Mattel 1999 Annual Report Download - page 40

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Mattel, Inc. and Subsidiaries
( Assets) /
Method of Liabilities Incomplete
( In millions) Month Price Payment Assumed Intangibles Technology
1998
Pleasant Company July $ 7 15.0 Cash $ ( 2 5 .0 ) $ 6 9 0 .0 $ –
Bluebird Toys PLC June 80.0 Cash (20.0 ) 60 .0 –
Sofsource, Inc. June 4 5 .0 Stock 6.7 3 6 .8 1 4 .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 $ 4 4 .0 $ 1.1
Parsons Technology August 31 .0 Cash ( 11 .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, which 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.
Pro Forma Effect of 19 98 Acquisitions
The unaudited pro forma results of operations for 1 99 8 acquisitions accounted for
using the purchase method of accounting are as follows:
Acquired Pro Forma
( In thousands, except per share data) Mattel Companies Combined
1998
Net sales $5 ,6 2 1 ,207 $1 0 3 ,86 2 $5 ,7 2 5 ,069
Income before extraordinary item 20 6 ,0 5 3 ( 10 2 ,175) 1 03,87 8
Net income 20 6 ,0 5 3 ( 10 2 ,175) 1 03,87 8
Basic income per share 0.5 1 0.2 4
Diluted income per share 0 .47 0.2 2
1997
Net sales $5 ,4 5 5 ,547 $5 5 0 ,65 9 $6 ,0 0 6 ,206
Loss before extraordinary item ( 1 7 8,11 1 ) ( 6 1 ,827 ) ( 2 3 9 ,9 3 8 )
Net loss ( 1 8 2,72 1 ) ( 6 1 ,827 ) ( 2 4 4 ,5 4 8 )
Basic loss per share
Loss before extraordinary item (0 .5 1 ) (0 .6 5)
Net loss ( 0 .5 2 ) (0 .6 6 )
Diluted loss per share
Loss before extraordinary item (0 .5 1 ) (0 .6 5)
Net loss ( 0 .5 2 ) (0 .6 6 )
The amounts shown for acquired companies assumes that Mattel’s 1 99 8
acquisitions occurred on January 1, 19 97 . These unaudited pro forma results of oper-
ations have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have resulted had the
acquisitions occurred on the date indicated, or which may result in the future. Pro
forma adjustments have been made to reflect the amortization of intangible assets
and goodwill capitalized as a result of the acquisitions, incremental interest expense
that would have been incurred as a result of financing the acquisition of Pleasant
Company as of January 1, 19 97 , and elimination of intercompany sales and margins
related to the acquisition of Bluebird.
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 nonrecur-
ring pre-tax charge against operations of $ 34 5.0 million. In the fourth quarter of
19 99 , Mattel incurred an additional $23 .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 $342.1 million. Of the
total pre-tax charges, approximately $2 78 million represents cash expenditures.
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 following are the major restructuring and inte-
gration 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 $ ( 1 3 ) $ 1 8 $113 $ ( 3 0) $ 83
Distributor, license and other contract
term inat ions 5 7 ( 2 ) – 5 5 ( 45 ) 1 0
Writedown of assets 42 ( 2) – 40 ( 4 0 ) –
Lease termination costs 22 ( 4) – 18 – 1 8
Total restructuring costs and
asset writedowns 22 9 (2 1 ) 18 2 2 6 ( 11 5 ) 1 11
Merger-related transaction and other costs 8 6 ( 5 ) – 81 ( 7 6 ) 5
Other nonrecurring charges 30 – 5 3 5 (1 6 ) 19
Total restructuring, asset writedowns
and other charges $3 4 5 $( 26 ) $ 2 3 $342 $ ( 2 0 7 ) $ 1 3 5
In the fourth quarter of 1 99 9, Mattel adjusted its restructuring and integra-
tion plan and other nonrecurring charges, resulting in a net reduction of approximately
$3 million. The credits to the restructuring plan of approximately $2 6 million were
mainly due to Mattel’s recent decision not to close certain of its marketing offices and
one of its manufacturing facilities. The remaining credits include other changes in
estimates and lower than anticipated costs compared to the previous estimates for
completed components of the plan. Approximately 90 0 employees will not be termi-
nated as a result of these changes.
The fourth quarter restructuring charge of approximately $1 8 million relates
to the termination of an additional 15 0 Learning Company employees at its domestic
offices. This action was taken to further consolidate the operations of Learning
Company’s domestic offices. The fourth quarter other nonrecurring charge relates to a
$4 .0 million increase to the reserve for the October 1 99 8 recall of Mattel’s Power
Wheels®vehicles and a $ 1.1 million additional charge related to the Toys R Us-
related antitrust litigation settlement.