Mattel 1999 Annual Report Download

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A TRULY GREAT COMPANY, WITH THE
VERY BEST PEOPLE, A COMPELLING
UNDERLYING STRATEGY AND RESOURCES
FOR SUSTAINABLE GROWTH.
MATTEL, INC. 1999 ANNUAL REPORT

Table of contents

  • Page 1
    A TRULY GREAT COM PANY, W I TH THE V ERY BEST PEOPLE, A COM PELLI NG UNDERLYI NG STRATEGY AND RESOURCES FOR SUSTAI NABLE GROW TH. M ATTEL, INC. 1 9 9 9 ANNUAL REPORT

  • Page 2
    On the Cover: Robotic Puppy, from Fisher-Price, is a puppy who actually listens and responds to his owner's voice w ith life-like actions, em otions and sounds. Jew el Girl Barbie features a belly button and also bends and tw ists w ith her new soft w aist. Hot Wheels Stunt Track Driver CD-ROM w as ...

  • Page 3
    ... Preschool including Fisher-Price; Bernard Stolar, Mattel Interactive; and Pleasant Row land, Founder and President of Pleasant Company and creator of American Girl. We could not ask for five more talented individuals to lead the company's operations at this critical time. Fisher-Price Brands; Matt...

  • Page 4
    ... in 1 9 9 6 w ith responsibility for Barbie licensing and tripled that business in three years w hile positioning Barbie as a lifestyle brand. New for this year, she has taken Barbie to the categories of activity toys and electronics, and has expanded the girls' business w ith new lines such as Diva...

  • Page 5
    ...Tyco R/ C - is our largest boys' business at more than $ 7 5 0 million in annual sales. Our Wheels business has more than tripled in the last three years under the leadership of Matt Bousquette, President of Boys/ Entertainment. Matt rejoined Mattel in 1 9 9 5 , having served in boys' toys marketing...

  • Page 6
    ...w ith 2 4 years of toy experience and came to Mattel w ith Tyco in 1 9 9 7 . Neil's career accom plishm ents include the phenom enal success of such products as Tickle M e Elm o and Bounce Around Tigger, and this year's Fisher-Price line holds the sam e kind of prom ise. The new Fisher-Price Robotic...

  • Page 7
    ..., its market position and its brands such as Reader Rabbit, Carmen Sandiego, The Oregon Trail and The Print Shop, along w ith traditional Mattel brands like Barbie, Hot Wheels, Matchbox, Fisher-Price and American Girl. In February, at the American International Toy Fair in New York, w e debuted...

  • Page 8
    ...Playstation for Sony, Bernie is the right leader to establish Mattel as a player in the interactive arena. STRATEGY The grow th strategy w hich Mattel has developed combines all of the company's strengths in order to cross-capitalize on our key attributes. Our strategy consists of three components.

  • Page 9
    .... Last year w e introduced a very successful Fisher-Price catalog and re-launched the Barbie Collector catalog, and there w ill be more catalogs to come in 2 0 0 0 . As for the Internet, w e have a Mattel shopping site that specializes in collector, customized, specialized and close-out product. But...

  • Page 10
    ... five members of the Office of the Chief Operating Officer to execute our strategy properly, as w e search for a permanent Chief Executive Officer to w hom these executives w ill report. We also have an outstanding new Chief Financial Officer, Kevin Farr, w ho brings his many years of experience as...

  • Page 11
    .... ( b) Represents income from operations before interest expense and ( benefit) provision for income taxes. ( c) Per share data reflect the retroactive effect of stock splits distributed to stockholders in March 1 9 9 6 and January 1 9 9 5 , and the mergers w ith Learning Company and Tyco in...

  • Page 12
    ...costs or disruption of any of Mattel' s operations Girls - including Barbie fashion dolls and accessories, collector dolls, Fashion Magic , American Girl , Cabbage Patch Kids and Polly Pocket Infant and Preschool - including Fisher-Price , Disney preschool and plush, Power Wheels , Sesame Street...

  • Page 13
    ... agreement w ith Bandai Co. Ltd. ( " Bandai" ) , the largest toy company in Japan, to distribute certain Mattel products in Japan is also part of Mattel's strategy for international grow th and market penetration. Sales in the Girls category decreased 3 % largely due to declines in Barbie...

  • Page 14
    ... USA Toys and International Toy Marketing segments declined by 7 % and 2 8 %, respectively. The decline in operating profit in each of these segments was largely attributable to lower sales volume and unfavorable shift in product mix, partially offset by lower advertising costs. The US Fisher-Price...

  • Page 15
    ...the USA Toys and International Toy Marketing segments declined by 2 7 % and 2 9 %, respectively. The decline in operating profit in each of these segments was largely attributable to lower sales volume and unfavorable shift in product mix. The US Fisher-Price/ Tyco Preschool segment operating profit...

