Exhibit 99.2
MATTEL
Unaudited Pro Forma Condensed Combined
Financial Statements
We have provided unaudited condensed combined financial statements of Mattel
after giving effect to the merger, which are referred to as "pro forma"
information. In presenting these unaudited pro forma condensed combined
financial statements, we treated our companies as if they had always been
combined for accounting and financial reporting purposes. This method is known
as the "pooling of interests" method of accounting. You should be aware that
these unaudited pro forma condensed combined financial statements are presented
for illustrative purposes only and may not be indicative of the operating
results or financial position that would have occurred or that will occur after
the consummation of the merger.
We have provided an unaudited pro forma condensed combined balance sheet as
of December 31, 1998 that includes the impact of transaction costs related to
the merger and tax benefits relating to Learning Company's net operating loss
carryforwards and deductible temporary differences. The impact of merger
integration and Mattel restructuring costs to be recognized in the second
quarter of 1999 are not included in this balance sheet.
We have also provided unaudited pro forma condensed combined statements of
operations for the years ended December 31, 1996, 1997, and 1998 assuming the
merger had occurred as of January 1, 1996. The unaudited pro forma condensed
combined statements of operations for all periods presented exclude the positive
effects of potential cost savings that the companies may achieve upon combining
the resources of Mattel and Learning Company, transaction costs of approximately
$75 to $85 million, including investment banking, legal and accounting fees and
contractual incentive benefits, and merger integration and Mattel restructuring
costs to be recognized in the second quarter of 1999.
On March 5, 1998, Learning Company purchased Mindscape, Inc. Since the
acquisition of Mindscape, Inc. is material to Learning Company's results of
operations, we have included the preacquisition results of Mindscape, Inc. in
the unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1998 as if the acquisition had occurred on January 1, 1998.
The condensed annual historical statements of operations of Mattel are derived
from its audited consolidated financial statements previously filed with the
Securities and Exchange Commission in Mattel's 1998 Annual Report on Form 10-K.
The condensed annual historical statements of operations of Learning Company
are derived from its audited consolidated financial statements previously filed
with the Securities and Exchange Commission in Learning Company's 1998 Annual
Report on Form 10-K.
MATTEL
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1998
Historical Pro Forma
----------------- --------------------
Learning
Mattel Company Adjustments Combined
-------- -------- ----------- --------
(In millions)
ASSETS
------
Current Assets:
Cash, cash equivalents and marketable
securities........................... $ 212.5 $256.8 $ -- $ 469.3
Accounts receivable, net.............. 983.0 167.0 -- 1,150.0
Inventories........................... 584.4 59.9 -- 644.3
Prepaid expenses and other current
assets............................... 277.9 56.5 -- 334.4
-------- ------ ----- --------
Total current assets................ 2,057.8 540.2 -- 2,598.0
-------- ------ ----- --------
Property, plant and equipment, net...... 736.5 26.7 -- 763.2
Other noncurrent assets................. 1,467.9 253.9 64.4(a) 1,786.2
-------- ------ ----- --------
Total Assets........................ $4,262.2 $820.8 $64.4 $5,147.4
======== ====== ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Short-term borrowings and current
portion of long-term liabilities..... $ 167.5 $ 75.1 $ -- $ 242.6
Accounts payable, accrued liabilities
and income taxes payable............. 1,149.7 166.9 50.0(b) 1,366.6
-------- ------ ----- --------
Total current liabilities........... 1,317.2 242.0 50.0 1,609.2
-------- ------ ----- --------
Long-term debt.......................... 983.5 191.2 -- 1,174.7
Other long-term liabilities............. 141.3 101.4 -- 242.7
-------- ------ ----- --------
Total long-term liabilities......... 1,124.8 292.6 -- 1,417.4
-------- ------ ----- --------
Stockholders' equity.................... 1,820.2 286.2 14.4(c) 2,120.8
-------- ------ ----- --------
Total Liabilities and Stockholders'
Equity............................. $4,262.2 $820.8 $64.4 $5,147.4
======== ====== ===== ========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
MATTEL
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1998
Historical Pro Forma
----------------------------------- ---------------------
Learning
Mattel Company Mindscape Adjustments Combined
-------- -------- ---------------- ----------- --------
(Preacquisition)
(In millions, except per share data)
Net Sales............... $4,781.9 $ 839.3 $ 9.1 $ -- $5,630.3
Cost of sales......... 2,418.9 289.0 9.8 -- 2,717.7
-------- ------- ------ ------ --------
Gross Profit............ 2,363.0 550.3 (0.7) -- 2,912.6
Advertising and
promotion expenses... 813.3 104.4 12.5 -- 930.2
Other selling and
administrative
expenses............. 882.1 262.6 11.8 -- 1,156.5
Amortization of
intangibles.......... 41.9 88.2 2.6 2.6(d) 135.3
Charge for incomplete
technology........... -- 56.8 -- -- 56.8
Restructuring and
other charges........ -- 113.3 16.6 -- 129.9
Special charge........ 44.0 -- -- -- 44.0
Interest expense...... 110.8 17.6 -- -- 128.4
Other expense
(income), net........ 5.8 (18.8) -- -- (13.0)
-------- ------- ------ ------ --------
