Mattel 2000 Annual Report Download - page 27

twenty five
Mattel, Inc. and Subsidiaries
failure to state a claim. In January 2001, the Court granted defen-
dants’ motions to dismiss both Thurber and Dusek, and gave plaintiffs
leave to amend. Plaintiffs are expected to file amended consolidated
complaints in March 2001 in both actions.
Other purported class action litigation has been brought against
Mattel as successor to Learning Company and the former directors of
Learning Company on behalf of former stockholders of Broderbund
Software, Inc. who acquired shares of Learning Company in exchange
for their Broderbund common stock in connection with the Learning
Company-Broderbund merger on August 31, 1998. The consolidated
complaint in In re Broderbund generally alleges that Learning Company
misstated its financial results prior to the time it was acquired by
Mattel. Mattel and the other defendants have filed a motion to dis-
miss the complaint in In re Broderbund, and are awaiting a ruling.
Thurber, Dusek, and In re Broderbund are all currently pending in the
United States District Court for the Central District of California.
Several stockholders have filed derivative complaints on behalf
and for the benefit of Mattel, alleging, among other things, that
Mattel’s directors breached their fiduciary duties, wasted corporate
assets, and grossly mismanaged Mattel in connection with Mattel’s
acquisition of Learning Company and its approval of severance pack-
ages to certain former executives. All of these derivative actions, one
of which was filed in the Court of Chancery in Delaware and the
remainder in Los Angeles Superior Court in California, have been
stayed pending the outcome of motions to dismiss in the federal
securities actions.
Mattel believes that the purported class actions and derivative
suits are without merit and intends to defend them vigorously.
Environmental
Fisher-Price
Fisher-Price has executed a consent order with the State of New York
to implement a groundwater remediation system at one of its former
manufacturing plants. Mattel anticipates that the New York State
Department of Environmental Conservation will issue a Record of
Decision in March 2001. The ultimate liability associated with this
cleanup presently is estimated to be approximately $1.76 million,
approximately $1.26 million of which has been incurred through
December 31, 2000.
Beaverton, Oregon
Mattel previously operated a manufacturing facility on a leased prop-
erty in Beaverton, Oregon that was acquired as part of the March
1997 merger with Tyco. In March 1998, samples of groundwater used
by the facility for process water and drinking water disclosed elevated
levels of certain chemicals, including trichloroethylene. Mattel imme-
diately closed the water supply and self-reported the sample results
to the Oregon Department of Environmental Quality and the Oregon
Health Division. Mattel also implemented a community outreach pro-
gram to employees, former employees and surrounding landowners.
In November 1998, Mattel and another potentially responsible
party entered into a consent order with the Oregon Department of
Environmental Quality to conduct a remedial investigation/feasibility
study at the property, to propose an interim remedial action measure,
and to continue the community outreach program. Mattel has
recorded pre-tax charges totaling $19.0 million for environmental
remediation costs related to this property, based on the completion
and approval of the remediation plan and feasibility study.
General
Mattel is also involved in various other litigation and legal matters,
including claims related to intellectual property, product liability
and labor, which Mattel is addressing or defending in the ordinary
course of business. Management believes that any liability that
may potentially result upon resolution of such matters will not
have a material adverse effect on Mattel’s business, financial
condition or results of operations.
COMMITMENTS
In the normal course of business, Mattel enters into contractual
arrangements for future purchases of goods and services to ensure
availability and timely delivery, and to obtain and protect Mattel’s right
to create and market certain products. These arrangements include
commitments for future inventory purchases and royalty payments.
Certain of these commitments routinely contain provisions for guaran-
teed or minimum expenditures during the term of the contracts.
As of December 31, 2000, Mattel’s Toy Manufacturing seg-
ment had outstanding commitments for 2001 purchases of invento-
ry of approximately $134 million. Licensing and similar agreements
with terms extending through the year 2006 contain provisions for
future minimum payments aggregating approximately $342 million.
RISK MANAGEMENT
Foreign Currency
Mattel’s results of operations and cash flows may be impacted by
exchange rate fluctuations. Mattel seeks to mitigate its exposure to
market risk by monitoring its currency exchange exposure for the year
and partially or fully hedging such exposure using foreign currency
forward exchange and option contracts primarily to hedge its pur-
chase and sale of inventory, and other intercompany transactions
denominated in foreign currencies. These contracts generally have
maturity dates of up to 18 months. In addition, Mattel manages its
exposure through the selection of currencies used for international
borrowings and intercompany invoicing. Mattel’s results of opera-
tions can also be affected by the translation of foreign revenues and
earnings into US dollars. Mattel does not trade in financial instru-
ments for speculative purposes.
Mattel entered into a cross currency interest rate swap to con-
vert the interest rate and principal amount from Euros to US dollars
on its 200 million Euro Notes due 2002.
Mattel’s foreign currency forward exchange contracts that
were used to hedge firm foreign currency commitments as of
December 31, 2000 are shown in the following table. All contracts are
against the US dollar and are maintained by reporting units with a US
dollar functional currency, with the exception of the Indonesian rupi-
ah and Thai baht contracts that are maintained by entities with either
a rupiah or baht functional currency.