  • Page 16
    ... of employee stock options. Seasonal Financing Mattel expects to finance its seasonal w orking capital requirements for the coming year by using existing and internally generated cash, issuing commercial paper and selling certain trade receivables under its commited revolving credit facility and...

  • Page 17
    ... international distributor contracts; and - Closure of three higher cost manufacturing facilities. New Venture In the third quarter of 1 9 9 9 , Mattel executed stock purchase and distribution agreements w ith Bandai, the largest toy company in Japan. In the purchase agreement, Mattel acquired...

  • Page 18
    ...executives. Litigation Pow er Wheels Recall and Related Matters On October 2 2 , 1 9 9 8 , Mattel announced that Fisher-Price, in cooperation w ith the Consumer Product Safety Commission, w ould conduct a voluntary recall involving up to 1 0 million battery-pow ered Pow er Wheels® ride-on vehicles...

  • Page 19
    ...York involving a remedial action/ feasibility study for one of its manufacturing plants. Currently, Fisher-Price is negotiating an additional consent order w hich w ill outline the specific clean up strategy for the site. Mattel anticipates that the New York State Department of Environmental Quality...

  • Page 20
    ... currency. For the purchase of foreign currencies, fair value reflects the amount, based on dealer quotes, that Mattel w ould pay at maturity for contracts involving the same currencies and maturity dates, if they had been entered into as of year-end 1999 and 1998. For the sale of foreign currencies...

  • Page 21
    ... any year 2 0 0 0 issues with its internal operating systems or with its third-party customers and suppliers. In addition, Mattel did not experience any loss in revenues due to the year 2 0 0 0 issue. All softw are products currently available for sale to consumers and under development are year...

  • Page 22
    ... BALANCE SHEETS M a t t e l , I n c . a n d S u b s i d i a r i e s December 3 1 , ( In thousands) 1999 December 3 1 , 1998 Assets Current Assets Cash and short-term investments Accounts receivable, less allow ances of $ 2 2 9 .2 million at December 3 1 , 1 9 9 9 and $ 1 2 5 .1 million...

  • Page 23
    ... and Contingencies ( See accompanying notes.) The accompanying notes are an integral part of these statements. Consolidated results for 1 9 9 8 have been restated retroactively for the effects of the May 1 9 9 9 merger w ith Learning Company, accounted for as a pooling of interests. See Note 7 .

  • Page 24
    ...Interest expense Other income, net Income (Loss) Before Income Taxes and Extraordinary Item ( Benefit) provision for income taxes Income (Loss) Before Extraordinary Item Extraordinary item - loss on early retirement of debt Net Income (Loss) Preferred stock dividend requirements Net Income (Loss...

  • Page 25
    ... of Softkey w arrants Payments of long-term debt Exercise of stock options including related tax benefit Purchase of treasury stock Sale of treasury stock Issuance of preferred stock Payment of dividends on common and preferred stock Other, net Net cash flow s from ( used) for financing activities...

  • Page 26
    ... stock Exercise of stock options Shares issued for acquisitions Conversion of exchangeable shares Shares issued under employee stock purchase plan Tax adjustment related to 1 9 8 7 quasi-reorganization Exercise of w arrants Nonvested stock activity Dividends declared on common stock Dividends...

  • Page 27
    ... reporting date. To the extent the future market, sell-through experience, customer mix, channels of distribution, product pricing and general economic and competitive conditions change, the estimated reserves required for returns and allow ances may also change. Revenues from royalty and licensing...

  • Page 28
    ..., no compensation cost has been recognized in the results of operations for nonqualified stock options granted under Mattel's plans as such options are granted at not less than the quoted market price of Mattel's common stock on the date of grant. Income Taxes Mattel accounts for certain income and...

  • Page 29
    ... in credits to additional paid-in capital totaling $ 1 5 .0 million, $ 3 8 .7 million and $ 2 0 .2 million, respectively. The Internal Revenue Service has completed its examination of the Mattel, Inc. federal income tax returns through December 3 1 , 1 9 9 4 . Note 3 - Employee Benefits Management...

  • Page 30
    ... from a career-average plan to a cash balance plan. As of December 3 1 , 1 9 9 9 , the proposed cash balance plan is under review by the Internal Revenue Service. Other Retirement Plans Domestic employees are eligible to participate in 4 0 1 ( k) savings plans sponsored by Mattel or its subsidiaries...

  • Page 31
    ... employees of M attel. Prior to the May 1 9 9 9 merger, Learning Company maintained the 1 9 9 0 Long-Term Equity Incentive Plan for certain senior executives. Under this plan, 0 .8 million shares of nonvested stock w ere issued during 1 9 9 8 . The aggregate fair market value of the nonvested stock...

