EXHIBIT 13.0
Financial Information
---------------------
Mattel, Inc. and Subsidiaries
Five-Year Financial Summary .........................................37
Management's Discussion and Analysis of Financial Condition
and Results of Operations ...........................................38
Consolidated Financial Statements ...................................42
Notes to Consolidated Financial Statements ..........................47
Management Report on Responsibility for Financial Reporting .........60
Report of Independent Accountants ...................................61
thirty six
FIVE-YEAR FINANCIAL SUMMARY
---------------------------
Mattel, Inc. and Subsidiaries
For the Year Ended December 31 (a)
----------------------------------------------------------
(In thousands, except per share and percentage information) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Operating Results:
Net sales $3,785,958 $3,638,812 $3,205,025 $2,704,448 $2,563,525
Gross profit (b) 1,908,623 1,789,162 1,601,503 1,326,267 1,239,308
% of net sales 50% 49% 50% 49% 48%
Operating profit (c)(d) 621,270 606,491 521,081 414,260 351,661
% of net sales 16% 17% 16% 15% 14%
Restructuring and integration charges (e) - - 72,000 115,000 -
Income before income taxes, extraordinary item
and cumulative effect of changes in
accounting principles 545,741 532,902 393,632 236,646 282,945
Provision for income taxes 168,100 175,100 137,800 100,735 98,104
Income before extraordinary item and
cumulative effect of changes in
accounting principles 377,641 357,802 255,832 135,911 184,841
Extraordinary item - loss on debt retirement - - - (14,681) -
Cumulative effect of changes in accounting principles - - - (4,022) -
Net income 377,641 357,802 255,832 117,208 184,841
Income Per Common Share (c)(f):
Income before extraordinary item and cumulative effect
of changes in accounting principles
Primary 1.36 1.26 0.90 0.49 0.67
Fully diluted 1.36 1.26 0.89 0.48 0.65
Net income
Primary 1.36 1.26 0.90 0.42 0.67
Fully diluted 1.36 1.26 0.89 0.42 0.65
Dividends Declared Per Common Share (f) 0.24 0.19 0.15 0.12 0.09
- ----------------------------------------------------------------------------------------------------------------------
As of Year End (a)
----------------------------------------------------------
(In thousands) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Financial Position:
Cash and marketable securities $ 500,625 $ 483,457 $ 259,681 $ 523,581 $ 327,807
Accounts receivable, net 732,307 679,283 762,024 580,313 538,444
Inventories 372,686 350,841 339,143 219,993 238,895
Total assets 2,893,522 2,695,509 2,459,026 2,000,077 1,712,675
Short-term borrowings 20,485 15,520 - - 13,401
Long-term liabilities 485,367 572,659 457,455 398,939 434,930
Shareholders' equity 1,447,787 1,275,169 1,085,690 817,809 748,356
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(a) Consolidated financial information for 1993 and 1992 has been restated retroactively for the effects
of the November 1993 merger, accounted for as a pooling of interests, with Fisher-Price.
(b) The 1996 gross profit includes a $14.2 million nonrecurring charge related to the accounting for
certain royalties in prior periods.
(c) The 1996 operating profit includes a $21.8 million ($15.1 million after-tax or $0.05 per share)
nonrecurring charge related to the accounting for certain royalties and participation fees in prior
periods.
(d) Represents income from operations before restructuring and integration charges, interest expense and provision
for income taxes.
(e) In 1994, amount represents a nonrecurring charge principally related to the consolidation of manufacturing
operations and the reduction of headquarters expense and support functions worldwide. In 1993, the
nonrecurring charge represents transaction, integration and restructuring costs related to the merger
with Fisher-Price.
(f) Per share data reflect the retroactive effect of stock splits distributed to shareholders in March 1996,
January 1995 and 1994 and June 1992 and the mergers with Fisher-Price and IGI in 1993 and 1992, respectively.
thirty seven
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
----------------------------------
Mattel, Inc. and Subsidiaries
THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS ANNUAL REPORT
PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995:
FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY WHICH ARE INCLUDED
HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN SUCH
STATEMENTS. THESE INCLUDE WITHOUT LIMITATION: THE COMPANY'S
DEPENDENCE ON THE TIMELY DEVELOPMENT, INTRODUCTION AND CUSTOMER
ACCEPTANCE OF NEW PRODUCTS; POSSIBLE WEAKNESSES OF INTERNATIONAL
MARKETS; THE IMPACT OF COMPETITION ON REVENUES AND MARGINS; THE EFFECT
OF CURRENCY FLUCTUATIONS ON REPORTABLE INCOME; AND OTHER RISKS AND
UNCERTAINTIES AS MAY BE DETAILED FROM TIME TO TIME IN THE COMPANY'S
PUBLIC ANNOUNCEMENTS AND SEC FILINGS. FORWARD-LOOKING STATEMENTS CAN
BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS
"MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE,"
"CONTINUE," "PLANS," "INTENDS," OR OTHER SIMILAR TERMINOLOGY.
This analysis should be read in conjunction with the consolidated financial
statements which begin on page 42.
Mattel's financial performance reflects the Company's growth in 1996,
demonstrating continued strength in its core brands, as well as increased
manufacturing efficiency. The Company's long-term business strategies have
resulted in another record year for sales and earnings. Net income was
$401.1 million or $1.44 per share, before the $8.4 million after-tax ($0.03
per share) impact from a Snacktime Kids refund accrual, and a $15.1 million
after-tax ($0.05 per share) special charge related to the accounting for
certain royalties and participation fees in prior periods. The special
charge increased cost of sales by $14.2 million and advertising costs by
$7.6 million for both the quarter and year ended December 31, 1996 (see
Note 7 to the consolidated financial statements). Gross profit as a
percentage of net sales increased two percentage points to 51% as compared
to the prior year, before the special charge.
Core brands have historically provided the Company with relatively
stable growth. The Company's four core brands are: i) BARBIE fashion dolls
and doll clothing and accessories; ii) FISHER-PRICE toys and juvenile
products, including the POWER WHEELS line of battery-powered, ride-on
vehicles; iii) the Company's Disney-licensed toys; and iv) HOT WHEELS
vehicles and playsets, each of which has broad worldwide appeal.
Additional product lines consist of large dolls, including CABBAGE PATCH
KIDS; preschool toys, including SEE `N SAY talking toys; the UNO and SKIP-
BO card games; and the SCRABBLE game, which the Company markets outside of
the United States and Canada; and other toy products.
For 1997 and beyond, the Company plans to focus on those brands which
have fundamental play patterns and worldwide appeal, are sustainable, and
will deliver consistent profitability. Rather than only four core brands,
emphasis will be placed upon six core categories of expertise. These
categories are: Fashion Dolls (BARBIE); Infant and Preschool (FISHER-PRICE,
Disney and SEE `N SAY); Entertainment (Disney and Nickelodeon); Wheels (HOT
WHEELS); Large Dolls (CABBAGE PATCH KIDS); and Small Dolls (POLLY POCKET).
Consummation of the proposed merger with Tyco Toys, Inc. ("Tyco"), which is
discussed in detail below and in Note 7 to the consolidated financial
statements, will add, among other brands, SESAME STREET characters, MAGNA
DOODLE and VIEW-MASTER to the Infant and Preschool category, and MATCHBOX,
Tyco Electric Racing and Tyco Radio Control to the Wheels category.
In response to the difficulties experienced in 1996 at Fisher-Price,
the Company plans to increase its focus on preschool toys and introduce new
basic FISHER-PRICE toys throughout the year in 1997.
In the first few months of 1997, the US dollar has strengthened
significantly against many major foreign currencies. Although the Company
hedges a portion of its anticipated currency exposures, the remaining
unhedged portion could be adversely impacted by the strengthening US
dollar. Additionally, if this strengthening persists, Mattel's results of
operations could be adversely impacted by unfavorable translation effects
on foreign revenues and earnings. The statements set forth herein and in
the preceding two paragraphs are forward-looking, and actual results may
differ materially (see the Cautionary Statement above).
thirty eight
RESULTS OF OPERATIONS
- ---------------------
The following is a percentage analysis of operating results for the past
three years:
For the Year
----------------------------------
1996 1995 1994
- ---------------------------------- ---------- ---------- ----------
Net sales 100% 100% 100%
========== ========== ==========
Gross profit 50% 49% 50%
Advertising and promotion expenses 16 16 16
Other selling and administrative
expenses 17 16 17
Restructuring and integration
charges - - 2
Other expense, net 1 - 1
---------- ---------- ----------
Operating profit 16 17 14
Interest expense 2 2 2
---------- ---------- ----------
Income before income taxes 14% 15% 12%
========== ========== ==========
1996 COMPARED TO 1995
- ---------------------
Net sales increased $147.1 million or 4% over 1995, reflecting the
continuing strong demand for the Company's core products. Worldwide sales
of core products represented 87% of the Company's gross sales compared to
83% in 1995. Core brands increased 10%, mainly due to greater demand for
BARBIE and BARBIE-related products, which increased 20% primarily due to
strength in dolls and fashions, especially in the United States. In
addition, the increase in core brands reflects higher sales of HOT WHEELS
vehicles and playsets, which increased 19%; and sales of Disney-licensed
products, which increased 8%. These increases were partially offset by a
4% decline in FISHER-PRICE products. This decline primarily reflects both
late shipments of new FISHER-PRICE products and a reduction in the number
of new basic toy introductions during the year. Sales of other products
decreased 17%, primarily due to lower sales of POLLY POCKET and Nickelodeon
toys, partially offset by an increase in CABBAGE PATCH KIDS sales.
Net sales to customers within the United States grew 7% and accounted
for 63% of consolidated net sales for 1996 compared to 61% in the prior
year. Net sales to customers outside the United States remained virtually
flat compared to 1995, including the $29.8 million unfavorable effect of
the generally stronger US dollar relative to last year. At comparable
foreign currency exchange rates, sales internationally grew 2%.
Gross profit as a percentage of net sales increased one percentage
point to 50%, principally as a result of lower resin and other commodity
prices and improved product mix, partially offset by a $14.2 million
nonrecurring charge related to the accounting for certain royalties in
prior periods. Advertising and promotion expenses remained constant as a
percentage of net sales; however, spending increased $29.9 million in
support of increased sales volume, new product introductions, further
development of international markets and a nonrecurring charge of $7.6
million related to the accounting for participation fees in prior periods.
As a percentage of net sales, other selling and administrative expenses
increased one percentage point to 17%. This growth reflects higher design
and development expenses related to new products, increased sales and
marketing expenditures to support development of the Company's brands, and
higher depreciation expense related to increased investment in fixed
assets, partially offset by a decrease in incentive compensation. Other
expense, net, increased $30.7 million, principally due to nonrecurring 1995
gains recognized on the sale of the non-toy business and trademark rights
related to Corgi, a Mexican insurance claim, and foreign currency
transactions.
