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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997.
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________
to _________.
Commission File Number 001-05647
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MATTEL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-1567322
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
333 Continental Boulevard, El Segundo, California 90245-5012
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number) (310) 252-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common stock, $1 par value (and New York Stock Exchange
the associated Preference Pacific Exchange, Inc.
Share Purchase Rights)
Depositary Shares, each representing New York Stock Exchange
one twenty-fifth of a share of
Series C Mandatorily Convertible
Redeemable Preferred Stock
6-3/4% Senior Notes Due 2000 (None)
Securities registered pursuant to Section 12(g) of the Act:
(None)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of the close of business on March 16, 1998 was
$13,433,546,049.
Number of shares outstanding of registrant's common stock as of March 16, 1998:
Common Stock - $1 par value -- 294,433,886 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Mattel, Inc. Annual Report to Shareholders for the year
ended December 31, 1997 (Incorporated into Parts I, II and IV).
2. Portions of the Mattel, Inc. 1998 Notice of Annual Meeting of Stockholders
and Proxy Statement, to be filed with the Securities and Exchange Commission
within 120 days after the close of the registrant's fiscal year
(Incorporated into Part III).
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PART I
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ITEM 1. BUSINESS
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Mattel, Inc. designs, manufactures, markets and distributes a broad
variety of toy products on a worldwide basis. The Company's business is
dependent in great part on its ability each year to redesign, restyle and
extend existing core products and product lines and to design and develop
innovative new toys and product lines. New products have limited lives,
ranging from one to three years, and generally must be updated and
refreshed each year.
The Company plans to continue to focus on core brands that have
fundamental play patterns and worldwide appeal, are sustainable, and have
delivered consistent profitability and stable growth. The Company's core
brands can be grouped in the following five categories: Fashion Dolls
(BARBIE dolls and accessories); Infant and Preschool (FISHER-PRICE, Disney
Preschool and Plush, POWER WHEELS, SESAME STREET, SEE `N SAY, MAGNA DOODLE
and VIEW-MASTER); Entertainment (Disney, Nickelodeon, games and puzzles);
Wheels (HOT WHEELS, MATCHBOX, Tyco Electric Racing and Tyco Radio Control);
and Large and Small Dolls (CABBAGE PATCH KIDS, POLLY POCKET and Tyco large
dolls). Revenues for 1997 of $4.8 billion were a record level for the
Company. (Results for all periods have been restated retroactively to
reflect the March 1997 merger of Tyco Toys, Inc., a Delaware corporation
("Tyco"), into Mattel, accounted for as a pooling of interests.)
As used herein, unless the context requires otherwise, "Mattel" or the
"Company" refers to Mattel, Inc., and its subsidiaries, and "Fisher-Price"
refers to Fisher-Price, Inc., a Delaware corporation and wholly-owned
subsidiary of Mattel.
Mattel was incorporated in California in 1948 and reincorporated in
Delaware in 1968. Its executive offices are located at 333 Continental
Boulevard, El Segundo, California 90245-5012, telephone (310) 252-2000.
COMPETITION AND INDUSTRY BACKGROUND
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Competition in the toy industry is based primarily on price, quality
and play value. In recent years, the toy industry has experienced rapid
consolidation driven, in part, by the desire of industry competitors to
offer a range of products across a broader variety of categories. In the
United States, the Company competes with several large toy companies,
including Hasbro, Inc., as well as a number of smaller toy companies. The
larger toy companies have pursued a strategy of focusing on core product
lines. Core product lines are those lines which are expected to be
marketed for an extended period of time, and which historically have
provided relatively consistent growth in sales and profitability. By
focusing on core product lines, toy manufacturers have been able to reduce
their reliance on new product introductions and the associated risk and
volatility. The juvenile products market, in which Fisher-Price is one of
the leading companies, is more fragmented.
2
The toy industry is also experiencing a shift toward greater
consolidation of retail distribution channels, such as large specialty toy
stores and discount retailers, including Toys R Us, Wal-Mart, Kmart and
Target, which have increased their overall share of the retail market.
This consolidation has resulted in an increased reliance among retailers on
the large toy companies because of their financial stability and ability to
support products through advertising and promotion and to distribute
products on a national basis. These retailers' growing acceptance of
electronic data interchange has provided toy manufacturers with an ability
to more closely monitor consumers' acceptance of a particular product or
product line.
Over the last ten years, toy companies based in the United States have
expanded their international marketing and manufacturing operations. The
Company believes a strong international distribution system can add
significantly to the sales volume of core product lines and extend the life
cycles of newly-developed products.
SEASONALITY
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Sales of toy products at retail are seasonal, with a majority of
retail sales occurring during the period from September through December.
Consequently, shipments of toy products to retailers are typically greater
in the third and fourth quarters than in each of the first and second
quarters combined. As the large toy retailers become more efficient in
their control of inventory levels, this seasonality is increasing.
In anticipation of this seasonal increase in retail sales, the Company
significantly increases its production in advance of the peak selling
period, resulting in a corresponding build-up of inventory levels in the
first three quarters of the year. In addition, the Company and others in
the industry develop sales programs, including offering extended payment
terms, to encourage retailers to purchase merchandise earlier in the year.
These sales programs, coupled with seasonal shipping patterns, result in
significant peaks in the third and fourth quarters in the respective levels
of inventories and accounts receivable, which contribute to a seasonal
working capital financing requirement. See "Seasonal Financing."
PRODUCTS
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The Company has historically achieved consistent sales and earnings
growth by focusing on a number of core brands supplemented by various new
product introductions. The Company's principal core brands are grouped in
the following five categories: Fashion Dolls (BARBIE dolls and
accessories); Infant and Preschool (FISHER-PRICE, Disney Preschool and
Plush, POWER WHEELS, SESAME STREET, SEE `N SAY, MAGNA DOODLE and VIEW-
MASTER); Entertainment (Disney, Nickelodeon, games and puzzles); Wheels
(HOT WHEELS, MATCHBOX, Tyco Electric Racing and Tyco Radio Control); and
Large and Small Dolls (CABBAGE PATCH KIDS, POLLY POCKET and Tyco large
dolls). Core brands are expected to be marketed for an extended period of
time and historically have provided relatively consistent growth in sales
and profitability. In order to provide greater flexibility in the
manufacture and delivery of products, and as part of a continuing effort to
reduce manufacturing costs, the Company has concentrated production of most
of its core brands in Company-owned facilities and generally uses
independent contractors for the production of non-core products.
