Mattel 2000 Annual Report Download - page 26

twenty four
Mattel, Inc. and Subsidiaries
credit facility, with essentially the same terms and conditions as the
$1.0 billion revolving credit facility. The $400.0 million, 364-day facility
is expected to be renewed in first quarter 2001. Under both domestic
credit facilities, Mattel is required to meet financial covenants for con-
solidated debt-to-capital and interest coverage. Currently, Mattel is in
compliance with such covenants.
Mattel also expects to have approximately $392 million of
individual short-term foreign credit lines with a number of banks
available in 2001, which will be used as needed to finance seasonal
working capital requirements of certain foreign subsidiaries.
DISCONTINUED OPERATIONS
In May 1999, Mattel completed its merger with Learning Company, in
which Learning Company was merged with and into Mattel, with Mattel
being the surviving corporation. Due to substantial losses experienced
by its Consumer Software segment, which was comprised primarily of
Learning Company, Mattel’s board of directors, on March 31, 2000,
resolved to dispose of its Consumer Software segment. As a result
of this decision, the Consumer Software segment was reported as a
discontinued operation effective March 31, 2000, and the consolidated
financial statements were reclassified to segregate the net invest-
ment in, and the liabilities and operating results of the Consumer
Software segment.
On October 18, 2000, Mattel disposed of Learning Company
to an affiliate of Gores Technology Group in return for a contractual
right to receive future consideration based on income generated from
its business operations and/or the net proceeds derived by the new
company upon the sale of its assets or other liquidating events, or
20% of its enterprise value at the end of five years. However, there
can be no assurance that Mattel will receive any future consideration
with respect to the disposition of Learning Company. Furthermore,
upon the disposition of Learning Company, Mattel had no further
obligation to fund its operations.
In December 2000 and January 2001, Mattel entered into world-
wide, multi-year licensing agreements with Vivendi Universal Publishing
and THQ, respectively, for the development and publishing of gaming,
educational and productivity software based on Mattel’s brands, which
Mattel had previously developed and sold directly through its Mattel
Media division. These partnerships allow Mattel to provide the content
from its library of power brands, while Vivendi Universal Publishing
and THQ provide software development and distribution expertise. This
strategy for extending into the interactive arena will provide opportuni-
ties for future growth with no capital investment. Management
believes such a licensing program is likely to result in a lower risk of
loss from operations than the Consumer Software segment. However,
a licensing program will result in greater dependence by Mattel on its
licensing partners, and less direct control by Mattel over research and
development, marketing, and sales decisions related to its consumer
software products. As a result, Mattel’s ability to create innovative new
consumer software products may be reduced.
LITIGATION
Power Wheels® Recall
On October 22, 1998, Mattel announced that Fisher-Price, in coopera-
tion with the Consumer Product Safety Commission, would conduct
a voluntary recall involving up to 10 million battery-powered Power
Wheels® ride-on vehicles. The recall involves the replacement of elec-
tronic components that may overheat, particularly when consumers
make alterations to the product, and covers vehicles sold nationwide
since 1984 under nearly 100 model names. Additionally, Fisher-Price
has been notified by the Consumer Product Safety Commission that
the Commission is considering whether Fisher-Price may be subject
to a fine for delayed reporting of the facts underlying the recall.
Greenwald Litigation
On October 13, 1995, Michelle Greenwald filed a complaint against
Mattel in Superior Court of the State of California, County of Los
Angeles. Ms. Greenwald is a former employee whom Mattel terminat-
ed. Her complaint sought general and special damages, plus punitive
damages, for breach of oral, written and implied contract, wrongful
termination in violation of public policy and violation of California
Labor Code Section 970. Ms. Greenwald claimed that her termination
resulted from complaints she made to management concerning gen-
eral allegations that Mattel did not account properly for sales and
certain costs associated with sales and more specific allegations that
Mattel failed to account properly for certain royalty obligations to
The Walt Disney Company.
In 1996, Mattel’s motion for summary adjudication of Ms.
Greenwald’s public policy claim was granted, with Mattel’s motion for
summary judgment of Ms. Greenwald’s remaining claims being granted
in 1997. Ms. Greenwald appealed the dismissal of her suit in 1998. In
2000, the California Court of Appeal filed an opinion that affirmed in
part and reversed in part the judgment in favor of Mattel. The Court of
Appeal ruled that disputed factual issues existed which precluded sum-
mary adjudication of certain claims and that a jury at trial must resolve
such factual issues. As a result, Ms. Greenwald’s claims for termination
in violation of public policy, termination in breach of an implied agree-
ment, and violation of California Labor Code Section 970 were ordered
remanded to the trial court for further proceedings. The Court of
Appeal did not rule on whether Ms. Greenwald’s claims had merit; it
merely held that the claims should be presented to a jury. Jurisdiction
was then restored to the trial court for further proceedings. In
December 2000, the lawsuit was settled for an amount that was not
material to Mattel’s financial condition or results of operations.
Litigation Related to Learning Company
Following Mattel’s announcement in October 1999 of the expected
results of its Learning Company division for the third quarter of 1999,
several of Mattel’s stockholders filed purported class action complaints
naming Mattel and certain of its present and former officers and
directors as defendants. The complaints generally allege, among other
things, that the defendants made false or misleading statements in
the joint proxy statement for the merger of Mattel and Learning
Company and elsewhere, that artificially inflated the price of Mattel’s
common stock.
In March 2000, these shareholder complaints were consolidat-
ed into two lead cases: Thurber v. Mattel, Inc. et al. (containing claims
under § 10(b) of the 1934 Securities Exchange Act (“Act”)) and Dusek
v. Mattel, Inc. et al. (containing claims under § 14(a) of the Act). Mattel
and the other defendants filed motions to dismiss both lawsuits for