1995 COMPARED TO 1994
- ---------------------
Net sales increased $433.8 million or 14% over 1994, reflecting 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; as well as Disney-licensed toys introduced in connection with
the release of the "Pocahontas" motion picture.
Worldwide sales of core products represented 83% of the Company's
gross sales compared to 80% in 1994. Core brands increased 17%, mainly due
to greater demand for BARBIE and BARBIE-related products, which increased
from $1.1 billion to $1.4 billion. FISHER-PRICE products contributed $1.2
billion to gross sales in 1995 compared to $1.0 billion in 1994. Sales of
Disney-licensed products increased 2% to $451.5 million.
Net sales to customers within the United States grew 16% and accounted
for 61% of consolidated net sales for 1995 compared to 60% in the prior
year. Net sales to customers outside the United States increased 10%
compared to 1994, including the $28.5 million favorable effect of the
generally weaker US dollar relative to last year. At comparable foreign
currency exchange rates, sales internationally grew 9%.
Gross profit as a percentage of net sales decreased one percentage
point to 49%, due primarily to the impact of increased raw material prices
and other product costs, partially offset by reduced duties as a result of
changes in the General Agreement on Tariffs and Trade.
Advertising and promotion expenses remained constant as a percentage
of net sales; however, spending increased $68.0 million in support of
increased sales volume, new product introductions, and further development
of international markets. Other selling and administrative expenses
increased $66.6 million primarily due to higher design and development
expenses in support of both core products and new product lines. Other
income, net, increased $32.4 million principally due to the impact of the
Mexican peso devaluation in the fourth quarter of 1994, and the 1995 gains
recognized on the sale of the non-toy business and trademark rights related
to Corgi, a Mexican insurance claim, and foreign currency transactions.
Interest expense increased $18.1 million or 33% from 1994, which
reflects higher average levels of domestic borrowings at higher interest
rates.
thirty nine
In the 1994 fourth quarter, the Company recognized a $72.0 million
pre-tax charge against continuing operations in connection with the
consolidation of manufacturing operations and the reduction of headquarters
expense and support functions worldwide. At December 31, 1995, the
remaining $13.0 million accrual related primarily to committed severance
plans and obligations under certain long-term leases. The cost savings
realized by the Company as a result of the staff reductions and various
distribution and lease terminations were comparable to the anticipated $25
million, and the type and amount of charges incurred to date approximated
the amounts included in the provision.
INCOME TAXES
- ------------
The effective income tax rates for 1996 and 1995 were approximately 31% and
33%, respectively. The decrease in the effective rate for 1996 resulted
from increased taxable income earned in locations with relatively lower
rates.
FINANCIAL POSITION
- ------------------
The Company's financial position remained strong in 1996 primarily due to
its profitable operating results. At December 31, 1996, the Company's cash
position, including marketable securities, was $500.6 million, compared to
$483.5 million as of the prior year.
Sundry assets increased $53.0 million, as compared to the prior year,
primarily due to an investment in group life insurance contracts to assist
in funding the Company's deferred compensation and excess benefit plans,
and issuance of a stock warrant in connection with a licensing agreement
with Disney Enterprises, Inc.
The Company's capitalization is as follows:
As of Year End
----------------------------------------
(In millions) 1996 1995
- ----------------------------- ------------------- -------------------
Medium-Term Notes $ 220.0 11% $ 220.0 12%
6-3/4% Senior Notes 100.0 5 100.0 6
6-7/8% Senior Notes - - 99.8 5
Other long-term debt
obligations 54.9 3 61.1 3
--------- -------- -------- ---------
Total long-term debt 374.9 19 480.9 26
Other long-term liabilities 110.5 6 91.7 5
Shareholders' equity 1,447.8 75 1,275.2 69
--------- -------- -------- ---------
$1,933.2 100% $1,847.8 100%
========= ======== ======== =========
Total long-term debt decreased $106.0 million mainly due to the
reclassification of 6-7/8% Senior Notes from long-term debt to the current
portion of long-term liabilities. Future long-term capital needs are
expected to be satisfied through the retention of corporate earnings and
the issuance of long-term debt instruments. In February 1996, the Company
filed a universal shelf registration statement which will allow for the
issuance of up to $350.0 million of debt and equity securities, which could
include Medium-Term Notes. Shareholders' equity increased $172.6 million
over 1995, reflecting profitable operating results for the current year,
activity related to employee stock compensation plans and issuance of a
stock warrant in connection with a licensing agreement with Disney
Enterprises, Inc. These increases were partially offset by treasury stock
purchases and dividend declarations on common stock.
LIQUIDITY
- ---------
The primary sources of liquidity for the Company over the last three years
have been cash on hand at the beginning of the year, cash flows generated
from operations, long-term debt issuances and short-term seasonal
borrowings. Operating activities generated cash flows of $515.2 million
during 1996, compared to $405.5 million and $346.6 million in 1995 and
1994, respectively.
Principal investing activities during the last three years included
additions of tooling, property and equipment, construction of new
manufacturing and office facilities and expenditures for acquired
businesses.
Financing activities provided intermediate- and long-term funds
through the issuance of Medium-Term Notes in both 1995 and 1994, which were
utilized by the Company to retire higher-cost debt and for general
corporate purposes. In 1996, the Company repaid $30.0 million of Medium-
Term Notes. In 1995, all shares of Series F Preference Stock and common
stock were repurchased from the IGI Employee Stock Ownership Plan ("ESOP").
In 1994, the Company retired Fisher-Price's 10.69% term loan. Cash outlays
for treasury stock were made over the three-year period and provide shares
for issuance under the Company's employee stock option plans and for
conversions of convertible securities. The Company has consistently
increased cash payments for common dividends over the three-year period as
a result of stock splits distributed to common shareholders.
SHORT-TERM FINANCING
- --------------------
The Company's seasonal working capital requirements for the coming year are
expected to be financed through existing and internally generated cash,
issuance of commercial paper, sale of certain trade receivables and use of
the Company's various short-term bank lines of credit. Under the Company's
domestic credit line, unsecured facilities provide a total of $1.0 billion
in seasonal financing from a commercial bank group. The facilities provide
for up to $600.0 million in advances and backup for commercial paper
issuances (a five-year facility), and up to an additional $400.0 million (a
five-year facility) for nonrecourse purchases of certain trade accounts
receivable by the bank group. In connection with the domestic credit line,
the Company is to comply with certain financial covenants for consolidated
debt-to-capital and interest coverage.
In addition, the Company expects to have available approximately $325
million of individual short-term international credit lines with a number
of banks, which customarily are extended as needed to finance seasonal
working capital requirements of certain international affiliates.
forty
ACQUISITIONS
- ------------
In May 1994, the Company acquired substantially all of the business assets
and assumed the associated debts and liabilities of Kransco, a San
Francisco-based designer, manufacturer and marketer of brand name
recreational and sporting products for $274.6 million in cash, including
costs directly related to the acquisition and the repayment of $20.0
million of Kransco's short-term borrowings. The asset purchase agreement
also provided for future contingent consideration in the event that net
sales of the POWER WHEELS product line reached or exceeded certain levels
in each of calendar years 1994, 1995 and 1996. Under the agreement, the
contingent consideration payable with respect to any year shall not exceed
$8.6 million. During 1996 and 1995, $17.2 million was paid related to the
1995 and 1994 sales, and an additional $8.6 million was accrued in 1996,
resulting in an increase to the initial goodwill.
In July 1994, the Company acquired a majority of the shares of J.W.
Spear & Sons PLC ("Spear"), a company organized in the United Kingdom, that
holds the rights to SCRABBLE in markets outside of the United States and
Canada, and certain other games worldwide. The aggregate purchase price,
including related acquisition costs, denominated in pounds sterling, was
approximately $100 million.
PENDING MERGER
- --------------
Pursuant to an Agreement and Plan of Merger dated November 17, 1996, as
amended by an Amendment to Agreement and Plan of Merger dated November 22,
1996, the Company and Tyco have agreed to the merger of Tyco into the
Company. The stock-for-stock transaction, which is expected to be
accounted for as a pooling of interests, is subject to the approval of Tyco
shareholders and certain regulatory approvals. It is estimated that the
combined entity will incur transaction costs of approximately $60 million
to $70 million, including investment banking, legal and accounting fees,
and contractual termination and incentive benefits. In addition, the
Company expects to restructure the combined operations resulting in
additional nonrecurring charges. It is anticipated that the merger will be
completed in the first half of 1997. Under certain circumstances, if the
merger is not ultimately consummated, the Company will be required to pay
Tyco a $15.0 million break-up fee.
LITIGATION
- ----------
The Company is involved in various litigation and other legal matters,
including claims related to intellectual property, product liability, labor
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, 1996, the Company had outstanding commitments for
1997 purchases of inventory of approximately $79 million. Licensing and
similar agreements with terms extending through the year 2002 contain
provisions for future guaranteed minimum payments aggregating approximately
$280 million. In addition, under a certain licensing agreement, the
Company may have additional commitments as high as $37.8 million in 1998
and 1999 payable over three years.
FOREIGN CURRENCY CONTRACTS
- --------------------------
The Company enters into foreign currency forward exchange contracts and
swap agreements primarily as hedges of inventory purchases, sales and other
intercompany transactions denominated in foreign currencies to limit the
effect of exchange rate fluctuations on the results of operations and cash
flows. As of December 31, 1996 and 1995, the Company and its international
affiliates had outstanding forward exchange contracts totaling $405.7
million and $689.2 million, respectively, and swap agreements totaling
$192.9 million and $195.4 million, respectively.
Market risk exposures exist with respect to the settlement of foreign
currency transactions during the year because currency fluctuations cannot
be predicted with certainty. The Company seeks to mitigate its exposure to
market risk by monitoring its currency exchange exposure for the year and
partially or fully hedging such exposure. In addition, the Company manages
its exposure by retaining flexibility with respect to currencies used for
international borrowings and intercompany invoicing. By policy, the
Company maintains hedge coverages between minimum and maximum percentages
of its anticipated foreign currency exposures for any given year.
In order to minimize the risk of counterparty non-performance, the
Company executes its foreign currency forward exchange contracts and swap
agreements with financial institutions believed to be credit-worthy,
generally those that provide the Company with its working capital lines of
credit. The Company does not trade in financial instruments nor does it
enter into contracts for speculative purposes.
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, 1996.