3
With respect to new product introductions, the Company's strategy is
to begin production on a limited basis until a product's initial success
has been proven in the marketplace. The production schedule is then
modified to meet anticipated demand. The Company further limits its risk
by generally having independent contractors manufacture new product lines
in order to minimize capital expenditures associated with new product
introductions. This strategy has reduced inventory risk and significantly
limited the potential loss associated with new product introductions.
New product introductions for 1997 included an aspirational-themed
Dentist BARBIE [registered trademark] doll; University BARBIE [registered
trademark] dolls dressed in the school colors of certain universities
across the United States; SHARE A SMILE [trademark] BECKY [registered
trademark] doll in a wheel chair; Talking BARBIE [trademark] doll with
interactive CD ROM; BARBIE [trademark] MAGIC HAIR STYLER [trademark] CD ROM
which allows children to cut, style and color computer BARBIE doll's hair;
Collector BARBIE [registered trademark] dolls such as BARBIE [registered
trademark] Loves Elvis Giftset, BARBIE [registered trademark] as the Sugar
Plum Fairy in "The Nutcracker," and BARBIE [registered trademark] as Marilyn
in "The Seven Year Itch"; HOT WHEELS [registered trademark] Mars Rover Action
Pack; HOT WHEELS [registered trademark] PLANET MICRO [trademark] stacking
playsets and vehicles; HOT WHEELS [registered trademark] X-V RACERS [trademark]
CYCLONE [trademark] stunt set; CABBAGE PATCH KIDS [registered trademark]
BRUSHIN' TEETH BABY [trademark] doll with real tooth brush and liquid gel;
Disney 11-1/2" collector dolls; relaunch of Mattel classic games; TYCO RC
[registered trademark] TANTRUM [trademark] radio control vehicle;
the addition of Sing & Snore Ernie plush toy to the SESAME STREET line of
Tyco Preschool; REAL TALKIN' BUBBA [trademark] plush talking bear;
MAGNA DOODLE [registered trademark] LEARNING BUS [trademark] drawing toy;
FISHER-PRICE [registered trademark] POWER WHEELS [registered trademark]
Caterpillar Dump Truck and POWER WHEELS [registered trademark] Rock `n Roll
vehicle; and FISHER-PRICE [registered trademark] LITTLE PEOPLE [registered
trademark] Play Inside Schoolhouse.
New product introductions planned for 1998 include Olympic Skater BARBIE
[registered trademark] & KEN [registered trademark] dolls with a special
waist band and wind up mechanism to spin; WNBA BARBIE [registered trademark]
doll; KELLY [registered trademark] & TOMMY [trademark] dolls and their battery
operated POWER WHEELS [registered trademark] JEEP [registered trademark]
vehicle; Detective BARBIE [registered trademark] CD ROM clue game; HARPIST
ANGEL [trademark] BARBIE [registered trademark] Collector doll;
BARBIE [registered trademark] & KEN [registered trademark] Collector doll
as Agent Scully & Agent Mulder X-Files Gift Set; HOT WHEELS [registered
trademark] Touchstone Pictures Armaggedon themed vehicles and action figures;
HOT WHEELS [registered trademark] Apollo Mission Action Pack; HOT WHEELS
[registered trademark] CYBER RACERS [trademark] vehicles with virtual reality
computer screen in chassis; HOT WHEELS [registered trademark] LEGENDS TO
LIFE [trademark] 1:24 scale Collector vehicle with real drag race sounds
and action; CABBAGE PATCH KIDS [registered trademark] 15th Anniversary doll,
a reproduction of the doll that started the craze in 1983; the addition of
a series of action figures and playsets based on the Disney movie "A Bug's
Life"; FASHION MAGIC [registered trademark] girls fashion activities sets;
Talking POOH plush bear with interactive CD-ROM and transmitter; reproduction
of classic FISHER-PRICE [registered trademark] wooden Disney toys; POOH line
expansion into activity toys; NBA sports games; FISHER-PRICE [registered
trademark] Children's Products PROP `N CARRY [trademark] infant carrier;
FISHER-PRICE [registered trademark] RESCUE HEROES [trademark] playsets and
action figures; FISHER-PRICE [registered trademark] SHOP & COOK [trademark]
kitchen playcenter; and TYCO [registered trademark] REVOLVER [trademark] and
TYCO [registered trademark] PSYCHO [trademark] radio control vehicles.
4
INTERNATIONAL OPERATIONS
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Revenues from the Company's international operations represented
approximately 34% of total consolidated revenues in 1997. Generally,
products marketed internationally are the same as those marketed
domestically, although some are developed or adapted for particular
international markets. The Company's products are sold directly in most of
the European and Asian countries, and mainly through distributors in
certain Latin American countries. It also licenses some of its products to
other toy companies for sale in various other countries. See "Licenses and
Distribution Agreements."
The strength of the US dollar relative to other currencies can
significantly affect the revenues and profitability of the Company's
international operations. From time to time, the Company enters into
foreign currency forward exchange and option contracts 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. See "Financial
Instruments." For financial information by geographic area, see Note 8 to
the Consolidated Financial Statements in the Annual Report to Shareholders,
incorporated herein by reference.
PRODUCT DESIGN AND DEVELOPMENT
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Through its product design and development group, the Company
regularly refreshes, redesigns and extends existing product lines and
develops innovative new product lines. The Company's success is dependent
on its ability to continue this activity. Product design and development
are principally conducted by a group of professional designers and
engineers employed by the Company.
License agreements with third parties permit the Company to utilize
the trademark, character or product of the licensor in its product line. A
principal licensor is The Walt Disney Company, which licenses many of its
characters and entertainment properties for use on the Company's products.
The Company also has entered into license agreements with, among others:
Children's Television Workshop relating to its SESAME STREET properties;
Viacom International, Inc. relating to its Nickelodeon properties; NBA
Properties, Inc. for a master toy license for the NBA, WNBA and USA
Basketball; and Original Appalachian Artworks, Inc. for CABBAGE PATCH KIDS.