  • Page 32
    ... third quarter of 1 9 9 7 , Mattel recognized a pre-tax extraordinary loss of $ 7 .3 million, and a related income tax benefit of $ 2 .7 million, as a result of the early retirement. 6 -7 / 8 % Senior Notes Mattel's $ 1 0 0 .0 million of 6 -7 / 8 % Senior Notes issued in August 1 9 9 2 w ere repaid...

  • Page 33
    ... w ill be paid in the form of Mattel common stock, plus cash equal to any unpaid dividends. The board of directors of Mattel's subsidiary, Softkey Softw are Products Inc., may extend the automatic redemption date at its option and able shares is less than 0 .5 million. Holders of exchangeable shares...

  • Page 34
    ... other key employees of Mattel. Grants made to individual participants cannot exceed 4 .5 million shares in any three consecutive calendar years. Grants under the 1 9 9 7 Premium Price Stock Option Plan in 1 9 9 7 w ere intended to replace annual grants under the 1 9 9 6 Stock Option Plan until the...

  • Page 35
    ... benefits for eligible employees and non-employee directors. Effective w ith the 1 9 9 9 merger, each outstanding option under these plans w as converted into an option to purchase 1 .2 shares of Mattel common stock. The exercise price of such options w as adjusted by dividing the Learning Company...

  • Page 36
    ...Mattel issued Disney a stock warrant, valued at $26.4 million, to purchase 3.0 million shares of Mattel's common stock. In January 2 0 0 0 , Mattel and Warner Bros. Worldw ide Consumer Products signed a licensing agreement making Mattel the w orldw ide master toy licensee for the literary characters...

  • Page 37
    ... Pow er Wheels Recall and Related Matters On October 2 2 , 1 9 9 8 , Mattel announced that Fisher-Price, in cooperation w ith the Consumer Product Safety Commission, w ould conduct a voluntary recall involving up to 1 0 million battery-powered Power Wheels ride-on vehicles. The recall did not...

  • Page 38
    ...York involving a remedial action/ feasibility study for one of its manufacturing plants. Currently, Fisher-Price is negotiating an additional consent order w hich w ill outline the specific clean up strategy for the site. Mattel anticipates that the New York State Department of Environmental Quality...

  • Page 39
    ...operations of the acquired companies of $ 3 4 .6 million and $ 6 .2 million, respectively. A total of 1 .6 million and 3 .8 million common shares w ere issued in the years ended December Note 7 - Acquisitions and Nonrecurring Items Business Combination w ith Learning Company In May 1 9 9 9 , Mattel...

  • Page 40
    ...; - 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. Acquired ( In thousands, except per share data) Mattel Companies Pro Forma...

  • Page 41
    ...segment revenues, operating profit and assets. Mattel's reportable segments are separately managed business units and include toy marketing, toy manufacturing, and consumer softw are sales and development. The Toy Marketing segment is divided on a geographic basis betw een domestic and international...

  • Page 42
    ...-lived assets principally include net property, plant and equipment, and goodw ill. For the Year 1999 1998 1997 Depreciation/ Amortization (a) Toy Marketing USA Toys US Fisher-Price/ Tyco Preschool Other International Learning Company Operations Segment total Corporate and other Depreciation and...

  • Page 43
    ...share Common stock market price: High Low $ 4 5 .6 3 3 5 .6 3 $ $ ( 0 .1 5 ) 0 .0 7 3 7 6 ,3 6 4 3 7 6 ,3 6 4 ( a) Financial information for first quarter 1 9 9 9 and full year 1 9 9 8 has been restated retroactively for the effects of the May 1 9 9 9 merger w ith Learning Company, accounted for as...

  • Page 44
    ... Research and development $ 2 0 7 ,6 6 4 $ 2 7 4 ,8 2 0 $ 2 4 6 ,3 3 7 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Income taxes Noncash investing and financing activities: Common stock issued for acquisitions: Settlement of earn-out agreements Sofsource...

  • Page 45
    ... training of qualified personnel, the establishment and communication of accounting and administrative policies and procedures, and a program of internal audit are important elements of these control systems. Mattel's internal auditors are directed to examine the adequacy and effectiveness of Mattel...

  • Page 46
    ...the Board, President and Director, E.M. Warburg, Pincus & Co., LLC Bernard Stolar President, Mattel Interactive Ralph V. Whitw orth Managing Member, Relational Investors, LLC ( 1 ) Member, Executive/ Finance Committee John L. Vogelstein, Chairman ( 2 ) Member, Compensation/ Options Committee John...

  • Page 47
    ... Softw are Products Inc. Toronto Stock Exchange Trademark Legends Barbie, Fisher-Price, American Girl, Mattel Interactive, Diva Starz, Miracle Moves Baby, Hot Wheels, Matchbox, Tyco, Max Steel, Intelli-Table, The Learning Company, Reader Rabbit, Carmen Sandiego, The Oregon Trail, The Print Shop and...

  • Page 48
    Mattel, Inc. 3 3 3 Continental Boulevard El Segundo, California 9 0 2 4 5