The US Consumer Price Index increased 3.3% in 1996, 2.5% in 1995, and 2.7%
in 1994.
forty one
CONSOLIDATED BALANCE SHEETS
---------------------------
Mattel, Inc. and Subsidiaries
December 31, December 31,
(In thousands) 1996 1995
- -----------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 500,625 $ 466,082
Marketable securities - 17,375
Accounts receivable, less allowances of
$14,354 at December 31, 1996 and
$10,788 at December 31, 1995 732,307 679,283
Inventories 372,686 350,841
Prepaid expenses and other current assets 165,223 177,238
---------- ----------
Total current assets 1,770,841 1,690,819
---------- ----------
Property, Plant and Equipment
Land 30,864 25,724
Buildings 207,382 192,323
Machinery and equipment 409,675 354,469
Capitalized leases 24,271 24,271
Leasehold improvements 59,908 51,629
---------- ----------
732,100 648,416
Less: accumulated depreciation 293,160 265,885
---------- ----------
438,940 382,531
Tools, dies and molds, net 140,673 116,783
---------- ----------
Property, plant and equipment, net 579,613 499,314
---------- ----------
Other Noncurrent Assets
Intangible assets, net 407,444 422,796
Sundry assets 135,624 82,580
---------- ----------
$2,893,522 $2,695,509
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
forty two
December 31, December 31,
(In thousands, except share data) 1996 1995
- -----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 20,485 $ 15,520
Current portion of long-term liabilities 106,069 33,215
Accounts payable 259,721 250,401
Accrued liabilities 406,344 410,362
Income taxes payable 167,749 138,183
---------- ----------
Total current liabilities 960,368 847,681
---------- ----------
Long-Term Liabilities
6-7/8% Senior Notes - 99,752
6-3/4% Senior Notes 100,000 100,000
Medium-Term Notes 220,000 220,000
Mortgage note 44,086 44,585
Other 121,281 108,322
---------- ----------
Total long-term liabilities 485,367 572,659
---------- ----------
Shareholders' Equity
Common stock $1.00 par value, 600.0 million and
300.0 million shares authorized in 1996 and
1995, respectively; 279.1 million shares
issued (a) 279,058 279,058
Additional paid-in capital 95,965 103,512
Treasury stock at cost; 8.1 million shares for
1996 and 3.6 million shares for 1995 (a) (215,999) (75,574)
Retained earnings (b) 1,353,551 1,041,735
Currency translation and other adjustments (b) (64,788) (73,562)
---------- ----------
Total shareholders' equity 1,447,787 1,275,169
---------- ----------
$2,893,522 $2,695,509
========== ==========
<FN>
Commitments and Contingencies (See accompanying notes.)
(a) Share data for 1995 has been restated for the effects of the
five-for-four stock split distributed in March 1996.
(b) Since December 26, 1987 (Note 1).
forty three
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
Mattel, Inc. and Subsidiaries
For the Year
----------------------------------
(In thousands, except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------
Net Sales $3,785,958 $3,638,812 $3,205,025
Cost of sales 1,877,335 1,849,650 1,603,522
---------- ---------- ----------
Gross Profit 1,908,623 1,789,162 1,601,503
Advertising and promotion expenses 614,433 584,497 516,485
Other selling and administrative expenses 647,112 603,061 536,443
Restructuring and integration charges - - 72,000
Interest expense 75,529 73,589 55,449
Other expense (income), net 25,808 (4,887) 27,494
---------- ---------- ----------
Income Before Income Taxes 545,741 532,902 393,632
Provision for income taxes 168,100 175,100 137,800
---------- ---------- ----------
Net Income 377,641 357,802 255,832
Preference stock dividend requirements - 3,342 4,689
---------- ---------- ----------
Net Income Applicable to Common Shares $ 377,641 $ 354,460 $ 251,143
========== ========== ==========
Primary Income Per Common and Common
Equivalent Share
Net income $ 1.36 $ 1.26 $ 0.90
========== ========== ==========
Average number of common and common
equivalent shares 278,385 281,015 279,923
========== ========== ==========
Dividends Declared Per Common Share $ 0.24 $ 0.19 $ 0.15
========== ========== ==========
<FN>
The accompanying notes are an integral part of these statements.
forty four
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Mattel, Inc. and Subsidiaries
For the Year
---------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 377,641 $ 357,802 $ 255,832
Adjustments to reconcile net income to
net cash flows from operating activities:
Gain on sale of business - (9,142) -
Depreciation 122,537 105,943 105,687
Amortization of intangibles 26,520 27,041 18,585
Increase (decrease) from changes in assets
and liabilities:
Accounts receivable (62,152) 70,509 (155,265)
Inventories (24,220) (15,279) (74,148)
Prepaid expenses and other current assets 13,464 3,400 (38,626)
Accounts payable, accrued liabilities and
income taxes payable 50,007 (126,290) 215,403
Deferred compensation and other retirement
plans 8,364 9,516 13,533
Deferred income taxes 1,411 (5,365) 6,966
Other, net 1,644 (12,643) (1,415)
--------- --------- ---------
Net cash flows from operating activities 515,216 405,492 346,552
--------- --------- ---------
Cash Flows From Investing Activities:
Purchases of tools, dies and molds (88,677) (89,730) (75,285)
Purchases of other property, plant and equipment (120,333) (117,155) (88,097)
Purchases of marketable securities (8,000) (29,154) (29,032)
Purchase of other long-term investment (25,114) - -
Proceeds from sales of other property,
plant and equipment 6,007 10,903 12,221
Proceeds from sales of marketable securities 25,315 32,237 25,637
Proceeds from sale of business - 21,129 -
Contingent consideration and investment in
acquired businesses (8,625) (8,625) (374,965)
Other, net 317 318 (89)
--------- --------- ---------
Net cash flows used for investing activities (219,110) (180,077) (529,610)
--------- --------- ---------
Cash Flows From Financing Activities:
Short-term borrowing, net 6,829 18,637 (5,966)
Issuance of Medium-Term Notes - 139,500 110,500
Payment of Medium-Term Notes (30,000) - -
Long-term foreign borrowing (3,717) (2,572) (4,337)
Redemption of Fisher-Price term loan - - (120,629)
Tax benefit of employee stock options exercised 26,300 8,500 23,923
Exercise of stock options and warrants 73,188 24,353 39,209
Purchase of treasury stock (269,771) (64,284) (80,885)
Repurchase of Series F Preference Stock - (73,866) -
Dividends paid on common and preference stock (62,747) (50,963) (47,840)
Payment for tendered Fisher-Price warrants - - (4,891)
Other, net (1,012) 578 4,863
--------- --------- ---------
Net cash flows used for financing activities (260,930) (117) (86,053)
Effect of Exchange Rate Changes on Cash (633) 1,684 2,098
--------- --------- ---------
Net Increase (Decrease) in Cash 34,543 226,982 (267,013)
Cash at Beginning of Year 466,082 239,100 506,113
--------- --------- ---------
Cash at End of Year $ 500,625 $ 466,082 $ 239,100
========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
forty five
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
Mattel, Inc. and Subsidiaries
Additional
Preference Common Paid-In Treasury
(In thousands) Stock Stock Capital Stock
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1993 $9 $172,470 $226,528 $ (47,350)
Net income
Five-for-four stock split 44,653 (44,653)
Purchase of treasury stock (80,885)
Conversion of 8% debentures 5,897 67,549
Restricted stock activity 1,915
Exercise of stock options 244 26,496
Issuance of treasury stock (38,031) 74,423
Payment for tendered Fisher-Price warrants (4,891)
Dividends declared on common stock
Dividends declared on preference stock
Collection of ESOP note receivable
Currency translation and other adjustments
--------- -------- -------- ---------
Balance, December 31, 1994 9 223,264 234,913 (53,812)
Net income
Five-for-four stock split 55,794 (55,794)
Purchase of treasury stock (64,284)
Repurchase of Series F Preference Stock (9) (73,857)
Restricted stock activity 7,919
Exercise of stock options 8,500
Issuance of treasury stock (18,169) 42,522
Dividends declared on common stock
Dividends declared on preference stock
Currency translation and other adjustments
--------- -------- -------- ---------
Balance, December 31, 1995 - 279,058 103,512 (75,574)
Net income
Purchase of treasury stock (269,771)
Restricted stock activity 2,770 (6,627)
Exercise of stock options 26,300
Issuance of treasury stock (53,554) 124,315
Issuance of stock warrant 26,444
Exercise of Fisher-Price warrants (9,507) 11,658
Dividends declared on common stock
Currency translation and other adjustments
--------- -------- -------- ---------
Balance, December 31, 1996 $- $279,058 $ 95,965 $(215,999)
========= ======== ======== =========
<FN>
The accompanying notes are an integral part of these statements.
Currency
ESOP Translation Total
Retained Note Deferred and Other Shareholders'
(In thousands) Earnings Receivable Compensation Adjustments Equity
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 $ 532,003 $(3,500) $(13,003) $(49,348) $ 817,809
Net income 255,832 255,832
Five-for-four stock split -
Purchase of treasury stock (80,885)
Conversion of 8% debentures 73,446
Restricted stock activity 13,003 14,918
Exercise of stock options 26,740
Issuance of treasury stock 36,392
Payment for tendered Fisher-Price warrants (4,891)
Dividends declared on common stock (45,618) (45,618)
Dividends declared on preference stock (4,689) (4,689)
Collection of ESOP note receivable 3,500 3,500
Currency translation and other adjustments (6,864) (6,864)
---------- -------- -------- -------- ----------
Balance, December 31, 1994 737,528 - - (56,212) 1,085,690
Net income 357,802 357,802
Five-for-four stock split -
Purchase of treasury stock (64,284)
Repurchase of Series F Preference Stock (73,866)
Restricted stock activity 7,919
Exercise of stock options 8,500
Issuance of treasury stock 24,353
Dividends declared on common stock (50,253) (50,253)
Dividends declared on preference stock (3,342) (3,342)
Currency translation and other adjustments (17,350) (17,350)
---------- -------- -------- -------- ----------
Balance, December 31, 1995 1,041,735 - - (73,562) 1,275,169
Net income 377,641 377,641
Purchase of treasury stock (269,771)
Restricted stock activity (3,857)
Exercise of stock options 26,300
Issuance of treasury stock 70,761
Issuance of stock warrant 26,444
Issuance of Fisher-Price warrants 2,151
Dividends declared on common stock (65,825) (65,825)
Currency translation and other adjustments 8,774 8,774
---------- -------- -------- -------- ----------
Balance, December 31, 1996 $1,353,551 $ - $ - $(64,788) $1,447,787
========== ======== ======== ======== ==========
<FN>
The accompanying notes are an integral part of these statements.
forty six
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Mattel, Inc. and Subsidiaries
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Principles of Consolidation and Basis of Preparation
- ----------------------------------------------------
The consolidated financial statements include the accounts of Mattel, Inc.
and its subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation, and
certain amounts in the financial statements for prior years have been
reclassified to conform with the current year presentation.
Preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of foreign subsidiaries are translated into US
dollars at fiscal year-end exchange rates. Income, expense and cash flow
items are translated at weighted-average exchange rates prevailing during
the fiscal year. The resulting currency translation adjustments are
recorded as a 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, which are highly liquid investments with
maturities of three months or less when purchased. 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 US dollar-denominated
foreign debt securities held for liquidity purposes, are stated at market
value and classified as securities available-for-sale. Unrealized gains or
losses are reported as a component of shareholders' equity until realized.
Quoted market prices, which approximated cost as of the balance sheet date,
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. The
Company's capitalized warehouse facility lease in existence at the time of
the quasi-reorganization is recorded at its fair value determined as of
December 26, 1987, less accumulated amortization computed over the
remaining lease term.
Intangibles and Long-Lived Assets
- ---------------------------------
Intangible assets consist of the excess of purchase price over the fair
value of net assets acquired in purchase acquisitions, and the costs of
acquired patents and trademarks. Intangible assets are amortized using the
straight-line method over periods ranging from 10 to 20 years. Accumulated
amortization was $125.7 million and $99.6 million as of December 31, 1996
and 1995, respectively.
In the first quarter of 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
--------------------------------
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This
- -------------------------------------------------------------
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. In accordance with this statement, the Company periodically
reviews the carrying value of its fixed and intangible assets to identify
and assess any impairment by evaluating the operating performance and
future undiscounted cash flows of the underlying assets.
Revenue Recognition
- -------------------
Net sales are recognized when products are shipped. Accruals for customer
discounts and rebates are recorded as the related revenues are recognized.
Advertising Costs
- -----------------
Costs incurred in producing media advertising are expensed the first time
the advertising takes place. Advertising costs associated with customer
benefit programs are accrued as the related revenues are recognized.
forty seven
Stock-Based Compensation
- ------------------------
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
--------------------------
Compensation ("SFAS No. 123"). The Company has adopted the disclosure-only
- ------------
provisions of SFAS No. 123. Accordingly, no compensation cost has been
recognized in the results of operations for nonqualified stock options
granted under the Company's plans as such options are granted at not less
than the quoted market price of the Company's common stock on the date of
grant. Compensation cost for restricted stock is recorded annually based
on the quoted market price of the Company's common stock at the end of each
accounting period.
Income Taxes
- ------------
The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities, applying enacted
statutory tax rates in effect for the year in which the differences are
expected to reverse.
Income and Dividends Per Common Share
- -------------------------------------
All share and per share data presented in these financial statements
reflect the retroactive effect of the five-for-four stock splits
distributed in March 1996 and 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. Earnings available to common shareholders
represent reported net income less preference stock dividend requirements,
as applicable.
Foreign Currency Contracts
- --------------------------
The Company enters into foreign currency forward exchange contracts and
swap agreements as hedges to limit the effect of exchange rate fluctuations
on the results of operations and cash flows. Gains and losses related to
hedged transactions, which qualify for hedge accounting, are deferred and
are recognized in the results of operations as part of the underlying
transaction while those related to unhedged transactions are included in
the income statement currently.
NOTE 2 - INCOME TAXES
- ---------------------
Consolidated pre-tax income consists of the following (in thousands):
For the Year
----------------------------------
1996 1995 1994
---------- ---------- ----------
US operations $218,917 $313,703 $268,817
Foreign operations 326,824 219,199 124,815
---------- ---------- ----------
$545,741 $532,902 $393,632
========== ========== ==========
The provision for current and deferred income taxes consists of the
following (in thousands):
For the Year
----------------------------------
1996 1995 1994
---------- ---------- ----------
Current
Federal $ 90,500 $ 84,800 $ 76,100
State 13,200 14,900 12,100
Foreign 62,300 53,600 48,200
--------- --------- ---------
166,000 153,300 136,400
--------- --------- ---------
Deferred
Federal 2,000 21,600 1,500
State 1,000 300 2,250
Foreign (900) (100) (2,350)
--------- --------- ---------
2,100 21,800 1,400
--------- --------- ---------
Total provision for income taxes $168,100 $175,100 $137,800
========= ========= =========
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):
As of Year End
---------------------------
1996 1995
------------ ------------
Sales allowances and inventory reserves $ 58,945 $ 58,060
Deferred compensation 26,360 20,732
Postretirement benefits 12,765 12,840
Excess of tax basis over book basis 12,705 14,098
Operating loss and tax credit carryovers 4,335 22,239
Restructuring and integration charges 2,338 6,193
Other 27,658 26,062
------------ ------------
Gross deferred income tax assets 145,106 160,224
------------ ------------
Excess of book basis over tax basis (13,038) (14,636)
Retirement benefits (10,281) (8,905)
Depreciation (6,501) (5,245)
Other (11,018) (6,327)
------------ ------------
Gross deferred income tax liabilities (40,838) (35,113)
Deferred income tax asset valuation
allowances (10,011) (28,754)
------------ ------------
Net deferred income tax assets $ 94,257 $ 96,357
============ ============
forty eight
Differences between the provision for income taxes at the United
States federal statutory income tax rate and the provision in the
consolidated statements of income were as follows (in thousands):
For the Year
----------------------------------
1996 1995 1994
---------- ---------- ----------
Provision at federal statutory rates $ 191,009 $ 186,516 $ 137,771
Increase (decrease) resulting from:
Losses without income tax benefit 4,547 4,252 1,160
Foreign earnings taxed at different
rates, including withholding taxes (38,958) (27,464) (12,029)
State and local taxes, net of
federal benefit 9,230 10,603 9,327
Dividends paid to ESOP - (1,170) (1,600)
Other 2,272 2,363 3,171
---------- ---------- ----------
Total provision for income taxes $ 168,100 $ 175,100 $ 137,800
========== ========== ==========
Appropriate US 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 US income taxes have been provided is $670.0 million
at December 31, 1996. The additional US 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 $30.2 million would be
due upon remittance of these earnings.
Certain foreign subsidiaries have net operating loss carryforwards
totaling $17.2 million ($3.6 million with no expiration date, $5.7 million
expiring from 1997 to 2001, and $7.9 million expiring after 2001).
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 1996, 1995 and 1994,
nonqualified stock options exercised resulted in credits to additional
paid-in capital totaling $26.3 million, $8.5 million and $23.9 million,
respectively.
The Internal Revenue Service has completed its examination of the
Company's federal income tax returns through December 31, 1991.
NOTE 3 - EMPLOYEE BENEFITS
- --------------------------
The Company and certain of its subsidiaries have various pension and
retirement plans covering substantially all employees of these companies.
Expense related to these plans totaled $16.2 million, $16.1 million and
$14.6 million in 1996, 1995 and 1994, respectively. Prior to the November
1993 merger, Fisher-Price maintained a number of benefit plans and
compensation arrangements. Subject to certain exceptions, these programs
shall continue to be maintained by Fisher-Price without material change or
modification for periods up to five years following the merger.
Pension Plans
- -------------
The Company provides defined benefit pension plans, which satisfy the
requirements of the Employee Retirement Income Security Act of 1974
("ERISA"), 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. With the exception of the Fisher-Price Pension Plan, activity
related to the Company's pension plans, including those of foreign
affiliates, was not significant during any year.
The Fisher-Price 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 November 1993 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. 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. The components of net pension
cost for this plan, based upon an October valuation date for the years
ended December 31, 1996, 1995 and 1994, are detailed below (in thousands):
For the Period Ended
----------------------------------
1996 1995 1994
---------- ---------- ----------
Service cost $ 2,671 $ 2,547 $ 3,562
Interest cost 8,866 7,924 7,646
Actual (gain) loss on plan assets (16,997) (30,650) 1,038
Net amortization and deferral (206) 16,881 (14,221)
---------- ---------- ----------
Net pension income $ (5,666) $ (3,298) $ (1,975)
========== ========== ==========
forty nine
Reconciliation 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
----------------------
1996 1995
---------- -----------
Vested benefits $122,113 $115,573
Nonvested benefits 3,498 3,126
---------- -----------
Accumulated benefit obligation 125,611 118,699
Effect of projected future salary
increases 5,768 4,862
---------- -----------
Projected benefit obligation 131,379 123,561
Plan assets at fair value 157,507 144,718
--------- ---------
Plan assets in excess of projected
benefit obligation 26,128 21,157
Unrecognized net loss 2,046 3,769
Unrecognized prior service cost 1,904 2,055
Unrecognized net asset at transition (6,423) (8,992)
--------- ---------
Prepaid pension asset $ 23,655 $ 17,989
========== ===========
For the Period
----------------------
1996 1995 1994
------ ------ ------
Assumptions:
Weighted average discount rate 7.75% 7.25% 8.50%
Rate of future compensation increases 4.00% 4.00% 4.00%
Long-term rate of return on plan
assets 11.00% 10.00% 10.00%
- ----------------------------------------------------------------
Other Retirement Plans
- ----------------------
Domestic employees not covered by collective bargaining agreements are
eligible to participate in the Company's 401(k) savings plans, which are
defined contribution plans satisfying ERISA requirements. Under these
plans, the Company makes contributions to a trust based upon the employee's
age and matches a portion of certain amounts of voluntary employee
contributions. Employees of Mattel are covered by either the Mattel, Inc.
Personal Investment Plan or the Mattel, Inc. Hourly Employee Personal
Investment Plan. Effective April 1, 1997, the Fisher-Price, Inc. Matching
Savings Plan, which covers employees of Fisher-Price, will be merged and all
of its assets will be transferred into the Mattel, Inc. Personal Investment
Plan.
The Company maintains unfunded supplemental executive retirement plans
which are nonqualified defined benefit plans covering certain key
executives of Mattel, Inc. and its subsidiaries. For 1996, 1995 and 1994,
the accumulated and vested benefit obligations and related expense of these
plans were not significant.
Deferred Compensation and Excess Benefit Plans
- ----------------------------------------------
The Company provides a deferred compensation plan which permits certain
officers and key employees of Mattel, Inc. to elect to defer portions of
their compensation. The deferred compensation plan, together with certain
Company and employee contributions made to an excess benefit plan, earn
various rates of return. The liability for these plans as of December 31,
1996 and 1995 was $29.4 million and $16.2 million, respectively. The
Company's contribution to these plans and the related administrative
expense were not significant to the results of operations during any year.
In August 1996, the Company purchased group trust-owned life insurance
contracts designed to assist in funding these programs. The cash surrender
value of these policies, valued at $25.1 million as of December 31, 1996,
are held in an irrevocable rabbi trust which is included in sundry assets
in the consolidated balance sheets.
