Mattel 2000 Annual Report Download - page 42

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Mattel, Inc. and Subsidiaries
Licensing and related agreements provide for terms extending
from 2001 through 2006 and contain provisions for future minimum
payments as shown in the following table (in thousands):
Minimum Payments
2001 $ 97,000
2002 95,000
2003 68,000
2004 64,000
2005 9,000
Thereafter 9,000
$342,000
Royalty expense for 2000, 1999 and 1998 was $258.8 million,
$219.9 million and $197.1 million, respectively.
As of December 31, 2000, Mattel had outstanding commitments
for 2001 purchases of inventory of approximately $134 million.
Litigation
Power Wheels® Recall
On October 22, 1998, Mattel announced that Fisher-Price, in cooper-
ation 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 terminated.
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
general 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 summary 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 agreement, and violation of California Labor Code
Section 970 were ordered remanded to the trial court for further pro-
ceedings. 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 consolidated
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 law-
suits for failure to state a claim. In January 2001, the Court granted
defendants’ 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.