A number of these licenses relate to product lines that are significant to
the Company.
Independent toy designers and developers bring products to the Company
and are generally paid a royalty on the net selling price of products
licensed by the Company. These independent toy designers may also create
different products for other toy companies.
5
The Company devotes substantial resources to product design and
development. During the years ended December 31, 1997, 1996 and 1995, the
Company expended approximately $156 million, $147 million and $132 million,
respectively, in connection with the design and development of products,
exclusive of royalty payments. See Note 10 to the Consolidated Financial
Statements in the Annual Report to Shareholders, incorporated herein by
reference.
ADVERTISING AND PROMOTION
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The Company supports its product lines with extensive advertising and
consumer promotions. Advertising continues at varying levels throughout
the year and peaks during the Christmas season. Advertising includes
television and radio commercials and magazine and newspaper ads.
Promotions include in-store displays, coupons, merchandising materials and
major events focusing on products and tie-ins with various consumer product
companies. To further promote the Company and its products, the Company
participates in the attractions "It's A Small World" at Disneyland and Walt
Disney World and "Autopia" and "Storybook Land" at Disneyland Paris under a
ten and one-half year agreement with The Walt Disney Company. The Company
also participates in toy stores in Disneyland, near Disneyland Paris and in
the Disney Village Market Place near Walt Disney World. Separately, a
total of twenty-eight BARBIE Boutiques are located in F.A.O. Schwarz toy
stores, including the "BARBIE on Madison" boutique at the F.A.O. Schwarz
flagship store in New York City.
During the years ended December 31, 1997, 1996 and 1995, Mattel spent
approximately $779 million (16% of net sales), $779 million (17% of net
sales) and $732 million (17% of net sales), respectively, on worldwide
advertising and promotion.
MARKETING AND SALES
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The Company's toy products are sold throughout the world. In the
United States, the Company's products 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. Discount and free-standing toy stores continue to increase
their market share. During the year ended December 31, 1997, Toys R Us and
Wal-Mart accounted for approximately 18% and 15%, respectively, of
worldwide consolidated net sales and were the only customers accounting for
10% or more of consolidated net sales.
In general, the Company's major domestic and international customers
review its product lines and product concepts for the upcoming year at
showings beginning in late summer. The Company also participates in the
domestic and international toy industry trade fairs in the first quarter of
the year. A majority of the full-year orders are received by May 1. As is
traditional in the toy industry, these orders may be canceled at any time
before they are shipped. Historically, the greater proportion of shipments
of products to retailers occurs during the third and fourth quarters of the
year. See "Seasonality."
6
Through its marketing research departments, the Company conducts basic
consumer research and product testing and monitors demographic factors and
trends. This information assists the Company in evaluating consumer
acceptance of products, including an analysis of increasing or decreasing
demand for its products.
The Company bases its production schedules on customer orders,
modified by historical trends, results of market research and current
market information. The actual shipments of products ordered and the order
cancellation rate are affected by consumer acceptance of the product line,
the strength of competing products, marketing strategies of retailers and
overall economic conditions. Unexpected changes in these factors can result
in a lack of product availability or excess inventory in a particular
product line.
MANUFACTURING
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The Company's products are manufactured in Company-owned facilities
and by independent contractors. Products are also purchased from unrelated
entities that design, develop and manufacture the products. In order to
provide greater flexibility in the manufacture and delivery of products,
and as part of a continuing effort to reduce manufacturing costs, the
Company has concentrated production of most of its core products in the
Company's facilities and generally uses independent contractors for the
production of non-core products.
Mattel's manufacturing facilities are located in the states of
Indiana, Kentucky, Georgia, and Oregon, and in Mexico, China, Indonesia,
Malaysia, Thailand and Italy. The Company also utilizes independent
contractors to manufacture products in the United States, Mexico, the Far
East and Australia. To protect the stability of its product supply, the
Company produces many of its key products in more than one facility.
All foreign countries in which the Company's products are manufactured
(principally China, Indonesia, Malaysia and Mexico) currently enjoy "most
favored nation" ("MFN") status under US tariff laws, which provides a
favorable category of US import duties. As a result of continuing concerns
in the United States Congress regarding China's human rights policies, and
disputes regarding Chinese trade policies, including the country's
inadequate protection of US intellectual property rights, there has been,
and may be in the future, opposition to the extension of MFN status for
China.
The loss of MFN status for China would result in a substantial
increase in the import duty for toys manufactured in China and imported
into the United States and would result in increased costs for the Company
and others in the toy industry. The impact of such an event on the Company
would be significantly mitigated by the Company's ability to source product
for the US market from countries other than China and ship product
manufactured in China to markets outside the US. Toward that end, the
Company has expanded its production capacity in other countries. A number
of other factors, including the Company's ability to pass along the added
costs through price increases and the pricing policies of vendors in China,
could further mitigate the impact of a loss of China's MFN status.
7
On February 8, 1994, the European Union ("EU") adopted quotas on the
importation of certain classes of toys (as well as other products)
manufactured in China. The impact of these quotas on the Company's
business has been significantly mitigated by shifts in demand in favor of
toy categories not subject to the quotas, and by the ability of the Company
to source product for the EU from countries other than China and ship
product manufactured in China elsewhere.
With the implementation of the Uruguay Round agreement effective
January 1, 1995, all US duties on dolls and traditional toys were
completely eliminated. Canada also eliminated its tariffs on dolls and
most toy categories in 1995, with the exception of certain toy sets and
board games which will have their duties eliminated over ten years.
Meanwhile, both the EU and Japan began implementing Uruguay Round tariff
reductions that, by 1999, will lower the tariffs on dolls by over 40% in
the EU and by 15% in Japan. The EU and Japan are fully eliminating tariffs
on several other toy categories over a period of ten years.
COMMITMENTS
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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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Commitments" and Note 6 to
the Consolidated Financial Statements in the Annual Report to Shareholders,
incorporated herein by reference.
LICENSES AND DISTRIBUTION AGREEMENTS
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The Company's level of licensing activity has expanded in recent
years. Royalty expense during the years ended December 31, 1997, 1996 and
1995 was approximately $194 million, $155 million and $137 million,
respectively. See Note 6 to the Consolidated Financial Statements in the
Annual Report to Shareholders, incorporated herein by reference.