Employee Stock Ownership Plan
- -----------------------------
In connection with the February 1992 merger, IGI convertible preferred
stock held by the IGI ESOP was exchanged for 55.8 thousand shares of the
Company's common stock and 864.3 thousand shares of the Company's 12.5%
Convertible Preference Stock, Series F. The ESOP debt was repaid in August
1994 through a series of dividend and cash contributions paid by the
Company to service the debt. On October 20, 1995, the Company repurchased
all shares of Series F and common stock from the ESOP for a total of $75.1
million. All benefits due to participants have been distributed, and the
ESOP was terminated.
Postretirement Benefits
- -----------------------
The Company maintains a contributory postretirement benefit plan for
domestic employees of Mattel. The plan provides for certain medical,
dental and life insurance benefits to retirees meeting certain age and
years of service requirements. The ongoing costs and obligations
associated with the Mattel, Inc. plan are not significant to the Company's
financial position and results of operations during any year.
Fisher-Price has an unfunded postretirement health insurance plan
covering certain eligible domestic employees hired prior to January 1,
1993. Employees who retired or elected to retire before January 1, 1994
and employees whose age-plus-service was equal to 70 years by December 31,
1993 may continue to participate, for their lifetime, in the Fisher-Price
group health insurance plan at the same contribution rate as active
employees. Other employees, who were active at December 31, 1992, who do
not satisfy the criteria outlined above participate in a retiree medical
account balance plan. 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 health care insurance and to pay for
health care expenses not reimbursed by insurance or Medicare. If an
employee terminates employment prior to satisfying the retirement criteria,
eligibility in either plan is forfeited and no benefits are paid. Any
employee hired or rehired on or after January 1, 1993 is not eligible to
receive postretirement health insurance coverage.
Details of the plan's expense recognized in the consolidated financial
statements for the years ended December 31, 1996, 1995 and 1994 are as
follows (in thousands):
For the Year
----------------------------------
1996 1995 1994
---------- ---------- ----------
Service cost $ 344 $ 432 $ 511
Interest cost 2,494 2,539 1,826
Net amortization and deferral 2 - -
---------- ---------- ----------
Net postretirement benefit cost $2,840 $2,971 $2,337
========== ========== ==========
fifty
Amounts included in the Company's consolidated balance sheets for this
plan are as follows (in thousands):
As of Year End
----------------------
1996 1995
---------- ----------
Current retirees $25,748 $28,418
Fully eligible active employees 1,982 2,502
Other active employees 5,452 4,305
---------- ----------
Accumulated postretirement benefit 33,182 35,225
obligation
Unrecognized net loss (1,596) (3,687)
---------- ----------
Accrued postretirement benefit liability $31,586 $31,538
========== ==========
The discount rates used in determining the accumulated postretirement
benefit obligation were 7.75%, 7.25% and 8.50% for 1996, 1995 and 1994,
respectively. For participants under 65 years of age, the health care cost
trend rate for expected claim costs was assumed to be 6.00% in 1996,
declining to 5.50% 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 5.50% in 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 1996 by approximately $0.3 million and
increased the accumulated postretirement benefit obligation as of December 31,
1996 by approximately $3.8 million.
Incentive Awards
- ----------------
The Company's Long-Term Incentive Plan is a three-year plan available to
certain key executives of Mattel, Inc. Interim awards are paid annually
based upon the financial performance of the Company over a three-year
period. At December 31, 1996, $3.9 million was accrued for awards under
the 1996 plan. As of December 31, 1995, $19.7 million was accrued for
final awards under the 1993 plan.
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
Compensation/Options Committee of the Board of Directors. At December 31,
1996 and 1995, $5.2 million and $17.8 million, respectively, were accrued
for awards under these plans.
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 value of the SAR was capped, and they
were canceled in exchange for awards consisting of nonqualified stock
options and cash, contingent upon the executive's continued employment by
the Company. Cash awards totaling $19.0 million were paid in two equal
installments and were eligible to be deferred as part of the deferred
compensation plan at the election of the executive. The first installment
was paid during 1995 and the final installment was paid during 1996. As of
December 31, 1995, $9.0 million was accrued for the SAR.
NOTE 4 - SEASONAL FINANCING AND LONG-TERM DEBT
- ----------------------------------------------
Seasonal Financing
- ------------------
The Company maintains and periodically amends or replaces an unsecured
revolving credit agreement with a commercial bank group that is utilized to
finance the seasonal working capital requirements of its domestic and
certain international operations. The agreement in effect during 1996,
which was recently amended (see below), was renegotiated in the first
quarter of 1996 to increase the total facility to $800.0 million from
$650.0 million. Within the facility, up to $400.0 million was a standard
revolving credit line available for advances and backup for commercial
paper issuances (a five-year facility). Interest was charged at various
rates selected by the Company not greater than the base rate charged by the
agent bank, plus a commitment fee of up to .09% of the unused line
available for advances. The remaining $400.0 million (a five-year
facility) was available for nonrecourse purchases of certain trade accounts
receivable of the Company by the commercial bank group providing the credit
line. Outstanding receivables sold are reduced by collections and cannot
exceed the $400.0 million at any time. The uncollected balance of
receivables sold totaled $40.0 million and $67.5 million at December 31,
1996 and 1995, respectively. The agreement required the Company to comply
with certain financial covenants for consolidated debt-to-capital, interest
coverage and tangible net worth levels.
During 1996, the Company entered into and renewed agreements providing
for up to $140.0 million of nonrecourse purchases of certain trade accounts
receivable of the Company by a commercial bank at various purchase dates.
The uncollected balance of receivables sold totaled $131.0 million and
$79.5 million at December 31, 1996 and 1995, respectively.
The Company also enters into agreements with banks of its foreign
subsidiaries for nonrecourse sales of its foreign subsidiary receivables.
The uncollected balances of foreign receivables sold as of December 31,
1996 and 1995 each totaled $222.0 million.
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.
International credit lines total approximately $324.6 million, a portion of
which is used to support letters of credit. The Company expects to extend
these credit lines throughout 1997 and believes available amounts will be
adequate to meet its seasonal financing requirements.
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
fifty one
approximation of their fair value. Information relating to the Company's
domestic and international credit lines is summarized as follows (in
thousands):
For the Year
----------------------------
1996 1995 1994
-------- -------- --------
Balance at end of year
Domestic $ - $ - $ -
International 20,485 15,520 -
Maximum amount outstanding
Domestic 506,000 397,000 613,000
International 94,000 84,000 74,000
Average borrowing
Domestic 182,000 221,000 271,000
International 55,000 45,000 36,000
Weighted average interest rate
on average borrowing
Domestic (computed daily) 5.5% 6.0% 5.0%
International (computed monthly) 9.6% 9.5% 11.5%
- ---------------------------------------------------------------------
Effective in March 1997, the Company amended its revolving credit
agreement. The new agreement consists of unsecured facilities providing a
total of $1.0 billion in seasonal financing from substantially the same
group of commercial banks. The facilities provide for up to $600.0 million
in advances and backup for commercial paper issuances (a five-year
facility), and up to an additional $400.0 million (a five-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 financial covenants for consolidated debt-to-capital and interest
coverage.
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. As of December 31,
1996, the 6-7/8% Senior Notes are included in the current portion of long-
term liabilities in the consolidated balance sheets. At December 31, 1996
and 1995, the bid prices for the 6-7/8% Senior Notes, as provided by one of
the underwriters, were $1,005.50 and $1,020.40, respectively, based on a
par value of $1,000.00.
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 May and November. At December 31,
1996 and 1995, the bid prices for the 6-3/4% Senior Notes, as provided by
one of the underwriters, were $1,007.70 and $1,033.40, respectively, based
on a par value of $1,000.00.
Medium-Term Notes ("MT Notes")
- ------------------------------
During the 1994 third quarter, the Company commenced a program for the
issuance of up to $250.0 million in aggregate principal amount of Series A
Medium-Term Notes. During the 1994 fourth quarter, the Company issued an
aggregate of $80.5 million principal amount of MT Notes maturing on various
dates from October 1999 to December 2004. Interest is payable semiannually
at fixed rates ranging from 8.00% to 8.55% per annum on the fifteenth day
of May and November. At December 31, 1996 and 1995, the bid prices for
these notes ranged from $1,041.00 to $1,096.60 and $1,075.00 to $1,159.30,
respectively, based on a par value of $1,000.00. In 1994, the Company also
issued an aggregate of $30.0 million principal amount of floating rate MT
Notes which matured in January 1996.
During 1995, an aggregate of $139.5 million principal amount of MT
Notes was issued by the Company maturing on various dates from June 1998 to
May 2007. Interest is payable semiannually at fixed rates ranging from
5.93% to 7.65% per annum on the fifteenth day of May and November. At
December 31, 1996 and 1995, the bid prices for these notes ranged from
$998.70 to $1,040.90 and $1,006.50 to $1,081.60, respectively, based on a
par value of $1,000.00.
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 million and $51 million at
December 31, 1996 and 1995, respectively.
Scheduled Maturities
- --------------------
The aggregate amounts of long-term debt and capitalized lease obligations
maturing in the next five years are as follows (in thousands):
Medium- Capitalized
Senior Term Mortgage Lease
Debt Notes Note Obligations Other Total
--------- ---------- -------- ----------- --------- ---------
1997 $100,000 $ - $500 $100 $5,500 $106,100
1998 - 9,500 500 100 600 10,700
1999 - 30,000 600 100 600 31,300
2000 100,000 - 600 - 700 101,300
2001 - 30,500 700 - 600 31,800
- --------------------------------------------------------------------------
NOTE 5 - SHAREHOLDERS' EQUITY
- -----------------------------
Common Stock
- ------------
In May 1996, the shareholders of the Company approved an amendment to the
Company's Restated Certificate of Incorporation that increased the number
of shares of authorized common stock from 300.0 million to 600.0 million in
order to accommodate issuance of common stock in connection with possible
future mergers and other financing transactions, future stock dividends or
splits, future awards pursuant to the Company's stock option plans, warrant
exercises, and other general corporate purposes.
fifty two
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%
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 3.0 million shares of $1.00 par value
preferred stock and 20.0 million shares of $0.01 par value preference
stock. No preferred or preference stock is currently outstanding.
In February 1992, 1.5 million shares of $0.01 par value preference
stock 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, 864.3 thousand
shares of $0.01 par value preference stock were designated as 12.5%
Convertible Preference Stock, Series F, and issued to the IGI ESOP. On
October 20, 1995, the Company repurchased all outstanding preference stock
from the IGI ESOP for $73.9 million. The ESOP note receivable, which was
secured by the Series F Preference Stock, was repaid in August 1994.