Income (Loss) from
Continuing Operations
Before Income Taxes.... 465.1 (73.8) (44.2) (2.6) 344.5
Provision for income
taxes................ 132.8 31.5 1.1 20.9(e) 186.3
-------- ------- ------ ------ --------
Income (Loss) from
Continuing Operations.. 332.3 (105.3) (45.3) (23.5) 158.2
Preferred stock
dividend
requirements......... 8.0 -- -- -- 8.0
-------- ------- ------ ------ --------
Income (Loss) from
Continuing Operations
Applicable to Common
Shares................. $ 324.3 $(105.3) $(45.3) $(23.5) $ 150.2
======== ======= ====== ====== ========
Basic Income (Loss) Per
Common Share(f):
Income (Loss) Per Share
from Continuing
Operations............. $ 1.11 $ (1.28) $ 0.38
======== ======= ========
Average Number of Common
Shares................. 291.5 82.3 397.0
======== ======= ========
Diluted Income (Loss)
Per Common Share(f):
Income (Loss) Per Share
from Continuing
Operations............. $ 1.10 $ (1.28) $ 0.36
======== ======= ========
Average Number of Common
and Common Equivalent
Shares................. 303.2 82.3 436.3
======== ======= ========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
MATTEL
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1997
Historical Pro Forma
----------------- ----------------------
Learning
Mattel Company Adjustments Combined
-------- -------- ----------- --------
(In millions, except per share data)
Net Sales............................. $4,834.6 $ 620.9 $ -- $5,455.5
Cost of sales....................... 2,434.6 201.3 -- 2,635.9
-------- ------- ------ --------
Gross Profit.......................... 2,400.0 419.6 -- 2,819.6
Advertising and promotion expenses.. 779.1 67.3 -- 846.4
Other selling and administrative
expenses........................... 797.0 216.1 -- 1,013.1
Amortization of intangibles......... 32.2 455.0 -- 487.2
Charge for incomplete technology.... -- 20.3 -- 20.3
Restructuring and other charges..... 275.0 68.6 -- 343.6
Interest expense.................... 90.1 22.5 -- 112.6
Other expense (income), net......... 1.5 (6.3) -- (4.8)
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Extraordinary Item
and Income Taxes..................... 425.1 (423.9) -- 1.2
Provision (benefit) for income
taxes.............................. 135.3 71.0 (27.0)(e) 179.3
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Extraordinary
Item................................. 289.8 (494.9) 27.0 (178.1)
Preferred stock dividend
requirements....................... 10.5 -- -- 10.5
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Extraordinary Item
Applicable to Common Shares.......... $ 279.3 $(494.9) $ 27.0 $ (188.6)
======== ======= ====== ========
Basic Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations Before
Extraordinary Item................... $ 0.96 $ (7.48) $ (0.51)
======== ======= ========
Average Number of Common Shares....... 290.5 66.2 369.9
======== ======= ========
Diluted Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations Before
Extraordinary Item................... $ 0.94 $ (7.48) $ (0.51)
======== ======= ========
Average Number of Common and Common
Equivalent Shares.................... 295.7 66.2 369.9
======== ======= ========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
MATTEL
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 1996
Historical Pro Forma
------------------ ----------------------
Learning
Mattel Company Adjustments Combined
-------- -------- ----------- --------
(In millions, except per share data)
Net Sales......................... $4,535.3 $ 529.5 $ -- $5,064.8
Cost of sales................... 2,315.5 159.2 -- 2,474.7
-------- ------- ------ --------
Gross Profit...................... 2,219.8 370.3 -- 2,590.1
Advertising and promotion
expenses....................... 778.9 35.1 -- 814.0
Other selling and administrative
expenses....................... 772.3 162.2 -- 934.5
Amortization of intangibles..... 32.5 434.5 -- 467.0
Charge for incomplete
technology..................... -- 56.7 -- 56.7
Restructuring and other
charges........................ -- 12.3 -- 12.3
Interest expense................ 100.2 26.7 -- 126.9
Other (income), net............. (0.9) (9.3) -- (10.2)
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Before Income Taxes... 536.8 (347.9) -- 188.9
Provision (benefit) for income
taxes.......................... 164.6 28.6 (26.3)(e) 166.9
-------- ------- ------ --------
Income (Loss) from Continuing
Operations....................... 372.2 (376.5) 26.3 22.0
Preferred stock dividend
requirements................... 7.4 -- -- 7.4
-------- ------- ------ --------
Income (Loss) from Continuing
Operations Applicable to Common
Shares........................... $ 364.8 $(376.5) $ 26.3 $ 14.6
======== ======= ====== ========
Basic Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations............ $ 1.26 $ (6.56) $ 0.04
======== ======= ========
Average Number of Common Shares... 290.4 57.4 359.2
======== ======= ========
Diluted Income (Loss) Per Common
Share(f):
Income (Loss) Per Share from
Continuing Operations............ $ 1.23 $ (6.56) $ 0.04
======== ======= ========
Average Number of Common and
Common Equivalent Shares......... 303.1 57.4 368.2
======== ======= ========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
MATTEL
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed combined financial statements assume a
business combination between Mattel and Learning Company accounted for using
the pooling of interests method and are based upon the respective historical
financial statements and the accompanying notes of Mattel and Learning Company,
as well as the historical financial statements of Mindscape, Inc.