The Company also distributes products which are independently designed
and manufactured.
8
FINANCIAL INSTRUMENTS
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From time to time, the Company enters into foreign currency forward
exchange and option contracts primarily as hedges for payment of inventory
purchases, sales and other intercompany transactions. The contracts are
intended to fix a portion of the Company's product cost and intercompany
cash flows, and thereby limit the effect of foreign currency fluctuations
on the Company's results of operations and cash flows. The Company does
not trade in financial instruments for speculative purposes.
For additional information regarding foreign currency contracts, see
"International Operations" above, and the information under the caption
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Foreign Currency Risk" and Note 6 to the Consolidated
Financial Statements in the Annual Report to Shareholders, incorporated
herein by reference.
SEASONAL FINANCING
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The Company's financing of seasonal working capital typically grows
throughout the first half of the year and peaks in the third or fourth
quarter, when accounts receivable are at their highest due to increased
sales volume and Company sales programs, and when inventories are at their
highest in anticipation of expected second half sales volume. See
"Seasonality." Domestic short-term borrowings for seasonal financing
under the Company's revolving credit agreement are generally repaid in full
by year-end from cash flows generated in the fourth quarter from sales and
collection of accounts receivable.
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 1997,
which was recently amended (see below), was renegotiated in the first
quarter of 1997 to increase the total facility to $1.0 billion from $800.0
million. Within the facility, up to $600.0 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. 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 were reduced by collections and could
not exceed the $400.0 million at any time. The agreement required the
Company to comply with certain financial covenants for consolidated debt-
to-capital and interest coverage.
During 1997, the Company renewed agreements providing for up to $140.0
million of nonrecourse purchases of certain domestic trade accounts
receivable of the Company by a commercial bank. The Company also entered
into agreements with banks of its foreign subsidiaries for nonrecourse
sales of certain of its foreign subsidiary receivables.
9
Effective in March 1998, 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 $700.0 million
in advances and backup for commercial paper issuances (a five-year
facility), and up to an additional $300.0 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.
The Company believes the amounts available to it under its revolving
credit agreement and foreign credit lines will be adequate to meet its
seasonal financing requirements.
RAW MATERIALS
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Packaging materials, mostly plastics and zinc, which are essential to
the production and marketing of toy products, are currently in adequate
supply. These and other raw materials are generally available from a
number of suppliers.
1996 and 1997 saw a return to pricing stability after very volatile
pricing in the resin and packaging industries in 1995. While management
believes that resin and packaging prices have stabilized, there can be no
assurance that the volatility experienced in 1995 will not return,
resulting in a material impact on the Company's gross margins and earnings.
TRADEMARKS, COPYRIGHTS, AND PATENTS
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Most of the Company's products are sold under trademarks, trade names
and copyrights and a number of those products incorporate patented devices
or designs. Trade names and trademarks are significant assets of the
Company in that they provide product recognition and acceptance worldwide.
The Company customarily seeks patent, trademark or copyright
protection covering its products, and it owns or has applications pending
for United States and foreign patents covering many of its products. A
number of these trademarks and copyrights relate to product lines that are
significant to the Company, and the Company believes its rights to these
properties are adequately protected.
The Company also licenses various of its trademarks, characters and
other property rights to others for use in connection with the sale by
others of non-toy and other products which do not compete with the
Company's products.
10
GOVERNMENT REGULATIONS
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The Company's toys are subject to the provisions of the Consumer
Product Safety Act, the Federal Hazardous Substances Act and the Flammable
Fabrics Act, and the regulations promulgated thereunder. The Consumer
Product Safety Act and the Federal Hazardous Substances Act enable the
Consumer Product Safety Commission (the "CPSC") to exclude from the market
consumer products that fail to comply with applicable product safety
regulations or otherwise create a substantial risk of injury, and articles
that contain excessive amounts of a banned hazardous substance. The
Flammable Fabrics Act enables the CPSC to regulate and enforce flammability
standards for fabrics used in consumer products. The CPSC may also require
the repurchase by the manufacturer of articles which are banned. Similar
laws exist in some states and cities and in various international markets.
Fisher-Price's car seats are subject to the provisions of the National
Highway Transportation Safety Act, which enables the National Highway
Traffic Safety Administration ("NHTSA") to promulgate performance standards
for child restraint systems. Fisher-Price conducts periodic tests to
ensure that its child restraint systems meet applicable standards. A
Canadian agency, Transport Canada, also regulates child restraint systems
sold for use in Canada. As with the CPSC, NHTSA and Transport Canada can
require the recall and repurchase or repair of products which do not meet
their respective standards.
The Company maintains a quality control program to ensure product
safety compliance with the various federal, state and international
requirements.
EFFECTS OF INFLATION
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Inflation rates in the US and major foreign countries in which the
Company operates have not had a significant impact on consolidated
operating results for the three years ended December 31, 1997. The US
Consumer Price Index increased 1.7% in 1997, 3.3% in 1996, and 2.5% in
1995. The Company is afforded some protection from the impact of inflation
as a result of high turnover of inventories.
EMPLOYEES
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The total number of persons employed by the Company and its
subsidiaries at any one time varies because of the seasonal nature of its
manufacturing operations. At December 31, 1997, the Company's total number
of employees, including its international operations, was approximately
25,000.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The executive officers of the Company, all of whom are appointed annually
by the Board of Directors and serve at the pleasure of the Board, are as
follows:
EXECUTIVE
OFFICER
NAME AGE POSITION SINCE
- --------------------- --- ------------------------------- ---------
Jill E. Barad 46 Chairman of the Board & 1984
Chief Executive Officer
Astrid Autolitano 59 President, Mattel International 1996
Gary S. Baughman 51 President, Fisher-Price, Inc. 1997
Joseph C. Gandolfo 55 President, Worldwide 1990
Manufacturing Operations and
a Director of Mattel, Inc.
Ned Mansour 49 President, Corporate Operations 1992
& General Counsel and a
Director of Mattel, Inc.
Bruce L. Stein 43 President, Mattel Worldwide, 1996
Chief Operating Officer and a
Director of Mattel, Inc.