Stock Compensation Plans
- ------------------------
In May 1996, the shareholders of the Company approved the Mattel 1996 Stock
Option Plan. Under this plan, incentive stock options, nonqualified stock
options, stock appreciation rights, nonvested stock awards, and shares of
common stock may be granted to officers, key employees, and other persons
providing services to the Company. In addition, nonqualified stock options
may be granted to members of the Company's Board of Directors who are not
employees of the Company.
Generally, options are exercisable contingent upon the grantees'
continued employment with the Company. Nonqualified stock options are
granted at not less than 100% of the fair market value of the Company's
common stock on the date of grant, generally vest at the rate of 25% per
year of service, and usually expire within ten years from the date of
grant. The 1996 Stock Option Plan provides that up to 1.5% of Mattel's
outstanding common stock as of the first day of each calendar year will be
available for awards under the plan. Any unused portion of the percentage
limit for any calendar year shall be carried forward and made available for
awards in succeeding calendar years. The aggregate number of shares of
common stock available for grants under the 1996 plan shall not exceed 50.0
million shares. This plan expires on December 31, 2005. The Company's
previous plans, the 1978, 1982, and 1990 Stock Option Plans, expired on
April 12, 1988, April 14, 1992, and December 31, 1996, respectively. All
outstanding awards under these plans continue to be exercisable under the
terms of their respective grant agreements.
The Company has adopted the disclosure-only provisions of SFAS No.
123. Accordingly, no compensation cost has been recognized in the
results of operations for nonqualified stock options granted under its
plans during the years ended December 31, 1996, 1995 and 1994. Had
compensation cost for these options been determined based on their fair
value at the date of grant consistent with the method of accounting
prescribed by SFAS No. 123, the Company's net income and earnings per share
would have been reduced by $6.6 million or $0.02 per share and $2.0 million
or $0.01 per share in 1996 and 1995, respectively. The pro forma effect on
the Company's 1996 and 1995 net income is not indicative of the pro forma
effect in future years, because it does not take into consideration the pro
forma expense related to grants made prior to 1995.
The fair value of options granted during 1996 and 1995 has been
estimated using the Black-Scholes pricing model. The following weighted-
average assumptions were used in determining fair value:
1996 1995
- -------------------------------------------------------------
Expected life (in years) 3.17 3.17
Risk-free interest rate 6.05% 5.28%
Volatility factor 17.98% 19.23%
Dividend yield 0.82% 0.75%
- -------------------------------------------------------------
The weighted average fair values of options granted during 1996 and
1995 were $5.12 and $3.25, respectively.
The following is a summary of stock option information and weighted-
average exercise prices for the Company's stock option plans during the
year (options in thousands):
1996 1995 1994
--------------- --------------- --------------
Nonqualified Plans Number Price Number Price Number Price
- -------------------------- ------ ------ ------ ------ ------ -----
Outstanding at January 1 14,513 $14.27 13,148 $12.73 15,616 $ 9.51
Options granted 4,294 25.15 4,152 16.99 3,803 15.76
Options exercised (5,267) 13.48 (2,314) 10.52 (6,126) 6.40
Options canceled (230) 16.67 (473) 13.63 (145) 13.24
------ ------ ------
Outstanding at December 31 13,310 $18.05 14,513 $14.27 13,148 $12.73
====== ====== ======
Exercisable at December 31 5,263 $14.41 5,541 $13.41 3,200 $11.89
====== ====== ======
Available for grant at
December 31 4,074 921 123
====== ====== ======
fifty three
The following table summarizes information about stock options
outstanding as of December 31, 1996 (options in thousands):
Options Outstanding Options Exercisable
-------------------------------- -------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Number Life Price Number Price
- ---------------- ------ ----------- --------- ------ ---------
$ 1.84 to $10.01 357 3.68 years $ 5.41 357 $ 5.41
10.16 to 15.30 4,018 6.60 13.18 2,522 13.15
15.76 to 22.40 4,647 7.68 16.68 2,256 16.59
23.90 to 29.88 4,288 9.18 25.14 128 26.11
------ ------
$ 1.84 to $29.88 13,310 7.73 $18.05 5,263 $14.41
====== ======
In December 1993, restricted stock awards totaling 927.7 thousand
shares were granted to key Mattel executives. During the time period from
the award date until January 1, 1997, when the restrictions lapsed, these
shares could not be sold, assigned, pledged or otherwise encumbered by the
recipients. During 1996, 244.1 thousand shares were forfeited and returned
to the Company. As of December 31, 1996, restricted stock awards in the
amount of 683.6 thousand shares were outstanding.
The market value of restricted stock awards as of December 31, 1994
was charged to income as part of the 1994 restructuring. Any subsequent
increases or decreases in market value through January 1, 1997, the end of
the restriction period, are reflected in the results of operations
currently. As a result, $2.8 million and $7.9 million were charged to
income in 1996 and 1995, respectively. In addition, as a result of the
forfeiture, $6.6 million of compensation expense that was recognized in
previous periods was reversed in 1996.
Fisher-Price Stock Subscription Warrants
- ----------------------------------------
In connection with their term loan, Fisher-Price issued to the lenders
detachable warrants allowing them to purchase shares of Fisher-Price common
stock, subject to certain antidilution requirements. As of the effective
date of the merger, the Company agreed to assume Fisher-Price's obligations
pursuant to the provisions of the warrants.
During June 1994, a holder of 451.0 thousand warrants elected to
receive $4.9 million in cash in lieu of common shares as a result of
change-of-control provisions triggered by the merger. In October 1996,
451.0 thousand warrants were exercised for an equal number of common shares
by a holder in accordance with the terms of the warrant agreement.
The exercise of all outstanding warrants by the holders would result
in delivery of 751.4 thousand shares of the Company's common stock at an
exercise price of approximately $4.77 per share. These warrants expire on
June 30, 2000.
Disney Warrant
- --------------
In June 1996, the Company entered into a licensing agreement with Disney
Enterprises, Inc. for an expanded strategic alliance, which grants the
Company exclusive worldwide rights (with certain exceptions) to produce
toys based on all children-oriented Disney television and film properties
introduced, commencing summer 1997. Pursuant to this agreement, the
Company issued Disney a warrant to purchase 3.0 million shares of the
Company's common stock at an exercise price of $27.375 per share. This
warrant cannot be exercised prior to April 2, 1999 and expires no later
than April 2, 2004. The fair value of the warrant will be charged to
income when the related properties are introduced as a component of royalty
expense over the period the related revenues are recognized. The warrant's
fair value of $26.4 million was determined using the Black-Scholes pricing
model, assuming an expected life of eight years, a dividend yield of 0.88%,
a risk-free interest rate of 6.17%, and a volatility factor of 27.60%.
Conversion of 8% Convertible Subordinated Debentures
- ----------------------------------------------------
During the 1994 first quarter, holders tendered $75.7 million of the 8%
Convertible Subordinated Debentures for conversion into 9.2 million common
shares in response to the Company's Notice of Redemption.
Common Stock Repurchase Plan
- ----------------------------
In February 1996, the Board of Directors approved a continuation of the
stock repurchase program to permit the annual repurchase of 8.8 million
shares to fund the Company's stock option plans and provide for warrant
exercises. In October 1996, the Executive/Finance Committee of the Board
of Directors increased the number of shares to be repurchased during 1996
from 8.8 million to 10.0 million shares. For 1997, the Board of Directors
authorized the repurchase of 6.0 million to 7.0 million shares under the
plan.
The Company's stock repurchase plan, initiated in May 1990 and
expanded in May 1993, provided for the repurchase of up to 19.5 million
shares during the four-year period ending in 1997. During 1995 and 1994,
the Company repurchased 2.9 million and 4.7 million shares, respectively.
In addition to shares acquired on the open market, the Company repurchased,
during the fourth quarter of 1995, the equivalent of 3.3 million shares of
common stock in connection with its cash payment to the IGI ESOP for all
outstanding shares of Series F Preference Stock.
Shares repurchased, less 5.3 million, 2.3 million, and 5.7 million
shares reissued in 1996, 1995 and 1994, respectively, are included in
treasury stock. During 1996, 244.1 thousand shares were returned to the
treasury as a result of forfeiture of restricted stock awards.
Dividends and Capital Transactions
- ----------------------------------
On February 6, 1996, the Board of Directors declared a five-for-four stock
split on the Company's common stock, which was distributed on March 1,
1996. Accordingly, $55.8 million was transferred from additional paid-in
capital to common stock, representing the par value of additional shares
issued. A similar transfer was made between additional paid-in capital and
common stock in the amount of $44.7 million reflecting the declaration of a
five-for-four stock split in December 1994.
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.
fifty four
NOTE 6 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Leases
- ------
The Company routinely enters into noncancelable 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, 1996 (in thousands):
Capitalized Operating
Leases Leases
----------- ---------
1997 $ 400 $ 36,000
1998 400 31,500
1999 400 23,000
2000 400 18,800
2001 400 13,600
Thereafter 10,200 11,600
----------- ---------
12,200 (a) 134,500
Less: sublease commitments - 400
----------- ---------
$12,200 $134,100
=========== =========
<FN>
(a) Includes $10.0 million of imputed interest.
Rental expense under operating leases amounted to $45.2 million, $42.8
million and $33.7 million for 1996, 1995 and 1994, respectively, net of
sublease income of $0.5 million in 1996 and $0.7 million in both 1995 and
1994.
Commitments
- -----------
In the normal course of business, the Company enters into contractual
arrangements to obtain and protect the Company's right to create and market
certain toys and for future purchases of goods and services to ensure
availability and timely delivery. Such arrangements include royalty
payments pursuant to licensing agreements and commitments for future
inventory purchases. Certain of these commitments routinely contain
provisions for guaranteed or minimum expenditures during the terms of the
contracts. 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 television and motion picture
entertainment companies.
The single largest commitment involves the Company's 1991 agreement
with The Walt Disney Company ("Disney"). This licensing agreement, which
contains annual minimum royalty guarantees, permits the Company to use the
Disney name and certain characters on preschool and infant products through
September 2002. In related agreements, the Company participates in
attractions and toy stores at three Disney theme parks under agreements in
effect through June 2002. Under these agreements, the Company makes semi-
annual payments to Disney.
In June 1996, the Company entered into a licensing agreement with
Disney Enterprises, Inc. for an expanded strategic alliance, which grants
the Company exclusive worldwide rights (with certain exceptions) to produce
toys based on all children-oriented Disney television and film properties
introduced, commencing summer 1997. The agreement spans three years, with
the Company having the right for up to two additional years to market
merchandise from film properties produced during the second and third
years. The initial term of the agreement may be renewed for an additional
three-year period upon mutual consent. This agreement contains minimum
royalty guarantees that are contingent upon the number and nature of the
properties introduced by Disney. Commitments for 1997 introductions are
expected to approximate $14.5 million payable over a three-year period.
Future commitments could be as high as $37.8 million per introduction year.
