 million to $374.2 million, of
which $11.8 million is attributable to the I&P Agreement, $4.9
million is attributable to the Theme Parks Agreements and $2.8 million
is attributable to hedge accounting, and of which $10.8 million (20.5%
of pre-tax income) is applicable to the fourth quarter;
(ii) for 1995, a reduction in pre-tax income of $8.2 million
(1.6% of pre-tax income), of which $2.0 million is attributable to the
I&P Agreement, $3.3 million is attributable to the Theme Parks
Agreements and $2.9 million is attributable to hedge accounting, and
of which $4.0 million (2.5% of pre-tax income) is applicable to the
fourth quarter; and
(iii) for 1996, an increase in pre-tax income of $5.9 million
(1.0% of pre-tax income), of which $0.7 million is attributable to the
Theme Parks Agreements and $5.6 million is applicable to hedge
accounting, offset by $0.4 million attributable to the I&P Agreement.
Mattel's accounting treatment for royalty obligations under the I&P
Agreement and payments under the Theme Parks Agreements was determined
with the concurrence of Mattel's independent auditors, Price
Waterhouse. Mattel's accounting treatment for the royalty shortfall
under the I&P Agreement and the 1994 adjustment to its payment
obligations under the Theme Parks Agreements were also reviewed by a
second accounting firm, Ernst & Young, whose views with respect to
the accounting treatment of such matters were reflected in an independent
report prepared by the law firm of Davis Polk & Wardwell for the
Audit Committee of Mattel's Board of Directors. That report to the
Audit Committee also concluded that Mattel's accounting treatment for
these matters was in accordance with GAAP. While Mattel continues to
believe its original accounting treatment was appropriate, Mattel has
taken the fourth quarter charge described above.
Mattel and Tyco Toys, Inc. ("Tyco") are continuing to progress towards
their previously announced merger (the "Merger"). Tyco has established a
meeting date of March 18, 1997 for its stockholders to vote on the
proposed Merger. Consummation of the Merger is conditioned upon, among
other things, the absence of any preliminary or permanent injunction or
other order issued by any court or other judicial or administrative body
or competent jurisdiction which prohibits or prevents the consummation of
the Merger.
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act") and the rules promulgated thereunder, the Merger may not
be consummated until notifications have been given and certain information
has been furnished to the Antitrust Division of the United States
Department of Justice (the "Antitrust Division") and the United States
Federal Trade Commission (the "FTC") and specified waiting periods have
expired. On November 25, 1996, Tyco and Mattel each filed a Notification
and Report Form for review under the HSR Act with the FTC and the Antitrust
Division. On December 23, 1996, the FTC submitted to Mattel and Tyco a
request for additional information and documentary material (the "Second
Request"). Mattel and Tyco are in the process of furnishing information in
response to the Second Request. Under the HSR Act, the applicable waiting
period during which the Merger may not be consummated will expire on the
20th day after the date on which Mattel and Tyco have "substantially
complied" with the Second Request. On January 23, 1997, the FTC issued
Civil Investigative Demands ("CIDs") to both Mattel and Tyco in connection
with the FTC's investigation of the proposed Merger. The CIDs will not
affect the applicable waiting period. The parties intend to comply with
the CIDs as soon as practicable.
Mattel and Tyco do not believe that any additional governmental filings in
the United States, other that a Certificate of Merger to be filed in
Delaware, are required with respect to the Merger. At any time before or
after consummation of the Merger, the FTC or the Antitrust Division or
certain private parties could take such action under the antitrust laws as
they deem necessary or desirable, including seeking divestiture of
substantial assets of Tyco or Mattel.
Mattel and Tyco do not believe that the consummation of the Merger will
result in a violation of any applicable antitrust laws. However, there can
be no assurance that a challenge to the Merger on antitrust grounds will
not be made or, if such a challenge is made, of the result.
Based upon recent discussions between Mattel and Tyco with respect to their
respective businesses and general conditions in the toy industry and the
economy as a whole, Mattel currently expects that the combined net sales of
Mattel and Tyco for the first full year of combined operations after the
merger (assumed to be the fiscal year ending December 31, 1998) will be $5
billion. Such estimate assumes that the overall net sales of each of
Mattel and Tyco will grow at an average rate of 7% per year from their
combined historical base. The foregoing projection is based upon
management's best estimate of future performance based upon the information
available to it at this time; however, such projection is based upon
numerous assumptions with respect to industry performance, general
business, financial, market and economic conditions and other matters, many
of which are beyond the control of Mattel or Tyco. Investors are strongly
cautioned not to attribute undue certainty to management's projections.
Mattel has no present intention to update the foregoing projection.
Item 7. Financial Statements and Exhibits
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(a) Financial statements of businesses acquired: None
(b) Pro forma financial information: None
(c) Exhibits:
99.0 Fifth Amendment to the 1993 Restatement of the
Mattel Personal Investment Plan
99.1 First Amendment to the Mattel Hourly Employee Personal
Investment Plan
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MATTEL, INC.
Registrant
By: /s/ Leland P. Smith
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Leland P. Smith
Assistant Secretary and
Date: February 14, 1997 Assistant General Counsel
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