Harry J. Pearce 53 Chief Financial Officer 1997
Francesca Luzuriaga 43 Executive Vice President, 1995
Worldwide Business Planning
and Resources
Kevin M. Farr 40 Senior Vice President 1996
and Controller
Douglas Glen 50 Senior Vice President and 1997
Chief Strategy Officer
William Stavro 58 Senior Vice President 1993
and Treasurer
12
Ms. Barad has been Chairman & Chief Executive Officer since October 1997
and a member of the Board of Directors since November 1991. From January
1997 to October 1997, she was President and Chief Executive Officer. From
August 1992 until December 1996, she was President and Chief Operating
Officer. From December 1989 until August 1992, she was President, Mattel
USA. Prior to that she served in various executive positions in the
Marketing, Product Design and Product Development areas.
Ms. Autolitano has been President, Mattel International since September
1996. From August 1995 to September 1996, she served as Executive Vice
President-Latin America and Mexico. Prior to that, she served as Senior
Vice President-Latin America and Mexico from December 1989 to August 1995.
Mr. Baughman has been President, Fisher-Price, Inc. since April 1997. From
January 1996 to April 1997, he served as Chief Executive Officer of Tyco
Toys, Inc. From October 1994 to January 1996, he served as President and
Chief Operating Officer of Tyco Toys, Inc. Prior to joining Tyco, he
served as President of Little Tikes Co., a division of Rubbermaid from 1990
through 1994.
Mr. Gandolfo has been President, Worldwide Manufacturing Operations since
April 1990 and a member of the Board of Directors since May 1997.
Mr. Mansour has been President, Corporate Operations and a member of the
Board of Directors since August 1996. He has been General Counsel since
November 1997. From April 1991 he served in several senior managerial
positions at Mattel, including President, Mattel-USA, Chief Administrative
Officer, General Counsel and Secretary.
Mr. Stein has been President, Mattel Worldwide and a member of the Board of
Directors since August 1996. From October 1995 to August 1996 he served as
President and Chief Executive Officer of Sony Interactive Entertainment.
From November 1994 to October 1995, he was a consultant for DreamWorks SKG
and Mandalay Entertainment. From June 1994 to October 1994, he served as
President and Chief Operating Officer of Marvel Entertainment Group. Prior
to that, he served as President of the Kenner Products division of Hasbro,
Inc. from 1990 to June 1994.
Mr. Pearce has been Chief Financial Officer since May 1997. From 1973 to
May 1997 he served as Chief Financial Officer of Tyco Toys, Inc. In 1993,
he was also named Vice Chairman.
Ms. Luzuriaga has been Executive Vice President, Worldwide Business
Planning and Resources since May 1997. From December 1995 to May 1997 she
served as Executive Vice President & Chief Financial Officer. From March
1989 until December 1995 she served in several senior managerial positions
at Mattel, including Controller, Treasurer and Executive Vice President
Finance.
Mr. Farr has been Senior Vice President and Controller since September
1996. From June 1993 to September 1996, he served as Vice President, Tax.
Prior to that he served as Senior Director, Taxes from August 1992 to June
1993.
13
Mr. Glen has been Senior Vice President and Chief Strategy Officer since
February 1997. From August 1994 through February 1997, he served as
President of Mattel Media. From March 1992 through August 1994 he was
Group Vice President, Business Development and Strategic Planning for Sega
of America.
Mr. Stavro has been Senior Vice President and Treasurer since May 1995.
From November 1993 to May 1995, he was Vice President & Treasurer. From
March 1992 to November 1993 he was Vice President & Assistant Treasurer.
Prior to that he was Assistant Treasurer for more than five years.
ITEM 2. PROPERTIES
- ------- ----------
Mattel owns its corporate headquarters consisting of approximately
335,000 square feet in El Segundo, California, which is subject to a $45.0
million mortgage, and an adjacent 55,000 square foot office building.
Mattel also leases buildings in El Segundo consisting of approximately
350,000 square feet, which are primarily used for its design and
development and audio visual departments. Fisher-Price owns its
headquarters facilities in East Aurora, New York, consisting of
approximately 290,000 square feet. Mattel Mount Laurel, formerly the
headquarters of Tyco, leases facilities consisting of approximately 40,000
square feet in Mount Laurel, New Jersey.
The Company maintains sales offices in California, Illinois, New York
and Texas, and warehouse and distribution facilities in California,
Georgia, Indiana, Kentucky and Texas. The Company owns a computer facility
in Phoenix, Arizona. Internationally, the Company has offices and/or
warehouse space in Argentina, Australia, Austria, Belgium, Canada, Chile,
Colombia, Denmark, France, Germany, Greece, Hong Kong and in certain other
areas of Asia, Italy, Japan, Mexico, The Netherlands, New Zealand, Poland,
Spain, Switzerland, the United Kingdom and Venezuela. The Company's
principal manufacturing facilities are located in China, Indonesia, Italy,
Malaysia, Mexico and the United States. See "Manufacturing."
Most of the Company's facilities are occupied under leases and, for
the most part, are fully utilized, although excess manufacturing capacity
exists from time to time based on product mix and demand. With respect to
leases which are scheduled to expire during the next twelve months, the
Company may negotiate new lease agreements, renew leases or utilize
alternative facilities.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
THE GREENWALD LITIGATION AND RELATED MATTERS
--------------------------------------------
On October 13, 1995, Michelle Greenwald filed a complaint (Case No. YC
025 008) against the Company in Superior Court of the State of California,
County of Los Angeles (the "Greenwald Action"). The plaintiff is a former
Mattel employee who was terminated by the Company in July 1995. The
complaint sought $50 million in general and special damages, plus punitive
damages, for (i) breach of oral, written and implied contract, (ii)
wrongful termination in violation of public policy and (iii) violation of
California Labor Code Section 970. The plaintiff claimed that her
termination resulted from complaints made by her to management concerning
(i) general allegations that Mattel did not account properly for sales and
certain costs associated with sales; and (ii) more specific
14
allegations that Mattel failed to account properly for certain royalty
obligations to Disney. On December 5, 1996, the Company's motion for
summary adjudication of the plaintiff's public policy claim was granted.
On March 7, 1997, the Company filed a motion for summary judgment on the
remaining causes of action. On December 9, 1997, the Company's motion for
summary judgment of the plaintiff's remaining claims was granted. On
February 4, 1998, the plaintiff filed a notice of appeal.
