Mattel 1998 Annual Report Download - page 50

Mattel, Inc. and Subsidiaries 48
expenses, was approximately $80 million. Intercompany accounts
and transactions between Bluebird and the Company have been
eliminated. The excess of cost over the estimated fair market value
of tangible net assets acquired was approximately $60 million, which
is being amortized on a straight-line basis over 40 years.
Business Combination and Related Integration and
Restructuring Charge
In March 1997, the Company completed its merger with Tyco,
accounted for as a pooling of interests. Under the merger agreement,
each outstanding share of Tyco common stock was converted into
the right to receive 0.48876 Mattel common shares and resulted
in the issuance of approximately 17 million shares. Tyco restricted
stock units and stock options outstanding as of the merger date
were exchanged for 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.
Financial information for periods prior to the merger reflect the
retroactive restatement of the companies’ combined financial
position and operating results.
In connection with the Tyco merger, the Company commenced
an integration and restructuring plan and recorded a $275.0 million
pre-tax charge against operations in March 1997. After related tax
effects, the net $209.7 million charge impacted 1997 earnings by
$0.71 per diluted share. The plan consisted of consolidating certain
manufacturing and distribution operations, eliminating duplicative
marketing and administrative offices, terminating various distributor
and licensing arrangements and abandoning certain product lines. As
of December 31, 1998, the total integration and restructuring activity
provided for by this charge was substantially complete and amounts
previously accrued had been paid. The type and amount of charges
incurred to date approximated the amounts included in the provision.
Special Charges
In the 1998 third quarter, the Company recognized a $38.0 million
pre-tax charge related to a voluntary recall of certain Power Wheels®
ride-on vehicles. After related tax effects, the net $27.2 million charge
impacted 1998 earnings by $0.09 per diluted share. The recall did
not result from any serious injury, and involves the replacement of
electronic components that may overheat, particularly when consumers
make alterations to the product.
In the 1998 fourth quarter, the Company recognized a $6.0
million pre-tax charge related to the proposed settlement of the
Toys R Us-related antitrust litigation. After related tax effects, the
net $4.3 million charge impacted 1998 earnings by $0.01 per diluted
share. The proposed settlement agreement calls for cash and toy
contributions by the Company prior to November 1999.
the merger would result in the issuance of approximately 102 million
to 123 million Mattel common shares for Learning Company common
shares. Depending on the exchange ratio, the number of shares of
Mattel common stock to be issued to Learning Company’s common
and preferred stockholders, together with the Mattel common stock
to be issued upon the exchange of the exchangeable shares of
Learning Company’s Canadian subsidiary, is expected to represent
between approximately 27% and 30% of Mattel’s outstanding voting
power after the merger.
The merger should be completed in the second quarter of
1999. However, if the merger is terminated, under certain circum-
stances, Mattel will receive a termination fee of up to $35.0 million.
Furthermore, if Learning Company subsequently enters into a business
combination within twelve months with a third party, then they will
pay Mattel an additional termination fee of $75.0 million. In connection
with the merger agreement, Mattel and Learning Company entered
into a stock option agreement in December 1998 which granted
Mattel an irrevocable option to purchase 15.7 million shares of
Learning Company common stock at a price calculated per the
terms of the agreement. This stock option is intended to increase
the likelihood that the merger will be consummated in accordance
with the terms of the merger agreement.
The Company will assume all the debts, liabilities and duties
of Learning Company after the merger, including approximately $201
million aggregate principal amount of 5-1/2% Senior Convertible
Notes due 2000.
Acquisitions
During 1998, the Company acquired Pleasant Company and Bluebird,
which were accounted for using the purchase method of accounting.
The results of operations of the acquired companies have been
included in the Company’s consolidated financial statements from
their respective dates of acquisition.
In July 1998, the Company completed its acquisition of
Pleasant Company, a Wisconsin-based direct marketer of books,
dolls, clothing, accessories, and activity products included under the
American Girl
®
brand name. The purchase price, including investment
advisor and other costs directly related to the acquisition, was
approximately $715 million. The excess of cost over the estimated
fair market value of tangible net assets acquired was approximately
$690 million. Total excess has been allocated to customer lists, a
covenant not-to-compete, and magazine subscription lists which are
being amortized on a straight-line basis over a 3 to 15 year period,
with the remaining excess being amortized on a straight-line basis
over 40 years.
In June 1998, the Company acquired Bluebird, a company
organized in the United Kingdom, from which Mattel licensed the
product designs for its Polly Pocket®and Disney Tiny Collections
brands, as well as the Polly Pocket®trademarks. The aggregate pur-
chase price, including investment advisor and other directly related