Mattel 1999 Annual Report Download - page 17

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Mattel, Inc. and Subsidiaries
approximately 0.6 million Mattel common shares. In addition, each share of Tyco
Series B and Series C preferred stock was converted into like Mattel preferred stock.
Learning Company also merged with Palladium Interactive, Inc. and P.F. Magic,
Inc. in 1 99 8 and TEC Direct, Inc., Microsystems Software, Inc., Skills Bank Corporation
and Learning Company Services, Inc. in 1 99 7, each of which were accounted for as
poolings of interests. The consolidated financial statements have not been retroactively
restated for the results of operations and financial position of these companies as the
effect of each acqusition individually and in the aggregate on Learning Company’s bal-
ance sheet and results of operations was less than three percent.
Acquisitions
Mattel and Learning Company acquired the following companies during the years
ended December 3 1, 19 98 and 19 97 . Each of these acquisitions was accounted for
using the purchase method of accounting. The results of operations of the acquired
companies have been included in Mattel’s consolidated financial statements from their
respective dates of acquisition. Intercompany accounts and transactions betw een the
acquired companies and Mattel, as applicable, have been eliminated.
( Assets) /
Method of Liabilities Incomplete
( In millions) Month Price Payment Assumed Intangibles Technology
1998
Pleasant Company July $71 5 .0 Cash $( 25 .0 ) $6 9 0 .0 $ –
Bluebird Toys PLC June 80 .0 Cash ( 2 0 .0) 60 .0 –
Sofsource, Inc. June 45 .0 Stock 6.7 36.8 14 .9
Mindscape, Inc. March 15 2 .6 Cash/ stock 6.4 11 9 .0 40.0
1997
Creative Wonders, L.L.C. October $ 37.8 Cash $ 7.3 $ 44.0 $ 1.1
Parsons Technology August 31 .0 Cash ( 1 1 .7) 9.3 10 .0
The acquisition price includes investment advisor and other directly-related
expenses as applicable. The portion of the purchase price allocated to incomplete
technology was charged to expense in the year of acquisition.
Mattel also made other minor acquisitions during the last three years w hich were
accounted for using the purchase method. These acquisitions resulted in the issuance of 0.4
million shares of common stock in the year ended December 31 , 1997.
New Venture
In the third quarter of 1 99 9, Mattel executed stock purchase and distribution agree-
ments with Bandai, the largest toy company in Japan. In the purchase agreement,
Mattel acquired approximately five percent of the outstanding common stock of
Bandai. The distribution agreements allow Bandai to distribute certain Mattel prod-
ucts in Japan, while Mattel was granted the right to distribute certain Bandai products
in Latin America. Mattel and Bandai will discuss other distribution opportunities in the
US on a case-by-case basis.
Restructuring and Other Charges
In 1 99 9 Mattel incurred restructuring and other nonrecurring charges totaling
$3 46 .0 million, approximately $2 65 million after-tax or $0 .64 per diluted share.
During the first quarter of 19 99, Mattel incurred a nonrecurring pre-tax charge
of $3 .9 million, largely related to the restructuring and integration of acquisitions
made by its Learning Company division in the fourth quarter of 1 99 8.
During the second quarter of 19 99 , Mattel completed its merger w ith Learning
Company and finalized a previously announced plan of restructuring and integration.
These actions, along with other one-time events, resulted in a nonrecurring pre-tax
charge against operations of $ 34 5.0 million. In the fourth quarter of 1 99 9, Mattel
incurred an additional $2 3.5 million charge relating to its restructuring and integration
plan and other one-time charges which had previously not met the requirement for
accrual. In addition, Mattel reversed $ 26 .4 million of the second quarter charge based
on lower than anticipated costs and revisions to previous estimates. The impact of
these new developments combined with the initial second quarter charge resulted in a
full year nonrecurring charge of $3 42 .1 million. Of the pre-tax restructuring and inte-
gration charges totaling $3 07 .0 million, approximately $1 32 million was spent in
19 99 , $ 11 1 million is expected to be spent in 2 00 0 and the remaining $6 4 million
represents non-cash charges. Total cash outlay will be funded from existing cash bal-
ances and internally generated cash flows from operations.
The restructuring and integration plan, expected to be substantially complete
by June 2 00 0, provides for the consolidation and realignment of Mattel’s operations.
The plan was aimed at leveraging global resources in areas of manufacturing, market-
ing and distribution, eliminating duplicative functions w orldwide and achieving
improved operating efficiencies. The plan, which w as designed to reduce product
costs and overhead spending and recognize synergy savings, resulted in actual cost
savings of approximately $4 0 million in 1 99 9. Mattel expects savings of at least
$3 50 million over the next three years. The realized cost savings for 1 99 9 and
beyond is lower than the previously estimated savings of approximately $5 0 million
and $ 40 0 million, respectively, largely due to not realizing the revenue synergies
with Learning Company. These savings are net of anticipated incremental integration-
related spending of approximately $1 2 million. This incremental spending includes
approximately $3 million for capital investment at existing manufacturing facilities as
well as network consolidation, and charges for the relocation of employees and move-
ment of equipment, employee transition/ training, and manufacturing start-up costs.
The following are the major restructuring and integration initiatives:
- Consolidation of the Infant and Preschool businesses;
- Consolidation of the domestic and international back-office functions;
- Consolidation of direct marketing operations;
- Realignment of the North American sales force;
- Termination of various international distributor contracts; and
- Closure of three higher cost manufacturing facilities.
Components of the restructuring and other nonrecurring charges, including
related adjustments, are as follows:
Balance
Adjustm ents Total Amounts Dec. 31 ,
( In millions) Plan ( Credits) Charges Charges Incurred 19 9 9
Severance and other compensation $ 1 08 $ ( 13) $ 1 8 $ 1 1 3 $ ( 3 0) $ 8 3
Distributor, license and other
contract terminations 57 ( 2) – 55 ( 4 5 ) 10
Writedown of assets 42 ( 2) – 40 ( 4 0 ) –
Lease termination costs 22 ( 4) – 18 – 1 8
Total restructuring costs and asset w ritedow ns 22 9 (2 1 ) 18 22 6 (1 1 5 ) 111
Merger-related transaction and other costs 86 ( 5 ) – 81 ( 7 6 ) 5
Other nonrecurring charges 30 – 5 35 ( 1 6 ) 19
Total restructuring, asset writedowns
and other charges $3 4 5 $( 26 ) $ 2 3 $342 $ ( 2 0 7 ) $ 1 3 5