The Company believes the allegations of the complaint in the Greenwald
Action to be without merit and intends to defend the action vigorously,
including the appeal.
TOYS "R" US AND RELATED MATTERS
-------------------------------
On September 25, 1997, an administrative law judge of the Federal Trade
Commission issued his initial decision in the matter In re Toys "R" Us,
------------------
Inc. (FTC Docket No. 9278). The administrative law judge made findings of
- ----
fact and conclusions of law that the toy retailer Toys "R" Us, Inc. ("TRU")
had violated federal antitrust laws and entered into vertical and
horizontal arrangements with various toy manufacturers, including the
Company, whereby the manufacturers would refuse to do business with
warehouse clubs, or would do business with warehouse clubs only on terms
acceptable to TRU. TRU has announced its intention to appeal the decision
to the full Commission.
Following announcement of the administrative law judge's decision, the
Company and certain other toy manufacturers have been named as defendants
in a number of antitrust actions in various states. On October 2, 1997,
the Attorney General of the State of New York filed in the United States
District Court, Eastern District of New York (Case No. CV 97 5714), an
action against TRU and certain toy manufacturers, including the Company,
seeking treble damages, expenses and attorneys' fees, on behalf of all
persons in the State of New York who purchased toy products from retailers
from 1989 to the present. The complaint alleges that TRU orchestrated an
illegal conspiracy with various toy manufacturers, including the Company,
to cut off supplies of popular toys to warehouse clubs and low margin
retailers that compete with TRU. The attorneys general from thirty-seven
other states, the District of Columbia and the Commonwealth of Puerto Rico
joined this action on or about November 17, 1997.
Following the filing of the New York action, a series of private treble
damage class actions under the federal antitrust laws have been filed in
various federal district courts. The Company is aware of a total of
twenty-seven actions which are currently pending and name Mattel as a
defendant: fourteen actions in the United States District Court, District
of New Jersey; five actions in the United States District Court, Northern
District of California; one action in the United States District Court,
District of Illinois; one action in the United States District Court,
District of Maryland; one action in the United States District Court,
District of Vermont; and five actions in the United States District Court,
Eastern District of New York. While the allegations and relief sought are
substantially the same as those in the New York action, the defendants
differ from action to action, as does the alleged conspiracy period. On
January 23, 1998, at a hearing before the Judicial Panel on Multidistrict
Litigation (the "JPML"), the parties agreed to have these related actions
transferred to the Eastern District of New York before the Honorable Nina
Gershon. A transfer order was issued by the JPML on February 11, 1998.
15
The Company is also aware of three class action complaints filed in state
court in California naming TRU as a defendant and the Company and various
other toy manufacturers as nondefendant co-conspirators. These actions
have been coordinated in Superior Court of the State of California, County
of Alameda, and allege violations of state antitrust laws, seek unspecified
damages and are based on substantially similar allegations to those in the
FTC administrative proceeding.
The Company intends to vigorously defend the litigation in which it is
named involving the TRU matter. Due to the preliminary nature of the
various actions and proceedings against the Company, the ultimate outcome
and materiality of these matters cannot presently be determined.
ENVIRONMENTAL
-------------
The Company's Fisher-Price subsidiary has executed a consent order
with the State of New York involving a remedial action/feasibility study
for voluntary cleanup of contamination at one of its manufacturing plants.
The ultimate liability associated with this cleanup presently is estimated
to be less than $1,425,000, approximately $970,500 of which has been
incurred through December 31, 1997.
GENERAL
-------
The Company is involved in various litigation and other legal matters
which are being defended and handled in the ordinary course of business.
None of these matters is expected to result in outcomes having a material
adverse effect on the Company's liquidity, operating results or
consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
16
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
- ------- STOCKHOLDER MATTERS
-----------------------------------------------------
For information regarding the markets in which the Company's common
stock is traded, see the cover page hereof, and for information regarding
the high and low sales prices of the Company's common stock for the last
two calendar years, see Note 9 to the Consolidated Financial Statements in
the Annual Report to Shareholders, incorporated herein by reference.
As of March 1, 1998, the Company had approximately 46,000 holders of
record of its common stock.
The Company paid dividends on its Common Stock of $0.048 per share in
January 1996, $0.060 per share in April, July and October 1996 and January
and April 1997 and $0.070 per share in July and October 1997. The payment
of dividends on the Common Stock is at the discretion of the Company's
Board of Directors and is subject to customary limitations. The dividends
have been adjusted to reflect a five-for-four stock split which the Company
declared on its common stock to holders of record on February 16, 1996.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The information under the caption "Five-Year Financial Summary" on
page 30 in the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- RESULTS OF OPERATIONS
---------------------------------------------------------------
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 31
through 35 in the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Foreign
Currency Risk" on pages 34 and 35 in the Annual Report to Shareholders and
Note 6 to the Consolidated Financial Statements in the Annual Report to
Shareholders are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The consolidated financial statements of Mattel, Inc. and
Subsidiaries, together with the report of Price Waterhouse LLP dated
February 2, 1998, included on pages 36 through 55 in the Annual Report to
Shareholders are incorporated herein by reference.
17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- FINANCIAL DISCLOSURE
---------------------------------------------------------------
None
18
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Information required under this Item relating to members of the Board
of Directors is incorporated by reference herein from the Company's 1998
Notice of Annual Meeting of Stockholders and Proxy Statement to be filed
with the Securities and Exchange Commission within 120 days after December
31, 1997. The information with respect to executive officers of the
Company appears under the heading "Executive Officers of the Registrant" in
Part I herein.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required under this Item is incorporated by reference
herein from the Company's 1998 Notice of Annual Meeting of Stockholders and
Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The information required under this Item is incorporated by reference
herein from the Company's 1998 Notice of Annual Meeting of Stockholders and
Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information required under this Item is incorporated by reference
herein from the Company's 1998 Notice of Annual Meeting of Stockholders and
Proxy Statement to be filed with the Securities and Exchange Commission
within 120 days after December 31, 1997.
