Mattel 2000 Annual Report Download - page 44

forty two
Mattel, Inc. and Subsidiaries
Credit Concentrations
In order to minimize the risk of counterparty non-performance, Mattel
executes its foreign currency forward exchange and option contracts
with financial institutions believed to be credit-worthy, generally
those that provide Mattel with its working capital lines of credit.
Credit is granted to customers on an unsecured basis, and
generally provides for extended payment terms, which result in a sub-
stantial portion of trade receivables being collected during the latter
half of the year. Mattel’s two largest customers accounted for the
following percentage of consolidated net sales and net accounts
receivable (in millions):
2000 1999 1998
Worldwide sales for the year ended 40% 36% 32%
Accounts receivable as of December 31 39% 31% 27%
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities. This statement
requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. It also requires that gains
or losses resulting from changes in the values of those derivatives be
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting.
Mattel adopted SFAS 133 on January 1, 2001. Mattel will
record a one-time, pre-tax charge of approximately $12 million in
the consolidated statement of operations for the quarter ending
March 31, 2001 for the transition adjustment related to the adoption
of SFAS 133.
NOTE 9 - ACQUISITIONS AND NONRECURRING ITEMS
Business Combinations
In August 1998, Learning Company completed its merger with
Broderbund, a publisher and developer of consumer software for the
home and school market. The stock-for-stock transaction was approved
by the stockholders of Broderbund, after which Broderbund became a
wholly-owned subsidiary of Learning Company. Under the merger
agreement, each outstanding share of Broderbund common stock
was converted into 0.80 shares of Learning Company common stock
and resulted in the issuance of approximately 17 million shares of
Learning Company common stock.
This transaction was accounted for as a pooling of interests,
and accordingly, financial information for periods prior to the merger
reflect retroactive restatement of the companies’ combined financial
position and operating results. The consolidated statement of stock-
holders’ equity for 1998 has been adjusted to include Broderbund’s
unrealized gain on securities of $0.5 million (included in comprehen-
sive income).
Learning Company also merged with Palladium Interactive, Inc.
and P.F. Magic, Inc. in 1998, both of which were accounted for as
pooling of interests. The consolidated financial statements have not
been retroactively restated for the results of operations and financial
position of these companies as the effect of each acquisition individ-
ually and in the aggregate on Learning Company’s balance sheet and
results of operations was less than three percent. The consolidated
statement of stockholders’ equity for 1998 has been adjusted to
include the historical results of operations of the acquired companies
of $34.6 million. A total of 1.6 million common shares were issued as
a result of these mergers.
Acquisitions
Mattel acquired the following companies during 1998, each of which
were accounted for using the purchase method of accounting. The
results of operations of the acquired companies have been included in
Mattel’s consolidated financial statements from their respective dates
of acquisition. Intercompany accounts and transactions between the
acquired companies and Mattel, as applicable, have been eliminated.
(Assets)/
Method of Liabilities Incomplete
(In millions) Month Price Payment Assumed Intangibles Technology
Pleasant Company July $715.0 Cash $(25.0) $690.0 $ -
Bluebird Toys PLC June 80.0 Cash (20.0) 60.0 -
Sofsource, Inc. June 45.0 Stock 6.7 36.8 14.9
Mindscape, Inc. March 152.6 Cash/stock 6.4 119.0 40.0
The acquisition price includes investment advisor and other
directly-related expenses, as applicable. The portion of the purchase
price allocated to incomplete technology was charged to expense in
the year of acquisition.
Pro forma results of operations for the effect of the acquisi-
tions have not been presented as they are not materially different
from historical results from continuing operations. (See discussion
of discontinued operations in Note 13).
2000 Financial Realignment Plan
During the third quarter of 2000, Mattel initiated a financial realign-
ment plan designed to improve gross margin; selling, general and
administrative expenses; operating profit, and cash flow. The financial
realignment plan, together with the disposition of Learning Company,
was part of new management’s strategic plan to focus on growing
Mattel’s core brands and lowering operating costs and interest
expense. The plan will require a total pre-tax charge estimated at
approximately $250 million or $170 million on an after-tax basis.
During 2000, Mattel recorded a pre-tax charge of $125.2 million,
approximately $84 million after-tax or $0.20 per diluted share, related
to the initial phase of the financial realignment plan. In accordance
with generally accepted accounting principles, future pre-tax imple-
mentation costs of approximately $125 million could not be accrued
in 2000. These costs will be recorded over the next two years.
The following are the major initiatives included in the financial
realignment plan:
- Reduce excess manufacturing capacity;
- Terminate a variety of licensing and other contractual arrange-
ments that do not deliver an adequate level of profitability;