Pursuant to the agreement, the Company issued Disney a stock warrant,
valued at $26.4 million, to purchase 3.0 million shares of the Company's
common stock.
Licensing and related agreements provide for terms extending from 1997
through 2002 and contain provisions for future minimum payments as shown in
the following table (in thousands):
Minimum
Payments
---------
1997 $ 49,000
1998 62,000
1999 56,000
2000 45,000
2001 46,000
2002 22,000
---------
$280,000
=========
Royalty expense for the years ended December 31, 1996, 1995 and 1994
was $120.8 million, $104.4 million and $83.9 million, respectively.
As of December 31, 1996, the Company had outstanding commitments for
1997 purchases of inventory of approximately $79 million. As of December
31, 1995, the Company had commitments for 1996 purchases of inventory of
approximately $101 million.
Foreign Currency Contracts
- --------------------------
The Company enters into foreign currency forward exchange contracts and
swap agreements primarily as hedges of inventory purchases, sales and other
intercompany transactions denominated in foreign currencies, to limit the
effect of exchange rate fluctuations on the results of operations and cash
flows. These contracts generally have maturity dates of up to 18 months.
Gains or losses related to hedged transactions, which qualify for hedge
accounting, are deferred and are recognized in the results of operations as
part of the underlying transaction. Had the Company not entered into
hedges covering a percentage of its foreign currency positions, the
unfavorable effect on 1996 pre-tax income would have approximated $14
million.
As of December 31, 1996 and 1995, the Company held the following
contracts to obtain US dollars (in thousands):
1996 1995
---------------------- ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Forwards $334,004 $491,210
Swaps 98,678 135,477
---------- ----------
$432,682 $423,042 $626,687 $630,287
========== ========== ========== ==========
fifty five
Fair value reflects the amount, based on dealer quotes, the Company
would receive at maturity for contracts involving the same currencies and
maturity dates, if they had been entered into as of year-end 1996 and 1995,
respectively.
As of December 31, 1996 and 1995, the Company held the following
contracts to purchase foreign currencies (in thousands):
1996 1995
---------------------- ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Forwards $ 71,732 $198,006
Swaps 94,194 59,899
---------- ----------
$165,926 $166,428 $257,905 $257,019
========== ========== ========== ==========
Fair value reflects the amount, based on dealer quotes, the Company
would pay at maturity for contracts involving the same currencies and
maturity dates, if they had been entered into as of year-end 1996 and 1995,
respectively.
The following table summarizes the Company's foreign currency
contracts by major currency as of December 31, 1996 and 1995 (in thousands
of US dollars):
1996 1995
---------------------- ----------------------
Buy Sell Buy Sell
---------- ---------- ---------- ----------
US dollars $432,682 $161,965 $626,687 $227,944
German deutsche marks 44,735 103,574 33,424 157,738
Italian lira 8,324 59,265 - 54,481
Malaysian ringgits 56,475 - 78,071 -
Hong Kong dollars - 429 72,274 -
French francs 429 63,852 - 117,150
British pounds sterling 26,501 40,319 - 78,092
Canadian dollars 11,002 40,204 21,127 45,541
Spanish pesetas - 23,171 - 30,271
Dutch guilders - 74,864 22,379 68,468
Japanese yen - 7,913 - 51,534
Australian dollars - 14,837 - 20,762
Swiss francs 11,955 - 12,930 8,232
Taiwan dollars 2,972 - 17,700 -
Swedish krona - - - 6,675
Danish krone - - - 9,825
Other (under $5,000) 3,533 8,215 - 7,879
---------- ---------- ---------- ----------
$598,608 $598,608 $884,592 $884,592
========== ========== ========== ==========
In order to minimize the risk of counterparty non-performance, the
Company executes its foreign currency forward exchange contracts and swap
agreements with financial institutions believed to be credit-worthy,
generally those that provide the Company with its working capital lines of
credit. The Company does not trade in financial instruments nor does it
enter into contracts for speculative purposes.
Market risk exposures exist with respect to the settlement of foreign
currency transactions during the year because currency fluctuations cannot
be predicted with certainty. The Company seeks to mitigate its exposure to
market risk by monitoring its currency exchange exposure for the year and
partially or fully hedging such exposure. In addition, the Company manages
its exposure by retaining flexibility with respect to currencies used for
international borrowings and intercompany invoicing. By policy, the
Company maintains hedge coverages between minimum and maximum percentages
of its anticipated foreign currency exposures for any given year.
Litigation
- ----------
The Company is involved in various litigation and other legal matters,
including claims related to intellectual property, product liability, labor
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 7 - ACQUISITIONS AND NONRECURRING ITEMS
- --------------------------------------------
Pending Merger
- --------------
Pursuant to an Agreement and Plan of Merger dated November 17, 1996, as
amended by an Amendment to Agreement and Plan of Merger dated November 22,
1996, the Company and Tyco have agreed to the merger of Tyco into the
Company. The stock-for-stock transaction, which is expected to be
accounted for as a pooling of interests, is subject to the approval of Tyco
shareholders and certain regulatory approvals. Under the merger agreement,
each outstanding share of Tyco common stock will be converted into the
right to receive a number of Mattel common shares equal to the exchange
ratio, as defined by the merger agreement, subject to a minimum of 0.37791
and a maximum of 0.51129. Given this range, the merger would result in the
issuance of approximately 14 million to 19 million Mattel common shares for
Tyco common shares. In addition, each share of Tyco Series B and Series C
Preferred Stock will be converted into like Mattel preferred stock. It is
anticipated that the merger will be completed in the first half of 1997.
Under certain circumstances, if the merger is not ultimately consummated,
the Company will be required to pay Tyco a $15.0 million break-up fee.
Special Charge
- --------------
During 1996, the Company received comments from the Securities and Exchange
Commission regarding its accounting for certain royalties and participation
fees in prior periods. In response to these comments, in the fourth
quarter of 1996, the Company charged $14.2 million of royalty expense to
cost of sales, of which $11.8 million related to 1994 and $2.0 million
related to 1995, and charged $7.6 million of participation fees to
advertising expense, of which $3.6 million related to 1994 and $4.0 million
related to 1995. This charge reduced fourth quarter net income by $15.1
million or $0.05 per share. The Company continues to believe that its
original accounting treatment was appropriate.
Acquisitions
- ------------
During 1994, the Company acquired the entities described below, which were
accounted for by the purchase method of accounting. The results of
operations of the acquired companies have been included in the accompanying
consolidated financial statements from their respective dates of
acquisition.
fifty six
In May 1994, the Company acquired substantially all of the business
assets and assumed the associated debts and liabilities of Kransco, a San
Francisco-based designer, manufacturer and marketer of brand name
recreational and sporting products for $274.6 million in cash, including
costs directly related to the acquisition and the repayment of $20.0
million of Kransco's short-term borrowings. The asset purchase agreement
also provided for future contingent consideration in the event that net
sales of the POWER WHEELS product line reached or exceeded certain levels
in each of calendar years 1994, 1995 and 1996. Under the agreement, the
contingent consideration payable with respect to any year shall not exceed
$8.6 million. During 1996 and 1995, $17.2 million was paid relating to the
1995 and 1994 sales, and an additional $8.6 million was accrued in 1996,
resulting in an increase to the initial goodwill. The excess of the
aggregate purchase price over the estimated fair market value of the net
assets acquired was approximately $238 million, which is being amortized on
a straight-line basis over 20 years.
In July 1994, the Company acquired a majority of the shares of Spear,
a company organized in the United Kingdom, that holds the rights to
SCRABBLE in markets outside of the United States and Canada, and certain
other games worldwide. The aggregate purchase price, including related
acquisition costs, denominated in pounds sterling, was approximately $100
million. The excess of cost over the estimated fair market value of the
net assets acquired was approximately $100 million, which is being
amortized on a straight-line basis over 20 years.
Restructuring Charge
- --------------------
In the 1994 fourth quarter, the Company recognized a $72.0 million pre-tax
charge against continuing operations in connection with the consolidation
of manufacturing operations and the reduction of headquarters expense and
support functions worldwide. After related tax effects, the net $46.8
million charge impacted 1994 earnings by $0.17 per share. As of December
31, 1996, the restructuring activity provided for by the 1994 charge was
substantially complete and amounts previously accrued had been paid. The
type and amount of charges incurred to date approximated the amounts
included in the provision.
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 international operations are
located principally in Europe, Canada, Latin America and Asia.
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 Argentina,
Australia, Austria, the Benelux countries, Canada, Chile, Colombia, France,
Germany, Greece, Italy, Japan, Mexico, New Zealand, Portugal, Scandinavia,
Spain, Switzerland, the United Kingdom, Venezuela, and in certain areas of
Eastern Europe and Asia. The Company's products are marketed principally
through distributors in certain parts of Latin America, the Middle East,
South Africa and Southeast Asia, and the Company also licenses some of its
products to outside manufacturers for sale in Peru and other Latin American
countries.
Customers accounting for more than 10% of the Company's consolidated
net sales and related accounts receivable are as follows (dollars in
millions):
1996 1995 1994
---------- ---------- ----------
Worldwide sales for the year ended
- ----------------------------------
Toys R Us 22% 23% 23%
Wal-Mart 12% 12% 13%
Accounts receivable as of December 31
- -------------------------------------
Toys R Us $127.9 $116.4 $156.6
Wal-Mart 61.6 50.7 104.3
- -------------------------------------------------------------------------
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
- -------------- ----------- ------------ ------------
1996
United States $2,317,169 $ 344,212 $1,432,617
Europe and Canada 1,197,679 203,502 715,892
Asia and Latin America 1,759,961 194,949 447,953
----------- ------------ -----------
5,274,809 742,663 2,596,462
Sales and transfers between
geographic areas (a) (1,488,851) - -
Interest expense - (75,529) -
Corporate and other - (121,393) 297,060
----------- ------------ -----------
Consolidated total $3,785,958 $ 545,741 $2,893,522
=========== ============ ===========
1995
United States $2,546,903 $327,685 $1,196,742
Europe and Canada 1,234,048 231,010 742,721
Asia and Latin America 1,533,256 138,498 405,615
----------- ------------ -----------
5,314,207 697,193 2,345,078
Sales and transfers between
geographic areas (a) (1,675,395) - -
Interest expense - (73,589) -
Corporate and other - (90,702) 350,431
----------- ------------ -----------
Consolidated total $3,638,812 $532,902 $2,695,509
=========== ============ ===========
1994
United States $2,315,778 $305,874 $1,150,514
Europe and Canada 1,066,349 143,658 715,021
Asia and Latin America 1,287,502 130,247 396,100
----------- ------------ -----------
4,669,629 579,779 2,261,635
Sales and transfers between
geographic areas (a) (1,464,604) - -
Interest expense - (55,449) -
Corporate and other - (130,698) 197,391
----------- ------------ -----------
Consolidated total $3,205,025 $393,632 $2,459,026
=========== ============ ===========
<FN>
(a) Primarily from Asia to other regions of the world.