19
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
- -------- -------------------------------------------------------
(a) The following documents are filed as part of this report:
Annual Report
Page Number(1)
-------------
(1) Financial Statements
Consolidated Balance Sheets as of 36-37
December 31, 1997 and 1996
Consolidated Statements of Income for 38
the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for 39
the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Shareholders' 40
Equity for the years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements 41-53
Report of Price Waterhouse LLP, Independent 55
Accountants to the Company
1
Incorporated by reference from the indicated pages of the Annual
Report to Shareholders for the year ended December 31, 1997. With the
exception of the information incorporated by reference in Items 1, 5, 6, 7,
8 and 14 of this report, the Annual Report to Shareholders is not deemed
filed as part of this report.
20
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders
Tyco Toys, Inc.
Mount Laurel, New Jersey
We have audited the consolidated balance sheets of Tyco Toys, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of
the three years in the period ended December 31, 1996, not separately
presented herein. Those financial statements, which were included in
Mattel, Inc.'s Form 8-K filed on April 17, 1997, are the responsibility of
the Company's management. Our responsibility is to express an opinion on
those financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Tyco Toys, Inc. and
subsidiaries as of 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.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Philadelphia, Pennsylvania
February 4, 1997 except for note 15, as to which the date is March 27,
1997
21
(2) Financial Statement Schedule for the years ended December 31, 1997,
1996 and 1995 (1)
Report of Independent Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Allowances
(3) Exhibits (Listed by numbers corresponding to Item 601 of Regulation S-K)
3.0 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.0 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993)
3.1 Certificate of Amendment of Restated Certificate of
Incorporation of the Company (incorporated by reference to
Exhibit B to the Company's Proxy Statement dated March 23,
1996)
3.2 By-laws of the Company, as amended to date (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3 dated August 21, 1997)
4.0 Rights Agreement, dated as of February 7, 1992, between the
Company and The First National Bank of Boston, as Rights Agent
(incorporated by reference to Exhibit 1 to the Company's
Registration Statement on Form 8-A, dated February 12, 1992)
4.1 Certificate of Designation of Series C Preferred Stock
dated March 26, 1997 (incorporated by reference to Exhibit 4.7
to the Company's Registration Statement on Form S-3 dated
August 21, 1997)
4.2 Deposit Agreement dated June 24, 1996 among Tyco Toys, Inc.,
Midlantic Bank, N.A., as Depositary, and all holders from
time to time of depositary receipts issued thereunder
(incorporated by reference to Exhibit 4.2 to Tyco Toys, Inc.'s
Registration Statement on Form S-3 dated June 20, 1996)
4.3 Amendment to Deposit Agreement dated as of March 27, 1997
between the Company, as successor to Tyco and The First
National Bank of Boston (incorporated by reference to
Exhibit 4.9 to the Company's Registration Statement on
Form S-3 dated September 26, 1997)
(The Company has not filed certain long-term debt instruments
under which the principal amount of securities authorized to be
issued does not exceed 10% of the total assets of the Company.
Copies of such agreements will be provided to the Securities
and Exchange Commission upon request.)
1
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or notes thereto.
22
10.0 Second Amended and Restated Credit Agreement dated as of March
11, 1998 among the Company, the Banks named therein and Bank of
America National Trust and Savings Association, as Agent (to be
filed on a Current Report on Form 8-K)
10.1 Receivables Purchase Agreement dated as of March 11, 1998
among the Company, Mattel Factoring, Inc., the Banks named
therein and NationsBank of Texas, N.A., as Agent (to be filed
on a Current Report on Form 8-K)
10.2 Stock Subscription Warrant dated as of June 28, 1991 between
Fisher-Price, Inc. and certain investors (incorporated by
reference to Exhibit 4(c) to Fisher-Price's Report on Form 10-K
for the transition period from July 1, 1991 to December 29,
1991)
10.3 Distribution Agreement dated November 12, 1997 among the Company,
Morgan Stanley & Co. Incorporated and Credit Suisse First Boston
Corporation (incorporated by reference to Exhibit 1.0 to the
Company's Current Report on Form 8-K dated November 12, 1997)
10.4 Indenture dated as of February 15, 1996 between the Company and
Chemical Trust Company of California, as Trustee (incorporated
by reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated April 11, 1996)
10.5 Form of Underwriting Agreement among the Company, Morgan
Stanley & Co. Incorporated and CS First Boston Corporation
(incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
Executive Compensation Plans and Arrangements of the Company
- ------------------------------------------------------------
10.6 Form of Indemnity Agreement between Mattel and its directors
and certain of its executive officers (incorporated by
reference to Exhibit B to Notice of Annual Meeting of
Stockholders of the Company dated March 24, 1987)
10.7 Amended and Restated Employment Agreement dated January 1, 1997
between the Company and Jill E. Barad (incorporated by
reference to Exhibit 10.0 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997)
10.8 Employment Agreement dated May 5, 1997 between the Company
and Gary S. Baughman (to be filed on a Current Report on
Form 8-K)
10.9 Amended and Restated Employment Agreement dated September 9,
1996 between the Company and Joseph C. Gandolfo (incorporated
by reference to Exhibit 10.12 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996)
23
10.10 Amended and Restated Employment Agreement dated July 29, 1996
between the Company and Ned Mansour (incorporated by reference
to Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.11 Employment Agreement dated December 20, 1996 between the
Company and Bruce L. Stein (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996)
10.12 Mattel, Inc. Management Incentive Plan (incorporated by
reference to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.13 Mattel, Inc. Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.14 Form of Deferred Compensation Plan for Directors (incorporated
by reference to Exhibit No. 10.11 of Amendment No. 1 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 26, 1987)
10.15 Amended and Restated Mattel, Inc. 1996 Stock Option Plan
(the "1996 Plan") (incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996)
10.16 Form of Option Agreement for Outside Directors under the 1996
Plan (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996)