Each share of Learning Company series A preferred stock was converted into 20
shares of Learning Company common stock just prior to consummation of the
merger. According to the merger agreement, each outstanding share of Learning
Company common stock was then converted into the right to receive 1.2 shares of
Mattel common stock.
Although the transaction has been completed, the costs of the merger can only
be estimated at this time. The unaudited pro forma condensed combined statements
of operations for all periods presented exclude the positive effects of
potential cost savings that the companies may achieve upon combining the
resources of Mattel and Learning Company, transaction costs of approximately $75
to $85 million, including investment banking, legal and accounting fees and
contractual incentive benefits, and merger integration and Mattel restructuring
costs to be recognized in the second quarter of 1999.
The unaudited pro forma condensed combined balance sheet as of December 31,
1998 includes the impact of all transactions, whether of a recurring or
nonrecurring nature, that can be reasonably estimated and should be reflected as
of that date. The impact of merger integration and Mattel restructuring costs to
be recognized in the second quarter of 1999 are not included in this balance
sheet.
Certain historical Learning Company and Mindscape, Inc. results have been
reclassified to conform with Mattel's basis of presentation.
2. Pro Forma Adjustments
Intercompany Transactions--There were no material intercompany transactions
that required elimination from the unaudited pro forma condensed combined
statements of operations or balance sheet.
Balance Sheet
(a) Other Noncurrent Assets--The unaudited pro forma condensed combined
balance sheet has been adjusted to reflect the recognition of the estimated tax
benefits related to Learning Company's net operating loss carryforwards and
deductible temporary differences under the combined company's income tax
position.
(b) Accounts Payable, Accrued Liabilities, and Income Taxes Payable--The pro
forma adjustment in the amount of $50 million, net of taxes, reflects accruals
in connection with the estimated transaction costs of $75 million related to
the merger. These costs are not considered in the unaudited pro forma condensed
combined statements of operations. These estimated transaction costs will be
charged against the results of operations in the second quarter of 1999.
MATTEL
Notes to Unaudited Pro Forma Condensed Combined
Financial Statements (Continued)
(c) Stockholders' Equity--Stockholders' equity has been adjusted to reflect
the following:
--Common stock accounts are adjusted for the assumed issuance of approximately
123 million shares of Mattel common stock in exchange for approximately 102
million shares of Learning Company common stock (which includes shares of
Learning Company common stock issued upon conversion prior to the merger of
Learning Company Series A preferred stock at the rate of 20 common shares for
each preferred share outstanding as of December 31, 1998) using the exchange
ratio of 1.2.
--Additional paid-in capital is adjusted for the effects of issuance of
shares of Mattel common stock having a $1.00 par value per share in
exchange for Learning Company Series A preferred stock and Learning Company
common stock, each having a $0.01 par value per share, and the recognition
of the tax benefits related to the exercise of Learning Company non-
qualified stock options due to utilization of Learning Company's net
operating losses in the unaudited pro forma condensed combined statements
of operations.
--Retained earnings is adjusted for the effects of:
(1) accrual for the minimum of the estimated range for transaction
costs related to the merger;
(2) compensation expense related to the Learning Company restricted
common stock; and
(3) recognition of estimated tax benefits from the assessment of income
tax valuation allowances under the combined company's expected
income tax position.
Statement of Operations
(d) Amortization of Intangibles--In connection with its acquisition of
Mindscape, Inc., Learning Company recorded goodwill and other intangible assets,
which reflected the allocation of the purchase price paid to brands and trade
names and completed technology and products. The pro forma adjustment reflects
the amortization of the identifiable intangible assets acquired and goodwill
over their estimated useful lives on a straight-line basis. The estimated useful
lives of brands and trade names, completed technology and products, and goodwill
are 10, 2 and 10 years, respectively.
(e) Provision (Benefit) for Income Taxes--The unaudited pro forma adjustment
reflects the reduction of valuation allowances established in Learning
Company's historical financial statements resulting in the recognition of
estimated benefits of net operating losses incurred by Learning Company in the
unaudited pro forma condensed combined financial statements due to the combined
company's expected income tax position.
(f) Income (Loss) per Common Share--Historical and unaudited pro forma per
share data of Mattel and Learning Company include the retroactive effects of
the March 1997 merger of Tyco Toys, Inc. into Mattel, and the August 1998
merger of Broderbund Software, Inc. into Learning Company, each accounted for
as a pooling of interests. Unaudited pro forma weighted average common shares
outstanding for all periods presented are based upon Mattel's and Learning
Company's combined historical weighted average shares, adjusted for dilutive
common stock equivalents, as appropriate, and after adjustment of Learning
Company's historical number of shares using the exchange ratio of 1.2.