fifty seven
NOTE 9 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ----------------------------------------------------
(In thousands, except per share First Second Third Fourth
amounts) Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Net sales $585,879 $777,355 $1,232,179 $1,190,545
Gross profit (a) 285,777 378,554 639,270 605,022
Advertising and promotion expenses (b) 80,289 102,367 187,291 244,486
Other selling and administrative
expenses 142,920 154,623 173,542 176,027
Other expense, net 3,665 7,293 7,735 7,115
Operating profit (c) (d) 58,903 114,271 270,702 177,394
Income before taxes 44,485 97,993 248,907 154,356
Net income applicable to common
shares 29,885 66,293 168,007 113,456
Income per share (e):
Net income $ 0.11 $ 0.24 $ 0.61 $ 0.41
Average number of common and
common equivalent shares 281,836 280,894 276,939 275,184
Dividends declared per common
share (e) $ 0.060 $ 0.060 $ 0.060 $ 0.060
Common stock market price (e):
High $ 28.30 $ 28.88 $ 29.13 $ 31.50
Low 23.90 24.38 22.13 24.63
YEAR ENDED DECEMBER 31, 1995
Net sales $543,570 $763,474 $1,176,484 $1,155,284
Gross profit 259,025 366,689 582,949 580,499
Advertising and promotion expenses 78,600 106,718 182,355 216,824
Other selling and administrative
expenses 131,918 141,498 159,359 170,286
Other (income) expense, net (f) (3,414) (730) (9,025) 8,282
Operating profit (d) 51,921 119,203 250,260 185,107
Income before taxes 40,844 101,210 227,526 163,322
Net income 26,958 67,496 151,326 112,022
Preference stock dividend
requirements (1,099) (1,099) (1,099) (45)
Net income applicable to common
shares 25,859 66,397 150,227 111,977
Income per share (e):
Net income $ 0.09 $ 0.24 $ 0.53 $ 0.40
Average number of common and
common equivalent shares 279,853 280,691 281,904 280,916
Dividends declared per common
share (e) $ 0.048 $ 0.048 $ 0.048 $ 0.048
Common stock market price (e):
High $ 19.80 $ 22.20 $ 24.50 $ 24.90
Low 15.76 18.20 20.30 21.20
- ---------------------------------------------------------------------------------
<FN>
(a) Fourth quarter gross profit was reduced by a $14.2 million nonrecurring
charge related to the accounting for certain royalties in prior periods,
$2.0 million of which relates to 1995.
(b) Fourth quarter advertising and promotion expenses include a $7.6 million
nonrecurring charge related to the accounting for participation fees in
prior periods, $4.0 million of which relates to the fourth quarter of 1995.
(c) Fourth quarter operating profit includes a $21.8 million nonrecurring
charge related to the accounting for certain royalties and participation
fees in prior periods.
(d) Represents income from operations before interest expense and provision for
income taxes.
(e) Per share data and market prices for all periods reflect the retroactive
effect of stock splits distributed to shareholders in March 1996 and
January 1995.
(f) Third quarter other (income) expense, net includes a $9.1 million gain
from the sale of the non-toy business and worldwide trademark rights
related to Corgi.
fifty eight
NOTE 10 - SUPPLEMENTAL FINANCIAL INFORMATION
- --------------------------------------------
As of Year End
----------------------
(In thousands) 1996 1995
- ------------------------------------------ ---------- ----------
INVENTORIES INCLUDE THE FOLLOWING:
Raw materials and work in process $ 55,263 $ 52,528
Finished goods 317,423 298,313
---------- ----------
$372,686 $350,841
========== ==========
PREPAID EXPENSES AND OTHER CURRENT ASSETS
INCLUDE THE FOLLOWING:
Deferred income taxes $ 87,860 $ 87,965
Other 77,363 89,273
---------- ----------
$165,223 $177,238
========== ==========
INTANGIBLE ASSETS, NET, INCLUDE THE
FOLLOWING:
Goodwill $397,824 $411,258
Other 9,620 11,538
---------- ----------
$407,444 $422,796
========== ==========
ACCRUED LIABILITIES INCLUDE THE
FOLLOWING:
Advertising and promotion $111,134 $ 96,669
Royalties 49,334 31,657
Compensation 41,819 82,751
Other 204,057 199,285
---------- ----------
$406,344 $410,362
========== ==========
For the Year
-------------------------------
(In thousands) 1996 1995 1994
- ------------------------------------ --------- ---------- ----------
SELLING AND ADMINISTRATIVE EXPENSES
INCLUDE THE FOLLOWING:
Research and development $126,241 $111,280 $93,153
- -------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Income taxes $103,442 $168,400 $66,270
Interest 76,261 75,513 52,937
Noncash investing and financing
activities:
Issuance of stock warrant 26,444 - -
Conversion of 8% Debentures - - 75,662
- -------------------------------------------------------------------------
fifty nine
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 LLP, independent accountants, have been retained to
audit the Company's consolidated financial statements. They conduct a
review of internal accounting controls to the extent required by generally
accepted auditing standards and perform such tests and related procedures
as they deem necessary to arrive at an opinion on the fairness of the
financial statements.
/s/ Francesca Luzuriaga
- -----------------------
Francesca Luzuriaga
Executive Vice President and
Chief Financial Officer
sixty
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Mattel, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, 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
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 provide a reasonable
basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- -----------------------
Los Angeles, California
February 5, 1997
sixty one
DIRECTORS AND OFFICERS
----------------------
Mattel, Inc. and Subsidiaries
BOARD OF DIRECTORS CORPORATE OFFICERS
John W. Amerman (1) Jill E. Barad
Chairman of the Board, Mattel, Inc. Chairman and Chief Executive Officer
Jill E. Barad (1) (5) Bruce L. Stein
President and Chief Executive Officer, President, Mattel Worldwide
Mattel, Inc.
Dr. Harold Brown (4) (5) Astrid Autolitano
Senior Managing Director, E.M. Warburg, President, Mattel International
Pincus & Co., Inc.
James A. Eskridge (5) Byron Davis
Retired Group President, Mattel, Inc. President, Fisher-Price, Inc.
Tully M. Friedman (1) (3) Joseph C. Gandolfo (5)
Founding Partner, Hellman & Friedman President, Mattel Worldwide
Manufacturing Operations
Ronald M. Loeb (3) Ned Mansour
Partner, Irell & Manella President, Corporate Operations
Edward H. Malone (1) (2) (4) Francesca Luzuriaga
Retired Vice President, General Electric Co. Executive Vice President and
Chief Financial Officer
Ned Mansour Glenn Bozarth
President, Corporate Operations, Senior Vice President,
Mattel, Inc. Corporate Communications
Edward N. Ney (4) (5) Kevin M. Farr
Chairman of the Board of Advisors, Senior Vice President and
Burson-Marsteller Controller
William D. Rollnick (1) (2) (3) Douglas Glen
Retired Chairman, Genstar Rental Senior Vice President and
Electronics, Inc. Chief Strategy Officer
Christopher A. Sinclair E. Joseph McKay
Chairman and Chief Executive Officer, Senior Vice President,
Quality Food Centers Human Resources
Bruce L. Stein John T. Phippen
President, Mattel Worldwide, Senior Vice President and
Mattel, Inc. Chief Information Officer
John L. Vogelstein (1) (2) (3) Barnett Rosenberg
Vice Chairman of the Board, President, Senior Vice President, General
and Director, E.M. Warburg, Pincus Counsel and Secretary
& Co., Inc.
William Stavro
Senior Vice President and
Treasurer
<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
(5) Member, Foundation Committee
Dr. Harold Brown, Chairman
sixty two
CORPORATE INFORMATION
---------------------
Mattel, Inc. and Subsidiaries
Transfer Agent and Registrar
- ----------------------------
Mattel, Inc. Common Stock
The First National Bank of Boston
c/o Boston EquiServe, L.P.
Note Trustees
- -------------
Mattel, Inc. 6-3/4% Senior Notes due May 15, 2000
PNC Bank, N.A.
One Oliver Plaza, 23rd Floor
Pittsburgh, Pennsylvania 15265
Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997
State Street Bank and Trust Company
Corporate Services Division
P.O. Box 778
Boston, Massachusetts 03102
Mattel, Inc. Medium-Term Notes
Chemical Trust Company of California
300 South Grand Avenue
Los Angeles, California 90071
Stock Exchange Listings
- -----------------------
Mattel, Inc. Common Stock and Mattel, Inc. Preference
Share Purchase Rights
New York and Pacific Stock Exchanges
Mattel, Inc. 6-7/8% Senior Notes due August 1, 1997
New York Stock Exchange
Shareholder Administration
- --------------------------
Inquiries relating to shareholder accounting records, stock
transfer and dividends (including dividend reinvestment)
should be directed to:
The First National Bank of Boston
c/o Boston EquiServe, L.P.
150 Royall Street
Canton, Massachusetts 02021
(overnight or courier delivery only) or
P.O. Box 644
Boston, Massachusetts 02102
Telephone: 617-575-3170 or toll free 888-909-9922
Common Shareholders
- -------------------
As of March 1, 1997, there were approximately 42,000
holders of record of Mattel, Inc. common stock
Annual Meeting
- --------------
The Annual Meeting of Shareholders will be held May 7,
1997, 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,
1996, is available upon request by writing to the
Secretary of the Company, 333 Continental Boulevard,
El Segundo, California 90245
Trademark Legends
- -----------------
Barbie, Fisher-Price, Hot Wheels, and See 'N Say are trademarks of Mattel, Inc.
Disney characters: [copyright] Disney. Pooh character is based on the
"Winnie the Pooh" works. Copyright A.A. Milne and E.H. Shepard. Cabbage
Patch Kids and Snacktime Kid: [trademark] and [copyright] Original Appalachian
Artworks, Inc., used under license. Sesame Street characters: [trademark] and
[copyright] Childrens Television Workshop. Nickelodeon and related trademarks
[trademark] and [copyright] Viacom International Inc. Polly Pocket and
characters [trademark] and [copyright] Bluebird Toys (UK) Ltd., England.
Matchbox, Magna Doodle and View-Master are trademarks of Tyco Toys, Inc. CAT
and Caterpillar are trademarks of Caterpillar, Inc. [copyright] 1997
Caterpillar, Inc. Pontiac and Grand Prix are trademarks of General Motors
Corporation and used under license to Mattel, Inc.
[copyright] 1997 Mattel, Inc.
All Rights Reserved
Printed in U.S.A.
Printed on recycled paper.