10.17 Form of Option Agreement under the 1996 Plan (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.18 Mattel, Inc. Supplemental Executive Retirement Plan effective
as of October 7, 1990 (incorporated by reference to Exhibit
10.10 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 1990)
10.19 Mattel, Inc. Amended and Restated Supplemental Executive
Retirement Plan as of May 1, 1996 (incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996)
10.20 Description of the Mattel, Inc. Deferred Compensation Plan for
Officers (incorporated by reference to Exhibit 10.16 to the
Mattel, Inc. Annual Report on Form 10-K for the year ended
December 31, 1991)
10.21 The Fisher-Price, Inc. Pension Plan (1989 Restatement)
(incorporated by reference to Exhibit 10(l) to Fisher-Price's
Registration Statement on Form 10 dated June 28, 1991)
24
10.22 Mattel, Inc. Personal Investment Plan, 1997 Restatement
(to be filed on a Current Report on Form 8-K)
10.23 Mattel, Inc. Hourly Employee Personal Investment Plan
(incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 dated February 20, 1996)
10.24 First Amendment to the Mattel, Inc. Hourly Employee Personal
Investment Plan (incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K dated February 14,
1997)
11.0* Computation of Income per Common and Common Equivalent Share
12.0* Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
13.0* Pages 29 through 57 of the Mattel, Inc. Annual Report to
Shareholders for the year ended December 31, 1997
21.0* Subsidiaries of the Registrant
23.0* Consent of Price Waterhouse LLP
23.1* Consent of Deloitte & Touche LLP
24.0* Power of Attorney (on page 28 of Form 10-K)
27.0* Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
Mattel, Inc. filed the following Current Reports on Form 8-K
during the quarterly period ended December 31, 1997:
Financial
Date of Report Items Reported Statements Filed
------------------ -------------- ----------------
October 8, 1997 5, 7 None
October 21, 1997 5, 7 None
November 12, 1997 5, 7 None
November 26, 1997 5, 7 None
25
(c) Exhibits Required by Item 601 of Regulation S-K
See Item (3) above
(d) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Allowances
Copies of Form 10-K (which includes Exhibit 24.0), Exhibits
11.0, 12.0, 13.0, 21.0, 23.0 and 23.1 and the Annual Report to
Shareholders are available to stockholders of the Company
without charge. Copies of other Exhibits can be obtained by
stockholders of the Company upon payment of twelve cents per
page for such Exhibits. Written requests should be sent to
Secretary, Mattel, Inc., 333 Continental Boulevard,
El Segundo, California 90245-5012.
- -------------------
* Filed herewith.
26
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MATTEL, INC.
Registrant
By: /s/ Kevin M. Farr
-------------------------
KEVIN M. FARR
Senior Vice President and
Date: As of March 18, 1998 Controller
--------------------
27
POWER OF ATTORNEY
-----------------
We, the undersigned directors and officers of Mattel, Inc. do hereby
severally constitute and appoint Jill E. Barad, Ned Mansour, Robert
Normile, Leland P. Smith, and John L. Vogelstein, and each of them, our true
and lawful attorneys and agents, to do any and all acts and things in our
name and behalf in our capacities as directors and officers and to execute
any and all instruments for us and in our names in the capacities indicated
below, which said attorneys and agents, or any of them, may deem necessary
or advisable to enable said Corporation to comply with the Securities Exchange
Act of 1934, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Annual Report on
Form 10-K, including specifically, but without limitation, power and authority
to sign for us or any of us, in our names in the capacities indicated below,
any and all amendments hereto; and we do each hereby ratify and confirm
all that said attorneys and agents, or any one of them, shall do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Jill E. Barad Chairman of the Board and March 18, 1998
- ----------------- Chief Executive Officer
JILL E. BARAD
/s/ Harry J. Pearce Chief Financial Offier March 18, 1998
- ------------------- (principal financial officer)
HARRY J. PEARCE
/s/ Kevin M. Farr Senior Vice President and March 18, 1998
- ----------------- Controller
KEVIN M. FARR (principal accounting officer)
/s/ John W. Amerman Director March 18, 1998
- -------------------
JOHN W. AMERMAN
28
Signature Title Date
- --------- ----- ----
/s/ Harold Brown Director March 18, 1998
- ----------------
HAROLD BROWN
Director March 18, 1998
- ---------------------
TULLY M. FRIEDMAN
/s/ Joseph C. Gandolfo Director and President, March 18, 1998
- ---------------------- Worldwide Manufacturing
JOSEPH C. GANDOLFO Operations
/s/ Ronald M. Loeb Director March 18, 1998
- ------------------
RONALD M. LOEB
/s/ Ned Mansour Director and President, March 18, 1998
- --------------- Corporate Operations
NED MANSOUR
/s/ Edward N. Ney Director March 18, 1998
- -----------------
EDWARD N. NEY
/s/ William D. Rollnick Director March 18, 1998
- -----------------------
WILLIAM D. ROLLNICK
/s/ Christopher A. Sinclair Director March 18, 1998
- ---------------------------
CHRISTOPHER A. SINCLAIR
/s/ Bruce L. Stein Director and President, March 18, 1998
- ------------------ Mattel Worldwide and
BRUCE L. STEIN Chief Operating Officer
/s/ John L. Vogelstein Director March 18, 1998
- ----------------------
JOHN L. VOGELSTEIN
29
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
---------------------------------
To the Board of Directors of Mattel, Inc.
Our audits of the consolidated financial statements referred to in our
report dated February 2, 1998 appearing on page 55 of the December 31, 1997
Annual Report to Shareholders of Mattel, Inc. (which report and
consolidated financial statements are incorporated by reference in this
Annual Report on Form 10-K) also included an audit of the Financial
Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this Financial Statement Schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
- ------------------------
Los Angeles, California
February 2, 1998
30
MATTEL, INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES
(In thousands)
Balance at Additions Balance
Beginning Charged to Net at End
of Year Operations Deductions of Year
---------- ---------- ---------- --------
Allowance for
Doubtful Accounts
- --------------------
Year Ended
December 31, 1997 $ 21,009 $ 21,036 $ (11,308)(a) $ 30,737
Year Ended
December 31, 1996 13,119 21,381 (13,491)(a) 21,009
Year Ended
December 31, 1995 22,412 18,470 (27,763)(a) 13,119
Allowance for
Inventory Obsolescence
- -------------------------
Year Ended
December 31, 1997 $ 35,645 $ 52,312 $ (54,183)(b) $ 33,774
Year Ended
December 31, 1996 30,620 73,004 (67,979)(b) 35,645
Year Ended
December 31, 1995 34,553 51,587 (55,520)(b) 30,620
<FN>
(a) Includes write-offs, recoveries of previous write-offs, and currency
translation adjustments.
(b) Primarily represents relief of previously established reserves resulting
from the disposal of related inventory, raw material write-downs and
currency translation adjustments.
31